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Working Paper
Recent Employment Growth in Cities, Suburbs, and Rural Communities
This paper uses a comprehensive source of yearly data to study private-sector labor demand across US counties during the past five decades. Our focus is on how employment levels and earnings relate to population density—that is, how labor markets in rural areas, suburbs, and cities have fared relative to one another. Three broad lessons emerge. First, the longstanding suburbanization of employment and population in cities with very dense urban cores essentially stopped in the first decade of the 21st century. For cities with less dense cores, however, the decentralization of employment continues, even as population patterns mimic those of denser areas. Second, a dataset that begins in 1964 clearly shows the decentralization of manufacturing employment away from inner cities, a trend that has long been a focus of the urban sociological literature. Starting in the 1990s, however, manufacturing employment fell sharply, not just in cities but also in rural areas, which had experienced less-intense deindustrialization before then. Finally, average earnings dispersion across counties with similar density levels fell during most of our sample period. But after the 1990s, this dispersion rose, probably because of an increase in earnings dispersion among very dense counties (“superstar cities”). We also note that our results are consistent with explanations of rising individual-level earnings inequality within cities that rest onfundamental changes in how basic job tasks are performed, rather than where particular jobs are located.
AUTHORS: Foote, Christopher L.; Couillard, Benjamin K.
DATE: 2019-12-01
Working Paper
Organizations, Skills, and Wage Inequality
We extend an on-the-job search framework in order to allow firms to hire workers with different skills and skills to interact with firms? total factor productivity (TFP). Our model implies that more productive firms are larger, pay higher wages, and hire more workers at all skill levels and proportionately more at higher skill types, matching key stylized facts. We calibrate the model using five educational attainment levels as proxies for skills and estimate nonparametrically firm-skill output from the wage distributions for different educational levels. We consider two periods in time (1985 and 2009) and three counterfactual economies in which we evaluate how the wage distribution would have evolved if we kept one of the following key characteristics at its 1985?s levels: firm-skill output distribution, labor market frictions, and skill distribution. Our results indicate that 79.2 percent of the overall wage dispersion and 72.6 percent of the within-group component can be attributed to a shift in the firm-skill output distribution. Once we assume a parametric calibration of the output per skill-TFP pair, we are able to show that most of the effect of changes in the output distribution is due to an increase in the average labor productivity of college graduates and post-graduates.
AUTHORS: Pinheiro, Roberto; Tasci, Murat
DATE: 2017-05-05
Working Paper
Downward Nominal Wage Rigidity in the United States during and after the Great Recession
Rigidity in wages has long been thought to impede the functioning of labor markets. One recent strand of the research on wage flexibility in the United States and elsewhere has focused on the possibility of downward nominal wage rigidity and what implications such rigidity might have for the macroeconomy at low levels of inflation. The Great Recession of 2008-09, during which the unemployment rate topped 10 percent and price deflation was at times seen as a distinct possibility, along with the subsequent slow recovery and persistently low inflation, has added to the relevance of this line of inquiry. In this paper, we use establishment-level data from a nationally representative establishment-based compensation survey collected by the Bureau of Labor Statistics to investigate the extent to which downward nominal wage rigidity is present in U.S. labor markets. We use several distinct methods proposed in the literature to test for downward nominal wage rigidity, and to assess whether such rigidity is more severe at low rates of inflation and in the presence of negative economic shocks than in more normal economic times. Like earlier studies, we find evidence of a significant amount of downward nominal wage rigidity in the United States. We find no evidence that the high degree of labor market distress during the Great Recession reduced the amount of downward nominal wage rigidity and some evidence that operative rigidity may have increased during that period.
AUTHORS: Wascher, William L.; Fallick, Bruce C.; Lettau, Michael
DATE: 2016-01-08
Working Paper
Determinants of Expected Returns at Public Defined-Benefit Pension Plans
Estimated expected returns are important for pension plans, as they influence many plan characteristics including required asset levels, annual contributions, and the extent of plan under- or overfunding. Yet, there seems to be little prior literature on the factors influencing these estimated future returns. In an attempt to fill this gap, this paper presents the results of a panel analysis of data on the determinants of such returns used by US public defined-benefit (DB) pension plans for the period 2001?2011. As expected, we find that real return estimates by DB public pension funds are positively related to fund size, fund age, international asset diversification, state income, and corruption levels. However, more interestingly and importantly, we document that real return estimates by public US DB pension funds are positively related to cultural measures of individualism and masculinity, and negatively related to uncertainty avoidance. These results should be of much interest not only to scholars and pension benefi ciaries, but also to fund managers, other capital market participants, and policymakers.
AUTHORS: Aggarwal, Raj; Goodell, John
DATE: 2015-05-21
Working Paper
Firms, Skills, and Wage Inequality
We present a model with search frictions and heterogeneous agents that allows us to decompose the overall increase in US wage inequality in the last 30 years into its within- and between-firm and skill components. We calibrate the model to evaluate how much of the overall rise in wage inequality and its components is explained by different channels. Output distribution per firm-skill pair more than accounts for the observed increase over this period. Parametric identification implies that the worker-specific component is responsible for 85 percent of this, compared to 15 percent that is attributable to firm-level productivity shifts.
AUTHORS: Tasci, Murat; Pinheiro, Roberto
DATE: 2019-04-19
Working Paper
Wages and human capital in finance: international evidence, 1970-2005
We study the allocation and compensation of human capital in the finance industry in a set of developed economies in 1970-2005. Finance relative skill intensity and skilled wages generally increase but not in all countries, and to varying degrees. Skilled wages in finance account for 36% of increases in overall skill premia, although finance only accounts for 5.4% of skilled private sector employment, on average. Financial deregulation, financial globalization and bank concentration are the most important factors driving wages in finance. Differential investment in information and communication technology does not have causal explanatory power. High finance wages attract skilled international immigration to finance, raising concerns for "brain drain".
AUTHORS: Reshef, Ariell; Boustanifar, Hamid; Grant, Everett
DATE: 2016-02-01
Working Paper
Monopsony in Spatial Equilibrium
An emerging labor economics literature studies the consequences of firms exercising market power in local labor markets. These monopsony models have implications for trends in earnings inequality. The extent of this market power is likely to vary across local labor markets. In choosing what market to live and work in, workers trade off wages, rents and local amenities. Building on the Rosen/Roback spatial equilibrium model, we investigate how the existence of local monopsony power affects the cross-sectional spatial distribution of wages and rents across cities. We find an employment-weighted elasticity of land prices to concentration of ?0.034?similar to Rinz (2018)?s reported elasticity of compensation to concentration. This finding has implications for who bears the economic incidence of labor market power. We present two extensions of the model focusing on the role of migration costs and worker skill heterogeneity.
AUTHORS: Kahn, Matthew E.; Tracy, Joseph
DATE: 2019-10-15
Working Paper
Assessing Differences in Labor Market Outcomes Across Race, Age, and Educational Attainment
Broad indicators are often used to evaluate the health of the labor market but may mask disparities in outcomes across age, education, gender, and race. Understanding these disparate outcomes is part of the process of monitoring the labor market. As such, this paper summarizes work the research staff of the Federal Reserve Bank of Kansas City has done to better understand differences in labor market outcomes. Some of these findings reinforce earlier work, while others offer novel perspectives. {{p}} First, differences in outcomes across race remain substantial. Despite a significant increase in educational attainment among black individuals, their wages are lower and their unemployment rate significantly higher than for white individuals, even after controlling for education. Second, black individuals are nearly two times more likely to become long-term unemployed than white individuals. This difference, however, explains only a modest amount of the difference in the overall unemployment rates for these groups. Third, job polarization has affected black individuals relatively more due to an education gap that has made it more difficult for those without a college education to secure high-skill employment.
AUTHORS: Research Department, Federal Reserve Bank of Kansas City
DATE: 2017-04-01
Working Paper
Wage dynamics and labor market transitions: a reassessment through total income and “usual” wages
We present a simple on-the-job search model in which workers can receive shocks to their employer-specific c productivity match. Because the firm-specific match can vary, wages may increase or decrease over time at each employer. Therefore, for some workers, job-to-job transitions are a way to escape job situations that worsened over time. The contribution of our paper relies on our novel approach to identifying the presence of the shock to the match specific productivity. The presence two independent measures of workers compensation in our dataset of is crucial for our identification strategy. In the first measure, workers are asked about the usual wage they earn with a certain employer. In the second measure, workers are asked about their total amount of labor earnings during the previous year. While the first measure records the wages at a given point in time, the second measure records the sum of all wages within one year. We calibrate our model using both measures of workers compensation and data on employment transitions. The results show that 59% of the observed wage cuts following job-to- job transitions are due to deterioration of the firm-specific component of wages before workers switch employers.
AUTHORS: Pavan, Ronni; Canon, Maria E.
DATE: 2014-10-30
Discussion Paper
Valuing Workplace Benefits
Workplace benefits?such as parental leave, sick leave, and flexible work arrangements?are increasingly being recognized as important determinants of differences in labor supply behavior, education and occupation choice, inequality in wages, and gender disparities in labor market outcomes. Researchers have argued that the failure of the United States to keep pace in providing more generous workplace benefits accounts for 29 percent of the decline in the nation?s labor force participation rate for women relative to that of other high-income countries in the Organisation for Economic Co-operation and Development (OECD). In this post, using novel data from a special module of the Federal Reserve Bank of New York?s Survey of Consumer Expectations (SCE) fielded in May 2015 and May 2016, we document the labor market prevalence of workplace benefits, analyze workers? preferences for them, and discuss their impact on labor supply.
AUTHORS: Koşar, Gizem; Zafar, Basit; Van der Klaauw, Wilbert
DATE: 2017-06-02