Findings

Where the Jobs Are(n't)

Kevin Lewis

July 11, 2012

Causes of the Great Recession of 2007-9: The Financial Crisis was the Symptom not the Disease!

Ravi Jagannathan, Mudit Kapoor & Ernst Schaumburg
Journal of Financial Intermediation, forthcoming

Abstract:
Globalization has increasingly made it possible for labor in developing countries to augment labor in the developed world, without having to relocate, in ways not thought possible only a few decades ago. We argue that this large increase in the developed world's effective labor supply, triggered by geo-political events and technological innovations, coupled with the inability of existing institutions in the US and developing nations themselves to cope with this shock, set the stage for the great recession. The financial crisis in the US was but the first acute symptom.

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Size matters: Entrepreneurial entry and government

Ruta Aidis, Saul Estrin & Tomasz Marek Mickiewicz
Small Business Economics, July 2012, Pages 119-139

Abstract:
We explore the country-specific institutional characteristics likely to influence an individual's decision to become an entrepreneur. We focus on the size of the government, on freedom from corruption and on "market freedom" defined as a cluster of variables related to protection of property rights and regulation. We test these relationships by combining country-level institutional indicators for 47 countries with working-age population survey data taken from the Global Entrepreneurship Monitor. Our results indicate that entrepreneurial entry is inversely related to the size of the government, and more weakly to the extent of corruption. A cluster of institutional indicators representing "market freedom" is only significant in some specifications. Freedom from corruption is significantly related to entrepreneurial entry, especially when the richest countries are removed from the sample, but unlike the size of government, the results on corruption are not confirmed by country-level fixed-effects models.

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The Long-term Impact of Business Cycles on Innovation: Evidence from the Massachusetts Institute of Technology

Pian Shu
MIT Working Paper, January 2012

Abstract:
I explore a novel channel through which short-term economic fluctuations affect the long-run innovative output of the U.S. economy: college graduates' initial career choices. I develop a two-period Roy-style model to show that shocks to initial career choices could affect long-term patent production by changing graduates' long-term occupational affiliation or changing their acquisition of inventive human capital. Using a newly constructed data set on the patenting history of all individuals obtaining a bachelor's degree from the Massachusetts Institute of Technology (MIT) between 1980 and 2005, I find that cohorts graduating during economic booms produce significantly fewer patents over the subsequent two decades. A one percentage point decrease in the unemployment rate in the year of scheduled graduation on average decreases the future annual patent output of a cohort by around 5%, or approximately 2.5 patents per year for an average-size cohort. Economic conditions at the time of graduation do not affect the number of graduates who patent or their characteristics. The decrease in patent output of cohorts graduating during booms is a result of lower inventive output from inventors with relatively low GPAs, and marginal patents receive fewer citations than the average and median patents. I find no evidence that initial economic conditions affect inventors' long-term occupational affiliation, suggesting that the effect on patent production is primarily due to differences in inventors' long-term level of inventive human capital.

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Strong Steam, Weak Patents, or the Myth of Watt's Innovation-Blocking Monopoly, Exploded

George Selgin & John Turner
Journal of Law and Economics, November 2011, Pages 841-861

Abstract:
James Watt's 1769 patent is widely supposed to have stood in the way of the development of high-pressure steam technology until it finally expired in 1800. We dispute this popular claim. We show that although it is true that high-pressure steam technology developed only after the expiration of Watt's patent, the delay was due to factors other than that patent itself, including the widely held opinion that the use of high-pressure engines were excessively risky. Indeed, Watt's monopoly rights may actually have hastened the development of the high-pressure steam engine by inspiring Richard Trevithick to revive a supposedly obsolete technology so as to invent around them.

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The Lone Inventor: Low Success Rates and Common Errors Associated with Pro-Se Patent Applications

Kate Gaudry
PLoS ONE, March 2012

Abstract:
A pro-se patent applicant is an inventor who chooses to represent himself while pursuing ("prosecuting") a patent application. To the author's knowledge, this paper is the first empirical study addressing how applications filed by pro-se inventors fare compared to applications in which inventors were represented by patent attorneys or agents. The prosecution history of 500 patent applications filed at the United States Patent and Trademark Office were analyzed: inventors were represented by a patent professional for 250 of the applications ("represented applications") but not in the other 250 ("pro-se applications"). 76% of the pro-se applications became abandoned (not issuing as a patent), as compared to 35% of the represented applications. Further, among applications that issued as patents, pro-se patents' claims appear to be narrower and therefore of less value than claims in the represented patent set. Case-specific data suggests that a substantial portion of pro-se applicants unintentionally abandon their applications, terminate the examination process relatively early, and/or fail to take advantage of interview opportunities that may resolve issues stalling allowance of the application.

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Efficiency Wages and the Economic Effects of the Minimum Wage: Evidence from a Low-Wage Labour Market

Andreas Georgiadis
Oxford Bulletin of Economics and Statistics, forthcoming

Abstract:
This article exploits a natural experiment provided by the 1999 introduction of the UK National Minimum Wage (NMW) to test for efficiency wage considerations in a low-wage sector, the UK residential care homes industry. The empirical results provide support to the wage-supervision trade-off prediction of the shirking model and suggest that the NMW may have operated as an efficiency wage in the care homes sector, leading to a reduction in supervision costs. These findings can explain earlier evidence suggesting that although the NMW introduction increased wages dramatically in the care homes sector, it generated only moderate negative employment effects.

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Does labor contract completeness drive unionization? Experimental evidence

Sean Masaki Flynn & Michael Donnelly
Journal of Socio-Economics, August 2012, Pages 445-454

Abstract:
Flynn (2005) proposes that the degree to which labor contracts are complete may be a major driving force behind the propensity of employees to unionize. We find behavior consistent with this hypothesis in an experimental production game in which subjects are assigned to playing either employers or employees. The rate at which employees opt for a proxy for unionization more than triples when the labor-contracting regime under which they are working shifts from incomplete to complete labor contracts. Complete labor contracts drive out positive reciprocity, anger workers, and increase their desire to unionize.

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Strategic Corporate Layoffs

Ruchir Agarwal & Julian Kolev
Harvard Working Paper, January 2012

Abstract:
Firms in the S&P 500 often announce layoffs within days of one another, despite the fact that the average S&P 500 constituent announces layoffs once every 5 years. By contrast, similar-sized privately-held firms do not behave in this way. This paper provides evidence that such clustering behavior is largely due to CEOs managing their reputation in financial markets. To interpret these results we develop a theoretical framework in which managers delay layoffs during good economic states to avoid damaging the market's perception of their ability. The model predicts clustering in the timing of layoff announcements, and illustrates a mechanism through which the cyclicality of firms' layoff policies is amplified. The model's predictions are tested using two novel datasets of layoff announcements and actual mass layoffs. We compare the layoff behavior of publicly-listed and privately-held firms to estimate the impact of reputation-based incentives on cyclicality of layoffs. Compared to observably similar matched private firms, public firms are 2.5-3.5 percentage points more likely to conduct mass layoffs in a recession month, indicating a doubling of layoff sensitivity to recessions. In addition, we find that the firms which cluster layoff announcements at high frequencies are also the ones that are more likely to engage in mass layoffs during recessions. These effects do not appear to be driven by unobserved differences between public and private firms, leverage, lifecycle differences, or the criteria used to match public and private firms. Our findings suggest that reputation management is an important driver of layoff policies both at daily frequencies and over the business cycle, and can have significant macroeconomic consequences.

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Mega-Events and Sectoral Employment: The Case of the 1996 Olympic Games

Arne Feddersen & Wolfgang Maennig
Contemporary Economic Policy, forthcoming

Abstract:
Using the data of the 1996 Olympic Games, this paper analyzes the economic impact of a mega-sporting event. Earlier studies are extended in several ways. First, monthly rather than quarterly data are employed. Second, the impact is analyzed for 16 different sectors. Third, we use a nonparametric approach to flexibly isolate employment effects. Hardly any evidence for a persistent shift in the aftermath of or the preparation for the Olympic Games is supported. We find significant positive employment effects exclusively during the Olympic Games. These short-term effects are concentrated in the sectors of "retail trade," "accommodation and food services," and "arts, entertainment, and recreation."

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Public expenditures and the unemployment rate in the American states: Panel evidence

Saeid Mahdavi & Emmanuel Alanis
Applied Economics, June 2012, Pages 2926-2937

Abstract:
We reexamine the Unemployment Rate (UR) - government expenditure nexus in a panel of 50 State and Local Governments (SLGs) over the period 1977-2006 to provide new pre-recession empirical evidence that helps put the expectations on the effects of the federal relief to SLGs in a broader context. We found that: (1) per capita real public spending (total and capital, assistance and subsidies, wages and salaries, and social insurance categories) was part of a cointegrating relationship with UR and real per capita state personal income. (2) With the exception of social insurance, other spending variables, when statistically significant, actually had a depressing effect on UR. The magnitude of this effect, however, was generally small. UR was most sensitive to increases in wages and salaries. (3) Long-term causality analysis based on panel error-correction coefficients provided consistent evidence of a causal effect from spending to UR, but less consistent evidence of such effect in the opposite direction. Social insurance, however, drove UR. (4) The size of the error-correction coefficients suggested a slow response of UR to deviations from the cointegrating relationship. (5) The marginal effect of spending on UR increased with the amount of the federal grants received. Our results suggest that public spending may not serve as a quick fix in relation to UR. They also seem to favour allocation of the federal funds to wage and salaries and assistance and subsidies, but not to capital and social insurance expenditures to lower UR.

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General Revenue Sharing and Public Sector Unions

Laura Feiveson
MIT Working Paper, November 2011

Abstract:
The United States federal government implemented a large general revenue sharing program from 1972 to 1986, in which it transferred nearly 300 billion (2009) dollars to over 35,000 state and local governments. I examine whether large city governments spent the funds that they received and how the strength of public sector bargaining affected whether the funds were spent on new employment or increased wages. I find that, on average, city governments spent the transfers completely, in contrast to the findings of some of the recent "flypaper" literature; and that cities in states with pro-union collective bargaining laws spent more than half of the transfers on increased wages while cities in states without such laws spent a greater fraction of the funds on new employment. These findings suggest that local institutions, in this case public sector unions, play an important role in determining the way intergovernmental grants translate into spending outcomes. They highlight the potential heterogeneity in the way such grants may be spent in different jurisdictions. Moreover, if raising the wages of existing workers has a different macroeconomic stimulative effect than hiring new workers, they may also suggest differences across places in the "multiplier" associated with federal transfers to state and local governments. I find suggestive, though weak, evidence that the output multiplier on spending on new employment is larger than the multiplier on increased government wages.

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How Effective Are Unemployment Benefit Sanctions? Looking beyond Unemployment Exit

Patrick Arni, Rafael Lalive, Jan Van Ours
Journal of Applied Econometrics, forthcoming

Abstract:
This paper provides a comprehensive evaluation of the effects of benefit sanctions on post-unemployment outcomes such as post-unemployment employment stability and earnings. We use rich register data which allow us to distinguish between a warning that a benefit reduction may take place in the near future and the actual withdrawal of unemployment benefits. Adopting a multivariate mixed proportional hazard approach to address selectivity, we find that warnings do not affect subsequent employment stability but do reduce post-unemployment earnings. Actual benefit reductions lower the quality of post-unemployment jobs both in terms of job duration as well as in terms of earnings.

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The individual cost of sick leave

Simen Markussen
Journal of Population Economics, October 2012, Pages 1287-1306

Abstract:
This paper aims to estimate the causal effect of sick leave on subsequent earnings and employment, using an administrative dataset for Norway. To obtain experiment-like variation in sick leave among otherwise similar workers, the leniency of these workers' physicians - certifying sickness absences - is used as an instrumental variable for sick leave. A 1 percentage point increase in a worker's sick leave rate is found to reduce his earnings by 1.2% 2 years later. Around half of the reduction in earnings can be explained by a reduction of 0.5 percentage points in the probability of being employed.

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An Instrumental Variable Approach to Unemployment, Psychological Health and Social Norm Effects

John Gathergood
Health Economics, forthcoming

Abstract:
This empirical study presents estimates of the impact of unemployment on psychological health using UK household panel data. The causal impact of unemployment is established using instrumental variable methods. Psychological health is measured using both the General Household Questionnaire measure and also self-reported data on individual occurrences of anxiety-related conditions. We find evidence for positive selection into unemployment on the basis of poor psychological health. Nevertheless, panel instrumental variable estimates suggest a sizeable causal worsening of psychological health arising from unemployment. We also find evidence that the negative impact of unemployment can be largely mitigated by local labour market conditions: those entering unemployment in localities with higher unemployment rates suffer less deterioration in their psychological health.

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Increasing returns to education and the impact on social capital

Gareth Leeves
Education Economics, forthcoming

Abstract:
The returns to education have been increasing. It is suggested that high-skilled workers' social capital investment has been adversely affected by the increasing incentives to devote human capital to career development. Lower social capital is linked to reduced economic growth and innovation and higher transaction costs and is detrimental to individual well-being. We find evidence to suggest there is an increasing opportunity cost associated with greater levels of social capital investment for high-skilled workers, especially those with more demands on their time. These results provide support for increased availability of work flexibility policies that can improve the work-life balance.

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Does labor diversity promote entrepreneurship?

Marianna Marino, Pierpaolo Parrotta & Dario Pozzoli
Economics Letters, July 2012, Pages 15-19

Abstract:
We find evidence that workforce educational diversity promotes entrepreneurial behavior of employees as well as the formation of new firms, whereas diversity in demographics hinders transitions to self-employment. Ethnic diversity favors entrepreneurship in financial and business services.

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Do entrepreneurs really learn? Or do they just tell us that they do?

Julian Frankish et al.
Industrial and Corporate Change, forthcoming

Abstract:
This article examines the theory and evidence in support of entrepreneurial learning (EL), measured in terms of whether individuals have previously owned a business, and time since start-up. Under this theory, entrepreneurial performance is argued to be enhanced by EL which itself is enhanced by business experience. However, if business performance is strongly influenced by chance then evidence of EL will be difficult to identify. We test for EL using a large scale data set comprising 6671 new firms. We choose business survival over 3 years as our performance measure and then formulate three tests for EL. None of the three tests provide compelling evidence in support of EL.

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University Entrepreneurship and Professor Privilege

Erika Farnstrand Damsgaard & Marie Thursby
NBER Working Paper, April 2012

Abstract:
This paper analyzes how institutional differences affect university entrepreneurship. We focus on ownership of faculty inventions, and compare two institutional regimes; the US and Sweden. In the US, the Bayh Dole Act gives universities the right to own inventions from publicly funded research, whereas in Sweden, the professor privilege gives the university faculty this right. We develop a theoretical model and examine the effects of institutional differences on modes of commercialization; entrepreneurship or licenses to established firms, as well as on probabilities of successful commercialization. We find that the US system is less conducive to entrepreneurship than the Swedish system if established firms have some advantage over faculty startups, and that on average the probability of successful commercialization is somewhat higher in the US. We also use the model to perform four policy experiments as suggested by recent policy debates in both countries.


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