Workers of the World
Compensation for State and Local Government Workers
Maury Gittleman & Brooks Pierce
Journal of Economic Perspectives, Winter 2012, Pages 217-242
Abstract:
Are state and local government workers overcompensated? In this paper, we step back from the highly charged rhetoric and address this question with the two primary data sources for looking at compensation of state and local government workers: the Current Population Survey conducted by the Bureau of the Census for the Bureau of Labor Statistics, and the Employer Costs for Employee Compensation microdata collected as part of the National Compensation Survey of the Bureau of Labor Statistics. In both data sets, the workers being hired in the public sector have higher skill levels than those in the private sector, so the challenge is to compare across sectors in a way that adjusts suitably for this difference. After controlling for skill differences and incorporating employer costs for benefits packages, we find that, on average, public sector workers in state government have compensation costs 3-10 percent greater than those for workers in the private sector, while in local government the gap is 10-19 percent. We caution that this finding is somewhat dependent on the chosen sample and specification, that averages can obscure broader differences in distributions, and that a host of worker and job attributes are not available to us in these data. Nonetheless, the data suggest that public sector workers, especially local government ones, on average, receive greater remuneration than observably similar private sector workers. Overturning this result would require, we think, strong arguments for particular model specifications, or different data.
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More Machines, Better Machines...or Better Workers?
James Bessen
Journal of Economic History, March 2012, Pages 44-74
Abstract:
How much of the rapid growth in output per man-hour in nineteenth-century cotton weaving arose from technical change and how much arose from price-driven substitution of capital for labor? Using an engineering production function, I find that factor price changes account for little of the growth in output per man-hour. However, much of the growth and most of the apparent labor-saving bias arose not from inventions, but from improved labor quality - better workers spent less time monitoring the looms. Labor quality played a critical role in the persistent association between economic growth and capital deepening in this important sector.
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Wal-Mart's Monopsony Power in Metro and Non-Metro Labor Markets
Alessandro Bonanno & Rigoberto Lopez
Regional Science and Urban Economics, July 2012, Pages 569-579
Abstract:
This paper measures the potential degree of monopsony power that Wal-Mart can exert over retail workers using a dominant-firm model and nationwide, county-level data, presenting for the first time a measure of the company's potential anti-competitive behavior and detailed spatial impacts on wages, particularly for metropolitan and non-metropolitan counties. Empirical results show that, at the national level, Wal-Mart's potential wage markdown below the competitive level amounts to less than 3% on average. However, the potential markdowns in non-metropolitan counties are three-fold those in metropolitan counties and are highest in non-metro areas of the south and central states but negligible in northeastern states.
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State Minimum Wage Differences: Economic Factors or Political Inclinations?
William Ford, Travis Minor & Mark Owens
Business Economics, January 2012, Pages 57-67
Abstract:
This paper examines the importance of factors that influence a state's decision to adopt an above-federal minimum wage level. Our results indicate that state political leanings are the primary factor explaining differences in state minimum wage laws since 1991. Further, state cost of living differences do not appear to influence a state's decision to increase its minimum wage above the federal level. This result is interesting since proponents of raising the minimum wage cite the rising cost of living as a principal justification for an increase. Our findings should be of special interest to economists responsible for analyzing and forecasting labor cost trends within and among states where their employers operate or plan to relocate.
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Despina Alexiadou
European Journal of Political Research, forthcoming
Abstract:
How do governments find the political capital to raise interest rates in pursuit of inflation stabilisation? Against common wisdom, this article shows that the ability of governments to exercise tight monetary policy largely depends on the level of unemployment insurance. Unemployment insurance is particularly useful to social democratic parties since their core constituency - labour - is the hardest hit by economic downturns. Empirical evidence from 17 OECD countries over thirty years demonstrates that high levels of unemployment insurance present a strong incentive for social democratic governments to respond more aggressively to positive changes in inflation. These findings resolve the puzzle of why partisan monetary cycles are not often observed in the literature and have important policy implications, given continued calls for scaling down social insurance.
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Hiring, Churn and the Business Cycle
Edward Lazear & James Spletzer
NBER Working Paper, March 2012
Abstract:
Churn, defined as replacing departing workers with new ones as workers move to more productive uses, is an important feature of labor dynamics. The majority of hiring and separation reflects churn rather than hiring for expansion or separation for contraction. Using the JOLTS data, we show that churn decreased significantly during the most recent recession with almost four-fifths of the decline in hiring reflecting decreases in churn. Reductions in churn have costs because they reflect a reduction in labor movement to higher valued uses. We estimate the cost of reduced churn to be $208 billion. On an annual basis, this amounts to about .4% of GDP for a period of 3 1/2 years.
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Leveraged buyouts, private equity and jobs
Kevin Amess & Mike Wright
Small Business Economics, May 2012, Pages 419-430
Abstract:
Using a unique data set of 533 leveraged buyouts (LBOs) observed over the 1993-2004 period, covering all size ranges, the study conducts a systematic analysis to determine and quantify: (1) the effect of private equity (PE) and LBO governance on employment and (2) whether the size of the target firm impacts on post-buyout employment effects. After accounting for endogeneity, we find that LBOs, whether PE financed or not, do not have significantly different employment levels compared with a control sample of firms. Additionally, there are no employment effects contingent on the size of the target firm. The findings contrast with anecdotal claims of job destruction. The study therefore makes an important contribution to the debate on the impact of LBOs and PE.
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Trading away what kind of jobs? Globalization, trade and tasks in the US economy
Thomas Kemeny & David Rigby
Review of World Economics, April 2012, Pages 1-16
Abstract:
Economists and other social scientists are calling for a reassessment of the impact of international trade on labor markets in developed and developing countries. Classical models of globalization and trade, based upon the international exchange of finished goods, fail to capture the fragmentation of much commodity production and the geographical separation of individual production tasks. This fragmentation, captured in the growing volume of intra-industry trade, prompts investigation of the effects of trade within, rather than between, sectors of the economy. In this paper we examine the relationship between international trade and the task structure of US employment. We link disaggregate US trade data from 1972 to 2006, the NBER manufacturing database, the Decennial Census, and occupational and task data from the Dictionary of Occupational Titles. Within-industry shifts in task characteristics are linked to import competition and technological change. Our results suggest that trade has played a major role in the growth in relative demand for nonroutine tasks, particularly those requiring high levels of interpersonal interaction.
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International Trade and the Composition of Labor Market Turnover
Nicholas Sly
Economic Inquiry, forthcoming
Abstract:
The composition of labor market turnover is shown to influence patterns of international trade. Job and worker turnover have opposing marginal effects on industry export intensity, highlighting the importance of relative turnover shares on either side of the labor market, as opposed to total volumes of labor mobility, in shaping economic outcomes. Industries with relatively greater shares of worker turnover export more of total production, and those with higher job turnover export less. Furthermore, relatively high job turnover hinders industry adjustment following trade liberalization. These predictions receive support for U.S. manufacturing industries using turnover data in the Quarterly Workforce Indicators available from the U.S. Census Bureau.
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Housing Liquidity, Mobility, and the Labour Market
Allen Head & Huw Lloyd-Ellis
Review of Economic Studies, forthcoming
Abstract:
We study the interactions among geographical mobility, unemployment, and home-ownership in an economy with heterogeneous locations, endogenous construction, and search frictions in the markets for both labour and housing. The decision of home-owners to accept job offers from other cities depends on how quickly they can sell their houses (i.e. the houses' liquidity), which in turn depends on local labour market conditions. Consequently, home-owners accept job offers from other cities at a lower rate than do renters, generating a link between home-ownership and unemployment both at the city level and in the aggregate. When calibrated to match aggregate U.S. statistics on mobility, housing, and labour flows, the model predicts that the effect of home-ownership on aggregate unemployment is small. When unemployment is high, however, changes in the rate of home-ownership can have economically significant effects.
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Are Public Employees Overpaid?
Jeffrey Keefe
Labor Studies Journal, March 2012, Pages 104-126
Abstract:
The research reported in this article shows that public employees, both state and local government employees, are not overpaid and may be slightly undercompensated. Comparisons with the private-sector employees that control for education, experience, hours of work, organizational size, gender, race, ethnicity, and disability indicate that the public-employment compensation (wages and benefits) penalty is relatively small. On average there is a 3.7 percent penalty in total compensation for full-time state and local employees when compared to similar private-sector employees. The data analysis also reveals substantially different approaches to staffing and compensation between the private and public sectors. On average, state and local public-sector workers are more highly educated than the private-sector workforce; 54 percent of full-time state and local public-sector workers hold at least a four-year college degree compared to 35 percent of full-time private sector workers. For college-educated labor, state and local governments pay salaries on average over 25 percent less than private employers. The public sector appears to set a floor on compensation, particularly improving the compensation of workers with high-school educations, when compared to similarly educated workers in the private sector. Benefits are allocated differently between private- and public-sector full-time workers. State and local government employees receive a higher portion of their compensation in the form of employer-provided benefits. Public employers provide better health insurance and pension benefits. National polling data indicate that the public does not believe public employees are overpaid. They oppose pay and benefit cuts, but believe pay freezes and greater employee contributions to their health and pensions plans may be appropriate. Nevertheless, thirteen states revised their public-sector collective-bargaining laws, mainly weakening employee bargaining power or severely restricting or eliminating collective bargaining, while the majority of the public opposed those changes.
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Can Public Sector Wage Bills Be Reduced?
Pïerre Cahuc & Stephane Carcillo
NBER Working Paper, March 2012
Abstract:
This paper analyzes the relation between public wage bills and public deficits in the OECD countries from 1995 to 2009. The paper shows that fiscal drift episodes, characterized by simultaneous increases in the GDP shares of public wage bills and budget deficits, are more frequent during booms and election years, but not during recessions, except for the 2009 exceptionally strong recession. The emergence of fiscal drift episodes during booms and election years is less frequent in countries with more transparent government, more freedom of the press, as well as in countries with presidential regimes and less union coverage. Inversely, fiscal tightening episodes, characterized by simultaneous decreases in the GDP shares of public wage bills and budget deficits, occur less often during booms than during recessions. The emergence of fiscal tightening episodes during recessions and election years is less frequent in countries with more union coverage.
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John Hutchinson & Damiaan Persyn
Review of World Economics, April 2012, Pages 17-43
Abstract:
Over the last two decades the share of national income which accrues to labour has followed a marked downward trend across a host of industrialised countries. This paper reassesses the relative importance of several potential causes of this phenomenon. Overall, the findings suggest that lower trade costs and factors often associated with economic integration such as international low-wage competition and industry concentration have contributed to the decline in the labour share. However, their effects have been limited when compared to the effects of skill-based technological change and cyclical price changes of intermediary goods.
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Job Market Signaling of Relative Position, or Becker Married to Spence
Ed Hopkins
Journal of the European Economic Association, April 2012, Pages 290-322
Abstract:
This paper considers a matching model of the labor market where workers, who have private information on their quality, signal to firms that also differ in quality. Signals allow assortative matching in which the highest-quality workers send the highest signals and are hired by the best firms. Matching is considered both when wages are rigid (nontransferable utility) and when they are fully flexible (transferable utility). In both cases, equilibrium strategies and payoffs depend on the distributions of worker and firm types. This is in contrast to separating equilibria of the standard model, which do not respond to changes in supply or demand. With sticky wages, despite incomplete information, equilibrium investment in education by low-ability workers can be inefficiently low, and this distortion can become worse in a more competitive environment. In contrast, with flexible wages, greater competition improves efficiency.
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‘Excessive' wages and the return on capital
Margarita Katsimi, Sarantis Kalyvitis & Thomas Moutos
Cambridge Journal of Economics, March 2012, Pages 435-461
Abstract:
Received wisdom suggests that ‘excessive' wages, defined as the part of real wages that do not follow labour productivity developments, are adversely associated with the return on capital. This paper argues that excessive wages and profits are better thought of as responses to changes in the economic, political and institutional environment, and there is no a priori reason for a negative relationship between them. We thus investigate whether there is a causal effect of excessive wages on capital return using aggregate panel data for 19 OECD countries for the period 1970-2000. We account for the endogeneity of excessive wages by exploiting variations in institutional and labour market characteristics. Our main finding is that excessive wages do not affect the return on capital. This result remains robust to alternative empirical specifications and to alternative definitions of profitability and excessive wages, and questions the standard advice by international economic organizations on wage moderation.
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Distributional consequences of labor-demand shocks: The 2008-2009 recession in Germany
Olivier Bargain et al.
International Tax and Public Finance, February 2012, Pages 118-138
Abstract:
The distributional consequences of the recent economic crisis are still broadly unknown. While it is possible to speculate which groups are likely to be hardest-hit, detailed distributional studies are still largely backward-looking due to a lack of real-time microdata. This paper studies the distributional and fiscal implications of output changes in Germany 2008-2009, using data available prior to the economic downturn. We first estimate labor demand on 12 years of detailed, administrative matched employer-employee data. The distributional analysis is then conducted by transposing predicted employment effects of actual output shocks to household-level microdata. A scenario in which labor demand adjustments occur at the intensive margin (hour changes), close to the German experience, shows less severe effects on the income distribution compared to a situation where adjustments take place through massive layoffs. Adjustments at the intensive margin are also preferable from a fiscal point of view. In this context, we discuss the cushioning effect of the tax-benefit system and the conditions under which German-style work-sharing policies can be successful in other countries.