Analysis of the labor market has given increasing attention to the reallocation of jobs across employers and workers across jobs. However, whether and how job reallocation and labor market 'churn' affects the health of the labor market remains an open question. In this paper, we present time series evidence for the U.S. 1993-2013 and consider the relationship between labor reallocation, employment, and earnings using a vector autoregression (VAR) framework. We find that an increase in labor market churn by 1 percentage point predicts that, in the next quarter, employment will increase by 100 to 560 thousand jobs, lowering the unemployment rate by 0.05 to 0.25 percentage points. Job destruction does not predict future changes in employment but a 1 percentage point increase in job destruction leads to an increase in future unemployment 0.14 to 0.42 percentage points. We find mixed results on the relationship between labor reallocation rates and earnings: we nd that, especially for earnings derived from administrative records data, a 1 percentage point increase to either job destruction or churn leads to increased earnings of less than 2 percent. Results vary substantially depending on the earnings measure we use, and so the evidence inconsistent on whether productivity-enhancing aspects of churn and job destruction provide earnings gains for workers in aggregate. Our findings on churn leading to increased employment and a lower unemployment rate are consistent with models of replacement hiring and vacancy chains.
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Cyclical Worker Flows: Cleansing vs. Sullying
May 2021
Working Paper Number:
CES-21-10
Do recessions speed up or impede productivity-enhancing reallocation? To investigate this question, we use U.S. linked employer-employee data to examine how worker flows contribute to productivity growth over the business cycle. We find that in expansions high-productivity firms grow faster primarily by hiring workers away from lower-productivity firms. The rate at which job-to-job flows move workers up the productivity ladder is highly procyclical. Productivity growth slows during recessions when this job ladder collapses. In contrast, flows into nonemployment from low productivity firms disproportionately increase in recessions, which leads to an increase in productivity growth. We thus find evidence of both sullying and cleansing effects of recessions, but the timing of these effects differs. The cleansing effect dominates early in downturns but the sullying effect lingers well into the economic recovery.
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Agent Heterogeneity and Learning: An Application to Labor Markets
October 2002
Working Paper Number:
tp-2002-20
I develop a matching model with heterogeneous workers, rms, and worker-firm
matches, and apply it to longitudinal linked data on employers and employees. Workers
vary in their marginal product when employed and their value of leisure when unemployed.
Firms vary in their marginal product and cost of maintaining a vacancy. The
marginal product of a worker-firm match also depends on a match-specific interaction
between worker and rm that I call match quality. Agents have complete information
about worker and rm heterogeneity, and symmetric but incomplete information about
match quality. They learn its value slowly by observing production outcomes. There
are two key results. First, under a Nash bargain, the equilibrium wage is linear in a
person-specific component, a firm-specific component, and the posterior mean of beliefs
about match quality. Second, in each period the separation decision depends only on
the posterior mean of beliefs and person and rm characteristics. These results have
several implications for an empirical model of earnings with person and rm eects.
The rst implies that residuals within a worker-firm match are a martingale; the second
implies the distribution of earnings is truncated.
I test predictions from the matching model using data from the Longitudinal
Employer-Household Dynamics (LEHD) Program at the US Census Bureau. I present
both xed and mixed model specifications of the equilibrium wage function, taking
account of structural aspects implied by the learning process. In the most general
specification, earnings residuals have a completely unstructured covariance within a
worker-firm match. I estimate and test a variety of more parsimonious error structures,
including the martingale structure implied by the learning process. I nd considerable
support for the matching model in these data.
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Downward Nominal Wage Rigidity in the United States:
New Evidence from Worker-Firm Linked Data
February 2019
Working Paper Number:
CES-19-07
This paper examines the extent and consequences of Downward Nominal Wage Rigidity (DNWR) using administrative worker-firm linked data from the Longitudinal Employer Household Dynamics (LEHD) program for a large representative U.S. state. Prior to the Great Recession, only 7-8% of job stayers are paid the same nominal hourly wage rate as one year earlier - substantially less than previously found in survey-based data - and about 20% of job stayers experience a wage cut. During the Great Recession, the incidence of wage cuts increases to 30%, followed by a large rise in the proportion of wage freezes to 16% as the economy recovers. Total earnings of job stayers exhibit even fewer zero changes and a larger incidence of reductions than hourly wage rates, due to systematic variations in hours worked. The results are consistent with concurrent findings in the literature that reductions in base pay are exceedingly rare but that firms use different forms of non-base pay and variations in hours worked to flexibilize labor cost. We then exploit the worker-firm link of the LEHD and find that during the Great Recession, firms with indicators of DNWR reduced employment by about 1.2% more per year. This negative effect is driven by significantly lower hiring rates and persists into the recovery. Our results suggest that despite the relatively large incidence of wage cuts in the aggregate, DNWR has sizable allocative consequences.
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Declining Dynamism, Allocative Efficiency, and the Productivity Slowdown
January 2017
Working Paper Number:
CES-17-17
A large literature documents declining measures of business dynamism including high-growth young firm activity and job reallocation. A distinct literature describes a slowdown in the pace of aggregate labor productivity growth. We relate these patterns by studying changes in productivity growth from the late 1990s to the mid 2000s using firm-level data. We find that diminished allocative efficiency gains can account for the productivity slowdown in a manner that interacts with the within firm productivity growth distribution. The evidence suggests that the decline in dynamism is reason for concern and sheds light on debates about the causes of slowing productivity growth.
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How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output*
January 2016
Working Paper Number:
CES-16-25
We empirically and theoretically examine how consumer credit access affects dis- placed workers. Empirically, we link administrative employment histories to credit reports. We show that an increase in credit limits worth 10% of prior annual earnings allows individuals to take .15 to 3 weeks longer to find a job. Conditional on finding a job, they earn more and work at more productive firms. We develop a labor sorting model with credit to provide structural estimates of the impact of credit on employ- ment outcomes, which we find are similar to our empirical estimates. We use the model to understand the impact of consumer credit on the macroeconomy. We find that if credit limits tighten during a downturn, employment recovers quicker, but output and productivity remain depressed. This is because when limits tighten, low-asset, low- productivity job losers cannot self-insure. Therefore, they search less thoroughly and take more accessible jobs at less productive firms.
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Slow to Hire, Quick to Fire: Employment Dynamics with Asymmetric Responses to News
January 2017
Working Paper Number:
CES-17-15
Concave hiring rules imply that firms respond more to bad shocks than to good shocks. They provide a united explanation for several seemingly unrelated facts about employment growth in macro and micro data. In particular, they generate countercyclical movement in both aggregate conditional 'macro' volatility and cross-sectional 'micro' volatility as well as negative skewness in the cross section and in the time series at different level of aggregation. Concave establishment level responses of employment growth to TFP shocks estimated from Census data induce significant skewness, movements in volatility and amplification of bad aggregate shocks.
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Ranking Firms Using Revealed Preference
January 2017
Working Paper Number:
CES-17-61
This paper estimates workers' preferences for firms by studying the structure of employer-toemployer transitions in U.S. administrative data. The paper uses a tool from numerical linear algebra to measure the central tendency of worker flows, which is closely related to the ranking of firms revealed by workers' choices. There is evidence for compensating differential when workers systematically move to lower-paying firms in a way that cannot be accounted for by layoffs or
differences in recruiting intensity. The estimates suggest that compensating differentials account
for over half of the firm component of the variance of earnings.
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Job-to-Job Flows and Earnings Growth*
January 2017
Working Paper Number:
CES-17-08
The U.S. workforce has had little change in real wages, income, or earnings since the year 2000. However, even when there is little change in the average rate at which workers are compensated, individual workers experienced a distribution of wage and earnings changes. In this paper, we demonstrate how earnings evolve in the U.S. economy in the years 2001-2014 on a forthcoming dataset on earnings for stayers and transitioners from the U.S. Census Bureau's Job-to-Job Flows data product to account for the role of on-the-job earnings growth, job-to-job flows, and nonemployment in the growth of U.S. earnings.
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Disentangling Labor Supply and Demand Shifts Using Spatial Wage Dispersion: The Case of Oil Price Shocks
November 2013
Working Paper Number:
CES-13-57
We separate changes in labor supply and demand through changes in higher-order moments of the wage distribution. We illustrate this idea in a study of the effects of oil price shocks, which generate a predictable labor demand adjustment across regions. Empirically, oil price shocks decrease average wages, particularly skilled wages, and increase wage dispersion, particularly unskilled wage dispersion. In a model with spatial energy intensity differences and nontradables, labor demand shifts, while explaining the response of average wages to oil price shocks, have counterfactual implications for the response of wage dispersion. Only shifts in labor supply can explain this latter fact.
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Interstate Migration and Employer-to-Employer Transitions in the U.S.: New Evidence from Administrative Records Data
January 2016
Working Paper Number:
CES-16-44R
Declines in migration across labor markets have prompted concerns that the U.S. economy is becoming less dynamic. In this paper we examine the relationship between residential migration and employer-to-employer transitions using both survey and administrative records data. We first note strong disagreement between the Current Population Survey (CPS) and other migration statistics on the timing and severity of any decline in interstate migration. Despite these divergent patterns for overall residential migration, we find consistent evidence of a substantial decline in economic migration between 2000 and 2010. We find that composition and the returns to migration have limited ability to explain recent changes in interstate migration.
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