Turbulence in the U.S. Labor Market: Boon or Bane? Erica L. Groshen Federal Reserve Bank of New York...
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Transcript of Turbulence in the U.S. Labor Market: Boon or Bane? Erica L. Groshen Federal Reserve Bank of New York...
Turbulence in the U.S. Labor Market:
Boon or Bane?
Erica L. GroshenFederal Reserve Bank of New York
With the help of Michael Strain!
Agenda
• Intro: Thinking about turbulence
• Macro trends—less turbulence
• Micro trends—more turbulence– Mobility– Earnings
• Policy: Benefits and challenges
Economic turbulence
• Definition: volatility of an indicator of economic well-being
• Macroeconomic perspective– National output (GDP)– Employment, inflation, interest rates
• Microeconomic perspective– Firms: Jobs, sales, profits– Workers: Mobility, wages
Macro turbulence trends
• US GDP (output) is less volatile since 1984 McConnell & Perez-Quiros 2000
• As compared to volatility post 1953, since 1984– Fewer, milder recessions– Less volatile expansions
• Explanations– Good luck, good policy, and better management
(thru IT?)
Volatility of real GDP growth has declined
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1984
Not limited to GDP
• Other volatilities have fallen– Inflation– Employment– Interest rates
• Std. dev. (1990-2001) / Std. dev. (1960-2001)
• Less than 1 less volatility
Source: Stock and Watson 2002
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Nonagriculturalemployment
GDP deflator(price inflation)
90-dayTreasury billrate
10-yearTreasury bondrate
Firms’ volatility trends
• Two distinct trends: 1970 - 2000– Publicly-traded firms are more turbulent in
profits, sales, employment, etc. Comin & Mulani 2005
– Exception: Privately-held firms and non-profits are less turbulent
Davis, Haltiwanger, Jarmin & Miranda 2006
• Note: Since 2001, firm turbulence is down from 1990s levels
Traded firms’ 5-year volatility of sales, profits, employment, and wages all trend up
Very Transitory Variance in COMPUSTAT Firms
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0.12
0.16
0.2
1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
Employment Real Sales Real Average Wage Profit Rate
Employment
Real average wage
Real sales
Profit rate
Source: COMPUSTAT in Comin, Groshen & Rabin 2006
Why more turbulence among firms?
• Faster pace of innovation
• Deregulation
• More trade and geographic integration of markets
• Deeper, stronger capital markets
Trends for workers:Job tenure declining
• Average job tenure for male workers: 7% decline– 1983 9.2 years– 1998 8.6 years
• Expected remaining tenure for male workers: 22% decline– 1983 18 years– 1998 14.1 years
Friedberg and Owyang (2004)
Trends for workers: Wage volatility rising
• Workers’ wages have become more volatile– White males
Gottschalk & Moffitt 1994, 2002 – Job stayers—wage volatility linked to rising
turbulence in privately-held firms Comin, Groshen & Rabin 2006
• Accounts for 1/3 to ½ of recent increase in wage inequality
5-year volatility of workers’ earnings (PSID) trends up
Figure 1: Variance of Very Transitory (log) of real Earnings
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70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93
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White males White males empstay All All empstay
White male job stayers
All heads
White males
All job stayers
Restructuring during recessions
• Recessions now more likely to cause – Permanent job loss instead of temporary
layoffs – Industrial reallocations
Groshen & Potter 2003
Bottom line on turbulence trends
• Macro economy is calmer
• More firm and worker “storms” below this calm
Turbulence: Boon or bane?
• Benefits of high mobility (turnover)– Flexibility—resilience/reallocation after shocks– Innovation—rapid adoption– Enhances opportunities for firms and workers
• Benefits of wage flexibility (volatility)– Firms can adjust costs without cutting jobs– Lower turnover and higher employment
0.0
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Mea
n D
iffer
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in E
ntry
and
Exi
t Pod
uctiv
ity
-1.0 -0.5 0.0 0.5 1.0 1.5Firm Turnover Rate (f)
Note: Excluding Brazil and Venezuela. Outliers Excluded.
Correlation Coefficient: 0.2780***
Five-Year Differencing, Real Gross OutputCountry and Industry Time Averages
Labor Productivity - Pooled Manufacturing
Higher turnover sectors sort between very high and low productivity firms
Source: Microeconomic Evidence of Creative Destruction in Industrial and Developing Countries Bartelsman, Haltiwanger & Scarpetta, World Bank WPS 3464.
Higher job security is characteristic of lower income countries
From Siems, FRB-Dallas Economic Letter Feb. 2006.
(Required severance pay)
Why mobility might raise employment rates
• Increases chance of a good match– Accommodates changing skills and demands
on either side– Allows more trial and error in matching– Gives workers and employers more options
during search
• Allows firms to adjust easily
• Decreases stigma from unemployment
What triggers mobility?
• Turnover is a mixed bag, with different expected outcomes– Quits—most likely to benefit the worker, not
the firm– Fires for just cause—least likely to benefit
worker, most likely to benefit firm– Layoffs (displacement)—in between
50-60% of US separations are quits, even during a recessionReasons for separation--2003
41%
51%
8%
layoffs and discharges
quits
other separations
Reasons for separation--2005
37%
56%
7%
Source: Bureau of Labor Statistics JOLTS
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2001 2002 2003 2004 2005Mo
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ate
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Source: Davis, Faberman and Haltiwanger June 2005 (using JOLTS).
Quits dominate layoffs unless an establishment is shrinking rapidly
Benefits and challenges of mobility
Benefits Challenges
IndividualMore chances for a good match, to earn more, be an entrepreneur
Possible lost or lower wages, stress of change; insecurity; retraining/relocation costs
SocialHigher productivity, higher employment
Unemployment insurance and retraining costs, social discord and reactive policy, community decline
Effects of tenure reduction
• Less common tenure-based benefits, such as pension plans
• Increased costs from – Frequently switching benefits, such as health care
plans– Rolling over 401(k)s– Retraining
• Workers reallocate resources to job search• Firm reallocate resources to vacancy postings and
filling positions
Friedberg and Owyang (2004)
Other implications• New wage and shorter tenure risk adds to rise in
other forms of risk– Switch to defined contribution pension plans – Less health insurance coverage– Less job security (conditional on demographics)– Smaller social safety net (welfare reform, underfunding
of Social Security, etc.)
• Blue collar workers almost certainly worse off• Capital markets, savings behavior need to adjust • Internal labor markets
– Once shielded workers from aggregate risk– Now, allow firms to share rising idiosyncratic risk
How much turbulence is too much?
• There is some level at which we can say there is too much turbulence
• When social costs overwhelm productivity effects– Retraining, relocation, redistribution, community
redevelopment, reactive policy
• When it deters workers’ investments in human capital– Lower incentive to invest, because losses are more
likely– Lower access to resources to invest
• There must be some limit…
Conclusions
• Trends: More micro storms below the recent aggregate calm– More turnover and higher earnings volatility
• Mobility and wage flexibility have clear benefits and costs
• Don’t know how much is too much
Why more restructuring during recent recessions?
• Better policy reduces spillover fluctuations• Shocks are more structural• Firms use recessions as an opportunity to
restructure– More pressure to do so (see reasons for more firm
volatility)– Fewer constraints (less unionism, lower regulation,
more temporary workers)– Firms interpret decreases in demand as firm-specific
because macro volatility is low
Decreased Macro Volatility
• Stock and Watson (2002) supports McConnell and Perez-Quiros.
• Standard deviation of four quarter GDP growth:– 1960s 2.0– 1970s 2.7– 1980s 2.6– 1990s 1.5
Some interesting contributions of these chapters
1. Diversity of HRM strategies has potential policy and management sciences implications
– Next, understand what governs HRM strategies – Can/should these choices be influenced by policy?– Are there externalities or cost-shifts involved?– Importance of a good placement and training
programs
Life cycle of products and firm churning
Growth induced elsewhere
Client firms or producers of other goods grow
Experiments by first-moversLearn to lower costs or make new products (high profits)
Take advantage of new technology, maturity of products, new markets
Adoption by competitors First-movers try to grab market share
Competitors forced to imitate, reduce costs, lower prices More jobs affected, peak of churning
Dust settles in that sectorWorkers and consumers gain lower
prices, higher real wagesProfits return to normal
Possible growth
Wealth created
Findings from Brown, Haltiwanger & Lane (2006)
• U.S. workers and firms have been very resilient and resourceful in dealing with economic turbulence. In general, they have learned how to turn the threat of volatility into an opportunity.
• The firm you work for matters.– Within an industry, firm characteristics (and firm
HRM policies) matter in the job ladders offered to workers with the same education, age, and education
• Workers with inferior jobs improve their career paths by changing jobs.
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0 1-5 6-10 11-15 16-20 21-25 26+
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Weeks without a job after displacement
Source: BLS Displaced Worker Survey (covering 1999-2001), author’s calculations.
Displaced workers have long spells of joblessness
% still not employed
Percent of re-employed displaced workers.Percent of all displaced workers
Average time out of work forre-employed displaced workers: 8 weeks
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