The Extent and Cyclicality of Career Changes: Evidence for the U.K.
2014-21 | With Carillo-Tudela, She, and Visschers | August 2014
Using quarterly data for the U.K. from 1993 through 2012, we document that in economic downturns a smaller fraction of unemployed workers change their career when starting a new job. Moreover, the proportion of total hires that involves a career change for the worker also drops in recessions. Together with a simultaneous drop in overall turnover, this implies that the number of career changes declines during recessions. These results indicate that recessions are times of subdued reallocation rather than of accelerated and involuntary structural transformation. We back this interpretation up with evidence on who changes careers, which industries and occupations they come from and go to, and at which wage gains.
On the Importance of the Participation Margin for Market Fluctuations
2013-05 | With Elsby and Şahin | February 2013
Conventional analyses of cyclical fluctuations in the labor market ascribe a minor role to the labor force participation margin. In contrast, a flows-based decomposition of the variation in labor market stocks reveals that transitions at the participation margin account for around one-third of the cyclical variation in the unemployment rate. This result is robust to adjustments of data for spurious transitions, and for time aggregation. Inferences from conventional, stocks-based analyses of labor force participation are shown to be subject to a stock-flow fallacy, neglecting the offsetting forces of worker flows that underlie the modest cyclicality of the participation rate. A novel analysis of history dependence in worker flows demonstrates that a large part of the contribution of the participation margin can be traced to cyclical fluctuations in the composition of the unemployed by labor market attachment.
The Industry-Occupation Mix of U.S. Job Openings and Hires
2012-09 | July 2012
I introduce a method that combines data from the U.S. Current Population Survey, Job Openings and Labor Turnover Survey, and state-level Job Vacancy Surveys to construct annual estimates of the number of job openings in the U.S. in the Spring by industry and occupation. I present these estimates for 2005-2011. The results reveal that: (i) During the Great Recession job openings for all occupations declined. (ii) Job openings rates and vacancy yields vary a lot across occupations. (iii) Changes in the occupation mix of job openings and hires account for the bulk of the decline in measured aggregate match efficiency since 2007. (iv) The majority of job openings in all industries and occupations are filled with persons who previously did not work in the same industry or occupation.
Dissecting Aggregate Real Wage Fluctuations: Individual Wage Growth and the Composition Effect
2011-23 | With Daly and Wiles | May 2012
Using data from the Current Population Survey from 1980 through 2011 we examine what drives the variation and cyclicality of the growth rate of real wages over time. We employ a novel decomposition technique that allows us to divide the time series for median weekly earnings growth into the part associated with the wage growth of persons employed at the beginning and end of the period (the wage growth effect) and the part associated with changes in the composition of earners (the composition effect). The relative importance of these two effects varies widely over the business cycle. When the labor market is tight job switchers get large wage increases, making them account for half of the variation in median weekly earnings growth over our sample. Their wage growth, as well as that of job-stayers, is procyclical. During labor market downturns, this procyclicality is largely offset by the change in the composition of the workforce, leading aggregate real wages to be almost non-cyclical. Most of this composition effect works through the part-time employment margin. Remarkably, the unemployment margin neither accounts for much of the variation in nor much of the cyclicality of median weekly earnings growth.
Household Inflation Experiences in the U.S.: A Comprehensive Approach
2009-19 | With Mayer, Stennis, and Topa | September 2009
We present new measures of household-specific inflation experiences based on comprehensive information from the Consumer Expenditure Survey (CEX). We match households in the Interview and the Diary Surveys from the CEX to produce both complete and detailed pictures of household expenditures. The resulting household inflation measures are based on a more accurate and detailed description of household expenditures than those previously available. We find that our household-based inflation measures track aggregate measures such as the CPI-U quite well and that the addition of Diary Survey data induces small but significant differences in the measurement of household inflation. The distribution of inflation experiences across households exhibits a large amount of dispersion over the entire sample period. In addition, we uncover a significantly negative relationship between mean inflation and inflation inequality across households.
The CHAT Dataset
NBER WP 15319 | With Comin | September 2009
This note accompanies the Cross-country Historical Adoption of Technology (CHAT) dataset. CHAT is an unbalanced panel dataset with information on the adoption of over 100 technologies in more than 150 countries since 1800. The data is available for download at: http://www.nber.org/data/chat We discuss the main aim of CHAT, its scope and limitations, as well as several ways in which we have used the data so far and ways to potentially use the data for other research.
NBER WP 12886 | With Comin | February 2007
We introduce a tractable model of endogenous growth in which the returns to innovation are determined by the technology adoption decisions of the users of new technologies. Technology adoption involves an implementation investment that determines the initial productivity of a new technology. After implementation, learning increases the productivity of a technology to its full potential. In this framework, implementation enhances growth, while growth increases obsolescence and reduces implementation. In a calibrated version of our model, the optimal policy involves a subsidy to capital and to implementation and a R&D tax. This policy would lead to a welfare improvement of 7.6 percent. Out of steady-state analysis yields that the transitional dynamics of the detrended variables after a shock to capital are very similar to the dynamics of the neoclassical growth model, but transitory shocks have permanent effects on the level of productivity.
Spurious Investment Prices
Unpublished manuscript | With McKay | January 2007
We introduce a vintage capital model in which workers are matched with machines of increasing quality. Quality improvements of the machines are the sole source of technological change in this economy. However, the matching of workers with machines implies that there is no well defi
ned capital aggregate in this economy. Hence, investment price indices are a spurious measure of price changes in capital goods. We show that the use of such spurious measures of investment price changes can lead to misleading conclusions about (changes in) the trend properties of the economy.
Five Facts You Need to Know about Technology Diffusion
NBER WP 11928 | With Comin and Rovito | January 2006
On Both Sides of the Quality Bias in Price Indexes
FRB New York Staff Report 157 | December 2002
It is often argued that price indexes do not fully capture the quality improvements of new goods in the market. Because of this shortcoming, price indexes are perceived to overestimate the actual price increases that occur. In this paper, I argue that the quality bias in price indexes is just as likely to be upward as it is to be downward. I show how both the sign and the magnitude of the quality bias in the most commonly applied price index methods are determined by the cross-sectional variation of prices per quality unit across the product models sold in the market.
I do so by simulating a model of a market that includes monopolistically competing suppliers of the various product models and a representative consumer with CES (constant elasticity of substitution) preferences. I illustrate the bias in the commonly applied price index methods by comparing their estimates of inflation with the theoretical inflation rate implied by the data-generating process.
Beveridge Curve Shifts across Countries since the Great Recession
Forthcoming in IMF Economic Review | With Sahin
We discuss the magnitude of and reasons for the shift in the Beveridge curve in the U.S. since the Great Recession and argue that skill mismatch and the extension of unemployment insurance benefits likely have played a nontrivial role in this shift. We then introduce a method to estimate fitted Beveridge curves for other OECD countries for which data on vacancies and employment by job tenure are available. We show that Portugal, Spain, Sweden, and the U.K. also experienced rightward shifts in their Beveridge curves. We argue that the shift in the first three countries is due to similar mismatch factors as in the U.S. while the shift in Sweden is due to labor market reforms passed right before the Great Recession.
Unemployment Dynamics in the OECD
Forthcoming in Review of Economics and Statistics | With Elsby and Sahin
We provide a set of comparable estimates for the rates of inflow to and outflow from unemployment using publicly available data for fourteen OECD economies. We then devise a method to decompose changes in unemployment into contributions accounted for by changes in inflow and outflow rates for cases where unemployment deviates from its flow steady state, as it does in many countries. Our decomposition reveals that fluctuations in both inflow and outflow rates contribute substantially to unemployment variation within countries. For Anglo-Saxon economies we find approximately a 15:85 inflow/outflow split to unemployment variation, while for Continental European and Nordic countries, we observe much closer to a 45:55 split. Using the estimated flow rates we compute gross worker flows into and out of unemployment. In all economies we observe that increases in inflows lead increases in unemployment, whereas outflows lag a ramp up in unemployment.
Firms and Flexibility
Forthcoming in Economic Inquiry | With Sahin
We study the effects of labor market rigidities and frictions on firm-size distributions and dynamics. We introduce a model of endogenous entrepreneurship, labor market frictions, and firm-size dynamics with many types of rigidities, such as hiring and firing costs, search frictions with vacancy costs, unemployment benefits, firm entry costs, and a tax wedge between wages and labor costs. We use the model to analyze how each rigidity explains firm-size differentials between the United States and France. We find that when we include all rigidities and frictions except hiring costs and search frictions, the model accounts for much of the firm-size differentials between the United States and France. The addition of search frictions with vacancy costs generates implausibly large differentials in firm-size distributions.
Downward Nominal Wage Rigidities Bend the Phillips Curve
Journal of Money, Credit, and Banking 46(S2), 2014, 51-93 | With Daly
We introduce a model of monetary policy with downward nominal wage rigidities and show that both the slope and curvature of the Phillips curve depend on the level of inflation and the extent of downward nominal wage rigidities. This is true for the both the long-run and the short-run Phillips curve. Comparing simulation results from the model with data on U.S. wage patterns, we show that downward nominal wage rigidities likely have played a role in shaping the dynamics of unemployment and wage growth during the last three recessions and subsequent recoveries.
Which Industries Are Shifting the Beveridge Curve?
Monthly Labor Review June, June 2012, 25-37 | With Barnichon, Elsby, and Sahin
The negative relationship between the unemployment rate and the job openings rate, known as the Beveridge curve, has been relatively stable in the U.S. over the last decade. Since the summer of 2009, however, the U.S. unemployment rate has hovered between 9.4 and 10.1 percent in spite of firms reporting more job openings. We decompose the recent deviation from the Beveridge curve into different parts using data from the Job Openings and Labor Turnover Survey (JOLTS). We find that most of the current deviation from the Beveridge curve can be attributed to a shortfall in the vacancy yield, which measures hires per vacancy. This shortfall is broad-based across all industries and is particularly pronounced in construction, transportation, trade, and utilities, and leisure and hospitality. Construction alone accounts for more than a third of the Beveridge curve gap.
A Search and Matching Approach to Labor Markets: Did the Natural Rate of Unemployment Rise?
Journal of Economic Perspectives 26(3), June 2012, 3-26 | With Daly, Sahin, and Valletta
The U.S. unemployment rate has remained stubbornly high since the 2007-2009 recession, leading some observers to conclude that structural rather than cyclical factors are to blame. Relying on a standard job search and matching framework and empirical evidence from a wide array of labor market indicators, we examine whether the natural rate of unemployment has increased since the recession began, and if so, whether the underlying causes are transitory or persistent. Our analyses suggest that the natural rate has risen over the past several years, with our preferred estimate implying an increase of close to a percentage point above its pre-recession level. An assessment of the underlying factors responsible for this increase, including labor market mismatch, extended unemployment benefits, and uncertainty about overall economic conditions, implies that only a small fraction is likely to be persistent.
The Labor Market in the Great Recession: an Update to September 2011
Brookings Papers on Economic Activity 103, 2012, 353-371 | With Valletta
Since the end of the Great Recession in mid-2009, the unemployment rate has recovered slowly, falling by only one percentage point from its peak. We find that the lackluster labor market recovery can be traced in large part to weakness in aggregate demand; only a small part seems attributable to increases in labor market frictions. This continued labor market weakness has led to the highest level of long-term unemployment in the U.S. in the postwar period, and a blurring of the distinction between unemployment and nonparticipation. We show that flows from nonparticipation to unemployment are important for understanding the recent evolution of the duration distribution of unemployment. Simulations that account for these flows suggest that the U.S. labor market is unlikely to be subject to high levels of structural long-term unemployment after aggregate demand recovers.
CONDI: A Cost-Of-Nominal-Distortions Index
American Economic Journal: Macroeconomics 3(3), July 2011, 53-91 | With Eusepi and Tambalotti
We construct a price index with weights on the prices of different PCE goods chosen to minimize the welfare costs of nominal distortions: a cost-of-nominal-distortions index (CONDI). We compute these weights in a multisector New Keynesian model with time-dependent price setting, calibrated using U.S. data on the dispersion of price stickiness and labor shares across sectors. We find that the CONDI weights mostly depend on price stickiness and are less affected by the dispersion in labor shares. Moreover, CONDI stabilization leads to negligible welfare losses compared to the optimal policy and is better approximated by core rather than headline inflation targeting. An even better approximation of the CONDI can be obtained with an adjusted core index that covers total expenditures excluding autos, clothing, energy, and food at home, but that includes food away from home.
An Exploration of Technology Diffusion
American Economic Review 100(5), 2010, 2031-2059 | With Comin
We develop and estimate a model where technology diffusion depends on the level of productivity embodied in capital and where this is, in turn, determined by two key mechanisms: the rate at which the quality embodied in new technology vintages increases (embodiment) and the gains from varieties induced by the introduction of new vintages (variety). In our model, these two effects are related to technology adoption decisions taken at two different levels. The capital goods suppliers’ decisions of when to adopt a given vintage determines the embodiment margin. The workers’ decisions of which of the adopted vintages to use in production determines the variety margin. Estimation of our model for a sample of 19 technologies, 21 countries, and the period 1870-1998 reveals that embodied productivity growth is large for many of the technologies in our sample. On average, increases in the variety of vintages available is a more important source of growth than the increases in the embodiment margin. There is, however, substantial heterogeneity across technologies. Where adoption lags matter, they are largely determined by a lack of educational attainment and lack of trade openness.
Technology Diffusion and Postwar Growth
In NBER Macroeconomics Annual 2010, 25, ed. by Acemoglu and Woodford | University of Chicago Press, 2010 | With Comin
In the aftermath of WorldWar II, the world’s economies exhibited very different rates of economic recovery. We provide evidence that those countries that caught up the most with the U.S. in the postwar period are those that also saw an acceleration in the speed of adoption of new technologies. This acceleration is correlated with the incidence of U.S. economic aid and technical assistance in the same period. We interpret this as supportive of the interpretation that technology transfers from the U.S. to Western European countries and Japan were an important factor in driving growth in these recipient countries during the postwar decades.
The Labor Market in the Great Recession
Brookings Papers on Economic Activity Spring 2010, June 2010, 1-48 | With Elsby and Sahin
This paper documents the adjustment of the labor market during the recession, and places it in the broader context of previous postwar downturns. What emerges is a picture of labor market dynamics with three key recurring themes: 1. From the perspective of a wide range of labor market outcomes, the 2007 recession represents the deepest downturn in the labor market in the postwar era. 2. Until recently, the nature of labor market adjustment in the current recession has displayed a notable resemblance to that observed in past severe downturns. 3. During the latter half of 2009, however, the path of adjustment has exhibited important departures from that seen in prior deep recessions.
Job-Finding and Separation Rates in the OECD
Economics Letters 104(3), September 2009, 107-111 | With Sahin
We provide a set of comparable estimates of average monthly job-finding and separation rates for over 20 OECD countries that can be used for the cross-country analysis of labor markets.
A New Approach to Measuring Technology with an Application to the Shape of the Diffusion Curves
Journal of Technology Transfer 33, 2008, 187-207 | With Comin and Rovito
This paper documents the sources and measures of the cross-country historical adoption technology (CHAT) data set that covers the diffusion of about 115 technologies in over 150 countries over the last 200 years. We use this comprehensive data set to explore the shape of the diffusion curves. Our main finding is that, once the intensive margin is measured, technologies do not diffuse in a logistic way.
Lobbies and Technology Diffusion
Review of Economics and Statistics 91, 2008, 229-244 | With Comin
This paper explores whether lobbies slow down technology diffusion. To answer this question, we exploit the differential effect of various institutional attributes that should affect the costs of erecting barriers when the new technology has a technologically close predecessor but not otherwise. We implement this test in a unique dataset compiled by us that covers the diffusion of 20 technologies for 23 countries over the past two centuries. We find that each of the relevant institutional variables that affect the costs of erecting barriers has a significantly larger effect on the diffusion of technologies with a competing predecessor technology than when no such a technology exists. These effects are quantitatively important. Thus, we conclude that lobbies are an important barrier to technology adoption and to development.
Technology Usage Lags
Journal of Economic Growth 13, 2008, 237-256 | With Comin and Rovito
We present evidence on the differences in the intensity with which ten major technologies are used in 185 countries across the world. We do so by calculating how many years ago these technologies were used in the U.S. at the same intensity as they are used in the countries in our sample. We denote these time lags as technology usage lags and compare them with lags in real GDP per capita. We find that (i) technology usage lags are large, often comparable to lags in real GDP per capita, (ii) usage lags are highly correlated with lags in per-capita income, and (iii) usage lags are highly correlated across technologies. The productivity differentials between the state of the art technologies that we consider and the ones they replace combined with the usage lags that we document, lead us to infer that technology usage disparities might account for a large part of cross-country TFP differentials.
Technology Diffusion within Central Banking: The Case of Real-Time Gross Settlement
International Journal of Central Banking 3(3), September 2007, 147-181 | With Bech
We examine the diffusion of real-time gross settlement (RTGS) technology across all 174 central banks. RTGS reduces settlement risk and facilitates financial innovation in the settlement of foreign exchange trades. In 1985, only three central banks had implemented RTGS systems, and by year-end 2005, that number had increased to ninety. We find that the RTGS diffusion process is consistent with the standard S-curve prediction. Real GDP per capita, the relative price of capital, and trade patterns explain a significant part of the cross-country variation in RTGS adoption. These determinants are remarkably similar to those that seem to drive the cross-country adoption patterns of other technologies.
Menu Costs at Work: Restaurant Prices and the Introduction of the Euro
Quarterly Journal of Economics 121(3), August 2006, 1,103-1,131 | With Ravenna and Tambalotti
Restaurant prices in the euro area saw an unprecedented increase after the introduction of the euro. We use an extension of commonly used models of sticky prices and argue that the increase in restaurant prices can be explained by menu costs. The extension we use involves the state-dependent decision of firms about when to adopt the euro. Two main mechanisms drive the result. First, our model concentrates otherwise staggered price increases around the introduction of the euro. Second, before the adoption of the euro, prices do not reflect marginal cost increases expected to occur after the changeover. This horizon effect disappears as soon as the new currency is adopted, contributing to a jump in prices at that time. For realistic parameter values, the model generates a blip in inflation of the same magnitude observed in the data.
Inflation Inequality in the United States
Review of Income and Wealth 51, August 2005, 581-606 | With Lagakos
Different spending patterns across households and differences in price increases across goods and services lead to unequal levels of inflation faced by different households. In this paper we measure the
degree of inequality in inflation across U.S. households for the period 1987-2001. The broad picture that emerges from our results is that over our whole sample period there are substantial differences in
the inflation experiences across U.S. households. We find that the cost of living increases were generally higher for the elderly, in large part because of their health care expenditures, and that the cost of
living of poor households is most sensitive to the, historically large, fluctuations in gasoline prices. Still, when looking at the whole population, we find that individual households that are confronted with
high inflation in one year do not generally face high inflation in the subsequent year as well.
Generalizations of the KPSS-test for Stationarity
Statistica Neerlandica 58(4), December 2004, 483-502 | With Franses and Ooms
We propose automatic generalizations of the KPSS-test for the null hypothesis of stationarity of a univariate time series. We can use these tests for the null hypotheses of trend stationarity, level stationarity and zero mean stationarity. We introduce the asymptotic null distributions and we determine consistency against relevant nonstationary alternatives. We compare the properties of the tests with those of other proposed tests for stationarity. Monte Carlo simulations support the relevance of the tests when an autoregressive process with large positive autocorrelations is likely under the null hypothesis.
Cross-Country Technology Adoption: Making the Theories Face the Facts
Journal of Monetary Economics 51(1), January 2004, 39-83 | With Comin
We examine the diffusion of more than twenty technologies across twenty-three of the world’s leading industrial economies. Our evidence covers major technology classes such as textile production, steel manufacture, communications, information technology, transportation, and electricity for the period 1788-2001. We document the common patterns observed in the diffusion of this broad range of technologies.
Our results suggest a pattern of trickle-down diffusion that is remarkably robust across technologies. Most of the technologies that we consider originate in advanced economies and are adopted there first. Subsequently, they trickle down to countries that lag economically. Our panel data analysis indicates that the most important determinants of the speed at which a country adopts technologies are the country’s human capital endowment, type of government, degree of openness to trade, and adoption of predecessor technologies. We also find that the overall rate of diffusion has increased markedly since World War II because of the convergence in these variables across countries.
Another View of Investment: 40 Years Later
In Knowledge, Information, and Expectations in Modern Macroeconomics: In Honor of Edmund S. Phelps, ed. by P. Aghion, R. Frydman, J. Stiglitz, and M. Woodford | Princeton, NJ: Princeton University Press, 2003 | With Benhabib
This chapter revisits the embodiment hypothesis in economic growth and, in particular, discusses Phelps’s contributions to the literature on this hypothesis in the context of a DSGE vintage capital model.
The Information Technology Revolution and the Stock Market: Evidence
American Economic Review 91(5), December 2001, 1,203-1,220 | With Jovanovic
Why did the stock market decline so much in the early 1970s and remain low until the early 1980s? We argue that it was because information technology arrived on the scene and the stock-market incumbents of the day were not ready to implement it. Instead, new firms would bring in the new technology after the mid-1980s. Investors foresaw this in the early 1970s and stock prices fell right away. In our model, new capital destroys old capital, but with a lag. The prospect of this causes the value of the old capital to fall right away.
Are Living Standards Converging?
Structural Change and Economic Dynamics 12, August 2001, 171-200 | With Franses
We re-address the convergence issue that is so prominent in the economic growth literature and present evidence as to what extent there is convergence across measures of living standards, alternative to per capita income. The four additional indicators that we use are daily calorie supply, daily protein supply, infant mortality rates, and life expectancy at birth.
Did Trade Liberalization Induce a Structural Break in Imports of Manufactures in Turkey?
In Modeling of Economic Transition Phenomena, ed. by R. Kulikowski, Z. Nahorski, and J.W. Owsinski | Warsaw, University of Information Technology and Management Press, 2001 | With de Boer, Bayar, Martinez, and Pamukcu
The year 1980 was a turning point in the political economy of Turkey. For many decades, Turkish governments used quotas and tariffs as instruments of protection of domestic producers from foreign competition. But since 1980, a fundamental liberalization program has been implemented. This paper evaluates, with the framework of an Almost Ideal Deman System, the impact of the new trade policies on manufacturing imports.
Asymptotically Perfect and Relative Convergence of Productivity
Journal of Applied Econometrics 15-1, 2000, 59-81 | With Franses
In this paper we examine the extent to which countries are converging in per capita productivity levels. We propose to use cluster analysis in order to allow for the endogenous selection of converging countries. We formally define convergence in a time series analytical context, derive the necessary and sufficient conditions for convergence, and introduce a cluster analytical procedure that distinguishes several convergence clubs by testing for these conditions using a multivariate test for stationarity. We find a large number of relatively small convergence clubs, which suggests that convergence might not be such a widespread phenomenon.
Increasing Seasonal Variation: Unit Roots versus Shifts in Mean and Trend
Applied Stochastic Models and Data Analysis 14, 1997, 255-261 | With Franses
In this paper we consider model selection for time series with increasing (or decreasing) seasonal variation, where this variation can be described by (seasonal) unit root models with significant deterministic components or by models with less unit roots but with shifts in seasonal means and trends. As a model selection device we use tests based on the Osborn et al. regression, which we modify to allow for shifts in mean and trend. An application to disposable income in Japan yields that apparent unit roots are not robust to structural shifts induced by the Oil Crisis in the fourth quarter of 1973.
Critical Values for Unit Root Tests in Seasonal Time Series
Journal of Applied Statistics 24, 1997, 25-47 | With Franses
In this paper, we present tables with critical values for a variety of tests for seasonal and non-seasonal units roots in seasonal time series. We consider (extensions of) the Hylleberg et al. and Osborn et al. test procedures. These extensions concern time series with increasing seasonal variation and time series with structural breaks in the seasonal means. For each case, we give the appropriate auxiliary test regression, the test statistics, and the corresponding critical values for a selected set of sample sizes. We also illustrate the practical use of the auxiliary regressions for quarterly new car sales in the Netherlands.
Structural Models of Factor Demands and Technological Change: An Empirical Assessment of Dynamic Adjustment Specifications for Sectors of the Dutch Economy
Economic Systems Research 8(4), 1996, 341-360 | With Lesuis, de Boer, and Harkema
We combine a translog cost functional form with an adjustment process according to the error correction mechanism to explain the simultaneous determination of factor demands and technological change. To save degrees of freedom in the estimation procedure, we also consider the imposition of restrictions on the matrices of lag parameters and/or the covariance matrix of the disturbances. Using a model selection strategy based on a combination of economic-theoretical considerations and a formal model selection criterion, a model is selected for each of 17 sectors of the Dutch economy.
The Decline of the U.S. Labor Share
Brookings Papers on Economic Activity Fall 2013, 2014, 1-52 | With Elsby and Sahin
Over the past quarter century, labor’s share of income in the United States has trended downwards, reaching its lowest level in the postwar period after the Great Recession. Detailed examination of the magnitude, determinants and implications of this decline delivers five conclusions. First, around one third of the decline in the published labor share is an artifact of a progressive understatement of the labor income of the self-employed underlying the headline measure. Second, movements in labor’s share are not a feature solely of recent U.S. history: The relative stability of the aggregate labor share prior to the 1980s in fact veiled substantial, though offsetting, movements in labor shares within industries. By contrast, the recent decline has been dominated by trade and manufacturing sectors. Third, U.S. data provide limited support for neoclassical explanations based on the substitution of capital for (unskilled) labor to exploit technical change embodied in new capital goods. Fourth, institutional explanations based on the decline in unionization also receive weak support. Finally, we provide evidence that highlights the offshoring of the labor-intensive component of the U.S. supply chain as a leading potential explanation of the decline in the U.S. labor share over the past 25 years.
How Early Adoption Has Increased Wealth–Until Now
Harvard Business Review 90(3), March 2012, 34-35 | With Comin
Do Alternative Measures of GDP Affect Its Interpretation?
Current Issues in Economics and Finance 15(7), November 2009 | With Steindel
Gross domestic product’s high correlation with unemployment and inflation makes it a key measure of the U.S. economy. Yet the somewhat arbitrary nature of the GDP construction process complicates interpretation and measurement of the indicator. A study of an alternative measure of GDP designed to address the published series’ limitations finds that the adjusted measure differs in its representation of the long-term trend–but not the short-term fluctuations–of GDP. The published series’ relevance as an indicator is therefore robust to some of the arbitrariness of its construction.
Unemployment in the Current Crisis
VOXEU.org, February 2009 | With Elsby and Sahin
Unemployment is rising–job losses are up 30% in the US and 50% in the UK since 2007. How bad will it get? This column uses data on unemployment inflows and duration to predict labor market trends. A conservative estimate says that unemployment will reach at least 5% in Britain and 13.5% in Spain.
Commodity Price Movements and PCE Inflation
Current Issues in Economics and Finance 14(8), November 2008, 1-7
With the recent run-up in crop and energy prices–and the subsequent sharp reversal of these trends–the effects of commodity price movements on U.S. inflation merit renewed attention. A study of the contributions of grain and oil prices to the PCE index of inflation suggests that the effects are more modest than one might expect. Moreover, commodity price increases affect relatively few goods prices: Higher crop prices translate narrowly into price hikes for food, tobacco, and gardening supplies; rising oil prices mainly influence fuel, energy, and transportation prices.
What Has Homeland Security Cost? An Assessment: 2001-2005
Current Issues in Economics and Finance 13(2), February 2007 | With Sager
While homeland security is widely seen as an important national objective, the costs of this effort are not well understood. An analysis of public and private expenditures on homeland security shows that overall spending rose by $44 billion between 2001 and 2005–a clear increase but one that represents a gain of only 1/4 of 1 percent as a share of U.S. GDP. Private sector expenditures increased very modestly in dollar terms and remained unchanged as a fraction of the sector’s GDP.
U.S. Jobs Gained and Lost through Trade: A Net Measure
Current Issues in Economics and Finance 11(8), August 2005 | With Groshen and McConnell
Recent concerns about the transfer of U.S. services jobs to overseas workers have deepened long-standing fears about the effects of trade on the domestic labor market. But a balanced view of the impact of trade requires that we consider jobs created through the production of U.S. exports as well as jobs lost to imports. A new measure of the jobs gained and lost in international trade flows suggests that the net number of U.S. jobs lost is relatively small–2.4 percent of total U.S. employment as of 2003.
Taking the Pulse of the Tech Sector: A Coincident Index of High-Tech Activity
Current Issues in Economics and Finance 9(10), October 2003 | With Stiroh and Antoniades
A new index of the U.S. high-tech sector–drawing upon a range of technology-specific data–has the potential to offer a more timely assessment of economic activity than has been possible to date. The index suggests that while the tech sector has rebounded from its poor performance in the 2000-01 “tech bust,” it has not resumed its rapid expansion of the late 1990s.
Social Security and the Consumer Price Index for the Elderly
Current Issues in Economics and Finance 9(5), May 2003 | With Lagakos
Some argue that social security benefits should be adjusted using a price index that reflects the spending habits of the elderly rather than those of workers. This study suggests that if such an index were adopted today, over the next forty years benefit levels would increase and the social security trust fund could become insolvent up to five years sooner than projected.
What Will Homeland Security Cost?
Economic Policy Review 8(2), November 2002, 21-33
The increased spending on security by the public and private sectors in response to September 11 could have important effects on the U.S. economy. Sizable government expenditures, for example, could trigger a rise in the cost of capital and wages and a reduction in investment and employment in the private sector, while large-scale spending by businesses could hamper firm productivity. This article attempts to quantify the likely effects of homeland security expenditures on the economy. It suggests that the total amount of public- and private-sector spending will be relatively small: the annual direct costs of the homeland security efforts are estimated to be $72 billion, or 0.66 percent of GDP in 2003. In the private sector, homeland security expenses are estimated to lower labor productivity levels by at most 1.12 percent. Therefore, the reallocation of resources associated with homeland security is unlikely to have any large and long-lasting effects on the U.S. economy.