Category Archives: labor market

New research on the minimum wage

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Doruk Cengiz, Arindrajit Dube, Attila Lindner, and Ben Zipperer write,

Our method infers the disemployment effect of the minimum wage by tracking the changes in the number of jobs throughout the wage distribution following a minimum wage increase. The changes at the bottom of the wage distribution—in particular the missing jobs below the minimum, and the excess jobs at or just above the minimum—reflect the effect of the minimum wage on low-wage workers.

The idea is that if the minimum wage increase has a big effect, then you should see a noticeable drop in the rate of growth of jobs that are just below the minimum wage. They do not find such a drop. They conclude that an increase in the minimum wage has minimal adverse employment effects.

Construction productivity in the 1930s

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José Luis Ricón writes,

It also seems that buildng speed (this is all looking at the US now) was faster during the Great Depression years. Before and after it was slower.

My first thought is that you might have had some unusually productive construction workers, given the high unemployment in the economy. We think of blue-collar workers as homogeneous, but that is not the case. People who are more intelligent and more conscientious can be more productive at those jobs, at least if they are motivated. Which you would be during the Depression.

If this story is correct, then we should not long for the days when an Empire State Building could be put up quickly. Because we probably are better off with an economy in which those workers use their intelligence and conscientiousness elsewhere.

Variation in occupational satisfaction

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Greg Kaplan and Sam Schulhofer-Wohl write in an abstract,

The physical toll of work is smaller now than in 1950, with workers shifting away from occupations in which people report experiencing tiredness and pain. The emotional consequences of the changing occupation distribution vary substantially across demographic groups. Work has become happier and more meaningful for women, but more stressful and less meaningful for men. These changes appear to be concentrated at lower education levels.

I have said that this is worth studying.

Non-cognitive human capital

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Chong Xiang and Stephen Ross Yeaple write,

First, the U.S. has very high output per worker. The abundance of resources makes the low U.S. PISA scores even harder to justify. Second, the employment share of cognitive occupations is relatively low in the U.S., implying weak incentives to accumulate cognitive human capital. The effects of resources and incentives thus offset each other, leaving the U.S. ranking in cognitive productivities very close to its ranking in PISA scores, near the bottom in our set of 28 countries. In our Introduction, we discussed the worries and concerns about the quality of the U.S. educational system. Figure 3 quantifies these concerns and shows that they are well justified, when we look at the cognitive dimension.

,,,the U.S. indeed has a comparative advantage for noncognitive skills

As I understand it, they show that the proof of this comparative advantage is that a lot of our labor force is engaged in occupations that are classified as “non-cognitive” but with high productivity. I found the paper difficult to follow, so I won’t comment on this interpretation.

What do we mean by ‘working class’?

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William Galston provides highlights from a Pew survey of how party support has shifted over the past twenty years. He writes,

Democrats’ advantage in urban counties has shot up from 18 to 31 points, while Republicans have gone from a tie with Democrats in rural areas to a 16-point lead today.

He gives many other examples. He does not say so, but most of the demographic categories that favor Democrats are growing larger, while those that favor Republicans are shrinking. I recommend the entire column.

But I was most struck by this sentence fragment:

among voters with no more than a high school diploma—the so-called working class

In 1950, if you added together manufacturing production workers and mine workers, you could get a large enough total to constitute a “class.” I would guess close to one-third of adult males, maybe more. They made the AFL-CIO a big deal.

Today, those two groups would be much less than 10 percent of all employment. So, less than 5 percent of adult males? In any case, not enough to really call a class. So Galston has to describe working class as “no more than a high school diploma,” and he has to include the qualifier “so-called.”

My point is not to knock Galston or to deny the significance of differences based on educational attainment. I’m fine talking about a social or political divide that correlates with education. I just want to get rid of the term “working class.” In the 21st century, I don’t see how it can be defined in a useful way.

Russ Roberts and Ed Glaeser on the secular decline in employment

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Strongly recommended. Glaeser says,

the changing nature of innovation has meant that there’s more of a complementarity between skilled workers and other skilled workers rather than between skilled workers and unskilled workers. And in some sense, I often say that sort of every non-employed American is a failure of entrepreneurial imagination. . .That’s one aspect. A second aspect is . . . between 1950 and 1992, the inter-county migration rate–meaning the share of Americans who moved across county borders in every year–was never less than 6%. . . since 2007, it has never been above 4%. . . .prior to 1960 people moved to higher income areas. So, the farmers moved to Detroit. They moved to Chicago. The Okies in the Great Depression moved to California. So, there’s this migration to high-income areas. We’ve seen much less of that over the last 30 years. Particularly for less-skilled Americans. There’s very little that’s directed toward high-income areas. And, one possible explanation for this is that this has to do with the restrictions that we’ve put on housing markets in these areas. That, yes, you could find work in Silicon Valley if you are a less-skilled person working in, you know, a variety of service industries; but you are going to have to pay for housing in that area. And, the overall deal doesn’t look particularly good when you are kind of happy sitting there at home in Kentucky. So, this migration has really shut down dramatically; and that’s a second change.

These comments elaborate on an essay that Glaeser wrote last year, which I linked to when it first came out.

Russ Roberts on worker exploitation

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He writes,

When free-market types like myself hear about a worker who is made uncomfortable by inappropriate language or inappropriate physical contact on the job, our usual response is: quit. You don’t have to work for a crude, or worse — abusive boss. And of course, you are free to quit, and many do. But what is clear from the MeToo moment we’re in is that many people couldn’t quit. Or at least they felt they couldn’t. They stayed in abusive work relationships. Women privately shared information about who to stay away from and who not to be left alone with. But they often stayed on the job and endured humiliation, gross discomfort and sometimes, much worse.

It’s a long, sensitive, thought-provoking essay. The issue is whether workers are only treated well if employers are “nice,” either by choice or by government dictate, or whether the forces of competition are sufficient to protect workers. My thoughts:

1. Russ brings up sexual harassment in Hollywood, which indeed does look like exploitation. I do not see how this phenomenon would have developed if there weren’t a very high ratio of wannabe actresses to prominent film producers.

2. I think that as the economy becomes increasingly specialized, it becomes harder for competitive forces to work in employer-employee relationships. The specialized worker has fewer firms to choose from, and the firm needing specialized skills has fewer workers to choose from. This creates more scope for social norms and idiosyncratic negotiating skills to affect compensation levels.

3. The phenomenon that I talked about, consolidation, also is a factor. If my hypothesis is correct that differences in executive skill at overseeing and deploying software are driving consolidation, then I would expect the high-caliber management teams to attract the best workers, in part because they can afford to offer higher compensation. But the strong firms also have leverage, because workers want to affiliate with them for better long-term career development. Meanwhile, I would expect workers at firms with mediocre management to have no bargaining power, assuming that they do not meet the standards of the stellar firms. Poorly-managed firms are threatened with extinction, which gives their workers no scope for demanding more compensation.

4. Getting back to social norms, I hope that going forward women feel empowered to say no to harassers and to get help from HR departments or Boards of Directors in getting harassers removed. But I do not think that public shaming ought to be the weapon of first resort.

5. I am worried about what can be defined as harassment. Back in the 1950s, there was a presumption that “nice girls don’t.” A man had to be patient and seductive in order to get consent. With the sexual revolution, there no longer was a presumption that men had to be patient. But “seduction” minus patience is hard to distinguish from harassment. Some people, especially on college campuses, think that the solution is to make the process of obtaining consent formal to the point of being legalistic. I think we would be better off, in a lot of ways, if instead we could somehow get back to requiring patience.

Jonathan Tepper on slow wage growth

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He writes,

Americans have the illusion of choice, but in industry after industry, a few players dominate the entire market:

  • Two corporations control 90% of the beer Americans drink.
  • When it comes to high-speed internet access, almost all markets are local monopolies; over 75 percent of households have no choice with only one provider.
  • Four airlines completely dominate airline traffic, often enjoying local monopolies or duopolies in their regional hubs. Five banks control about half of the nation’s banking assets.
  • Many states have health insurance markets where the top two insurers have 80-90% market share. For example, in Alabama one company has 84% market share and in Hawaii one has 65% market share.
  • Four players control the entire US beef market.
  • After two mergers this year, three companies will control 70 percent of the world’s pesticide market and 80 percent of the US corn-seed market.

The list of industries with dominant players is endless.

Pointer from John Mauldin. Read the whole thing. Tepper also makes the case that many local labor markets are monopsonistic, meaning that only a few employers are available.

The case against education

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Made by Ben Wilterdink.

unsurprisingly, one of the best ways to develop the soft skills necessary for labor market success comes in the form of entry level employment. A 2015 report from USAID concludes, “Theoretical literature suggests that adolescence and young adulthood are optimal times to develop and reinforce these skills.” Additionally, a growing body of evidence suggests that actually working, or at least being in a workplace environment, is a key indicator of successful soft skill development.

Read the whole thing. One implication is that young people probably would learn more if they spent less time in school and more time working at jobs.

Wage differentials vs. productivity differentials, continued

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Tyler Cowen asks,

Aren’t the waiters more productive *because they are serving wealthier customers*?

Gosh, that throws an even bigger monkey wrench into the whole deal.

Let me switch examples. Suppose that Jeff Bezos can either rely on Uber or else keep a personal driver on call. Suppose that the personal driver gets a higher wage than an Uber driver, just because Bezos can afford to pay a higher wage. Then if Bezos switches from Uber to the personal driver, measured GDP goes up, but our intuition is that productivity has not changed.

From a neoclassical viewpoint, my example is a swindle. In a neoclassical model, a wage is determined in a competitive equilibrium, not by Bezos being able to “afford to pay a higher wage.” What should happen in my example is that drivers compete with one another to become Bezos’ personal driver, until the wage gets driven down to the Uber wage.

Back to Tyler’s example. Would waiters earn higher wages in zip codes with wealthy customers than in zip codes with middle-income customers? From a neoclassical perspective, the answer should be no. If wages are higher in wealthy zip codes, then waiters should compete to work in those zip codes until the differential disappears.

My guess is that this is not how it works. Instead, my guess is that waiters compete on quality, and the wealthier customers get the higher-quality waiters. In some sense, the wage differential does reflect a productivity differential. But it is a productivity differential that is inherent to the individual. There is no opportunity for zip-code arbitrage.

That is, if you moved a waiter from the moderate-income zip code to the wealthy zip code, you would not be raising productivity overall. You would be bringing a low-quality waiter into a zip code where the expectation is for high-quality waiters.

I worry that Tyler may have a different answer in mind. And I worry whenever I engage in casual neoclassicism.

Earlier this week, I had dinner in Newport News, Virginia. Our waitress took the orders for are party of 9, including special instructions, without writing anything down. She was one of the highest-quality waitresses I have ever observed. But she was not working in a wealthy zip code. If she moved to New York or Los Angeles, my guess is that she could get paid a lot more. But taking into account the cost of living, she is likely just as well off in Newport News.