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Thursday, November 15, 2012

Working hypothesis

 

The U.S. Employment-Population Reversal in the 2000s: Facts and Explanations

Robert Moffitt
NBER Working Paper, November 2012

Abstract:
The decline in the employment-population ratios for men and women over the period 2000-2007 prior to the Great Recession represents an historic turnaround in the evolution of U.S. employment. The decline is disproportionately concentrated among the less educated and younger groups within the male and female populations and, for women, disproportionately concentrated among the unmarried and those without children. About half of men's decline can be explained by declines in wage rates and by changes in nonlabor income and family structure influences, but the decline among women is more difficult to explain and requires distinguishing between married and unmarried women and those with and without children, who have each experienced quite different wage and employment trends. Neither taxes nor transfers appear likely to explain the employment declines, with the possible exception of the Supplemental Nutrition Assistance Program. Other influences such as the minimum wage or health factors do not appear to play a role, but increases in incarceration could have contributed to the decline among men.

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The great increase in relative wage volatility in the United States

Julien Champagne & André Kurmann
Journal of Monetary Economics, forthcoming

Abstract:
Over the past 25 years, real average hourly wages in the United States have become substantially more volatile relative to output. Microdata from the Current Population Survey (CPS) is used to show that this increase in relative volatility is predominantly due to increases in the relative volatility of hourly wages across different groups of workers. Compositional changes of the workforce, by contrast, account for only a small fraction of the increase in relative wage volatility. Simulations with a Dynamic Stochastic General Equilibrium (DSGE) model illustrate that the observed increase in relative wage volatility is unlikely to come from changes outside of the labor market (e.g. smaller exogenous shocks or more aggressive monetary policy). By contrast, greater flexibility in wage setting due to deunionization and a shift towards performance-pay contracts as experienced by the U.S. labor market is capable of accounting for a substantial fraction of the observed increase in relative wage volatility. Greater wage flexibility also decreases the magnitude of business cycle fluctuations, suggesting an interesting new explanation for the Great Moderation.

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Urban Growth and Transportation

Gilles Duranton & Matthew Turner
Review of Economic Studies, October 2012, Pages 1407-1440

Abstract:
We estimate the effects of interstate highways on the growth of U.S. cities between 1983 and 2003. We find that a 10% increase in a city's initial stock of highways causes about a 1.5% increase in its employment over this 20 year period. To estimate a structural model of urban growth and transportation, we rely on an instrumental variables estimation that uses a 1947 plan of the interstate highway system, an 1898 map of railroads, and maps of the early explorations of the U.S. as instruments for 1983 highways.

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WalMart and Local Economic Development: A Survey

Alessandro Bonanno & Stephan Goetz
Economic Development Quarterly, November 2012, Pages 285-297

Abstract:
This article reviews the literature that evaluates WalMart's impacts on local economies. The authors first describe the methods used to account for potential reverse causality of WalMart's store location decisions, and then they discuss the literature assessing the company's effect on three aspects of community life: (a) retail (and nonretail) businesses, across large- and small-sized stores and in different business environments; (b) retail workers, wages, and types of jobs; and (c) producer and consumer welfare through the company's price-decreasing effect and other potential indirect effects. Last, articles focusing on a broad spectrum of local conditions that could be affected by the company, including poverty rates, social capital, food insecurity, policy effectiveness, and obesity are reviewed. For each dimension, evidence is found of both positive and negative effects, suggesting that we are still far from truly understanding the net effect of WalMart on local economies, let alone the overall consequences in the long run.

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Understanding the Long-Run Decline in Interstate Migration

Greg Kaplan & Sam Schulhofer-Wohl
NBER Working Paper, November 2012

Abstract:
We analyze the secular decline in interstate migration in the United States between 1991 and 2011. Gross flows of people across states are about 10 times larger than net flows, yet have declined by around 50 percent over the past 20 years. We argue that the fall in migration is due to a decline in the geographic specificity of returns to occupations, together with an increase in workers' ability to learn about other locations before moving there, through information technology and inexpensive travel. These explanations find support in micro data on the distribution of earnings and occupations across space and on rates of repeat migration. Other explanations, including compositional changes, regional changes, and the rise in real incomes, do not fit the data. We develop a model to formalize the geographic-specificity and information mechanisms and show that a calibrated version is consistent with cross-sectional and time-series patterns of migration, occupations, and incomes. Our mechanisms can explain at least one-third and possibly all of the decline in gross migration since 1991.

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Compensating Differentials and Income Taxes: Are the Wages of Dangerous Jobs More Responsive to Tax Changes than the Wages of Safe Jobs?

David Powell
Journal of Human Resources, Fall 2012, Pages 1023-1054

Abstract:
Income taxes distort the relationship between wages and nontaxable amenities. When the marginal tax rate increases, amenities become more valuable as the compensating differential for low-amenity jobs is taxed away. While there is evidence that the provision of amenities responds to taxes, the literature has ignored the consequences for job characteristics which cannot fully adjust. This paper compares the wage response of dangerous jobs to the wage response of safe jobs. When tax rates increase, we should see the pretax compensating differential for on-the-job risk increase. Empirically, I find large differences in the wage response of jobs based on their riskiness.

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Losing a Job: The Nonpecuniary Cost of Unemployment in the United States

Cristobal Young
Social Forces, forthcoming

Abstract:
Drawing on the Panel Study of Income Dynamics, I track the subjective well-being of individuals as they enter and exit unemployment. Job loss is a salient trigger event that sets off large changes in well-being. The factors expected to improve the lot of the unemployed have limited efficacy: (1) changes in family income are not significantly correlated with well-being; (2) unemployment insurance eligibility seems to partly mitigate the effect of job loss, but is a poor substitute for work; and (3) even reemployment recovers only about two thirds of the initial harm of job loss, indicating a potential long-term scar effect of unemployment. This highlights the deep and intractable hardship caused by unemployment in America.

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Effective Labor Regulation and Microeconomic Flexibility

Ricardo Caballero et al.
Journal of Development Economics, March 2013, Pages 92-104

Abstract:
Microeconomic flexibility is at the core of economic growth in modern market economies because it facilitates the process of creative-destruction, The main reason why this process is not infinitely fast, is the presence of adjustment costs, some of them technological, others institutional. Chief among the latter is labor market regulation. While few economists object to the hypothesis that labor market regulation hinders the process of creative-destruction, its empirical support is limited. In this paper we revisit this hypothesis, using a new sectoral panel for 60 countries and a methodology suitable for such a panel. We find that job security regulation clearly hampers the creative-destruction process, especially in countries where regulations are likely to be enforced. Moving from the 20th to the 80th percentile in job security, in countries with strong rule of law, cuts the annual speed of adjustment to shocks by a third while shaving off about one percent from annual productivity growth. The same movement has negligible effects in countries with weak rule of law.

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Wrongful Discharge Laws and Innovation

Viral Acharya, Ramin Baghai & Krishnamurthy Subramanian
NBER Working Paper, November 2012

Abstract:
We show that wrongful discharge laws - laws that protect employees against unjust dismissal - spur innovation and new firm creation. Wrongful discharge laws, particularly those that prohibit employers from acting in bad faith ex post, limit employers' ability to hold up innovating employees after the innovation is successful. By reducing the possibility of hold-up, these laws enhance employees' innovative efforts and encourage firms to invest in risky, but potentially mould-breaking, projects. We develop a model and provide supporting empirical evidence of this effect using the staggered adoption of wrongful discharge laws across the U.S. states.

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Big locational unemployment differences despite high labor mobility

Damba Lkhagvasuren
Journal of Monetary Economics, forthcoming

Abstract:
Considerable labor mobility exists across U.S. states, enough that, if migration arbitrages local unemployment, one might expect very low unemployment differences across states. However, cross-state data reveal large unemployment differences. An equilibrium multi-location model with stochastic worker-location match productivity and within-location trading frictions can account for these facts. In the model, some workers move to, or stay in, a location with high unemployment because they are more productive there than elsewhere. According to the model, labor mobility and aggregate unemployment are negatively related. This prediction is in stark contrast to standard sectoral reallocation theory, but consistent with the U.S. data.

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Workers, Unions, and Takeovers

Xiaoyang Li
Journal of Labor Research, December 2012, Pages 443-460

Abstract:
How do takeovers affect workers' wages and job security in the short-run? What role does the labor union play in mitigating these effects? I answer these two questions by analyzing wage and employment outcomes of over 4,000 public firms that were acquired between 1981 and 2002, using establishment-level data from the U.S. Census Bureau. I find that target establishments exhibit a net contraction in wages and employment, relative to comparable establishments after takeovers. Targets' establishments in more unionized industries experience worse wage and employment outcomes after takeovers. These adverse effects are exacerbated when the establishment is located in a state with Right-to-work laws where unions face a less favorable bargaining environment. These findings indicate that target firms' employees are negatively affected by takeovers and that their labor unions do not mitigate these negative effects.

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The Contribution of Large and Small Employers to Job Creation in Times of High and Low Unemployment

Giuseppe Moscarini & Fabien Postel-Vinay
American Economic Review, October 2012, Pages 2509-2539

Abstract:
We document a negative correlation, at business cycle frequencies, between the net job creation rate of large employers and the level of aggregate unemployment that is much stronger than for small employers. The differential growth rate of employment between initially large and small employers has an unconditional correlation of -0.5 with the unemployment rate, and varies by about 5 percent over the business cycle. We exploit several datasets from the United States, Denmark, and France, both repeated cross sections and job flows with employer longitudinal information, spanning the last four decades and several business cycles. We discuss implications for theories of factor demand.

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Education and Employment Protection

Olivier Charlot & Franck Malherbet
Labour Economics, forthcoming

Abstract:
In this paper, we generalize the study of the return to education undertaken in e.g. Laing, Palivos and Wang (1995) and Burdett and Smith (2002) to an environment where the link between education and job destruction is taken into account. This enables us to study how a European-type Employment Protection Legislation (EPL) with heavily regulated long-term contracts and more flexible short-term contracts affects the return to schooling, equilibrium unemployment and welfare. In this context, we show that firing costs and temporary employment have opposite effects on the rate of use of human capital and thus, on educational investments. We furthermore demonstrate that a laissez-faire economy with no regulation is inefficient as it is characterized by insufficient educational investments leading to excess job destruction and inadequate job creation. By stabilizing employment, firing costs could spur educational investments and therefore lead to gains in welfare and productivity, though a first-best policy would be to subsidize education. However, there is little chance that a rise in firing costs in a dual (European-type) EPL context would raise the incentives to schooling and aggregate welfare.

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Will Delayed Retirement by the Baby Boomers Lead to Higher Unemployment Among Younger Workers?

Alicia Munnell & April Yanyuan Wu
Boston College Working Paper, September 2012

Abstract:
Using 1977-2011 data from the Current Population Survey, this paper investigates the often-repeated claim that delayed retirement by baby boomers will result in higher unemployment among the young, a claim which has been garnering increased attention from the media during the Great Recession. It explores both time-series and cross-state variation, and uses state-level regressions and instrumental-variable models to determine the extent to which such "crowding out" exists in the United States. The estimates show no evidence that increasing the employment of older persons reduces the job opportunities or wage rates of younger persons. Indeed, the evidence suggests that greater employment of older persons leads to better outcomes for the young in the form of reduced unemployment, increased employment, and a higher wage. The patterns are consistent for both men and women and for groups with different levels of education. Estimates using elderly male mortality rates as instrumental variables also produce no consistent evidence that changes in the employment rates of older workers adversely affect the employment and wage rate of their younger counterparts. If anything, the opposite is true. Finally, despite the fact that the labor market downturn that accompanied the Great Recession was the most severe experienced in the post-war era, the effects of elderly employment on other segments of the labor market do not differ from those during typical business cycles.

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Retirement Pay and Officer Retention

Jeffrey Smith & James West
NBER Working Paper, November 2012

Abstract:
We use data from a natural experiment in which retirement benefits were reduced by congressional legislation and later restored to estimate the effect of future retirement benefit eligibility upon the decision of whether to remain in the U.S. military. We find that the generosity of retirement benefits is significantly correlated with the decision to remain in service until members qualify for benefits. The estimated effect of a 20 percent reduction in the generosity of retirement benefits upon the probability of remaining on active duty is equivalent to the effect of a 0.27 percentage point reduction in the unemployment rate, or approximately a 2 percent increase in the GDP growth rate.

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Job Insecurity Perceptions and Media Coverage of Labor Market Policy

Marcel Garz
Journal of Labor Research, December 2012, Pages 528-544

Abstract:
This study employs a panel data set that combines information obtained from media content analysis, micro-level survey data, and macroeconomic variables to investigate the impact of media coverage on individual perceptions of job insecurity in Germany. Estimates indicate that these perceptions increase in years with greater quantity of news reporting. This volume effect is larger for socio-demographic groups with a generally low incidence of insecurity perceptions (e.g., highly educated and remunerated employees), which implies that unequally distributed perceptions converge when media coverage is strong. Moreover, the results suggest that information processing is subject to an optimism bias.

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The O-Ring Sector and the Foolproof Sector: An explanation for skill externalities

Garett Jones
Journal of Economic Behavior & Organization, forthcoming

Abstract:
Differences in worker skill cause modest differences in wages within a country, but are associated with massive differences in productivity across countries (Hanushek and Kimko, 2000). I build upon Kremer's (1993) O-ring theory of production to explain this stylized fact. I posit that there are two kinds of jobs: O-ring jobs where strategic complementarities to skill are large, and a diminishing-returns Foolproof sector, where two mediocre workers provide the same effective labor as one excellent worker. Both production functions are available to each country. In equilibrium, an econometrician would only see small returns to skill within a country. In a world where countries vary only slightly in the average skill of workers, these assumptions are sufficient to generate massive differences in cross-country income inequality while generating only small amounts of intra-country income inequality.

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From "Sick Man" to "Miracle": Explaining the Robustness of the German Labor Market During and After the Financial Crisis 2008-09

Alexander Reisenbichler & Kimberly Morgan
Politics & Society, December 2012, Pages 549-579

Abstract:
What explains Germany's exceptional labor market performance during the Great Recession of 2008-09? Contrary to accounts that emphasize employment protection legislation or government policy (i.e., short-time work), this article argues that actions by firms - embedded in ever-changing coordinative institutional structures - were crucial. Firms chose to keep rather than shed labor, a strategy induced by (i) a "toolkit" of flexible labor market instruments that had evolved incrementally over the past thirty years; (ii) wage restraint and successful internal restructuring of firms during the past decade, which fueled an export boom before the crisis. Firms thus had some margin for maneuver, using internal flexibility to protect their investment in skilled workers. These and other institutional changes driven by firms reflect a process of successful adaptation to external economic challenges, but did not fundamentally undermine Germany's coordinated form of capitalism. The result is not a new German model that was purposefully designed; instead German firms slowly discovered new ways to cope with economic challenges.

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Can Google data help predict French youth unemployment?

Y. Fondeur & F. Karamé
Economic Modelling, January 2013, Pages 117-125

Abstract:
According to the growing "Google econometrics" literature, Google queries may help predict economic activity. The aim of our paper is to test whether these data can enhance predictions of youth unemployment in France. Because we have weekly series on web search queries and monthly series on unemployment for 15- to 24-year olds, we use the unobserved components approach in order to exploit all available information. Our model is estimated with a modified version of the Kalman filter, taking into account the twofold issue of non-stationarity and multiple frequencies in our data. We find that including Google data improves unemployment predictions relative to a competing model that does not employ search data queries.

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Does Stock Market Performance Influence Retirement Intentions?

Gopi Shah Goda, John Shoven & Sita Nataraj Slavov
Journal of Human Resources, Fall 2012, Pages 1055-1081

Abstract:
Media reports predicted that the stock market decline in October 2008 would cause changes in retirement intentions, due to declines in retirement assets. We use panel data from the Health and Retirement Study to investigate the relationship between stock market performance and retirement intentions during 1998-2008, a period that includes the recent crisis. While we find a weak negative correlation between stock returns and retirement intentions, further investigation suggests that this relationship is not driven by wealth shocks brought about by stock market fluctuations, but by other factors that are correlated with both the stock market and retirement intentions.

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The Economic Impact of Special Economic Zones: Evidence from Chinese Municipalities

Jin Wang
Journal of Development Economics, forthcoming

Abstract:
The paper exploits a unique Chinese municipal dataset to assess the impact of Special Economic Zones on the local economy. Comparing the changes between the municipalities that created a SEZ in earlier rounds and those in later waves, I find that the SEZ program increases foreign direct investment not merely through firm relocation, and does not crowd out domestic investment. With dense investment in the targeted municipality the SEZ achieves agglomeration economies and generates wage increases for workers more than the increase in the local cost of living. The effects are heterogeneous: for zones created later the benefits are smaller while the distortions in firm location behavior are larger than those for the early zones. Municipalities with multiple SEZs experience larger effects than those with only one SEZ.

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The Prospect of Losing Benefits and the Work Decisions of Participants in Disability Programs: A Cross-Program Comparison

John Gettens et al.
Journal of Disability Policy Studies, December 2012, Pages 179-189

Abstract:
Participants in public disability programs face the loss of benefits if they work and earn at substantial levels. Policy makers, researchers, and advocates have suggested that the prospect of benefit loss is, at least in part, an explanation for the low levels of earnings and work participation among disability program participants; however, research on the actual effects is very limited. The authors estimate the prospect of benefit loss effects on work participation and earnings of participants in four disability programs using a unique survey. The findings strongly suggest that the prospect of benefit loss decreases earnings and work participation among disability program participants. Unexpectedly, the authors found little variation in the size of the prospect of benefit loss effects across programs even though there is substantial cross-program variation in the actual benefit loss that occurs with work participation and increased earnings.

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Pension Costs and Retirement Decisions in Plans that Combine DB and DC Elements: Evidence from Oregon

John Chalmers, Woodrow Johnson & Jonathan Reuter
NBER Working Paper, November 2012

Abstract:
The Oregon Public Employees Retirement System (PERS) is a hybrid pension plan that provides employees the security of a defined benefit (DB) pension plus the option to receive instead retirement benefits based on a defined contribution-style (DC) retirement account. We use PERS administrative data for 1990 to 2003 to study the effect of this hybrid design on employers' costs and employees' retirement-timing decisions. We have four findings. First, the option built into PERS is costly for employers to provide. Ex post, average retirement benefits are 49% higher in the hybrid plan than they would have been in a traditional DB plan. For the typical retiree, simulations show that our ex post estimate lies between the 50th and 75th percentiles of the ex ante distribution. Second, the hybrid plan distorts employees' retirement timing decisions relative to a traditional DB plan. Looking across benefit formulas, we find that as an employee's DC benefit increases above her DB benefit, so does the probability that she retires before the normal retirement age. Third, we find that retirement timing decisions respond to two sources of exogenous variation in the level of the DC benefit. Finally, we find evidence of peer effects in that employees respond more strongly to their own retirement incentives when more of their coworkers face similar incentives. The retirement waves that result from employees seeking to avoid declines in pension benefits are likely to impose significant administrative costs on employers.

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Blood, Sweat and Fears: The Need for a Professional Boxers' Pension Plan

David Chaplin
Journal of Sport and Social Issues, November 2012, Pages 443-452

Abstract:
In professional boxing, rags-to-riches-to-rags stories are as commonplace as elaborate ring entrances. In the wake of the Professional Boxing Safety Act of 1996, the U.S. Congress mandated that the Secretary of Labor undertake a study on the feasibility of establishing a pension plan for professional boxers. The results of the study have yet to be utilized for the development of such a plan. Employing data on those boxing in Nevada, 2008-2010, a model pension plan is developed herein, which may be used as a prototype for other states or a national boxers' pension plan.

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Mega Sport Events: A Probabilistic Social Cost-Benefit Analysis of Bidding for the Games

Michiel de Nooij
Journal of Sports Economics, forthcoming

Abstract:
The debates on whether to bid for organizing a mega sports event like the World Cup Soccer or the Olympic Games ignore either the bidding costs or the probability not to win the bid or both. In this short article, I discuss why the bidding costs and probabilities should be taken into account and I show for the Netherlands, which is currently discussing bidding for the Olympic Games of 2028, that the Net Present Value of organizing should be €557 million to €2.8 billion positive to compensate for the bidding costs and the probability of an unsuccessful bid.

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The Effect of Prevailing Wage Regulations on Contractor Bid Participation and Behavior: A Comparison of Palo Alto, California with Four Nearby Prevailing Wage Municipalities

Jaewhan Kim, Chang Kuo-Liang & Peter Philips
Industrial Relations, October 2012, Pages 874-891

Abstract:
This sample of bids by union and nonunion contractors on and off municipal prevailing wage projects in the San Francisco Bay area of California provides the first empirical evidence examining the effects of prevailing wage regulations on contractor participation and bidding behavior. The data show that the presence of prevailing wage regulations does not decrease the number of bidders nor alter the bidding behavior of contractors relative to the engineer's estimate of the value of the project. Furthermore, in this heavily unionized area during an upswing in the business cycle, the presence of prevailing wage regulations did not discourage the participation of nonunion contractors nor reduce their chances of winning work.

By KEVIN LEWIS | 09:00:00 AM