Findings

Understanding the Labor Market

Kevin Lewis

November 04, 2009

"Contingent on financing from Chinese commercial banks - and no small measure of funding from the U.S. economic stimulus package - A-Power Energy Generation Systems, a Nasdaq-listed company based in the Chinese industrial city of Shenyang, would provide 240 of its 2.5-megawatt wind turbines for a 36,000-acre, or 14,600-hectare, utility-scale wind farm in west Texas to be operated by Cielo Wind Power, a developer based in Austin...The group's calculations last week put the number of American jobs at a little more than 300 - most of them temporary construction jobs, along with about 30 permanent positions once the wind farm is operating...more than 2,000 Chinese jobs would be created by the deal. That, along with the fact that the project was hoping to secure 30 percent, or $450 million, of its financing from U.S. stimulus funds, was enough to send tempers flaring." ["Chinese Involvement in Proposed Texas Wind Farm Stirs Passions," The New York Times, November 1, 2009]

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Do Small Businesses Create More Jobs? New Evidence for the United States from the National Establishment Time Series

David Neumark, Brandon Wall & Junfu Zhang
Review of Economics and Statistics, forthcoming

Abstract:
We use a new database, the National Establishment Time Series (NETS), to revisit the debate about the role of small businesses in job creation. Birch (e.g., 1987) argued that small firms are the most important source of job creation in the U.S. economy. But Davis et al. (1996a) argued that this conclusion was flawed, and based on improved methods and using data for the manufacturing sector, they concluded that there was no relationship between establishment size and net job creation. Using the NETS data, we examine evidence for the overall economy, as well as for different sectors. The results indicate that small firms and small establishments create more jobs, on net, although the difference is much smaller than what is suggested by Birch's methods. Moreover, in the recent period we study, a negative relationship between establishment size and job creation holds for both the manufacturing and services sectors.

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Why are we in a recession? The Financial Crisis is the Symptom not the Disease!

Ravi Jagannathan, Mudit Kapoor & Ernst Schaumburg
NBER Working Paper, October 2009

Abstract:
Globalization has brought a sharp increase in the developed world's labor supply. Labor in developing countries - countries with vast pools of underemployed people - can now more easily augment labor in the developed world, without having to relocate, in ways not thought possible only a few decades ago. We argue that the large increase in the developed world's labor supply, triggered by geo-political events and technological innovations, is the major underlying cause of the global macro economic imbalances that led to the great recession. The inability of existing institutions in the US and the rest of the world to cope with this shock set the stage for the great recession: The inability of emerging economies to absorb savings through domestic investment and consumption due to inadequate national financial markets and difficulties in enforcing financial contracts; the currency controls motivated by immediate national objectives; and the inability of the US economy to adjust to the perverse incentives caused by huge money inflows leading to a breakdown of checks and balances at various financial institutions. The financial crisis in the US was but the first acute symptom that had to be treated. A sustainable recovery will only occur when the natural flow of capital from developed to developing nations is restored.

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Discrimination in a Low-Wage Labor Market: A Field Experiment

Devah Pager, Bart Bonikowski & Bruce Western
American Sociological Review, October 2009, Pages 777-799

Abstract:
Decades of racial progress have led some researchers and policymakers to doubt that discrimination remains an important cause of economic inequality. To study contemporary discrimination, we conducted a field experiment in the low-wage labor market of New York City, recruiting white, black, and Latino job applicants who were matched on demographic characteristics and interpersonal skills. These applicants were given equivalent résumés and sent to apply in tandem for hundreds of entry-level jobs. Our results show that black applicants were half as likely as equally qualified whites to receive a callback or job offer. In fact, black and Latino applicants with clean backgrounds fared no better than white applicants just released from prison. Additional qualitative evidence from our applicants' experiences further illustrates the multiple points at which employment trajectories can be deflected by various forms of racial bias. These results point to the subtle yet systematic forms of discrimination that continue to shape employment opportunities for low-wage workers.

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Multinationals and Anti-Sweatshop Activism

Ann Harrison & Jason Scorse
American Economic Review, forthcoming

Abstract:
During the 1990s, anti-sweatshop activists campaigned to improve working conditions and raise wages for workers in developing countries, particularly in Southeast Asia. This paper analyzes the impact of anti-sweatshop campaigns in Indonesia on wages and employment. Identification is based on comparing the wage growth of unskilled workers in foreign-owned and exporting firms in the textiles, footwear, and apparel sectors before and after the initiation of anti-sweatshop campaigns; special attention is paid to those firms operating in regions specifically targeted by activists because of their high concentration of "name brand" companies such as Nike, Adidas, and Reebok. We find that anti-sweatshop campaigns led to large real wages increases for targeted enterprises. We also examine whether higher wages led these firms to cut employment or relocate elsewhere. The results suggest that there were some costs in terms of reduced investment, falling profits, and increased probability of closure for smaller plants, but we fail to find significant effects on employment.

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Minimum Wage Effects across State Borders: Estimates Using Contiguous Counties

Arindrajit Dube, William Lester & Michael Reich
Review of Economics and Statistics, forthcoming

Abstract:
We use policy discontinuities at state borders to identify the effects of minimum wages on earnings and employment in restaurants and other low-wage sectors. Our approach generalizes the case study method by considering all local differences in minimum wage policies between 1990 and 2006. We compare all contiguous county pairs in the U.S. that straddle a state border and find no adverse employment effects. We show that traditional approaches that do not account for local economic conditions tend to produce spurious negative effects due to spatial heterogeneities in employment trends that are unrelated to minimum wage policies. Our findings are robust to allowing for long term effects of minimum wage changes.

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The Market Crash and Mass Layoffs: How the Current Economic Crisis May Affect Retirement

Courtney Coile & Phillip Levine
NBER Working Paper, October 2009

Abstract:
Recent dramatic declines in U.S. stock and housing markets have led to widespread speculation that shrinking retirement accounts and falling home equity will lead workers to delay retirement. Yet the weakness in the labor market and its impact on retirement is often overlooked. If older job seekers have difficulty finding work, they may retire earlier than expected. The net effect of the current economic crisis on retirement is thus far from clear. In this paper, we use 30 years of data from the March Current Population Survey to estimate models relating retirement decisions to fluctuations in equity, housing, and labor markets. We find that workers age 62 to 69 are responsive to the unemployment rate and to long-run fluctuations in stock market returns. Less-educated workers are more sensitive to labor market conditions and more-educated workers are more sensitive to stock market conditions. We find no evidence that workers age 55 to 61 respond to these fluctuations or that workers at any age respond to fluctuating housing markets. On net, we predict that the increase in retirement attributable to the rising unemployment rate will be almost 50 percent larger than the decrease in retirement brought about by the stock market crash.

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The Politics of Union Decline: The Contingent Determinants of Union Recognition Elections and Victories

Daniel Tope & David Jacobs
American Sociological Review, October 2009, Pages 842-864

Abstract:
Despite the close political regulation of union recognition disputes, sociologists have paid little attention to recent political determinants of success in these contests. A state-centered political-opportunity approach suggests that if conservative political officials can reduce the number of union recognition elections, union organization will be blocked. Partly because many labor scholars claim there was a postwar departure in labor movement fortunes, we attempt to detect and model a contingent break in the relationship between Republican control of the presidency and these elections using interactive specifications. Our findings show that shortly after the conservative, antiunion Reagan administration took office, recognition elections, and union victories in these elections, fell sharply. With macroeconomic and other determinants held constant, other political conditions with explanatory power include congressional oversight committee ideology and conservative appointments to the key regulatory agency. Our findings support political accounts and also suggest that unions' failures to organize new workplaces were sustained by subsequent conservative administrations.

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Jewish and Arab academic graduates in Israel: Ethnicity, education and work values

Moshe Sharabi
International Journal of Intercultural Relations, forthcoming

Abstract:
The work values of Arabs in general, and of Arab academic graduates specifically, have not yet been studied in Israel. This preliminary research compares the importance of work and other areas of life, as well as preferred work goals, among 285 Jewish and 87 Arab academic graduates. Findings revealed significant differences in all areas of life (family, leisure, community and religion) and in six of the eleven work goals. The most interesting finding is that while among Jewish academic graduates, family is ranked first, followed by work and leisure, among Arab academic graduates, work is ranked first, followed by family and leisure. The findings can be attributed to cultural differences, ethnic conflict, as well as to the employment opportunities given to academic Jews and Arabs.

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Work Values, Gender, and Expectations About Work Commitment and Pay: Laying the Groundwork for the "Motherhood Penalty"?

Hilary Lips & Katie Lawson
Sex Roles, November 2009, Pages 667-676

Abstract:
The gender pay gap most seriously affects women with children - a situation labeled the motherhood penalty. One common explanation is that mothers value family more than employment, leading to reduced work commitment and hence to lower pay. Using a questionnaire, we examined the relationship between endorsement of two work-related values (family and power), anticipated work commitment, and expected peak pay among 229 undergraduates at a southeastern U.S. university. Men expected higher peak salaries, valued power more and family less than women. For both genders, valuing power predicted higher expected peak salary and valuing family predicted lower anticipated work commitment. For women, reduced work commitment, in turn, predicted lower anticipated peak pay. For men, valuing family predicted higher peak pay expectations.

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The Output Effects of Labor Income Taxes in OECD Countries

Daniela Sonedda
Public Finance Review, November 2009, Pages 686-709

Abstract:
This article considers the relationship between labor income taxes and output. An illustrative model indicates that the sign of the output effect of labor taxation policies is ambiguous and depends not only on the technology parameters but also on the taxation level. The empirical evidence for fifteen Organisation for Economic Co-operation and Development (OECD) countries over the period 1974-97 shows that the effect is heterogeneous across countries both in the short run and in the long run when considering the average tax rate. We also find a common positive and significant long-run relationship for the marginal tax rate.

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Is Entrepreneurship Missing in Shanghai?

Yasheng Huang & Yi Qian
MIT Working Paper, June 2008

Abstract:
Using a unique census dataset on all industrial firms (with more than 5 million yuan in sales), we document a phenomenon of missing entrepreneurship in Shanghai. Entrepreneurship is defined as private, new entrants in our paper. Specifically, in terms of business density, the size of employment and a host of other measures, the relative ranking of Shanghai was always near the bottom in the country. All these empirical findings took place against a backdrop of the presumably huge locational advantages of Shanghai - the substantial human capital, rapid GDP growth, and a long and stellar - but pre-communist - history of entrepreneurship. We propose a hypothesis that Shanghai adopted a particularly rigorous version of industrial policy model of economic development and this industrial policy proclivity may have led to the atrophy of entrepreneurship in Shanghai.

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The Effect of Endogenous Right-to-Work Laws on Business and Economic Conditions in the United States: A Multivariate Approach

Lonnie Stevans
Review of Law & Economics, 2009

Abstract:
A state's right to prohibit unions from compelling employees to pay dues even when they are covered by a collective bargaining agreement has its basis in the 1947 Taft-Hartley amendments to the National Labor Relations Act (1935). After the amendment's passage, twelve states passed "right-to-work" laws--as did ten more states in the intervening years. Although there has been considerable research on the effect of right-to-work laws on union density, organizing efforts, industrial development and some study of wage differences, there has been little or no examination of the legislation's influence on business and economic conditions across states. In this paper, the average differences in business conditions, employment, personal income, wages and salaries, and proprietors' income across states that have enacted right-to-work laws versus those states that did not, are examined assuming that the legislation is endogenous and controlling for state real economic growth, region, and year. Although right-to-work states may be more attractive to business, this does not necessarily translate into enhanced economic verve in the right-to-work state if there is little "trickle-down" from business owners to the non-unionized workers. While the number of self-employed is higher and business bankruptcies lower on average in right-to-work states, there is no significant difference in capital formation or employment rates, ceteris paribus. In addition, per-capita personal income and wages are both lower, yet proprietors' income is higher in right-to-work states.


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