Session 10: The Micro and Macro of Labor Markets

Date
Thu, Aug 26 2021, 9:00am - Fri, Aug 27 2021, 1:30pm PDT
Location
Zoom
Organized by
  • Gregor Jarosch, Princeton University
  • Isaac Sorkin, Stanford University

The idea of this session is to bring together labor economists and macroeconomists with interests in labor markets with two goals. The first goal is to be a venue to discuss the latest research about labor markets. The second goal is to promote intellectual exchange among scholars working on similar topics, but with different approaches. Specific topics will depend on the submissions.

In This Session

Thursday, August 26, 2021

Aug 26
9:00 am - 9:45 am PDT

Occupational Choice and the Intergenerational Mobility of Welfare

Presented by: Danial Lashkari (Boston College))
Co-author(s): Corina Boar (New York University)

If the average worker attributes distinct values to the intrinsic qualities of different occupations, benefitting from those values constitutes part of one’s labor compensation. Based on responses in the General Social Survey (GSS), we construct an index that aggregates positive qualities such as respect, learning, and work hazards, controlling for respondent income and tenure. Using the PSID and NLSY data, we document that children of richer US parents are more likely to select into occupations that rank higher in terms of this index. We rationalize this fact when we introduce occupational choice with preferences over the intrinsic qualities of occupations into a standard theory of intergenerational mobility. Estimating the model allows us to infer the size of compensation each worker receives from their choice of occupation. When earnings are adjusted to reflect this additional compensation, we find substantially larger persistence of income from parents to children. Applying this adjustment, our model further predicts that the trends in the composition of labor demand in the US over the past three decades may have decreased intergenerational persistence, while also leading to higher growth in the welfare of the average worker.

Aug 26
9:45 am - 10:00 am PDT

Conversation with Presenter

Aug 26
10:00 am - 10:45 am PDT

Revealed Preference Job Ladders

Presented by: Benjamin Scuderi (UC Berkeley)
Co-author(s): Nina Roussille (London School of Economics)

We use novel data on the option sets and choices of job-seekers and recruiting firms to provide new estimates of workers’ preferences over nonwage amenities and firms’ wage markdowns in a high-wage labor market. Building on Ho and Pakes (2014) and Sorkin (2018), we develop estimators of preferences and markdowns with two-sided heterogeneity that rely only on basic revealed preference relations for workers and firms. Relative to standard estimation strategies, our revealed-preference estimators avoid the incidental parameters problem induced by including fixed effects to control for unobserved heterogeneity in outside options and costs. In order to understand the nature of firm wage setting on the platform, we follow Backus, Conlon, and Sinkinson (2021) to test between models of firm conduct. We find that there is meaningful horizontal differentiation of firms: allowing heterogeneity in worker preferences – a small number of discrete preference classes, each associated with a separate ranking of firms – describes choices far better than requiring all workers to share a single common component of utility at each firm: in other words, there are multiple job ladders. Further, we find that observables like age and experience have limited predictive power over preference heterogeneity.

Aug 26
10:45 am - 11:00 am PDT

Conversation with Presenter

Aug 26
11:00 am - 11:30 am PDT

Break

Aug 26
11:30 am - 12:15 pm PDT

Wage and Employment Discrimination by Gender in Labor Market Equilibrium

Presented by: Pengpeng Xiao (Duke University)

This paper develops an equilibrium search model to study the mechanisms underlying the lifecycle gender wage gap: human capital accumulation, preference for job amenities, and employers’ statistical discrimination in wage offers and hiring. In the model, men and women differ in turnover behaviors, parental leave lengths, and preference for amenities before and after having children. Capacity-constrained firms anticipate these gender differences when setting wages and making match decisions. Estimating the model on administrative employer-employee data combined with occupational level survey data on amenities from Finland, I find that a large proportion (44%) of the gender wage gap in early career is attributed to employers’ statistical discrimination based on fertility concerns, whereas gender differences in labor force attachment explain the majority of the gap (70%) in late career. Both hiring discrimination and preference for amenities draw women to low-productivity jobs in early career, and slow down their career progression in the long run. Counterfactual simulations show that shifting two parental leave months from women to men shrinks the wage gap by 13%. A gender quota at top jobs improves women’s representation in high-productivity positions, but firms undo this policy by exerting more wage discrimination. An equal pay policy counterfactual shows that requiring firms to pay men and women the same wage closes the wage gap by 15% on average, but has unintended consequences as employers adjust on the hiring margin.

Aug 26
12:15 pm - 12:30 pm PDT

Conversation with Presenter

Aug 26
12:30 pm - 1:15 pm PDT

Labor Market Institutions and the Composition of Firm Compensation: Evidence from Brazilian Collective Bargaining

Presented by: Lorenzo Lagos (Brown University)

This paper studies the relation between the wage and amenity components of firm compensation under collective bargaining. A posting model of wages and amenities where Nash bargaining between unions and employers determine firm-specific compensation bundles shows that unions can offset the markdowns incurred by workers in monopsonistic labor markets. Merging linked employer-employee data to the universe of collective bargaining agreements (CBAs) in Brazil, worker transitions across establishments and their wages are augmented by the workplace amenities codified in the text of CBAs. To estimate the value of these amenities, I decompose revealed preference measures of the value of employment at an establishment into corresponding wage premiums and CBA clauses. Dispersion across establishments in terms of compensation premiums increases once amenities are accounted for, i.e., variance increases by 4%. Evidence of compensating differentials is only found in low rent sectors, but are otherwise reversed|that is, there is a positive relation between wage and amenity premiums. Leveraging an unexpected shock to bargaining power that differentially impacted negotiating counterparts, I obtain causal effects on wage premiums, amenity premiums, and employment. This analysis reveals elasticities of labor supply with respect to compensation of 1.82, meaning that unions are in fact countering employer market power (with markdowns between 0.73 and 0.83). Assuming efficient bargaining, the estimates indicate that amenities account for 29% of compensation.

Aug 26
1:15 pm - 1:30 pm PDT

Conversation with Presenter

Friday, August 27, 2021

Aug 27
9:00 am - 9:45 am PDT

The Alpha Beta Gamma of the Labor Market

Presented by: Victoria Gregory (Federal Reserve Bank of St. Louis)
Co-author(s): Guido Menzio (New York University) and David Wiczer (Stony Brook University)

Based on patterns of employment transitions, we identify three di↵erent types of workers in the US labor market: ↵’s ’s and ’s. Workers of type ↵ make up over half of all workers, are most likely to remain on the same job for more than 2 years and, when they become unemployed, typically find a new job within 1 quarter. Workers of type comprise less than one-fifth of workers, have a low probability of staying on the same job for more than 2 years and, when they become unemployed, face a high probability of remaining jobless for more than 1 year. Workers of type are in between ↵s and ’s. The earnings losses caused by displacement are relatively small and transitory for ↵-workers, while they are large and persistent for -workers. During the Great Recession, excess unemployment for ↵-workers rose by little and was reabsorbed quickly; unemployment for -workers rose by 20 percentage points and was not reabsorbed 4 years after its peak. We use a search-theoretic model of the labor market to rationalize the di↵erent patterns of employment transitions across types. The model naturally explains both the variation in the consequences of job displacement across types, and the variation in the dynamics of unemployment during the Great Recession. Our view is that several puzzling micro and macro phenomena about the labor market are driven by the behavior of the small group of -workers.

Aug 27
9:45 am - 10:00 am PDT

Conversation with Presenter

Aug 27
10:00 am - 10:45 am PDT

Firm Heterogeneity and the Impact of Immigration: Evidence from German Establishments

Presented by: Nicolas Morales (Federal Reserve Bank of Richmond)
Co-author(s): Agostina Brinatti (The University of Michigan)

We revisit the old question of how immigration affects the welfare of native workers. As opposed to most of the previous literature, we look at this question through the lens of firms, as they play a crucial role in immigration and are massively heterogeneous even within sectors. We use a novel establishment-level dataset from Germany to document a new dimension of rm heterogeneity: Large firms spend a higher share of their wage bill on immigrants than small firms. We show analytically and quantitatively that ignoring this heterogeneity in immigrant share leads to biased estimates of the welfare gains from immigration. To do so, we set up and estimate a quantitative model where heterogeneous firms choose their immigrant share, and we validate the model using an instrumental variables strategy. We then use the model to quantify the welfare effects of a 20% increase in the number of immigrants in Germany as observed between 2011 and 2017. The welfare of natives increases both through higher wages and profits, and lower prices, with aggregate welfare gains of $4 billion for native workers and $15 billion for rm owners. A new adjustment mechanism that arises under heterogeneity in the immigrant-share is that native workers reallocate across firms, which mitigates the competition effect between immigrants and natives in the labor market. If we ignore the heterogeneity across firms in immigrant share, we would underestimate the welfare gains of native workers by 11%.

Aug 27
10:45 am - 11:00 am PDT

Conversation with Presenter

Aug 27
11:00 am - 11:30 am PDT

Break

Aug 27
11:30 am - 12:15 pm PDT

Spending and Job Search Impacts of Expanded Unemployment Benefits: Evidence from Administrative Micro Data

Presented by: Peter Ganong (University of Chicago)
Co-author(s): Fiona Greig (JPMorgan Chase Institute), Max Liebeskind (JPMorgan Chase Institute), Pascal Noel (University of Chicago), Daniel M. Sullivan (JP Morgan Chase Institute), and Joe Vavra (University of Chicago)

How did the largest expansion of unemployment benefits in U.S. history affect household behavior? Using anonymized bank account data covering millions of households, we provide new empirical evidence on the spending and job search responses to benefit changes during the pandemic and compare those responses to the predictions of benchmark structural models. We find that spending responds more than predicted, while job search responds an order of magnitude less than predicted. In sharp contrast to normal times when spending falls after job loss, we show that when expanded benefits are available, spending of the unemployed actually rises after job loss. Using quasi-experimental research designs, we estimate a large marginal propensity to consume out of benefits. Notably, spending responses are large even for households who have built up substantial liquidity through prior receipt of expanded benefits. These large responses contrast with a theoretical prediction that spending responses should shrink with liquidity. Simple job search models predict a sharp decline in search in the wake of a substantial benefit expansion, followed by a sustained rebound when benefits expire. We instead find that the job-finding rate is quite stable. Moreover, we document that recall plays an important role in driving job-finding dynamics throughout the pandemic. A model extended to fit these key features of the data implies small job search distortions from expanded unemployment benefits. Jointly, these spending and job finding facts suggest that benefit expansions during the pandemic were a more effective policy than predicted by standard structural models. Abstracting from general equilibrium effects, we find that overall spending was 2.0-2.6 percent higher and employment only 0.2-0.4 percent lower as a result of the benefit expansions.

Aug 27
12:15 pm - 12:30 pm PDT

Conversation with Presenter

Aug 27
12:30 pm - 1:15 pm PDT

Monopsony Makes Firms Not Only Small but Also Unproductive: Why East Germany Has Not Converged

Presented by: Rudiger Bachmann (University of Notre Dame)
Co-author(s): Christian Bayer (University Bonn), Heiko Stuber (Friedrich-Alexander Universitat Erlangen-Nurnberg), and Felix Wellschmied (Universidad Carlos III de Madrid)

This paper documents that a steeper size-wage relationship, reflecting monopsony power, leads to aggregate productivity losses. We use this insight to understand the persistent labor productivity differences between West and East Germany. We employ high-quality administrative data to show that productivity differences between East and West Germany are related to a compressed plant-size distribution in East Germany. What is more, we show that the plant-size distribution is more compressed in those sectors where the size-wage relationship is steeper. Using a model of plant entry and customer accumulation, we show that differences in the size-wage relationships explain 10 percentage points lower labor productivity in the East German private sector, that is, approximately one third of its total labor productivity difference.

Aug 27
1:15 pm - 1:30 pm PDT

Conversation with Presenter