Findings

Means of Production

Kevin Lewis

June 04, 2012

Job-to-Job Flows in the Great Recession

Henry Hyatt & Erika McEntarfer
American Economic Review, May 2012, Pages 580-583

Abstract:
We develop prototype job-to-job flow measures to provide new evidence on labor turnover and earnings dynamics in the Great Recession. We find a sharp drop in job mobility in the Great Recession, much sharper than the previous recession, and higher earnings penalties for job transitions with an intervening nonemployment spell. Focusing on residential construction separators in particular, we find increasing rates of industry change and higher earnings penalties from job change in the Great Recession.

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Who Suffers During Recessions?

Hilary Hoynes, Douglas Miller & Jessamyn Schaller
NBER Working Paper, March 2012

Abstract:
In this paper we examine how business cycles affect labor market outcomes in the United States. We conduct a detailed analysis of how cycles affect outcomes differentially across persons of differing age, education, race, and gender, and we compare the cyclical sensitivity during the Great Recession to that in the early 1980s recession. We present raw tabulations and estimate a state panel data model that leverages variation across US states in the timing and severity of business cycles. We find that the impacts of the Great Recession are not uniform across demographic groups and have been felt most strongly for men, black and Hispanic workers, youth, and low education workers. These dramatic differences in the cyclicality across demographic groups are remarkably stable across three decades of time and throughout recessionary periods and expansionary periods. For the 2007 recession, these differences are largely explained by differences in exposure to cycles across industry-occupation employment.

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Nature versus Nurture: The Environment's Persistent Influence through the Modernization of American Agriculture

Richard Hornbeck
American Economic Review, May 2012, Pages 245-249

Abstract:
Technological innovation in agriculture was substantial during the 20th century. Is "modern" technological control of the environment replacing a "primitive" dependency on natural advantages and disadvantages, or has agricultural production remained persistently dependent on the environment? This paper estimates how the 20th century modernization of United States Plains' agriculture changed the impact of environmental characteristics on agricultural land values. Despite substantial technological innovation and rising land values from 1945 to 2002, counties' environmental characteristics largely maintained influence on land values. Environmental change has become no less costly, as technological innovation has not reduced the importance of natural advantages or disadvantages.

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Disentangling the Channels of the 2007-2009 Recession

James Stock & Mark Watson
NBER Working Paper, May 2012

Abstract:
This paper examines the macroeconomic dynamics of the 2007-09 recession in the United States and the subsequent slow recovery. Using a dynamic factor model with 200 variables, we reach three main conclusions. First, although many of the events of the 2007-2009 collapse were unprecedented, their net effect was to produce macro shocks that were larger versions of shocks previously experienced, to which the economy responded in an historically predictable way. Second, the shocks that produced the recession primarily were associated with financial disruptions and heightened uncertainty, although oil shocks played a role in the initial slowdown and subsequent drag was added by effectively tight conventional monetary policy arising from the zero lower bound. Third, while the slow nature of the recovery is partly due to the shocks of this recession, most of the slow recovery in employment, and nearly all of the slow recovery in output, is due to a secular slowdown in trend labor force growth.

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Unemployment in the Great Recession: Did the Housing Market Crisis Prevent the Unemployed from Moving to Take Jobs?

Henry Farber
American Economic Review, May 2012, Pages 520-525

Abstract:
The labor market in the Great Recession and its aftermath is characterized by great difficulty in escaping unemployment. I present two empirical analyses of a particular explanation for that difficulty, that the housing market crisis has prevented the unemployed from selling their homes and moving to take new jobs. First, I examine post-job-loss mobility rates by home ownership status using data from the Displaced Workers Survey. Second, I examine mobility rates for unemployed homeowners and renters from the month-to-month CPS match. Neither analysis provides any support for the idea that the housing market crisis has reduced mobility of the unemployed.

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Do Welfare Policies Matter for Labor Market Aggregates? Quantifying Safety Net Work Incentives since 2007

Casey Mulligan
NBER Working Paper, May 2012

Abstract:
Inflation-adjusted spending on means-tested subsidies has increased sharply since 2007, and most of the growth was due to changes in eligibility rules, and increases in subsidies per eligible person, rather than increases in the number of people who would have been eligible under pre-recession subsidy rules. In 2007, the non-elderly parts of the safety net paid about $10,000 in benefits per person-year that non-elderly heads of household or spouses were unemployed. By the end of 2009, the annual subsidy rate per person-year unemployed was up to $16,000. As a result, the average private returns to employment are substantially less than they were in 2007. One result of the paper is a monthly time series for the overall safety net's marginal income tax rate from the point of view of the average marginal worker.

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"Broken Windows," Vulnerable Workers, and the Future of Worker Representation

David Weil
The Forum, May 2012

Abstract:
The "broken windows" perspective suggests that the erosion of order in a neighborhood leads to elevated fear, retreat from the street, and consequently an environment where more serious crime takes root. I apply the broken windows idea to the workplace. Increasing violations of basic standards in many low-wage workplaces is perceived by workers as the breakdown of laws, making them reluctant to exercise voice in any way, in turn resulting in further erosion of conditions. Efforts to increase union representation are challenging at best under these circumstances. I provide evidence of the decline of complaints by workers over the last decade under the Fair Labor Standards Act as consistent with this story. I then argue that public policy makers and worker advocates should rethink their approach in light of broken windows, focusing on ways to improve collective exercise of basic workplace rights.

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Roads to Prosperity or Bridges to Nowhere? Theory and Evidence on the Impact of Public Infrastructure Investment

Sylvain Leduc & Daniel Wilson
NBER Working Paper, May 2012

Abstract:
We examine the dynamic macroeconomic effects of public infrastructure investment both theoretically and empirically, using a novel data set we compiled on various highway spending measures. Relying on the institutional design of federal grant distributions among states, we construct a measure of government highway spending shocks that captures revisions in expectations about future government investment. We find that shocks to federal highway funding has a positive effect on local GDP both on impact and after 6 to 8 years, with the impact effect coming from shocks during (local) recessions. However, we find no permanent effect (as of 10 years after the shock). Similar impulse responses are found in a number of other macroeconomic variables. The transmission channel for these responses appears to be through initial funding leading to building, over several years, of public highway capital which then temporarily boosts private sector productivity and local demand. To help interpret these findings, we develop an open economy New Keynesian model with productive public capital in which regions are part of a monetary and fiscal union. We show that the presence of productive public capital in this model can yield impulse responses with the same qualitative pattern that we find empirically.

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Fiscal Policy and the Great Recession in the Euro Area

Günter Coenen, Roland Straub & Mathias Trabandt
American Economic Review, May 2012, Pages 71-76

Abstract:
How much did fiscal policy contribute to euro area real GDP growth during the Great Recession? We estimate that discretionary fiscal measures have increased annualized quarterly real GDP growth during the crisis by up to 1. 6 percentage points. We obtain our result by using an extended version of the European Central Bank's New Area-Wide Model with a rich specification of the fiscal sector. A detailed modeling of the fiscal sector and the incorporation of as many as eight fiscal time series appear pivotal for our result.

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Industrial Policy and Competition

Philippe Aghion et al.
NBER Working Paper, May 2012

Abstract:
This paper argues that sectoral policy aimed at targeting production activities to one particular sector, can enhance growth and efficiency if it made competition-friendly. First, we develop a model in which two firms can operate either in the same (higher growth) sector or in different sectors. To escape competition, firms can either innovate vertically or differentiate by chosing a different sector from its competitor. By forcing firms to operate in the same sector, sectoral policy induces them to innovate "vertically" rather than differentiate in order to escape competition with the other firm. The model predicts that sectoral targeting enhances average growth and productivity more when competition is more intense within a sector and when competition is preserved by the policy. In the second part of the paper, we test these predictions using a panel of medium and large Chinese enterprises for the period 1998 through 2007. Our empirical results suggest that if subsidies are allocated to competitive sectors (as measured by the Lerner index) and allocated in such a way as to preserve or increase competition, then the net impacts of subsidies, tax holidays, and tariffs on total factor productivity levels or growth become positive and significant. We address the potential endogeneity of targeting and competition by using variations in targeting across Chinese cities that are exogenous to the individual firm.

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Trends in occupational mobility in France: 1982-2009

Etienne Lalé
Labour Economics, June 2012, Pages 373-387

Abstract:
Are labor markets more turbulent now than thirty years ago? Most job and worker flows imply that the answer is "no", with one exception: occupational mobility, which increased substantially in the United States.
This paper remedies the lack of comparable evidence by focusing on France for the years 1982 to 2009. After correcting for various statistical biases and discrepancies that affect the measurement of occupational mobility, it documents this reallocation process overall and in different subgroups. The data reveal that, over the period considered, the fraction of workers switching occupation exhibits no trend in the aggregate because changing demographics mask increases in mobility within several age and education groups. After taking these composition effects into account, occupational mobility increased sharply in France as well.

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When Workers Do not Know - The Behavioral Effects of Minimum Wage Laws Revisited

Xianghong Wang
Journal of Economic Psychology, forthcoming

Abstract:
Previous experimental results have shown that the introduction of a minimum wage increases wages in a monopsonistic labor market. The results rely on the assumption that the minimum wage laws are common knowledge among employers and workers, which is often violated in less developed labor markets. This paper examines the effect of asymmetric knowledge about the minimum wage, and its interaction with the level of the minimum wage standard. We find that, whether the workers have knowledge about the minimum wage significantly changes the behavioral impacts of the minimum wage policy. With common knowledge, most firms offer wages beyond the minimum wage level. When workers do not know about the minimum wage policy, many firms, including those who used to pay higher wages before the introduction of the policy, choose to pay wages at the minimum level or lower their offers toward the minimum level. This causes the introduction of the minimum wage not effective in increasing average wages when the minimum wage standard is low. Therefore, a low minimum wage under asymmetric knowledge may potentially have a negative spillover effect on wages. The asymmetric knowledge also affects the employment level negatively. These findings help explain why the impacts of minimum wage are different in labor markets where workers have different degree of information access. This has strong implications for the implementation and welfare impacts of minimum wage laws.

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Time Use, Emotional Well-Being, and Unemployment: Evidence from Longitudinal Data

Alan Krueger & Andreas Mueller
American Economic Review, May 2012, Pages 594-599

Abstract:
This paper provides new evidence on the time use and emotional well-being of unemployed individuals in the weeks before and after starting a new job. The major findings are: (1) time spent on home production drops sharply at the time of re-employment, even when controlling for individual fixed effects; (2) time spent on leisure-related activities, which the unemployed find less enjoyable, drops on re-employment, but less so when controlling for individual fixed effects; (3) the unemployed report higher levels of sadness during specific episodes of the day than the employed; and (4) sadness decreases abruptly at the time of re-employment.

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Recessions and the Costs of Job Loss

Steven Davis & Till von Wachter
Brookings Papers on Economic Activity, Fall 2011, Pages 1-72

Abstract:
We develop new evidence on the cumulative earnings losses associated with job displacement, drawing on longitudinal Social Security records from 1974 to 2008. In present-value terms, men lose an average of 1.4 years of predisplacement earnings if displaced in mass-layoff events that occur when the national unemployment rate is below 6 percent. They lose a staggering 2.8 years of predisplacement earnings if displaced when the unemployment rate exceeds 8 percent. These results reflect discounting at a 5 percent annual rate over 20 years after displacement. We also document large cyclical movements in the incidence of job loss and job displacement and present evidence on how worker anxieties about job loss, wage cuts, and job opportunities respond to contemporaneous economic conditions. Finally, we confront leading models of unemployment fluctuations with evidence on the present-value earnings losses associated with job displacement. The 1994 model of Dale Mortensen and Christopher Pissarides, extended to include search on the job, generates present-value losses that are only one-fourth as large as observed losses. Moreover, present-value losses in the model vary little with aggregate conditions at the time of displacement, unlike the pattern in the data.

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Malthus, Wages, and Preindustrial Growth

Gregory Clark, Joseph Cummins & Brock Smith
Journal of Economic History, June 2012, Pages 364-392

Abstract:
Gregory Clark argued in A Farewell to Alms that preindustrial societies, including England, were Malthusian. Day wages show incomes were trendless: as high in Europe in the medieval era as in 1800, even in England. The opposed view is that England and the Netherlands grew substantially from 1200 to 1800. Early day wages overestimate living standards. Here we show that preindustrial farm employment shares can be estimated from probate occupation reports. These imply only 60 percent employed in farming in England in 1560-1579 and 1653-1660, consistent with the high incomes indicated by wages. Day wages do measure preindustrial living standards.

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Inefficient Labor or Inefficient Capital? Corporate Diversification and Productivity around the World

Todd Mitton
Journal of Financial and Quantitative Analysis, February 2012, Pages 1-22

Abstract:
I study the relation between corporate diversification and labor productivity in a sample of over 500,000 firms from 46 countries. Across the entire sample, greater diversification is associated with significantly lower labor productivity. The negative relation between diversification and labor productivity is not stronger in countries with more burdensome employment regulation, but it is significantly stronger in countries with better financial development. In addition, the negative relation is stronger in industries with high capital/labor ratios. Overall, the results suggest that the lower productivity in diversified firms is due more to the misallocation of capital than to the inefficient use of labor.

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Do Hiring Subsidies Reduce Unemployment among Older Workers? Evidence from Natural Experiments

Bernhard Boockmann et al.
Journal of the European Economic Association, forthcoming

Abstract:
We estimate the effects of hiring subsidies for older workers on transitions from unemployment to employment in Germany. Using a natural experiment, our first set of estimates is based on a legal change extending the group of eligible unemployed persons. A subsequent legal change in the opposite direction is used to validate these results. Our data cover the population of unemployed jobseekers in Germany and was specifically made available for our purposes from administrative data. Consistent support for an employment effect of hiring subsidies can only be found for women in East Germany. Concerning other population groups, firms' hiring behavior is hardly influenced by the program and hiring subsidies mainly lead to deadweight effects.

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The Rise and Fall of Unions in the U.S.

Emin Dinlersoz & Jeremy Greenwood
NBER Working Paper, May 2012

Abstract:
Union membership displayed a ∩-shaped pattern over the 20th century, while the distribution of income sketched a ∪. A model of unions is developed to analyze these phenomena. There is a distribution of firms in the economy. Firms hire capital, plus skilled and unskilled labor. Unionization is a costly process. A union decides how many firms to organize and its members' wage rate. Simulation of the developed model establishes that skilled-biased technological change, which affects the productivity of skilled labor relative to unskilled labor, can potentially explain the above facts. Statistical analysis suggests that skill-biased technological change is an important factor in de-unionization.

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Evaluating the effects of entry regulations and firing costs on international income differences

Hernan Moscoso Boedo & Toshihiko Mukoyama
Journal of Economic Growth, June 2012, Pages 143-170

Abstract:
This paper analyzes the effects of entry regulations and firing costs on cross-country differences in income and productivity. We construct a general equilibrium industry-dynamics model and quantitatively evaluate it using the cross-country data on entry costs and firing costs. Entry costs lower overall productivity in an economy by keeping low-productivity establishments in operation and making the establishment size inefficiently large. Firing costs lower productivity by reducing the reallocation of labor from low-productivity establishments to high-productivity establishments. The linear regression of the data on the model prediction accounts for 27% of the cross-sectional variation in total factor productivity. Moving the level of entry costs and firing costs from the U.S. level to that of the average of low income countries (countries with a Gross National Income below 2% of the U.S. level) reduces TFP by 27% in the model without capital, and by 34% in the model with capital and capital adjustment costs.

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Dynastic Management

Francesco Caselli & Nicola Gennaioli
Economic Inquiry, forthcoming

Abstract:
The most striking difference in corporate-governance arrangements between rich and poor countries is that the latter rely much more heavily on the dynastic family firm, where ownership and control are passed on from one generation to the other. We argue that if the heir to the family firm has no talent for managerial decision making, dynastic management is a failure of meritocracy that reduces a firm's total factor productivity (TFP). We present a simple model that studies the macroeconomic causes and consequences of dynastic management. In our model, the incidence of dynastic management depends, among other factors, on the imperfections of contractual enforcement. A plausible calibration suggests that, via dynastic management, poor contract enforcement may be a substantial contributor to observed cross-country differences in aggregate TFP.

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Legacy, Location, and Labor: Accounting for Racial Differences in Postbellum Cotton Production

Neil Canaday & Matthew Jaremski
Explorations in Economic History, forthcoming

Abstract:
Many postbellum southern farms specialized in cotton, but black farmers planted much larger shares of cotton than white farms. This paper tests various explanations for the pattern of specialization using 1879 farm-specific data. We find that the cross-sectional racial variation in cotton share is largely explained by location and on-farm labor supply conditions, a consequence of the legacy of slavery, rather than debt constraints.

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The need for speed: Impacts of internet connectivity on firm productivity

Arthur Grimes, Cleo Ren & Philip Stevens
Journal of Productivity Analysis, April 2012, Pages 187-201

Abstract:
Broadband access is widely considered to be a productivity-enhancing factor, but there are few firm-level estimates of its benefits. We use a large micro-survey of firms linked to longitudinal firm financial data to determine the impact that broadband access has on firm productivity. Propensity score matching is used to control for factors, including the firm's own lagged productivity, that determine a firm's internet access choice. Instrumental variables estimates are employed as a robustness check. Results indicate that broadband adoption boosts firm productivity by 7-10%; effects are consistent across urban versus rural locations and across high versus low knowledge intensive sectors.

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Self-employment and local economic performance: Evidence from US counties

Anil Rupasingha & Stephan Goetz
Papers in Regional Science, forthcoming

Abstract:
This study explores the relationship between self-employment and income growth, employment growth, and change in poverty in metro and non-metro areas in the United States using county-level panel data. We investigate the impact of the relative size of the self-employment sector measured by the share of non-farm proprietorships (NFPs) in total full and part-time employment on three key economic performance indicators. We first estimate an income growth model to analyse the effects of self-employment on income growth. Then we investigate the independent effects of self-employment on employment growth and changes in family poverty rates. Our results indicate that higher self-employment rates are associated with statistically significant increases over time in income and employment growth, and reductions in poverty rates in non-metro counties. We find similar effects on metro county income and employment, but not on poverty dynamics.

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Thick-Market Effects and Churning in the Labor Market: Evidence from U.S. Cities

Hoyt Bleakley & Jeffrey Lin
Journal of Urban Economics, forthcoming

Abstract:
Workers change occupation and industry less often in more densely populated areas, a relationship that has not been previously reported. This reduced-form result is robust to standard demographic controls, as well as to including aggregate measures of human capital and sectoral mix. Analysis of displaced worker surveys shows that this relationship is present in cases of involuntary separation as well. In contrast, we actually find the opposite result (higher rates of occupational and industrial switching) for the subsample of younger workers. These results provide evidence consistent with increasing-returns-to-scale matching in labor markets. Results from a back-of-the-envelope calibration suggest that this mechanism has an important role in raising both wages and returns to experience in denser areas.

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Setting the minimum wage

Tito Boeri
Labour Economics, June 2012, Pages 281-290

Abstract:
The process leading to the setting of the minimum wage so far has been overlooked by economists. There are two common ways of setting national minimum wages: they are either government legislated or the byproduct of collective bargaining agreements, which are extended erga omnes to all workers. We develop a simple model relating the level of the minimum wage to the setting regime. Next, we exploit a new data set on minimum wages in 68 countries having a statutory national minimum level of pay in the period 1981-2005. We find that a Government legislated minimum wage is lower than a wage floor set within collective agreements. This effect survives to several robustness checks and can be interpreted as a causal effect of the setting regime on the level of the minimum wage.

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Unemployment Insurance Schemes, Liquidity Constraints and Re-employment: A Three Country Comparison

Lorenzo Corsini
Comparative Economic Studies, June 2012, Pages 321-340

Abstract:
We examine how unemployment schemes and liquidity constraints affect re-employment probabilities trying to assess whether these schemes, through employment services and search requirements, can offset the perverse effect of benefits on unemployment duration. Similarly, given that liquidity constraints and financial pressure also affect reservation wage and search effort, we analyze whether better economic conditions of individuals increase duration. We perform a survival analysis on Finland, Italy and Poland and we find that unemployment insurance schemes have a mixed effect: initially they give incentives to increase search effort but with time they simply reduce liquidity constraints and thus increase duration. We also find that individuals' liquidity constraints reduce unemployment duration in Italy and Poland but not Finland, suggesting that this aspect is less important in countries with a more developed welfare system.

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The Role of Economic Development Corporations in Local Economic Development: Evidence From Texas Cities

Christopher Jarmon et al.
Economic Development Quarterly, May 2012, Pages 124-137

Abstract:
Since their establishment, city-level economic development corporations in Texas have grown in popularity as an ostensible means of providing for economic development. However, one knows little about the association between these economic development entities and the economic vitality of the areas they serve. Using a 2005-2006 survey of city leaders in Texas, along with Census data for 304 Texas cities, the authors investigate the association between the use of economic development corporations and the level of local unemployment. Results of the analysis indicate that economic development corporations have a reliable association with lower levels of unemployment; however, the activities of these entities matter. Lower levels of community employment are associated with activities that focus on industrial development. In contrast, the authors find no reliable relationship between the level of city unemployment and economic development corporations that engage in quality of life activities.


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