Abstract
AbstractThe depth of the Great Recession, the slow recovery of job creation, the downward trend in labor force participation, high long-term unemployment, stagnant or declining wages for low-to-medium skill jobs owing to adverse labor demand shifts, and a greater rebound in low-wage than mid- or higher-wage jobs raised concerns that the normal business cycle dynamics of recovery from the recession will be insufficient to offset the diminished labor market prospects of many workers. These concerns have spurred serious consideration of policies to encourage job creation and higher income from work beyond the more immediate countercyclical policies that were adopted in response to the Great Recession. Among the policies generating continuing or renewed interest are hiring credits, higher (sometimes much higher) minimum wages, and a more substantial earned income tax credit (EITC) for childless individuals. This paper discusses these policy options, what we know about their likely effects and trade-offs, and what the unanswered questions are; the focus is on US evidence.JEL codes:J2, J3, J6
Highlights
The depth of the Great Recession, the slow recovery of job creation,1 the downward trend in labor force participation (Bengali et al, 2013), high long-term unemployment (Kroft et al, 2014), stagnant or declining wages for low-to-medium skill jobs owing to adverse labor demand shifts (Autor, 2011), and a greater rebound in low-wage than mid- or higher-wage jobs (National Employment Law Project, 2012) raised concerns that the normal business cycle dynamics of recovery from the recession will be insufficient to offset the diminished labor market prospects of many workers
Each panel in the table reports estimates looking at different ways of breaking down hiring credits; the second, for example, reports estimates of the effects of credits distinguishing between credits based on new job growth, new payroll growth, new investment, or other criteria
We would expect a recapture mechanism to lead to more effective credits, by either enforcing job creation goals or encouraging only firms that could meet them to apply for credits
Summary
The depth of the Great Recession, the slow recovery of job creation, the downward trend in labor force participation (Bengali et al, 2013), high long-term unemployment (Kroft et al, 2014), stagnant or declining wages for low-to-medium skill jobs owing to adverse labor demand shifts (Autor, 2011), and a greater rebound in low-wage than mid- or higher-wage jobs (National Employment Law Project, 2012) raised concerns that the normal business cycle dynamics of recovery from the recession will be insufficient to offset the diminished labor market prospects of many workers. Perhaps the most important control variable is a counterfactual business cycle measure, intended to capture what the impact of the recession in each state would have been absent a state’s hiring credit(s) This is constructed by applying national timeseries changes in disaggregated industry employment to the state, based on the state’s industry composition in a baseline period of stable aggregate economic growth
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