Smart Jobs
Technological Disruption in the Labor Market
David Deming, Christopher Ong & Lawrence Summers
NBER Working Paper, January 2025
Abstract:
This paper explores past episodes of technological disruption in the US labor market, with the goal of learning lessons about the likely future impact of artificial intelligence (AI). We measure changes in the structure of the US labor market going back over a century. We find, perhaps surprisingly, that the pace of change has slowed over time. The years spanning 1990 to 2017 were less disruptive than any prior period we measure, going back to 1880. This comparative decline is not because the job market is stable today but rather because past changes were so profound. General-purpose technologies (GPTs) like steam power and electricity dramatically disrupted the twentieth-century labor market, but the changes took place over decades. We argue that AI could be a GPT on the scale of prior disruptive innovations, which means it is likely too early to assess its full impacts. Nonetheless, we present four indications that the pace of labor market change has accelerated recently, possibly due to technological change. First, the labor market is no longer polarizing -- employment in low- and middle-paid occupations has declined, while highly paid employment has grown. Second, employment growth has stalled in low-paid service jobs. Third, the share of employment in STEM jobs has increased by more than 50 percent since 2010, fueled by growth in software and computer-related occupations. Fourth, retail sales employment has declined by 25 percent in the last decade, likely because of technological improvements in online retail. The post-pandemic labor market is changing very rapidly, and a key question is whether this faster pace of change will persist into the future.
Could Savannah be the Next San Jose? The Downstream Effects of Large Language Models
Scott Abrahams & Frank Levy
MIT Working Paper, January 2025
Abstract:
The anticipated production shock created by large language models (LLMs) may significantly alter the geographic structure of U.S. labor demand. We use established estimates of LLM occupational exposure to develop a map of LLM impacts and find that urban, highly educated coastal metro areas are the most affected. We then consider the downstream effects as places and people adjust to changing employment opportunities. We identify three avenues of adjustment that emerged during the post-1980 decline in manufacturing employment, which we apply to the present situation. Combining our mapping with these avenues, we predict that displaced college graduates will migrate towards smaller, lower exposure urban centers including Rochester, New York and Savannah, Georgia, that demand for a four-year college education will fall, and that the migration patterns and politics of affected persons will dampen rather than exacerbate political polarization-provided that government can successfully moderate the pace of change.
Winners and Losers from the Work-from-Home Technology Boon
Morris Davis, Andra Ghent & Jesse Gregory
NBER Working Paper, December 2024
Abstract:
We model how an increase in Work-from-Home (WFH) productivity differentially affects workers using a framework in which some workers cannot work offsite, some are hybrid, and some are completely remote. The improvement in WFH productivity increases housing demand and thus housing prices since housing is inelastically supplied. Because workers in non-telecommutable occupations must consume housing but their total factor productivity does not increase, the rise in house prices reduces their welfare. The welfare decline is equivalent to 1-9% of consumption, depending on how substitutable WFH is with onsite work, and it arises despite measured income of all workers increasing.
Technological Change and Unions: An Intergenerational Conflict with Aggregate Impact
Leon Huetsch
University of Pennsylvania Working Paper, November 2024
Abstract:
How do labor adjustment costs, specifically in the form of unionization, shape the evolution of wages and employment of workers exposed to labor replacement by automation? I argue that, by raising adjustment costs, unions generate intergenerational redistribution by shifting the impact from existing, older to incoming, younger cohorts, and further generate aggregate effects by accelerating overall labor reallocation from automating to nonautomating occupations. The reason is that labor adjustment costs incentivize firms to adjust through hiring rather than layoffs, and to reduce labor in anticipation of future adoption. Using variation across local labor markets in the U.S. since 1980, I document that unionization among exposed workers is associated with greater wage and employment decline among young relative to older workers, and with accelerated overall employment decline. I then develop an overlapping generations model of technological change and unionization that rationalizes the empirical findings through the impact of union-imposed labor adjustment costs on firms' choice how to transform their workforce over time when gradually adopting automation. Within automating occupations, unions reduce the welfare cost of automation of older workers along the transition by up to 4% of permanent consumption while raising the welfare costs of cohorts entering during the transition by up to 2%. Incoming workers endogenously respond to automation by entering non-adopting occupations. The union effect spills over into non-adopting occupations as the accelerated labor reallocation depresses wages there.
The aging society: Is growth reverting to pre-industrial levels in the 21st century?
Jakob Madsen
Journal of Economic Behavior & Organization, January 2025
Abstract:
The aging population is expected by many to put an end to the high growth rates experienced in the past century. This paper shows that the aging population and the associated educational and innovative expansion induced by the demographic transition will expand the technology frontier in the 21st century and significantly override the adverse income effects of the aging population. To achieve this, the total income-effects through the channels of innovations, investment, education, and labor force participation are estimated using data over two centuries for 21 OECD countries.
Menu Adjustment in Response to the Minimum Wage: A Return to the New Jersey-Pennsylvania Border
Kerry Papps & Michael Strain
American Enterprise Institute Working Paper, January 2025
Abstract:
This paper studies how output prices are affected by increases in the minimum wage. To the best of our knowledge, we provide the first examination of how the prices of an entire menu of items at a single business adjust in response to a minimum wage increase. Using data we gather form a fast-food chain, we find that a $1 minimum wage rise increased average prices by 7 cents, implying a pass-through elasticity of around 0.13. We also study how the price response across individual goods varies with the labor intensity in production of those goods. Consistent with a theoretical framework we describe, the prices of items that require more labor to produce increased by more due to the minimum wage increase. A $1 increase in the minimum wage raised the item price by an extra 0.3 cents for every additional preparation step. We also find that more price adjustment takes place at the store level than at the item level, and that it takes longer for prices to respond to a minimum wage increase than the existing literature suggests.
Home Sweet Home: How Much Do Employees Value Remote Work?
Zoe Cullen, Bobak Pakzad-Hurson & Ricardo Perez-Truglia
NBER Working Paper, January 2025
Abstract:
We estimate the value employees place on remote work using revealed preferences in a high-stakes, real-world context, focusing on U.S. tech workers. On average, employees are willing to accept a 25% pay cut for partly or fully remote roles. Our estimates are three to five times that of previous studies. We attribute this discrepancy partly to methodological differences, suggesting that existing methods may understate preferences for remote work. Despite the strong preference for remote work, we expected to find a compensating wage differential, with remote positions offering higher compensation than otherwise identical in-person positions. However, using novel data on salaries for tech jobs, we reject that hypothesis. We propose potential explanations for this puzzle, including optimization frictions and worker sorting.
Clause and Effect: Theory and Field Experimental Evidence on Noncompete Clauses
Bo Cowgill, Brandon Freiberg & Evan Starr
Columbia University Working Paper, November 2024
Abstract:
We study employer noncompete clauses in a large field experiment with two finance firms. We randomize wages and the presence, salience, and duration of noncompetes in about 14,000 job offers. Receiving a job offer with a noncompete is associated with a 4.5% earnings loss one year later. We find that noncompetes reduce mobility, but do not reduce knowledge spillovers between firms (compared to NDAs). We find no evidence noncompetes are associated with a compensating differential or bargaining, even when salient. We present detailed evidence that workers often fail to notice noncompetes, and present a theoretical framework about how this inattention affects sorting and earnings.
Are Big Cities Important for Economic Growth?
Matthew Turner & David Weil
NBER Working Paper, January 2025
Abstract:
Cities are often described as engines of economic growth. We assess this statement quantitatively. We focus on two mechanisms: a static agglomeration effect that makes production in bigger cities more efficient, and a dynamic effect whereby urban scale impacts the productivity of invention, which in turn determines the speed of technological progress for the country as a whole. Using estimates of these effects from the literature and MSA-level patent and population data since 1900, we ask how much lower US output would be in 2010 if city size had been limited to one million or one hundred thousand starting in 1900. These effects are small. If city sizes had been limited to one million people since 1900, output in 2010 would have been only 8% lower than its observed value.
How do firms respond to state retirement plan mandates?
Adam Bloomfield et al.
Economic Inquiry, January 2025, Pages 265-288
Abstract:
We investigate how state "Auto-IRA" mandates affect firm offerings of employer-sponsored retirement plans (ESRPs). These policies require firms without ESRPs to facilitate automatic employee contributions to state-created individual retirement accounts. We find that these policies increase an individual's probability of working for a firm with an ESRP by 6%-9% and of being included in the ESRP by 8%-13%. At the firm level, these policies increase the probability of offering an ESRP by 7%, the probability of establishing a new ESRP by 41%-44%, and the number of ESRP participants by 6 percent.