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Jel Classification:J23 

Briefing
Structural unemployment
Whenever unemployment stays high for an extended period, it is common to see analyses, statements, and rebuttals about the extent to which the high unemployment is structural, not cyclical. This brief views the Beveridge curve pattern of unemployment and vacancy rates and the related matching function as proxies for the functioning of the labor market, and explores issues in that proxy relationship that complicates such analyses.
AUTHORS: Diamond, Peter A.
DATE: 2013

Working Paper
Downskilling: changes in employer skill requirements over the business cycle
Using a novel database of 82.5 million online job postings, we show that employer skill requirements fell as the labor market improved from 2010 to 2014. We find that a 1 percentage point reduction in the local unemployment rate is associated with a roughly 0.27 percentage point reduction in the fraction of jobs requiring at least a bachelor?s degree and a roughly 0.23 percentage point reduction in the fraction requiring five or more years of experience. This pattern is established using multiple measures of labor availability, is bolstered by similar trends along heretofore unmeasured dimensions of skill, and even occurs within firm?job title pairs. We further confirm the causal effect of labor market tightening on skill requirements using a natural experiment based on the fracking boom in the United States as an exogenous shock to the local labor supply in tradable, non?fracking industries. These industries are not plausibly affected by local demand shocks or natural gas extraction technology, but still show fewer skill requirements in response to tighter labor markets. Our results imply this labor market?induced downskilling reversed much of the cyclical increase in education and experience requirements that occurred during the Great Recession.
AUTHORS: Ballance, Joshua; Shoag, Daniel; Modestino, Alicia Sasser
DATE: 2016-02-29

Working Paper
Upskilling: do employers demand greater skill when skilled workers are plentiful?
The Great Recession and subsequent recovery have been particularly painful for low-skilled workers. From 2007 to 2012, the unemployment rate rose by 6.4 percentage points for noncollege workers while it rose by only 2.3 percentage points for the college educated. This differential impact was evident within occupations as well. One explanation for the differential impact may be the ability of highly skilled workers to take middle- and low-skilled jobs. Indeed, over this period the share of workers with a college degree in traditionally middle-skill occupations increased rapidly. Such growth in skill requirements within occupations has become known colloquially as "upskilling." It is not clear from employment outcomes alone whether the increasing share of high-skilled workers in middle- and low-skill occupations reflects changing behavior by employers. Few researchers have been able to quantify rising employer requirements due to the difficulty in isolating labor demand from labor supply. In this paper, using a novel dataset of online job vacancy postings, the authors tackle the question of whether the education and experience requirements for job postings have risen between 2007 and 2012, and if so, whether this rise was driven by the state of the local labor market.
AUTHORS: Ballance, Joshua; Shoag, Daniel; Modestino, Alicia Sasser
DATE: 2015-01-30

Working Paper
Labor market polarization over the business cycle
One of the most important long-run trends in the U.S. labor market is polarization, defined as the relative growth of employment in high-skill jobs (such as management and technical positions) and low-skill jobs (such as food-service and janitorial work) amid the concurrent decline in middle-skill jobs (such as clerical, construction, manufacturing, and retail occupations). Middle-skill job losses typically result from outsourcing labor to lower-wage countries or from substituting automated technologies for routine tasks. Economists are now beginning to study how long-run polarization might be related to short-run business cycles, but doing so requires the construction of quarterly datasets with consistent occupational data over long periods of time. The authors of this paper construct a new dataset of occupational employment and unemployment that extends from 1947:Q3 to 2013:Q4. Using this dataset, along with more-recent individual-level data from the Current Population Survey, the authors study how recessions typically affect employment in various occupations, what employment alternatives are available to middle-skill workers who become unemployed, and whether the ongoing erosion of middle-skill job opportunities is related to long-term declines in labor force participation among men.
AUTHORS: Ryan, Richard W.; Foote, Christopher L.
DATE: 2014-12-26

Working Paper
Does immigration crowd natives into or out of higher education?
Over the past several decades, the United States has experienced some of its largest immigrant inflows since the Great Depression. This higher level of immigration has generated significant debate on the effects of such inflows on receiving markets and natives. Education market studies have found that inflows of immigrant students can displace some natives from enrollment. Meanwhile, labor market studies have primarily examined the impact of immigrant labor inflows on the wages of similarly and dissimilarly skilled natives, with mixed results. The lack of consensus in the wage studies has spurred a growing line of research on whether natives respond endogenously to immigrant worker inflows. Yet, it remains unexplored whether native responses in the higher education market also contribute to the absorption of immigrants into the labor market and the effects on equilibrium in both markets. In a unified framework of the education and labor markets this paper addresses whether skill level via college enrollment is another margin on which natives endogenously adjust to immigrant inflows of students and labor. This study differs from previous research by separately identifying native human capital accumulation responses to both immigrant labor and student inflows at the college margin, where such responses may be strongest due to the high school-college wage gap. The analysis also contributes to our understanding of how local markets respond to immigrant inflows.
AUTHORS: Jackson, Osborne
DATE: 2015-10-01

Working Paper
Job Polarization and the Natural Rate of Unemployment in the United States
I present a new estimate of the natural rate of unemployment in the United States that accounts for changes in the age, sex, and skill composition of the labor force. Using micro-level data from the Current Population Survey for the period 1994-2017, I find that the natural rate of unemployment declined by 0.5 percentage point since 1994 and currently stands at 4.5 percent. My projections show that ongoing demographic and technological changes could lower the trend rate further to 4.4 percent by the end of 2022.
AUTHORS: Tuzemen, Didem
DATE: 2018-03-15

Working Paper
Firm Dynamics and the Minimum Wage: A Putty-Clay Approach
We document two new facts about the market-level response to minimum wage hikes: firm exit and entry both rise. These results pose a puzzle: canonical models of firm dynamics predict that exit rises but that entry falls. We develop a model of firm dynamics based on putty-clay technology and show that it is consistent with the increase in both exit and entry. The putty-clay model is also consistent with the small short-run employment effects of minimum wage hikes commonly found in empirical work. However, unlike monopsony-based explanations for small short-run employment effects, the model implies that the efficiency consequences of minimum wages are potentially large.
AUTHORS: Aaronson, Daniel; French, Eric; Sorkin, Isaac
DATE: 2013-12-14

Journal Article
Strength of economy, limited benefit eligibility in Texas curb long-term unemployment rate
An unemployment rate with a persistent long-term component can be more detrimental to the economy than the same jobless rate with a smaller share of long-term unemployed.
AUTHORS: Kumar, Anil
DATE: 2014-04

Journal Article
How Do Local Labor Markets Affect Retirement?
Compared with prime-age workers, older workers face an easier path out of the labor force if they lose their jobs during a recession. However, premature job exits or earnings losses in the years leading up to retirement may be particularly devastating to retirement savings. The authors analyze the impact of recent business cycles on retirement using multifaceted job transitions of older workers. They focus on local labor markets because older workers are particularly unlikely to move for work. Surprisingly, the biggest effect of a higher local unemployment rate on older workers is to raise the propensity to stay in one?s current job. Older workers have fewer voluntary transitions to new jobs when the unemployment rate rises, but they especially have fewer voluntary transitions out of the labor force. Thus, the direct effect of job loss in inducing earlier retirement during recessions is outweighed by retirement delays among those with jobs.
AUTHORS: Webb, Anthony; Friedberg, Leora; Owyang, Michael T.; Sun, Wei
DATE: 2017

Working Paper
Occupation Mobility, Human Capital and the Aggregate Consequences of Task-Biased Innovations
We construct a dynamic general equilibrium model with occupation mobility, human capital accumulation and endogenous assignment of workers to tasks to quantitatively assess the aggregate impact of automation and other task-biased technological innovations. We extend recent quantitative general equilibrium Roy models to a setting with dynamic occupational choices and human capital accumulation. We provide a set of conditions for the problem of workers to be written in recursive form and provide a sharp characterization for the optimal mobility of individual workers and for the aggregate supply of skills across occupations. We craft our dynamic Roy model in a production setting where multiple tasks within occupations are assigned to workers or machines. We solve for the balanced-growth path and characterize the aggregate transitional dynamics ensuing task-biased technological innovations. In our quantitative analysis of the impact of task-biased innovations in the U.S. since 1980, we find that they account for an increased aggregate output in the order of 75% and for a much higher dispersion in earnings. If the U.S. economy had larger barriers to mobility it would have experienced less job polarization but substantially higher inequality and lower output as occupation mobility has provided an "escape" for the losers from automation.
AUTHORS: Monge-Naranjo, Alexander; Dvorkin, Maximiliano
DATE: 2019-04-23

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