We Work
Does the US Tax Code Favor Automation?
Daron Acemoglu, Andrea Manera & Pascual Restrepo
NBER Working Paper, April 2020
Abstract:
We argue that the US tax system is biased against labor and in favor of capital and has become more so in recent years. As a consequence, it has promoted inefficiently high levels of automation. Moving from the US tax system in the 2010s to optimal taxation of capital and labor would raise employment by 4.02% and the labor share by 0.78 percentage points, and restore the optimal level of automation. If moving to optimal taxes is infeasible, more modest reforms can still increase employment by 1.14-1.96%, but in this case efficiency can be increased by imposing an additional automation tax to reduce the equilibrium level of automation. This is because marginal automated tasks do not bring much productivity gains but displace workers, reducing employment below its socially optimal level. We additionally show that reducing labor taxes or combining lower capital taxes with automation taxes can increase employment much more than the uniform reductions in capital taxes enacted between 2000 and 2018.
The Declining Worker Power Hypothesis: An Explanation for the Recent Evolution of the American Economy
Anna Stansbury & Lawrence Summers
NBER Working Paper, May 2020
Abstract:
Rising profitability and market valuations of US businesses, sluggish wage growth and a declining labor share of income, and reduced unemployment and inflation, have defined the macroeconomic environment of the last generation. This paper offers a unified explanation for these phenomena based on reduced worker power. Using individual, industry, and state-level data, we demonstrate that measures of reduced worker power are associated with lower wage levels, higher profit shares, and reductions in measures of the NAIRU. We argue that the declining worker power hypothesis is more compelling as an explanation for observed changes than increases in firms' market power, both because it can simultaneously explain a falling labor share and a reduced NAIRU, and because it is more directly supported by the data.
The U.S. Labor Market During the Beginning of the Pandemic Recession
Tomaz Cajner et al.
University of Chicago Working Paper, May 2020
Abstract:
Using weekly, anonymized administrative payroll data from the largest U.S. payroll processing company, we measure the deterioration of the U.S. labor market during the first two months of the global COVID-19 pandemic. We find that U.S. private-sector employment contracted by about 22 percent between mid-February and mid-April. Businesses suspending operations - perhaps temporarily - account for a significant share of employment losses, particularly among smaller businesses. Hours worked for continuing workers fell by 4.5 percent. We highlight large differences in employment declines by industry, business size, state of residence, and demographic group. Workers in the bottom quintile of the wage distribution experienced a 35 percent employment decline while those in the top quintile experienced only a 9 percent decline. Large differences across the wage distribution persist even after conditioning on worker age, business industry, business size, and worker location. As a result, average base wages increased by over 5 percent, though this increase arose entirely through a composition effect. Overall, we document that the speed and magnitude of labor market deterioration during the early parts of the pandemic were unprecedented in the postwar period, particularly for the bottom of the earnings distribution.
Corporate Hiring under COVID-19: Labor Market Concentration, Downskilling, and Income Inequality
Murillo Campello, Gaurav Kankanhalli & Pradeep Muthukrishnan
NBER Working Paper, May 2020
Abstract:
Big data on job-vacancy postings reveal several dimensions of the impact of COVID-19 on the U.S. job market. Firms have cut back on postings for high-skill jobs more than for low-skill jobs, with small firms nearly halting their new hiring altogether. New-hiring cuts and downskilling are most pronounced in local labor markets lacking depth (where employment is concentrated within a few firms), in low-income areas, and in areas with greater income inequality. Cuts are deeper in industries where workers are more unionized and in the non-tradable sector. Access to finance modulates corporate hiring, with credit-constrained firms curtailing their job postings the most. Our study shows how the early-2020 global pandemic is shaping the dynamics of hiring, identifying the firms, jobs, places, industries, and labor markets most affected by it. Our results point to important challenges to the scale and speed of a recovery.
Marginal Net Taxation of Americans' Labor Supply
David Altig et al.
NBER Working Paper, May 2020
Abstract:
The U.S. has a plethora of federal and state tax and benefit programs, each with its own work incentives and disincentives. This paper uses the Fiscal Analyzer (TFA) to assess how these policies, in unison, impact work incentives. TFA is a life-cycle, consumption-smoothing program that incorporates household borrowing constraints and all major federal and state fiscal policies. We use TFA in conjunction with the 2016 Federal Reserve Survey of Consumer Finances to calculate Americans' remaining lifetime marginal net tax rates. Our findings are striking. One in four low-wage workers face marginal net tax rates above 70 percent, effectively locking them into poverty. Over half face remaining lifetime marginal net tax rates above 45 percent. The richest 1 percent also face a high median lifetime marginal tax rate - roughly 50 percent. Double taxation matters. The overall median lifetime marginal net tax rate is 43.2 percent compared with an overall current-year marginal net tax rate of 37.6 percent. We also find remarkable dispersion in both lifetime and current-year marginal net tax rates, particularly among the poor, and major differences in marginal and average net taxation across states, providing typical households a large incentive to relocate to another state.
The Disciplining Effect of Mass Incarceration on Labor Organization
Adam Reich & Seth Prins
American Journal of Sociology, March 2020, Pages 1303-1344
Abstract:
Previous research has described the criminal justice system as a "labor market institution." In recent years, however, research on the relationship between the criminal justice system and the labor market has focused primarily on the negative impact of criminal justice involvement on an individual's ability to find work postrelease. This article explores how workers' exposure to the criminal justice system is related to labor organization - a labor market institution through which workers in the United States have secured benefits for themselves and that, structurally, has mitigated income inequality. Across three analyses, we find a negative relationship between exposure to the criminal justice system and involvement in labor organizations. In a fourth analysis, we find evidence that this relationship results from employers' increased power over those so exposed. Mass incarceration may discipline low-wage workers by decreasing their likelihood of participating in organizations through which they might gain economic power individually and collectively.
Why Has the US Economy Recovered So Consistently from Every Recession in the Past 70 Years?
Robert Hall & Marianna Kudlyak
NBER Working Paper, May 2020
Abstract:
It is a remarkable fact about the historical US business cycle that, after unemployment reached its peak in a recession, and a recovery began, the annual reduction in the unemployment rate was stable at around 0.55 percentage points per year. The economy seems to have had an irresistible force toward restoring full employment. There was high variation in monetary and fiscal policy, and in productivity and labor-force growth, but little variation in the rate of decline of unemployment. We explore models of the labor market's self-recovery that imply gradual working off of unemployment following a recession shock. These models explain why the recovery of market-wide unemployment is so much slower than the rate at which individual unemployed workers find new jobs. The reasons include the fact that the path that individual job-losers follow back to stable employment often includes several brief interim jobs, sometimes separated by time out of the labor force. We show that the evolution of the labor market involves more than the direct effect of persistent unemployment of job-losers from the recession shock -- unemployment during the recovery is elevated for people who did not lose jobs during the recession.
Renter Protection and Entrepreneurship
Steven Chong Xiao & Serena Wenjing Xiao
University of Texas Working Paper, April 2020
Abstract:
This study investigates the hypothesis that renter protection encourages entrepreneurship by reducing household vulnerability in home-rental markets. We show that the staggered passage of just cause eviction ordinance in five California cities increases the number of new firms by 6.9%. This finding is unlikely explained by local demand shocks, landlord investments, or financing supply shocks. These firms tend to survive in the long run, with some turning into transformational businesses that receive VC financing and go public. Our evidence suggests that policies that insulate renters from the risk of unjust evictions have a surprising benefit to the local economy.
Dropouts Need Not Apply? The Minimum Wage and Skill Upgrading
Jeffrey Clemens, Lisa Kahn & Jonathan Meer
NBER Working Paper, May 2020
Abstract:
We explore whether minimum wage increases result in substitution from lower-skilled to slightly higher-skilled labor. Using 2011-2016 American Community Survey data (ACS), we show that workers employed in low-wage occupations are older and more likely to have a high school diploma following recent statutory minimum wage increases. To better understand the role of firms, we examine the Burning Glass vacancy data. We find increases in a high school diploma requirement following minimum wage hikes, consistent with our ACS evidence on stocks of employed workers. We see substantial adjustments to requirements both within and across firms.
Transaction Frame Determines Preferences: Valuation of Labor by Employee and Contractor
Ilana Ritov & Amos Schurr
Psychological Science, forthcoming
Abstract:
A major concern in today's economic reality is the extent to which a sharing economy, in comparison with a traditional economy, promotes inequality. In the transformation from a traditional to a sharing economy, wage setting is replaced by contract pricing. The switch to contract trading implies that the party who carries out the labor evaluates the transaction from a buyer's rather than a seller's perspective. Drawing on psychological research on constructed and reference-dependent preferences, we predicted that the net valuation of work would decrease when the regimen involved contract trading. Three experiments (N = 1,105) eliciting work valuation under the two regimens confirmed our prediction, thus pointing to a novel factor that increases inequality.
Launching with a Parachute: The Gig Economy and New Business Formation
John Barrios, Yael Hochberg & Hanyi Yi
NBER Working Paper, May 2020
Abstract:
The introduction of the gig economy creates opportunities for would-be entrepreneurs to supplement their income in downside states of the world and provides insurance in the form of an income fallback in the event of failure. We present a conceptual framework supporting the notion that the gig economy may serve as an income supplement and as insurance against entrepreneurial-related income volatility, and utilize the arrival of the on-demand, platform-enabled gig economy in the form of the staggered rollout of ridehailing in U.S. cities to examine the effect of the arrival of the gig economy on new business formation. The introduction of gig opportunities is associated with an increase of ~5% in the number of new business registrations in the local area, and a correspondingly-sized increase in small business lending to newly registered businesses. Internet searches for entrepreneurship-related keywords increase ~7%, lending further credence to the predictions of our conceptual framework. Both the income supplement and insurance channels are empirically supported: the increase in entry is larger in regions with lower average income and higher credit constraints, as well as in locations with higher ex-ante economic uncertainty regarding future wage levels and wage growth.
Locked In? The Enforceability of Covenants Not to Compete and the Careers of High-Tech Workers
Natarajan Balasubramanian et al.
Journal of Human Resources, forthcoming
Abstract:
We study the relationship between the enforceability of covenants not to compete (CNCs) and employee mobility and wages. We exploit a 2015 CNC ban for technology workers in Hawaii and find that this ban increased mobility by 11% and new-hire wages by 4%. We supplement the Hawaii evaluation with a cross-state analysis using matched employer-employee data. We find that eight years after starting a job in an average-enforceability state, technology workers have about 8% fewer jobs and 4.6% lower cumulative earnings relative to equivalent workers starting in a non-enforcing state. These results are consistent with CNC enforceability increasing monopsony power.
Why are Low-Wage Workers Signing Noncompete Agreements?
Matthew Johnson & Michael Lipsitz
Journal of Human Resources, forthcoming
Abstract:
Policymakers are concerned by evidence that noncompete agreements (NCAs) are widely used in low-wage jobs. We show that firms that would otherwise not use NCAs are induced to use one in the presence of frictions to adjusting wages downward. Using a new survey of salon owners, we find that declines in the terms of trade for employees and increases in the minimum wage lead to higher NCA use, but only at firms for which the employee's cost of an NCA likely exceeds the employer's benefit. Furthermore, minimum wage increases have a negative effect on employment only where NCAs are unenforceable.
US Unemployment Insurance Replacement Rates During the Pandemic
Peter Ganong, Pascal Noel & Joseph Vavra
NBER Working Paper, May 2020
Abstract:
We use micro data on earnings together with the details of each state's UI system under the CARES Act to compute the entire distribution of current UI benefits. The median replacement rate is 134%. Two-thirds of UI eligible workers can receive benefits which exceed lost earnings and one-fifth can receive benefits at least double lost earnings. There is sizable variation in the effects of the CARES Act across occupations and states, with important distributional consequences. We show how alternative UI expansion policies would change the distribution of UI benefits and thus affect resulting liquidity provision, progressivity, and labor supply incentives.
Rising Burdens of Proofs and The Grand Bargain of Workers' Compensation Laws
Andy Yuan & Price Fishback
NBER Working Paper, April 2020
Abstract:
Nearly every state has amended workers' compensation laws in the last two decades and the national averages of cash and medical benefits paid per covered worker have declined. As a result, writers have suggested that the states might be cutting back on workers' compensation benefits. We show that measures of the statutory benefits have been rising over time, a trend that work against the declining trend in average payouts per covered worker. A decline in accident rates at the national level has contributed to the decline in payouts. We then investigate the impact of specific state laws related to burdens of proof and limits on medical coverage after developing an annual panel data set for all states between 1997 and 2016. The results show that state laws that ban liberal construction of the rules and apportion benefits based on pre-existing conditions contribute to sharp declines in the states where they are enacted.
Personal Wealth and Self-Employment
Aymeric Bellon et al.
University of Pennsylvania Working Paper, February 2020
Abstract:
We examine how wealth windfalls affect self-employment decisions using data on cash payments from claims on Texas shale drilling to people throughout the United States. Individuals who receive large wealth shocks (greater than $50,000) have 51% higher self-employment rates. The increase in self-employment rates is driven by individuals who lengthen existing self-employment spells, and not by individuals who leave regular employment for self-employment. Moreover, the effect of wealth reverts for individuals whose payments run out. Rather than alleviating a financial constraint, our evidence suggests that unrestricted cash windfalls affect self-employment decisions primarily through self-employment's non-pecuniary benefits.
Leisure-Enhancing Technological Change
Łukasz Rachel
London School of Economics Working Paper, April 2020
Abstract:
Modern economies are awash with leisure-enhancing innovations: services supplied in exchange for time and attention, rather than money. This paper develops a general equilibrium theory of such services. At its core the model features a platform which supplies consumers with the non-rival leisure services and businesses with intangible capital. There are five main results. First, leisure technologies emerge endogenously along the growth path. Second, while consistent with other Kaldor facts, the theory matches the trend-decline in hours worked observed in the data. Third, growth of TFP and output declines once the leisure economy emerges. Measured GDP growth does not capture the value of the zero-price services, but growth declines even if these services are measured. Finally, there are two new inefficiencies in the market equilibrium: the static inefficiency implies undersupply of leisure-enhancing technology. Dynamic inefficiency goes the other way, emphasizing the adverse impact of leisure-enhancing innovations on future productivity.