More on countercyclical restructuring and ZMP

I have been reading some new results by David Berger (who by the way seems to be an excellent job market candidate, from Yale), here is one bit:

Finally, I discuss what changed in the 1980s. I provide suggestive evidence that the structural change was the result of a large decline in union power in the 1980s. This led to a sharp reduction in the restrictions …firms faced when adjusting employment, which lowered fi…ring costs and made it easier for fi…rms to …fire selectively. I test this hypothesis using variation from U.S. states and industries. I show that states and industries that had larger percentage declines in union coverage rates had larger declines in the cyclicality of ALP [average labor productivity], consistent with my hypothesis. The union power hypothesis is also consistent with evidence from detailed industry studies. A recent paper by Dunne, Klimek and Schmitz (2010) shows that there were dramatic changes in the structure of union contracts in the U.S. cement industry in the early-1980s, which gave establishments much more scope to …fire workers based on performance rather than tenure. They show that immediately after these workplace restrictions were lifted, ALP and TFP in the industry increased signifi…cantly.

This paper is a goldmine of information on the cyclical behavior of productivity and how it has changed in recent times.  Basically, we’re now at the point where a recession means they dump the bad workers and we subsequently have a jobless recovery.

While we’re on the broader topic, I’d like to make a few points about the recent ZMP (“zero marginal productivity“) debates between Kling, Caplan, Henderson, Boudreaux, and Eli Dourado:

1. There has been plenty of evidence for “labor hoarding”; oddly, once the ZMP workers start actually being fired, the concept suddenly becomes controversial.  The simple insight is that firms don’t hoard so much labor any more.

2. The ZMP worker concept can overlap with the sticky wage concept.  If a person is a prima donna who will sabotage production unless paid 120k a year and given the best office, that person has a sticky wage.  That same person also can be ZMP.  Very often the concept is about bad morale, not literal and universal incompetence; the ZMPers are often quite effective at sabotage!

3. No one thinks a worker is ZMP in all possible world-states.

4. The high and rising premium for good managers is another lens for viewing the phenomenon.  More workers could usefully be employed if we had more skilled supervisors, and thus the shadow value for a skilled supervisor is especially high.

5. Virtually everyone believes in the concept, although opinions differ as to how many workers it covers.  How about the people who are classified as having given up the search for work altogether?  There’s quite a few of them.  Put aside the blame question and the moralizing, can’t at least a few of these people — who aren’t even looking to work — be considered ZMP?

In any case, Berger’s concerns are more empirical and more concrete than some of the issues in those debates.  At the first link you also can find some very interesting papers, by Berger, on the cyclical behavior of price stickiness.  The observed data — surprise, surprise — are quite inconsistent with standard models.


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