Michael W. L. Elsby

Bio: Michael W. L. Elsby is an academic researcher from University of Edinburgh. The author has contributed to research in topics: Unemployment & Recession. The author has an hindex of 24, co-authored 47 publications receiving 3512 citations. Previous affiliations of Michael W. L. Elsby include University of Michigan & Federal Reserve System.

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.

The Labor Market in the Great Recession

Abstract: From the perspective of a wide range of labor market outcomes, the recession that began in 2007 represents the deepest downturn in the postwar era. Early on, the nature of labor market adjustment displayed a notable resemblance to that observed in past severe downturns. During the latter half of 2009, however, the path of adjustment exhibited important departures from that seen during and after prior deep recessions. Recent data point to two warning signs going forward. First, the record rise in long-term unemployment may yield a persistent residue of long-term unemployed workers with weak search effectiveness. Second, conventional estimates suggest that the extension of Emergency Unemployment Compensation may have led to a modest increase in unemployment. Despite these forces, we conclude that the problems facing the U.S. labor market are unlikely to be as severe as the European unemployment problem of the 1980s.

The Ins and Outs of Cyclical Unemployment

Abstract: One of the strongest trends in recent macroeconomic modeling of labor market fluctuations is to treat unemployment inflows as acyclical. This trend stems in large part from an influential paper by Shimer on "Reassessing the Ins and Outs of Unemployment," i.e., the extent to which increased unemployment during a recession arises from an increase in the number of unemployment spells versus an increase in their duration. After broadly reviewing the previous literature, we replicate and extend Shimer's main analysis. Like Shimer, we find an important role for increased duration. But contrary to Shimer's conclusions, we find that even his own methods and data, when viewed in an appropriate metric, reveal an important role for increased inflows to unemployment as well. This finding is further strengthened by our refinements of Shimer's methods of correcting for data problems and by our detailed examination of particular components of the inflow to unemployment. We conclude that a complete understanding of cyclical unemployment requires an explanation of countercyclical inflow rates as well as procyclical outflow rates.

The Ins and Outs of Cyclical Unemployment

Abstract: A dominant trend in recent modeling of labor market fluctuations is to treat unemployment inflows as acyclical. This trend has been encouraged by recent influential papers that stress the role of longer unemployment spells, rather than more unemployment spells, in accounting for recessionary unemployment. After reviewing an empirical literature going back several decades, we apply a convenient log change decomposition to Current Population Survey data to characterize rising unemployment in each postwar recession. We conclude that a complete understanding of cyclical unemployment requires an explanation of countercyclical inflow rates, especially for job losers (lay-offs), as well as procyclical outflow rates.

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.

The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited

Abstract: Recently, a number of authors have argued that the standard search model cannot generate the observed business-cycle-frequency fluctuations in unemployment and job vacancies, given shocks of a plausible magnitude. We use data on the cost of vacancy creation and cyclicality of wages to identify the two key parameters of the model - the value of non-market activity and the bargaining weights. Our calibration implies that the model is, in fact, consistent with the data.

Reassessing the Ins and Outs of Unemployment

Abstract: This paper uses readily accessible data to measure the probability that an employed worker becomes unemployed and the probability that an unemployed worker finds a job, the ins and outs of unemployment. Since 1948, the job finding probability has accounted for three-quarters of the fluctuations in the unemployment rate in the United States and the employment exit probability for one-quarter. Fluctuations in the employment exit probability are quantitatively irrelevant during the last two decades. Using the underlying microeconomic data, the paper shows that these results are not due to compositional changes in the pool of searching workers, nor are they due to movements of workers in and out of the labor force. These results contradict the conventional wisdom that has guided the development of macroeconomic models of the labor market during the last fifteen years.

Organization for Economic Cooperation and Development (OECD)

Abstract: This article is a revision of the previous edition article by Robert Visser, volume 4, pp 551–560, © 2005, Elsevier Inc.

Fiscal Policy in a Depressed Economy

Abstract: In a depressed economy, with short-term nominal interest rates at their zero lower bound, ample cyclical unemployment, and excess capacity, increased government purchases would be neither offset by the monetary authority raising interest rates nor neutralized by supply-side bottlenecks Then even a small amount of hysteresis—even a small shadow cast on future potential output by the cyclical downturn—means, by simple arithmetic, that expansionary fiscal policy is likely to be self-financing Even if it is not, it is highly likely to pass the sensible benefit-cost test of raising the present value of future potential output Thus, at the zero bound, where the central bank cannot or will not but in any event does not perform its full role in stabilization policy, fiscal policy has the stabilization policy mission that others have convincingly argued it lacks in normal times Whereas many economists have assumed that the path of potential output is invariant to even a deep and prolonged downturn, the available evidence raises a strong fear that hysteresis is indeed a factor Although nothing in our analysis calls into question the importance of sustainable fiscal policies, it strongly suggests the need for caution regarding the pace of fiscal consolidation

The fall of the labor share and the rise of superstar firms

Abstract: The fall of labor's share of GDP in the United States and many other countries in recent decades is well documented but its causes remain uncertain. Existing empirical assessments of trends in labor's share typically have relied on industry or macro data, obscuring heterogeneity among firms. In this paper, we analyze micro panel data from the U.S. Economic Census since 1982 and international sources and document empirical patterns to assess a new interpretation of the fall in the labor share based on the rise of \superstar firms." If globalization or technological changes advantage the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms with high profits and a low share of labor in firm valueadded and sales. As the importance of superstar firms increases, the aggregate labor share will tend tofall. Our hypothesis offers several testable predictions: industry sales will increasingly concentrate in a small number of firms; industries where concentration rises most will have the largest declines in the labor share; the fall in the labor share will be driven largely by between-firm reallocation rather than (primarily) a fall in the unweighted mean labor share within firms; the between-firm reallocation component of the fall in the labor share will be greatest in the sectors with the largest increases in market concentration; and finally, such patterns will be observed not only in U.S. firms, but also internationally. We find support for all of these predictions.