Good work

Kevin Lewis

September 04, 2017

Revisiting the risk of automation
Melanie Arntz, Terry Gregory & Ulrich Zierahn
Economics Letters, October 2017, Pages 157-160

In light of rapid advances in the fields of Artificial Intelligence (AI) and robotics, many scientists discuss the potentials of new technologies to substitute for human labour. Fuelling the economic debate, various empirical assessments suggest that up to half of all jobs in western industrialized countries are at risk of automation in the next 10 to 20 years. This paper demonstrates that these scenarios are overestimating the share of automatable jobs by neglecting the substantial heterogeneity of tasks within occupations as well as the adaptability of jobs in the digital transformation. To demonstrate this, we use detailed task data and show that, when taking into accounting the spectrum of tasks within occupations, the automation risk of US jobs drops, ceteris paribus, from 38 % to 9 %.

Political Distribution Risk and Aggregate Fluctuations
Thorsten Drautzburg, Jesús Fernández-Villaverde & Pablo Guerrón-Quintana
NBER Working Paper, August 2017

We argue that political distribution risk is an important driver of aggregate fluctuations. To that end, we document significant changes in the capital share after large political events, such as political realignments, modifications in collective bargaining rules, or the end of dictatorships, in a sample of developed and emerging economies. These policy changes are associated with significant fluctuations in output and asset prices. Using a Bayesian proxy-VAR estimated with U.S. data, we show how distribution shocks cause movements in output, unemployment, and sectoral asset prices. To quantify the importance of these political shocks for the U.S. as a whole, we extend an otherwise standard neoclassical growth model. We model political shocks as exogenous changes in the bargaining power of workers in a labor market with search and matching. We calibrate the model to the U.S. corporate non-financial business sector and we back up the evolution of the bargaining power of workers over time using a new methodological approach, the partial filter. We show how the estimated shocks agree with the historical narrative evidence. We document that bargaining shocks account for 34% of aggregate fluctuations.

Subjective well-being and minimum wages: Evidence from U.S. states
Masanori Kuroki
Health Economics, forthcoming

This paper investigates whether increases in minimum wages are associated with higher life satisfaction by using monthly-level state minimum wages and individual-level data from the 2005–2010 Behavioral Risk Factor Surveillance System. The magnitude I find suggests that a 10% increase in the minimum wage is associated with a 0.03-point increase in life satisfaction for workers without a high school diploma, on a 4-point scale. Contrary to popular belief that higher minimum wages hurt business owners, I find little evidence that higher minimum wages lead to the loss of well-being among self-employed people.

Unions, Workers, and Wages at the Peak of the American Labor Movement
Brantly Callaway & William Collins
Explorations in Economic History, forthcoming

We study a novel dataset compiled from archival records, which includes information on men's wages, union status, educational attainment, work history, and other background variables for several cities circa 1950. Such data are extremely rare for the early post-war period when U.S. unions were at their peak. After describing patterns of selection into unions, we measure the union wage premium using unconditional quantile methods. The wage premium was larger at the bottom of the income distribution than at the middle or higher, larger for African Americans than for whites, and larger for those with low levels of education. Counterfactuals are consistent with the view that unions substantially narrowed urban wage inequality at mid-century.

Corporate Income Tax, Legal Form of Organization, and Employment
Daphne Chen, Shi Shao Qi & Don Schlagenhauf
Federal Reserve Working Paper, July 2017

A dynamic stochastic occupational choice model with heterogeneous agents is developed to evaluate the impact of a corporate income tax reduction on employment. In this framework, the key margin is the endogenous entrepreneurial choice of the legal form of organization (LFO). A reduction in the corporate income tax burden encourages adoption of the C corporation legal form, which reduces capital constraints on firms. Improved capital re-allocation increases overall productive efficiency in the economy and therefore expands the labor market. Relative to the benchmark economy, a corporate income tax cut can reduce the non-employment rate by up to 7 percent.

People Versus Machines: The Impact of Minimum Wages on Automatable Jobs
Grace Lordan & David Neumark
NBER Working Paper, August 2017

We study the effect of minimum wage increases on employment in automatable jobs – jobs in which employers may find it easier to substitute machines for people – focusing on low-skilled workers from whom such substitution may be spurred by minimum wage increases. Based on CPS data from 1980-2015, we find that increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers, and increases the likelihood that low-skilled workers in automatable jobs become unemployed. The average effects mask significant heterogeneity by industry and demographic group, including substantive adverse effects for older, low-skilled workers in manufacturing. The findings imply that groups often ignored in the minimum wage literature are in fact quite vulnerable to employment changes and job loss because of automation following a minimum wage increase.

Employment Effects of the Minimum Wage: Panel Data Evidence from Canadian Provinces
Kate Rybczynski & Anindya Sen
Contemporary Economic Policy, forthcoming

Recent U.S. studies offer conflicting evidence on minimum wage impacts. This paper studies the effects of 185 amendments to minimum wage on employment rates using panel data across Canadian provinces from 1981 to 2011. Ordinary least squares and instrumental variables (IV) estimates imply a 10% increase in minimum wage is associated with a 1%–4% reduction to employment rates for both male and female teens. We also find that an increase in the minimum wage is associated with lower employment of prime-aged immigrants. Our results are robust to a wide array of IV and the use of controls for spatial heterogeneity.

The effect of economic development incentives and clawback provisions on job creation: A pre-registered evaluation of Maryland and Virginia programs
Nathan Jensen
Research & Politics, June 2017

Economic development incentives target individual firms for financial or non-financial benefits to induce capital investment or job creation. Previous studies have found a mixed impact of incentives on economic development, with numerous studies pointing to no impact of incentives on economic growth or job creation. I add to this literature by analyzing two different state economic development incentive programs using the same methods and time-period, allowing for direct comparability. My analysis is the first, “pre-registered” study of incentives, where all of the data collection, design and methodological decisions were made and documented prior to receiving the data. Using a pre-registered matching method design, I estimate the impact of Maryland and Virginia’s flagship economic development incentives on job creation. My main finding is that these incentive programs had essentially zero impact on job creation when they are compared to a control group of similar firms. My secondary results find that even after removing firms from the analysis that were subject to “clawbacks” based on non-compliance with the incentive agreement do not improve the overall performance of the program.

Welfare Benefits and Unemployment in Affluent Democracies: The Moderating Role of the Institutional Insider/Outsider Divide
Thomas Biegert
American Sociological Review, forthcoming

The effect of generous welfare benefits on unemployment is highly contested. The dominant perspective contends that benefits provide disincentive to work, whereas others portray benefits as job-search subsidies that facilitate better job matches. Despite many studies of welfare benefits and unemployment, the literature has neglected how this relationship might vary across institutional contexts. This article investigates how unemployment benefits and minimum income benefits affect unemployment across levels of the institutional insider/outsider divide. I analyze the moderating role of the disparity in employment protection for holders of permanent and temporary contracts and of the configuration of wage bargaining. The analysis combines data from 20 European countries and the United States using the European Union Labour Force Survey and the Current Population Survey 1992–2009. I use a pseudo-panel approach, including fixed effects for sociodemographic groups within countries and interactions between benefits and institutions. The results indicate that unemployment benefits and minimum income benefits successfully subsidize job search and reduce unemployment in labor markets with a moderate institutional insider/outsider divide. However, when there is greater disparity in employment protection and when bargaining either combines low unionization with high centralization or high unionization with low centralization, generous benefits create a disincentive to work, plausibly because attractive job opportunities are scarce.

The Effect of Unionization on Productivity: Evidence from a Long Panel of Coal Mines
William Boal
ILR Review, October 2017, Pages 1254-1282

The author measures the effect of unionization on productivity based on a panel of West Virginia coal mines from 1897 to 1928. Output and inputs are measured in physical terms, and most of the mines in the panel changed union status at least once, though not simultaneously, so the panel is close to ideal for measuring the effect of unionization on productivity. Fixed-effects estimates show that the union had little effect on productivity before 1914, but thereafter it had a negative effect of 5 to 10%. This negative effect was not reversed when mines were later deunionized. The author evaluates a variety of possible explanations for these results. Some evidence points to declining investment at union mines relative to nonunion mines, but the evidence is circumstantial and the direction of causality is unclear. The most plausible explanation is a sharp deterioration in labor relations at union mines after the violent Paint Creek-Cabin Creek strike of 1912–1913.

Labor Unions and Firm Performance: The Case of Major Customers
Gary Chen, Scott Judd & Shail Pandit
University of Illinois Working Paper, August 2017

This study investigates the relation between supplier unionization and sales to major customers. We argue that major customers shift purchases away from suppliers that unionize to avoid potential supply chain disruptions and present findings consistent with this argument. Our results are robust to endogeneity concerns from difference-in-differences and regression discontinuity research designs. Further, higher switching costs mitigate the decline in sales to major customers. Finally, we document that subsequent to unionization, major customers begin purchasing from additional suppliers and consequently suppliers’ customer concentration declines. These findings suggest that employees’ efforts to unionize can adversely affect their firm’s relationships with their major customers.

The United Auto Workers’ Attempts to Unionize Volkswagen Chattanooga
Stephen Silvia
ILR Review, forthcoming

The author examines attempts by the United Auto Workers (UAW) to unionize the Volkswagen (VW) plant in Chattanooga, Tennessee. These efforts were a pivotal test of labor’s ability to organize in the South. The UAW failed to organize the entire plant, despite an amenable employer, because of heavy intervention by external actors, the union’s failure to develop community support, and a paragraph in the pre-election agreement that promised wage restraint. VW management’s fear of losing state subsidies and their desire to not alienate the local business and political establishment took the card-check procedure for recognition off the table. VW management’s adoption of an accommodating position toward unionization for the entire plant, but resistance to it for the small skilled-mechanics unit, suggests that the company was willing to accept unionization only as a means to the end of creating a works council rather than out of a commitment to collective bargaining as a practice.

Job Search Behavior among the Employed and Non-Employed
Jason Faberman et al.
NBER Working Paper, August 2017

Using a unique new survey, we study the relationship between search effort and outcomes for employed and non-employed workers. We find that the employed fare better than the non-employed in job search: they receive more offers per application and are offered higher pay even after controlling for observable characteristics. We use an on-the-job search model with endogenous search effort and find that unobserved heterogeneity explains less than a third of the residual wage offer differential. The model calibrated using various moments from our survey provides a good fit to the data and implies a reasonable flow value of unemployment.

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