Bringing back the jobs
Learning to Love the Government: Trade Unions and Late Adoption of the Minimum Wage
Brett Meyer
World Politics, July 2016, Pages 538-575
Abstract:
One counterintuitive variation in wage-setting regulation is that countries with the highest labor standards and strongest labor movements are among the least likely to set a statutory minimum wage. This, the author argues, is due largely to trade union opposition. Trade unions oppose the minimum wage when they face minimal low-wage competition, which is affected by the political institutions regulating industrial action, collective agreements, and employment, as well as by the skill and wage levels of their members. When political institutions effectively regulate low-wage competition, unions oppose the minimum wage. When political institutions are less favorable toward unions, there may be a cleavage between high- and low-wage unions in their minimum wage preferences. The argument is illustrated with case studies of the UK, Germany, and Sweden. The author demonstrates how the regulation of low-wage competition affects unions' minimum wage preferences by exploiting the following labor market institutional shocks: the Conservatives' labor law reforms in the UK, the Hartz labor market reforms in Germany, and the European Court of Justice's Laval ruling in Sweden. The importance of union preferences for minimum wage adoption is also shown by how trade union confederation preferences influenced the position of the Labour Party in the UK and the Social Democratic Party in Germany.
---------------------
Moving to a Job: The Role of Home Equity, Debt, and Access to Credit
Yuliya Demyanyk et al.
American Economic Journal: Macroeconomics, forthcoming
Abstract:
We use individual-level credit reports merged with loan-level mortgage data to estimate how home equity interacted with mobility in relatively weak and strong labor markets in the United States during the Great Recession. We construct a dynamic model of housing, consumption, employment, and relocation, which provides a structural interpretation of our empirical results and allows us to explore the role that foreclosure played in labor mobility. We find that negative home equity is not a significant barrier to job-related mobility because the benefits of accepting an out-of-area job outweigh the costs of moving. This pattern holds even if homeowners are not able to default on their mortgages.
---------------------
The Rise of Finance and Firm Employment Dynamics
Ken-Hou Lin
Organization Science, July-August 2016, Pages 972-988
Abstract:
This article sheds light on the ongoing employment stagnation in the United States by investigating the links between the rise of finance and firm employment dynamics during the 1982-2005 period. I argue that the rise of finance marginalized the role of labor in revenue generating and sharing processes, which led to employment stagnation among the largest nonfinancial firms in the United States. Evidence suggests that increasing investment in financial assets depresses the workforce size. The growing dependence on debt reprioritizes the order of distribution, heightening the need for workforce reduction. The increasing rewards for shareholders generate a downsize-and-distribute spiral, in which labor expense becomes a primary target of cost-cutting strategies. Further analysis indicates that production and service workers are more vulnerable to shifts associated with the rise of finance than managers and professionals.
---------------------
Partial Automation: Routine-Biased Technical Change, Deskilling, and the Minimum Wage
Mitch Downey
University of California Working Paper, May 2016
Abstract:
Recent research emphasizes the pressure technological change exerts on middle-wage occupations by automating routine tasks. I argue that technology only partially automates these tasks, which often still require labor. Rather, technology reduces task complexity enabling a less skilled worker to do the same job. The costs of automation, then, are not only the costs of the technology itself but also of low-wage workers to use it. By raising the cost of low-wage labor, the minimum wage reduces the profitability of adopting automating technologies. I test this prediction with state variation in the minimum wage and industry variation in complementarity between low-wage workers and technology. I show that accounting for state price differences induces new and useful minimum wage variation, derive new measures of complementarity from the Dictionary of Occupational Titles and the CPS Computer Use Supplement, and build a measure of technology based on IT employment, the largest component of IT spending. My results imply a $1 decrease in the minimum wage raises the average industry's technology use by 30% and decreases the routine share of the wage bill by 1 percentage point (3.3%), both relative to a counterfactual without complementarity. Routine-intensive industries often exhibit high complementarity, making the minimum wage an important policy lever to influence the pace of routine-biased technical change.
---------------------
Skill Demands and Mismatch in U.S. Manufacturing
Andrew Weaver & Paul Osterman
ILR Review, forthcoming
Abstract:
Recent economic events have sparked debates over the degree of structural mismatch in the U.S. economy. One of the most frequent claims is that workers lack the skills that employers demand. The existing literature, however, analyzes this potential mismatch at a high level of aggregation with abstract indices and noisy proxies that obscure the underlying mechanisms. The authors address these issues by presenting and analyzing results from a survey of U.S. manufacturing establishments. The survey is the first, to their knowledge, to directly measure concrete employer skill demands and hiring experiences in a nationally representative survey at the industry level. The findings indicate that demand for higher-level skills is generally modest, and that three-quarters of manufacturing establishments do not show signs of hiring difficulties. Among the remainder, demands for higher-level math and reading skills are significant predictors of long-term vacancies, but demands for computer skills and other critical-thinking/problem-solving skills are not. Of particular interest, high-tech plants do not experience greater levels of hiring challenges. When the authors examine the potential mechanisms that could contribute to hiring difficulties, they find that neither external regional supply conditions nor internal firm practices are predictive of hiring problems. Rather, the data show that establishments that are members of clusters or that demand highly specialized skills have the greatest probability of incurring long-term vacancies. The authors interpret these results as a sign that it is important to think about factors that complicate the interaction of supply and demand - such as disaggregation and communication/coordination failures - rather than simply focusing on inadequate labor supply.
---------------------
No Woman No Crime: Ban the Box, Employment, and Upskilling
Daniel Shoag & Stan Veuger
Harvard Working Paper, March 2016
Abstract:
A sizable number of localities have in recent years limited the use of criminal background checks in hiring decisions, or "banned the box." Using LEHD Origin-Destination Employment and American Community Survey data, we show that these bans increased employment of residents in high-crime neighborhoods by as much as 4%. These increases are particularly large in the public sector. At the same time, we establish using job postings data that employers respond to ban-the-box measures by raising experience requirements. A perhaps unintended consequence of this is that women, who are less likely to be convicted of crimes, see their employment opportunities reduced.
---------------------
Geoffrey Morrison & Cynthia Lin Lawell
Regional Science and Urban Economics, September 2016, Pages 180-197
Abstract:
Employment growth is a common public policy goal, but it can lead to a number of unwanted environmental, social, and economic costs - particularly in high growth communities - due to its impact on peak-hour traffic. This paper examines the short-run impacts of rapid employment growth on travel time to work. We exploit exogenous variation in employment levels resulting from movements of military troops during the 2005 Base Realignment and Closure (BRAC) in order to identify the effect of employment growth on travel time using difference-in-difference-in-differences and instrumental variable methods. Our results show that for each additional 10 workers added per square kilometer, travel time increases by 0.171 to 0.244 min per one-way commute trip per commuter in the short run, which equates to $0.07 to $0.20 in travel time cost per commuter per day. Our estimates imply that the annualized short-run congestion costs of the 2005 BRAC were $79 to $761 million per year (in constant 2005 dollars) for military commuters and $3.15 to $6.3 billion per year (in constant 2005 dollars) for civilian commuters in BRAC-affected areas.
---------------------
The Effect of Population Aging on Economic Growth, the Labor Force and Productivity
Nicole Maestas, Kathleen Mullen & David Powell
NBER Working Paper, July 2016
Abstract:
Population aging is widely assumed to have detrimental effects on economic growth yet there is little empirical evidence about the magnitude of its effects. This paper starts from the observation that many U.S. states have already experienced substantial growth in the size of their older population and much of this growth was predetermined by historical trends in fertility. We use predicted variation in the rate of population aging across U.S. states over the period 1980-2010 to estimate the economic impact of aging on state output per capita. We find that a 10% increase in the fraction of the population ages 60+ decreases the growth rate of GDP per capita by 5.5%. Two-thirds of the reduction is due to slower growth in the labor productivity of workers across the age distribution, while one-third arises from slower labor force growth. Our results imply annual GDP growth will slow by 1.2 percentage points this decade and 0.6 percentage points next decade due to population aging.
---------------------
The General Equilibrium Impacts of Unemployment Insurance: Evidence from a Large Online Job Board
Ioana Marinescu
NBER Working Paper, July 2016
Abstract:
During the Great Recession, U.S. unemployment benefits were extended by up to 73 weeks. Theory predicts that extensions increase unemployment by discouraging job search, a partial equilibrium effect. Using data from the large job board CareerBuilder.com, I find that a 10% increase in benefit duration decreased state-level job applications by 1%, but had no robust effect on job vacancies. Job seekers thus faced reduced competition for jobs, a general equilibrium effect. Calibration implies that the general equilibrium effect reduces the impact of unemployment insurance on unemployment by 40%: increasing benefit duration by 10% increases unemployment by only 0.6% in equilibrium.
---------------------
Mariana Blanco, Patricio Dalton & Juan Vargas
Management Science, forthcoming
Abstract:
This paper studies the effects of unemployment benefit schemes on individual productivity. We created employment and unemployment in the field and compared workers' productivity under no unemployment benefits to productivity under two different unemployment schemes. In one scheme, the unemployed received an unconditional monetary transfer. In the other, the monetary transfer was obtained conditional on the unemployed spending some time on an ancillary activity. Our results challenge the standard economic theory prediction that unemployment benefits, especially unconditional compensations, hinder workers' effort. We find that workers employed under the unconditional scheme are more productive than workers under the conditional one, and both schemes make workers more productive than having no unemployment benefit. We discuss two possible explanations for our results based on reciprocity and differential psychological costs of unemployment across unemployment benefit schemes.
---------------------
Andrew Johnston & Alexandre Mas
NBER Working Paper, July 2016
Abstract:
We examine how a 16-week cut in potential unemployment insurance (UI) duration in Missouri affected search behavior of UI recipients and the aggregate labor market. Using a regression discontinuity design (RDD), we estimate a marginal effect of maximum duration on UI and nonemployment spells of approximately 0.5 and 0.3 respectively. We use RDD estimates to simulate the unemployment rate assuming no market-level externalities. The simulated response closely approximates the estimated change in the unemployment rate following the benefit cut, suggesting that even in a period of high unemployment the labor market absorbed this influx of workers without crowding-out other jobseekers.
---------------------
Effects of the unemployment insurance work test on long-term employment outcomes
Marta Lachowska, Merve Meral & Stephen Woodbury
Labour Economics, August 2016, Pages 246-265
Abstract:
Does requiring job seekers to be available and searching for work affect job quality? We examine the effects of this unemployment insurance (UI) work test on long-term employment outcomes. Adding administrative wage records to the Washington Alternative Work Search (WAWS) experiment, we examine effects on earnings, hours worked, employment, and job match quality in the nine years following the experiment. Among UI recipients as a whole, the effects of the work test were negligible, counter to the hypothesis that the work test may harm long-term earnings. But for permanent job losers, the work test reduced time to reemployment by 1-2 quarters, and increased job tenure with the first post-claim employer by about 2 quarters. Also, we find that the work test selected lower-wage workers into reemployment. Accordingly, the work test may be an important policy for improving the reemployment prospects of lower-wage, permanent job losers.
---------------------
Education, Participation, and the Revival of U.S. Economic Growth
Dale Jorgenson, Mun Ho & Jon Samuels
NBER Working Paper, July 2016
Abstract:
Labor quality growth captures the upgrading of the labor force through higher educational attainment and greater experience. Our first finding is that average levels of educational attainment of new entrants will remain high, but will no longer continue to rise, so that growing educational attainment will gradually disappear as a source of U.S. economic growth. Our second finding is that the investment boom of 1995-2000 drew many younger and less-educated workers into employment. Participation rates for these workers declined during the recovery of 2000-2007 and dropped further during the Great Recession of 2007-2009. In order to assess the prospects for recovery of participation as a potential source U.S. economic growth, we project the participation rates of each age-gender-education group. Our third finding is that the recovery of participation rates will provide an important opportunity for the revival of U.S. economic growth. Participation rates for less-educated workers are unlikely to recover the peak levels that followed the investment boom of 1995-2000. However, these rates can achieve the levels that preceded the Great Recession. While labor quality will grow more slowly, hours worked will grow much faster.
---------------------
Weathering the Great Recession: Variation in Employment Responses by Establishments and Countries
Erling Barth et al.
NBER Working Paper, July 2016
Abstract:
This paper finds that US employment changed differently relative to output in the Great Recession and recovery than in most other advanced countries or in the US in earlier recessions. Instead of hoarding labor, US firms reduced employment proportionately more than output in the Great Recession, with establishments that survived the downturn contracting jobs massively. Diverging from the aggregate pattern, US manufacturers reduced employment less than output while the elasticity of employment to gross output varied widely among establishments. In the recovery, growth of employment was dominated by job creation in new establishments. The variegated responses of employment to output challenges extant models of how enterprises adjust employment over the business cycle.
---------------------
Penelope Prime, Donald Grimes & Mary Beth Walker
Economic Development Quarterly, August 2016, Pages 191-202
Abstract:
The purpose of this study is to explain urban wage differentials with a special focus on educational levels. The authors explore whether the share of people with a bachelor's degree or higher in the community matters to the wages of those within specific educational cohorts, accounting for cost of living, human capital externalities, consumer externalities, policy factors, and local labor market conditions. Using data for all U.S. Metropolitan Statistical Areas between 2005 and 2012, the authors find that the presence of more highly educated people will result in a higher median wage in the community overall, as do many studies, but that this factor does not significantly increase the wage for any individual education cohort. These results are hidden if we only look at the entire workforce in the aggregate.
---------------------
Employment Protection, Technology Choice, and Worker Allocation
Eric Bartelsman, Pieter Gautier & Joris De Wind
International Economic Review, August 2016, Pages 787-826
Abstract:
We show empirically that high-risk sectors, which contribute strongly to aggregate productivity growth, are relatively small and have relatively low productivity growth in countries with strict employment protection legislation (EPL). To understand these findings, we develop a two-sector matching model where firms endogenously choose between a safe technology and a risky technology. For firms that have chosen the risky technology, EPL raises the costs of shedding workers in case they receive a low productivity draw. According to our calibrated model, high-EPL countries benefit less from the arrival of new risky technologies than low-EPL countries. Parameters estimated through reduced-form regressions of employment and productivity on exit costs, riskiness, and in particular their interaction are qualitatively similar for actual cross-country data and simulated model data. Our model is consistent with the slowdown in productivity in the European Union relative to the United States since the mid-1990s.
---------------------
Penalizing the Underdogs? Employment Protection and the Competitive Dynamics of Firm Innovation
Daniel Dongil Keum
NYU Working Paper, June 2016
Abstract:
This paper examines how constraining resource adjustment affects a firm's ability to increase innovation as a response to falling behind. By limiting the pace and efficiency with which laggard firms can release obsolete resources, resource constraints reduce their ability to experiment with new resources and increase innovation. To explore this theory empirically, I exploit staggered adoptions of employment protection laws by U.S. state courts that increase the cost of employee dismissal. In addition to showing that increasing employment protection results in fewer and safer yet lower quality patents by laggards, I find that the negative effects are highly asymmetrical, more heavily penalizing firms operating in sectors with high technological velocity or employee turnover, firms with limited financial slack, and technologies that require significant resource adjustments.
---------------------
Taking the Leap: The Determinants of Entrepreneurs Hiring their First Employee
Robert Fairlie & Javier Miranda
NBER Working Paper, July 2016
Abstract:
Job creation is one of the most important aspects of entrepreneurship, but we know relatively little about the hiring patterns and decisions of startups. Longitudinal data from the Integrated Longitudinal Business Database (iLBD), Kauffman Firm Survey (KFS), and the Growing America through Entrepreneurship (GATE) experiment are used to provide some of the first evidence in the literature on the determinants of taking the leap from a non-employer to employer firm among startups. Several interesting patterns emerge regarding the dynamics of non-employer startups hiring their first employee. Hiring rates among the universe of non-employer startups are very low, but increase when the population of non-employers is focused on more growth-oriented businesses such as incorporated and EIN businesses. If non-employer startups hire, the bulk of hiring occurs in the first few years of existence. After this point in time relatively few non-employer startups hire an employee. Focusing on more growth- and employment-oriented startups in the KFS, we find that Asian-owned and Hispanic-owned startups have higher rates of hiring their first employee than white-owned startups. Female-owned startups are roughly 10 percentage points less likely to hire their first employee by the first, second and seventh years after startup. The education level of the owner, however, is not found to be associated with the probability of hiring an employee. Among business characteristics, we find evidence that business assets and intellectual property are associated with hiring the first employee. Using data from the largest random experiment providing entrepreneurship training in the United States ever conducted, we do not find evidence that entrepreneurship training increases the likelihood that non-employers hire their first employee.
---------------------
Daniel Galvin
Perspectives on Politics, June 2016, Pages 324-350
Abstract:
Can stronger state-level public policies help protect workers from "wage theft?" In recent years, workers' rights groups have responded to policy drift and legislative inaction at the national level by launching campaigns to enact stronger penalties for wage and hour violations at the state level. Many of these campaigns have been legislatively successful and formative for the development of "alt-labor." But are such policies actually effective in deterring wage theft? Previous scholarship has long concluded that although stronger penalties should theoretically make a difference, in practice, they do not. But by confining the analysis to the admittedly weak national-level regulatory regime, the existing literature has eliminated all variation from the costs side of the equation and overlooked the rich variety of employment laws that exist at the state level. Using an original dataset of state laws, new estimates of minimum wage violations, and difference-in-differences analyses of a dozen recently enacted "wage-theft laws," I find that stronger penalties can, in fact, serve as an effective deterrent against wage theft, but the structure of the policy matters a great deal, as does its enforcement. The implications for workers' rights and the changing shape of the labor movement are discussed in detail.