Category: Labor Economics

International Evidence that Young Firms Create Most Jobs

(p. 252) Chiara Criscuolo, Peter N. Gal, and Carlo Menon compile empirical evidence concerning “The Dynamics of Employment Growth: New Evidence from 18 Countries.” “[N]ot all small businesses are net job creators, showing that only young businesses–predominantly small–create a disproportionate number of jobs, confirming recent evidence for the United States. When disentangling the role of entry from the role of expansion of incumbent young firms, the data clearly shows that entry explains most of the contribution to job creation, followed by startups (i.e., firms that are less than three year old). While this remains true even during the recent great recession, the data shows a sharp decline in the contribution of entry and young firms to aggregate employment growth during the recession. More generally, the findings point to a decline in start-up rates over the past decade across all countries considered, which gives cause for concern, given their strong contribution to job creation.” OECD Science, Technology and Industry Policy Papers No. 14, May 21, 2014. http://www.oecd-ilibrary.org/science-and-technology/the-dynamics-of-employment-growth_5jz417hj6hg6-en.

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 28, no. 3 (Summer 2014): 249-56.
(Note: bracketed letter in original.)

Successful Billionaire Mathematician Would Have Lost Math Contests, But Was Good at Slow Pondering

(p. D1) James H. Simons likes to play against type. He is a billionaire star of mathematics and private investment who often wins praise for his financial gifts to scientific research and programs to get children hooked on math.
But in his Manhattan office, high atop a Fifth Avenue building in the Flatiron district, he’s quick to tell of his career failings.
He was forgetful. He was demoted. He found out the hard way that he was terrible at programming computers. “I’d keep forgetting the notation,” Dr. Simons said. “I couldn’t write programs to save my life.”
After that, he was fired.
His message is clearly aimed at young people: If I can do it, so can you.
. . .
(p. D2) “I wasn’t the fastest guy in the world,” Dr. Simons said of his youthful math enthusiasms. “I wouldn’t have done well in an Olympiad or a math contest. But I like to ponder. And pondering things, just sort of thinking about it and thinking about it, turns out to be a pretty good approach.”

For the full story, see:
WILLIAM J. BROAD. “Seeker, Doer, Giver, Ponderer; A Billionaire Mathematician’s Life of Ferocious Curiosity.” The New York Times (Tues., JULY 8, 2014): D3.
(Note: ellipsis added.)
(Note: the online version of the story has the date JULY 7, 2014.)

Occupational Licensing Creates Cartels

(p. 251) Aaron Edlin and Rebecca Haw discuss “Cartels by Another Name: Should Licensed Occupations Face Antitrust Scrutiny?” “Once limited to a few learned professions, licensing is now required for over 800 occupations. And once limited to minimum educational requirements and entry exams, licensing board restrictions are now a vast, complex web of anticompetitive rules and regulations. . . . State-level occupational licensing is on the rise. In fact, it has eclipsed unionization as the dominant organizing force of the U.S. labor market. While unions once claimed 30% of the country’s working population, that figure has since shrunk to below 15%. Over the same period of time, the number of workers subject to state-level licensing requirements has doubled; today, 29% of the U.S. workforce is licensed and 6% is certified by the government. The trend has important ramifications. Conservative estimates suggest that licensing raises consumer prices by 15%. There is also evidence that professional licensing increases the wealth gap; it tends to raise the wages of those already in high-income occupations while harming low-income consumers who cannot afford the inflated prices.” “We contend that the state action doctrine should not prevent antitrust suits against state licensing boards that are comprised of private competitors deputized to regulate and to outright exclude their own competition, often with the threat of criminal sanction.” University of Pennsylvania Law Review, April 2014, pp. 1093-1164. http://www.pennlawreview.com/print/162-U-Pa-L-Rev-1093.pdf.

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 28, no. 3 (Summer 2014): 249-56.
(Note: ellipsis in original.)

Italian Traditional Family Stunts Individual Enterprise

(p. 15) Hooper’s book, both sweeping in scope and generous with detail, makes persuasive arguments for how geography, history and tradition have shaped Italy and its citizens, for better and sometimes for worse. Roman Catholicism, for example, has indelibly conditioned Italian society, even as the Vatican’s restrictions are widely ignored. Catholicism’s great allowance for human frailty has translated into a great propensity for forgiveness, as evinced in the Italian justice system, but also resistance to the notion of accountability. It’s a word, Hooper adds, that has no counterpart in the Italian language.
. . .
There’s . . . mammismo, the propensity of young Italians to remain too closely tied to the maternal apron strings. But while “the traditional family has been at the root of much of what Italy has achieved,” Hooper writes, dependence on the family can infantilize, and lack of individual enterprise has held the country back. Indeed, various sections of Hooper’s book return to Italy’s economic decline and its underlying causes.
He notes that the paperwork and formalities of Italy’s cumbersome bureaucracy rob the average Italian of 20 days a year. And he wonders what other country could ever have had a Minister for Simplification to deal with its plethora of often conflicting laws and regulations.
Circumventing some of that bureaucracy partly answers another common question: Why is Italy so prone to corruption? After all, Italians are masters at sidestepping regulations, or, as the saying goes, “Fatta la legge, trovato l’inganno” (“Make the law, then find a way around it”). It’s no wonder foreign investment in Italy is so low.

For the full review, see:
LISABETTA POVOLEDO. “Under the Italian Sun.” The New York Times Book Review (Sun., March 1, 2015): 15.
(Note: ellipses added; italics in original.)
(Note: the online version of the review has the date FEB. 27, 2015, and has the title “‘The Italians,’ by John Hooper.”)

The book under review is:
Hooper, John. The Italians. New York: Viking, 2015.

For Some, Apprenticeships Could Be Less Expensive Path to Good Jobs

(p. 250) Melissa S. Kearney and Benjamin H. Harris have edited an e-book, Policies to Address Poverty in America, with 14 short essays on specific policies. As one example, Robert I. Lerman advocates “Expanding Apprenticeship Opportunities in the United States.” “Today apprentices make up only 0.2 percent of the U.S. labor force, far less than in Canada (2.2 percent), Britain (2.7 percent), and Australia and Germany
(3.7 percent). . . . While total annual government funding for apprenticeship in the United States is only about $100 to $400 per apprentice, federal, state, and local annual government spending per participant for two-year public colleges is approximately $11,400. Not only are government outlays sharply higher, but the cost differentials are even greater after accounting for the higher earnings (and associated taxes) of apprentices compared to college students.” “Stimulating a sufficient increase in apprenticeship slots is the most important challenge. Although it is easy to cite examples of employer reluctance to train, the evidence from South Carolina and Britain suggests that a sustained, business-oriented marketing effort can persuade a large number of employers to participate in apprenticeship training. Both programs (p. 251) were able to more than quadruple apprenticeship offers over about five to six years.” Hamilton Project, Brookings Institution. 2014, http://www.brookings.edu/~/media/research/files/papers/2014/06/19_hamilton_policies_addressing_poverty/policies_address_poverty_in_america_full_book.

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 28, no. 3 (Summer 2014): 249-56.
(Note: ellipsis in original.)

Most of Benefits of Minimum Wage Increases Do Not Go to the Poor

(p. A11) A higher minimum wage raises wages of low-wage workers, and even though most evidence points to job losses from higher minimum wages, the evidence doesn’t point to widespread employment declines. Thus, consistent with a recent Congressional Budget Office report, many more low-wage workers will get a raise than will lose their jobs. But that argument is about low-wage workers, not low-income families. Minimum wages are ineffective at helping poor families because such a small share of the benefits flow to them.
One might think that low-wage workers and low-income families are the same. But data from the U.S. Census Bureau show that there is only a weak relationship between being a low-wage worker and being poor, for three reasons.
First, many low-wage workers are in higher-income families–workers who are not the primary breadwinners and often contribute a small share of their family’s income. Second, some workers in poor families earn higher wages but don’t work enough hours. And third, about half of poor families have no workers, in which case a higher minimum wage does no good. This is simple descriptive evidence and is not disputed by economists.
A historical perspective is instructive. Assembling Census Bureau data over nearly seven decades, Richard Burkhauser and Joseph Sabia have shown that in 1939, just after the federal minimum wage was established, 85% of low-wage workers (those earning less than one-half the private-sector wage) were in poor families. Such a high percentage implies that, in that year, the new minimum wage targeted poor families well. However, as the public safety net expanded, family structure changed and more people in families began working, this percentage fell sharply over time–to around 17% by the early 2000s.
In contrast, as of the early 2000s 34% of low-wage workers were in families that were far from poor, with incomes more than three times the poverty line. In other words, for every poor minimum-wage worker who might directly benefit from the minimum wage, two workers in families with incomes more than three times the poverty line would benefit.

For the full commentary, see:
DAVID NEUMARK. “Who Really Gets the Minimum Wage; Obama’s $10.10 target would steer only 18% of the benefits to poor families; 29% would go to families with incomes three times the poverty level.” The New York Times (Mon., July 7, 2014): A11.
(Note: the online version of the commentary has the date July 6, 2014.)

For more of Neumark on minimum wages, see:
Neumark, David, and William L. Wascher. Minimum Wages. Cambridge, MA: The MIT Press, 2008.

Technology Getting Bum Rap for Job Woes

The job market has been anemic in a variety of ways, for several years. Some, as below, want to pin this on the advance of technology. I argue, to the contrary, that it is mainly due to our discouraging start-ups by bad policies (such as over-regulating and over-taxing). Start-ups, as Haltiwanger and his colleagues have been showing, are the main source of new jobs.

(p. A1) Lawrence H. Summers, the former Treasury secretary, recently said that he no longer believed that automation would always create new jobs. “This isn’t some hypothetical future possibility,” he said. “This is something that’s emerging before us right now.”

Erik Brynjolfsson, an economist at M.I.T., said, “This is the biggest challenge of our society for the next decade.”
Mr. Brynjolfsson and other experts say they believe that society has a chance to meet the challenge in ways that will allow technology to be mostly a positive force. In addition to making some jobs obsolete, new technologies have also long complemented people’s skills and enabled them (p. A3) to be more productive — as the Internet and word processing have for office workers or robotic surgery has for surgeons.
More productive workers, in turn, earn more money and produce goods and services that improve lives.
“It is literally the story of the economic development of the world over the last 200 years,” said Marc Andreessen, a venture capitalist and an inventor of the web browser. “Just as most of us today have jobs that weren’t even invented 100 years ago, the same will be true 100 years from now.”
. . .
There are certain human skills machines will probably never replicate, like common sense, adaptability and creativity, said David Autor, an economist at M.I.T. Even jobs that become automated often require human involvement, like doctors on standby to assist the automated anesthesiologist, called Sedasys.
. . .
Whether experts lean toward the more pessimistic view of new technology or the most optimistic one, many agree that the uncertainty is vast. Not even the people who spend their days making and studying new technology say they understand the economic and societal effects of the new digital revolution.
When the University of Chicago asked a panel of leading economists about automation, 76 percent agreed that it had not historically decreased employment. But when asked about the more recent past, they were less sanguine. About 33 percent said technology was a central reason that median wages had been stagnant over the past decade, 20 percent said it was not and 29 percent were unsure.
Perhaps the most worrisome development is how poorly the job market is already functioning for many workers. More than 16 percent of men between the ages of 25 and 54 are not working, up from 5 percent in the late 1960s; 30 percent of women in this age group are not working, up from 25 percent in the late 1990s. For those who are working, wage growth has been weak, while corporate profits have surged.

For the full story, see:
Claire Cain Miller. “Rise of Robot Work Force Stokes Human Fears.” The New York Times (Tues., DEC. 16, 2014): A1 & A3.
(Note: ellipses are added.)
(Note: the online version of the story has the date DEC. 15, 2014, and has the title “As Robots Grow Smarter, American Workers Struggle to Keep Up.”)

A relevant Haltiwanger paper is:
Haltiwanger, John C., Ron S. Jarmin, and Javier Miranda. “Who Creates Jobs? Small Vs. Large Vs. Young.” Review of Economics and Statistics 95, no. 2 (May 2013): 347-61.

Occupational Licensing Raises Costs for Consumers and Reduces Jobs

(p. B1) What lesson should we draw from the success of Uber?
Customers have flocked to its service. In the final three months of last year, its so-called driver-partners made $656.8 million, according to an analysis of Uber data released last week by the Princeton economist Alan B. Krueger, who served as President Obama’s chief economic adviser during his first term, and Uber’s Jonathan V. Hall.
Drivers like it, too. By the end of last year, the service had grown to over 160,000 active drivers offering at least four drives a month, from near zero in mid-2012. And the analysis by Mr. Krueger and Mr. Hall suggests they make at least as much as regular taxi drivers and chauffeurs, on flexible hours. Often, they make more.
This kind of exponential growth confirms what every New Yorker and cab riders in many other cities have long suspected: Taxi service is woefully inefficient. It also raises a question of broader relevance: Why stop here?
. . .
(p. B5) . . . like taxi medallions, state licenses required to practice all sorts of jobs often serve merely to cordon off occupations for the benefit of licensed workers and their lobbying groups, protecting them from legitimate competition.
This comes at a substantial social cost. “Lower-income people suffer from licensing,” Professor Krueger told me. “It raises the costs of many services and prevents low-income people from getting into some professions.”
In a study commissioned by the Brookings Institution’s Hamilton Project, Morris Kleiner of the University of Minnesota found that almost three out of 10 workers in the United States need a license from state governments to do their jobs, up from one in 20 in the 1950s. By cordoning off so many occupations, he estimates, professional licensing by state governments ultimately reduces employment by up to 2.8 million jobs.

For the full commentary, see:
Eduardo Porter. “Job Licenses in Spotlight as Uber Rises.” The New York Times (Weds., JAN. 28, 2015): B1 & B5.
(Note: ellipses added.)
(Note: the online version of the commentary has the date JAN. 27, 2015.)

The working paper co-authored by Krueger, is:
Hall, Jonathan V., and Alan B. Krueger. “An Analysis of the Labor Market for Uber’s Driver-Partners in the United States.” Working paper. January 22, 2015.

Kleiner’s working paper at Brookings, is:
Kleiner, Morris M. “Reforming Occupational Licensing Policies.” In The Hamilton Project, Brookings, Discussion Paper 2015-01, January 2015.

Wall Street Democrats Question Hillary Clinton’s Views on Job Creation

(p. B1) “Hillary said what?”
That was the question whispered among some of Wall Street’s most prominent Democratic supporters over the weekend after Hillary Rodham Clinton spoke on the campaign trail for Martha Coakley, the Democratic candidate for governor of Massachusetts.
“Don’t let anybody tell you that it’s corporations and businesses that create jobs,” Mrs. Clinton said on Friday in Boston.

For the full commentary, see:
ANDREW ROSS SORKIN. “Wall St. Wonders About Hillary Clinton.” The New York Times (Tues., OCTOBER 28, 2014): B1 & B6.
(Note: the online version of the commentary has the date OCTOBER 27, 2014, and has the title “Hillary Clinton’s Comment on Jobs Raises Eyebrows on Wall St.”)

High Costs of Public Sector Unions

(p. A11) . . . the costs of public-sector unions are great. “The byproduct of political management of the economy is waste,” the author notes. Second, pension and benefit obligations weigh down our cities. Trash disposal in Chicago costs $231 per ton, versus $74 in non-union Dallas. Increasingly, such a burden is fatal. When Detroit declared bankruptcy in 2013, a full half of the city’s$18.2 billion long-term debt was owed for employee pensions and health benefits. Even before the next downturn, other cities and some states will find themselves faltering because of similarly massive obligations.
There is something grotesque about public workers fighting for benefits whose provision will hurt the public. Citizens who vote Democratic may choose not to acknowledge the perversity out of party loyalty. But over the years a few well-known Democrats have sided against the public-sector unions. “The process of collective bargaining as usually understood cannot be transplanted into the public service,” a Democratic politician once declared. His name? Franklin Roosevelt.

For the full review, see:
AMITY SHLAES. “BOOKSHELF; Public Unions vs. the Public; Pension and benefit obligations weigh down our cities. Trash disposal in Chicago costs $231 per ton, versus $74 in non-union Dallas.” The Wall Street Journal (Fri., Jan. 16, 2015): A11.
(Note: ellipsis added.)
(Note: the online version of the review has the date Jan. 15, 2015.)

The book under review is:
DiSalvo, Daniel. Government against Itself: Public Union Power and Its Consequences. New York: Oxford University Press, 2015.

Police Unions Make It Harder to Get Rid of Bad Cops

(p. A29) A small percentage of cops commit most of the abuses. A study by WNYC News in New York found that, since 2009, 40 percent of the “resisting arrest” charges were filed by just 5 percent of New York Police Department officers. In other words, most officers rarely get in a confrontation that leads to that charge, but a few officers often get in violent confrontations.
But it’s very hard to remove the bad apples from the force. Trying to protect their members, unions have weakened accountability. The investigation process is softer on police than it would be on anyone else. In parts of the country, contract rules stipulate that officers get a 48-hour cooling-off period before having to respond to questions. They have access to the names and testimony of their accusers. They can be questioned only by one person at a time. They can’t be threatened with disciplinary action during questioning.
More seriously, cops who are punished can be reinstated through a secretive appeals process that favors job retention over public safety. In The Atlantic, Conor Friedersdorf has a riveting piece with egregious stories of cops who have returned to the force after clear incompetence. Hector Jimenez was an Oakland, Calif., cop who shot and killed an unarmed 20-year-old man in 2007. Seven months later, he killed another unarmed man, shooting him in the back three times while he ran away. The city paid damages. Jimenez was fired. But he appealed through his union and was reinstated with back pay.

For the full commentary, see:
David Brooks. “The Union Future.” The New York Times (Fri., DEC. 19, 2014): A29.
(Note: the online version of the commentary has the date DEC. 18, 2014. )