Creator: Kehoe, Patrick J., Midrigan, Virgiliu, and Pastorino, Elena Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 536 Abstract:
During the Great Recession, regions of the United States that experienced the largest declines in household debt also experienced the largest drops in consumption, employment, and wages. Employment declines were larger in the nontradable sector and for firms that were facing the worst credit conditions. Motivated by these findings, we develop a search and matching model with credit frictions that affect both consumers and firms. In the model, tighter debt constraints raise the cost of investing in new job vacancies and thus reduce worker job finding rates and employment. Two key features of our model, on-the-job human capital accumulation and consumer-side credit frictions, are critical to generating sizable drops in employment. On-the-job human capital accumulation makes the flows of benefits from posting vacancies long-lived and so greatly amplifies the sensitivity of such investments to credit frictions. Consumer-side credit frictions further magnify these effects by leading wages to fall only modestly. We show that the model reproduces well the salient cross-regional features of the U.S. data during the Great Recession.
Keyword: Human capital, Employment, Debt constraints, and Search and matching Subject (JEL): J64 - Unemployment: Models, Duration, Incidence, and Job Search, E21 - Macroeconomics: Consumption; Saving; Wealth, J21 - Labor Force and Employment, Size, and Structure, E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity, and E32 - Business Fluctuations; Cycles
Creator: Bloom, Nicholas, Guvenen, Fatih, Price, David J., Song, Jae, and von Wachter, Till Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 750 Abstract:
We use a massive, matched employer-employee database for the United States to analyze the contribution of firms to the rise in earnings inequality from 1978 to 2013. We ﬁnd that one-third of the rise in the variance of (log) earnings occurred within firms, whereas two-thirds of the rise occurred between firms. However, this rising between-firm variance is not accounted for by the firms themselves: the firm-related rise in the variance can be decomposed into two roughly equally important forces—a rise in the sorting of high-wage workers to high-wage firms and a rise in the segregation of similar workers between firms. In contrast, we do not ﬁnd a rise in the variance of firm-speciﬁc pay once we control for worker composition. Instead, we see a substantial rise in dispersion of person-speciﬁc pay, accounting for 68% of rising inequality, potentially due to rising returns to skill. The rise in between-firm variance, mostly due to worker sorting and segregation, accounted for a particularly large share of the total increase in inequality in smaller and medium firms (explaining 84% for firms with fewer than 10,000 employees). In contrast, in the very largest firms with 10,000+ employees, 42% of the increase in the variance of earnings took place within firms, driven by both declines in earnings for employees below the median and a substantial rise in earnings for the 10% best-paid employees. However, because of their small number, the contribution of the very top 50 or so earners at large firms to the overall increase in within-firm earnings inequality is small.
Keyword: Income inequality, Between-firm inequality, and Pay inequality Subject (JEL): J21 - Labor Force and Employment, Size, and Structure, J31 - Wage Level and Structure; Wage Differentials, and E23 - Macroeconomics: Production
Creator: Miller, Preston J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 074 Keyword: Employment, Monetary policy, and Unemployment Subject (JEL): J21 - Labor Force and Employment, Size, and Structure and E52 - Monetary Policy
Creator: Fogli, Alessandra and Veldkamp, Laura Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 386 Abstract:
In the last century, the evolution of female labor force participation has been S-shaped: It rose slowly at first, then quickly, and has leveled off recently. Central to this dramatic rise has been entry of women with young children. We argue that this S-shaped dynamic came from generations of women learning about the relative importance of nature (endowed ability) and nurture (time spent child-rearing) for children’s outcomes. Each generation updates their parents’ beliefs by observing the children of employed women. When few women participate in the labor force, most observations are uninformative and participation rises slowly. As information accumulates and the effects of labor force participation become less uncertain, more women participate, learning accelerates and labor force participation rises faster. As beliefs converge to the truth, participation flattens out. Survey data, wage data and participation data support our mechanism and distinguish it from alternative explanations.
Keyword: Endogenous information diffusion, S-shaped learning, Preference formation, Female labor force participation, and Labor supply Subject (JEL): J21 - Labor Force and Employment, Size, and Structure, N32 - Economic History: Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy: U.S.; Canada: 1913-, R12 - Size and Spatial Distributions of Regional Economic Activity, and Z13 - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
Creator: Aiyagari, S. Rao and Wallace, Neil Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 226 Abstract:
This note presents a model whose competitive equilibrium can be consistent with the observation that current labor market conditions affect the well-being of new entrants more than they do that of senior workers. The model uses the notion that new entrants are not around soon enough to participate in risk-sharing contingent on the shocks that determine the equilibrium marginal products of first-period employment. This timing notion is formalized using a stochastic overlapping generations model.
A version of this paper was presented at the Econometric Society Summer Meeting, Cornell University, June 16-19, 1982.
Subject (JEL): J21 - Labor Force and Employment, Size, and Structure and E30 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
Creator: Guvenen, Fatih, Ozkan, Serdar, and Song, Jae Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 476 Abstract:
This paper studies the nature of business cycle variation in individual earnings risk using a confidential dataset from the U.S. Social Security Administration, which contains (uncapped) earnings histories for millions of individuals. The base sample is a nationally representative panel containing 10 percent of all U.S. males from 1978 to 2010. We use these data to decompose individual earnings growth during recessions into “between-group” and “within-group” components. We begin with the behavior of within-group shocks. Contrary to past research, we do not find the variance of idiosyncratic earnings shocks to be countercyclical. Instead, it is the left-skewness of shocks that is strongly countercyclical. That is, during recessions, the upper end of the shock distribution collapses—large upward earnings movements become less likely—whereas the bottom end expands—large drops in earnings become more likely. Thus, while the dispersion of shocks does not increase, shocks become more left-skewed and, hence, risky during recessions. Second, to study between-group differences, we group individuals based on several observable characteristics at the time a recession hits. One of these characteristics—the average earnings of an individual at the beginning of a business cycle episode—proves to be an especially good predictor of fortunes during a recession: prime-age workers that enter a recession with high average earnings suffer substantially less compared with those who enter with low average earnings (which is not the case during expansions). Finally, we find that the cyclical nature of earnings risk is dramatically different for the top 1 percent compared with all other individuals—even relative to those in the top 2 to 5 percent.
Keyword: Idiosyncratic shocks, Administrative data, Countercyclical income risk, Skewness, and Factor structure Subject (JEL): J21 - Labor Force and Employment, Size, and Structure, E32 - Business Fluctuations; Cycles, J31 - Wage Level and Structure; Wage Differentials, and E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity