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on Labor Markets - Supply, Demand, and Wages |
| By: | Lance Lochner; Youngmin Park; Youngki Shin |
| Abstract: | Economists disagree about the factors driving the substantial increase in residual wage inequality in the US over the past few decades. To identify changes in the returns to unobserved skills, we make a novel assumption about the dynamics of skills rather than about the stability of skill distributions across cohorts, as is standard. We show that our assumption is supported by data on test score dynamics for older workers in the HRS. Using survey data from the PSID and administrative data from the IRS and SSA, we estimate that the returns to unobserved skills declined substantially in the late-1980s and 1990s despite an increase in residual inequality. Accounting for firm-specific pay differences yields similar results. Extending our framework to consider occupational differences in returns to skill and multiple unobserved skills, we further show that skill returns display similar patterns for workers employed in each of cognitive, routine, and social occupations. Finally, our results suggest that increasing skill dispersion, driven by rising skill volatility, explains most of the growth in residual wage inequality since the 1980s. |
| JEL: | J24 J31 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33407 |
| By: | Andrea Diem; Christian Gschwendt; Stefan C. Wolter |
| Abstract: | A university degree is a risky investment because of the non-negligible risk of having to drop out of university without graduating. However, the costs of this risk are controversial, as it is often argued that even an uncertified year of study has a value in the labor market. To determine this value causally, however, alternatives to studying must also be considered, which is done here with the help of a discrete choice experiment with a representative sample of over 2, 500 HR recruiters. The result is that dropping out of university with a major closely related to an advertised job leads to similar labor market outcomes as if someone had not studied at all. Without a direct link to a job, however, dropping out of university significantly reduces lifetime earnings. Furthermore, HR recruiters clearly prefer applicants who have used the years without studying for human capital accumulation in an alternative way, for example in the form of a traineeship. |
| Keywords: | Dropouts, hiring decisions, discrete choice experiment, sheepskin effect, willingness to pay, tertiary education |
| JEL: | I26 J23 J24 J31 M51 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iso:educat:0235 |
| By: | Renske Stans (Netherlands Court of Audit); Laura Ehrmantraut (Federal Statistical Office, Germany); Malin Siemers (University of Bonn & IZA); Pia Pinger (University of Cologne & IZA) |
| Abstract: | Do employers seek to attract individuals with more education because it enhances human capital or because it signals higher levels of pre-existing traits? We experimentally vary master's degree completion rates on applicant résumés and examine how this influences candidates' desirability and employer perceptions of their productive characteristics. Our findings show that while a completed master's degree increases desirability, an incomplete master's degree is perceived by human resource managers as less favorable than a bachelor's degree. This suggests that employers prefer candidates with higher education mainly because they view the degree as a signal of pre-existing productive traits. Consistent with this, employers perceive both cognitive and non-cognitive traits as stronger in master graduates but non-cognitive traits as weaker in master dropouts compared to bachelor's degree holders. Overall, perceived cognitive and non-cognitive traits play a larger role in determining a candidate's attractiveness than expertise. This paper thus provides causal evidence on the origins of the education premium. |
| Keywords: | Returns to education, beliefs, labor demand, labor productivity, signaling, wages |
| JEL: | I23 I26 J23 J24 J31 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:356 |
| By: | Kim, Gueyon (University of California, Santa Cruz); Lee, Dohyeon (Amazon); Pozzoli, Dario (Copenhagen Business School) |
| Abstract: | This paper examines how offshoring affects worker skill demands and studies its implications for wage inequality. Using Danish administrative data, we find that offshoring increases firm-level demand for higher skills in occupations with high exposure to foreign competition. This effect is more pronounced in low-productivity firms, highlighting distributional impacts across firms. By constructing a Becker-type worker-firm matching model in a global economy, we demonstrate underlying mechanisms and quantify the role of offshoring-induced adjustments. Offshoring increases firm similarity in worker skill and wages within high-exposed jobs, leading to a decrease in between-firm inequality—a contrast to the effects of technological change. |
| Keywords: | offshoring, worker-firm matching, segregation by skill, wage inequality, between-firm inequality |
| JEL: | C78 F14 F16 J24 J31 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17663 |
| By: | David Autor; David Dorn; Gordon H. Hanson; Maggie R. Jones; Bradley Setzler |
| Abstract: | This chapter analyzes the distinct adjustment paths of U.S. labor markets (places) and U.S. workers (people) to increased Chinese import competition during the 2000s. Using comprehensive register data for 2000–2019, we document that employment levels more than fully rebound in trade-exposed places after 2010, while employment-to-population ratios remain depressed and manufacturing employment further atrophies. The adjustment of places to trade shocks is generational: affected areas recover primarily by adding workers to non-manufacturing who were below working age when the shock occurred. Entrants are disproportionately native-born Hispanics, foreign-born immigrants, women, and the college-educated, who find employment in relatively low-wage service sectors such as medical services, education, retail, and hospitality. Using the panel structure of the employer-employee data, we decompose changes in the employment composition of places into trade-induced shifts in the gross flows of people across sectors, locations, and non-employment status. Contrary to standard models, trade shocks reduce geographic mobility, with both in- and out-migration remaining depressed through 2019. The employment recovery stems almost entirely from young adults and foreign-born immigrants taking their first U.S. jobs in affected areas, with minimal contributions from cross-sector transitions of former manufacturing workers. Although worker inflows into non-manufacturing more than fully offset manufacturing employment losses in trade-exposed locations after 2010, incumbent workers neither fully recover earnings losses nor predominantly exit the labor market, but rather age in place as communities undergo rapid demographic and industrial transitions. |
| JEL: | F16 J23 J31 J62 L6 R12 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33424 |
| By: | Vitor C. Melo; Christopher Kaiser; David Neumark; Liya Palagashvili; Michael D. Farren |
| Abstract: | A large theoretical literature on job search predicts that a higher minimum wage will increase the number of job seekers for affected jobs, which can lead to more job creation and higher employment. This paper uses novel data on job search in all U.S. states to examine the effect of minimum wage increases on the number of job seekers for low-skilled positions. We find no evidence that higher minimum wages increase job search for low-skilled jobs. Instead, the evidence suggests that higher minimum wages decrease the number of workers seeking employment. |
| JEL: | J23 J38 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33433 |
| By: | Carrillo-Tudela, Carlos (University of Essex); Summerfield, Fraser (St. Francis Xavier University); Visschers, Ludo (Universidad Carlos III de Madrid) |
| Abstract: | We investigate cyclical changes in workers’ task portfolios, highlighting their direction, magnitude, and distribution. Task changes are not only very common but provide information about the skills required across jobs. During recessions, a larger share of employer switches do not involve task changes. When changes occur, they tend to be more substantial. The cyclicality of task changes among employer-to-employer movers contrasts sharply with that of hires from unemployment. We link our findings to the “sullying” and “cleansing” effects of recessions, uncovering a novel cleansing effect associated with employer-to-employer transitions and a sullying effect tied to employer changes through unemployment. |
| Keywords: | Career Change, Occupational Mobility, Tasks, Business Cycles |
| JEL: | E32 J24 J62 E24 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17654 |
| By: | Jeffrey Clemens; Melissa D. Gentry; Jonathan Meer |
| Abstract: | We analyze the differential effects of minimum wage increases on individuals with disabilities using data from the American Community Survey and leveraging state-level minimum wage variation during the 2010s. We find that large minimum wage increases significantly reduce employment and labor force participation for individuals of all working ages with severe disabilities. These declines are accompanied by a downward shift in the wage distribution and an increase in public assistance receipt. By contrast, we find no employment effects for all but young individuals with either non-severe disabilities or no disabilities. Our findings highlight important heterogeneities in minimum wage impacts, raising concerns about labor market policies’ unintended consequences for populations on the margins of the labor force. |
| JEL: | J14 J21 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33437 |
| By: | Ural Marchand, Beyza (University of Alberta) |
| Abstract: | This paper examines the impact of imports from developed countries on industry-specific employment in India between 1983 and 2010. The identification strategy relies on comparing differential changes in import exposure across regions to the differential changes in employment within industries. The variation in the changes in imports to other developing countries is used to identify the component of the changes in imports driven by world demand. The results suggest that the increase in import exposure during the post-liberalization period reduced agricultural employment but increased employment in manufacturing, business, and social services. No significant impacts were found in the pre-liberalization period. |
| Keywords: | Imports, International Trade, Employment |
| JEL: | F16 J21 J23 O33 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17656 |
| By: | Eline Moens; Louis Lippens; Kathleen Vangronsvelt; Ans De Vos; Stijn Baert (-) |
| Abstract: | At a time when numerous organisations are urging a return to the office while many employees prefer to continue teleworking, it is crucial to ascertain the optimal level of telework intensity. In the present study, we determine this ideal level with respect to self-rated employee attitudes, behaviour, well-being, social relations and professional growth. Drawing on a five-wave longitudinal dataset, we apply fixed effects regression analyses to investigate associations between telework intensity and various dimensions of workplace experience. We offer more robust empirical evidence for favouring hybrid work schedules over an office-only or telework-only regime owing to significant advances in causal interpretation of linear and non-linear associations compared to the majority of existing studies that examine linear associations based on cross-sectional data. Our results point toward an inverted U-shaped association between telework intensity and self-rated job satisfaction, work-life balance, relationships with colleagues and professional development, with optimal levels peaking around 50% teleworking. For task efficiency and work concentration, the association appears to be concave with a plateau, stabilising at teleworking levels above 70%. Only between telework intensity and employer connectedness do we observe a slightly negative linear association. |
| Keywords: | Telework intensity, Workplace experience, Hybrid work schedules, Longitudinal |
| JEL: | I31 J24 J28 J32 J81 M51 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:rug:rugwps:25/1106 |
| By: | Andrew Garin |
| Abstract: | Place-based industrial interventions—policies that promote production and investment in specific regions—are often proposed with the intent of improving economic conditions for residents, particularly "left-behind" workers in distressed local labor markets. This chapter discusses the theoretical rationale for the use of industrial interventions to achieve distributional goals and evidence about their effectiveness to that end. I use government-funded plant construction during World War II (WWII) in the United States as a focal case study, which I then compare and contrast to other industrial interventions studied in the literature. While government plant construction during WWII drove an expansion of high-wage semi-skilled jobs open to local residents, which in turn fueled an increase in upward mobility among local residents, the evidence from more recent interventions suggests that modern plant sitings often fail to yield similar benefits to local workers. The implementation details of industrial interventions matter crucially for their incidence on local workers. Interventions that generate opportunities for up-skilling and occupational advancement accessible to target populations appear to be most likely to generate meaningful distributional benefits. I argue that while core production goals during WWII happened to inherently align with the promotion of upward mobility, such alignment is not guaranteed in general and may be the exception rather than the rule in modern contexts. |
| JEL: | H54 J31 J62 N61 O25 R11 R53 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33418 |
| By: | Marydas, Sneha (RS: GSBE MGSoG, Maastricht Graduate School of Governance); Mathew, Nanditha (Maastricht Graduate School of Governance, RS: GSBE MORSE, RS: GSBE MGSoG); De Marzo, Giordano; Pietrobelli, Carlo (RS: GSBE other - not theme-related research, Mt Economic Research Inst on Innov/Techn) |
| Abstract: | In this study, using a novel dataset that matches firm-level data with online job vacancy data, we investigate the effects of firms’ digital technology adoption on future hiring and the dynamics of hiring and training, focusing on different types of technologies and categories of occupations. First, we examine the impact of adopting different types of digital technologies, namely AI, Advanced ICT, and Basic ICT, on future firm hiring. Our findings reveal that less advanced digital jobs (eg. Basic ICT, Advanced ICT) are substituted by more advanced digital jobs (eg. AI), while the advanced technology adoption by firms leads to increased overall hiring of non-digital roles. Second, we show that there is a positive relationship between training and new hiring only for one occupational category, namely, managers, with no significant relationship for other occupations. Third, we investigate the joint effect of training and technology adoption for firm performance. Our findings reveal that digital technology adoption enhances a firm’s financial performance only when combined with internal staff training. The sole exception is AI, which yields positive performance benefits even in the absence of training. |
| JEL: | O33 O12 L20 D22 |
| Date: | 2025–02–07 |
| URL: | https://d.repec.org/n?u=RePEc:unm:unumer:2025004 |
| By: | Bertheau, Antoine (Dept. of Economics, Norwegian School of Economics and Business Administration); Kudlyak, Marianna (Research Department, Federal Reserve Bank of San Francisco); Larsen, Birthe (Dept. of Economics, Copenhagen Business School); Bennedsen, Morten (Dept. of Economics, University of Copenhagen) |
| Abstract: | We use a novel large-scale survey of firms, implemented in Denmark in 2021 and linked to administrative data, to study why firms lay off workers instead of cutting wages. Our questions on layoffs, wage cuts, and the link between them provide new insights into firms' strategies for adjusting labor in response to adverse shocks. We find that layoffs are more prevalent than wage cuts, but wage cuts are not rare in firms experiencing revenue reduction and were used by 15% of such firms. Employers are hesitant to cut wages in many instances because they see wage cuts as a poor substitute for layoffs. First, firms report that lowering wages triggers costs through the impact on morale and quits. Comparing these costs with potential savings from wage cuts, most employers in the survey agree that a wage reduction would not have saved jobs. Second, firms report that a crisis is an opportune time for layoffs because of lower opportunity costs of restructuring and because layoffs during a crisis are perceived by workers as more fair. We find that firms that report such opportunistic layoffs are less likely to implement wage cuts. |
| Keywords: | Wage rigidity; Layoffs |
| JEL: | D22 J23 J30 J63 |
| Date: | 2025–02–07 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:nhheco:2025_004 |
| By: | Alan M. Benson; Kathryn L. Shaw |
| Abstract: | Economic activity, when sufficiently ambitious, requires motivating and coordinating individuals to work toward a common goal. These aims are the purview of managers. What, however, do managers actually do? We outline three defining principles of economic research on managers and relate them to the set of skills reported by managers on LinkedIn. We highlight “managers of people” and “managers of projects” as a useful distinction for categorizing theoretical, empirical, and descriptive accounts of managers. In light of our three principles, we review research on how managers can create value— namely, by hiring, retaining, training, monitoring, evaluating, allocating, and supervising. We propose that managers apply these skills in different proportions depending on the production technology in which they are embedded and that research on managers should seek to produce generalizable insights by exploring managers’ contributions in different contexts. |
| JEL: | J30 J33 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33431 |
| By: | Xiaohua Bao; Qin Chen; Zibin Huang; Lei Li; Mengyuan Wang |
| Abstract: | This paper studies the responses of students’ college major choices to trade tensions in the context of the U.S.-China trade war. By analyzing granular college admissions data, we find that the U.S. tariffs targeting China’s high-tech industries unexpectedly raised admission scores for STEM majors. A 1 percentage point increase in the weighted average tariff correlates with a 2% to 3% rise in standardized admission scores, particularly for engineering disciplines and elite universities. This phenomenon results from the “defensive innovation”, where increased government support and private innovation investments in affected industries lead to greater demand for high-skilled workers. As U.S. tariffs rose, Chinese firms received more subsidies, enabling them to offer higher wages and more R&D related job opportunities, which incentivized students to pursue majors critical to the development of key strategic industries. |
| Keywords: | Trade War, College Major Choice, Defensive Innovation, Industrial Policy |
| JEL: | F14 F16 I23 J24 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_645 |
| By: | Dimitria Freitas |
| Abstract: | Increasing within-country disparities have led policymakers to deploy public employment reallocation as a place-based policy tool to support struggling regions. This paper surveys the economics literature on capital relocations, purpose-built capitals, and public agency decentralization programs, synthesizing their effects on population, employment, and GDP. I find that while relocating capital cities can spur employment, GDP, and population growth in receiving regions, they entail highly unpredictable costs (3–12% of GDP) and uncertain environmental outcomes. Decentralization programs yield positive short-run public-to-private employment multipliers (around 0.7) stemming from the non-traded sector, but the long-term effect on the traded sector remains ambiguous. Local initial conditions seem to matter more than ex-post spillovers in determining multiplier size. Although more evidence is needed, sending regions do not seem to be extensively harmed when public jobs leave. Given the large share of government payroll in national expenditures, reallocating public employment may hold considerable potential for regional development in the future. |
| JEL: | H7 J45 R11 R58 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33432 |
| By: | Djidonou, Robert (RS: GSBE other - not theme-related research, Mt Economic Research Inst on Innov/Techn); Foster-McGregor, Neil (RS: GSBE MGSoG, Mt Economic Research Inst on Innov/Techn); Mathew, Nanditha (Maastricht Graduate School of Governance, RS: GSBE MORSE, RS: GSBE MGSoG) |
| Abstract: | Micro, Small, and Medium Enterprises (MSMEs) play a crucial role in reducing poverty and inequality by generating the majority of jobs, income, and pathways to better employment opportunities. However, informal enterprises are often characterized by low productivity and significant decent work deficits. In Sub-Saharan Africa, where a large share of the workforce is engaged in informal enterprises, transitioning to formality is essential for enhancing productivity, fostering economic growth, and ensuring decent work for all. A critical pathway for informal firms to formalize is through production and worker linkages with formal firms. Using a sample of 13, 626 informal firms from three Sub-Saharan African countries, this study examines the performance effects of informal firms with formal linkages and explores the mediating role of human capital. We find that formal backward linkages—where informal firms source inputs from formal firms—are significantly more common than other types of formal-informal linkages. Employing heteroskedasticity-based identification, our findings reveal that the productivity gains from these linkages are not automatic - higher human capital is essential for firms to benefit from knowledge and technology transfers. This highlights the critical role of absorptive capacity in enabling informal firms to leverage knowledge and technology transferred through formal backward linkages, thereby emphasizing the importance of targeted capacity-building interventions in fostering inclusive economic growth. |
| JEL: | J40 L14 L25 O12 O17 O33 |
| Date: | 2025–02–14 |
| URL: | https://d.repec.org/n?u=RePEc:unm:unumer:2025006 |