Returns to Work
Why Working from Home Will Stick
Jose Maria Barrero, Nicholas Bloom & Steven Davis
NBER Working Paper, April 2021
Abstract:
COVID-19 drove a mass social experiment in working from home (WFH). We survey more than 30,000 Americans over multiple waves to investigate whether WFH will stick, and why. Our data say that 20 percent of full workdays will be supplied from home after the pandemic ends, compared with just 5 percent before. We develop evidence on five reasons for this large shift: better-than-expected WFH experiences, new investments in physical and human capital that enable WFH, greatly diminished stigma associated with WFH, lingering concerns about crowds and contagion risks, and a pandemic-driven surge in technological innovations that support WFH. We also use our survey data to project three consequences: First, employees will enjoy large benefits from greater remote work, especially those with higher earnings. Second, the shift to WFH will directly reduce spending in major city centers by at least 5-10 percent relative to the pre-pandemic situation. Third, our data on employer plans and the relative productivity of WFH imply a 5 percent productivity boost in the post-pandemic economy due to re-optimized working arrangements. Only one-fifth of this productivity gain will show up in conventional productivity measures, because they do not capture the time savings from less commuting.
Spending and Job Search Impacts of Expanded Unemployment Benefits: Evidence from Administrative Micro Data
Peter Ganong et al.
University of Chicago Working Paper, February 2021
Abstract:
How did the largest expansion of unemployment benefits in U.S. history affect household behavior? Using anonymized bank account data covering millions of households, we provide new empirical evidence on the spending and job search responses to benefit changes during the pandemic and compare those responses to the predictions of benchmark structural models. We find that spending responds more than predicted, while job search responds an order of magnitude less than predicted. In sharp contrast to normal times when spending falls after job loss, we show that when expanded benefits are available, spending of the unemployed actually rises after job loss. Using quasi-experimental research designs, we estimate a large marginal propensity to consume out of benefits. Notably, spending responses are large even for households who have built up substantial liquidity through prior receipt of expanded benefits. These large responses contrast with a theoretical prediction that spending responses should shrink with liquidity. Simple job search models predict a sharp decline in search in the wake of a substantial benefit expansion, followed by a sustained rebound when benefits expire. We instead find that the job-finding rate is quite stable. Moreover, we document that recall plays an important role in driving job-finding dynamics throughout the pandemic. A model extended to fit these key features of the data implies small job search distortions from expanded unemployment benefits. Jointly, these spending and job finding facts suggest that benefit expansions during the pandemic were a more effective policy than predicted by standard structural models. Abstracting from general equilibrium effects, we find that overall spending was 2.0-2.6 percent higher and employment only 0.2-0.4 percent lower as a result of the benefit expansions.
How is COVID Changing the Geography of Entrepreneurship? Evidence from the Startup Cartography Project
Catherine Fazio et al.
NBER Working Paper, May 2021
Abstract:
Leveraging data from eight U.S. states from the Startup Cartography Project, this paper provides new insight into the changing nature and geography of entrepreneurship in the wake of the COVID pandemic. Consistent with other data sources, following an initial decline, the overall level of state-level business registrations not only rebounds but increases across all eight states. We focus here on the significant heterogeneity in this dynamic pattern of new firm formation across and within states. Specifically, there are significant differences in the dynamics of new business registrants across neighborhoods in terms of race and socioeconomic status. Areas including a higher proportion of Black residents, and more specifically higher median income Black neighborhoods, are associated with higher growth in startup formation rates between 2019 and 2020. Moreover, these dynamics are reflected in the passage of the major Federal relief packages. Even though legislation such as the CARES Act did not directly support new business formation, the passage and implementation of relief packages was followed by a relative increase in start-up formation rates, particularly in neighborhoods with higher median incomes and a higher proportion of Black residents.
Synthetic Control Estimation Beyond Comparative Case Studies: Does the Minimum Wage Reduce Employment?
David Powell
Journal of Business & Economic Statistics, forthcoming
Abstract:
Panel data are often used in empirical work to account for fixed additive time and unit effects. The synthetic control estimator relaxes the assumption of additive fixed effects for comparative case studies in which a treated unit adopts a single policy. This paper generalizes the synthetic control estimator to estimate parameters associated with multiple discrete or continuous explanatory variables, jointly estimating the parameters and synthetic controls for each unit. I apply the estimator to study the disemployment effects of the minimum wage, estimating that increases in the minimum wage reduce employment.
State Minimum Wages, Employment, and Wage Spillovers: Evidence from Administrative Payroll Data
Radhakrishnan Gopalan et al.
Journal of Labor Economics, forthcoming
Abstract:
We use administrative payroll data to estimate the effect of the minimum wage on employment and wages. We find that both effects are nuanced. While the overall number of low-wage workers in firms declines, incumbent workers are no less likely to remain employed. We find that firms reduce employment primarily through hiring, and there is significant heterogeneity across the nontradable and tradable sectors. For wages, we find modest spillovers extending up to $2.50 above the minimum wage. Spillovers accrue to both incumbent workers and new hires, but only within firms that employ a significant fraction of low-wage workers.
Unions Increase Job Satisfaction in the United States
Benjamin Artz, David Blanchflower & Alex Bryson
NBER Working Paper, April 2021
Abstract:
We revisit the well-known negative association between union coverage and individuals' job satisfaction in the United States, first identified over forty years ago. We find the association has flipped since the Great Recession such that union workers are now more satisfied than their non-union counterparts. This is found to be the case for younger and older workers in the National Longitudinal Surveys of Youth of 1979 and 1997. The change is apparent when we use the panel data to account for fixed differences in those who are and are not unionized, suggesting changes in worker sorting into union status are not the reason for the change. The absence of substantial change in the union wage gap, and the stability of results when conditioning on wages, both suggest the change is not associated with changes in unions' wage bargaining. Instead, we find some diminution in unions' ability to lower quit rates - albeit confined to older workers - which is suggestive of a decline in their effectiveness in operating as a 'voice' mechanism for unionized workers. We also present evidence suggestive of unions' ability to minimize covered workers' exposure to underemployment, a phenomenon that has negatively impacted non-union workers.
Forced Entrepreneurs
Isaac Hacamo & Kristoph Kleiner
Journal of Finance, forthcoming
Abstract:
Conventional wisdom suggests labor market distress drives workers into temporary self-employment, lowering entrepreneurial quality. Analyzing employment histories for 640,000 U.S. workers, we document graduating college during a period of high unemployment does increase entry to entrepreneurship. However, compared to voluntary entrepreneurs, firms founded by forced entrepreneurs are more likely to survive, innovate, and receive venture-backing. Explaining these results, we confirm labor shocks disproportionately impact high-earners and these same workers start more successful firms. Overall, we document untapped entrepreneurial potential across the top of the income distribution and demonstrate the role of recessions in reversing this missing entrepreneurship.
Human Capitalists
Andrea Eisfeldt, Antonio Falato & Mindy Xiaolan
NBER Working Paper, May 2021
Abstract:
The widespread and growing use of equity-based compensation has transformed high-skilled labor from a pure labor input to a class of "human capitalists." We show that high-skilled labor earns substantial income in the form of equity claims to firms' future dividends and capital gains. Equity-based compensation has dramatically increased since the 1980s, representing forty percent of total compensation to high-skilled labor in recent years. Ignoring equity income causes incorrect measurement of the returns to high-skilled labor, with substantial effects on macroeconomic trends. In our sample, including equity-based compensation in high-skilled labor income reduces the total decline in labor's wage-only income share relative to total value added since the 1980s by over 30%. The inclusion of equity-based compensation also eliminates the majority of the decline in the high-skilled labor share. Only by including equity pay does our structural estimation support complementarity between high-skilled labor and physical capital greater than that of Cobb and Douglas (1928). We also provide additional regression evidence of such complementarity.
The Role of Paid Family Leave in Labor Supply Responses to a Spouse's Disability or Health Shock
Priyanka Anand, Laura Dague & Kathryn Wagner
NBER Working Paper, May 2021
Abstract:
The onset of a disability or major health shock can affect the labor supply of not only those experiencing the event but also their family members. Potential caregivers face a tradeoff between time spent earning income for the family and providing care for their spouse, which could be affected by the availability of paid leave. We examine caregiving and labor supply decisions after a spouse's disability or health shock and the role of paid leave laws implemented in California and New Jersey in the response using data from the Survey of Income and Program Participation (SIPP). We show that labor force participation of potential caregivers decreased after spousal work-limiting disability or chronic health condition and, to a lesser extent, work-limiting illness. We find that paid leave reduces the likelihood that potential caregivers decrease their work hours to provide caregiving to their spouse after a work-limiting disability or chronic health condition, but limited evidence of effects on other employment outcomes. Our findings demonstrate that spousal disability and health shocks have long-run effects on household labor supply and therefore could be mediated by paid leave; we conclude by discussing possible reasons for finding limited impact in this context.
Do Employee Share Owners Face Too Much Financial Risk?
Douglas Kruse et al.
ILR Review, forthcoming
Abstract:
A major theoretical objection against employee share ownership is that workers are exposed to excessive financial risk. Theory posits that 10 to 15% of a typical worker's wealth portfolio can be prudently invested in employer stock. The authors analyze employee share ownership in US family portfolios using the 2004 to 2016 Survey of Consumer Finances. Overall, 15.3% of families with private-sector employees held employer stock in 2016, and one in six of these families exceeded the 15% threshold. Employee share ownership appears to generally add to, rather than substitute for, both pension and overall wealth. Employee share owners express higher risk tolerance and financial knowledge and greater understanding of the value of diversification. While financial risk does not appear to be a substantial problem for most employee share owners, a small minority may face excessive risk, and the authors suggest approaches to reduce such risk.
Wage Insurance and Labor Market Trajectories
Benjamin Hyman et al.
AEA Papers and Proceedings, May 2021, Pages 491-495
Abstract:
Wage insurance provides income support to displaced workers who find reemployment at a lower wage. We study the effects of the wage insurance provisions of the US Trade Adjustment Assistance (TAA) program using administrative data from the state of Virginia. The program includes an age-based eligibility cutoff, allowing us to compare earnings and employment trajectories for workers whose ages at the time of displacement make them eligible or ineligible for the program. Our findings suggest that wage insurance eligibility increases short-run employment probabilities and that wage insurance and TAA training may yield similar long-run effects on employment and earnings.
A Congestion Theory of Unemployment Fluctuations
Yusuf Mercan, Benjamin Schoefer & Petr Sedláček
NBER Working Paper, May 2021
Abstract:
In recessions, unemployment increases despite the - perhaps counterintuitive - fact that the number of unemployed workers finding jobs expands. We propose a theory of unemployment fluctuations resting on this countercyclicality of gross flows from unemployment into employment. In recessions, the abundance of new hires "congests" the jobs the unemployed fill - diminishing their marginal product and discouraging further job creation. Countercyclical congestion explains 30-40% of US unemployment fluctuations. Additionally, it explains the excess procyclicality of new hires' wages, the cyclical labor wedge, the large earnings losses from job displacement and from graduating during recessions, and the insensitivity of unemployment to policies such as unemployment insurance.