Labor problem
Amerisclerosis? The Puzzle of Rising U.S. Unemployment Persistence
Olivier Coibion, Yuriy Gorodnichenko & Dmitri Koustas
NBER Working Paper, October 2013
Abstract:
The persistence of U.S. unemployment has risen with each of the last three recessions, raising the specter that future U.S. recessions might look more like the Eurosclerosis experience of the 1980s than traditional V-shaped recoveries of the past. In this paper, we revisit possible explanations for this rising persistence. First, we argue that financial shocks do not systematically lead to more persistent unemployment than monetary policy shocks, so these cannot explain the rising persistence of unemployment. Second, monetary and fiscal policies can account for only part of the evolving unemployment persistence. Therefore, we turn to a third class of explanations: propagation mechanisms. We focus on factors consistent with four other cyclical patterns which have evolved since the early 1980s: a rising cyclicality in long-term unemployment, lower regional convergence after downturns, rising cyclicality in disability claims, and missing disinflation. These factors include declining labor mobility, changing age structures, and the decline in trust among Americans. To determine how these factors affect unemployment persistence, this paper exploits regional variation in labor market outcomes across Western Europe and North America during 1970-1990, in contrast to most previous work focusing either on cross-country variation or regional variation within countries. The results suggest that only cultural factors can account for the rising persistence of unemployment in the U.S., but the evolution in mobility and demographics over time should have more than offset the effects of culture.
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Creating Jobs via the 2009 Recovery Act: State Medicaid Grants Compared to Broadly-Directed Spending
Bill Dupor
Federal Reserve Working Paper, November 2013
Abstract:
Researchers have used cross-state differences to assess the jobs impact of the 2009 American Recovery and Reinvestment Act (the Recovery Act). Existing studies find that the Act's broadly-directed spending (i.e. excluding tax cuts) increased employment, at a cost-per-job of roughly three to five times that of typical employment compensation in the U.S. Other research finds that a particular component of the Act ─ emergency Medicaid grants to states ─ created jobs at a cost of 12% to 20% that of broadly-directed spending. This paper shows that these differences across the components' impacts can be explained by omitted variables in the existing work on the emergency Medicaid grants. Adjusting for the omissions, the jobs effect of the Act's Medicaid grants becomes substantially weaker. The omissions are: (i) not controlling the degree of (non-Recovery Act) federal dependency, (ii) not duly controlling for pre-Act housing and labor market conditions, and (iii) not conditioning on Recovery Act funding beyond that from the Act's Medicaid grants. Adjusting for any one of these omissions, by itself, results in a substantial increase in the cost of job creation and/or no statistically significant jobs effect.
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Economic Freedom and Labor Market Conditions: Evidence from the States
Lauren Heller & Frank Stephenson
Contemporary Economic Policy, January 2014, Pages 56–66
Abstract:
Using 1981–2009 data for the 50 states, this article examines the relationship between economic freedom and the unemployment rate, the labor force participation rate, and the employment-population ratio. After controlling for a variety of state-level characteristics, the results from most specifications indicate that economic freedom is associated with lower unemployment and with higher labor force participation and employment-population ratios.
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Capitalism and Labor Shares: A Cross-Country Panel Study
Andrew Young & Robert Lawson
European Journal of Political Economy, forthcoming
Abstract:
We examine the empirical relationship between the institutions of economic freedom and labor shares in a panel up to 93 countries covering 1970 through 2009. We find that a standard deviation increase in the Fraser Institute’s Economic Freedom of the World (EFW) score is associated about 1/3 standard deviation increase in a country’s labor share. Starting from the sample mean labor share in our panel, this amounts to about 4.26 percentage points. This relationship is robust to considering OECD and non-OECD samples separately. It is also (both qualitatively and quantitatively) robust to controlling for differences in human capital levels, labor productivity, trade union density, and international economic flows. Breaking the EFW into its individual component areas, the regulation of credit, business and labor appears to be the most important source of the positive EFW-labor share relationship.
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Match efficiency and firms' hiring standards
Petr Sedláček
Journal of Monetary Economics, forthcoming
Abstract:
During the last recession, new hires were lower than would be predicted by a standard matching function and the observed ratio of searching workers and firms. This paper first estimates U.S. match efficiency as an exogenous residual in the matching function using a simple search and matching model. It finds match efficiency to be pro-cyclical and to account for about 1/4 of unemployment increases during the most severe recessions. Second, this paper proposes a model with endogenous separations and firing costs that endogenizes match efficiency, which is driven by firms’ hiring standards. The model can explain almost 1/2 of the variation in the initial estimate of match efficiency.
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Entrepreneurship over the business cycle
Li Yu, Peter Orazem & Robert Jolly
Economics Letters, February 2014, Pages 105–110
Abstract:
The fraction self-employed rises in recessions because wage work is more sensitive than self-employment to the business cycle, not because of necessity entrepreneurship. Graduating during a recession reduces the probability of starting a business for the next 11 years.
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Minimum Wages and Aggregate Job Growth: Causal Effect or Statistical Artifact?
Arindrajit Dube
University of Massachusetts Working Paper, October 2013
Abstract:
A recent paper by Meer and West argues that minimum wages reduce aggregate employment growth, and that this relationship is masked by looking at employment levels. I also find a negative association between minimum wages and aggregate employment growth using both the Business Dynamics Statistics and the Quarterly Census of Employment and Wages datasets, and it is sizable for some time periods. However, I show that this negative association is present in exactly the wrong sectors. It is particularly strong in manufacturing which hires very few minimum wage workers. At the same time, there is no such association in retail, or in accommodation and food services – which together hire nearly 2/3 of all minimum wage workers. These results indicate that the negative association between minimum wages and aggregate employment growth does not represent a causal relationship. Rather the association stems from an inability to account for differences between high and low minimum wage states and the timing of minimum wage increases. Consistent with that interpretation, when I use bordering counties to construct more credible control groups, I find no such negative correlation between minimum wages and overall employment growth.
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Worker Replacement Costs and Unionization: Origins of the U.S. Labor Movement
Howard Kimeldorf
American Sociological Review, December 2013, Pages 1033-1062
Abstract:
The embattled state of U.S. labor has generated a voluminous body of research on the processes of deunionization contributing to its decline. Revisiting the less researched topic of unionization, this study explores the social conditions facilitating union growth during the labor movement’s formative years. Focusing on the first decade of the twentieth century — in many respects for labor, a period not unlike the present — I seek to explain the pattern of organizing success and failure across industries and occupations. I find that the most organized settings occurred where workers had greater disruptive capacities due to the high cost of being replaced during work stoppages. The highest replacement costs were associated with three conditions: scarcity of skilled labor, geographically isolated worksites that raised the cost of importing strikebreakers, and time-sensitive tasks that rendered replacement workers economically impractical. Workplaces that had at least one of these conditions formed the backbone of the early U.S. labor movement. The conclusion considers the impact of declining replacement costs on current challenges facing U.S. labor.
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Revisions to US labor market data and the effects on the public’s perception of the economy
Salem Abo-Zaid
Economics Letters, February 2014, Pages 119–124
Abstract:
Using the monthly “Employment Situation” reports for 1994–2013, this paper studies the revisions to US employment data. The paper shows that the first press release underestimates net job creation in expansions and overestimates it in downturns. The “errors” in reporting the data on the labor market can distort the public’s perception about the stance of the labor market and have some political consequences. This is well reflected by the finding that the job approval rate of President Obama, the index of consumer confidence and the economic conditions index of Gallup have all been responding to the initial news on the US labor market as they were published in the Employment Situation reports.
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Shigeru Fujita & Giuseppe Moscarini
NBER Working Paper, November 2013
Abstract:
Using data from the Survey of Income and Program Participation (SIPP) covering 1990-2011, we document that a surprisingly large number of workers return to their previous employer after a jobless spell and experience more favorable labor market outcomes than job switchers. Over 40% of all workers separating into unemployment regain employment at their previous employer; over a fifth of them are permanently separated workers who did not have any expectation of recall, unlike those on temporary layoff. Recalls are associated with much shorter unemployment duration and better wage changes. Negative duration dependence of unemployment nearly disappears once recalls are excluded. We also find that the probability of finding a new job is more procyclical and volatile than the probability of a recall. Incorporating this fact into an empirical matching function significantly alters its estimated elasticity and the time-series behavior of matching efficiency, especially during the Great Recession. We develop a canonical search-and-matching model with a recall option where new matches are mediated by a matching function, while recalls are free and triggered both by aggregate and job-specific shocks. The recall option is lost when the unemployed worker accepts a new job. A quantitative version of the model captures well our cross-sectional and cyclical facts through selection of recalled matches.
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Cross Country Differences in Job Reallocation: The Role of Industry, Firm Size and Regulations
John Haltiwanger, Stefano Scarpetta & Helena Schweiger
Labour Economics, January 2014, Pages 11–25
Abstract:
Somewhat surprisingly, cross-country empirical evidence (at least in the cross section) does not seem to support the predictions of standard models that economies with stricter regulations on hiring and firing should have a lower pace of job reallocation. One problem in exploring these issues empirically has been the difficulty of comparing countries on the basis of harmonized measures of job reallocation. A related problem is that there may be unobserved measurement errors or other factors accounting for differences in job reallocation across countries. This paper overcomes these challenges by using harmonized measures of job creation and destruction in a sample of 16 industrial and emerging economies, exploiting the country, industry and firm size dimensions. The analysis of variance in the paper shows that firm size effects are a dominant factor in accounting for the variation in the pace of job reallocation across country, industry and size cells. However, even after controlling for industry and size effects there remain significant differences in job flows across countries that could reflect differences in labor market regulations. We use the harmonized data to explore this hypothesis with a difference-in-difference approach. We find strong and robust evidence that stringent hiring and firing regulations tend to reduce the pace of job reallocation.
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Stephen DeLoach & Mark Kurt
Journal of Labor Research, December 2013, Pages 433-454
Abstract:
Discouraged and marginally attached workers have received increasing attention from policy makers over the past several years. Through slackness in the labor market, periods of high unemployment should reduce the likelihood of receiving a job offer and thus create more discouraged workers. However, the existing literature generally fails to find evidence of such pro-cyclicality in search intensity. Surprisingly, search appears to be acyclical. We hypothesize the observed acyclicality may be the result of coarse measurement of search intensity in previous studies and the failure to account for changes in individuals’ wealth across the business cycle. In this paper we use daily time use dairies from the American Time Use Survey 2003–2011 to examine the cyclicality of search intensity to explain this apparent contradiction between theory and data. Results indicate that workers do reduce their search in response to deteriorating labor market conditions, but these effects appear to be offset by the positive effects on search that are correlated with declines in household wealth.
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Should the US increase subsidies to R&D? Lessons from an endogenous growth theory
Manuel Gómez & Tiago Neves Sequeira
Oxford Economic Papers, January 2014, Pages 254-282
Abstract:
In this article we devise an endogenous growth model with R&D, physical capital, and human capital with several externalities. The model is calibrated to the US economy and used to quantitatively evaluate the effect on growth and welfare of implementing different budget-neutral policies. The welfare effects of different policies are calculated by taking into account the transitional dynamics of the economy after the policy reform. Our main findings have policy implications; mainly, subsidies to research are the most welfare-increasing amongst the budget-neutral policies, and the optimal structure of subsidies entails substantially increasing the subsidy to R&D, maintaining a zero subsidy to production, and reducing the subsidy to education, so as to keep the intertemporal government budget balanced. A detailed sensitivity analysis shows the robustness of these results.
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Housing Collateral and Entrepreneurship
Martin Schmalz, David Sraer & David Thesmar
NBER Working Paper, November 2013
Abstract:
This paper shows that collateral constraints restrict entrepreneurial activity. Our empirical strategy uses variations in local house prices as shocks to the value of collateral available to individuals owning a house and controls for local demand shocks by comparing entrepreneurial activity of homeowners and renters operating in the same region. We find that an increase in collateral value leads to a higher probability of becoming an entrepreneur. Conditional on entry, entrepreneurs with access to more valuable collateral create larger firms and more value added, and are more likely to survive, even in the long run.
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Is Internet Job Search Still Ineffective?
Peter Kuhn & Hani Mansour
Economic Journal, forthcoming
Abstract:
Using NLSY97 data for 2005-2008, we find that unemployed persons who look for work online are re-employed about 25 percent faster than comparable workers who do not search online. This finding contrasts with previous results for 1998-2001 and is robust to controls for cognitive test scores and detailed indicators of Internet access. Internet job search appears to be most effective in reducing unemployment durations when used to contact friends and relatives, to send out resumes or fill out applications, and also to look at ads. We detect a weak positive relationship between IJS and wage growth between jobs.
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Technological unemployment in industrial countries
Horst Feldmann
Journal of Evolutionary Economics, November 2013, Pages 1099-1126
Abstract:
Using annual data on 21 industrial countries from the period 1985 to 2009 and a large number of controls, this paper empirically analyzes the impact of technological change on unemployment. As proxy for technological change, it uses the ratio of triadic patent families to population. According to the regression results, an increase in technological change substantially increases unemployment over 3 years. There is no long-term effect, though. The results are robust to both endogeneity and numerous variations in specifications. They support theoretical contributions according to which faster technological progress may increase unemployment, at least during a transition period.
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Geography and High-Tech Employment Growth in US Counties
Belal Fallah, Mark Partridge & Dan Rickman
Journal of Economic Geography, forthcoming
Abstract:
This article investigates the role of geography in high-tech employment growth across US counties. The geographic dimensions examined include industry cluster effects, urbanization effects, proximity to a research university and proximity in the urban hierarchy. Growth is assessed for overall high-tech employment and for employment in selected high-tech subsectors. Econometric analyses are conducted separately for samples of metropolitan and nonmetropolitan counties. Among our primary findings, we do not find evidence of positive localization or within-industry cluster growth effects, generally finding negative growth effects. We instead find evidence of positive urbanization effects and growth penalties for greater distances from larger urban areas. Universities also appear to play their primary role in creating human capital rather than knowledge spillovers for nearby firms. Quantile regression analysis confirms the absence of within-industry cluster effects and importance of human capital for counties with fastest growth in high-tech industries.