Micro Data For Macro Models Fall 2012 Topic 1: Labor Market in Great Recession.
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Transcript of Micro Data For Macro Models Fall 2012 Topic 1: Labor Market in Great Recession.
Micro Data For Macro Models
Fall 2012
Topic 1: Labor Market in Great Recession
Course Pre-Amble
1998 – 2000 Cohort That Are Tenured at Top Schools (with some omissions)
Marianne Bertrand (Chicago) Ananth Seshadri (Wisconsin)
Esther Duflo (MIT) Amil Petrin (Minnesota)
Mike Greenstone (MIT) Muhamet Yildiz (MIT)
Emmanuel Saez (Berkeley) Marco Battaglini (Princeton)
Jonathan Levin (Stanford) Xavier Gabaix (NYU)
Sendhil Mullainathan (Harvard) Monika Piazzesi (Stanford)
Chang-Tai Hseih (Chicago) Ricardo Reis (Columbia)
Erik Hurst (Chicago) Dirk Krueger (Penn)
Enrico Moretti (Berkely) Martin Schneider (Stanford)
Luigi Pistaferri (Stanford) Annette Vissing-Jorgensen (Northwestern)
David Autor (MIT) Mark Duggan (Wharton)
Mark Aguiar (Princeton) Fabrizio Perri (Minnesota)
Marc Melitz (Harvard) Alessandra Fogli (Minnesota)
Victor Chevnozhakov (MIT) Wouter Dessein (Columbia GSB)
Ted Miguel (Berkeley) ~ 900 people got a Ph.D. from top 15
Markus Bruennermeier (Princeton) departments during this time period
David Lee (Princeton) ~ 40- 50 (~5%) of people got tenured at top
15 departments
1998 – 2000 Cohort That Are Tenured at Top Schools (with some omissions)
Marianne Bertrand (Chicago) Ananth Seshadri (Wisconsin)
Esther Duflo (MIT) Amil Petrin (Minnesota)
Mike Greenstone (MIT) Muhamet Yildiz (MIT)
Emmanuel Saez (Berkeley) Marco Battaglini (Princeton)
Jonathan Levin (Stanford) Xavier Gabaix (NYU)
Sendhil Mullainathan (Harvard) Monika Piazzesi (Stanford)
Chang-Tai Hseih (Chicago) Ricardo Reis (Columbia)
Erik Hurst (Chicago) Dirk Krueger (Penn)
Enrico Moretti (Berkely) Martin Schneider (Stanford)
Luigi Pistaferri (Stanford) Annette Vissing-Jorgensen (Northwestern)
David Autor (MIT) Mark Duggan (Wharton)
Mark Aguiar (Princeton) Fabrizio Perri (Minnesota)
Marc Melitz (Harvard) Ed Vytlacil (NYU)
Victor Chevnozhakov (MIT) Wouter Dessein (Columbia GSB)
Ted Miguel (Berkeley) ~ 900 people got a Ph.D. from top 15
Markus Bruennermeier (Princeton) departments during this time period
David Lee (Princeton) ~ 40- 50 (~5%) of people got tenured at top
15 departments
Publishing?
• The median Ph.D. from a top 20 department never publishes anything in a peer reviewed journal
• The median peer reviewed article has less than 15 citations.
• See Dan Hamermesh’s web site for:
“Young Economist’s Guide to Professional Etiquette”
https://webspace.utexas.edu/hamermes/www/JEP92.pdf
The Good News
• The creation of research is a skill just like inverting a matrix, solving DSGE models, computing standard errors, etc.
• The more you work on it, the better you will become.
• Read the early work of those recently tenured at top schools. Every single one of you could have written the same papers!
It is not only our technical prowess that distinguishes us throughout our careers, it is our ability to innovate and/or to come up with good questions.
Those who have impact on the profession due so because of their ideas.
What Skill Are Ph.D. Students Most Deficient?
• Having the ability to identify interesting research questions
• The confusion of theoretical or empirical fire power as being an “end” as opposed to a “means”.
• Not having the ability to explain why anyone would care about their research.
Goal of This Class
• Get you to start thinking about writing your dissertation
• Familiarize you with many data sets that are used by macro economists (and others) to be used as part of your dissertation.
• Expose you to literatures within macroeconomics that have strong empirical components.
• Help you turn good research ideas into good research papers.
• Teach you how to communicate your ideas to others.
Some Housekeeping….
• T.A.: Jonathan (with set up an email list for class participants including auditors)
• Lots of work – hopefully all of it useful
o Reading
o Homeworks
o Virtual Paper
• Slides/Course Info
• Co-Taught with Steve Davis: Timing
Very Important
• If you are seeking take the prelim in the Macro Sequence (this course plus the remaining courses by Lars and Veronica), you must:
1) Complete a full version of your virtual paper in order to pass the portion of the prelim related to our part of the course.
2) We will not offer questions on the prelim (although the faculty who teach the other parts of the sequence - Lars and Veronica – will still write prelim questions).
3) You have to notify Steve and Erik by end of April if you are planning to take the applied macro prelim. We will give you feedback about our expectations for your paper.
My Portion of the Course
Topic 1: Labor Market in Current Recession
Topic 2: Consumption Inequality
Topic 3: Lifecycle Consumption
Topic 4: Home Production
Topic 5: Occupational Choice
Topic 6: Understanding Small Businesses
Steve’s Portion of the Class
See Steve’s reading list…..
Where Do Research Question Come From
A few words from Erik and Steve…..
Topic 1:
Labor Markets in the Recent Recession
Part A:
Conceptual framework for changes in employment
Why Does Employment Change?
Wages(W)
Employment(N)
Labor Demand (ND)
• Labor Demand results from firm optimization – is a function of things like productivity, comparative advantage, trade, policy, etc.
A Look at the Labor Market: Labor Demand
Why Does Employment Change?
Wages(W)
Employment(N)
Labor Supply (NS)(Holding Lifetime Income
Fixed)
A Look at the Labor Market: Labor Supply
• Labor Supply is the result of household optimization - is a function of government policies (taxes and transfers), household wealth, immigration, etc.
Where Does Non-employment Come From?
Wages(W)
Employment(N)
NS
A Look at the Labor Market: Labor Market Equilibrium
ND
W0*
N0*
Non-employment Theory 1: Great Vacation?
Wages(W)
Employment(N)
NS
ND
W0*
N0*
W1*
N1*
0
1
Non-employment Theory 1: Great Vacation?
Wages(W)
Employment(N)
NS
ND
W0*
N0*
W1*
N1*
0
1
• Firms desire less labor. Some workers choose not to work at lower wages.• Workers transition to non-employment through unemployment.
Non-employment Theory 1: Great Vacation?
Wages(W)
Employment(N)
NS
ND
W0*
N0*
W1*
N1*
0
1
• Decline in labor demand could be permanent (structural change in economy).• Decline in labor demand could be temporary (recession – temporary decline).
Non-employment Theory 1: Great Vacation?
Wages(W)
Employment(N)
NS
ND
W0*
N0*
W1*
N1*
0
1
• Potential policy response if temporary - Shift labor demand back to the right.
Non-employment Theory 2: Sticky Wages
Wages(W)
Employment(N)
NS
ND
W0*
N0*N2
• Same labor demand shock, but wages are prevented from adjusting downward.
01
Non-employment Theory 2: Stick Wages
Wages(W)
Employment(N)
NS
ND
W0*
N0*N2
• Same labor demand shock, but wages are prevented from adjusting downward.• “Cyclical” unemployment could occur.
unemployment
Non-employment Theory 2: Stick Wages
Wages(W)
Employment(N)
NS
ND
W0*
N0*N2
Policy response: Try to shift the labor demand curve back to the right.Was the negative labor demand shift temporary?
Non-employment Theory 3: Policy and Labor Supply
Wages(W)
Employment(N)
NS
ND
W0*
N0*
• Some policies may result in a reduction of labor supply (extend unemploymentbenefits and people have less incentive to find a job).
0
1
Non-employment Theory 4: Mismatch Unemployment
• Harder to illustrate graphically.
• Need some individual and sectorial heterogeneity in the model
Individuals with different skills/jobs with different skill requirementsIndividuals with different sectorial experience/jobs in different sectorsSpatial differences in people in jobs
• Adjustment costs may prevent people from easily switching sectors.
• If a negative shock hits one sector (low skilled, housing, Nevada), it may take time for individuals to adjust to the other sectors (high skilled, nursing, or Texas).
• Generic policies designed to reduce unemployment may not be that effective if the unemployment is structural.
Non-employment Theory 5: Search Theory
• Harder
Important Questions that Should Be Answered
• How much of the unemployment is due to cyclical/temporary forces?
o Implies that there may be room for potential policy interventions.
o Still need to understand source of shock (balance sheet effects, firm access to credit, uncertainty, TFP declines, etc.)
• How much is due to policy induced effects on labor supply?
o Causes a trade off between different types of policy goals?
• How much is due to “structural” forces (mismatch, sector declines)?
o Traditional recessionary policies are likely to be relatively ineffective.
Part B: Nonemployment in Current Recession
Some Facts About The Recent Labor Market
• “The Labor Market In The Great Recession”
Mike Elsby, Bart Hobijn, and Aysegul Sahin
• Compares the labor market during the recent recession to the labor market during all other previous post war recessions.
• Conclusions:
(1) From a wide range of labor market outcomes, the recent recession was the deepest recession in post war period.
(2) Early on, the nature of labor adjustment in the recent recession displayed a notable resemblance to that of other severe
recessions.
(3) During the latter part of recession (and recovery), the path of adjustment exhibited important departures from other deep recessions.
2008Q12008Q2
2008Q3
2008Q4
2009Q1
2009Q22009Q3
2009Q42010Q12010Q22010Q32010Q4
-6
-4
-2
0
2
4
6
-10 -8 -6 -4 -2 0 2 4 6 8
Source: Bureau of Economic Analysis, Bureau of Labor Statistics, and Congressional Budget OfficeOutput gap
Unemployment gap
No recessionRecessions
Figure 3. Okun’s Law, 1949-2010 Q4
Elsby/Hobijn/Sahin/Valletta 9/16/2011
Labor Market In the Great Recession: An Update 33
Revisions led to partial reversal Okun’s Law
2011Q2
-4
-3
-2
-1
0
1
2
3
4
5
6
-10 -8 -6 -4 -2 0 2 4 6
Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Congressional Budget Office, FRBSF staff
Based on CBO potential output and NAIRU estimates (1949Q1-now)
Okun's Law
Output gap
Unemployment gap
2007 Recessionand after
Elsby/Hobijn/Sahin/Valletta 9/16/2011
Labor Market In the Great Recession: An Update 35
Recent drop in unemployment through participation
62
63
64
65
66
67
68
0
2
4
6
8
10
12
1990 1995 2000 2005 2010Source: Bureau of Labor Statistics
Monthly observations; seasonally adjustedUnemployment and Labor Force Participation rates
Percent Percent
Unemployment rate
Labor force participation rate
2
4
6
8
10
12
1990 1993 1996 1999 2002 2005 2008 2011
2
4
6
8
10
12
Unemployment Rate by Gender
Source: Bureau of Labor Statistics
Women
Men
Unemployment Rate Unemployment RateSeasonally Adjusted
Oct
200
9
2.7
1.1
0.1
0.15
0.2
0.25
0.3
1990 1994 1998 2002 2006 2010
0.1
0.2
0.3
0.4
Unemployment to Non-Participation by Gender
Source: Bureau of Labor Statistics
Men
Percent Men
Seasonally Adjusted
Percent Women
Women
0.1
0.2
0.3
0.4
1990 1994 1998 2002 2006 2010
0.1
0.2
0.3
0.4
Unemployment to Employment by Gender
Source: Bureau of Labor Statistics
Men
PercentSeasonally Adjusted
Percent
Women
0
0.01
0.02
0.03
1990 1994 1998 2002 2006 2010
0
0.01
0.02
0.03
Employment to Unemployment by Gender
Source: Bureau of Labor Statistics
Men
PercentSeasonally Adjusted
Percent
Women
0
0.01
0.02
0.03
0.04
0.05
1990 1994 1998 2002 2006 2010
0
0.01
0.02
0.03
0.04
0.05
Nonparticipation to Unemployment by Gender
Source: Bureau of Labor Statistics
Men
PercentSeasonally Adjusted
Percent
Women
Elsby/Hobijn/Sahin/Valletta 9/16/2011
Labor Market In the Great Recession: An Update 41
Change in Unemployment RatesTable 1: Change in Unemployment Rates (ppt)
Recession Recovery
Change in Unemployment Rate 5.5 -0.9Gender
Male 6.5 -1.6Female 4.3 -0.2
Age16-24 8.8 -1.625-54 5.4 -0.955+ 4.0 -0.3
EducationLess than High Scool 8.3 -0.6High School 6.5 -1.0Some College 5.3 -0.9College or Higher 2.9 -0.4
RaceWhite 5.2 -1.1Black 7.5 0.3Hispanic 7.2 -1.1
Notes: The recession refers to 2007Q2 to 2009Q4 and the recovery 2009Q4 to 2011Q2
The Unemployment Rate By Skills: All (20-45)
Education2007
UnempRate
2011Unemp
Rate
Change in
Rate
Share of
Pop.
Share Weighted
Change
Percent of Total
Unemp Rate
Explained
High School or Less
7.1% 15.2% 8.2% 41% 3.3% ~65%
Some College 4.2% 8.9% 4.7% 30% 1.5% ~25%
College or More
1.9% 4.5% 2.6% 29% 0.7% ~10%
All 4.6% 9.9% 5.3%
The Unemployment Rate By Skills: All (20-45)
Education2007
UnempRate
2011Unemp
Rate
Change in
Rate
Share of
Pop.
Share Weighted
Change
Percent of Total
Unemp Rate
Explained
High School or Less
7.1% 15.2% 8.2% 41% 3.3% ~65%
Some College 4.2% 8.9% 4.7% 30% 1.5% ~25%
College or More
1.9% 4.5% 2.6% 29% 0.7% ~10%
All 4.6% 9.9% 5.3%
Jobs By Educational Attainment
Unemployment Duration
Elsby/Hobijn/Sahin/Valletta 9/16/2011
Labor Market In the Great Recession: An Update 46
Historically Low Outflows Even After Recession
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
0%
20%
40%
60%
80%
100%
120%
1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008Source: Bureau of Labor Statistics and authors' calculations
Monthly hazard based on Shimer (2005); 3-month moving averagesFlow hazard rates into and out of unemployment
Outflow hazard Inflow hazard
Outflow hazard, f(t)
Inflow hazard, s(t)
Elsby/Hobijn/Sahin/Valletta 9/16/2011
Labor Market In the Great Recession: An Update 47
Pick-up in Outflows to Non-participation
0
5
10
15
20
25
30
35
40
1967 1972 1977 1982 1987 1992 1997 2002 2007Source: Shimer (2007), based on Ritter data provided by Hoyt Bleakley, Bureau of Labor Statistics, authors' calculations
Seasonally adjusted; 3-month moving averageOutflow rates out of unemployment by destination
Percent of unemployed
To Employment
To Non-participation
Elsby/Hobijn/Sahin/Valletta 9/16/2011
Labor Market In the Great Recession: An Update 48
Outflow Rates by Duration and Destination
0
10
20
30
40
50
60
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24+
Source: Current Population Survey and authors' calculations
Average July 2010 - June 2011Monthly outflow rates out of unemployment
Duration (months)
Percent
Total
to employment
to out of the labor force
Elsby/Hobijn/Sahin/Valletta 9/16/2011
Labor Market In the Great Recession: An Update 49
Very High Inflows from Non-participation
0
0.5
1
1.5
2
2.5
1967 1972 1977 1982 1987 1992 1997 2002 2007Source: Shimer (2007), based on Ritter data provided by Hoyt Bleakley, Bureau of Labor Statistics, authors' calculations
Seasonally adjusted; 3-month moving averageInflow rates into unemployment by origin
Percent of labor force
From Employment
From Non-participation
Elsby/Hobijn/Sahin/Valletta 9/16/2011
Labor Market In the Great Recession: An Update 50
Evidence of increased frictions
Jun-11
1%
2%
3%
4%
5%
2% 3% 4% 5% 6% 7% 8% 9% 10% 11%
Source: JOLTS, CPS, and authors' calculations
Monthly observations; pre-2007-recession fitActual and fitted Beveridge Curve
Unemployment rate
Job openings rate
before 2007 recession
since 2007 recession
Fitted
Gap: 2.6%
Elsby/Hobijn/Sahin/Valletta 9/16/2011
Labor Market In the Great Recession: An Update 51
Evidence of increased frictions
Jun-11
1%
2%
3%
4%
5%
2% 3% 4% 5% 6% 7% 8% 9% 10% 11%
Source: JOLTS, CPS, and authors' calculations
Monthly observations; pre-2007-recession fitFitted and "New" Beveridge Curve
Unemployment rate
Job openings rate
before 2007 recession
since 2007 recession
Fitted "New" BC
Shimer’s Web Page 52
Evidence of increased frictions
Elsby/Hobijn/Sahin/Valletta 9/16/2011
Labor Market In the Great Recession: An Update 53
Broadbased decline in finding rates
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: Bureau of Labor Statistics and authors' calculations
12-m moving averages of monthly dataUnemployment Outflow Hazards by Industry
Monthly outflow hazard
Total
Construction
Durable GoodsInformation
Financial
Part C: Regional Variation in Nonemployment Rates
Mian and Sufi (2012)
Regional Variation in Nonemployment Rate Changes
• American Community Survey (2005-7 pooled vs. 2009-10 pooled).• Focus men with less than a 4-yr college degree, 21-55 – collapse data to MSA
Distribution of Changes in Nonemployment Across MSAs.
10th Percentile 0.00525th Percentile 0.02750th Percentile 0.06375th Percentile 0.07190th Percentile 0.10095th Percentile 0.111
Other Notables
Naples, FL 0.132 Phoenix, AZ 0.086 Los Angeles, CA 0.044Reno, NV 0.107 Las Vegas, NV 0.077 Austin, TX 0.032Orlando, FL 0.093 Chicago, IL 0.055 New Orleans, LA
0.006Detroit, MI 0.089 Boston, MA 0.051
Mian and Sufi (2012) (First slide of their talk)
• The decline in aggregate demand, driven by the household balance sheet channel, is responsible for 65% of the jobs lost from 2007 to 2009
• We are confident this represents a separate channel from the uncertainty channel or the construction-related structural employment channel
• We provide suggestive evidence on the frictions that would translate demand shocks into employment losses
The Shock
.6.7
.8.9
1
Ho
use
pric
es(n
orm
aliz
ed to
1 in
200
6)
2005 2006 2007 2008 2009
House prices
.4.6
.81
Aut
o sa
les
(nor
mal
ized
to 1
in 2
006)
2005 2006 2007 2008 2009
Auto sales.7
.8.9
11.
1
Oth
er d
ura
ble
s(n
orm
aliz
ed to
1 in
200
6)
2005 2006 2007 2008 2009
Other durables
.91
1.1
1.2
1.3
Gro
cerie
s(n
orm
aliz
ed to
1 in
200
6)
2005 2006 2007 2008 2009
Groceries
High leverage counties, 2006Low leverage counties, 2006
The Effect on Employment: First Pass(Figure 2)
-.2
-.1
0.1
Co
unty
Em
plo
yme
nt G
row
th 0
7Q
1-0
9Q
1
.5 1 1.5 2 2.5 3 3.5 4Debt to Income 2006
Motivating Example:Auto Retail versus Auto Manufacturing
(Figure 3)
-.4
-.2
0.2
.4A
uto
Re
tail
Em
plo
yme
nt G
row
th 0
7Q1
-09Q
1
.5 1 1.5 2 2.5 3 3.5 4Debt to Income 2006
Auto Retail
-2-1
01
Aut
o M
anuf
actu
ring
Em
plo
ymen
t G
row
th 0
7Q
1-09
Q1
.5 1 1.5 2 2.5 3 3.5 4Debt to Income 2006
Auto Manufacturing
Employment Growth: Non-Tradable and Tradable Industries(Figure 4)
-.2
-.1
0.1
.2
Non
-Tra
dabl
e E
mpl
oym
ent
Gro
wth
07Q
1-0
9Q1
(exc
lude
s co
nstr
uctio
n)
.5 1 1.5 2 2.5 3 3.5 4Debt to Income 2006
Non-tradable (excluding construction)
-.6
-.4
-.2
0.2
Tra
dabl
e E
mpl
oym
ent
Gro
wth
07Q
1-0
9Q1
.5 1 1.5 2 2.5 3 3.5 4Debt to Income 2006
Tradable
Employment Growth: Non-Tradable and Tradable Industries:Herfindahl-Based Definition
(Figure 5)
-.2
-.1
0.1
.2
Non
-Tra
dabl
e S
ecto
r E
mp
loym
ent
Gro
wth
07
Q1-
09Q
1(b
ase
d on
low
ge
ogra
phic
al c
once
ntra
tion)
.5 1 1.5 2 2.5 3 3.5 4Debt to Income 2006
Non-Tradable
-.5
0.5
Tra
dabl
e S
ecto
r E
mp
loym
ent
Gro
wth
07
Q1-
09Q
1(b
ase
d on
hig
h g
eogr
aphi
cal c
onc
entr
atio
n)
.5 1 1.5 2 2.5 3 3.5 4Debt to Income 2006
Tradable
Conclusion-.
2-.
10
.1.2
Non
-Tra
dabl
e E
mpl
oym
ent
Gro
wth
07Q
1-0
9Q1
(exc
lude
s co
nstr
uctio
n)
.5 1 1.5 2 2.5 3 3.5 4Debt to Income 2006
Non-tradable (excluding construction)
-.6
-.4
-.2
0.2
Tra
dabl
e E
mpl
oym
ent
Gro
wth
07Q
1-0
9Q1
.5 1 1.5 2 2.5 3 3.5 4Debt to Income 2006
Tradable
Household balance sheet channel explains 65% of jobs lost
Part D: Structural Changes in
U.S. Economy During 2000s
Charles, Hurst, and Notowidigdo (2012)See attached second set of slides…