Labor Demand Shocks Research Articles

Coerced Labor in the Cotton Sector: How Global Commodity Prices (Don't) Transmit to the Poor

This paper investigates the economic fortunes of coerced vs. free workers in a global supply chain. To identify the differential treatment of otherwise similar workers we resort to a unique exogenous labor demand shock that affects wages in voluntary and involuntary labor relations differently. We identify the wage pass-through by capitalizing on Tajikistan’s geographic variation in the suitability for cotton production combined with a surge in the world market price of cotton in 2010/11 in two types of firms: randomly privatized small farms and not yet privatized parastatal farms, the latter of which command political capital to coerce workers. The expansion in land attributed to cotton production led to increases in labor demand and wages for cotton pickers; however, the price hike benefits only workers on entrepreneurial private farms, whereas coerced workers of parastatal enterprises miss out. The results provide evidence for the political economy of labor coercion and for the dependence of the economic lives of many poor on the competitive structure of local labor markets.

Booms, Busts, and Fertility

In this paper, I present estimates of the effect of local labor demand shocks on birth rates. To identify exogenous variation in male and female labor demand, I create indices that exploit cross-sectional variation in industry composition, changes in gender-education composition within industries, and growth in national industry employment. Consistent with economic theory, I find that improvements in men’s labor market conditions are associated with increases in fertility while improvements in women’s labor market conditions have smaller negative effects. I separately find that increases in unemployment rates are associated with small decreases in birth rates at the state level.

Coerced Labor in the Cotton Sector: How Global Commodity Prices (Don't) Transmit to the Poor

This paper investigates the economic fortunes of coerced vs. free workers in a global supply chain. To identify the differential treatment of otherwise similar workers we resort to a unique exogenous labor demand shock that affects wages in voluntary and involuntary labor relations differently. We identify the wage pass-through by capitalizing on Tajikistan’s geographic variation in the suitability for cotton production combined with a surge in the world market price of cotton in 2010/11 in two types of firms: randomly privatized small farms and not yet privatized parastatal farms, the latter of which command political capital to coerce workers. The expansion in land attributed to cotton production led to increases in labor demand and wages for cotton pickers; however, the price hike benefits only workers on entrepreneurial private farms, whereas coerced workers of parastatal enterprises miss out. The results provide evidence for the political economy of labor coercion and for the dependence of the economic lives of many poor on the competitive structure of local labor markets.

Commuting, Migration, and Local Employment Elasticities

We provide theory and evidence that the elasticity of local employment to a labor demand shock is heterogeneous depending on the commuting openness of the local labor market. We develop a quantitative general equilibrium model that incorporates spatial linkages in goods markets (trade) and factor markets (commuting and migration). We quantify this model to match the observed gravity equation relationships for trade and commuting. We find that empirically-observed reductions in commuting costs generate welfare gains of around 3.3 percent. We provide separate quasi-experimental evidence in support of the model’s predictions using the location decisions of million dollar plants. (JEL J23, J61, R23, R32, R41)

Labor market opportunities and women's decision making power within households

Despite the perceived importance of labor market opportunities in shaping married women's outside option, and their bargaining power within households as a result, this link has received very little empirical attention. Using longitudinal data on who makes the decision on a wide range of issues within Mexican households and data from the administrative records of the Mexican Social Security Institute, this paper identifies the effects of relative changes in labor market opportunities for men and women on both working and non-working women's decision making power. I find that increases in labor market opportunities improve women's decision-making power as well as children's health. Using differential labor demand shocks across Mexican industries caused by China's admission to the WTO gives similar results.

Labour market adjustments and migration in Europe and the United States: how different?

We compare the labour market response to region-specific shocks in Europe and the United States and to national shocks in Europe and investigate changes over time. We employ a multilevel factor model to decompose regional labour market variables and then estimate the dynamic response of the employment level, the employment rate and the participation rate using the region-specific variables and the country factors. We find that both in Europe and in the United States labour mobility accounts for about 50% of the long-run adjustment to region-specific labour demand shocks and only a little more in the United States than in Europe, where adjustment takes twice as long. In Europe, labour mobility is a less important adjustment mechanism in response to country-specific labour demand shocks that cause stronger and more persistent reactions of the employment and the participation rate. However, we detect a convergence of the adjustment processes in Europe and the United States, reflecting both a fall in interstate migration in the United States and a rise in the role of migration in Europe. Finally, we show that part of the difference between Europe and the United States in previous studies may be due to the use of different data sources.

Locate Your Nearest Exit: Mass Layoffs and Local Labor Market Response

Large shocks to local labor markets cause lasting changes to communities and their residents. We examine four main channels through which the local labor force adjusts following mass layoffs: in- and out-migration, retirement, and disability insurance enrollment. We show that these channels account for over half of the labor force reductions following a mass layoff event. By measuring the residual difference between these channels and labor force change, we also show that labor force non-participation grew in the period during and after the Great Recession. This result highlights the growing importance of non-participation as a response to labor demand shocks.

Disentangling Labor Supply and Demand Shocks Using Spatial Wage Dispersion: The Case of Oil Price Shocks

We find that oil price shocks decrease average wages, particularly skilled wages, and increase wage dispersion across regions, particularly unskilled wage dispersion. In a model with spatial energy intensity differences and nontradables, labor demand shifts, while explaining the response of average wages to oil price shocks, have counterfactual implications for the response of wage dispersion. Only an additional response in labor supply can explain this latter fact highlighting the importance of general equilibrium effects in a spatial context. We provide additional empirical evidence of regionally directed worker reallocation consistent with our spatial model.

How Effects of Local Labor Demand Shocks Vary with the Initial Local Unemployment Rate

AbstractThis article estimates how effects of local labor demand shocks on labor market outcomes vary with the initial local unemployment rate, which has not been previously studied. The data are on 23 large U.S. metro areas from 1979 to 2011. The article finds that demand shocks to local job growth have greater effects in increasing real wages if the local economy initially has low unemployment. However, demand shocks have greater effects in reducing unemployment, and increasing labor force participation, if the local economy initially has high unemployment, although these differences are only of modest statistical significance. The estimates are based on a new econometric approach to determining the correct dynamic structure for how local labor markets respond to demand shocks. This new approach finds that demand shocks have persistent effects on labor force participation and real wages, but not on unemployment, which contradicts some previous research.

The Importance of Unemployment Insurance as an Automatic Stabilizer

We assess the extent to which unemployment insurance (UI) serves as an automatic stabilizer to mitigate the economy's sensitivity to shocks. Using a local labor market design based on heterogeneity in local benefit (defined as the percentage of household income recovered by the unemployment benefit), we estimate that a one standard deviation increase in generosity attenuates the effect of adverse shocks on employment growth by 7% and on earnings growth by 6%. Consistent with the hypothesis that this effect derives from the local demand channel, we find that consumption is less responsive to local labor demand shocks in counties with more generous benefits. Our analysis finds that the local fiscal multiplier of unemployment insurance expenditure is approximately 1.9. Overall, our results suggest that UI has a beneficial effect on the economy by decreasing its sensitivity to shocks.

Trade Reform and Regional Dynamics: Evidence from 25 Years of Brazilian Matched Employer-Employee Data

We empirically study the dynamics of labor market adjustment following the Brazilian trade reform of the 1990s. We use variation in industry-specific tariff cuts interacted with initial regional industry mix to measure trade-induced local labor demand shocks, and then examine regional and individual labor market responses to those one-time shocks over two decades. Contrary to conventional wisdom, we do not find that the impact of local shocks is dissipated over time through wage-equalizing migration. Instead, we find steadily growing effects of local shocks on regional formal sector wages and employment for 20 years. This finding can be rationalized in a simple equilibrium model with two complementary factors of production, labor and industry-specific factors such as capital, that adjust slowly and imperfectly to shocks. Next, we document rich margins of adjustment induced by the trade reform at the regional and individual level. Workers initially employed in harder hit regions face continuously deteriorating formal labor market outcomes relative to workers employed in less affected regions, and this gap persists even 20 years after the beginning of trade liberalization. Negative local trade shocks induce workers to shift out of the formal tradable sector and into the formal nontradable sector. Non-employment strongly increases in harder-hit regions in the medium run, but in the longer run, non-employed workers eventually find re-employment in the informal sector. Working age population does not react to these local shocks, but formal sector net migration does, consistent with the relative decline of the formal sector and growth of the informal sector in adversely affected regions.

Aggregate Demand, Idle Time, and Unemployment *

AbstractThis article develops a model of unemployment fluctuations. The model keeps the architecture of the general-disequilibrium model of Barro and Grossman (1971) but takes a matching approach to the labor and product markets instead of a disequilibrium approach. On the product and labor markets, both price and tightness adjust to equalize supply and demand. Since there are two equilibrium variables but only one equilibrium condition on each market, a price mechanism is needed to select an equilibrium. We focus on two polar mechanisms: fixed prices and competitive prices. When prices are fixed, aggregate demand affects unemployment as follows. An increase in aggregate demand leads firms to find more customers. This reduces the idle time of their employees and thus increases their labor demand. This in turn reduces unemployment. We combine the predictions of the model and empirical measures of product market tightness, labor market tightness, output, and employment to assess the sources of labor market fluctuations in the United States. First, we find that product market tightness and labor market tightness fluctuate a lot, which implies that the fixed-price equilibrium describes the data better than the competitive-price equilibrium. Next, we find that labor market tightness and employment are positively correlated, which suggests that the labor market fluctuations are mostly due to labor demand shocks and not to labor supply or mismatch shocks. Last, we find that product market tightness and output are positively correlated, which suggests that the labor demand shocks mostly reflect aggregate demand shocks and not technology shocks.

The Effects of Shocks on the Ukrainian Labor Market: SVEC Modeling

The article analyzes dynamics of the Ukrainian labor market during 2002-2014 years. In the result of conducted econometric analysis we created structural vector autoregressive error correction model for labor productivity, employment, unemployment rate and real wages. The analysis of impulse response to technological shocks, labor demand shocks, labor supply shocks and wage-setting shocks was conducted on the basis of developed SVEC. The modeling results demonstrated that in Ukraine there is no single reason for hysteresis in unemployment. Various structural and cyclical shocks explain unemployment over different time horizons. In particular, labor supply shocks lead to contemporaneous growth of unemployment, while in the long run positive technological shocks and labor demand shocks are an important source of reducing unemployment rate. Technological shocks also have a significant beneficial impact on other labor market indicators. In particular was found that a positive technological shock causes an increase in productivity, employment and real wages, and this impact has a significant effect both in the short and in the long run.

Labour Market Adjustments in Europe and the US: How Different?

We compare the labour market response to region-specific shocks in Europe and the US and to national shocks in Europe and investigate changes over time. We employ a multi-level factor model to decompose regional labour market variables and then estimate the dynamic response of the employment level, the employment rate and the participation rate using the region-specific variables and the country factors. We find that both in Europe and the US labour mobility accounts for about 50% of the long run adjustment to region-specific labour demand shocks and only a little more in the US than in Europe, where adjustment takes twice as long. In Europe labour mobility is a less important adjustment mechanism in response to country-specific labour demand shocks that cause stronger and more persistent reactions of the employment and the participation rate. However, we detect a convergence of the adjustment processes in Europe and the US, reflecting both a fall in interstate migration in the US and a rise in the role of migration in Europe. Finally, we show that part of the difference between Europe and the US in previous studies may be due to the use of different data sources.

U.S. Regional Poverty Post-2000

The strong U.S. real income gains and reductions in poverty during the 1990s were largely erased in the following decade, which contained two economic recessions and tepid job growth otherwise. Areas most affected by weak U.S. economic performance could be expected to also have experienced the largest increases in poverty, particularly if interregional labor market adjustment diminished during the decade. We examine this issue, finding that not only was regional poverty affected by regional labor demand shocks, the effect was stronger post-2000. Consistent with the poverty results are findings of greater post-2000 regional labor demand effects on employment rates and reduced population adjustments to asymmetric labor demand shocks.

Dreams of urbanization: Quantitative case studies on the local impacts of nuclear power facilities using the synthetic control method

This paper uses the synthetic control (SC) method to examine how the establishment of nuclear power facilities (NPFs) in Japan in the 1970s and 1980s has affected local per capita income levels in the municipalities in which they were localted (NPF municipalities). Eight quantitative case studies using the SC method clarify that the effects of NPF establishment on per capita taxable income levels are highly heterogeneous. The estimated effects are often economically meaningful and in some cases huge: the income level was 11% higher on average and 62% higher in one municipality in 2002 when compared with counterfactual units. On the other hand a few of the NPF municipalities have received only weak or negligible effects from NPF establishment. The post-estimation comparisons of employment between the NPF municipalities and the SC units suggest that the size of the direct labor demand shocks and subsequent indirect employment effects on nontradable service sectors have contributed to the increase in per capita income levels.

Does Low Wealth Constrain Long-Distance Migration?

Some families may have too little wealth (or liquidity) to finance a long-distance move, which may involve transportation costs and foregone earnings. Using the National Longitudinal Survey of Youth 1979 (NLSY79) and the Survey of Income and Program Participation (SIPP), the author assesses whether wealth holdings directly influence migration decisions in the United States. The analysis focuses on long-distance migration and shows consistently that migration is common among households with little or negative net worth and that greater wealth does not increase the likelihood of migration. In addition, differential wealth holdings do not explain why minority groups and the less-educated are relatively unlikely to undertake long-distance moves. The author also finds little evidence that wealth holdings influence a person’s migration response to local labor demand shocks.

The effect of pollution on labor supply: Evidence from a natural experiment in Mexico City

Moderate effects of pollution on health may exert important influences on work. We exploit exogenous variation in pollution due to the closure of a large refinery in Mexico City to understand how pollution impacts labor supply. The closure led to a 19.7% decline in pollution, as measured by SO2, in the surrounding neighborhoods. The closure led to a 1.3h (or 3.5%) increase in work hours per week. The effects do not appear to be driven by differential labor demand shocks nor selective migration.

Regional Labor Market Adjustments in the United States and Europe

We examine patterns of regional adjustments to shocks in the US during the past 40 years. Using state-level data, we estimate the dynamic response of regional employment, unemployment, participation rates and net migration to state-relative labor demand shocks. We find that (i) the long-run effect of a state-specific shock on the state employment level has decreased over time, suggesting less overall net migration in response to a regional shock, (ii) the role of the participation rate as absorber of regional shocks has increased, (iii) the response of net migration to regional shocks is stronger, while that of relative unemployment is weaker during aggregate downturns, and (iv) the change in the response intensity of migration is related to the declining trend in regional dispersion of labor market conditions. Finally, using regional data for a set of 21 European countries, we show that while the short-term response of participation rates to labor demand shocks is typically larger in Europe than in the US, the immediate response of net migration in Europe has increased over time.

Labour market flows and unemployment dynamics by sex in Greece during the crisis

Although, during the current Greek crisis, male employment retreated much more than female employment, the gender unemployment gap remained remarkably stable. To explain this outcome we have analysed labour market flows by sex using descriptive statistics and counterfactual techniques. Empirical findings suggest that while men experienced more dramatically the labour demand shock of the crisis because its impact was harder on male-dominated sectors, their falling participation rate mitigated the rise in the male unemployment rate. Women were affected less than men by the labour demand shock, but inactive women joined the labour force in increasing numbers that boosted the female unemployment rate. We interpret supply-side responses in terms of the discouraged worker and added worker effects.