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Twisting the Demand Curve: Digitalization and the Older Workforce
November 2020
Working Paper Number:
CES-20-37
This paper uses U.S. Census Bureau panel data that link firm software investment to worker earnings. We regress the log of earnings of workers by age group on the software investment by their employing firm. To unpack the potential causal factors for differential software effects by age group we extend the AKM framework by including job-spell fixed effects that allow for a correlation between the worker-firm match and age and by including time-varying firm effects that allow for a correlation between wage-enhancing productivity shocks and software investments. Within job-spell, software capital raises earnings at a rate that declines post age 50 to about zero after age 65. By contrast, the effects of non-IT equipment investment on earnings increase for workers post age 50. The difference between the software and non-IT equipment effects suggests that our results are attributable to the technology rather than to age-related bargaining power. Our data further show that software capital increases the earnings of high-wage workers relative to low-wage workers and the earnings in high-wage firms relative to low-wage firms, and may thus widen earnings inequality within and across firms.
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Total Error and Variability Measures for the Quarterly Workforce Indicators and LEHD Origin Destination Employment Statistics in OnTheMap
September 2020
Working Paper Number:
CES-20-30
We report results from the first comprehensive total quality evaluation of five major indicators in the U.S. Census Bureau's Longitudinal Employer-Household Dynamics (LEHD) Program Quarterly Workforce Indicators (QWI): total flow-employment, beginning-of-quarter employment, full quarter employment, average monthly earnings of full-quarter employees, and total quarterly payroll. Beginning-of-quarter employment is also the main tabulation variable in the LEHD Origin-Destination Employment Statistics (LODES) workplace reports as displayed in On-TheMap (OTM), including OnTheMap for Emergency Management. We account for errors due to coverage; record-level non response; edit and imputation of item missing data; and statistical disclosure limitation. The analysis reveals that the five publication variables under study are estimated very accurately for tabulations involving at least 10 jobs. Tabulations involving three to nine jobs are a transition zone, where cells may be fit for use with caution. Tabulations involving one or two jobs, which are generally suppressed on fitness-for-use criteria in the QWI and synthesized in LODES, have substantial total variability but can still be used to estimate statistics for untabulated aggregates as long as the job count in the aggregate is more than 10.
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Who Values Human Capitalists' Human Capital? Healthcare Spending and Physician Earnings
July 2020
Working Paper Number:
CES-20-23
Is government guiding the invisible hand at the top of the labor market? We study this question among physicians, the most common occupation among the top one percent of income earners, and whose billings comprise one-fifth of healthcare spending. We use a novel linkage of population-wide tax records with the administrative registry of all physicians in the U.S. to study the characteristics of these high earnings, and the influence of government payments in particular. We find a major role for government on the margin, with half of direct changes to government reimbursement rates flowing directly into physicians' incomes. These policies move physicians' relative and absolute incomes more than any reasonable changes to marginal tax rates. At the same time, the overall level of physician earnings can largely be explained by labor market fundamentals of long work and training hours. Competing occupations also pay well and provide a natural lower bound for physician earnings. We conclude that government plays a major role in determining the value of physicians' human capital, but it is unrealistic to use this power to reduce healthcare spending substantially.
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The Impact of 2010 Decennial Census Hiring on the Unemployment Rate
June 2020
Working Paper Number:
CES-20-19
The decennial census is the largest peacetime operation of the U.S. federal government. The Census Bureau hires hundreds of thousands of temporary workers to conduct the decennial census. The magnitude of this temporary workforce influences the national employment situation when enumeration efforts ramp up and when they recede. The impact of decennial census hiring on the headline number of payroll jobs added each month is well established, but previous work has not established how decennial census hiring affects the headline unemployment rate. We link the 2010 Decennial Applicant Personnel and Payroll System data to the 2010 American Community Survey to answer this question. We find that the large hiring surge in May 2010 came mostly from people already employed (40 percent) or from people who were unemployed (33 percent). We estimate that the workers hired for Census 2010 lowered the May 2010 unemployment rate by one-tenth of a percentage point relative to the counterfactual. This one-tenth of a percentage point is within the standard error for the official unemployment rate, and BLS press releases would denote a change in the unemployment rate of 0.1% or less as 'unchanged.' We also estimate that relative to the counterfactual, the more gradual changes in decennial census employment influenced the unemployment rate by less than one-tenth of a percentage point in every other month during 2010.
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Do Short-Term Incentives Affect Long-Term Productivity?
March 2020
Working Paper Number:
CES-20-10
Previous research shows that stock repurchases that are caused by earnings management lead to reductions in firm-level investment and employment. It is natural to expect firms to cut less productive investment and employment first, which could lead to a positive effect on firm-level productivity. However, using Census data, we find that firms make cuts across the board irrespective of plant productivity. This pattern seems to be associated with frictions in the labor market. Specifically, we find evidence that unionization of the labor force may prevent firms from doing efficient downsizing, forcing them to engage in easy or expedient downsizing instead. As a result of this inefficient downsizing, EPS-driven repurchases lead to a reduction in long-term productivity.
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Do Cash Windfalls Affect Wages? Evidence from R&D Grants to Small Firms
February 2020
Working Paper Number:
CES-20-06
This paper examines how employee earnings at small firms respond to a cash flow shock in the form of a government R&D grant. We use ranking data on applicant firms, which we link to IRS W2 earnings and other U.S. Census Bureau datasets. In a regression discontinuity design, we find that the grant increases average earnings with a rent-sharing elasticity of 0.07 (0.21) at the employee (firm) level. The beneficiaries are incumbent employees who were present at the firm before the award. Among incumbent employees, the effect increases with worker tenure. The grant also leads to higher employment and revenue, but productivity growth cannot fully explain the immediate effect on earnings. Instead, the data and a grantee survey are consistent with a backloaded wage contract channel, in which employees of financially constrained firms initially accept relatively low wages and are paid more when cash is available.
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What Do Establishments Do When Wages Increase?
Evidence from Minimum Wages in the United States
November 2019
Working Paper Number:
CES-19-31
I investigate how establishments adjust their production plans on various margins when wage rates increase. Exploiting state-by-year variation in minimum wage, I analyze U.S. manufacturing plants' responses over a 23-year period. Using instrumental variable method and Census Microdata, I find that when the hourly wage of production workers increases by one percent, manufacturing plants reduce the total hours worked by production workers by 0.7 percent and increase capital expenditures on machinery and equipment by 2.7 percent. The reduction in total hours worked by production workers is driven by intensive-margin changes. The estimated elasticity of substitution between capital and labor is 0.85. Following the wage increases, no statistically significant changes emerge in revenue, materials or total factor productivity. Additionally, I nd that when wage rates increase, establishments are more likely to exit the market. Finally, I provide evidence that when the minimum wage increases the wages of some of the establishments in a firm, the firm also increases the wages for its other establishments.
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Pay, Employment, and Dynamics of Young Firms
July 2019
Working Paper Number:
CES-19-23
Why do young firms pay less? Using confidential microdata from the US Census Bureau, we find lower earnings among workers at young firms. However, we argue that such measurement is likely subject to worker and firm selection. Exploiting the two-sided panel nature of the data to control for relevant dimensions of worker and firm heterogeneity, we uncover a positive and significant young-firm pay premium. Furthermore, we show that worker selection at firm birth is related to future firm dynamics, including survival and growth. We tie our empirical findings to a simple model of pay, employment, and dynamics of young firms.
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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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Why are employer-sponsored health insurance premiums higher in the public sector than in the private sector?
February 2019
Working Paper Number:
CES-19-03
In this article, we examine the factors explaining differences in public and private sector health insurance premiums for enrollees with single coverage. We use data from the 2000 and 2014 Medical Expenditure Panel Survey-Insurance Component, along with decomposition methods, to explore the relative explanatory importance of plan features and benefit generosity, such as deductibles and other forms of cost sharing, basic employee characteristics (e.g., age, gender, and education), and unionization. While there was little difference in public and private sector premiums in 2000, by 2014, public premiums had exceeded private premiums by 14 to 19 percent. We find that differences in plan characteristics played a substantial role in explaining premium differences in 2014, but they were not the only, or even the most important, factor. Differences in worker age, gender, marital status, and educational attainment were also important factors, as was workforce unionization.
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