Showing papers by "Bart Hobijn published in 2013"

The Decline of the U.S. Labor Share

Abstract: Over the past quarter century, labor’s share of income in the United States has trended downward, reaching its lowest level in the postwar period after the Great Recession. A detailed examination of the magnitude, determinants, and implications of this decline delivers five conclusions. First, about a third of the decline in the published labor share appears to be an artifact of statistical procedures used to impute the labor income of the self-employed that underlies the headline measure. Second, movements in labor’s share are not solely a feature of recent U.S. history: The relative stability of the aggregate labor share prior to the 1980s in fact veiled substantial, though offsetting, movements in labor shares within industries. By contrast, the recent decline has been dominated by the trade and manufacturing sectors. Third, U.S. data provide limited support for neoclassical explanations based on the substitution of capital for (unskilled) labor to exploit technical change embodied in new capital goods. Fourth, prima facie evidence for institutional explanations based on the decline in unionization is inconclusive. Finally, our analysis identifies offshoring of the labor-intensive component of the U.S. supply chain as a leading potential explanation of the decline in the U.S. labor share over the past 25 years.

Unemployment Dynamics in the OECD

Abstract: We provide a set of comparable estimates for the rates of in‡ow to and out‡ow from unemployment for fourteen OECD economies using publicly available data. We then devise a method to decompose changes in unemployment into contributions accounted for by changes in in‡ow and out‡ow rates for cases where unemployment deviates from its ‡ow steady state, as it does in many countries. Our decomposition reveals that ‡uctuations in both in‡ow and out‡ow rates contribute substantially to unemployment variation within countries. For Anglo-Saxon economies we …nd approximately a 20:80 in‡ow/out‡ow split to unemployment variation, while for Continental European and Nordic countries, we observe much closer to a 50:50 split. Using the estimated ‡ow rates we compute gross worker ‡ows into and out of unemployment. In all economies we observe that increases in in‡ows lead increases in unemployment, whereas out‡ows lag a ramp up in unemployment.

Beveridge Curve Shifts across Countries since the Great Recession

Abstract: The paper documents the shift in the Beveridge curve in the United States since the Great Recession. It argues that a decline in quits, the relatively poor performance of the construction sector, and the extension of unemployment insurance benefits have largely driven this shift. The paper then introduces a method to estimate fitted Beveridge curves for other OECD countries for which data on vacancies and employment by job tenure are available. It shows that Portugal, Spain, and the United Kingdom also experienced rightward shifts in their Beveridge curves. Besides the United States, these are among the countries with the highest house price and construction employment declines in the sample.

The path of wage growth and unemployment

Abstract: After the Great Recession, the fraction of US workers whose wages were frozen reached a record high Many employers would have preferred to cut wages, but couldn’t do so because of the reluctance of workers to accept reduced compensation These pent-up wage cuts initially propped up wage growth, reduced hiring, and pushed up unemployment But, over the past 2½ years, inflation has eroded the real value of frozen wages, slowing wage growth and reducing the unemployment rate This is similar to, but more pronounced than, the pattern observed in past recessions

On the Importance of the Participation Margin for Market Fluctuations

Abstract: Conventional analyses of cyclical fluctuations in the labor market ascribe a minor role to the labor force participation margin. In contrast, a flows-based decomposition of the variation in labor market stocks reveals that transitions at the participation margin account for around one-third of the cyclical variation in the unemployment rate. This result is robust to adjustments of data for spurious transitions, and for time aggregation. Inferences from conventional, stocks-based analyses of labor force participation are shown to be subject to a stock-flow fallacy, neglecting the offsetting forces of worker flows that underlie the modest cyclicality of the participation rate. A novel analysis of history dependence in worker flows demonstrates that a large part of the contribution of the participation margin can be traced to cyclical fluctuations in the composition of the unemployed by labor market attachment.

Downward Nominal Wage Rigidities Bend the Phillips Curve

Abstract: We show that the existence of downward nominal wage rigidities bends the short-run wage Phillips curve. We introduce a model of monetary policy with downward nominal wage rigidities and show that both the slope and curvature of the Phillips curve depend on the level of inflation and the extent of downward nominal wage rigidities. This is true for the both the long-run and the short-run Phillips curve. Comparing simulation results from the model with data on U.S. wage changes since the onset of the Great Recession, we show that downward nominal wage rigidities have likely played a role in shaping the dynamics of unemployment and wage growth from 2006 through 2012.

Firms and Flexibility

Abstract: I. INTRODUCTION Differences in labor market outcomes between the United States and Europe have been well-documented. (l) One popular explanation of these observed differences has been the lack of flexibility in European countries. (2) Labor market outcomes, however, are tightly connected to firm dynamics (3) through firm entry and exit, and hiring and firing decisions. Moreover, the allocation of workers across firms, reflected by these dynamics, is an important determinant of average labor productivity. Although differences between the United States and Europe in labor market outcomes have been widely studied, differences in firm-size distributions and dynamics have not been extensively documented. We first present evidence from Bartelsman, Scarpetta, and Schivardi (2003) and Bartelsman, Haltiwanger, and Scarpetta (2004) (4) on the distributions of firms and workers over five firmsize bins for the United States and France in Figure 1. (5) As Figure 1 shows, over 80% of firms employ 20 workers or less and about half a percent employ more than 500 workers, both in France and the United States. At 23.2 workers per firm, the average firm size in the United States is smaller than that in France, which is 27.4. One notable difference between the United States and France is the higher concentration of workers in large firms (500 employees or more) in the United States, reflected in the worker distribution in the left panel of Figure 1. This reflects a squeeze in the firm-size distribution in France relative to the United States; mid-size firms make up a larger fraction of the firm population and employ a higher fraction of workers in France than in the United States. Entry and exit rates of firms are higher in France. The annual firm entry rates in the United States and France are 10.4% and 15.9%, respectively, while the exit rates are 9.1% and 11.6%. Average labor productivity in France is 101% of that in the United States for the same time period that we examined the firm dynamics in the two countries. [FIGURE 1 OMITTED] To summarize, despite differences in firm dynamics, the United States and France have very similar average labor productivity levels. (6) To reconcile these observations with documented differences in labor market rigidities between the United States and France, we introduce a model that explicitly combines labor market rigidities with a theory of the firm-size distribution. Our model consists of two main theoretical components. The first component, based on Lucas (1978) and Chang (2000), is that each firm is managed by an entrepreneur. Whether or not people become entrepreneurs in Lucas' (1978) span-of-control model depends on their innate entrepreneurial ability. In contrast, members of the labor force in our model are ex-ante identical. People who do not work develop one business idea in every period. Depending on the quality of their idea, they decide whether to start a business or look for a job instead. Hence, the marginal entrepreneur who starts a business equates the expected value of starting a business to the expected value of his/her labor market opportunities. The second component, similar to Hopenhayn and Rogerson (1993), is firm dynamics under labor adjustment costs. In Hopenhayn and Rogerson, low productivity firms exit because they face a fixed operating cost; however, firms in our economy do not incur such a fixed cost. What drives firms to exit in our model is that their managers will close shop if their outside labor market opportunities exceed the expected value of continuing their business. We use our model to consider the joint effects of firing costs, firm entry costs, unemployment benefits, a tax wedge between wages, and labor costs, on firm-size dynamics and labor productivity. First, we calibrate the preference and technology parameters in a version of the model without rigidities to match the main summary statistics of U.S. firm-size dynamics. …

Gauging the momentum of the labor recovery

Abstract: Federal Reserve policymakers are watching a broad set of indicators for signs of “substantial” labor market improvement, a key consideration for beginning to scale back asset purchases. One way to find which are most useful is to focus on how well movements in these indicators predict changes in the unemployment rate. Research suggests that six indicators are most promising. They offer evidence that the recovery has more momentum now than a year ago, a strong signal that the labor market is improving and could accelerate in coming months.