Labor Forces
A Theory of How Workers Keep Up With Inflation
Hassan Afrouzi et al.
NBER Working Paper, December 2024
Abstract:
In this paper, we develop a model that combines elements of modern macro labor theories with nominal wage rigidities to study the consequences of unexpected inflation on the labor market. The slow and costly adjustment of real wages within a match after a burst of inflation incentivizes workers to engage in job-to-job transitions. Such dynamics after a surge in inflation lead to a rise in aggregate vacancies relative to unemployment, associating a seemingly tight labor market with lower average real wages. Calibrating with pre-2020 data, we show the model can simultaneously match the trends in worker flows and wage changes during the 2021-2024 period. Using historical data, we further show that prior periods of high inflation were also associated with an increase in vacancies and an upward shift in the Beveridge curve. Finally, we show that other "hot labor market" theories that can cause an increase in the aggregate vacancy-to-unemployment rate have implications that are inconsistent with the worker flows and wage dynamics observed during the recent inflationary period. Collectively, our calibrated model implies that the recent inflation in the United States, all else equal, reduced the welfare of workers through real wage declines and other costly actions, providing a model-driven reason why workers report they dislike inflation.
Local Labor Market Effects of Amazon
Evan Cunningham
University of Minnesota Working Paper, October 2024
Abstract:
Does the entry of a large employer to a local labor market increase welfare for residents? To answer this question, I analyze the local effects of the dramatic expansion of Amazon's fulfillment center (FC) network from 2010 onward. I exploit the staggered roll-out of FCs across large U.S. metros in a difference-in-difference framework. I find Amazon's entry in a metro increases the total employment rate by 1.0 percentage point and average wages by 0.7 percent. The composition of employment shifts from retail and wholesale trade to warehousing and tradeable services, primarily driven by younger workers. Employment gains are concentrated among non-college workers. Rents increase by 1.1 percent, utility costs increase by 6.0 percent, and home values increase by 5.6 percent. I interpret these results through the lens of a static spatial equilibrium model. I find a net increase in aggregate welfare: the average worker is willing to pay $329 per year (0.8 percent of income) to live in a large city with Amazon. The welfare gains are primarily driven by rising home values; the increase in employment, wages, and sectoral shifts account for only one-tenth of the increase. These positive impacts are partially offset by rising local costs of living and the declining value of non-wage amenities in large cities. Government subsidies have a negligible effect on welfare as they are a small share of state and local budgets.
Declining Teen Employment: Causes and Consequences
Jacob Wright & Alex Wurdinger
University of Minnesota Working Paper, September 2024
Abstract:
Teen employment in the United States has fallen by more than 50% over the last 30 years. We provide causal evidence attributing the majority of this decline to crowding out of teen labor by adults. To determine the macroeconomic consequences of this decline, we begin by causally estimating the returns to teen employment. We find significantly higher wages and lower unemployment rates later in life for teens who worked while in high school and did not attend university. Next, we develop a general equilibrium model and calibrate it to match our causal estimates. The model features adolescents choosing between accumulating human capital on-the-job or in school, and adults choosing teen vs. non-teen occupations. Using this quantitative framework, we simulate a shock to adult occupations that leads to the displacement of teen workers. We find that teens crowded out by adults experience significant welfare losses, partly due to a loss of work experience. We show that education policies, such as optional vocation training, are effective at reducing adverse effects for teens who have been crowded out of the labor market.
Birth Dearth and Local Population Decline
Brian Asquith & Evan Mast
University of Notre Dame Working Paper, October 2024
Abstract:
Local population decline has spread rapidly since 1970, with half of counties losing population between 2010 and 2020. The workhorse economic models point to net out-migration, likely driven by changing local economies and amenities, as the cause of this trend. However, we show that the share of counties with high net out-migration has not increased. Instead, falling fertility has caused migration rates that used to generate growth to instead result in decline. When we simulate county populations from 1970 to the present holding fertility at its initial level, only 10 percent of counties decline during the 2010s.
Assortative Matching and Wages: The Role of Selection
Katarína Borovičková & Robert Shimer
NBER Working Paper, November 2024
Abstract:
We develop a random search model with two-sided heterogeneity and match-specific productivity shocks to explain why high-productivity workers tend to work at high-productivity firms despite low-productivity workers gaining about as much from such matches. Our model has two key predictions: i) the average log wage that a worker receives is increasing in the worker's and employer's productivity, with low-productivity workers gaining proportionally more at high-productivity firms and ii) there is assortative matching between a worker's productivity and that of her employer. Selective job acceptance drives these patterns. All workers are equally likely to meet all firms, but workers have higher surplus from meeting firms of similar productivity. The high surplus meetings result in matches more frequently, generating assortative matching. Only the subset of meetings that result in matches are observed in administrative wage data, shaping wages. We show that our findings are quantitatively consistent with recent empirical results. Moreover, we prove this selection is not detected using standard empirical approaches, highlighting the importance of theory-guided empirical work. Our results imply that encouraging high-wage firms to hire low-wage workers may be less effective at reducing wage inequality than wage patterns suggest.
Thy Bust, My Boom: Micro Evidence on Small Firms' Tech Evolution after Dot Com Bubble Burst
John (Jianqiu) Bai, Chen (Lilly) Li & Wenting Ma
University of Massachusetts Working Paper, November 2024
Abstract:
This study investigates the impact of mass tech layoffs on non-tech firms. Using micro-level data from the U.S. Census, we find that non-tech firms in regions affected by tech layoffs experienced significant employment growth, particularly among small firms with fewer than 50 employees. This employment growth drives long-term gains in revenue and productivity for a subset of small firms that successfully hire displaced high-skill workers and navigate the challenges of adopting new technologies. Our findings suggest that mass layoffs in high-tech industries not only reshape the labor market but also generate positive spillover effects for small non-tech firms, primarily through the transfer of technology-related knowledge. These results highlight a crucial, yet often overlooked, externality: tech sector disruptions can serve as a catalyst for technology changes and growth in traditionally less dynamic sectors.
Big Data and Bigger Firms: A Labor Market Channel
Abhinav Gupta, Naman Nishesh & Elena Simintzi
University of North Carolina Working Paper, December 2024
Abstract:
This paper studies the impact of employee output information disclosure through GitHub on labor reallocation towards large firms. GitHub, which is the world's largest software management platform, tracks and publicly displays real-time individual contributions. In 2016, a policy change enabled GitHub users to display their contributions more accurately on their profiles. Following this update, employees with 1 standard deviation higher GitHub contributions witnessed a 5.7% increase in job transitions to large firms, predominantly at the expense of smaller companies. While productive individuals left small firms for senior roles in larger companies, the latter retained them through internal promotions. The departure of productive workers led to an overall reduction in employment growth and productivity for small firms with more productive employees prior to the shock. Our findings highlight the role of labor-related big data in amplifying the dominance of large firms in recent years.
Employer Dominance and Worker Earnings in Finance
Wenting Ma
Review of Corporate Finance Studies, November 2024, Pages 1030-1079
Abstract:
A few large firms in the U.S. financial system achieve substantial economic gains. Their dominance sets them apart while also raising concerns about the suppression of worker earnings. Utilizing administrative data, this study reveals that the largest financial firms pay workers an average of 30.2% more than their smallest counterparts, significantly exceeding the 7.9% disparity in nonfinance sectors. This positive size-earnings relationship is consistently more pronounced in finance, even during the 2008 crisis or compared to the high-tech sector. Evidence suggests that large financial firms' excessive gains, coupled with their workers' sought-after skills, explain this distinct relationship.