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
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
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.
Training and Search on the Job
The paper studies human capital accumulation over workers? careers in an on the job search setting with heterogenous firms. In renegotiation proof employment con- tracts, more productive firms provide more training. Both general and specific training induce higher wages within jobs, and with future employers, even conditional on the future employer type. Because matches do not internalize the specific capital loss from employer changes, specific human capital can be over-accumulated, more so in low type firms. While validating the Acemoglu and Pischke (1999) mechanisms, the analysis nevertheless arrives at the opposite conclusion: That increased labor market friction reduces training in equilibrium.
AUTHORS: Lentz, Rasmus; Roys, Nicolas
Interlocked Executives and Insider Board Members: An Empirical Analysis
This paper asked the question of whether the behavior and compensation of interlocked executives and non-independent board of directors are consistent with the hypothesis of governance problem or whether this problem is mitigated by implicit and market incentives. It then analyzes the role of independent board of directors. Empirically, we cannot reject the hypothesis that executives in companies with a large number of non-independent directors on the board receive the same expected compensation as other executives. In our model, every executive has an incentive to work. Placing more of non-independent directors on the board mitigates gross losses to the firm should any one of them shirk because they monitor each other. It also reduces the net benefits from shirking and increases the gross value of the firm from greater coordination (reflected in the firm?s equity value and thus impounded into its financial returns). Therefore having a greater non-independent director representation on the board create a more challenging signaling problem to solve thereby raising the risk premium. However, giving more votes on the board to non-independent executives fosters better executive working conditions, which in turn offsets the higher risk premium in pay by a lower certainty-equivalent wage in equilibrium. Thus, our estimates undergird a plausible explanation of how large shareholders determine the number of insiders on the board to maximize the expected value of their equity. We then conduct counterfactual policy experiment imposing 50% upper bound on the fraction of insiders on the board and another counterfactual imposing 40% quotas for women on the boards.
AUTHORS: Gayle, George-Levi; Golan, Limor; Miller, Robert A.
Wage Inequality and Job Stability
How much wage inequality in Brazil is caused by firing costs? To answer this question, I develop and estimate a general equilibrium search and matching model with heterogeneous layoff rates among firms. Using matched employer-employee data from Brazil, I estimate the model, and I find that it replicates the observed residual wage inequality in the data. I simulate a counterfactual removal of existing firing costs, and I find that residual wage inequality drops by 26% as measured by wage variance and by 4.4% as measured by the p95-p5 ratio among 25- to 55-year-old males working in the private sector with at most a high school degree. Worker welfare among this subgroup of households increases by almost 1% in response to the abolishment of firing costs.
AUTHORS: Pessoa de Araujo, Ana Luisa
Job Heterogeneity and Aggregate Labor Market Fluctuations
This paper disciplines a model with search over match quality using microeconomic evidence on worker mobility patterns and wage dynamics. In addition to capturing these individual data, the model provides an explanation for aggregate labor market patterns. Poor match quality among first jobs implies large fluctuations in unemployment due to a responsive job destruction margin. Endogenous job destruction generates a burst of layoffs at the onset of a recession and, together with on-the-job search, generates a negative comovement between unemployment and vacancies. A significant job ladder, consistent with the empirical wage dispersion, provides ample scope for the propagation of vacancies and unemployment.
AUTHORS: Krolikowski, Pawel
Rival Growth Prospects and Equity Prices: Evidence from Mass Layoff Announcements
We investigate the impact of mass layoff announcements on the equity value of industry rivals. When a layoff announcement conveys good (bad) news for the announcer, rivals on average witness a 0.44 percent increase (0.60 percent decrease) in cumulative abnormal stock returns. This effect is concentrated on rivals with high growth opportunities. Consistent with this finding, we also show that our results are strongest in technology industries, where growth opportunities matter the most. Our results suggest that investors perceive layoff announcements as news about industry prospects rather than just the announcer.
AUTHORS: Kannan, Bharadwaj; Pinheiro, Roberto; Bordeman, Adam
The Unintended Consequences of Employer Credit Check Bans for Labor Markets
Over the last decade, 11 states have restricted employers? access to the credit reports of job applicants. We document a significant decline in county-level vacancies after these laws were enacted: Job postings fall by 5.5 percent in affected occupations relative to exempt occupations in the same county and the same occupation nationwide. Cross-sectional heterogeneity in the estimated effects suggests that employers use credit reports as signals: Vacancies fall more in counties with a large share of subprime residents, while they fall less in occupations with other commonly available signals.
AUTHORS: Cortes, Kristle Romero; Tasci, Murat; Glover, Andrew
Job-to-Job Flows and the Consequences of Job Separations
A substantial empirical literature documents large and persistent average earnings losses following job displacement. Our paper extends the literature on displaced workers by providing a comprehensive picture of earnings and employment outcomes for all workers who separate. We show that for workers not recalled to their previous employer, earnings losses follow separations in general, as opposed to displacements in particular. The key predictor of earnings losses is not displacement but the length of the nonemployment spell following job separation. Moreover, displaced workers are no more likely to experience a substantial spell of nonemployment than are other non-recalled separators. Our results suggest that future research on the consequences of job loss should work to disentangle the strong association between nonemployment and earnings losses, as opposed to focusing specifically on displaced workers.
AUTHORS: Haltiwanger, John; McEntarfer, Erika; Fallick, Bruce C.; Staiger, Matthew