Results for “labor mobility” 73 found
Thursday assorted links
1. NBA cooperation markets in everything: “And so to avoid this descent into the mud, many players strike unofficial pacts with their opponents.”
3. Report from Somaliland. It could be much worse. And night light intensity and Roman road density.
4. Scott Sumner on labor markets, empirics, and monopsony.
5. New study on occupational licensing and restricted mobility.
6. Holly Cowen captures Hawthorne wildlife with photography.
The lava shock and the benefits of moving house (who’s complacent?)
This paper from last year somehow I neglected to blog, here is the abstract:
We exploit a volcanic “experiment” to study the costs and benefits of geographic mobility. We show that moving costs (broadly defined) are very large and labor therefore does not flow to locations where it earns the highest returns. In our experiment, a third of the houses in a town were covered by lava. People living in these houses where much more likely to move away permanently. For those younger than 25 years old who were induced to move, the “lava shock” dramatically raised lifetime earnings and education. Yet, the benefits of moving were very unequally distributed within the family: Those older than 25 (the parents) were made slightly worse off by the shock. The large gains from moving for the young are surprising in light of the fact that the town affected by our volcanic experiment was (and is) a relatively high income town. We interpret our findings as evidence of the importance of comparative advantage: the gains to moving may be very large for those badly matched to the location they happened to be born in, even if differences in average income are small.
That is from an NBER paper by Emi Nakamura, Jósef Sigurdsson, and Jón Steinsson. There will someday be a Puerto Rican version of this study.
The political economy of inflation
That is the topic of my latest Bloomberg column, here is one bit:
Just think how the U.S. has changed. Compared to earlier decades, economic growth and wage growth have slowed, the population has aged, average job tenure is longer and Americans are much less likely to move across the country for a new job. Furthermore, more Americans have ensconced themselves service-sector jobs, where they’re sheltered by formal tenure or strong networks of allies at work. We are more set in our ways, and that means people with jobs feel more threatened by inflation.
In the rarefied world of economic theory, higher inflation would translate into higher nominal wages fairly quickly, keeping the real, inflation-adjusted wage constant. But that doesn’t happen automatically, because employers will only pay their workers more if they fear those workers will leave or rebel. With lower levels of labor-market and geographic mobility, and with more two-income families, it’s harder for many workers to threaten to quit than before.
The net result is that inflation would leave many workers with permanently lower wages, as in essence the central bank would be giving them a wage cut that their own employers probably would not have dared.
Do read the whole thing.
Not Moving to Opportunity
Labor market mobility in the United States has declined. Interstate migration is down (graph at right from Molloy, Smith, Trezzi and Wozniak) and so is in-state-migration, especially for the less well educated. Where once people responded to shocks by moving to opportunity now they are likely to stay put and retire early or take-up disability insurance. Ben Leubsdorf at the WSJ reviews some of the evidence:
“A state typically returns to normal after an adverse shock not because employment picks up, but because workers leave the state,” economists Olivier Blanchard and Lawrence Katz wrote in a 1992 paper.
This time might be different in some ways. Three economists wrote in a National Bureau of Economic Research working paper last year that compared with the prerecession years, mass layoffs after 2007 prompted a “muted” migration response and many workers instead dropped out of the labor force.
In a new paper, also cited by Leubsdorf, Danny Yagan at Berkeley suggests that reduced migration is only part of the problem. What has made the aftermath to the 2008-2009 recession so bad is that migration is low at the same time that it has become more necessary than ever. The 2008-2009 recession was especially localized, it hit some places harder than others and in a way that appears to be permanent. But migration has been too slow to solve the problem.
The usual story is that in-and-out migration equalizes wage, unemployment and employment rates across the nation. Some places may be harder hit than others but movement quickly makes the US into one labor market. In the aftermath of this recession, however, that isn’t happening for employment rates. Using a clever research design that looks at workers with similar education and skills doing the same jobs at the same large firms but in different locations, Yagan finds that location continues to matter years after the recession has ended. Workers who worked in the places hardest hit in the 2007-2009 recession have employment rates today that are 1% lower than similar workers in regions that were less hard hit. Convergence has been unusually slow:
I conclude that living in a hard-hit area has caused enduring joblessness and exacerbated inequality. If the latest convergence speed continues, employment differences across the United States are estimated to return to normal in the 2020s—more than a decade after the great recession.
The Logic of Closed Borders
Bloomberg: At least 100 workers at the construction site for Tesla Motors Inc.’s battery factory near Reno, Nevada, walked off the job Monday to protest use of workers from other states, a union official said.
Local labor leaders are upset that Tesla contractor Brycon Corp. is bringing in workers from Arizona and New Mexico, said Todd Koch, president of the Building and Construction Trades Council of Northern Nevada.
“It’s a slap in the face to Nevada workers to walk through the parking lot at the job site and see all these license plates from Arizona and New Mexico,” Koch said in an interview. Those who walked out were among the hundreds on the site, he said.
Erik Brynjolfsson tweeted “Build a wall! And make New Mexico pay for it.” Or perhaps require that Nevada carpenters be licensed.
Monday assorted links
1. Master branding has limits.
3. Brad DeLong defends Obamacare.
4. Ice cream truck plays Arnold Schoenberg.
5. What questions did people have in 1690?
7. Justin Wolfers on the new Chetty and Hendren study, which as far as I can tell sides with Steve Sailer on what is the biggest problem with poverty, namely that you usually end up living near other poor people.
How love conquered (arranged) marriage
Gabriela Rubio of UC Merced has a very interesting paper (pdf) on this topic:
Using a large number of sources, this paper documents the sharp and continuous decline of arranged marriages (AM) around the world during the past century, and describes the factors associated with this transition. To understand these patterns, I construct and empirically test a model of marital choices that assumes that AM serve as a form of informal insurance for parents and children, whereas other forms of marriage do not. In this model, children accepting the AM will have access to insurance but might give up higher family income by constraining their geographic and social mobility. Children in love marriages (LM) are not geographically/socially constrained, so they can look for the partner with higher labor market returns, and they can have access to better remunerated occupations. The model predicts that arranged marriages disappear when the net benefits of the insurance arrangement decrease relative to the (unconstrained) returns outside of the social network. Using consumption and income panel data from the Indonesia Family Life Survey (IFLS), I show that consumption of AM households does not vary with household income (while consumption of LM households does), consistent with the model’s assumption that AM provides insurance. I then empirically test the main predictions of the model. I use the introduction of the Green Revolution (GR) in Indonesia as a quasi-experiment. First, I show that the GR increased the returns to schooling and lowered the variance of agricultural income. Then, I use a difference-in-difference identification strategy to show that cohorts exposed to the GR experienced a faster decline in AM as predicted by the theoretical framework. Second, I show the existence of increasing divorce rates among couples with AM as their insurance gains vanish. Finally, using the exogenous variation of the GR, I find that couples having an AM and exposed to the program were more likely to divorce, consistent with the hypothesis of declining relative gains of AM.
MR referenced this paper in an addendum some while ago, Michael Clemens on Twitter recently reminded me of its existence. One question of course is to what extent the arranged marriage is the only marriage form which provides these insurance benefits. In other words, the arranged marriage might go away, but without the love marriage triumphing. Perhaps one key change is that the parents are no longer the best producers of those financial insurance benefits, but that is distinct from the triumph of love.
How do trends and cycles interact?
In a piece I already have linked to, Binyamin Appelbaum makes a point in passing that I think deserves further comment:
The new paper, like others of its genre, basically requires belief in a big coincidence: that a short-term catastrophe happened to coincide with the intensification of long-term trends — that the economy crashed at the moment that it was already beginning a gradual descent.
I view this somewhat differently. Very often trends accumulate, often without much notice, and then a cyclical event causes that trend to explode into full view. Such a coincidence of cycle and trend is very often no accident and in fact the two are closely related.
Let’s say, as seems to be the case, that wages stagnated, labor market mobility slowed down, and non-outsourcing productivity was slow during 2000-2007 (or maybe longer). Those are all long-term economic trends and they are all bad news.
During 2000-2007 most Americans acted as if were are on a good trend line when in fact they were on a less favorable trend line. This influenced spending decisions, borrowing decisions, real estate decisions, and so on. People overextended themselves and they also created unsustainable bubbles. Sooner or later the debt cannot be rolled over, the bubbles pop, the crash ensues, AD falls, and so on. This often takes the form of a discrete cyclical event, as indeed it did in 2008.
One point — still neglected in much of today’s macroeconomic discourse — is that the mis-estimated trend was a major factor behind the cyclical event. But there is yet more to say about this interrelationship between cycle and trend.
The arrival of the cyclical event, in due time, makes the negative underlying trend more visible. At first people blame everything on the cycle/crash, but a look at the slow recovery, combined with a study of pre-crash economic problems, shows more has been going on.
The cyclical event itself places greater stress on labor markets, on firm liquidity and thus on R&D, on perceived stocks of wealth, and so on. As individuals observe the reaction of the economy to this added stress, they start seeing just how wide-ranging and deep the previously existing structural problems have been.
Those observations, and the accompanying economic responses, make the problems worse. Forecasts become more pessimistic, investment declines, firms will be less keen to commit to workers who are less than the “sure thing,” and so on. Sometimes this is moving along curves, other times there are shifts in multiple equilibria (“is Greece a European country or a Balkans country?”), toss in some herd behavior too. In any case these changes are ill-served by the terminology of cyclical vs. structural. They are cyclical and structural in an intertwined fashion. And of course this all leads aggregate demand to fall all the more.
I am reminded of the literature in finance that shows how apparently small shifts in information can lead to big movements in market prices. The initial small shift illuminates the reaction functions of other market traders, which illuminates depth of sentiment, which in turn causes a revision of expectations and thus prices. For instance the market as a whole may learn from a small shift in orders that core traders were never so optimistic in the first place.
It’s also worth visiting the literature on how sand piles can collapse rather suddenly (“self-organized criticality” is one term used in the economics literature). That too is a cyclical event yet based on underlying structural problems.
If you hear someone say “if this were structural unemployment, wages would be rising a lot right now,” that is a sign they have not thought through this issue deeply enough.
If you hear someone argue or rebut “so what, did everyone get lazy or stupid in 2009?”, that too is a sign only one dimension of the problem is being considered.
In macroeconomic debate, most one-line zingers are not very good.
Will raising the minimum wage boost crime?
There is a recent 2013 paper on this topic by Andrew Beauchamp and Stacey Chan, the abstract is here:
Does crime respond to changes in the minimum wage? A growing body of empirical evidence indicates that increases in the minimum wage have a displacement effect on low-skilled workers. Economic reasoning provides the possibility that disemployment may cause youth to substitute from legal work to crime. However, there is also the countervailing effect of a higher wage raising the opportunity cost of crime for those who remain employed. We use the National Longitudinal Survey of Youth 1997 cohort to measure the effect of increases in the minimum wage on self-reported criminal activity and examine employment–crime substitution. Exploiting changes in state and federal minimum wage laws from 1997 to 2010, we find that workers who are affected by a change in the minimum wage are more likely to commit crime, become idle, and lose employment. Individuals experiencing a binding minimum wage change were more likely to commit crime and work only part time. Analyzing heterogeneity shows those with past criminal connections are especially likely to see decreased employment and increased crime following a policy change, suggesting that reduced employment effects dominate any wage effects. The findings have implications for policy regarding both the low-wage labor market and efforts to deter criminal activity.
For the pointer I thank Kevin Lewis. And there is an ungated version here (pdf). And via Gordon, here is a profile behind one of the forces behind the campaign to raise the minimum wage. Here is a good recent article on minimum wages and cross-state mobility.
Does increasing inequality weaken the case for additional low-skilled immigration?
In general, no. Let’s assume that the increase in inequality is driven by new technologies, such as automation, or by foreign trade. Imagine that Chinese competition lowers American middle class wages but gives Apple another export market and thus simultaneously boosts the returns to capital. For our analytical purposes, the new foreign trade is a “new technology” of some kind or another, so doing trade or technology as the cause of the higher inequality should not make a big difference.
Assume also, as many models do, that capital is more mobile than labor.
In many settings it is then the mobility of capital that determines the domestic wage, not immigration. If you keep out more immigrants, that just means capital leaves your country for India or China. Alternatively, letting in more low-wage immigrants limits outsourcing (or automation, as you wish) and keeps more capital in the United States. It may even boost the number of jobs for native-born Americans, who perhaps drive trucks to and from the factories where the immigrants work. Here is some evidence on that point, hardly conclusive but certainly not running against immigration.
It is instructive to look at the polar case. Let’s say American wages were completely determined in global markets. Letting in more immigrants wouldn’t affect those wages at all.
Immigrants also keep their beneficial economic effects in increasing returns to scale models, with or without high inequality in the domestic wage structure.
There are many different ways you can slice this cake, and I am not suggesting the mechanisms outlined above are always the dominant ones. Still, they should disabuse you of leveling the immediate knee-jerk charge that higher domestic inequality weakens the economic case for additional low-skilled immigration.
There are two further points of import. First, if permitted immigration is so high that labor is more mobile than capital, the argument for limiting low-skilled immigration to help domestic workers may become stronger. Second, the “political and cultural externalities” arguments against low-skilled immigration are still on the table.
Eliezer Yudkowsky asks about automation
From the MR comments:
http://lesswrong.com/lw/hh4/the_robots_ai_and_unemployment_antifaq/
(Tyler, have you read that?)
I don’t actually get Brynjolfsson and McAfee. I read the original book and it seemed very unoriginal and not to address at all the basic question of “Why did Ricardian reemployment work fine when agricultural jobs went from 95% to 3%, work fine when automobiles put the whole horse-and-buggy industry out of existence, work fine when women entered the workforce during WWII, and then suddenly stop working?”
The Ricardian comparison is the technology-relevant one here, and I would challenge the notion that it went fine. Think of the machines of the industrial revolution as getting underway sometime in the 1770s or 1780s. The big wage gains for British workers don’t really come until the 1840s. Depending on your exact starting point, that is over fifty years of labor market problems from automation, and yes it is correct to also blame various bad laws, mobility restrictions, wars and taxes, and the like. Even Ricardo, very much a free market economist, worried about the machinery question in his day and rightly so. The industrial revolution was a wonderful development with huge ongoing gains, but still it did bring some very real adjustment issues.
A second point is that now we have a much more extensive network of government benefits and also regulations which increase the fixed cost of hiring labor. Insofar as automation creates short-run adjustment problems, those problems are more likely to show up in the form of decreased labor force participation than they did in previous eras. We are living in a time where the long-run trend is for labor force participation to fall in any case, and that was not in general the case during those earlier episodes.
You also might try to run with a “back then machines substituted for brawn, now they are substituting for brains” argument. Maybe so, but you don’t even need to make that work to have a substantial (non-Luddite) worry.
Immigration and wages
Matt Yglesias has a good post covering new research on immigration and wages:
… [a] new study of immigration to Denmak by Mette Foget and Giovanni Peri is one of the most detailed examinations of the issue that we’ve seen and it finds that Danish workers benefit from an inflow of complementary immigrants:
Using a database that includes the universe of individuals and establishments in Denmark over the period 1991-2008 we analyze the effect of a large inflow of non-European (EU) immigrants on Danish workers. We first identify a sharp and sustained supply-driven increase in the inflow of non-EU immigrants in Denmark, beginning in 1995 and driven by a sequence of international events such as the Bosnian, Somalian and Iraqi crises. We then look at the response of occupational complexity, job upgrading and downgrading, wage and employment of natives in the short and long run. We find that the increased supply of non-EU low skilled immigrants pushed native workers to pursue more complex occupations. This reallocation happened mainly through movement across firms. Immigration increased mobility of natives across firms and across municipalities but it did not increase their probability of unemployment. We also observe a significant shift in the native labor force towards complex service industries in locations receiving more immigrants. Those mechanisms protected individual wages from immigrants competition and enhanced their wage outcomes. While the highly educated experienced wage gains already in the short-run, the gains of the less educated built up over time as they moved towards jobs that were complementary to those held by the non-EU immigrants.
Tada! A lot of people have twisted themselves into a position where this kind of result strikes them as contrarian or counterintuitive. But if you think about population dynamics in a non-immigration context you’ll see that this is the conventional wisdom. If a deadly virus killed five percent of the population of Chicago, incomes would fall not rise. Chicago isn’t populated by subsistence farmers imperiled by land scarcity. Its residents participate in a 21st century service economy where they benefit from complex complementarities and an elaborate division of labor. That’s why big cities are engines of opportunity.
Ygelsias’s analogy to cities is a good one. Bryan Caplan has another way of explaining the point, “In a society of Einsteins, Einsteins take out the garbage, scrub floors, and wash dishes.” Thus, low-skilled immigration can increase wages by allocating talent to higher productivity jobs.
Wildcatting
Wildcatting is a stripper’s guide to boom towns like Williston, North Dakota. It’s insightful on the principal-agent problem, why natural resources aren’t a geographic blessing even when they aren’t a curse, selection effects and immigration (” I never met a boring stripper in Williston.”) and small town life.
I am thinking of asking my IO students to explain why stripper pay structure changed with the boom:
It took a long time for things to quickly change. First, Whispers started booking four dancers. Then a second club, Heartbreakers, opened right next door, and they didn’t even cap the number of dancers that could work. Not only that, they didn’t pay the dancers — and instead charged them a whopping $120 flat stage fee. Whispers upped their game by going to six dancers at some point in 2011. The last time I got a paycheck from them was in February 2012, and then the owner told me they weren’t going to pay dancers at all anymore.
So starting in 2012, instead of getting paid $250–500 a week, depending on the booking, we paid Whispers $120 a night. Instead of keeping $15 from each dance, dancers kept the whole $20.
Strippers are not immune to the great stagnation:
The American worker has never been so efficient in terms of output over hours worked. At the same time, real wages and benefits have plummeted. Prospects are shitty for college graduates and non-graduates alike. Layoffs and cutbacks in previously solid industries protect the profits of an ever-smaller class at the expense of those who produce value. In stripper terms, here’s what that looks like: Lap dances in many places still start at $20, the same price they were in 1990. Customers expect ever-higher levels of contact and performance skill, meaning strippers work harder to earn the $20 or the dollar stage tip that is worth a lot less than it used to be.
…The one big advantage you have if you’re a stripper, though, is the ability to travel to greener pastures. If you would like to have a job in another town, as long as you look good enough for the club’s standards, you’re hired. So those who can, move. When the level of bullshit is too high or the earnings too low, they the hit the road. Same as the men who wind up traveling to work in the oil fields. If you can make $30,000 more a year driving heavy equipment in North Dakota instead of in Louisiana, and you need that money, you go. Is this the logical progression of a service economy? It looks like migrant labor.
…Mobility giveth and mobility taketh away, and while I was grateful to have the freedom to come to the boomtown, I was even more thankful to have the freedom to leave.
The piece is also of interest when read at the meta level.
The Randall Collins theory of ritual
Much of it concerns the origins and application of violence, but this blog post on Randall Collins and his theory of ritual, by Xavier Marquez, is interesting throughout. Here is one excerpt:
The (relative) insignificance of ideology. Taken in its strongest terms, Collins’ theory seems to suggest that ideology is generally unimportant. Whether a symbol acquires socially motivating value depends much less on its “generalized” meaning than on its place within chains of interaction rituals; we are not generally the dupes of rhetorical framings and persuasive strategies except in the context of successful ritual situations. (Collins notes, for example, that most advertisement seems to be unsuccessful at actually persuading people to buy products, and is mostly intended to preserve attention space against competitors). From this perspective, the decline of labor movements worldwide, for example, may owe less to any ideological changes (“persuasion” and “manipulation” taken in a very broad sense) than to (intentional or unintentional) changes in the conditions for the ritual production of solidarity. Chris Bertram recently mused on the occasion of Margaret Thatcher’s death that UK society used to be socially more class-differentiated (there were strong institutions where class solidarities and roles were produced) but is now less so (since these institutions have vanished), despite very low levels of economic mobility and higher levels of economic inequality; many people now “feel” that there is more equality. From the interaction ritual perspective, these changes are not the result of the working class becoming simply convinced of lies due to clever persuasive strategies by elites, but of the less central place of rituals and symbols reinforcing class solidarity in their lives. This is in turn due to any number of causes: laws that made labor unions more difficult to organize, structural changes in employment patterns, the decay of rituals of deference, the emergence of rituals focused on celebrities that cut across social class, etc.
Collins is one of the most important social scientists in the world today, though in many circles he remains underdiscussed. You will find previous MR coverage of him here. The pointer is from @HenryFarrell.
Are robots and aging demographics self-cancelling problems?
Dean Baker says yes:
This is one where a baseball bat might be necessary. If you are concerned that a falling ratio of workers to retirees is going to make us poor then you are not concerned that excessive productivity growth will leave tens of millions without jobs. Let’s try that again. If you are concerned that a falling ratio of workers to retirees is going to make us poor then you are not concerned that excessive productivity growth will leave tens of millions without jobs.
It is possible for too much productivity growth to be a problem, if the gains are not broadly shared. It is also possible for too little productivity growth to be a problem as a growing population of retirees imposes increasing demands on the economy. But, it is not possible for both to simultaneously be problems.
That is missing the point, as there is too much talk of “productivity growth” per se and not enough of either distribution or political economy. If robots concentrate wealth in the hands of IP owners, wages for many workers might fall or remain stagnant. That is a problem.
Similarly, if robots concentrate wealth in the hands of IP owners, it may be hard to drum up the tax revenue to support a higher dependency ratio. The wealthy may produce a blocking political coalition or capital simply may be harder to tax for mobility, accountancy, and Laffer curve-like reasons. There is then a problem with the dependency ratio.
We then have both problems, no contradiction.
Note that we can get out of at least one half of this mess if the robots are especially good at taking care of old people. That seems unlikely to me, at least in earlier stages of robot development, but of course it is not impossible. In reality, many old people would fare somewhat better if our economy were somewhat more like that of Mexico, namely with cheaper land and cheaper servants. You could imagine robots lowering wages by say ten percent, yet still labor wouldn’t be cheap enough for most old people to afford much more in the way of servants.