Get busy
Marriage stability, taxation and aggregate labor supply in the U.S. vs. Europe
Indraneel Chakraborty, Hans Holter & Serhiy Stepanchuk
Journal of Monetary Economics, forthcoming
Abstract:
Americans work more than Europeans. Using micro data from the United States and 17 European countries, we document that women are typically the largest contributors to the cross-country differences in work hours. We also show that there is a negative relation between taxes and annual hours worked, driven by men, and a positive relation between divorce rates and annual hours worked, driven by women. In a calibrated life-cycle model with heterogeneous agents, marriage and divorce, we find that the divorce and tax mechanisms together can explain 45% of the variation in labor supply between the United States and the European countries.
---------------------
The Impact of Unemployment Benefit Extensions on Employment: The 2014 Employment Miracle?
Marcus Hagedorn, Iourii Manovskii & Kurt Mitman
NBER Working Paper, January 2015
Abstract:
We measure the effect of unemployment benefit duration on employment. We exploit the variation induced by the decision of Congress in December 2013 not to reauthorize the unprecedented benefit extensions introduced during the Great Recession. Federal benefit extensions that ranged from 0 to 47 weeks across U.S. states at the beginning of December 2013 were abruptly cut to zero. To achieve identification we use the fact that this policy change was exogenous to cross-sectional differences across U.S. states and we exploit a policy discontinuity at state borders. We find that a 1% drop in benefit duration leads to a statistically significant increase of employment by 0.0161 log points. In levels, 1.8 million additional jobs were created in 2014 due to the benefit cut. Almost 1 million of these jobs were filled by workers from out of the labor force who would not have participated in the labor market had benefit extensions been reauthorized.
---------------------
Emily Rauscher
Social Forces, forthcoming
Abstract:
During the US Industrial Revolution, educational expansion may have created skilled jobs through innovation and skill upgrading or reduced skilled jobs by mechanizing production. Such arguments contradict classic sociological work that treats education as a sorting mechanism, allocating individuals to fixed occupations. I capitalize on state differences in the timing of compulsory school attendance laws to ask whether raising the minimum level of schooling: (1) increased school attendance rate; or (2) shifted state occupational distributions away from agricultural toward skilled and non-manual occupation categories. Using state-level panel data constructed from 1850–1930 censuses and state-year fixed effects models, I find that compulsory laws significantly increased school attendance rates, particularly among lower-class children, and shifted the categorical distribution toward skilled and non-manual occupations. Thus, rather than deskilling through mechanization, raising the minimum level of education seems to have created skilled jobs and raised the occupational distribution through skill-biased technological change. Results suggest that education was not merely a sorting mechanism, supporting the importance of education as an institution even around the turn of the century.
---------------------
Optimal Life Cycle Unemployment Insurance
Caludio Michelacci & Hernán Ruffo
American Economic Review, February 2015, Pages 816-859
Abstract:
We argue that US welfare would rise if unemployment insurance were increased for younger and decreased for older workers. This is because the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital. So unemployment insurance is most valuable to them, while moral hazard is mild. By calibrating a life cycle model with unemployment risk and endogenous search effort, we find that allowing unemployment replacement rates to decline with age yields sizeable welfare gains to US workers.
---------------------
What Explains the 2007–2009 Drop in Employment?
Atif Mian & Amir Sufi
Econometrica, November 2014, Pages 2197–2223
Abstract:
We show that deterioration in household balance sheets, or the housing net worth channel, played a significant role in the sharp decline in U.S. employment between 2007 and 2009. Counties with a larger decline in housing net worth experience a larger decline in non-tradable employment. This result is not driven by industry-specific supply-side shocks, exposure to the construction sector, policy-induced business uncertainty, or contemporaneous credit supply tightening. We find little evidence of labor market adjustment in response to the housing net worth shock. There is no significant expansion of the tradable sector in counties with the largest decline in housing net worth. Further, there is little evidence of wage adjustment within or emigration out of the hardest hit counties.
---------------------
David Card et al.
NBER Working Paper, January 2015
Abstract:
We provide new evidence on the effect of the unemployment insurance (UI) weekly benefit amount on unemployment insurance spells based on administrative data from the state of Missouri covering the period 2003-2013. Identification comes from a regression kink design that exploits the quasi-experimental variation around the kink in the UI benefit schedule. We find that UI durations are more responsive to benefit levels during the recession and its aftermath, with an elasticity between 0.65 and 0.9 as compared to about 0.35 pre-recession.
---------------------
The Effect of Population Aging on Economic Growth
Nicole Maestas, Kathleen Mullen & David Powell
RAND Working Paper, October 2014
Abstract:
Population aging is widely expected to have detrimental effects on aggregate economic growth. However, we have little empirical evidence about the actual existence or magnitude of such effects. In this paper, we exploit differential aging patterns at the state level in the United States between 1980 and 2010. Many states have already experienced high growth rates of the 60 population, comparable to the predicted national growth rate over the next several decades. Furthermore, these differential growth rates occur partially for reasons unrelated to economic growth, providing a natural approach to isolate the impact of aging on growth. We predict the magnitude of population aging at the state-level given the state’s age structure in an initial period and exploit this predictable differential growth to estimate the impact of population aging on Gross Domestic Product (GDP) growth, and its constituent parts, labor force and productivity growth. We estimate that a 10% increase in the fraction of the population ages 60 decreases GDP per capita by 5.7%. We find that this reduction in economic growth caused by population aging is primarily due to a decrease in growth in the supply of labor. To a lesser extent, it is also due to a reduction in productivity growth. We present evidence of downward adjustment of earnings growth to reflect the reduction in productivity.
---------------------
David Autor et al.
NBER Working Paper, January 2015
Abstract:
This paper measures the causal effect of time out of the labor force on subsequent employment of Social Security Disability Insurance (SSDI) applicants and distinguishes it from the discouragement effect of receiving disability benefits. Using a unique Social Security Administration workload database to identify exogenous variation in decision times induced by differences in processing speed among disability examiners to whom applicants are randomly assigned, we find that longer processing times reduce the employment and earnings of SSDI applicants for multiple years following application, with the effects concentrated among applicants awarded benefits during their initial application. A one standard deviation (2.1 month) increase in initial processing time reduces long-run “substantial gainful activity” rates by 0.36 percentage points (3.5%) and long-run annual earnings by $178 (5.1%). Because applicants initially denied benefits spend on average more than 15 additional months appealing their denials, previous estimates of the benefit receipt effect are confounded with the effect of delays on subsequent employment. Accounting separately for these channels, we find that the receipt effect is at least 50% larger than previously estimated. Combining the delay and benefits receipt channels reveals that the SSDI application process reduces subsequent employment of applicants on the margin of award by twice as much as prior literature suggests.
---------------------
Cohort Size and Youth Earnings: Evidence from a Quasi-Experiment
Louis-Philippe Morin
Labour Economics, January 2015, Pages 99–111
Abstract:
In this paper, I use data from the Canadian Labour Force Surveys (LFS), and the 2001 and 2006 Canadian Censuses to estimate the impact of an important labour supply shock on the earnings of young high-school graduates. The abolition of Ontario’s Grade 13 generated a very large cohort of high-school graduates that simultaneously entered the Ontario labour market, generating a sudden increase in the labour supply. This provides a rare occasion to measure the impact of cohort size on earnings without the supply shock being possibly confounded with unobserved trends — a recurring problem in the literature. The Census findings suggest that the effect of the supply shock is statistically and economically important, depressing weekly earnings by 5 to 9 percent. The findings from the Census are supported by the LFS results that suggest that the immediate impact of the supply shock — measured about six months after high-school graduation — is also important.
---------------------
The Skill Complementarity of Broadband Internet
Anders Akerman, Ingvil Gaarder & Magne Mogstad
NBER Working Paper, January 2015
Abstract:
Does adoption of broadband internet in firms enhance labor productivity and increase wages? And is this technological change skill biased or factor neutral? We exploit rich Norwegian data to answer these questions. A public program with limited funding rolled out broadband access points, and provides plausibly exogenous variation in the availability and adoption of broadband internet in firms. Our results suggest that broadband internet improves (worsens) the labor outcomes and productivity of skilled (unskilled) workers. We explore several possible explanations for the skill complementarity of broadband internet. We find suggestive evidence that broadband adoption in firms complements skilled workers in executing nonroutine abstract tasks, and substitutes for unskilled workers in performing routine tasks. Taken together, our findings have important implications for the ongoing policy debate over government investment in broadband infrastructure to encourage productivity and wage growth.
---------------------
Organizational Failure and Intraprofessional Status Loss
Christopher Rider & Giacomo Negro
Organization Science, forthcoming
Abstract:
We examine variation in intraprofessional status changes for employees displaced by organizational failure. We propose that failure-related reductions in bargaining power are moderated by individual status characteristics that influence potential employers’ evaluations of job candidates and, therefore, individuals’ status loss risks. Treating a prominent law firm’s failure as a quasi-experiment, we test our arguments by analyzing 224 firm partners’ transitions to subsequent employers. Most partners regained employment at firms of lower status than the failed firm. But, independent of their demonstrated productivity, a partner’s likelihood of status loss increased with tenure in the failed firm’s partnership and decreased with educational prestige. These results suggest not only that organizational failure can diminish cumulative career advantages but also that status characteristics that enable attainment, such as education, can protect individuals against status loss.
---------------------
Minimum Wages and Gross Domestic Product
Joseph Sabia
Contemporary Economic Policy, forthcoming
Abstract:
This study is the first to explore the relationship between minimum wage increases and state gross domestic product (GDP). Using data drawn from the Bureau of Economic Analysis (BEA) and the Current Population Survey (CPS) from 1979 to 2012, I find no evidence that minimum wage increases were associated with changes in overall state GDP. However, this null finding masks substantial heterogeneity in the productivity effects of minimum wages across industries and over the business cycle. Difference-in-difference-in-difference estimates suggest that a 10% increase in the minimum wage is associated with a short-run 1% to 2% decline in state GDP generated by lower-skilled industries relative to more highly skilled industries. This differential appears larger during troughs as compared to that during peaks of the state business cycle.
---------------------
Technology and Labor Regulations: Theory and Evidence
Alberto Alesina, Michele Battisti & Joseph Zeira
NBER Working Paper, January 2015
Abstract:
This paper shows that different labor market policies can lead to differences in technology across sectors in a model of labor saving technologies. Labor market regulations reduce the skill premium and as a result, if technologies are labor saving, countries with more stringent labor regulation, which are binding for low skilled workers, become less technologically advanced in their high-skilled sectors, and more technologically advanced in their low-skilled sectors. We then present data on capital output ratios, on estimated productivity levels and on patent creation, which support the predictions of our model.
---------------------
A Pareto-improving Minimum Wage
Eliav Danziger & Leif Danziger
Economica, forthcoming
Abstract:
This paper shows that a graduated minimum wage, in contrast to a constant minimum wage, can provide a strict Pareto improvement over what can be achieved with an optimal income tax. The reason is that a graduated minimum wage requires high-productivity workers to work more to earn the same income as low-productivity workers, which makes it more difficult for the former to mimic the latter. In effect, a graduated minimum wage allows the low-productivity workers to benefit from second-degree price discrimination, which increases their income.
---------------------
The Employment Effects of Terminating Disability Benefits
Timothy Moore
George Washington University Working Paper, January 2015
Abstract:
Few Social Security Disability Insurance (DI) beneficiaries return to the labor force, making it hard to assess their likely employment in the absence of benefits. Using administrative data, I examine the employment of individuals who lost DI eligibility after the 1996 removal of drug and alcohol addictions as qualifying conditions. Approximately 22 percent started working at levels that would have disqualified them for DI, an employment response that is large relative to their work histories. Those who received DI for 2-3 years had the largest response, suggesting that a period of public assistance may maximize the employment of some disabled individuals.
---------------------
The bigger the worse? A comparative study of the welfare state and employment commitment
Kjetil van der Wel & Knut Halvorsen
Work, Employment & Society, February 2015, Pages 99-118
Abstract:
This article investigates how welfare generosity and active labour market policies relate to employment commitment. As social policy is increasingly directed towards stimulating employment in broader sections of society, this article particularly studies employment commitment among groups with traditionally weaker bonds to the labour market. This is also theoretically interesting because the employment commitment in these groups may be more affected by the welfare context than is the employment commitment of the core work force. A welfare scepticism view predicts that disincentive effects and norm erosion will lead to lower employment commitment in more generous and activating welfare states, while a welfare resources perspective holds the opposite view. Using multilevel data for individuals in 18 European countries, the article finds increasing employment commitment as social spending gets more generous and activating. This was also evident for weaker groups in the labour market, although the effect was less pronounced in some groups.
---------------------
Gilles Le Garrec
Journal of Population Economics, April 2015, Pages 329-352
Abstract:
In many European countries, population aging had led to debate about a switch from conventional unfunded public pension systems to notional systems characterized by individual accounts. In this article, we develop an overlapping generations model in which endogenous growth is based on an accumulation of knowledge driven by the proportion of skilled workers and by the time they have spent in training. In such a framework, we show that conventional pension systems, contrary to notional systems, can enhance economic growth by linking benefits only to the partial earnings history. Thus, to ensure economic growth, the optimal adjustment to increased longevity could consist in increasing the size of existing retirement systems rather than switching to notional systems.
---------------------
Alexander Gelber, Adam Isen & Judd Kessler
NBER Working Paper, December 2014
Abstract:
Programs to encourage labor market activity among youth, including public employment programs and wage subsidies like the Work Opportunity Tax Credit, can be supported by three broad rationales. They may: (1) provide contemporaneous income support to participants; (2) encourage work experience that improves future employment and/or educational outcomes of participants; and/or (3) keep participants “out of trouble.” We study randomized lotteries for access to New York City's Summer Youth Employment Program (SYEP), the largest summer youth employment program in the U.S., by merging SYEP administrative data on 294,580 lottery participants to IRS data on the universe of U.S. tax records and to New York State administrative incarceration data. In assessing the three rationales, we find that: (1) SYEP participation causes average earnings and the probability of employment to increase in the year of program participation, with modest contemporaneous crowdout of other earnings and employment; (2) SYEP participation causes a moderate decrease in average earnings for three years following the program and has no impact on college enrollment; and (3) SYEP participation decreases the probability of incarceration and decreases the probability of mortality, which has important and potentially pivotal implications for analyzing the net benefits of the program.
---------------------
Nina Karnehed, Finn Rasmussen & Karin Modig
Journal of Epidemiology & Community Health, forthcoming
Background: Low IQ has been shown to be an important risk factor for disability pension (DP) but whether the importance has changed over time remains unclear. It can be hypothesised that IQ has become more important for DP over time in parallel with a more demanding working life. The aim of this study was to investigate the relative risk of low IQ on the risk of DP before age 30 between 1971 and 2006.
Methods: This study covered the entire Swedish male population born between 1951 and 1976, eligible for military conscription. Information about the study subjects was obtained by linkage of national registers. Associations between IQ and DP over time were analysed by descriptive measures (mean values, proportions, etc) and by Cox proportional hazards regressions. Analyses were adjusted for educational level.
Results: The cohort consisted of 1 229 346 men. The proportion that received DP before the age of 30 increased over time, from 0.68% in the cohort born between 1951 and 1955 to 0.95% in the cohort born between 1971 and 1976. The relative risk of low IQ (adjusted for education) in relation to high IQ decreased from 5.68 (95% CI 4.71 to 6.85) in the cohort born between 1951 and 1955 to 2.62 (95% CI 2.25 to 3.05) in the cohort born between 1971 and 1976.
Conclusions: Our results gave no support to the idea that the importance of low IQ for the risk of DP has increased in parallel with increasing demands in working life. In fact, low IQ has become less important as a risk factor for DP compared with high IQ between the early 1970s and 1990s. An increased educational level over the same time period is likely to be part of the explanation.