This paper estimates long-run demand functions for production workers, production worker hours, and nonproduction workers using micro data from U.S. establishment surveys. The paper focuses on estimation of the wage and output elasticities of labor demand using data on over 41,000 U.S. manufacturing plants in 1975 and more than 30,000 plants in 1981. Particular attention is focused on the problems of unobserved producer heterogeneity and measurement errors in output that can affect labor demand estimates based on establishment survey data. The empirical results reveal that OLS estimates of both the own-price elasticity and the output elasticity of labor demand are biased downward as a result of unobserved heterogeneity. Differencing the data as a solution to this problem greatly exaggerates measurement error in the output coefficients. The use of capital stocks as instrumental variables to correct for measurement error in output significantly alters output elasticities in the expected direction but has no systematic effect on own-price elasticities. All of these patterns are found in estimates that pool establishment data across industries and in industry-specific regressions for the vast majority of industries. Estimates of the output elasticity of labor demand indicate that there are slight increasing returns for production workers and production hours, with a pooled data estimate of .92. The estimate for nonproduction workers in .98. The variation in the output elasticities across industries is fairly small. Estimates of the own-price elasticity vary more substantially with the year, type of differencing used, and industry. They average -.50 for production hours, -.41 for production workers, and -.44 for nonproduction workers. The price elasticities vary widely across manufacturing industries: the interquartile range for the industry estimates is approximately .40.
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Health Insurance and Productivity: Evidence from the Manufacturing Sector
September 2009
Working Paper Number:
CES-09-27
This paper examines the relationship between employer-sponsored offers of health insurance and establishments' labor productivity. Our empirical work is based on unique plant level data that links the 1997 and 2002 Medical Expenditure Panel Survey-Insurance Component with the 1992, 1997, and 2002 Census of Manufactures. These linked data provide information on employer-provided insurance and productivity. We find that health insurance offers are positively associated with levels of establishments' labor productivity. These findings hold for all manufacturers as well as those with fewer than 100 employees. Our preliminary results also show a drop in health care costs from the 75th to the 25th percentile would increase the probability of a plant offering insurance by 1.5-2.0 percent in both 1997 and 2002. The results from this paper provide encouraging and new empirical evidence on the benefits employers may reap by offering health insurance to workers.
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The Importance of Reallocations in Cyclical Productivity and Returns to Scale: Evidence from Plant-Level Data
March 2007
Working Paper Number:
CES-07-05
This paper provides new evidence that estimates based on aggregate data will understate the true procyclicality of total factor productivity. I examine plant-level data and show that some industries experience countercyclical reallocations of output shares among firms at different points in the business cycle, so that during recessions, less productive firms produce less of the total output, but during expansions they produce more. These reallocations cause overall productivity to rise during recessions, and do not reflect the actual path of productivity of a representative firm over the course of the business cycle. Such an effect (sometimes called the cleansing effect of recessions) may also bias aggregate estimates of returns to scale and help explain why decreasing returns to scale are found at the industry-level data.
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Computer Investment, Computer Networks and Productivity
January 2005
Working Paper Number:
CES-05-01
Researchers in a large empirical literature find significant relationships between computers and labor productivity, but the estimated size of that relationship varies considerably. In this paper, we estimate the relationships among computers, computer networks, and plant-level productivity in U.S. manufacturing. Using new data on computer investment, we develop a sample with the best proxies for computer and total capital that the data allow us to construct. We find that computer networks and computer inputs have separate, positive, and significant relationships with U.S. manufacturing plant-level productivity. Keywords: computer input; information technology; labor productivity
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The Demand for Human Capital: A Microeconomic Approach
December 2001
Working Paper Number:
CES-01-16
We propose a model for explaining the demand for human capital based on a CES production function with human capital as an explicit argument in the function. The resulting factor demand model is tested with data on roughly 6,000 plants from the Census Bureau's Longitudinal Research Database. The results show strong complementarity between physical and human capital. Moreover, the complementarity is greater in high than in low technology industries. The results also show that physical capital of more recent vintage is associated with a higher demand for human capital. While the age of a plant as a reflection of learning-by-doing is positively related to the accumulation of human capital, this relation is more pronounced in low technology industries.
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ON THE SOURCES AND SIZE OF EMPLOYMENT ADJUSTMENT COSTS
May 1999
Working Paper Number:
CES-99-07
Micro employment adjustment costs affect not only establishment-level dynamics but can also affect aggregate employment dynamics. The difficulties in directly observing and measuring these adjustment costs necessitate an indirect approach in order to learn more about the sources and size of these costs. This paper examines differences in employment adjustments by worker and establishment characteristics using micro-level data for approximately 11,000 U.S. manufacturing plants. Differences in the speed of adjustment within the organizing framework of the traditional partial adjustment model are used to identify the source and size of employment adjustment costs. The estimates are undertaken using three different techniques and under a variety of assumptions concerning market structure, worker heterogeneity, and degree of interrelation of inputs. The estimates show that employment adjustment speeds differ over worker and establishment characteristics in a manner that is consistent with the underlying adjustment cost stories. These differences suggest that systematic changes in the distribution of establishments over these characteristics can influence aggregate employment dynamics in response to a shock through compositional effects.
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Manufacturing Plants' Use of Temporary Workers: An Analysis Using Census Micro Data
December 2008
Working Paper Number:
CES-08-40
Using plant-level data from the Plant Capacity Utilization (PCU) Survey, we examine how manufacturing plants' use of temporary workers is associated with the nature of their output fluctuations and other plant characteristics. We find that plants tend to hire temporary workers when their output can be expected to fall, a result consistent with the notion that firms use temporary workers to reduce costs associated with dismissing permanent employees. In addition, we find that plants whose future output levels are subject to greater uncertainty tend to use more temporary workers. We also examine the effects of wage and benefit levels for permanent workers, unionization rates, turnover rates, seasonal factors, and plant size and age on the use of temporary workers; based on our results, we discuss various views of why firms use temporary workers.
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Production Function and Wage Equation Estimation with Heterogenous Labor: Evidence from a New Matched Employer-Employee Dataset
April 2004
Working Paper Number:
CES-04-05
In this paper, we first describe the 1990 DEED, the most recently constructed matched employeremployee data set for the United States that contains detailed demographic information on workers (most notably, information on education). We then use the data from manufacturing establishments in the 1990 DEED to update and expand on previous findings, using a more limited data set, regarding the measurement of the labor input and theories of wage determination (Hellerstein, et al., 1999). We find that the productivity of women is less than that of men, but not by enough to fully explain the gap in wages, a result that is consistent with wage discrimination against women. In contrast, we find no evidence of wage discrimination against blacks. We estimate that both the wage and productivity profiles are rising but concave to the origin (consistent with profiles quadratic in age), but the estimated relative wage profile is steeper than the relative productivity profile, consistent with models of deferred wages. We find a productivity premium for marriage equal to that of the wage premium, and a productivity premium for education that somewhat exceeds the wage premium. Exploring the sensitivity of these results, we also find that different specifications of production functions do not have any qualitative effects on the these results. Finally, the results indicate that the returns to productive inputs (capital, materials, labor quality) as well as the residual variance are virtually unaffected by the choice of the construction of the labor quality input.
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The Effects of Outsourcing on the Elasticity of Labor Demand
March 2006
Working Paper Number:
CES-06-07
In this paper, I focus on the effects of outsourcing on conditional labor demand elasticities. I begin by developing a model of outsourcing that formalizes this relationship. I show that the increased possibility of outsourcing (modeled as a decline in foreign intermediate input prices and an increase in the elasticity of substitution between foreign and domestic intermediate inputs) should increase labor demand elasticities. I also show that, a decline in the share of unskilled labor, due either to skill biased technological change or to movement of unskilled labor intensive stages abroad, can work in the opposite direction and reverse the increasing trend in elasticities. I then test the predictions of the model using the U.S. Census Bureau's Longitudinal Research Database (LRD). The instrumental variable approach used in the estimation of labor demand equations is the main methodological contribution of this paper. I directly address the endogeneity of wages in the labor demand equation by using average nonmanufacturing wages for each location and year as an instrumental variable for the plant-level wages in the manufacturing sector. The results support the main predictions of my model. U.S. manufacturing plants operating in industries that heavily outsource experienced an increase in their conditional labor demand elasticities during the 1980-1992 period. After 1992 elasticities began to decrease in outsourcing industries. This finding is consistent with the model which suggests that a decline in the share of unskilled labor in total cost could result in such a decrease in labor demand elasticities, precisely when the level of outsourcing is high. Estimates at the two-digit industry level provide further evidence in support of the hypothesis that heavily outsourcing industries experience greater increases in their elasticities.
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Punctuated Entrepreneurship (Among Women)
May 2018
Working Paper Number:
CES-18-26
The gender gap in entrepreneurship may be explained in part by employee non-compete agreements. Exploiting exogenous state-level variation in non-compete policy, I find that women more strictly subject to non-competes are 11-17% more likely to start companies after their employers dissolve. This result is not explained by the incidence of non-competes or lawsuits; however, women face higher relative costs in defending against potential litigation and in returning to paid employment after abandoning their ventures. Thus entrepreneurship among women may be 'punctuated' in that would-be female founders are throttled by non-competes, their potential unleashed only by the failure of their employers.
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Output Price And Markup Dispersion In Micro Data: The Roles Of Producer And Heterogeneity And Noise
August 1997
Working Paper Number:
CES-97-10
This paper provides empirical evidence on the extent of producer heterogeneity in the output market by analyzing output price and price-marginal cost markups at the plant level for thirteen homogeneous manufactured goods. It relies on micro data from the U.S. Census of Manufactures over the 1963-1987 period. The amount of price heterogeneity varies substantially across products. Over time, plant transition patterns indicate more persistence in the pricing of individual plants than would be generated by purely random movements. High-price and low-price plants remain in the same part of the price distribution with high frequency, suggesting that underlying time-invariant structural factors contribute to the price dispersion. For all but two products, large producers have lower output prices. Marginal cost and the markups are estimated for each plant. The markup remains unchanged or increases with plant size for all but four of the products and declining marginal costs play an important role in generating this pattern. The lower production costs for large producers are, at least partially, passed on to purchasers as lower output prices. Plants with the highest and lowest markups tend to remain so over time, although overall the persistence in markups is less than for output price, suggesting a larger role for idiosyncratic shocks in generating markup variation.
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