Structural consequences of cyclical change for marginal group employment

In Sweden and many other countries, young people and immigrants are facing increasing difficulties in finding employment. We suggest that the decline in employment prospects for marginal groups to a significant extent can be explained by skill upgrading and over-education. In two recent papers focusing on youth and immigrants, respectively, we find support for these hypotheses. The present paper examines how the long-term evolution of youth male employment is linked to cyclical economic change, and in particular to recessions. We base our empirical analyses on data from 31 OECD countries, 1970 to 2018. A basic hypothesis we aim to test is whether the distribution of cyclical points around the line of long-run evolution of general employment has a vertically asymmetrical pattern with respect to marginal employment, such that the relative employment rate of marginal groups declines more in economic downturns (recessions) than it rises in economic upturns. If this asymmetry occurs systematically (repeatedly) over extended periods of time, cyclical change will have structural effects. We find support for this hypothesis based on our analysis of youth male employment. We suggest that two kinds of mechanism are at work in the interaction between cyclical and structural change. The first mechanism is operating from the structure to the cycle: low-skill jobs become increasingly unviable economically, but only slowly and gradually until a marked loss in general demand triggers significant employment decline tilted toward low-skill jobs. Restructuring of work organizations in the wake of the recession makes the return of low-skill jobs in the recovery less than complete. The second kind of mechanism operates in the other direction, i.e., from the cycle to the structure: the rate of educational expansion typically accelerates in recessions. This will in turn speed up the rate of over-education which tends to have a negative impact on marginal employment. We provide descriptive empirical evidence indicating that both these mechanisms are indeed active. In sum, recessions accelerate upward shifts in the skill structure that in turn depress the labor market prospects of male youth, with both links in the chain being of a lasting rather than temporary kind.

Quarantine, Contact Tracing, and Testing: Implications of an Augmented SEIR Model

I incorporate quarantine, contact tracing, and random testing in the basic SEIR model of infectious disease diffusion. A version of the model that is calibrated to known characteristics of the spread of COVID-19 is used to estimate the transmission rate of COVID-19 in the United States in 2020. The transmission rate is then decomposed into a part that reflects observable changes in employment and social contacts, and a residual component that reflects disease properties and all other factors that affect the spread of the disease. I then construct counterfactuals for an alternative employment path that avoids the sharp employment decline in the second quarter of 2020, but also results in higher cumulative deaths due to a higher contact rate. For the simulations a modest permanent increase of quarantine effectiveness counteracts the increase in deaths, and the introduction of contact tracing and random testing further reduces deaths, although at a diminishing rate. Using a conservative assumption on the statistical value of life, the value of improved health outcomes from the alternative policies far outweighs the economic gains in terms of increased output and the potential fiscal costs of these policies.

Right-to-Work Laws as Economic Freedom: Their Role in Influencing the Geographic Pattern of Manufacturing Jobs, Incomes, and Finances

A large empirical literature has found positive effects from economic freedom on economic outcomes, such as output and per capita economic growth. This study seeks to explain empirically the disparate timing of state manufacturing earnings and employment decline, as well as the shift among states in both manufacturing earnings and manufacturing employment resulting from right-to-work laws, which can be viewed as reflecting labor market freedom and thereby acting as a de facto economic policy. The results of the empirical estimations suggest a marked geographic shift of manufacturing employment and compensation in the U.S. during the 1970 to 2012 time period. The empirical estimations indicate that the regions of the country that have historically represented the manufacturing base have suffered the greatest relative losses in both employment and compensation during this period. In addition to regional location, it appears that right-to-work laws have had the effect of leveling manufacturing employment and compensation levels across the states since 1970. The data analysis suggests that, at least in part due to right-to-work laws, the manufacturing sectors of the states and regions are becoming increasingly similar over time, i.e., manufacturing activity that was once highly concentrated in the Great Lakes, Northeast, and Mideast has now converged significantly, with the outcome that there is little geographic difference in concentration among the eight BEA regions.

Torn Apart? The Impact of Manufacturing Employment Decline on Black and White Americans

This paper examines the impact of manufacturing employment decline on the socio-economic outcomes within and between black and white Americans since 1960. The analysis shows that manufacturing decline negatively impacted blacks in terms of their wages, employment, marriage rates, house values, poverty rates, death rates, single parenthood, teen motherhood, child poverty, and child mortality. In addition, the decline in manufacturing increased inequality within the black community for wages and other outcomes. Similar patterns are found for whites, but to a lesser degree – leading to larger gaps between whites and blacks in wages, marriage patterns, poverty, single-parenthood, and death rates.

Analysis of Inter-Relationships between Urban Decline and Urban Sprawl in City-Regions of South Korea

This paper identifies inter-relationships between the urban decline in core areas and urban sprawl in hinterlands using 50 city-regions of South Korea. We measured decline- and sprawl-related indicators and estimated a simultaneous equations model using Three-Stage Least Squares. The results show that population decline and employment decline have a different relationship with urban sprawl. While population decline has a negative impact on the urban sprawl in the density aspect, employment decline worsens the urban sprawl in the morphological aspect. Another result suggests that the difference is related to declining patterns of population and employment. Cities that are experiencing population decline in the core area are likely to lose population in their hinterlands as well. On the other hand, the employment decline in the core area shows a positive correlation with employment growth in hinterlands. The results imply that suburbanization of jobs and the inefficient land use exacerbate the urban sprawl in the morphological aspect. Thus, local governments should pay attention to migration patterns of employment and make multi-jurisdictional efforts. Furthermore, growth management and urban regeneration policies should go hand in hand to tackle this issue.

Structural Transformation and Manufacturing Employment

This chapter explores the interrelationships between the growth of value added, employment, and labour productivity at the sub-sector level in the manufacturing sector, with a focus on large countries. Structural change in eighteen manufacturing industries (classified into early, middle and late industries) is estimated using GDP per capita as the independent variable and one of the following three—value added per capita, employment-population ratio (EP ratio), and labour productivity—as the dependent variable. The results reveal three key challenges that must be addressed during manufacturing development in order to create manufacturing jobs, increase the wage level, and sustain the manufacturing employment or slow its pace of decline. One is to develop the wearing apparel industry (including fur and leather products and footwear), and another is to determine which industries are likely to maintain the given level of employment or slow pace of employment decline.