Are $20 Bills Getting Picked Up?

Don Peck writes,

I spoke with managers at a lot of companies who are using advanced analytics to reevaluate and reshape their hiring, and nearly all of them told me that their research is leading them toward pools of candidates who didn’t attend college—for tech jobs, for high-end sales positions, for some managerial roles. In some limited cases, this is because their analytics revealed no benefit whatsoever to hiring people with college degrees; in other cases, and more often, it’s because they revealed signals that function far better than college history, and that allow companies to confidently hire workers with pedigrees not typically considered impressive or even desirable. Neil Rae, an executive at Transcom, told me that in looking to fill technical-support positions, his company is shifting its focus from college graduates to “kids living in their parents’ basement”—by which he meant smart young people who, for whatever reason, didn’t finish college but nevertheless taught themselves a lot about information technology. Laszlo Bock told me that Google, too, is hiring a growing number of nongraduates. Many of the people I talked with reported that when it comes to high-paying and fast-track jobs, they’re reducing their preference for Ivy Leaguers and graduates of other highly selective schools.

The article is about data-driven personnel practices. It reads like something out of Average is Over.

Skeptics on Job Polarization

Lawrence Mishel, Heidi Shierholz, and John Schmitt take on a popular story.

The early version of the “skill-biased technological change” (SBTC) explanation of wage inequality posited a race between technology and education where education levels failed to keep up with technology-driven increases in skill requirements, resulting in relatively higher wages for more educated groups, which in turn fueled wage inequality (Katz and Murphy 1992; Autor, Katz, and Krueger 1998; and Goldin and Katz 2010). However, the scholars associated with this early, and still widely discussed, explanation highlight that it has failed to explain wage trends in the 1990s and 2000s, particularly the stability of the 50/10 wage gap (the wage gap between low- and middle-wage earners) and the deceleration of the growth of the college wage premium since the early 1990s (Autor, Katz, and Kearney 2006; Acemoglu and Autor 2012). This motivated a new technology-based explanation (formally called the “tasks framework”) focused on computerization’s impact on occupational employment trends and the resulting “job polarization”: the claim that occupational employment grew relatively strongly at the top and bottom of the wage scale but eroded in the middle (Autor, Levy, and Murnane 2003; Autor, Katz, and Kearney 2006; Acemoglu and Autor 2012; Autor 2010). We demonstrate that this newer version—the task framework, or job polarization analysis—fails to explain the key wage patterns in the 1990s it intended to explain, and provides no insights into wage patterns in the 2000s. We conclude that there is no currently available technology-based story that can adequately explain the wage trends of the last three decades.

Pointer from Mark Thoma.

Read the whole thing. One of the problems that the authors find with the job polarization story is that a lot of inequality of wages has emerged within occupations rather than between occupations.

Think of the bimodal distribution of starting salaries that has emerged in the market for lawyers. Is that evidence against computer-driven job polarization? Perhaps not. Perhaps with the help of computers paralegals can now do a lot more, driving down the wage of the median lawyer. However, firms that need the most sophisticated legal work will pay up for the top lawyers.

Bimodal Salaries, Unimodal tuition?

Peter Turchin writes,

the left peak has hardly advanced and is currently (as of 2011) located at $50K. Given that the debt burden of an average law school graduate is twice that (over $100K), it means that for all practical purposes the individuals in the ‘loser’ category will never be able to repay their loans. In other words, the group of elite aspirants who have gone to the law school since 2001 have been sorted into two completely separate categories: those who succeeded in entering the top ranks of the elites and those who have failed utterly, with very few people in between.

Read the whole thing. Pointer from Tyler Cowen.

It appears that there are two markets, one for elite lawyers and one for ordinary lawyers. However, law school tuition is relatively homogeneous. At some point, I would expect to law school tuition fall sharply at all but the elite institutions.

A Great Time to Raise the Minimum Wage

The BLS reports,

Among the major worker groups, the unemployment rates for adult men
(7.0 percent), adult women (6.4 percent), teenagers (22.2 percent),
whites (6.3 percent), blacks (13.1 percent), and Hispanics (9.1 percent)
showed little or no change in October.

Emphasis added. The other day, I received a spambot email from Maryland Governor Martin O’Malley urging me to sign a petition in favor of raising the minimum wage. This is the Democrats’ big issue in a number of states, where the fantasy despots seem determined to drive teenagers out of the labor market.

The Age-Earnings Profile

It’s changing, as Timothy Taylor reports.

In 2012, the typical workers [did not] reach the median level of earnings until age 30–four years later than their counterparts in 1980. And in 2012, while wages still drop off when people reach their early 60s, the decline is not as rapid or as far.

He cites a study by Anthony P. Carnevale, Andrew R. Hanson, and Artem Gulish.

From a PSST perspective, it makes sense that as the economy grows more complex it takes more time for young people to arrive at their comparative advantage. But there are no doubt other things going on as well.

Unemployment: Long-term vs. Short-term

Tyler Cowen points to an analysis that says that short-term unemployment is at reasonably low levels, but long-term unemployment is much higher than normal. I have written about this before, and there is no single uncontested interpretation. Possibilities:

1. The long-term unemployed really are different. They are destined to drop out the labor force. In some sense, we are now close to full employment.

2. As I wrote before, when the job-finding rate falls, it is natural for some unemployment spells to lengthen.

3. Firms have finished firing, but they have not started hiring. So initial claims for unemployment insurance are low, and short-term unemployment is low. But the job market is still weak. However, the problem is concentrated among young people, who transition in and out of the labor force quickly. Instead of remaining unemployed for a long time, they might go back to school.

By the way, from a PSST perspective, I cringe at writing “the job market is still weak.” Jobs are not some commodity that is scarce. Jobs are created when the decentralized trial-and-error of entrepreneurs leads to the discovery of comparative advantage.

What do Low Unemployment Insurance Claims Tell Us?

Scott Sumner raises the issue.

with today’s numbers (308,000 on the 4 week average) we have fallen below the 0.1% level, meaning that fewer than 1/1000ths of Americans now file for unemployment comp each week. That’s not just boom conditions, it’s peak of boom conditions. The only other times this occurred since 1969 (when unemployment was 3.5%) were just a few weeks at the peak of the 2000 tech boom and a few weeks at the peak of the 2006 housing boom. In other words, the puzzle is now even greater than 6 weeks ago, as the unemployment rate is still at recession levels (7.3%.) Something very weird is going on in the labor markets.

Some possibilities:

1. We are in a “slow-churn” economy, with fewer jobs being created or destroyed.

2. The financial crisis time-shifted layoffs from 2010-2013 back to 2008-2009. Without the financial crisis, firms would have gradually noticed that they were carrying unproductive workers. The financial crisis made them realize this suddenly. By now, the companies are lean and do not need to shed anyone. As a result, the unemployment rate, instead of climbing steadily from 5 percent to 7 percent, first overshot and is in the process of dropping back.

3. Michael Mandel is right, and the unemployment rate is poised to drop swiftly.

Christopher L. Smith on Job Polarization

Recommended. A few highlights:

the inflow rate to middle-type jobs from unemployed formerly non-middle-type workers appears to be falling over time. Further, these transition rates appear to drop discretely following the 1990, 2001, and most recent recessions.

There is no evidence of an increase in the rate at which unemployed middle-type
workers transition to non-middle-type jobs (bottom middle plot). Instead, there
is an upward trend in the rate at which these workers remain non-employed,
though this is true of unemployed workers of all types…

For all horizons, the rate at which persons from low- or middle-type jobs transition to high-type jobs is rising over time… This is particularly true for the transition rates from middle-type jobs.

Conversely, the rate at which persons transition from low-type jobs to middle-type jobs is falling over time…

Later, he suggests that it is workers 55 and older who are transitioning out of (I assume losing) middle-type jobs, while it is younger workers who are not transitioning into middle-type jobs.

Pointer from Tyler Cowen, although I had seen an article on the paper somewhere else, also.

The Labor Share of Income

Has fallen and it can’t get up, according to Michael Elsby, Bart Hobijn, and Aysegul Sahin.

the decline of the labor share, which has been driven by a decline in the share of payroll compensation in national income over the last 25 years, is likely due to the offshoring of the labor-intensive component of the U.S. supply chain.

Pointer from Tyler Cowen. I have called this the Great Factor-price Equalization.

If your model of a recession is that it is caused by sticky wages, then as far as I can tell labor’s share of income should rise during a recession. Or, to put it another way, if labor’s share falls (as it has during this recession), then makes the sticky-wage story less attractive. Labor’s share of income can be written as WL/PY, where w is the wage, L is employment, P is the price level, and Y is real GDP. We can re-write this as (W/P)(L/Y), or the real wage times the average productivity of labor. I labor’s share falls, then either real wages have fallen or productivity has risen. If real wages have fallen, then this directly contradicts the sticky-wage story. If real wages have risen, then productivity has risen faster, and I still have doubts about the sticky-wage story.

A Public Sector Implosion?

From Neil Irwin in the WaPo:

From July 2008 to January 2013, the sector shed more than 737,000 jobs. Had the jobs merely been maintained, the unemployment rate would be as much has half a percentage point lower.

Pointer from Mark Thoma.

From Mark Perry at AEI:

in the 50 months since June 2009 when the recession ended, more than 6.3 million jobs have been created in the private sector and the employment level today is 5.8% higher than in June 2009. Over that same period, government sector jobs have fallen by 3.3%, and by more than 750,000 jobs.

My guess is that state and local governments have to put relatively more money into Medicaid and into shoring up pension plans, which leaves them less to spend on new workers. Also, do not be so sure that this is macroeconomically important. It could be that if state and local governments had retained workers, then the private sector would not have expanded as much. In any case, the bigger story, numerically, is the drop in the labor force. As Brad Plumer puts it.

If the same percentage of adults were in the workforce today as when Barack Obama took office, the unemployment rate would be 10.8 percent.