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Kevin Lewis

May 31, 2016

Welfare Reform and Labor Force Exit by Young, Low-Skilled Single Males

Lincoln Groves

Demography, April 2016, Pages 393-418

Abstract:
While the labor market woes of low-skilled male workers in the United States over the past several decades have been well documented, the academic literature identifying causal factors leading to declines in labor force participation (LFP) by young, low-skilled males remains scant. To address this gap, I use the timing and characteristics of welfare-reform policies implemented during the 1990s and fixed-effects, instrumental variable regression modeling to show that policies seeking to increase LFP rates for low-skilled single mothers inadvertently led to labor force exit by young, low-skilled single males. Using data from the Current Population Survey and a bundle of work inducements enacted by states throughout the 1990s as exogenous variation in a quasi-experimental design, I find that the roughly 10 percentage point increase in LFP for low-skilled single mothers facilitated by welfare reform resulted in a statistically significant 2.8 percentage point decline in LFP for young, low-skilled single males. After conducting a series of robustness checks, I conclude that this result is driven entirely by white males, who responded to welfare-reform policies with a 3.7 percentage point decline in labor supply. Young black males, as well as other groups of potentially affected workers, appear to be uninfluenced by the labor supply response of less-educated single mothers to welfare reform. Impacts on young, single white males are large and economically significant, suggesting that nearly 150,000 males departed the formal labor market in response to directed welfare-reform policies.

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The Enduring Employment Impact of Your Great Recession Location

Danny Yagan

University of California Working Paper, March 2016

Abstract:
This paper asks whether Americans were jobless in 2014 because of where they were living in 2007. In the cross section, employment rates diverged across U.S. local areas 2007-2009 and - in contrast to history - have barely converged. This "great divergence" could reflect spatial differences in human capital, rather than causal location effects. I therefore use administrative data to compare two million workers with very similar pre-2007 human capital: those who in 2006 earned the same amount from the same retail firm, at establishments located in different local areas. I find that conditional on 2006 firm-x-wages fixed effects, living in 2007 in a below-median 2007-2009-fluctuation area caused those workers to have a 1.3%-lower 2014 employment rate. Hence, U.S. local labor markets are limitedly integrated: location has caused long-term joblessness and exacerbated within-skill income inequality. The enduring impact is not explained by more layoffs, more disability insurance enrollment, or reduced migration. Instead, the employment outcomes of cross-area movers are consistent with severe-fluctuation areas continuing to depress their residents' employment. Impacts are correlated with housing busts but not manufacturing busts, possibly reconciling current experience with history. If recent trends continue, employment rates are estimated to remain diverged into the 2020s - adding up to a relative lost decade for half the country. Employment models should allow market-wide shocks to cause persistent labor force exit, leaving employment depressed even after unemployment returns to normal.

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Can You Gig it? An Empirical Examination of the Gig-Economy and Entrepreneurial Activity

Gordon Burtch, Seth Carnahan & Brad Greenwood

University of Michigan Working Paper, March 2016

Abstract:
We examine how the entry of gig-economy platforms influences local entrepreneurial activity. On one hand, such platforms may reduce entrepreneurial activity by offering stable employment for the un- and under-employed. On the other hand, such platforms may enable entrepreneurial activity by offering work flexibility that allows the entrepreneur to re-deploy resources strategically in order to pursue her nascent venture. To resolve this tension we exploit a set of natural experiments, the entry of the ride-sharing platform Uber X and the on-demand delivery platform Postmates into local areas. We examine the effect of each on crowdfunding campaign launches at Kickstarter, the world's largest reward-based crowdfunding platform. Results indicate a negative and significant effect on crowdfunding campaign launches, and thus local entrepreneurial activity, after entry of Uber X or Postmates. Strikingly, the effect appears to accrue primarily to un-funded and under-funded projects, suggesting that gig-economy platforms predominantly reduce lower quality entrepreneurial activity by offering viable employment for the un- and under-employed.

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Downskilling: Changes in employer skill requirements over the business cycle

Alicia Sasser Modestino, Daniel Shoag & Joshua Ballance

Labour Economics, forthcoming

Abstract:
Using a novel database of 82.5 million online job postings, we show that employer skill requirements fell as the labor market improved from 2010 to 2014. We find that a 1 percentage point reduction in the local unemployment rate is associated with a roughly 0.27 percentage point reduction in the fraction of jobs requiring at least a bachelor's degree and a roughly 0.23 percentage point reduction in the fraction requiring five or more years of experience. This pattern is established using multiple measures of labor availability, is bolstered by similar trends along heretofore un-measured dimensions of skill, and even occurs within firm-job title pairs. We further confirm the causal effect of labor market tightening on skill requirements using a natural experiment based on the fracking boom in the United States, as an exogenous shock to the local labor supply in tradable, non-fracking industries. These industries are not plausibly affected by local demand shocks or natural gas extraction technology, but still show fewer skill requirements in response to tighter labor markets. Our results imply this labor market-induced downskilling reversed much of the cyclical increase in education and experience requirements that occurred during the Great Recession.

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How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output

Kyle Herkenhoff, Gordon Phillips & Ethan Cohen-Cole

NBER Working Paper, May 2016

Abstract:
We empirically and theoretically examine how consumer credit access affects displaced workers. Empirically, we link administrative employment histories to credit reports. We show that an increase in credit limits worth 10% of prior annual earnings allows individuals to take .15 to 3 weeks longer to find a job. Conditional on finding a job, they earn more and work at more productive firms. We develop a labor sorting model with credit to provide structural estimates of the impact of credit on employment outcomes, which we find are similar to our empirical estimates. We use the model to understand the impact of consumer credit on the macroeconomy. We find that if credit limits tighten during a downturn, employment recovers quicker, but output and productivity remain depressed. This is because when limits tighten, low-asset, low-productivity job losers cannot self-insure. Therefore, they search less thoroughly and take more accessible jobs at less productive firms.

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Career Interruption and Productivity: Evidence from Major League Baseball during the Vietnam War Era

Brennan Mange & David Phillips

Journal of Human Capital, Summer 2016, Pages 159-185

Abstract:
Can temporary shocks to training and early career experience permanently reduce productivity? Using detailed data on the careers and productivity of Major League Baseball players subject to the Vietnam War draft, we find that birth dates randomly drawn in the draft produce 19 percent fewer major league players. Players born on draft days who do make it to Major League Baseball produce 29 percent fewer wins than those born on nondraft days, a gap that is largest for the most productive players and persists as players age. In addition, the tendency of the draft to push men toward more schooling generates at least some of our results.

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Beyond the labour income tax wedge: The unemployment-reducing effect of tax progressivity

Etienne Lehmann et al.

International Tax and Public Finance, June 2016, Pages 454-489

Abstract:
In this paper, we argue that, for a given overall level of labour income taxation, a more progressive tax schedule increases employment. From a theoretical point of view, higher progressivity increases overall employment through a wage moderating effect and also because employment of low-paid workers is more elastic to wages. We test these theoretical predictions on a panel of 21 OECD countries over 1998-2008. Controlling for the burden of taxation at the average wage, our estimates suggest that a more progressive tax schedule reduces the unemployment rate and increases the employment rate. These findings are confirmed when we account for the potential endogeneity of both average taxation and progressivity. Overall, our results suggest that policy-makers should not only focus on the detrimental effects of tax progressivity on in-work effort, but also consider the employment-enhancing effects.

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The Race Between Machine and Man: Implications of Technology for Growth, Factor Shares and Employment

Daron Acemoglu & Pascual Restrepo

NBER Working Paper, May 2016

Abstract:
The advent of automation and the simultaneous decline in the labor share and employment among advanced economies raise concerns that labor will be marginalized and made redundant by new technologies. We examine this proposition using a task-based framework in which tasks previously performed by labor can be automated and more complex versions of existing tasks, in which labor has a comparative advantage, can be created. We characterize the equilibrium in this model and establish how the available technologies and the choices of firms between producing with capital or labor determine factor prices and the allocation of factors to tasks. In a static version of our model where capital is fixed and technology is exogenous, automation reduces employment and the share of labor in national income and may even reduce wages, while the creation of more complex tasks has the opposite effects. Our full model endogenizes capital accumulation and the direction of research towards automation and the creation of new complex tasks. Under reasonable conditions, there exists a stable balanced growth path in which the two types of innovations go hand-in-hand. An increase in automation reduces the cost of producing using labor, and thus discourages further automation and encourages the faster creation of new complex tasks. The endogenous response of technology restores the labor share and employment back to their initial level. Although the economy contains powerful self correcting forces, the equilibrium generates too much automation. Finally, we extend the model to include workers of different skills. We find that inequality increases during transitions, but the self-correcting forces in our model also limit the increase in inequality over the long-run.

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The Impact of Forced Migration on Modern Cities: Evidence from 1930s Crop Failures

Lauren Cohen, Christopher Malloy & Quoc Nguyen

Harvard Working Paper, January 2016

Abstract:
We find that a sizable portion of current city-level variation in unionization was set in place during the 1930s, and that this exogenous unionization has a real impact on city-level economic outcomes today. First, we show that the driving factor behind these city-level differences was random, and a result of substantially different rainfall levels during the Dust Bowl. We find that individuals in drought - ridden areas were significantly more likely to migrate to close-by cities. Workers in these cities - facing an influx of rural migrants - then became far more inclined to unionize than those facing less competition for their jobs. Using this rainfall (and the resultant crop failures) in surrounding counties to generate exogenous variation in city migration inflows, we show that random differences in the drought-laden 1930's rainfall predict migration patterns, and variation in union formation rates that persist through today. These exogenous events explaining a sizable percentage of cross-sectional geographic variation in current unionization challenges explanations of unionization as a necessary response to work-place conditions. Furthermore, and importantly, we show that this exogenous unionization that persists through today predicts variation in key city-level economic outcomes such as level of education, establishment growth, and the presence of high-value industries.

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The effect of education on the minimum wage

Christos Pargianas

Applied Economics Letters, Summer 2016, Pages 765-767

Abstract:
This research shows for the first time that the level of education has a causal, negative effect on the minimum wage. I use 2SLS, with historical educational data as an instrument for the level of education in 2010, and I find that across the US states a one percentage point greater proportion of college graduates is associated with a real minimum wage that is lower by 1.5%-1.6%. Also, in order to control for state-level omitted variables, I regress the change in the minimum wage on the change in education and I find again a negative, and significantly at the 1% level, effect. Minimum wage is a policy that is chosen by governments according to voters' preferences. The results of this research imply that when the level of education increases voters prefer a lower minimum wage.

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The Limited Macroeconomic Effects of Unemployment Benefit Extensions

Gabriel Chodorow-Reich & Loukas Karabarbounis

NBER Working Paper, April 2016

Abstract:
By how much does an extension of unemployment benefits affect macroeconomic outcomes such as unemployment? Answering this question is challenging because U.S. law extends benefits for states experiencing high unemployment. We use data revisions to decompose the variation in the duration of benefits into the part coming from actual differences in economic conditions and the part coming from measurement error in the real-time data used to determine benefit extensions. Using only the variation coming from measurement error, we find that benefit extensions have a limited influence on state-level macroeconomic outcomes. We use our estimates to quantify the effects of the increase in the duration of benefits during the Great Recession and find that they increased the unemployment rate by at most 0.3 percentage point.

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Minimum Wage Shocks, Employment Flows, and Labor Market Frictions

Arindrajit Dube, William Lester & Michael Reich

Journal of Labor Economics, forthcoming

Abstract:
We provide the first estimates of the effects of minimum wages on employment flows in the US labor market, identifying the impact by using policy discontinuities at state borders. We find that minimum wages have a sizable negative effect on employment flows but not on stocks. Separations and accessions fall among affected workers, especially those with low tenure. We do not find changes in the duration of nonemployment for separations or hires. This evidence is consistent with search models with endogenous separations.

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Local employment multipliers in U.S. cities

Jasper Jacob van Dijk

Journal of Economic Geography, forthcoming

Abstract:
In this article, I show that within a U.S. city there is a significant effect of a permanent shock to employment in the tradable sector on employment in the non-tradable sector. I find that each additional job in the tradable sector will result in between 1.6 and 1.7 new jobs in the non-tradable sector. This result is robust to the specification of sector growth in the regression model. When I split the tradable sector into high- and low-wage workers, I find a larger multiplier of 2.0-2.3 for high-wage workers and no significant multiplier for low-wage workers.

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50 is the new 30 - long-run trends of schooling and retirement explained by human aging

Holger Strulik & Katharina Werner

Journal of Economic Growth, June 2016, Pages 165-187

Abstract:
Workers in the US and other developed countries retire no later than a century ago and spend a significantly longer part of their life in school, implying that they stay less years in the work force. The facts of longer schooling and simultaneously shorter working life are seemingly hard to square with the rationality of the standard economic life cycle model. In this paper we propose a novel theory, based on health and aging, that explains these long-run trends. Workers optimally respond to a longer stay in a healthy state of high productivity by obtaining more education and supplying less labor. Better health increases productivity and amplifies the return on education. The health accelerator allows workers to finance educational efforts with less forgone labor supply than in the previous state of shorter healthy life expectancy. When both life-span and healthy life expectancy increase, the health effect is dominating and the working life gets shorter if the intertemporal elasticity of substitution for leisure is sufficiently small or the return on education is sufficiently large. We calibrate the model and show that it is able to predict the historical trends of schooling and retirement.

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Job Mobility and Earnings Instability

Marco Leonardi

Economic Inquiry, forthcoming

Abstract:
There is still no consensus on the causes of the increase in the variance of transitory earnings (earnings instability) in the United States. It is difficult to attribute the rise in instability to job mobility because there is no evidence of a concurrent increase in job turnover or separations. Using an error component model of the covariance structure of earnings on Panel Survey of Income Dynamics and Survey of Income and Program Participation data, this study shows that job mobility and the increase in the variance of wage changes upon job change accounts for a substantial part of the increase in earnings instability. The empirical evidence is consistent with the simulations of a search and matching model where an increase in the variance of productivity shocks increases on-the-job search and earnings instability among job changers while leaving job turnover approximately constant.

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Can Genes Play a Role in Explaining Frequent Job Changes? An Examination of Gene-Environment Interaction From Human Capital Theory

Wei Chi et al.

Journal of Applied Psychology, forthcoming

Abstract:
This study examined how a dopamine genetic marker, DRD4 7 Repeat allele, interacted with early life environmental factors (i.e., family socioeconomic status, and neighborhood poverty) to influence job change frequency in adulthood using a national representative sample from the United States. The dopamine gene played a moderating role in the relationship between early life environments and later job change behaviors, which was meditated through educational achievement. In particular, higher family socioeconomic status was associated with higher educational achievement, and thereafter higher frequency of voluntary job changes and lower frequency of involuntary job changes; such relationships were stronger (i.e., more positive or negative) for individuals with more DRD4 7R alleles. In contrast, higher neighborhood poverty was associated with lower educational achievement, and thereafter lower frequency of voluntary job change and higher frequency of involuntary job change; such relationships were again stronger (i.e., more positive or negative) for individuals with more DRD4 7R alleles. The results demonstrated that molecular genetics using DNA information, along with early life environmental factors, can bring new insights to enhance our understanding of job change frequency in individuals' early career development.


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