Jobs, jobs, jobs
Low-Skill and High-Skill Automation
Daron Acemoglu & Pascual Restrepo
NBER Working Paper, December 2017
We present a task-based model in which high- and low-skill workers compete against machines in the production of tasks. Low-skill (high-skill) automation corresponds to tasks performed by low-skill (high-skill) labor being taken over by capital. Automation displaces the type of labor it directly affects, depressing its wage. Through ripple effects, automation also affects the real wage of other workers. Counteracting these forces, automation creates a positive productivity effect, pushing up the price of all factors. Because capital adjusts to keep the interest rate constant, the productivity effect dominates in the long run. Finally, low-skill (high-skill) automation increases (reduces) wage inequality.
What's Driving the Decline in Entrepreneurship?
NYU Working Paper, November 2017
Recent research shows that entrepreneurial activity has been declining in the US in recent decades. Given the role of entrepreneurship in theories of growth, job creation and economic mobility this has generated considerable concern. This paper investigates why entrepreneurship has declined. It documents that (1) the decline in entrepreneurship has been more pronounced for higher education levels, implying that at least part of the force driving the changes is not skill-neutral, and (2) the size distribution of entrepreneur businesses has been quite stable. Together with a decline in the entrepreneurship rate the second fact implies a shift of economic activity towards non-entrepreneur firms. Guided by this evidence I evaluate explanations for the decline in entrepreneurship based on skill-biased technical change, changes in regulations increasing the fixed costs of businesses and changes in technology that have benefited large non-entrepreneur firms. I do this using a general equilibrium model of occupational choice calibrated with a rich set of moments on occupations, income distributions and firm size distributions. I find that an increase in fixed costs explains most of the decline in the aggregate entrepreneurship rate and that skill-biased technical change can fully account for the larger decrease in entrepreneurship for more educated people when combined with the other forces.
Labor Market Concentration
José Azar, Ioana Marinescu & Marshall Steinbaum
NBER Working Paper, December 2017
A product market is concentrated when a few firms dominate the market. Similarly, a labor market is concentrated when a few firms dominate hiring in the market. Using data from the leading employment website CareerBuilder.com, we calculate labor market concentration for over 8,000 geographic-occupational labor markets in the US. Based on the DOJ-FTC horizontal merger guidelines, the average market is highly concentrated. Using a panel IV regression, we show that going from the 25th percentile to the 75th percentile in concentration is associated with a 15-25% decline in posted wages, suggesting that concentration increases labor market power.
Economic Stimulus at the Expense of Routine-Task Jobs
Selale Tuzel & Miao Ben Zhang
University of Southern California Working Paper, November 2017
Do investment tax incentives improve job prospects for all workers? Using two massive establishment-level datasets on occupational employment and computer investment, we study the causal effect of a major job-creating tax incentive for investment on labor outcomes. Specifically, Section 179 of Internal Revenue Code allows firms to deduct limited amount of qualifying equipment investments instantly rather than following the standard depreciation schedule, hence lowering the effective price of equipment investment for eligible businesses but not for ineligible ones. By exploring the variation in states' Section 179 deduction limits for state taxes, we find that (1) eligible firms purchase more computers and hire more nonroutine-task labor shortly after states increase the deduction limits; (2) however, these firms significantly reduce their routine-task employment starting from one year after the limit increases; (3) due to these opposite effects on two distinct labor groups, the effect on total employment is insignificant; (4) none of the above effects are detected among ineligible firms. Our results highlight the importance of heterogeneous worker skills for policy outcomes.
Productivity and Pay: Is the Link Broken?
Anna Stansbury & Lawrence Summers
NBER Working Paper, December 2017
Since 1973 median compensation has diverged starkly from average labor productivity. Since 2000, average compensation has also begun to diverge from labor productivity. These divergences lead to the question: to what extent does productivity growth translate into compensation growth for typical American workers? We investigate this, regressing median, average and production/nonsupervisory compensation growth on productivity growth in various specifications. We find substantial evidence of linkage between productivity and compensation: over 1973-2016, one percentage point higher productivity growth has been associated with 0.7 to 1 percentage points higher median and average compensation growth and with 0.4 to 0.7 percentage points higher production/nonsupervisory compensation growth. These results suggest that other factors orthogonal to productivity have been acting to suppress typical compensation even as productivity growth has been acting to raise it. Several theories of the cause of the productivity-compensation divergence focus on technological progress. These theories have a testable implication: periods of higher productivity growth should be associated with periods of faster productivity-pay divergence. We do not find substantial evidence of co-movement between productivity growth and the labor share or mean/median compensation ratio. This tends not to provide strong support for pure technology-based theories of the productivity-compensation divergence.
Recent Manufacturing Employment Growth: The Exception That Proves the Rule
NBER Working Paper, December 2017
This Paper challenges two widely held views: first that trade performance has been the primary reason for the declining share of manufacturing employment in the United States and other industrial economies, and second that recent productivity growth in manufacturing has actually been quite rapid but is not accurately measured. The paper shows that for many decades, relatively faster productivity growth interacting with unresponsive demand has been the dominant force behind the declining share of employment in manufacturing in the United States and other industrial economies. It also shows that since 2010, however, the relationship has been reversed and slower productivity growth in manufacturing has been associated with more robust performance in manufacturing employment. These contrasting experiences suggest a tradeoff between the ability of the manufacturing sector to contribute to productivity growth and its ability to provide employment opportunities. While some blame measurement errors for the recently recorded slowdown in manufacturing productivity growth, spending patterns in the United States and elsewhere suggest that the productivity slowdown is real and that thus far fears about robots and other technological advances in manufacturing displacing large numbers of jobs appear misplaced.
Work Disability in the United States, 1968–2015: Prevalence, Duration, Recovery, and Trends
James Laditka & Sarah Laditka
SSM - Population Health, April 2018, Pages 126–134
The United States workforce is aging. At the same time more people have chronic conditions, for longer periods. Given these trends the importance of work disability, physical or nervous problems that limit a person’s type or amount of work, is increasing. No research has examined transitions among multiple levels of work disability, recovery from work disability, or trends. Limited research has focused on work disability among African Americans and Hispanics, or separately for women and men. We examined these areas using data from 30,563 adults in the 1968–2015 Panel Study of Income Dynamics. We estimated annual probabilities of work disability, recovery, and death with multinomial logistic Markov models. Microsimulations accounting for age and education estimated outcomes for African American, Hispanic, and non-Hispanic white women and men. Results from these nationally representative data suggested that the majority of Americans experience work disability during working life. Most spells ended with recovery or reduced severity. Among women, African Americans and Hispanics had less moderate and severe work disability than whites. Among men, African Americans became severely work disabled more often than whites, recovered from severe spells more often and had shorter severe spells, yet had more severe work disability at age 65. Hispanic men were more likely to report at least one spell of severe work disability than whites; they also had substantially more recovery from severe work disability, and a lower percentage of working years with work disability. Among African Americans and Hispanics, men were considerably more likely than women to have severe work disability at age 65. Work disability declined significantly across the study period for all groups. Although work disability has declined over several decades, it remains common. Results suggest that the majority of work disability spells end with recovery, underscoring the importance of rehabilitation and workplace accommodation.
Effects of Minimum Wages on Absence from Work Due to Illness
Juan Du & Paul Leigh
University of California Working Paper, November 2017
Using longitudinal data from the Panel Study of Income Dynamics for 1997-2013 and difference-in-differences (DD) and difference-in-difference-in-differences (DDD) techniques, we estimate the effects of minimum wages on absence from work due to own and others’ (such as children’s) illnesses. We use person fixed effects within both linear and two-part models, the latter to explore changes at extensive and intensive margins. A lower educated group (likely affected by minimum wages) is compared with higher educated groups (likely unaffected). Within the lower educated group, we find higher minimum wages are associated with lower rates of absence due to own and others’ illness combined and due to own illness alone, but not associated with absence due to others’ illness. A $1 increase in the real minimum wage results in 19% (in DD model) and 32% (DDD) decreases in the absence rate due to own illness evaluated at the mean. These findings are strongest for persons who are not employed year-round and among the lowest wage earners. In additional analysis, we show that these effects are likely not due to changes in labor supply or job-related attributes. Instead, we find a possible mechanism: higher minimum wages improve self-reported health for lower educated workers.
Moving to Jobs: The Role of Information in Migration Decisions
University of Maryland Working Paper, November 2017
Migration is a human capital investment that allows individuals to encounter more favorable labor markets. This paper exploits county-level variation in exposure to news about labor markets impacted by fracking, to show that access to information about potential labor market opportunities affects migration. I use pre-fracking newspaper circulation rates and content from national news outlets to capture exogenous variation in exposure to news about fracking in a particular destination. I then isolate the effect of news exposure by comparing migration flows to the same destination from differentially exposed origin counties. Exposure to newspaper articles about fracking increased migration to the areas mentioned in the news by 2.4 percent on average. News exposure also increases commuting to fracking counties. Exposure to TV news has a similar impact, and positive news about fracking increases migration more than negative news. As further evidence that news matters, Google searches for the term fracking and the names of states specifically mentioned spike after TV news broadcasts about fracking. Migration responses to news about fracking are largest from counties experiencing weak labor markets, suggesting these areas see the largest benefits to information provision.
Older Americans Would Work Longer If Jobs Were Flexible
John Ameriks et al.
NBER Working Paper, November 2017
Older Americans, even those who are long retired, have strong willingness to work, especially in jobs with flexible schedules. For many, labor force participation near or after normal retirement age is limited more by a lack of acceptable job opportunities or low expectations about finding them than by unwillingness to work longer. This paper establishes these findings using an approach to identification based on strategic survey questions (SSQs) purpose-designed to complement behavioral data. These findings suggest that demand-side factors are important in explaining late-in-life labor market behavior and may be the most appropriate target for policy aimed at promoting working longer.
Industry Dynamics and the Minimum Wage: A Putty-Clay Approach
Daniel Aaronson et al.
International Economic Review, forthcoming
We document two new findings about the industry-level response to minimum wage hikes. First, restaurant exit and entry both rise following a hike. Second, there is no change in employment among continuing restaurants. We develop a model of industry dynamics based on putty-clay technology that is consistent with these findings. In the model, continuing restaurants cannot change employment, and thus industry-level adjustment occurs gradually through exit of labor-intensive restaurants and entry of capital-intensive restaurants. Interestingly, the putty-clay model matches the small estimated short-run disemployment effect of the minimum wage found in other studies, but produces a larger long-run disemployment effect.
The Pass-through of Minimum Wages into US Retail Prices: Evidence from Supermarket Scanner Data
Tobias Renkin, Claire Montialoux & Michael Siegenthaler
University of Zurich Working Paper, November 2017
We study the impact of increases in local minimum wages on the dynamics of prices in local grocery stores in the US during the 2001–2012 period. We find a significant impact of increasing minimum wages on prices in grocery stores. Our baseline estimate of the minimum wage elasticity of grocery prices is 0.02. This magnitude is consistent with a full pass-through of cost increases into prices. We show that price adjustments occur mostly in the months following the passage of minimum wage legislation rather than at the actual implementation of higher minimum wages. This forward-looking pattern of price adjustments is qualitatively consistent with price-setting models that feature nominal rigidities. We find no differential price effect for products consumed by poorer and richer households, and no evidence for demand effects. Our results suggest that consumers rather than firms bear the cost of minimum wage increases. Moreover, poor households are most negatively affected by the price response. Price increases in grocery stores alone offset at least 10% of the nominal income gains of the poorest households.
Short-Run Pain, Long-Run Gain? Recessions and Technological Transformation
Alexandr Kopytov, Nikolai Roussanov & Mathieu Taschereau-Dumouchel
University of Pennsylvania Working Paper, November 2017
Recent empirical evidence suggests that skill-biased technological change that shifts labor demand towards non-routine jobs has accelerated during the Great Recession. We analyze the interaction between the gradual process of transition towards a skill intensive technology and business cycles in a standard neoclassical growth framework. In the model, periods of depressed economic activity are used by firms to deeply reorganize production and by routine workers to acquire new skills due to low opportunity costs. As a result, additional resources are diverted from production, amplifying the effect of a negative TFP shock. At the same time, recessions speed up technological transformation. For a reasonable parametrization, the model is able to match both the long-run trend in the routine employment share and the dramatic impact of the Great Recession on such jobs.
Urban Revival in America, 2000 to 2010
Victor Couture & Jessie Handbury
NBER Working Paper, November 2017
This paper documents and explains the striking rise in the proclivity of college-educated individuals to reside near city centers. We show that this recent urban revival is driven entirely by younger cohorts in larger cities. With a residential choice model, we quantify the role of jobs, amenities, and house prices in explaining this trend. We find that changing preferences of young college graduates for non-tradable service amenities like restaurants, bars, gyms, and personal services account for more than 50 percent of their growth near city centers. Complementary datasets confirm that the young and college-educated are indeed spending more on and taking more trips to non-tradable service establishments. Our investigation into the causes of rising preferences for non-tradable services highlights their expanding role in generating socializing opportunities with other young college graduates, but also indicates roles played by delayed family formation, rising incomes, and improvements in the quality and diversity of non-tradable services.