Enough jobs
Job Polarization and Jobless Recoveries
Nir Jaimovich & Henry Siu
Review of Economics and Statistics, forthcoming
Abstract:
Job polarization refers to the shrinking share of employment in middle-skill, routine occupations experienced recently, over the last 35 years. Jobless recoveries refers to the slow rebound in aggregate employment following recent recessions, despite recoveries in aggregate output. We show how these two phenomena are related. First, essentially all employment loss in routine occupations occurs in economic downturns. Second, jobless recoveries in the aggregate can be accounted for by jobless recoveries in the routine occupations that are disappearing.
No Rage Against the Machines: Threat of Automation Does Not Change Policy Preferences
Baobao Zhang
MIT Working Paper, September 2019
Abstract:
Labor-saving technology has already decreased employment opportunities for middle-skill workers. Experts anticipate that advances in AI and robotics will cause even more significant disruptions in the labor market over the next two decades. This paper presents three experimental studies that investigate how this profound economic change could affect mass politics. Recent observational studies suggest that workers’ exposure to automation risk predicts their support not only for redistribution but also for right-wing populist policies and candidates. Other observational studies, including my own, find that workers underestimate the impact of automation on their job security. Misdirected blame towards immigrants and workers in foreign countries, rather than concerns about workplace automation, could be driving support for right-wing populism. To correct American workers’ beliefs about the threats to their jobs, I conducted three survey experiments in which I informed workers about the existent and future impact of workplace automation. While these informational treatments convinced workers that automation threatens American jobs, they failed to change respondents’ preferences on welfare, immigration, and trade policies. My research finds that raising awareness about workplace automation did not decrease opposition to globalization or increase support for policies that will prepare workers for future technological disruptions.
The Labor Market Effects of Legal Restrictions on Worker Mobility
Matthew Johnson, Kurt Lavetti & Michael Lipsitz
Duke University Working Paper, September 2019
Abstract:
We analyze how the legal enforceability of contractual restrictions on job mobility (Noncompete Agreements, or NCAs) affects wages and labor market dynamism. Using a newly-constructed state-year panel of NCA enforceability spanning 1991 to 2014, we find that increasing the enforceability of NCAs leads to a decline in workers' earnings and mobility. An increase from the 10th to 90th percentile of enforceability is associated with 3-4% lower annual earnings among employed workers, and a 9% decrease in the monthly probability of changing jobs. Analyzing labor markets bisected by state borders, we show that higher enforceability reduces earnings and mobility of workers in a different legal jurisdiction, implying sizable externalities from NCA use. To investigate mechanisms, we revisit a classic theory of wage-setting based on implicit contracts: in contrast to prior evidence, workers facing strict enforceability are unable to leverage tight labor markets to increase their wage. Finally, we show that enforceable NCAs increase the racial and gender wage gaps - the earnings effects among women and black workers is twice as large as the effect among white men.
Low-Wage Workers and the Enforceability of Non-Compete Agreements
Michael Lipsitz & Evan Starr
University of Maryland Working Paper, September 2019
Abstract:
We exploit the 2008 Oregon ban on non-compete agreements (NCAs) for hourly-paid workers to provide the first evidence on the impact of NCA bans on the earnings of low-wage workers. We find that banning NCAs for hourly workers increased hourly wages by 2-3% on average. Scaling this estimate by the prevalence of NCA use in the population suggests that the effect on employees actually bound by NCAs may be as great as 14-21%, though the true effect is likely lower due to labor market spillovers. The positive wage effects are found across the age, education and wage distributions, though they are stronger in occupations where NCAs are more common. The Oregon low-wage NCA ban also raised monthly job-to-job mobility by 12-18%, increased the proportion of salaried workers, and decreased the probability of being unemployed, without affecting hours worked.
Is a Minimum Wage an Appropriate Instrument for Redistribution?
Aart Gerritsen & Bas Jacobs
Economica, forthcoming
Abstract:
We analyse the redistributional (dis)advantages of a minimum wage over income taxation in competitive labour markets without imposing assumptions on the (in)efficiency of labour rationing. Compared to a distributionally equivalent tax change, a minimum‐wage increase raises involuntary unemployment, but also raises skill formation as some individuals avoid unemployment. A minimum wage is an appropriate instrument for redistribution if and only if the public revenue gains from additional skill formation outweigh both the public revenue losses from additional unemployment and the utility losses of inefficient labour rationing. We show that this critically depends on how labour rationing is distributed among workers. A necessary condition for the desirability of a minimum‐wage increase is that the public revenue gains from higher skill formation outweigh the revenue losses from higher unemployment. We write this condition in terms of measurable sufficient statistics.
The Effect of High-Tech Clusters on the Productivity of Top Inventors
Enrico Moretti
NBER Working Paper, September 2019
Abstract:
The high-tech sector is increasingly concentrated in a small number of expensive cities, with the top ten cities in “Computer Science”, “Semiconductors” and “Biology and Chemistry”, accounting for 70%, 79% and 59% of inventors, respectively. Why do inventors tend to locate near other inventors in the same field, despite the higher costs? I use longitudinal data on top inventors based on the universe of US patents 1971 - 2007 to quantify the productivity advantages of Silicon-Valley style clusters and their implications for the overall production of patents in the US. I relate the number of patents produced by an inventor in a year to the size of the local cluster, defined as a city × research field × year. I first study the experience of Rochester NY, whose high-tech cluster declined due to the demise of its main employer, Kodak. Due to the growth of digital photography, Kodak employment collapsed after 1996, resulting in a 49.2% decline in the size of the Rochester high-tech cluster. I test whether the change in cluster size affected the productivity of inventors outside Kodak and the photography sector. I find that between 1996 and 2007 the productivity of non-Kodak inventors in Rochester declined by 20.6% relative to inventors in other cities, conditional on inventor fixed effects. In the second part of the paper, I turn to estimates based on all the data in the sample. I find that when an inventor moves to a larger cluster she experiences significant increases in the number of patents produced and the number of citations received. Conditional on inventor, firm, and city × year effects, the elasticity of number of patents produced with respect to cluster size is 0.0662 (0.0138). The productivity increase follows the move and there is no evidence of pre-trends. IV estimates based on the geographical structure of firms with laboratories in multiple cities are statistically similar to OLS estimates. In the final part of the paper, I use the estimated elasticity of productivity with respect to cluster size to quantify the aggregate effects of geographical agglomeration on the overall production of patents in the US. I find macroeconomic benefits of clustering for the US as a whole. In a counterfactual scenario where the quality of U.S. inventors is held constant but their geographical location is changed so that all cities have the same number of inventors in each field, inventor productivity would increase in small clusters and decline in large clusters. On net, the overall number of patents produced in the US in a year would be 11.07% smaller.
The Effects of Graduating from College During a Recession on Living Standards
Daiji Kawaguchi & Ayako Kondo
Economic Inquiry, forthcoming
Abstract:
Graduating from college during a recession has persistent negative effects on labor‐market outcomes. This study assesses the welfare impact of a recession at entry by analyzing family formation behaviors and asset holdings. Scrutiny of the National Longitudinal Survey of Youth 1979 (NLSY79) reveals that despite a decline in hourly wages, business cycle conditions at entry to the labor market do not affect family formation, car or home ownership, or net asset holdings in the long run. Evidence suggests that individuals who graduate in bad times tend to move to states with lower living costs to secure living standards.
Earnings, EITC, and Employment Responses to a $15 Minimum Wage: Will Low-Income Workers Be Better Off?
Fahad Fahimullah et al.
Economic Development Quarterly, forthcoming
Abstract:
The District of Columbia will increase its minimum wage to $15 per hour in 2020. The city also provides a local refundable earned income tax credit (EITC) equal to 40% of the federal EITC. Using a computable general equilibrium model, the authors estimate the economic impact of the $15 wage policy. They also use a tax policy microsimulation model to estimate how the city’s EITC interacts with a higher minimum wage. Overall, the authors find that the higher minimum wage will produce significant income gains for most of the city’s low-wage workers, with relatively few job losses. Additionally, they forecast that most city EITC recipients will receive a lower EITC, but higher earnings more than offset the reduced tax credit. The model predicts that this policy change would largely be funded by higher consumer prices, lower firm profits, and higher business productivity. These predictions are subject to important caveats, including a local labor market that is likely inadequately characterized in a model assuming perfect competition. Economic policy makers should therefore use such modeling approaches as a powerful but ultimately imperfect tool.
Heterogeneity of Birth‐State Effects on Internal Migration
Ryan Gallagher & Joseph Persky
Journal of Regional Science, forthcoming
Abstract:
Working in a discrete location choice framework, we develop a model of migration that allows the identification of heterogeneity in state‐of‐birth effects across states. We employ a novel method for using aggregate data to estimate the role of birth state on migration choices. This approach reveals considerable heterogeneity and some regional clustering in birth‐state inertia effects across states, with strong attachments in California, the Southwest and upper Midwest. The weakest attachments are in the mountain states and New York.
The Incidence of Local Labor Demand Shocks
Matthew Notowidigdo
Journal of Labor Economics, forthcoming
Abstract:
Low-skill workers are comparatively immobile. This paper estimates the role of housing prices and social transfers in accounting for this fact using a spatial equilibrium model. Reduced-form estimates using U.S. Census data show that positive local labor demand shocks increase population more than negative shocks reduce population, this asymmetry is larger for low-skill workers, and such an asymmetry is absent for average wages, housing values, and rental prices. GMM estimates of the model reveal that the comparative immobility of low-skill workers is not due to higher mobility costs per se, but rather a lower incidence of adverse labor demand shocks.
Cognitive Hubs and Spatial Redistribution
Esteban Rossi-Hansberg, Pierre-Daniel Sarte & Felipe Schwartzman
NBER Working Paper, September 2019
Abstract:
In the U.S., cognitive non-routine (CNR) occupations associated with higher wages are disproportionately represented in larger cities. To study the allocation of workers across cities, we propose and quantify a spatial equilibrium model with multiple industries that employ CNR and alternative (non-CNR) occupations. Productivity is city-industry-occupation specific and partly determined by externalities across local workers. We estimate that the productivity of CNR workers in a city depends significantly on both its share of CNR workers and total employment. Together with heterogeneous preferences for locations, these externalities imply equilibrium allocations that are not efficient. An optimal policy that benefits workers equally across occupations incentivizes the formation of cognitive hubs, leading to larger fractions of CNR workers in some of today's largest cities. At the same time, these cities become smaller to mitigate congestion effects while cities that are initially small increase in size. Large and small cities end up expanding industries in which they already concentrate, while medium-size cities tend to diversify across industries. The optimal allocation thus features transfers to non-CNR workers who move from large to small cities consistent with the implied change in the industrial composition landscape. Finally, we show that the optimal policy reinforces equilibrium trends observed since 1980. However, these trends were in part driven by low growth in real-estate productivity in CNR-abundant cities that reduced welfare.
Minimum Wage in a Multi-Tier Search and Wage-Posting Model with Cross-Market Substitutions
Kelvin Yuen & Ping Wang
NBER Working Paper, October 2019
Abstract:
While minimum wage policy is widely adopted in the real world, can it effectively raise the average wage of lower paid jobs without having large detrimental consequences for employment? The empirical literature fails to establish robust findings. We develop a general-equilibrium search and wage-posting framework with heterogeneous workers and tasks matching in multi-tier labor markets: abstract, routine high-skilled, routine middle-skilled, manual middle-skilled and manual low-skilled. We incorporate rich cross-market spillovers and compositional effects from individual responses to market thickness. As a result of minimum wage hikes, we show that (i) the unemployment rate at the minimum wage binding market is higher, while all other markets enjoy a lower unemployment rate; (ii) employment in the manual low-skilled jobs is lower, whereas employment in the routine high-skilled and manual middle-skilled markets is higher due to cross-market substitutions; and, (iii) employment in other markets has ambiguous responses due to conflicting effects on potential worker entry and unemployment. By calibrating the model to fit the U.S. data, we evaluate the impacts of the federal minimum wage hike (2007-2009) and the on-going minimum wage increase in Seattle (2017-2021). We find that the minimum wage effects on employment on the binding markets depend crucially on the magnitudes of spillover and compositional effects and that the employment effects may be weak in a nonbinding market. Moreover, our results suggest that, while both minimum wage hikes reduce aggregate output, they only generate small effects on submarket average and overall average wages.