Labor Studies

Members of the NBER's Labor Studies Program met in Chicago November 9. Program Co-Directors David Autor of MIT and Alexandre Mas of Princeton University organized the meeting. These researchers' papers were presented and discussed:

Stephane Bonhomme, Kerstin Holzheu, and Bradley J. Setzler, University of Chicago; Thibaut Lamadon and Magne Mogstad, University of Chicago and NBER; and Elena Manresa, MIT

How Much Should We Trust Estimates of Firm Effects and Worker Sorting?

John A. List and Magne Mogstad, University of Chicago and NBER

Demand for Leisure and Flexible Work Arrangements

Janna Johnson, University of Minnesota, and Morris M. Kleiner, University of Minnesota and NBER

Is Occupational Licensing a Barrier to Interstate Migration? (NBER Working Paper No. 24107)

Occupational licensure, one of the most significant labor market regulations in the United States, may restrict the interstate movement of workers. Johnson and Kleiner analyze the interstate migration of 22 licensed occupations. Using an empirical strategy that controls for unobservable characteristics that drive long-distance moves, they find that the between-state migration rate for individuals in occupations with state-specific licensing exam requirements is 36 percent lower relative to members of other occupations. Members of licensed occupations with national licensing exams show no evidence of limited interstate migration. The size of this effect varies across occupations and appears to be tied to the state specificity of licensing requirements. The researchers also provide evidence that the adoption of reciprocity agreements, which lower re-licensure costs, increases the interstate migration rate of lawyers. Based on the results, the researchers estimate that the rise in occupational licensing can explain part of the documented decline in interstate migration and job transitions in the United States.

Zoƫ B. Cullen, Harvard University, and Ricardo Perez-Truglia, University of California, Los Angeles and NBER

How Much Does Your Boss Make? The Effects of Salary Comparisons

Cullen and Perez-Truglia study how employees learn about the salaries of their peers and managers and how their beliefs about those salaries affect their own behavior. They conducted a field experiment with a sample of 2,060 employees from a multi-billion dollar corporation. The researchers combine rich data from surveys and administrative records with data from the experiment, which provided some employees with accurate information about the salaries of others. First, they document large misperceptions about salaries and identify some of their sources. Second, they find that perceived peer and manager salaries have a significant causal effect on employee behavior. These effects are different for horizontal and vertical comparisons. While higher perceived peer salary decreases effort, output, and retention, higher perceived manager salary has a positive effect on those same outcomes. The researchers provide suggestive evidence for the underlying mechanisms and conclude by discussing implications for pay inequality and pay transparency.

Emily Breza, Harvard University and NBER; Supreet Kaur, University of California, Berkeley and NBER; and Nandita Krishnaswamy, University of Southern California

Scabs: The Social Suppression of Labor Supply

A distinguishing feature of the labor market is social interaction among co-workers -- providing the ingredients for social norms to develop and constrain behavior. Breza, Kaur, and Krishnaswamy use a field experiment to test whether social norms against accepting wage cuts distort workers' labor supply during periods of unemployment. They undertake the test in informal spot markets for casual daily labor in India. The researchers partner with 183 existing employers, who offer jobs to 502 randomly-selected laborers in their respective local labor markets. The job offers vary: (i) the wage level and (ii) the extent to which the offer is observable to other workers. The researchers document that unemployed workers are privately willing to accept work at wages below the prevailing wage, but rarely do so when this choice is observable to other workers. In contrast, observability plays no role in affecting take-up of jobs at the prevailing wage. The consequences of this behavior are substantial: workers are giving up 38% of average weekly earnings in order to avoid being seen as breaking the social norm. In a supplementary exercise, the researchers document that workers are willing to pay to punish anonymous laborers who have accepted a wage cut. Costly punishment occurs both for workers in one's own labor market, and for workers in distant other labor markets -- suggesting the internalization of norms in moral terms. The findings support the presumption that, even in the absence of formal labor institutions, collusive norms can constrain labor supply behavior at economically meaningful magnitudes.

John Conlon, Harvard University; Laura Pilossoph, Federal Reserve Bank of New York; Matthew J. Wiswall, University of Wisconsin, Madison and NBER; and Basit Zafar, Arizona State University and NBER

Labor Market Search With Imperfect Information and Learning (NBER Working Paper No. 24988)

Conlon, Pilossoph, Wiswall, and Zafar investigate the role of information frictions in the US labor market using a new nationally representative panel dataset on individuals' labor market expectations and realizations. They find that expectations about future job offers are, on average, highly predictive of actual outcomes. Despite their predictive power, however, deviations of ex post realizations from ex ante expectations are often sizable. The panel aspect of the data allows the researchers to study how individuals update their labor market expectations in response to such shocks. They find a strong response: an individual who receives a job offer one dollar above her expectation subsequently adjusts their expectations upward by $0.47. The updating patterns documented are, on the whole, inconsistent with Bayesian updating. The researchers embed the empirical evidence on expectations and learning into a model of search on- and off- the job with learning, and show that it is far better able to fit the data on reservation wages relative to a model that assumes complete information. The estimated model indicates that workers would have lower employment transition responses to changes in the value of unemployment through higher unemployment benefits than in a complete information model, suggesting that assuming workers have complete information can bias estimates of the predictions of government interventions. The researchers use the framework to gauge the welfare costs of information frictions which arise because individuals make uninformed job acceptance decisions and find that the costs due to information frictions are sizable, but are largely mitigated by the presence of learning.

Kirill Borusyak, Princeton University; Peter Hull, University of Chicago and NBER; and Xavier Jaravel, London School of Economics

Quasi-Experimental Shift-Share Research Designs (NBER Working Paper No. 24997)

Many empirical studies leverage shift-share (or "Bartik") instruments that average a set of observed shocks with shock exposure weights. Borusyak, Hull, and Jaravel derive a necessary and sufficient shock-level orthogonality condition for these instruments to identify causal effects. They then show that orthogonality holds when observed shocks are as-good-as-randomly assigned and growing in number, with the average shock exposure sufficiently dispersed. Quasiexperimental shift-share designs may be implemented with new shock-level procedures, which help visualize the identifying variation, correct standard errors, choose appropriate specifications, test identifying assumptions, and optimally combine multiple sets of quasi-random shocks. The researchers illustrate these ideas by revisiting Autor et al. (2013)'s analysis of the labor market effects of Chinese import competition.

Benjamin G. Hyman, University of Chicago

Can Displaced Labor Be Retrained? Evidence from Quasi-Random Assignment to Trade Adjustment Assistance

The extent to which workers adjust to labor market disruptions in light of increasing pressure from trade and automation commands widespread concern. However, surprisingly little is known about efforts that deliberately target the adjustment process. This project studies 20 years of worker-level earnings and re-employment responses to Trade Adjustment Assistance (TAA)--the United States' largest and longest standing public incentive program for retraining. Hyman estimates causal effects from the quasi-random assignment of TAA cases to investigators of varying approval leniencies. Using employer-employee matched Census data on 300,000 displaced workers, he finds large initial returns to TAA. Ten years out, TAA-trained workers have $50,000 higher cumulative earnings, driven by both higher incomes and greater labor force participation. Yet annual returns fully depreciate after ten years. TAA appears to have no effect on formal education, and decaying returns are concentrated in states with lower training durations. Combined with evidence that effects are driven by training rather than unemployment insurance transfers, TAA appears to augment transient rather than permanent components of human capital. Returns are further concentrated in the most disrupted regions, where workers are more likely to switch industries and move to labor markets with better opportunities in response to training -- consistent with adjustment frictions.

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