No Free Lunches

Kevin Lewis

October 11, 2023

Obsolescence Rents: Teamsters, Truckers, and Impending Innovations
Costas Cavounidis et al.
NBER Working Paper, September 2023 


We consider large, permanent shocks to individual occupations whose arrival date is uncertain. We are motivated by the advent of self-driving trucks, which will dramatically reduce demand for truck drivers. Using a bare-bones overlapping generations model, we examine an occupation facing obsolescence. We show that workers must be compensated to enter the occupation -- receiving what we dub obsolescence rents -- with fewer and older workers remaining in the occupation. We investigate the market for teamsters at the dawn of the automotive truck as an á propos parallel to truckers themselves, as self-driving trucks crest the horizon. As widespread adoption of trucks drew nearer, the number of teamsters fell, the occupation became ‘grayer’, and teamster wages rose, as predicted by the model.

What do Unions do? Incentives and Investments
Vojislav Maksimovic & Liu Yang
University of Maryland Working Paper, June 2023 


Using plant-level data from the Census Bureau, we show that in addition to paying higher wages and benefits, unionized plants have lower and less effective incentives. Unionized plants do not exhibit the same positive associations between incentives and investment and growth found in non-unionized plants. This effect holds among both non-managerial and managerial employees, although it has a more pronounced influence on the former group. Consequently, unionized plants experience higher rates of closure, reduced investment, and slower employment growth. We also find significant spillover effects within the firm: partially unionized firms not only offer higher wages but also maintain weaker incentives in their non-unionized plants compared to their industry peers. These effects are economically significant and are half of our estimated reduction in incentives in unionized plants. This pattern aligns with the hypothesis that incentives in non-unionized plants create disutility for the median worker. Spillovers reduce employment and efficiency and make firms less attractive as potential targets, thus reducing the market’s effectiveness in allocating corporate assets. By leveraging recent changes in state-level right-to-work laws, we provide causal evidence that states that adopt such laws experience a boost in employment and investment.

The Labor Demand and Labor Supply Channels of Monetary Policy
Sebastian Graves, Christopher Huckfeldt & Eric Swanson
NBER Working Paper, October 2023 


Monetary policy is conventionally understood to influence labor demand, with little effect on labor supply. We estimate the response of labor market flows to high-frequency changes in interest rates around FOMC announcements and Fed Chair speeches and find that, in contrast to the consensus view, a contractionary monetary policy shock leads to a significant increase in labor supply: workers reduce the rate at which they quit jobs to non-employment, while non-employed individuals increase their job-seeking behavior. Holding supply-driven labor market flows constant, the overall decline in employment from a contractionary monetary policy shock becomes twice as large.

The Turing Transformation: Artificial Intelligence, Intelligence Augmentation, and Skill Premiums
Ajay Agrawal, Joshua Gans & Avi Goldfarb
NBER Working Paper, October 2023 


We ask whether a technical objective of using human performance of tasks as a benchmark for AI performance will result in the negative outcomes highlighted in prior work in terms of jobs and inequality. Instead, we argue that task automation, especially when driven by AI advances, can enhance job prospects and potentially widen the scope for employment of many workers. The neglected mechanism we highlight is the potential for changes in the skill premium where AI automation of tasks exogenously improves the value of the skills of many workers, expands the pool of available workers to perform other tasks, and, in the process, increases labor income and potentially reduces inequality. We label this possibility the “Turing Transformation.” As such, we argue that AI researchers and policymakers should not focus on the technical aspects of AI applications and whether they are directed at automating human-performed tasks or not and, instead, focus on the outcomes of AI research. In so doing, our goal is not to diminish human-centric AI research as a laudable goal. Instead, we want to note that AI research that uses a human-task template with a goal to automate that task can often augment human performance of other tasks and whole jobs. The distributional effects of technology depend more on which workers have tasks that get automated than on the fact of automation per se.

Minimum Wages and Voting: Assessing the Political Returns to Redistribution Outside the Tax System
Emiliano Huet-Vaughn
Pomona College Working Paper, August 2023 


The positive political returns to providing cash transfers have been well documented. However, redistribution through the tax and transfer system, while direct, is not the only means by which governments seek to change the income distribution: regulation of private market transactions may have a similar, if indirect, effect, implicitly redistributing via so-called "pre-distribution" policies. Wage floors, in particular, are implemented with the explicit goal of redistributing pre-tax firm income to low-wage workers. In the United States, polls consistently indicate minimum wage increases are broadly popular, and, also clearly associated with the Democratic party. This paper provides the first test of whether large minimum wage increases actually yield electoral gains for Democrats. For both federal and state races, I find no evidence that this is generally true using an event-study design and sub-national variation in minimum wages from the early 1990s to recent years. A null result is further confirmed when using a beneficiary-level political sentiment measure and difference-in-difference design. Various explanations for the finding are explored and dispelled while newly collected survey evidence supports a salience, or inattention, mechanism. Specifically, voters are found to attend much less to a minimum wage increase than to an equivalently-valued direct cash transfer from the government. This suggests putting money in people's hands may not be enough to receive political credit and that the directness of a transfer may itself matter.

City Limits: Exploring the Relationship between Employment and Minimum Wages Using Mobile-Device Location Data
Hitanshu Pandit
Northeastern University Working Paper, September 2023 


The last decade has seen noteworthy local policy decisions, especially a trend in the decentralization of wage determination. Considering that local policy changes are aimed at the local areas where boundaries are porous, there is a need for analyses that incorporate detailed and accurate geographic and time information. Using establishment locations and mobile-device location data, this study explores how the labor market responds to local minimum wage ordinances. I use a difference-in-differences approach to estimate the effect of changes in the minimum wage on the long-duration of visits at a location, which can be used as a proxy for employment. I find a decrease in employment by 4.5% when there is a 10% increase in the minimum wage and an increase in distance traveled from home by 1.5% when there is an increase in the minimum wage by 10%. The study further demonstrates that the local labor market, especially in the non-tradeable sector, is more responsive to changes in the local minimum wage than the state-bound minimum wage changes.

Occupations, retirement, and the value of disability insurance
Lindsay Jacobs
Journal of Public Economics, September 2023 


Occupations vary greatly in physical intensity, and there are, correspondingly, many differences in later-life work disability risk, retirement patterns, and applications for Social Security Disability Insurance (SSDI) -- a national program that insures shocks to work productivity due to disability, with about nine million current beneficiaries in the U.S. In light of its widespread coverage and large differences in utilization across occupations, this paper aims to measure the value of the SSDI program across a broad population and the extent to which it influences the major choice of occupation. Using data from the Health and Retirement Study and O*NET, I estimate a life-cycle equilibrium model of occupational choice, work, savings, and disability at older ages, and find that incorporating occupations and preference heterogeneity is an integral part of understanding work and SSDI application behavior. While SSDI coverage is nearly universal and the premiums from workers are uniform, estimates suggest that the value of the program varies greatly, from being worth 2.1 to 14.5 percent of earned income -- depending on preferences and choice of occupation -- though for all groups it is welfare improving. I also find that SSDI plays an important role in the choice of occupation for older workers, providing an insurance value that results in over ten percent more people choosing physically intense, blue-collar occupations at older ages. This overall effect, however, masks the underlying selection of less risk-averse individuals into blue-collar jobs, which, if not accounted for, would lead to overstating the effects of the SSDI program on behavior. A counterfactual experiment aimed at eliminating the distortion created by uniform SSDI tax rates shows that -- even without any additional employer accommodation of disabled workers -- occupation-specific tax rates lead to fewer aggregate work-disabled years.

Long-Run Labor Costs of Housing Booms and Busts
Taylor Begley, Peter Haslag & Daniel Weagley
Journal of Financial and Quantitative Analysis, forthcoming 


We show large flows of workers into the real estate agent occupation (REA) during the early 2000s from virtually all parts of the skill, wage, and education spectrums. We find those entering REA in MSAs with house price bubbles end up in occupations paying significantly less in the long-run as compared to similar REA entrants in non-bubble areas.  Even in 2017, when house prices and employment return to their pre-crisis levels, REA entrants in bubble MSAs are in occupations earning about 6% less. These results point to lasting effects of labor allocation decisions in response to distorted price signals.

The Labor Market Returns of Being An Artist: Evidence from the United States, 2006-2021
Christos Makridis
Stanford Working Paper, September 2023 


Using individual-level data from the Census Bureau's American Community Survey (ACS) between 2006 and 2021, I study the labor market experiences of artists. First, I find a decline in the relative earnings of artists to non-artists from zero to a 15% disadvantage. After controlling for demographic differences, the decline is sharper, declining from a 15% earnings disadvantage to 30%. That the inclusion of demographic controls raises the earnings gap suggests there is positive selection into the arts. Second, these differences decline in magnitude to 4.4%, but remain statistically significant, after exploiting variation among artists and non-artists in the same industry-year and major occupation. Third, when restricting the set of individuals to those with at least a college degree, those with a fine arts degree also incur an earnings and employment penalty even if they work in the arts. These results highlight the increasing financial precariousness of artists over the past decade.

The impact of remote work on green space values in regional housing markets
Khyati Malik, Sowon Kim & Brian Cultice
Journal of Housing Economics, forthcoming 


We examine the extent to which the increased prevalence of work from home (WFH) due to the COVID-19 pandemic has made green amenities more desirable. Specifically, we focus on ten metropolitan statistical areas (MSAs) in the United States (Baltimore, Chicago, Cleveland, Los Angeles, Minneapolis/St. Paul, New York City, Philadelphia, Pittsburgh, St. Louis, and Tampa) and use a hedonic pricing approach to identify changes in the implicit prices of yard space and park proximity. We use a combination of data sources, including the Zillow Transaction and Assessment Database (ZTRAX), Open Street Maps, Longitudinal Employer Household Dynamics Origin-Destination Employment Statistics (LODES), National Land Cover Database (NLCD), and the Environmental Protection Agency’s EnviroAtlas to study the interactions between the exposure of a given neighborhood to WFH shock and private yard space, as well as proximity to the nearest park. Our findings suggest that home buyers in all the MSAs, except Minneapolis and Pittsburgh, assigned a greater value to private green amenities during the post-COVID period. However, for the MSAs of Los Angeles, New York, Philadelphia, and Pittsburgh, the marginal willingness to pay (MWTP) for private green spaces decreased in the post-COVID period in the areas with large WFH shocks. No significant change in the MWTP for proximity to public green spaces is noted in the post-COVID period for most MSAs. An event study of yard space reveals that most MSAs experienced an increase in the hedonic price of yard space in the post-COVID period. In the pre-COVID period, for many MSAs, the hedonic price of yard space was decreasing over the years, and this trend reversed in the post-COVID period. These results suggest that the preferred amenity bundles of people living in major cities in the U.S. have shifted as a result of changes in their commutes and work habits.


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