Lecture 5: More on Labor Supply

Part 1:CPS Data

Wage, Income and Hours Data: Current Population Survey (CPS)

• Continue our theme of introducing you to major U.S. data.

• Current Population Survey:

High quality data extends back to the 1960s.

Large samples of U.S. households.

Panel Dimension (4 months in, 8 months out, 4 months in).

Detailed information about labor market status (every month).

Detailed information about hours asked every month.

Detailed information about hours/earnings – asked less frequently.

Large sample sizes allow for analysis by U.S. states.

Part 2:Trends in The Natural Rate of Unemployment

Trends in The Natural Rate In Unemployment

• Did labor market conditions improve during the 1980s and 1990s?

- Unemployment rates fell substantially

• Related concept:

Do income or substitution effects dominate with respect to

labor supply decisions?

• Must reads:

Juhn, Murphy, and Topel “

Juhn, Murphy, Topel: Evolution of Wage Inequality

Real Wages Over Time

Trends in Unemployment and Nonemployment

Breakdown of the Nonemployed

Breakdown of the Non-Participators: Rising Disability

Rising Disability Among the Persistently Unemployed

Autor and Duggan

• For a detailed analysis of the intersection of the role of disability andlabor supply, see:

“The Rise in the Disability Rolls and the Decline in Unemployment”

David Autor and Mark Duggan (QJE 2003)

• Show that during recessions, the disability margin is much more relevantnow than it was during the 1980s (the benefits to the disabled are nowmore comparable to unemployment benefits than before).

Autor and Duggan

More Juhn, Murphy, Topel

Does the Unemployment Rate Tell the Whole Story?

Increase in Long Term Non-employment Duration

Increase in Long Term Unemployment Duration

Unemployment Trends Throughout the Wage Distribution

Nonparticipation Trends Throughout the Wage Distribution

Non-employment Trends Throughout the Wage Distribution

Income or Substitution Effects?

Nonparticipation Trends Throughout the Wage Distribution

Longterm Nonparticipation Trends Throughout the Wage Distribution

Conclusions

• Decline in unemployment rate may not represent accurately the trends in labor market performance.

• Large decline in participation rates for men.

• Non employment has declined much less than unemployment.

• The decline is much more pronounced for low wage men.

• Does it tell us substitution effects are important? What about changes in transfers?

Part 3:Rug Rat Race and Time Investments in Children

Parental Time With Children By Education

From Guryan, Hurst, and Kearney (JEP 2008) “Parental Education and Parental Time With Children”

Parental Time With Children By Education

Parental Time With Children By Education

Parental Time With Children By Education

More Facts

• Richer countries spend more time with children than poorer countries.

• Within countries, high educated parents spend more time with childrenrelative to low education parents.

Ramey and Ramey Facts

Ramey and Ramey Facts

Part 4:Regional Dynamics

How Do Locations Respond to Local Shocks?

• Continue our theme about thinking about regional economics (house prices are one part of that).

• The direct mechanism: Mobility.

• What implications do mobility have on the response of labor supply, wages, and unemployment to local economic shocks?

• Some work:

Blanchard/Katz (Brookings, )

Topel “Local Labor Markets” (JPE, 1986)

Consider the Following Labor Market (Inelastic Labor Supply)

0iW W

0iN

Labor Demand

Labor Supply

Consider the Following Labor Market (Inelastic Labor Supply)

0iW W

0iN

Labor Demand

Labor Supply

1iW

In short run, adjustment takes place on wages (labor supply is less elastic in short run)

Consider the Following Labor Market (Inelastic Labor Supply)

0iW W

0iN

Labor Demand

Labor Supply

In long run, adjustment takes place on N (labor supply is more elastic in long run)

2iN

What is the Mechanism?

• In/out migration of workers…..

Blanchard/Katz Facts: Persistence of Growth Rates

Blanchard/Katz Facts: Cumulative Declines (relative to trend)

Blanchard/Katz Facts: : Cumulative Declines (relative to trend)

Blanchard/Katz Facts: : Cumulative Declines (relative to trend)

Blanchard/Katz Facts: : Cumulative Declines (relative to trend)

Blanchard/Katz Facts: : Cumulative Declines (relative to trend)

Blanchard/Katz Facts: Persistence of Unemployment Rate?

Blanchard/Katz Facts: Convergence of Wages

Blanchard/Katz Facts: Unemployment vs. Growth

Blanchard/Katz Facts: Growth vs. Wages

Blanchard/Katz Facts: Unemployment vs. Wages

Blanchard/Katz Facts: VAR of Negative Regional Shock

Blanchard/Katz Facts: VAR of Negative Regional Shock

Blanchard/Katz Facts: VAR of Negative Regional Shock

Blanchard/Katz Facts: VAR of Negative Regional Shock

Blanchard/Katz Facts: VAR of Negative Regional Shock

Blanchard/Katz Facts VAR of Negative Regional Shock

Blanchard/Katz Facts: VAR of Negative Regional Shock

Blanchard/Katz Facts: VAR of Negative Regional Shock

Conclusions of Blanchard/Katz

• Regional Adjustments Take Place

• In short run, response occurs on unemployment and wage margins.

• In long run, it occurs on labor supply margin (via migration).

• Spatial equilibrium model has to make individuals indifferent to move across regions.

Part 5:Cross State Convergence

Cross State Convergence in Income Per Capita

AL

AZ

AR

CA

CO

CT

DE

FL

GA

ID

IL

IN

IA

KSKY

LA

ME MD

MA

MI

MN

MS

MO

MT

NE

NV

NH

NJ

NM

NY

NC

ND

OH

OK

ORPA

RI

SC

SDTN

TX

UTVT

VA

WA

WVWI

WY

.51

1.5

2G

row

th in

Pe

r C

apita I

ncom

e 1

940

-1980

2000 4000 6000 8000 10000 12000Per Capita Income 1940

Fitted values gr_ipc_40_80

Unadjusted 1940-1980Historical Trends in Convergence

See a full discussion in Barro/Sali-Martin (Brookings, xxxx)

Convergence By Decades: 1940 – 1960

AL

AZ

AR

CA

CO

CT

DE

FL

GA

ID

IL

INIA

KSKY

LA

ME

MDMA

MI

MN

MS

MO

MT

NE

NV

NH

NJ

NM

NY

NC

ND

OH

OK

OR

PA

RI

SC

SD

TN

TX

UT

VT

VA

WA

WV WI

WY

.2.4

.6.8

1G

row

th in

Pe

r C

apita

Inco

me

1940

-1960

2000 4000 6000 8000 10000 12000Per Capita Income 1940

Fitted values gr_ipc_40_60

Unadjusted 1940-1960Historical Trends in Convergence

Convergence By Decades: 1960 – 1980

AL

AZ

AR

CA

CO

CT

DE

FLGA

ID

IL

IN

IA KS

KYLA

ME

MD

MAMI

MN

MS

MO

MT

NE

NV

NHNJNM

NY

NC

ND OH

OK

ORPA

RI

SC

SD

TN TX

UT

VT

VA

WA

WV

WI

WY

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row

th in

Pe

r C

apita

Inc

ome

196

0-1

980

8000 10000 12000 14000 16000 18000Per Capita Income 1960

Fitted values gr_ipc_60_80

Unadjusted 1960-1980Historical Trends in Convergence

Convergence By Decades: 1980 – 2000?

AL

AZ

AR

CA

CO

CT

DEFL

GA

ID

ILIN

IA KS

KY

LA

MEMD

MA

MI

MN

MSMO

MT

NE

NV

NH

NJ

NM

NY

NC

ND

OH

OK

OR

PARI

SC SDTN

TXUT

VT

VA

WA

WV

WI

WY

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row

th in

Pe

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apita

Inc

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198

0-2

000

15000 20000 25000Per Capita Income 1980

Fitted values gr_ipc_80_00

Unadjusted 1980-2000Recent Trends in Convergence

Why Has Convergence Stopped?

• A great research question to think about

• Change in the skill premium?

• Chang-Tai Hseih and I are starting to put structure on this question

• How does changes in discrimination affect economic growth?

Inequality in Racial Occupational ChoiceBlack Men vs. White Men

White Men Decile 1940 1960 1980 2000

1 0.298 0.454 0.220 0.1792 0.286 0.100 0.130 0.1713 0.171 0.155 0.168 0.1004 0.055 0.092 0.147 0.1475 0.095 0.051 0.070 0.0946 0.032 0.075 0.075 0.0927 0.022 0.029 0.058 0.0528 0.019 0.023 0.057 0.0789 0.011 0.013 0.035 0.05610 0.012 0.009 0.041 0.030

Occupational Distribution Gini 0.543 0.545 0.310 0.253

Inequality in Racial Occupational ChoiceBlack Men vs. White Men

White Men Decile 1940 1960 1980 2000

Wage Gap -0.877 (0.006) -0.621 (0.005) -0.352 (0.003) -0.263 (0.003)Wage Gap | Education -0.515 (0.006) -0.423 (0.005) -0.256 (0.003) -0.182 (0.002)

Wage Gape | Education and Occ. -0.341 (0.006) -0.222 (0.005) -0.189 (0.003) -0.113 (0.002)

Wage Gap (Ed = 12) -0.476 (0.024) -0.207 (0.004)Wage Gap | Occ (Ed = 12) -0.285 (0.024) -0.140 (0.004)

Wage Gap (Ed = Some College) -0.668 (0.027) -0.161 (0.004)Wage Gap | Occ (Ed = Some

College) -0.427 (0.027) -0.087 (0.004)

Wage Gap (Ed = 16+) -0.492 (0.007) -0.206 (0.006)Wage Gap | Occ (Ed = 16+) -0.330 (0.007) -0.114 (0.005)

Inequality in Racial Occupational ChoiceWhite Women vs. White Men

White Men Decile 1940 1960 1980 2000

1 0.139 0.124 0.235 0.1492 0.047 0.171 0.041 0.0743 0.061 0.102 0.123 0.0684 0.181 0.050 0.080 0.0825 0.017 0.131 0.142 0.1566 0.121 0.138 0.157 0.1217 0.217 0.048 0.070 0.1018 0.173 0.184 0.055 0.1109 0.019 0.026 0.042 0.076

10 0.024 0.025 0.055 0.062

Occupational Distribution Gini 0.045 0.149 0.200 0.053

Inequality in Racial Occupational ChoiceWhite Women vs. White Men

White Men Decile 1940 1960 1980 2000

Wage Gap -0.424 (0.004) -0.641 (0.003) -0.509 (0.002) -0.240 (0.002)Wage Gap | Education -0.484 (0.003) -0.676 (0.003) -0.512 (0.002) -0.283 (0.002)Wage Gape | Education

and Occ. -0.468 (0.004) -0.613 (0.003) -0.440 (0.002) -0.225 (0.002)

Wage Gap (Ed = 12) -0.421 (0.006)Wage Gap | Occ (Ed = 12) -0.464 (0.008)

Wage Gap (Ed > 12) -0.452 (0.008)Wage Gap | Occ (Ed > 12) -0.420 (0.010)

Wage Gap (Ed < 12) -0.524 (0.005)Wage Gap | Occ (Ed < 12) -0.479 (0.006)

Inequality in Racial Occupational ChoiceBlack Women vs. White Men

White Men Decile 1940 1960 1980 2000

1 0.780 0.517 0.385 0.2452 0.021 0.204 0.050 0.0983 0.077 0.077 0.150 0.0954 0.032 0.005 0.062 0.0855 0.009 0.049 0.120 0.1446 0.013 0.085 0.101 0.0937 0.009 0.020 0.035 0.0768 0.054 0.032 0.047 0.0789 0.002 0.007 0.025 0.05210 0.004 0.004 0.026 0.036

Occupational Distribution Gini 0.731 0.614 0.403 0.239

Inequality in Racial Occupational ChoiceBlack Women vs. White Men

White Men Decile 1940 1960 1980 2000

Wage Gap -1.350 (0.009) -1.190 (0.008) -0.613 (0.003) -0.359 (0.003)Wage Gap | Education -1.078 (0.009) -1.088 (0.007) -0.568 (0.003) -0.331 (0.002)

Wage Gap | Education and Occ. -0.783 (0.014) -0.718 (0.009) -0.409 (0.003) -0.232 (0.003)

Wage Gap (Ed = 12) -1.018 (0.026)Wage Gap | Occ (Ed = 12) -0.688 (0.035)

Wage Gap (Ed > 12) -1.012 (0.033)Wage Gap | Occ (Ed > 12) -0.750 (0.034)

Wage Gap (Ed < 12) -1.076 (0.010)Wage Gap | Occ (Ed < 12) -0.800 (0.007)