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Historical and Future Employment in the United States
Transcript of Historical and Future Employment in the United States
Historical and Future Employmentin the United States
Robert Shimer
June 13, 2014
Outline
Past and Future Employment in the United States -p. 2
demographics and historical changes in employment
hysteresis and future changes in employment
the impact of fiscal policy on employment
Demographics
Past and Future Employment in the United States -p. 3
Age Adjustments
Past and Future Employment in the United States -p. 4
employment-population ratio varies systematically by age
Age Adjustments
Past and Future Employment in the United States -p. 4
20 25 30 35 40 45 50 55 60 65 70 75 80
−0.2
0
0.2
0.4
age
empl
oym
entp
roba
bilit
y
Age Adjustments
Past and Future Employment in the United States -p. 4
employment-population ratio varies systematically by age
standard approach: hold e-pop by age fixed, vary population shares
CBO estimates that the demographic effect has already re-duced the overall rate of participation by about 0.5 percent-age points since 2007 and that it will do so by an additional1.2 points by 2016 and by another 1.4 points between 2016and 2021 (CBOs Labor Force Projections Through 2021,2011)
Age Adjustments
Past and Future Employment in the United States -p. 4
employment-population ratio varies systematically by age
standard approach: hold e-pop by age fixed, vary population shares
CBO estimates that the demographic effect has already re-duced the overall rate of participation by about 0.5 percent-age points since 2007 and that it will do so by an additional1.2 points by 2016 and by another 1.4 points between 2016and 2021 (CBOs Labor Force Projections Through 2021,2011)
concerns with this approach
very distinct behavior of e-pop within age groups
unclear why we focus only on age decompositions
Linear Probability Model
Past and Future Employment in the United States -p. 5
outcome of interest: employment status (binary)
linear function of
age dummies
education dummies
race dummies (black, white, other)
sex dummy
marital status dummy
month-of-year dummies
year dummies
focus on behavior of year dummies
Data Source
Past and Future Employment in the United States -p. 6
Current Population Survey
January 1994 to February 2014
nearly 25 million observations over age 16
employment-population ratio averages 37.8 percent
earlier figure on e-pop by age comes from this model
Removing Demographics: All Workers
Past and Future Employment in the United States -p. 7
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014−0.06
−0.04
−0.02
0
0.02
year
empl
oym
entp
roba
bilit
y
no controls
Removing Demographics: All Workers
Past and Future Employment in the United States -p. 7
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014−0.06
−0.04
−0.02
0
0.02
year
empl
oym
entp
roba
bilit
y
no controlsage controls
Removing Demographics: All Workers
Past and Future Employment in the United States -p. 7
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014−0.06
−0.04
−0.02
0
0.02
year
empl
oym
entp
roba
bilit
y
no controlsage controlsfull controls
Removing Demographics: Prime-Aged Workers
Past and Future Employment in the United States -p. 8
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014−0.06
−0.04
−0.02
0
0.02
year
empl
oym
entp
roba
bilit
y
no controls
Removing Demographics: Prime-Aged Workers
Past and Future Employment in the United States -p. 8
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014−0.06
−0.04
−0.02
0
0.02
year
empl
oym
entp
roba
bilit
y
no controlsage controls
Removing Demographics: Prime-Aged Workers
Past and Future Employment in the United States -p. 8
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014−0.06
−0.04
−0.02
0
0.02
year
empl
oym
entp
roba
bilit
y
no controlsage controlseducation controls
Removing Demographics: Prime-Aged Workers
Past and Future Employment in the United States -p. 8
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014−0.06
−0.04
−0.02
0
0.02
year
empl
oym
entp
roba
bilit
y
no controlsage controlseducation controlsfull controls
Summary
Past and Future Employment in the United States -p. 9
all workers:
raw data: 3.3 percentage point decline in e-pop since 2008
age adjustment cuts that in half, to 1.8 percentage points
other controls raise it back to 2.3 percentage points
prime-aged workers:
raw data: 2.7 percentage point decline in e-pop since 2008
age adjustment has virtually no impact
other controls increase it to 2.9 percentage points
Forecasting
Past and Future Employment in the United States -p. 10
future demographic adjustments are conceptually straightforward
what about future within-group changes?
unemployment rate is virtually the same in 1994 and 2014
e-pop is down 3 percentage points (4 for prime-aged workers)
why? job polarization phenomenon
will this continue?
Employment Probability by Education
Past and Future Employment in the United States -p. 11
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014−0.1
−0.08
−0.06
−0.04
−0.02
0
0.02
0.04
0.06
57.5
year
empl
oym
entp
roba
bilit
y
less than high school
∗prime-aged workers, with other controls
Employment Probability by Education
Past and Future Employment in the United States -p. 11
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014−0.1
−0.08
−0.06
−0.04
−0.02
0
0.02
0.04
0.06
57.5
71.1
year
empl
oym
entp
roba
bilit
y
less than high schoolhigh school
∗prime-aged workers, with other controls
Employment Probability by Education
Past and Future Employment in the United States -p. 11
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014−0.1
−0.08
−0.06
−0.04
−0.02
0
0.02
0.04
0.06
57.5
71.175.9
year
empl
oym
entp
roba
bilit
y
less than high schoolhigh schoolsome college
∗prime-aged workers, with other controls
Employment Probability by Education
Past and Future Employment in the United States -p. 11
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014−0.1
−0.08
−0.06
−0.04
−0.02
0
0.02
0.04
0.06
57.5
71.175.9
83.6
year
empl
oym
entp
roba
bilit
y
less than high schoolhigh schoolsome collegecollege
∗prime-aged workers, with other controls
Employment Probability by Education
Past and Future Employment in the United States -p. 11
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014−0.1
−0.08
−0.06
−0.04
−0.02
0
0.02
0.04
0.06
57.5
71.175.9
83.6
88.5
year
empl
oym
entp
roba
bilit
y
less than high schoolhigh schoolsome collegecollegetertiary degree
∗prime-aged workers, with other controls
Hysteresis
Past and Future Employment in the United States -p. 12
Hysteresis
Past and Future Employment in the United States -p. 13
consequences of job loss for long-tenure workers
0
–30
–40
–10
Average earnings loss as a percent of predisplacement earningsd
–2 –1–4 0 1 2 4 6 8 10 12 14 16 18
In expansions
In recessions
Percent
–20
Years
—Davis and von Wachter (2011)
Hysteresis
Past and Future Employment in the United States -p. 13
consequences of job loss for long-tenure workers
0
–30
–40
–10
Average earnings loss as a percent of predisplacement earningsd
–2 –1–4 0 1 2 4 6 8 10 12 14 16 18
In expansions
In recessions
Percent
–20
Years
—Davis and von Wachter (2011)
consequences of entering the labor market during a recession
Causes of Earnings Hysteresis
Past and Future Employment in the United States -p. 14
wages versus employment rates
Ruhm (1991): unemployment impact mostly gone in four years
Jarosch (2014): employment impact lasts ten+ years (Germany)
von Wachter: full year nonemployment elevated after 20 years
some evidence that wage declines reflect lost experience
Borovickova, Davis, and Rogerson (2014)
simplest search models miss out on much of this persistence
declining hazard of finding a job
repeated job displacement episodes
lower wage once a worker finds a job
Stopping Time Model
Past and Future Employment in the United States -p. 15
persistent state variable x(t): wage or productivity
work when state is high
stop working when state is low
recession causes a persistent decline in the distribution of x(t)
lower future wages
lower future employment
current research (with Alvarez and Borovickova):
nonparametric test and estimate of the model
decompose duration dependence into structural v. heterogeneity
Alvarez, Borovi ckov a, and Shimer (2014)
Past and Future Employment in the United States -p. 16
0 50 100 150 200 250 300 350 4000
100
200
300
400
500
total
realized duration in weeks
mea
nre
sidu
aldu
ratio
nin
wee
ks
Alvarez, Borovi ckov a, and Shimer (2014)
Past and Future Employment in the United States -p. 16
0 50 100 150 200 250 300 350 4000
100
200
300
400
500
total
portion attributed to heterogeneity
realized duration in weeks
mea
nre
sidu
aldu
ratio
nin
wee
ks
Summary of our Research
Past and Future Employment in the United States -p. 17
substantial persistence in job loss
most duration dependence is structural
caveats
Austrian data, not U.S.
different sources of shocks, not the Great Recession
no direct implications for what happens to new entrants
conjecture they start with a stochastically lower value of x(t)
similar subsequent dynamics to existing employees
The Impact of Fiscal Policy
Past and Future Employment in the United States -p. 18
What is the Elasticity of Labor Supply?
Past and Future Employment in the United States -p. 19
CBOs microsimulation model indicates the percentage change inlabor input that would be caused by the expected increase in themarginal tax rate on labor. That model incorporates estimatedlabor supply elasticities (the percentage change in total hours ofwork supplied that would result from a 1 percent increase in bothafter-tax income and the after-tax wage rate) that average 0.07for primary earners within a household and 0.40 for secondaryearners, implying an average elasticity of 0.14 for the entire laborforce. Consistent with the available evidence, CBO assumed thatabout half of the response reflects people entering and exitingthe labor force; the rest reflects decisions by working people tochange their hours on the job. (CBOs Labor Force ProjectionsThrough 2021, 2011)
What is the Elasticity of Labor Supply?
Past and Future Employment in the United States -p. 20
I estimate a Hicksian labor supply elasticity of 0.33 on the inten-sive margin and 0.25 on the extensive margin after accounting forfrictions. (Chetty “Bounds on Elasticities” Econometrica 2012)
large long-run responses to tax changes (4× CBO estimates)
wealth effects are not that important
top of the Laffer curve at around τ = 0.63
modest short-run responses to tax changes
adjustment costs are important
workers may not be able to choose labor supply
(still larger a bit larger than the long-run response)
Appendix: Laffer Curve Calculations
Past and Future Employment in the United States -p. 21
representative worker maximizes log c− γεh1/ε
budget constraint c = (1− τ)wh + T
government rebates taxes lump-sum to households
T = τwh, but each person treats T as given
solution: h = ((1− τ)/γ)ε
ε is the Frisch elasticity of labor supply
tax revenue is proportional to τ(1− τ)ε
maximized at τ = 1/(1 + ε) ≈ 0.63