View
212
Download
0
Category
Preview:
Citation preview
1
Labor Market
2
Deindustrialization?
Manufacturing Wage Rate, 2005
United States
3
Wages by Education in the U.S.
15 percent of U.S. population do not have a high school degree
73 percent of U.S. population do not have a college degree
4
Merchandise exports as % of GDP
In 2007 World Exports was 31% of World GDP
5
Exports from Around the World
Exports from Developing Countries is now about half of world exports.
Exports from China have seen explosive growth (larger than
Japan).
6
What DeterminesWages and Employment?
7
Diminishing Marginal Productivity of Labor
3.0
7.0
n
kAMPN
n
Fix A, kMPN
• MPN depends on A and k/n
• For given k and A, a rise in n leads to a fall in MPN
8
Short-Run Labor Demand
• w = real wage rate
• To maximize profits the firm should– Increase n if MPN > w*– Decrease n if MPN < w*
• It follows that the demand for labor function equals the MPN function
MPN=Nd
MPN & w
n
W*
MPN1
MPN2
n1 n2n*
w = MPNCondition of profit maximization
9
Factors that Shift the Aggregate Labor Demand Curve
• An increase in TFP causes the labor demand curve to shift right.
• An increase in the capital stock causes the labor demand curve to shift right.
w
n
Increase in A or k
10
Does the theory work?
• Are real wages proportional to labor productivity over time?
• Are real wages proportional to labor productivity across countries?
w = MPN
11
Real Wages and Productivity over time for the U.S.
12
Real Wages and Productivity Across Countries
Wages and Productivity(Output per Worker) Across Countries
13
International Wage Differences
14
Productivity and Wages
15
Do real wages converge?
16
The Supply of Labor
• Labor is supplied by households
• Aggregate labor supply increases with wages
• Higher wealth lowers labor supply at any wage
w
n
nsSupply curve is drawn for a fixed level of wealth
17
Short-Run Labor Market Equilibrium(fix k)
• Real wage is determined so that labor demand equals labor supply at point X.
• An increase in TFP shifts the MPN curve to MPN*.
• The new equilibrium is at point Z with higher real wage and employment.
MPN*
MPN
w
n
X
Z
18
Recession
Sharp oil price rise• Lowers A• Lowers demand for
labor• Lowers real wages and
real GDP
• This is a recession.
w
n
MPN*
MPN
ns
This theory implies that supply shocks drive the business cycle.
19
Price of Oil and RecessionsPrice of West Texas Intermediate Crude
Shaded Regions are Periods of Recession
20
Price of Oil and the 2008/09 Recession
Source: James Hamilton, 2009, “Causes and Consequences of the Oil Shock of 2007-08,” NBER Working Paper.
21
Jobless RecoveriesFor the 1990/91 and 2001 recessions, unemployment remained high for 18 months after GDP recovered. How about 2008/09?
Shaded Regions are Periods of Recession
22
The Great Moderation?Recessions seem to be milder as of the early 1980s.
Shaded Regions are Periods of Recession
23
European Unemployment
24
Labor Market Dynamicsand Structural Transformation
25
Size Distribution of Firms in the US
Over half of all employment is in small firms.Source: Brian Headd, “The Characteristics of Small-Business Employees,” Monthly Labor Review, 2000.
26
Job Creation and Destruction in the US
Job creation and destruction is significantly higher than net job creation.
Job creation: net employment change of establishments expanding employment
Job destruction: net employment change of establishments reducing employment
2006Q2• 7.8 million jobs created
• 7.3 million jobs destroyed
• 0.5 million net change in number of jobs
27
Productivity and Resource Reallocation
Churning is the key to economic growth.
Source: John Haltiwanger, “New Ideas for Measuring Labor Productivity,” Census Brief, 1998.
28
Structural Transformation and Development
Source: Bah El-hadj, The University of Auckland, “Structural Transformation in Developed and Developing Countries,” 2008.
29
Farm and Non-farm Productivity in the U.S.
30
Urbanization and Development
Source: World Development Report 2009.
31
Urbanization and Development
2009
46
82
32
Real Wages and Hours Worked
33
Labor Market and Wealth
• A permanent rise in A raises MPN and thus shifts out the labor demand curve.
• A permanent rise in A raises wealth and thus shifts left the labor supply curve.
• The new equilibrium is at point Z with higher real wage and possibly lower employment.
• Note, though, that hours worked per person may fall, but a rise in wages may lead to a rise in the labor force participation rate (especially for relatively poor countries).
MPN*
MPN
w
n
X
Z
ns
*ns
34
Aggregate Labor Supply and Wealth
Aggregate Labor Supply
Permanent w
Period of rising labor force participation rate and hours worked
Reduction in hours worked
35
Income Inequality
36
Rise in Real Wage Dispersion
• Two potential explanations– Open trade (greater globalization)– Technological improvements
37
Skill Biased Technical Change
w
N_unskilled
ND_unskilled
ND’_unskilled
NS_unskilled
N_skilled
w
ND_skilled
ND’_skilled
NS_skilled
•Skill biased technical change increases demand for skilled workers and hence their wages
•The opposite is true for unskilled workers.
38
39
Key Message
• Wage premium for skills have gone up and relative supply have been catching up
• The information technology (IT) revolution is biased toward skilled labor
40
Source: Bils and Klenow, “Does School Cause Growth“, American Economic Review, 2000
Skill Premia Across Countries
Skill premia are highest for poor countries.
41
Income Inequality in the U.S.
Source: Emmanuel Saez, “Striking it Richer: The Evolution of Top Incomes in the United States", 2009
Technology and education as drivers of income inequality
42
Income Inequality by Country
Source: CIA Factbook Gini Coef. = A/(A+B)
Range from 0 to 1 (100)
0 = complete equality
43
Income Inequality by Region Over Time
Is world growth driven by technology or education?
Recommended