It's a job
Where Have All the Workers Gone? An Inquiry into the Decline of the U.S. Labor Force Participation Rate
Brookings Papers on Economic Activity, forthcoming
The labor force participation rate in the U.S. has declined since 2007 primarily because of population aging and ongoing trends that preceded the Great Recession. The participation rate has evolved differently, and for different reasons, across demographic groups. A rise in school enrollment has largely offset declining participation for young workers since the 1990s. Participation in the labor force has been declining for prime age men for decades, and about half of prime age men who are not in the labor force (NLF) may have a serious health condition that is a barrier to work. Nearly half of prime age NLF men take pain medication on a daily basis, and in nearly two-thirds of these cases they take prescription pain medication. Labor force participation has fallen more in areas where relatively more opioid pain medication is prescribed, causing the problem of depressed labor force participation and the opioid crisis to become intertwined. The labor force participation rate has stopped rising for cohorts of women born after 1960. Prime age men who are out of the labor force report that they experience notably low levels of emotional well-being throughout their days and that they derive relatively little meaning from their daily activities. Employed and NLF women, by contrast, report similar levels of subjective well-being, but NLF women who are not primarily taking care of home responsibilities report notably low levels of emotional well-being. Over the past decade retirements have increased by about the same amount as aggregate labor force participation has declined, and the retirement rate is expected to continue to rise. A meaningful rise in labor force participation will require a reversal in the secular trends affecting various demographic groups, and perhaps immigration reform.
Artificial Intelligence and the Modern Productivity Paradox: A Clash of Expectations and Statistics
Erik Brynjolfsson, Daniel Rock & Chad Syverson
NBER Working Paper, November 2017
We live in an age of paradox. Systems using artificial intelligence match or surpass human level performance in more and more domains, leveraging rapid advances in other technologies and driving soaring stock prices. Yet measured productivity growth has declined by half over the past decade, and real income has stagnated since the late 1990s for a majority of Americans. We describe four potential explanations for this clash of expectations and statistics: false hopes, mismeasurement, redistribution, and implementation lags. While a case can be made for each, we argue that lags have likely been the biggest contributor to the paradox. The most impressive capabilities of AI, particularly those based on machine learning, have not yet diffused widely. More importantly, like other general purpose technologies, their full effects won't be realized until waves of complementary innovations are developed and implemented. The required adjustment costs, organizational changes, and new skills can be modeled as a kind of intangible capital. A portion of the value of this intangible capital is already reflected in the market value of firms. However, going forward, national statistics could fail to measure the full benefits of the new technologies and some may even have the wrong sign.
Do Minimum Wages Lead to Job Losses? Evidence from OECD Countries on Low-Skilled and Youth Employment
ILR Review, forthcoming
The author investigates effects of minimum wage rates on low-skilled, female low-skilled, and youth employment. The sample consists of 19 Organisation for Economic Co-operation and Development (OECD) countries from 1997 to 2013 for low-skilled workers and from 1983 to 2013 for young workers. Six different static or dynamic estimation approaches are applied on different versions of the specifications, controlling for up to quadratic time trends. The author further investigates the effects over the long run and over the business cycle as well as the effects of high minimum wages and of institutional complementarities. The findings provide little evidence of substantial disemployment effects for low-skilled, female low-skilled, or young workers. The estimated employment elasticities are small and statistically indistinguishable from zero. The author then considers why his results on youth employment differ from those of Neumark and Wascher (2004), showing that they overstate precision and that small changes in their specifications lead to minimum wage effects close to zero.
Employment Hysteresis from the Great Recession
NBER Working Paper, September 2017
This paper uses U.S. local areas as a laboratory to test whether the Great Recession depressed 2015 employment. In full-population longitudinal data, I find that exposure to a 1-percentage-point-larger 2007-2009 local unemployment shock caused working-age individuals to be 0.4 percentage points less likely to be employed at all in 2015, likely via labor force exit. These shocks also increased 2015 income inequality. General human capital decay and persistently low labor demand each rationalize the findings better than lost job-specific rents, lost firm-specific human capital, or reduced migration. Simple extrapolation suggests the recession caused most of the 2007-2015 age-adjusted employment decline.
The Persistent Black-White Gap in and Weakening Link between Expecting to Move and Actually Moving
Sociology of Race and Ethnicity, forthcoming
This paper leverages four decades of longitudinal data from the Panel Study of Income Dynamics to document Black-White gaps in the translation of mobility expectations into actual mobility, track those racial gaps over time in the context of declining mobility among all Americans, and identify a substantial weakening in the ability of both Black and White householders to move when they expect to. Results show a substantial racial gap in the realization of mobility expectations with foundations in the relative inability of Black householders to leverage socioeconomic resources in segmented housing markets. There is no indication of significant improvement or growth in this gap over time. While householders' expressed expectations are the best predictor of future mobility, this predictive relationship has weakened significantly since 1970, primarily because of a decline in mobility among expectant householders. Trends in the expectation of mobility offer support for the notion that declining mobility is indicative of voluntary "rootedness" among Whites but also suggest that a substantial share of Americans (and Blacks in particular) are increasingly likely to be "stuck" expecting to move but unable to do so.
The Productivity Slowdown and the Declining Labor Share: A Neoclassical Exploration
Gene Grossman et al.
NBER Working Paper, September 2017
We explore the possibility that a global productivity slowdown is responsible for the widespread decline in the labor share of national income. In a neoclassical growth model with endogenous human capital accumulation a la Ben Porath (1967) and capital-skill complementarity a la Grossman et al. (2017), the steady-state labor share is positively correlated with the rates of capital-augmenting and labor-augmenting technological progress. We calibrate the key parameters describing the balanced growth path to U.S. data for the early postwar period and find that a one percentage point slowdown in the growth rate of per capita income can account for between one half and all of the observed decline in the U.S. labor share.
Marriage-Related Policies in an Estimated Life-Cycle Model of Households' Labor Supply and Savings for Two Cohorts
Margherita Borella, Mariacristina De Nardi & Fang Yang
NBER Working Paper, October 2017
In the U.S., both taxes and old age Social Security benefits explicitly depend on one's marital status. We study the effects of eliminating these marriage-related provisions on the labor supply and savings of two different cohorts. To do so, we estimate a rich life-cycle model of couples and singles using the Method of Simulated Moments (MSM) on the 1945 and 1955 birth-year cohorts. Our model matches well the life cycle profiles of labor market participation, hours, and savings for married and single people and generates plausible elasticities of labor supply. We find that these marriage-related provisions reduce the participation of married women over their life cycle, the participation of married men after age 55, and the savings of couples. These effects are large for both the 1945 and 1955 cohorts, even though the latter had much higher labor market participation of married women to start with.
The Impact of Restricting Labor Mobility on Corporate Investment and Entrepreneurship
University of Chicago Working Paper, September 2017
I investigate the impact of restricting labor mobility on two components of growth: entrepreneurship and capital investment. To identify the mechanism, I combine LinkedIn's database of employment histories with staggered changes in the enforceability of non-compete agreements that come mostly from state supreme court rulings. Stronger enforceability leads to a substantial decline in employee departures, especially in knowledge-intensive occupations, and reduces entrepreneurship in corresponding sectors. However, these shocks increase the investment rate at existing knowledge-intensive firms. The estimates in my sample suggest that, in such sectors, there is roughly $1.5 million of additional capital investment from publicly-held firms for every lost new firm entry.
Do Non-Compete Covenants Influence State Startup Activity? Evidence from the Michigan Experiment
Federal Reserve Working Paper, September 2017
This paper examines how the enforceability of employee non-compete agreements affects the entry of new establishments and jobs created by these new firms. We use a panel of startup activity for the U.S. states for the period 1977 to 2013. We exploit Michigan's inadvertent policy reversal in 1985 that transformed the state from a non-enforcing to an enforcing state as a quasi-natural experiment to estimate the causal effect of enforcement on startup activity. Our findings offer little support for the widely held view that enforcement of non-compete agreements negatively affects the entry rate of new firms or the rate of jobs created by new firms. In a difference-in-difference analysis, we find that a 10 percent increase in enforcement led to an increase of about 1 percent to about 3 percent in the startup job creation rate in Michigan and, in general, to essentially no change in the startup entry rate. Extending our analysis to consider the effect of increased enforcement on patent activity, we find that enforcement had differential effects across technological classifications. Importantly, increased enforcement had a positive and significant effect on the number of quality-adjusted mechanical patents in Michigan, the most important patenting classification in that state.
Labor Supply and the Value of Non-Work Time: Experimental Estimates from the Field
Alexandre Mas & Amanda Pallais
NBER Working Paper, October 2017
We use a field experiment to estimate the marginal value of non-work time (MVT). During a national application process for phone survey and data entry positions, we randomly offered applicants alternative wage-hour bundles. Jobseeker choices over these bundles yield estimates for the MVT as a function of hours worked. These quantities trace out a labor supply relationship. As predicted by the conventional model of the allocation of time, the substitution effect is positive. Individual labor supply is highly elastic at low hours and becomes more inelastic at higher hours. For unemployed job applicants, the opportunity cost of a full-time job due to lost leisure, household production, and other non-work activities is approximately 60% of their estimated market wage. A similar estimate is found when we reproduce elements of this experiment in a nationally-representative survey.
Bankruptcy and the Cost of Organized Labor: Evidence from Union Elections
Murillo Campello et al.
NBER Working Paper, September 2017
Unionized workers are entitled to special treatment in bankruptcy court. This can be detrimental to other corporate stakeholders in default states, with unsecured creditors standing to lose the most. Using data on union elections covering several decades, we employ a regression discontinuity design to identify the effect of worker unionization on bondholders in bankruptcy states. Closely won union elections lead to significant bond value losses, especially when firms approach bankruptcy, have underfunded pension plans, and operate in non-RTW law states. Unionization is associated with longer, more convoluted, and costlier bankruptcy court proceedings. Unions further depress bondholders' recovery values as they are assigned seats on unsecured creditors' committees.
Differences in skill loss during unemployment across industries and occupations
Economics Letters, December 2017, Pages 31-33
Starting with Ljungqvist and Sargent (1998) and Pissarides (1992), the search and matching literature has found that skill loss occurring during unemployment has important effects on macroeconomic models of unemployment. This paper presents some evidence that the rate of skill loss varies across occupations and industries. Occupations and industries that require more skills experience higher rates of human capital decay. These findings have important implications for models of equilibrium unemployment, in particular for mismatch unemployment and the optimal reallocation of workers across sectors.