Labour Economics; October 2023 (Pre-print version)
The employment rate for Black men worsened significantly relative to White men during the second half of the 20th century. We explore the role of broad sectoral shifts in labor demand over this period in explaining this trend. We first quantify changes in local employment rates and population in response to local labor demand shifts for both groups of workers. We then combine our estimates with a stylized model that incorporates frictional local labor markets and imperfect mobility across markets. Our framework enables us to aggregate local responses while accounting for geographic mobility and regional employment composition. We find that sectoral reallocation can account for at most, one-fifth of the total exacerbation in the employment rate differential between Black and White men over 1970–2010. Out-migration from harder-hit markets, while large, only slightly mitigates the impact of negative labor demand shifts. We also find that most of the predicted change in the employment rate differential is due to differential response rather than differential exposure to sectoral shifts across groups.
The firm entry rate in the United States declined precipitously in recent decades, leading to an increase in the share of older, larger businesses. Younger workers tend to sort into younger firms, suggesting that the compositional shift of economic activity towards older firms has harmed the labor market prospects of younger workers. To assess this hypothesis, I develop an equilibrium labor market sorting model featuring both on-the-job search and two-sided, life-cycle heterogeneity. I use the framework to quantify the consequences of the shift in the firm age distribution for workers’ careers. I find that the change in the firm age distribution alone accounts for about 58 percent of the aggregate decline in the employer switching rate and about 23 percent of the aggregate decline in the employment-to-population ratio between 1994 and 2019. Aggregate worker welfare falls by about 0.5 percent along the transition path, with younger workers experiencing larger declines.
Work in Progress
The Ins and Outs of Unemployment Shocks
This paper quantifies the contribution of unemployment inflows and outflows to cyclical changes in the unemployment rate. I show that the time series behavior of worker flows implies that they exhibit a specific dynamic structure. I then implement a simple identification strategy motivated by this evidence in order to empirically separate changes in job separation and job finding. I find that both margins contribute significantly to unemployment volatility and that their interaction is important for understanding the business cycle dynamics of the unemployment rate. My results suggest that models of the labor market should aim to capture this interaction as well as cyclical variation in job loss.
Employment Effects of Financial Constraints: The Importance of Worker Flows