This conference is supported by Grant #2014-0038 from the Smith Richardson Foundation
The notion that firms provide wage insurance to risk-averse workers goes back to Baily (1974). Guiso et al. (2005) use Italian data and find evidence of full wage insurance in the case of temporary shocks to firm output, although only partial insurance for permanent shocks. Using linked employer-employee data for the U.S. retail trade sector, Juhn, McCue, Monti, and Pierce examine whether shocks to firm sales are transmitted to worker earnings. The researchers examine both short-term (one-year) and long-term (five-year) changes. They also examine whether this relationship differs by gender or across workers in different parts of the earnings distribution. They find no impact for short-term changes, but small positive elasticities for longer-term changes.
This paper was distributed as Working Paper 23102, where an updated version may be available.
Barth, Davis, and Freeman augment standard human capital earnings equations with variables reflecting attributes of the establishment and firm that employs a worker and find that the education of co-workers, capital equipment per worker, the industry in which the establishment operates, and the R&D intensity of firms impact worker earnings, among others. In longitudinal data, the researchers find that workplace fixed effects contributes substantially to the overall dispersion of ln earnings, though by less than individual fixed effects. The estimated relations between observed and unobserved measures of the workplace account for much of the dispersion of ln earnings, which suggests that research on earnings should go beyond standard human capital determinants of pay to “bring the workplace back in” to the earnings equation.
In this paper, Lemieux and Riddell look at the evolution of incomes at the top of the distribution in Canada. Master files of the Canadian Census are used to study the composition of top income earners between 1981 and 2011. The researchers' main finding is that, as in the United States, executives and individuals working in the financial and business services sectors are the two most important groups driving the growth in top incomes in Canada. A finding more specific to Canada is that the oil and gas sector has also played an important role in income growth at the top, especially in more recent years. Another arguably Canadian-specific finding is that holders of medical degrees have lost ground compared to other top income earners. Finally, despite the IT revolution, scientists, engineers and even computer scientists do not account for much of the growth in top incomes in Canada.
Despite seeming to be an important requirement for hiring, the concept of a slot is absent from virtually all of economics. Closest is the macroeconomic studies of vacancies and search, but the implications of slot-based hiring for individual worker outcomes has not been analyzed. Lazear, Shaw, and Stanton present a model of hiring into slots. Job assignment is based on comparative advantage. Crucially, and consistent with reality, being hired and assigned to a job depends not only on one's own skill, but on the skill of other applicants. The model has many implications the most important of which are: First, bumping occurs, when one applicant is bumped from a job into a lower paying job or unemployment by another applicant who is more skilled. Second, less able workers are more likely to be unemployed because high ability workers are more flexible in what they can do. Third, vacancies are higher for difficult jobs because easy jobs never go unfilled. Fourth, some workers are over-qualified for their jobs whereas others are underqualified. The mis-assigned workers earn less than they would had they found an open slot in a job that more appropriately matches their skills. Despite that, overqualified workers earn more than the typical worker in that job. These implications are borne out using four different data sets that match the data requirements for of these point and others implied by the model.
This paper was distributed as Working Paper 22202, where an updated version may be available.
Recent evidence suggests that an important fraction of the large productivity dispersion between firms is due to management practices. Are these management practices solely because of the allocation of talent (especially of senior managers)? Or is there an additional role for the way that successful firms combine these units of human capital more efficiently? Bender, Bloom, Card, Van Reenen and Wolter address this question by merging their survey data on management practices in the 2000s with near population employer-employee data from Germany between 1975-2011. They find a strong correlation between their management score and the ability of employees (as measured by employee fixed effects in wage equations), especially managerial talent. Looking at job inflows and outflows, the authors find that well managed firms systematically select the more able employees and deselect the less talented. Controlling for observed and unobserved human capital accounts for between one quarter and one half of the firm-level relationship between productivity and management practices. Hence, the researchers argue that the impact of management practices on firm performance is more than simply just the ability of individual managers.
Compensation for CEO's and other top executives has drawn increasing scrutiny from policy-makers, researchers, and the broader public. Brynjolfsson, Kim, and Saint-Jacques find that information technology (IT) intensity predicts the average CEO pay increase and the dispersion of CEO pay for top executives and explore three possible explanations. 1. IT may facilitate "winner-take-most" markets that increase the size and dispersion of firms' market value. This in turn translates in to comparable changes in CEO compensation. 2. For any given firm size, IT may increase the "effective size" of the firm by making performance more sensitive to CEO decisions. 3. IT may increase the generality of skills required to be an effective CEO by converting tacit knowledge into more explicit, data-driven decision-making. The researchers examine panel data from 3413 publicly traded firms over 23 years, controlling for other types of capital, number of employees, market capitalization, industry turbulence, firm or industry fixed effects, and other factors and find the strongest evidence for the first and third hypotheses.
A large theoretical and empirical literature explores whether politicians and political parties change their policy positions in response to voters’ preferences. This paper asks the opposite question: do political parties affect public attitudes on important policy issues? Problems of reverse causality and omitted variable bias make this a difficult question to answer empirically. Carlsson, Dahl, and Rooth study attitudes towards nuclear energy and immigration in Sweden using panel data from 290 municipal election areas. To identify causal effects, the researchers take advantage of large nonlinearities in the function which assigns council seats, comparing otherwise similar elections where one party either barely wins or loses an additional seat. The authors estimate that a one seat increase for the anti-nuclear party reduces support for nuclear energy in that municipality by 18%. In contrast, when an anti-immigration politician gets elected, negative attitudes towards immigration decrease by 7%, which is opposite the party’s policy position. Consistent with the estimated changes in attitudes, the anti-nuclear party receives more votes in the next election after gaining a seat, while the anti-immigrant party experiences no such incumbency advantage. The rise of the anti-immigration party is recent enough to permit an exploration of possible mechanisms using several ancillary data sources. The authors find causal evidence that gaining an extra seat draws in lower quality politicians, reduces negotiated refugee quotas, and increases negative newspaper coverage of the anti-immigrant party at the local level. The researchers' finding that politicians can shape public attitudes has important implications for the theory and estimation of how voter preferences enter into electoral and political economy models.
Nationally Representative Estimates from Longitudinally Linked
In this paper, Haltiwanger, Hyatt, and McEntarfer use linked employer-employee data to provide direct evidence on the role of job-to-job flows in reallocating workers from less productive to more productive firms in the U.S. economy. The researchers present evidence that workers move up the firm productivity ladder, and that job-to-job moves of workers explain almost all of the differential employment growth rates of high and low productivity firms. Movements up the firm productivity ladder are procyclical but there has also been a downward trend in movements up the ladder. The latter suggests that job-to-job flows are contributing less to productivity growth and potentially reflects a decline in economic mobility in the U.S. Integrating these new findings with evidence on job ladders by firm size and wage, the authors observe that job-to-job moves reallocate workers up the firm productivity and the firm pay distribution, but not up the size distribution. This suggests that the tight relationship between firm productivity, wages, and size that is central to many macro-labor models does not hold in real world data. To resolve this discrepancy, the authors investigate the nature of the joint distribution of firm wages, firm size and firm productivity. They find evidence that firm productivity and firm wages are much more closely related than firm productivity and firm size, and that the firm productivity/size relationship varies systematically across industries. They hypothesize and present evidence that the weak relationship observed between size and productivity in many industries is due to market segmentation in those industries.