Jobs
The Persistent Effects of Initial Labor Market Conditions for Young Adults and Their Sources
Till von Wachter
Journal of Economic Perspectives, Fall 2020, Pages 168-194
Abstract:
Unlucky young workers entering the labor market in recessions suffer a range of medium- to long-term consequences. This paper summarizes the findings of the growing empirical literature on this subject and uses it to assess economic models of career development. The literature finds large initial effects on earnings, labor supply, and wages that tend to fade after ten to fifteen years in the labor market, and that are accompanied by changes in occupation, job mobility, and employer characteristics. Adverse initial labor market entry also has persistent effects on a range of social outcomes, including timing and completed fertility, marriage and divorce, criminal activities, attitudes, and risky alcohol consumption. There is also evidence that early exposure to depressed labor market lowers health and raises mortality in middle age, patterns accompanied by a reopening of earnings gaps.
Wage Inequality and the Rise in Labor Force Exit: The Case of US Prime-age Men
Pinghui Wu
University of Michigan Working Paper, November 2020
Abstract:
Between 1982 and 2019, the US prime-age male labor force participation rate declined from 94% to 89%, positioning the US at the bottom across OECD countries. A close look at the data shows that an increase in labor force exit among men without a four-year college degree had driven the decline. At the same time, as the educational gradient in earnings widened, the non-college men saw their median earnings fall by 30% relative to the average prime-age earnings. Using a difference-in-difference model, this article examines whether these two trends are linked, offering the first empirical evidence that labor force exit rises when relative earnings fall. The model takes into account that a job not only provides economic security but also affirms a worker's social status, which is tied to his relative position in the labor market. Based on the estimation results, the decline in the relative earnings of non-college men had an associated 0.7-percentage-point increase in exit rate, accounting for 65% of the exit rate increase during this period. By leveraging the panel nature of the data and controlling for possible confounding factors, the analysis shows that neither selection, unobserved time trend, nor changes in job loss risks drive the systematic correlation between relative earnings and exit rate. The finding, therefore, offers suggestive evidence that the deterioration in wage equality plays a crucial role in the trend decline in prime-age male's labor force participation.
Income Volatility Increases Financial Impatience
Colin West, Ashley Whillans & Sanford DeVoe
Harvard Working Paper, October 2020
Abstract:
Using a multi-method approach, we investigate whether income volatility is associated with financial impatience -- the preference to receive a small sum of money immediately over a larger sum of money later. We find that experiencing more income volatility -- including a higher frequency of either income dips or spikes -- is associated with greater financial impatience. Using longitudinal data on biannual income, Study 1 demonstrates that this effect operates above and beyond individual differences in income risk preferences and wealth. Study 2 conceptually replicates these correlational findings with recent month-to-month income volatility and finds that this effect occurs primarily among people who report having little control over their finances. Using a longitudinal field experimental with low-income working women, Study 3 tests for a causal effect of an externally-induced spike in monthly income on changes in financial impatience. In a pre-post test experimental design, participants randomly assigned to receive cash transfers amounting to a median monthly income spike of 29% exhibit significantly greater financial impatience compared to a control condition in which participants receive no cash transfers. We conclude by discussing the implications of these findings for employers and policymakers.
"Working" Remotely? Selection, Treatment, and Market Provision of Remote Work
Emma Harrington & Natalia Emanuel
Harvard Working Paper, November 2020
Abstract:
Why was remote work so rare prior to Covid-19's lockdown? One possibility is that working remotely reduces productivity. Another is that remote work attracts unobservably less productive workers. In our setting of call-center workers at a Fortune 500 retailer, two natural experiments reveal positive productivity effects of remote work. When Covid-19 closed down the retailer's on-site call-centers, a difference-in-difference design suggests the transition from on-site to remote work increased the productivity of formerly on-site workers by 8% to 10% relative to their already remote peers. Similarly, when previously on-site workers took up opportunities to go remote in 2018-2019, their productivity rose by 7%. These two natural experiments also reveal negative selection into remote work. While all workers were remote due to Covid-19, those who were hired into remote jobs were 12% less productive than those hired into on-site jobs. Extending remote opportunities to on-site workers similarly attracted less productive workers to on-site jobs. Our model allows us to characterize the counterfactual in which remote workers were not adversely selected. Without adverse selection, the retailer would have hired 57% more remote workers and worker surplus from remote work would have been 32% greater. Given the central role of selection, Covid-19's effect on remote work will persist if the lockdown disproportionately causes more productive workers to be willing to work remotely.
The Inexorable Recoveries of US Unemployment
Robert Hall & Marianna Kudlyak
NBER Working Paper, November 2020
Abstract:
Unemployment recoveries in the US have been inexorable. It is a remarkable fact that, prior to 2020, after unemployment reached its peak in a recession, and a recovery began, the annual reduction in the unemployment rate was stable at around 0.1 log points per year. The economy seems to have an irresistible force toward restoring full employment. Unless another crisis intervenes, unemployment continues to glide down to its minimum level of approximately 3.5 percentage points. The observed behavior of unemployment casts doubt on the common assumption that there is a constant natural rate of unemployment around which unemployment oscillates. Instead, the natural rate of unemployment during recoveries tracks actual unemployment on its downward path.
Labor Share Decline and Intellectual Property Products Capital
Dongya Koh, Raül Santaeulàlia‐Llopis & Yu Zheng
Econometrica, November 2020, Pages 2609-2628
Abstract:
We study the behavior of the U.S. labor share over the past 90 years. We find that the observed decline of the labor share is entirely explained by the capitalization of intellectual property products in the national income and product accounts.
Economic Development Effects of Major and Minor League Teams and Stadiums
Nola Agha & Daniel Rascher
Journal of Sports Economics, forthcoming
Abstract:
Professional teams and leagues claim new stadiums lead to economic development. To test this, we utilize data from the Census Bureau on net establishment and employment changes across 871 Metropolitan and Micropolitan Statistical Areas from 2004 to 2012. Difference-in-differences and panel data techniques allow for a cross-sectional and time series comparison for both teams and new stadia in both professional and development leagues. Nearly all results from hundreds of models are insignificantly different from zero. Results from between- and random-effects models suggest that teams move into markets that already have higher employment and establishment growth.
Twisting the Demand Curve: Digitalization and the Older Workforce
Erling Barth et al.
NBER Working Paper, November 2020
Abstract:
This paper uses U.S. Census Bureau panel data that link firm software investment to worker earnings. We regress the log of earnings of workers by age group on the software investment by their employing firm. To unpack the potential causal factors for differential software effects by age group we extend the AKM framework by including job-spell fixed effects that allow for a correlation between the worker-firm match and age and by including time-varying firm effects that allow for a correlation between wage-enhancing productivity shocks and software investments. Within job-spell, software capital raises earnings at a rate that declines post age 50 to about zero after age 65. By contrast, the effects of non-IT equipment investment on earnings increase for workers post age 50. The difference between the software and non-IT equipment effects suggests that our results are attributable to the technology rather than to age-related bargaining power. Our data further show that software capital increases the earnings of high-wage workers relative to low-wage workers and the earnings in high-wage firms relative to low-wage firms, and may thus widen earnings inequality within and across firms.
Sick and tell: A field experiment analyzing the effects of an illness-related employment gap on the callback rate
Sheryll Namingit, William Blankenau & Benjamin Schwab
Journal of Economic Behavior & Organization, forthcoming
Abstract:
Using a randomized audit study design, we find that the job callback rate for applicants with a long, illness-related employment gap caused by cancer is lower than that of the newly unemployed but significantly higher than those whose employment gap is unexplained. Our results suggest that a credible explanation of an employment gap can substantially reduce its scarring effect and that workers with a previous illness do not face a uniquely large rehiring penalty. While previous research shows that jobless spells reduce employment prospects, our results and model provide new insight into the signalling process underlying those findings.
Investment over the Business Cycle: Insights from College Major Choice
Erica Blom, Brian Cadena & Benjamin Keys
Journal of Labor Economics, forthcoming
Abstract:
How does personal exposure to economic conditions affect individual human capital investment choices? Focusing on bachelor’s degree recipients, we find that cohorts exposed to higher unemployment rates during typical schooling years select majors that earn higher wages, have better employment prospects, and lead to work in a related field. Conditional on expected earnings, recessions also encourage women to enter male-dominated fields, and students of both genders pursue more difficult majors. We conclude that economic environments change how students select majors, and we find evidence that students who respond to the business cycle enjoy earnings typical of their new majors.
Difference-in-Differences with Spillovers: The Effects of Minimum Wage Increases on Prices in Other States
Robert Minton & Brian Wheaton
Harvard Working Paper, November 2020
Abstract:
How do minimum wage increases affect prices, employment, and wages? This question is amongst the most-studied in all of economics, but the existing literature does not account for the existence of cross-state spillovers, which are a consequence of the chain structures of modern firms. That is, DellaVigna and Gentzkow (2019) find that the vast majority of retail chains pursue a uniform pricing strategy; they set prices at the chain level. We show through our model that, as a consequence of these uniform pricing patterns, an increase in minimum wages in state i will also affect prices in other states j, and consequently, the SUTVA assumption in the standard research design is violated. Using Nielsen Retail Scanner Data on store prices, we find empirically that once these chain structures are accounted for, (i) the direct effect of minimum wage increases in state i on prices in state i is larger (i.e., the extent of price pass-through to consumers is higher) and (ii) the spillover effects of minimum wage increases in state i on prices in other states j is substantial and statistically-significant. We aim to analyze effects on employment and wages in the future.
Employment Protection Deregulation and Labor Shares in Advanced Economies
Gabriele Ciminelli, Romain Duval & Davide Furceri
Review of Economics and Statistics, forthcoming
Abstract:
This paper assesses the impact of job protection deregulation on the labor share in a sample of 26 advanced economies during the 1970-2013 period, using a newly constructed dataset of major reforms in this area. We employ a difference-indifferences identification strategy using two identifying assumptions grounded in theory – deregulation has larger effects in industries characterized by (i) a higher ‘natural’ propensity to regularly adjust the workforce, and (ii) a lower elasticity of substitution between capital and labor. We find significant negative effects of deregulation on the labor share, contributing to about a tenth of its observed decline in advanced economies.