The Low-Skilled Labor Market from 2002 to 2014: Measurement and Mechanisms

Clemens, Jeffrey (2016): The Low-Skilled Labor Market from 2002 to 2014: Measurement and Mechanisms.

Abstract

I analyze the evolution of the U.S. labor market from 2002 to 2014. The Great Recession’s employment declines fell disproportionately on groups with low levels of observable skills. Compositional changes lead averages to obscure downward movement in real wages over this time period. Traditional measures of wage inequality similarly tend to understate the relative decline in low-skilled individuals’ labor market opportunities. To understand the low-skilled labor market’s deterioration, I construct wage and employment counterfactuals that capture the distinctive predictions of leading institutions and markets-centric viewpoints. Institutions-centric counterfactuals, which emphasize weaknesses in workers’ bargaining positions, predict that this period’s minimum wage increases would have significantly increased the number of low-skilled individuals with wage rates near or below the minimum wage. The data are inconsistent with this prediction. By contrast, counterfactuals that emphasize the effects of trade, technology, and other competitive market forces are able to match long-run employment changes. My framework highlights that the minimum wage’s effects evolve with labor market conditions. In addition to their relatively direct effects, labor replacing developments in trade and technology exacerbate the minimum wage’s effects on employment. Importantly, this observation holds whether labor markets are competitive or subject to significant bargaining frictions at baseline.

• Item Type: MPRA Paper
• Language: English
• Keywords: Labor Market; Inequality; Skill-Biased Technological Change; Trade; Institutions
• Subjects: J - Labor and Demographic Economics > J0 - General > J01 - Labor Economics: General; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J20 - General; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials

References

[1] Aaronson, S., T. Cajner, B. Fallick, F. Galbis-Reig, C. L. Smith, and W. Wascher (2014). Labor force participation: Recent developments and future prospects. Technical report, Federal Reserve Bank of Cleveland.

[2] Acemoglu, D. (1998). Why do new technologies complement skills? directed technical change and wage inequality. Quarterly Journal of Economics, 1055–1089.

[3] Acemoglu, D. and D. Autor (2011). Skills, tasks and technologies: Implications for employment and earnings. Handbook of Labor Economics 4, 1043–1171.

[4] Akerlof, G. A. (1970). The market for” lemons”: Quality uncertainty and the market mechanism. Quarterly Journal of Economics, 488–500.

[5] Autor, D., A. Manning, and C. L. Smith (2010). The contribution of the minimum wage to us wage inequality over three decades: a reassessment. NBER Working Paper 16533.

[6] Autor, D. H., D. Dorn, and G. H. Hanson (2013). The china syndrome: Local labor market effects of import competition in the united states. American Economic Review 103(6), 2121–68.

[7] Autor, D. H., D. Dorn, and G. H. Hanson (2016). The china shock: Learning from labor market adjustment to large changes in trade. NBER Working Paper 21906.

[8] Autor, D. H., L. F. Katz, and M. S. Kearney (2008). Trends in us wage inequality: Revising the revisionists. The Review of Economics and Statistics 90(2), 300–323.

[9] Autor, D. H., F. Levy, and R. J. Murnane (2003). The skill content of recent technological change: An empirical exploration. Quarterly Journal of Economics 118(4).

[10] Beaudry, P., D. A. Green, and B. M. Sand (2013). The great reversal in the demand for skill and cognitive tasks. NBER Working Paper 18901.

[11] Blanchard, O. J. and L. H. Summers (1986). Hysteresis and the european unemployment problem. In NBER Macroeconomics Annual 1986, Volume 1, pp. 15–90. Mit Press.

[12] Board of Governors of the Federal Reserve System (2011). Minutes of the Federal Open Market Committee: November 1-2, 2011. http://www.federalreserve.gov/monetarypolicy/fomcminutes20111102.htm.

[13] Borjas, G. J. and L. F. Katz (1997). How much do immigration and trade affect labor market outcomes? Brookings Papers on Economic Activity 1997(1), 1–90.

[14] Bound, J. and G. Johnson (1992). Changes in the structure of wages in the 1980’s: An evaluation of alternative explanations. American Economic Review 82(3), 371–392.

[15] Card, D. (2001). The effect of unions on wage inequality in the us labor market. Industrial & Labor Relations Review 54(2), 296–315.

[16] Card, D. (2009). Immigration and inequality. American Economic Review 99(2), 1–21.

[17] Card, D. and A. B. Krueger (1994). Minimum wages and employment: A case study of the fast-food industry in new jersey and pennsylvania. American Economic Review 84(4).

[18] and T. Lemieux (2001). Can falling supply explain the rising return to college for younger men? a cohort-based analysis. Quarterly Journal of Economics 116(2), 705–746.

[19] Chetty, R., A. Guren, D. Manoli, and A. Weber (2012). Does indivisible labor explain the difference between micro and macro elasticities? a meta-analysis of extensive margin elasticities. NBER Macroeconomics Annual 27(1), 1–56.

[20] Chetty, R. and E. Saez (2013). Teaching the tax code: Earnings responses to an experiment with eitc recipients. American Economic Journal: Applied Economics 5(1), 1–31.

[21] Clemens, J. (2015). The minimum wage and the great recession: Evidence from the current population survey. NBER Working Paper 21830.

[22] Clemens, J. and M. Wither (2014a). Just the Facts: Demographic and Cross-Country Dimensions of the Employment Slump. Technical report, University of California at San Diego.

[23] Clemens, J. and M. Wither (2014b). The minimum wage and the great recession: Evidence of effects on the employment and income trajectories of low-skilled workers. NBER Working Paper 20724.

[24] Clemens, J. and M. Wither (2015). Is Tinkering with Safety Net Programs Harmful to Beneficiaries? Evidence from the Medicaid Notch and the Minimum Wage. Technical report, University of California at San Diego.

[25] DiNardo, J., N. M. Fortin, and T. Lemieux (1996). Labor market institutions and the distribution of wages, 1973-1992: A semiparametric approach. Econometrica 64(5), 1001–1044.

[26] S. and R. Valletta (2013). Extended unemployment insurance and unemployment duration in the great recession: The us experience. FRBSF Working Paper 2013-09.

[27] Fortin, N. M. (2006). Higher-education policies and the college wage premium: Crossstate evidence from the 1990s. The American Economic Review, 959–987.

[28] Goldin, C. D. and L. F. Katz (2009). The race between education and technology. Harvard University Press.

[29] Hall, R. E. (2014). Quantifying the lasting harm to the us economy from the financial crisis. In NBER Macroeconomics Annual 2014, Volume 29. University of Chicago Press.

[30] Harasztosi, P. and A. Lindner (2015). Who pays for the minimum wage? Unpublished Manuscript.

[31] Juhn, C., K. M. Murphy, and B. Pierce (1993). Wage inequality and the rise in returns to skill. Journal of Political Economy 101(3), 410–442.

[32] Kahn, L. B. (2010). The long-term labor market consequences of graduating from college in a bad economy. Labour Economics 17(2), 303–316.

[33] Katz, L. F. and K. M. Murphy (1992). Changes in relative wages, 1963-1987: Supply and demand factors. Quarterly Journal of Economics 107(1), 35–78.

[34] Kroft, K., F. Lange, and M. J. Notowidigdo (2013). Duration dependence and labor market conditions: Evidence from a field experiment*. Quarterly Journal of Economics 128(3), 1123–1167.

[35] Kudlyak, M., T. A. Lubik, K. Rhodes, et al. (2015). How should the fed interpret slow wage growth? Richmond Fed Economic Brief (February), 1–5.

[36] Lee, D. S. (1999). Wage inequality in the united states during the 1980s: Rising dispersion or falling minimum wage? Quarterly Journal of Economics, 977–1023.

[37] Manning, A. (2003). Monopsony in motion: Imperfect competition in labor markets. Princeton University Press.

[38] Manning, A. (2011). Imperfect competition in the labor market. Handbook of labor economics 4, 973–1041.

[39] B. (2012a). Do welfare policies matter for labor market aggregates? Quantifying safety net work incentives since 2007. NBER Working Paper 18088.

[40] Mulligan, C. B. (2012b). The Redistribution Recession. Oxford University Press. Mulligan, C. B. (2014). The aca: Some unpleasant welfare arithmetic. NBER Working Paper 20020.

[41] Murphy, K. M. and F. Welch (1991). The role of international trade in wage differentials. In Workers and Their Wages: Changing Patterns in the United States. Washington, DC: American Enterprise Institute.

[42] Pallais, A. (2014). Inefficient hiring in entry-level labor markets. American Economic Review 104(11), 3565–99.

[43] Reich, R. (2015). Saving Capitalism: For the Many, Not the Few. Knopf Doubleday Publishing Group.

[44] Rothstein, J. (2011). Unemployment insurance and job search in the great recession. NBER Working Paper 17534.

[45] Saez, E. (2010). Do taxpayers bunch at kink points? American Economic Journal: Economic Policy, 180–212.

[46] Solon, G., R. Barsky, and J. A. Parker (1994). Measuring the cyclicality of real wages: How important is composition bias? Quarterly Journal of Economics 109(1), 1–25.

[47] Stigler, G. J. (1946). The economics of minimum wage legislation. American Economic Review, 358–365.

[48] Stockman, A. C. (1983). Aggregation bias and the cyclical behavior of real wages. Unpublished manuscript.