Cyclical trend of labor reallocation: transition and structural change

Stanisław Cichocki

Workshop of the DGO-Section for Economics, 14.10.2016

Group for Research in Applied Economics

Outline

1. Motivation

2. Literature review

3. Data

4. Time trends

5. Cyclical patterns

6. Conclusions

2

Motivation

• Two postulated features of labor reallocation during transition:

• Public vs. private sector

• Manufacturing vs. services

• Significant amount of literature for EE and FSU countries but…

• Focuses on early transition period

• Uses yearly data only

• No behavior over the business cyclebusiness cycle

3

Motivation

• Document the puzzle for Poland using labor market flows

• Analyze the trend and cyclical patterns of these flows

• cycle

4

Literature review

• Theoretical background:

• Aghion and Blanchard (1994)

• Caballero and Hammour (1996, 1998, 2000)

• Empirical studies:

• Multiple countries studies (Bilsen and Konings, 1998; Faggio and Konings, 2003)

• Single country studies (Haltiwanger and Vodopivec, 2002; De Loecker and Konings 2006)

5

Literature review

• Main results:

• High job destruction rates in SOE and manufacturing

• Vivid job creation in private and service sector

• But:

• Average destruction rates in SOE are not statistically larger than in the private sector (Svejnar et al., 2016)

• Job creation rates lower in SOE and manufacturing (Svejnar et al., 2016)

6

Literature review

• Job destruction and job creation gradually gained momentum (Brown and Earle, 2003)

• This time pattern was not uniform across all the countries (Svejnar et al., 2016)

• Literature focused on between sector flows but:

• Within sector reallocation fairly large for some countries (Haltiwanger and Vodopivec, 2002)

• Demographic flows play a role: youth entry and elderly exit

7

Data

• LFS for period: 1995q1-2015q1

• Types flows

• Flows from public to private sector (AB)

• Flows from manufacturing to service sector (CH)

• Flows from manufacturing in public sector to services in private sector (ABCH)

• Youth employment entry

• Elderly employment exit

8

Data

• Types flows

• Flows to/from manufacturing

• Flows to/from services

• Flows to/from public sector

• Flows to/from private sector

9

Data

10

Table 1. Descriptive statistics in the sample

Variable All years 1995-2005 2005-2015

Wage employed 33.7% 34.8% 33.0%

Unemployed 6.3% 8.3% 4.9%

Inactive 48.6% 43.3% 52.2%

Working in manufacturing 10.8% 11.8% 10.0%

- entering in observation window 1.5% 1.8% 1.1%

- exiting in observation window 3.7% 4.3% 3.0%

Working in services 13.8% 13.1% 14.3%

- entering in observation window 1.6% 2.2% 1.2%

- exiting in observation window 4.0% 4.7% 3.4%

Working in public sector 14.8% 19.5% 11.4%

- entering in observation window 1.8% 1.4% 2.4%

- exiting in observation window 4.4% 4.1% 5.0%

Working in the private sector 19.0% 15.3% 21.6%

- entering in observation window 3.7% 5.4% 2.8%

- exiting in observation window 1.5% 1.9% 1.3%

CH 0.7% 0.7% 0.6%

AB 2.5% 2.0% 3.1%

ABCH 0.1% 0.1% 0.1%

Youth entrant 0.4% 0.3% 0.4%

Elderly exit 0.1% 0.1% 0.1%

No of observations 4 839 546 1 781 121 3 058 425

Note: Polish LFS, 1995q1-2015q1, shares in total population, flows relative to the relevant population, youth

entrants and elderly leavers relative to total population. To compute flows, population weights were utilized.

Time trends: public sector

11

-3,5%

-3,0%

-2,5%

-2,0%

-1,5%

-1,0%

-0,5%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

-300 000

-250 000

-200 000

-150 000

-100 000

-50 000

0

50 000

100 000

150 000

200 000

1995q1 1997q1 1999q1 2001q1 2003q1 2005q1 2007q1 2009q1 2011q1 2013q1 2015q1

worker inflows public sector

worker outflows public sector

worker flows from public to private (AB)

net demographic effect

deviations from trend log(GDP) - right axis

Note: Polish LFS, 1995q1-2015q1, deviations from trend (log) GDP from Hodrick-Prescott filtering with λ=1600, flows

seasonally adjusted with TRAMO/Seats.

Time trends: manufacturing

12

Note: Polish LFS, 1995q1-2015q1, deviations from trend (log) GDP from Hodrick-Prescott filtering with λ=1600, flows

seasonally adjusted with TRAMO/Seats.

-2,5%

-2,0%

-1,5%

-1,0%

-0,5%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

-200 000

-150 000

-100 000

-50 000

-

50 000

100 000

150 000

200 000

1995q1 1997q1 1999q1 2001q1 2003q1 2005q1 2007q1 2009q1 2011q1 2013q1 2015q1

worker inflows manufacturing

worker outflows manufacturing

worker flows from manufacturing to services (CH)

net demographic effect

deviations from trend log(GDP) - right axis

Time trends: services

13

Note: Polish LFS, 1995q1-2015q1, deviations from trend (log) GDP from Hodrick-Prescott filtering with λ=1600, flows

seasonally adjusted with TRAMO/Seats.

-2,5%

-2,0%

-1,5%

-1,0%

-0,5%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

-200 000

-150 000

-100 000

-50 000

0

50 000

100 000

150 000

200 000

1995q1 1997q1 1999q1 2001q1 2003q1 2005q1 2007q1 2009q1 2011q1 2013q1 2015q1

worker inflows services

worker outflows services

worker flows from services to manufacturing (opposite to CH)

net demographic effect

deviations from trend log(GDP) - right axis

Time trends

14

Note: Polish LFS, 1995q1-2015q1, deviations from trend (log) GDP from Hodrick-Prescott filtering with λ=1600, flows

seasonally adjusted with TRAMO/Seats.

-2,5%

-2,0%

-1,5%

-1,0%

-0,5%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

-200 000

-150 000

-100 000

-50 000

-

50 000

100 000

150 000

200 000

1995q1 1997q1 1999q1 2001q1 2003q1 2005q1 2007q1 2009q1 2011q1 2013q1 2015q1

from public to private, no change of industry from private to public, no change of industryfrom services to manufacturing, no change of ownership from manufacturing to services, no change of ownership from public manufacturing to private service sector from private service sector to public manufacturingyouth employment flows elderly employment flowsdeviations from trend log(GDP)

Cyclical patterns

15

Table 2. Cyclical patterns of labor market flows

VARIABLES

AB CH Exits from manufacturing Exits from public sect.

cycle trend cycle trend cycle trend cycle trend

(1) (2) (3) (4) (5) (6) (7) (8)

GDP cycle 1.38 47.14* 11.09* 23.72*** 11.24** 12.59* 0.66 86.52**

(5.83) (31.92) (7.36) (11.50) (5.05) (8.38) (4.93) (38.24)

GDP trend 0.26 22.42*** -0.10 -15.23*** 0.36 -0.37 -0.62 7.80

(1.18) (9.52) (1.49) (3.43) (1.02) (2.50) (1.00) (11.41)

Interaction with period dummies

2000-2005 4.46 -0.13* 5.67 -0.07** 2.99 -0.03* 0.81 -0.09

(6.52) (0.09) (8.23) (0.03) (5.65) (0.02) (5.52) (0.10)

2005-2010 -1.05 -0.12 2.54 -0.00 -6.21 -0.07*** 1.60 -0.09

(8.06) (0.12) (10.16) (0.04) (6.98) (0.03) (6.81) (0.14)

2010-2015 3.65 -0.12 -16.80 -0.04 -12.00 -0.07** -0.17 -0.05

(10.06) (0.15) (12.69) (0.05) (8.71) (0.04) (8.51) (0.18)

Service employment 5.93 -7.62 -10.58 -3.09 -3.47 3.56 -3.78 -9.63

(5.04) (44.14) (6.36) (15.91) (4.36) (11.59) (4.26) (52.88)

Manufacturing employment -6.89 6.41 10.00 4.93 2.93 -3.46 3.14 6.72

(4.91) (42.71) (6.19) (15.39) (4.25) (11.21) (4.15) (51.17)

Private employment 0.73*** 2.76* 0.26 0.48 0.03 0.49 0.21 5.98***

(0.21) (1.54) (0.27) (0.55) (0.18) (0.40) (0.18) (1.84)

Public employment 1.21* 1.36 1.16 -1.69 1.67*** 0.45 1.90*** 4.82

(0.65) (5.04) (0.82) (1.82) (0.56) (1.32) (0.55) (6.04)

Constant -3.10 -219.50* 1.45 206.28*** -4.19 14.87 7.66 16.51

(14.50) (116.79) (18.30) (42.09) (12.56) (30.66) (12.26) (139.91)

Year FE Yes Yes Yes Yes Yes Yes Yes Yes

No of observations 78 78 78 78 78 78 78 78

R-squared 0.73 0.98 0.81 0.98 0.86 0.99 0.88 0.99

Note: Polish LFS, 1995q1-2015q1, cyclical component measure is a deviation from trend, following Hodrick-Prescott filtering with λ=1600, standard errors reported in

parentheses. *** denote significance at 5% level, ** at 10% and * at 15%. Unless stated otherwise, RHS variables are trend components in trend regressions and cycle

components in cycle regressions for LHS. Period 1995-2000 as base level.

Conclusions

• Theory: Two features of labor reallocation in EE and FSU countries

• Empirics: Reallocation paths more nuanced

• Worker flows between jobs rare

• What changed the employment structure:

• entry of young, exit of elderly workers

16

Conclusions

• Flows from public sector:

• no cyclical pattern, trends amplify in times of prosperity

• Shortcomings:

• one country

• data from 1995 on

17

Thank you for your attention! Author: Stanisław Cichocki e-mail: scichocki@wne.uw.edu.pl

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