Job Destruction Research Articles

Modelling the Differing Impacts of COVID-19 in the UK Labour Market

This paper models the impact of the COVID-19 pandemic on graduates and non-graduates in the UK. We use a model that is designed around key features of the UK labour market: (i) graduates typically earn higher wages and enjoy greater job security than non-graduates; (ii) many graduates are employed in non-graduate roles; and (iii) most newly hired workers are recruited from other jobs rather than from unemployment. We simulate this model using an array of shocks, designed to mimic the impact of the COVID-19 pandemic. In our baseline simulation, unemployment rises to 3 million workers, of whom 2.2 million are non-graduates. Employment falls by 6.6\%, while non-graduate employment falls by 8.1\%. The real wage falls by 0.9\% while the wages of non-graduates fall by 2.0\%. We find that the temporary Job Retention Scheme (JRS) has a large impact. Without the JRS, unemployment rises to 5 million, employment falls by 20\% and real wages fall by 16\%. But we also find that the JRS has increased the loss of output due to the pandemic. We find that a ``jobs package'', designed to reduce job destruction and increase job creation can reduce the rise in unemployment from 3 million to 2.2 million and accelerate the recovery in employment. Finally, we find that a ``second wave'' of infections that leads to a reinstatement of the lockdown in 2020Q4 would deepen and prolong the loss of output and increase unemployment to 4.5 million, an unemployment rate of 13.25\%.

Another Look at the Macroeconomic Information Content of Aggregate Earnings: Evidence from the Labor Market

ABSTRACTWe examine the macroeconomic information content of aggregate earnings from the labor market's perspective. We use insights from the labor economics literature to characterize the information contained in aggregate GAAP earnings and its components that is relevant for predicting aggregate job creation and destruction. Our results suggest that not only does aggregate earnings news convey information about future labor market aggregates, but its information content is incremental to other macroeconomic variables at near-term horizons. Further, the source of this information stems primarily from two earnings components: aggregate core earnings and special items. Shocks to core earnings signal persistent changes in economy-wide profitability that predict aggregate job creation up to four quarters ahead, while shocks to special items predict job destruction up to one quarter. Taken together, our results suggest that aggregate earnings contain useful information about future labor market conditions, with the nature of such information varying across earnings components.JEL Classifications: E37; E44; G17; G24; M41.

Employment Protection Reform in European Labor Markets: The Collective Bargaining Regime Matters

Policy advisers repeatedly call on Western European countries to reform their employment protection legislation (EPL) by switching to a layoff tax model of unemployment insurance (UI) funding. This new design, partly based on the existing “experience-rating” (ER) system in the U.S., should induce firms to internalize layoff fiscal costs and hence reduce unemployment. However, its success remains uncertain in economies with a collective wage-setting system, as do those of many Western European countries. Using a matching model with endogenous job destruction, we provide an ex-ante evaluation of this policy reform’s effects on labor market outcomes and aggregate welfare in firm-level and sector-level bargaining economies. Our numerical analyses yield two main results. First, compared to simply increasing firing/dismissal costs, implementing an ER system improves labor market outcomes in both types of economies. Second, the design of the reform has to be adapted to the level of wage bargaining in the economy. Because firms can adjust most of the terms and conditions of employment (including wages) in decentralized negotiations, adding ER to existing EPL yields the largest reduction in unemployment under firm-level bargaining, while with sector-level bargaining, ER is better implemented with a relaxation of existing EPL. However, if the aim is to increase aggregate welfare, it is better under both bargaining regimes to relax existing EPL when implementing ER.

The Faustian Bargain — The Promise of AI and the Destruction of Jobs, Part 3

The Faustian Bargain — The Promise of AI and the Destruction of Jobs, Part 3

The State Dependent Effectiveness of Hiring Subsidies

The responsiveness of job creation to shocks is procyclical, while the responsiveness of job destruction is countercyclical. This new finding can be explained by a heterogeneous-firm model in which hiring costs lead to lumpy employment adjustment. The model predicts that policies that aim to stimulate employment by encouraging job creation, such as hiring subsidies, are significantly less effective in recessions: These are times when few firms are near their hiring threshold and many firms are near their firing threshold. Policies that target the job destruction margin, such as employment protection subsidies, are particularly effective at such times.

Labour force participation and job polarization: Evidence from Europe during the Great Recession

We document how differences in labour demand by gender explain the contrasting evolutions of labour force participation between men and women during the Great Recession in Europe. We first highlight that Europe is characterized by high levels of occupational segregation by gender. As a result, the large job losses in middle-paid occupations during the Great Recession affected male workers disproportionally. In contrast, the fact that higher- and lower-paid occupations were less affected was more favourable to women. Using individual panel data, we investigate how the labour force participation and regional mobility of men and women responded to these shocks. We find that the labour force participation of women increased considerably in the regions most affected by the destruction of men's jobs and with relatively higher labour demand in occupations more likely to employ women. Women with higher levels of education were also more likely to move to regions with higher labour demand in these occupations. We find that not considering the mobility of women with higher education levels can bias the estimates of the impact of labour demand shocks on participation. For men, unemployment increased in response to regional declines in male labour demand. However, regional shocks explain none of the decline in male labour force participation.

Remote Work and Employment Dynamics under Covid-19: Evidence from Canada

We find that 41 percent of jobs in Canada can be performed remotely, with significant variation across provinces, cities and industries. We complement this with labor micro data and document facts on the relationship between remote work feasibility and income inequality, gender, age and other worker characteristics. We then show that workers in occupations less likely to be able to work remotely experienced larger employment losses between February and March but not between March and April. This suggests that the pandemic shock hit harder and sooner those workers that could not work from home. As the crisis spread to the rest of the economy, the speed of job destruction converged across occupations, in line with occupation/sector complementarities and input-output linkages.

Modelo de riesgo competitivo en los “Senior Workers”: evidencia del mercado laboral chileno

La composición etaria del mercado laboral ha cambiado en las últimas décadas, generando un aumento significativo en los trabajadores mayores de 50 años. En este documento se analizan los patrones dentro del mercado laboral de los trabajadores que se encuentran cerca o en la edad de jubilación, denominados “Senior Workers”, ante la presencia de un shock exógeno de destrucción de empleo. Se genera un aporte a la literatura existente para identificar las características de la reinserción laboral hacia distintos vectores de salida de este conjunto de la población. Se utilizaron datos de la Encuesta de Protección Social de los años 2004-2015 de Chile para aplicar el Modelo de Riesgo Competitivo, y se encontró que los desempleados senior tienen menor probabilidad de encontrar un empleo formal que los trabajadores menores de 50 años, y que esto se agudiza a medida que se acercan a los 60-80 años. Se analizaron brechas de género, edad y se realizaron comparaciones con otros modelos de duración.

Technological change and employment in Latin America: Opportunities and challenges

The debate about what kind of impact current technological changes will have on employment is marked by a high degree of uncertainty, as is clear from the existence of widely differing estimates of the possible extent of job destruction. This article looks at various contributions to the analysis of how labour markets may be restructured and different projections of job destruction, job creation and changes in the nature of employment. A comparative consideration of the available evidence for developed countries and for the Latin American and Caribbean region based on a conditioned contextual approach leads to the conclusion that the impact of new technologies in the region will be shaped in part by the structure of production and of the labour market, the development of infrastructure and the relevant capacities of different sorts. Challenges in two areas of key importance in realizing the potential of new technologies to contribute to a sustainable development process and greater equality are then examined: workforce skills and competencies, and the regulation of labour relations.

COVID-19: A View from the Labor Market

This paper examines the response of the U.S. labor market to a large and persistent job separation rate shock, motivated by the ongoing economic effects of the COVID-19 pandemic. We use nonlinear methods to analytically and numerically characterize the responses of vacancy creation and unemployment. Vacancies decline in response to the shock when firms expect persistent job destruction and the number of unemployed searching for work is low. Quantitatively, under our baseline forecast the unemployment rate peaks at 19.7%, 2 months after the shock, and takes 1 year to return to 5%. Relative to a scenario without the shock, unemployment uncertainty rises by a factor of 11. Nonlinear methods are crucial. In the linear economy, the unemployment rate “only” rises to 9.2%, vacancies increase, and uncertainty is unaffected. In both cases, the severity of the COVID-19 shock depends on the separation rate persistence.

The influence of corporate governance and financial constraints on the speed of employment adjustment: An analysis using mixed‐effects models

AbstractThis paper proposes that the corporate governance structure and financial constraints determine the willingness and ability of firms to implement labor hoarding, and thus influence the speed of employment adjustment. Using Taiwanese manufacturing firms in the decade after the 2008 financial crisis as the sample and conducting a mixed‐effects analysis, our results confirm the presence of labor hoarding. The willingness of hoarding labor is higher for firms having a governance structure focusing less on shareholders’ interests, which leads to lower adjustment speeds. The ability of hoarding labor is stronger, so the adjustment is slower, for firms facing less pressure from financial constraints. Moreover, financial constraints have more impact than the governance structure, and impel firms to accelerate the adjustment throughout the decade. There is also evidence of asymmetric adjustment. The firms with job destruction have higher adjustment speeds than those with job creation, and the connections of adjustment speeds to corporate governance and financial constraints are more applicable to job destruction. We suggest that encouraging firms to adopt a governance structure of less shareholder concern, or more importantly helping them to obtain sufficient funds for retaining talent may be an effective policy to deal with brain drain in Taiwan.

The Faustian Bargain — The Promise of AI and the Destruction of Jobs, Part 2

The Faustian Bargain — The Promise of AI and the Destruction of Jobs, Part 2

MALAYSIAN ECONOMIC TRANSFORMATION PROGRAMME (ETP) AND PATTERN OF JOB FLOWS IN MANUFACTURING SECTOR: 2005-2015

Economic transformation is vital for a country. In addition to helping to boost the economy, economic restructuring also affects market workers especially in terms of unemployment. However, the unemployment rate in Malaysia at an average of 3 per cent annually reflects that the restructuring has not to affect labour. Therefore, this study aims to study the pattern of job flow due to economic transformation undertaken by the Malaysian government in 2010. Descriptive analysis shows that there exists job reallocation in the Malaysian manufacturing sector from 2005 to 2015, and it was dominated by the pattern of job creation rather than job destruction, for the whole manufacturing sector or at the technological level. Based on the results of this study, this paper proposes the Malaysian government and policymakers to consider other methods, as well as the unemployment rate to analyse the labour market performance. This study proposes the use of job flow method as one of the labour market indicators in the economy.

China Shocks and Their Employment Effects in Emerging Economies

The impact of “China shocks” on trading partners is a source of a massive supply shock that displaces foreign manufacturing producers, and an important source of demand shock that propelled forward a wide range of foreign sectors. The “common” existing literature mainly focused on the supply shock and its impact, leaving a large span of “China shocks” unexplained. Thus, this article undertake the important task to account for the dual track of “China shocks” and their impacts on a set of emerging economies, for which the evidence remains scanty. Using a global input-output methodology which highlights the job creation from exports and the job destruction aspect of imports, we provide evidence on the employment effect of bilateral trade with China. Our results suggest that considering the net effect of supply and demand related to China shocks mainly lead to negative job demand, and press the ringing bell for the government.JEL Classification: F1, F16, F66How to Cite:Suprayogi, B., & Harchaoui, T. M. (2020). China Shocks and Their Employment Effects in Emerging Economies. Signifikan: Jurnal Ilmu Ekonomi, Vol. 9(1), 31-50. doi: http://dx.doi.org/10.15408/sjie.v9i1.13550.

The Effect of Immigration on Business Dynamics and Employment

Immigration, like any positive labor supply shock, should increase the return to capital and spur business investment. These changes should have a positive impact on business creation and expansion, particularly in areas that receive large immigrant inflows. Despite this clear prediction, there is sparse empirical evidence on the effect of immigration on business dynamics. One reason may be data unavailability since public-access firm-level data are rare. This study examines the impact of immigration on business dynamics and employment by combining U.S. data on immigrant inflows from the Current Population Survey with data on business formation and survival and job creation and destruction from the National Establishment Time Series (NETS) database for the period 1997 to 2013. The results indicate that immigration increases the business growth rate by boosting business survival and raises employment by reducing job destruction. The effects are largely driven by less-educated immigrants.

Labor Market Dynamics, Informality and Regulations in Latin America

Labor markets in Latin America and the Caribbean (LAC) are characterized by high levels of informality and relatively rigid regulation. This paper shows that these two features are related and together make the speed of adjustment of employment to shocks slower, especially when regulations are tightly enforced. Evidence suggests that strict labor market regulations also have an adverse effect on medium-term growth. While both regulations on prices (minimum wages) and quantities (employment protection) decrease the speed of adjustment to shocks, they appear to be binding in different phases of the cycle—the former affects mostly the (net) job creation margin and the latter the (net) job destruction margin. The results also highlight possible interactions between labor market regulations and the effectiveness of macro-stabilization tools—including exchange rate depreciation.

Shooting Oneself in the Foot? Trade War and Global Value Chains

Despite the “Phase One Deal” agreed on mid-December 2019, bilateral tariffs between US and China remain at unprecedented high levels, which will have long-lasting effects. US tariffs remain very high on parts, components and other intermediate products; similarly, only the last wave of Chinese retaliatory tariffs has been half cut. We investigate in this paper how such tensions between highly interdependent economies will impact trade, income and jobs. We rely on a set-up featuring General Equilibrium, imperfect competition and importantly differentiating demand of goods according to their use, for final or intermediate consumption. This authorizes tracing the impact of protection along the value chains, on prices, value added and factor income. Additional tariffs from official lists are taken into account at the tariff line level, before being aggregated within sectors. Beyond the direct toll of sanctions, US exports to the world post a sizeable decrease as a result of reduced competitiveness led by vertical linkages along the value chains. Because of the tariffs in place as of February 2020, three quarters of the sectors decrease their value added in the US. Consistent with political economy determinants, these twists of value added are transmitted to production factors, leading to sizeable creation and destruction of jobs, and reallocation of capital to the benefit of protected sectors, mostly at the expense of their clients. Ultimately, this paper sheds light on the economic consequences of policies disrupting global value chains.

The Faustian Bargain — The Promise of AI and the Destruction of Jobs, Part 1

The Faustian Bargain — The Promise of AI and the Destruction of Jobs, Part 1

Labor Reallocation and the Regional Greenhouse Gas Initiative

Policies intended to reduce the amount of greenhouse gas emissions are among the most hotly debated policy problems of our time. Among the concerns raised are that costs will be passed on to consumers and jobs will be lost. A vast economic literature has addressed the pricing of carbon dioxide, at least theoretically, but empirical evidence and observed market behavior following carbon legislation is scant due to the lack of policy implementation. We use the introduction and eventual tightening of the Regional Greenhouse Gas Initiative (RGGI), a regional carbon permit system in the Northeastern United States, to measure labor market responses and dynamics following the implementation of a carbon pricing system. We find that implementation of the RGGI and the subsequent tightening of the emissions cap has had no effect on employment or earnings in the utilities sector but increased the rate at which workers flow in and out of jobs. In particular, within the utilities sector, we observe some job destruction and worker separation combined with increased labor reallocation across establishments. This is complemented with small spillover effects yielding positive increases in hiring, worker reallocation and job creation in industries outside of utilities. Furthermore, when we account for the endogeneity of electricity prices we fi nd increased hiring, job creation and worker reallocation rates and a decline in job destruction rates across industries.

Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages?

We present a theory of Keynesian supply shocks: supply shocks that trigger changes in aggregate demand larger than the shocks themselves. We argue that the economic shocks associated to the COVID-19 epidemic—shutdowns, layoffs, and firm exits—may have this feature. In one-sector economies supply shocks are never Keynesian. We show that this is a general result that extend to economies with incomplete markets and liquidity constrained consumers. In economies with multiple sectors Keynesian supply shocks are possible, under some conditions. A 50% shock that hits all sectors is not the same as a 100% shock that hits half the economy. Incomplete markets make the conditions for Keynesian supply shocks more likely to be met. Firm exit and job destruction can amplify the initial effect, aggravating the recession. We discuss the effects of various policies. Standard fiscal stimulus can be less effective than usual because the fact that some sectors are shut down mutes the Keynesian multiplier feedback. Monetary policy, as long as it is unimpeded by the zero lower bound, can have magnified effects, by preventing firm exits. Turning to optimal policy, closing down contact-intensive sectors and providing full insurance payments to affected workers can achieve the first-best allocation, despite the lower per-dollar potency of fiscal policy.