Tuesday, November 25, 2008

Next Research Project

OK - so details still need to be worked out, but I am ready to jump into my next research project, now that my presentation at the Southern Economic Association is over. I think my next research project will deal with worker flows and job flows - I'll be inserting myself into the world of economists like John Haltiwanger (Maryland), Robert Shimer (Chicago), and Robert Hall (Stanford) (each of these guys are really well respected - Haltiwanger and Shimer both have awesome websites with great data made publicly available). This research will also get me some real experience with macroeconomics, without leaving labor economics. Unemployment and job churning is really an interesting area because it's one of the few areas where labor economics (a traditionally "micro" endeavor) and macroeconomics meet. Anyway, I hope gaining some experience here can help set me up to go on and study labor and macro at University of Maryland, which would be a great academic background to have in an economics career.
Worker flow and job flow research emerges out of the idea that unemployment statistics mask underlying dynamics in the labor market. For example - the most recent unemployment rate was 6.5 percent (up from 6.1 percent in September). 6.5 percent of the people in the labor force were out of work in October, 2008. But what does this mean? It could mean that the hiring rate in October was zero and the separation rate was 0.4 percent (6.1 percent in September increases to 6.5 percent because 0.4 percent of the labor force lost jobs, and none gained). In reality, this isn't how it works. The hiring rate might be 7.3 percent, and the separation rate might be 7.7 percent, causing the net unemployment rate to increase by 0.4 percent. Or "churning" could be even greater - hiring could be at 11.2 percent, and the separation rate could be at 11.6 percent! You get the idea. Understanding these underlying dynamics that contribute to our snap-shot pictures of unemployment can go a long way toward diagnosing underlying problems, understanding issues in productivity growth, understanding the effect of different labor market institutions, etc.
Hiring and separation are "worker flow" concepts. Workers "do" those things. Another way of conceiving of the problem is with "job flows". If all firms employ the same amount of workers and the labor force does not grow, the unemployment rate should stay the same. However, if firms lower their employment levels (job destruction) or raise their employment levels (job creation), then unemployment will change. The distinction between these job flows and the worker flows that I mentioned earlier is important. Job flows can be thought of as a subset of worker flows. A worker flow (a hiring or separation) doesn't necessarily imply a job flow, as long as the worker who separated from his job is replaced, and the worker who was hired is replacing an old worker. However, net worker flows and net job flows have to be equal. A standard statement of this is:
Net change in employment = Hires - Separations = Job Creation - Job Destruction
There have been a few "accepted facts" that have been established for worker flows and job flows, and their relationship to unemployment - at least for the national economy:
1. Robert Hall, who primarily deals with worker flows, has established that recessions are caused by declines in the hiring rate, not by spikes in the separation rate (as is commonly thought). He also demonstrates that we shouldn't expect to see separation rates change in response to productivity shocks, and that if we do it is a sign of inefficient wage bargaining (he specifically attributes it to unionization).
2. Haltiwanger and his colleages, who primarily deal with job flows, have established that recessions are caused by spikes in the job destruction rate, and not by an increase in job creation.
These "facts" seem to contradict each other, but they don't have to. Job destruction does not equal separation and job creation does not equal hiring. But they do have different policy implications. Obama has proposed a job creation tax credit. Others propose public employment measures, and others propose cuts in the capital gains tax. There is new legislation in Congress to strengthen unionionization, which as Hall demonstrates - has major implications for separation rates. In other words - this line of research directly connects my labor interests to macroeconomics, and it has LOTS of very relevant "policy levers" to talk about.
The task that interests me most right now is looking at worker flows, job flows, and their relationship to unemployment at the local level. The Census Bureau has quarterly data on job flows and worker flows at the county level for many states - the mid-Atlantic region (I'm thinking of Pennsylvania, New Jersey, Delaware, Maryland, West Virginia, and Virginia) have data going back to before the 2001 recession. I'm interested in tracking the relationship between job and worker flows and unemployment for each county over this period, to ascertain whether Hall and Haltiwanger's "facts" hold true at the level of the local economy. I then want to look into what predicts cases where these "facts" don't hold true, to see if it will help explain the abysmally high unemployment rates in West Virginia, but unbelievably low unemployment rates in Northern Virginia and parts of Maryland. Could it be that the underlying relationship between job flows, worker flows, and unemployment is different in these areas? What implications would this have for policy?
Who knows where this will take me. What's exciting about this field is that new, better data is coming out all the time, and the data is very very accessible.
I think this will be one of two major "research planks" I will try to develop before grad school. The other is research on skilled labor and science and tech policy issues. I don't want to just be a "labor guy". I want to be more forward looking and I want to consider national competitiveness issues as well. A lot of this will come from migrating into some more macroeconomic topics - but I think emphasizing skilled labor and the economics of science and technology will help shape that research agenda as well. I think if I build up a resume with "economic nationalism" papers and presentations it will make admissions departments much more wary than if I have "job flows" papers and presentations - so I figure this is the stuff to work on now. I'll keep reading and thinking about everything, obviously.
Time to search for new calls for papers!

1 comment:

dkuehn said...

By the way - if this is really interesting, I may continue to pursue "local job and worker flows" as a dissertation topic. Right now, almost all states participate in Census's program. The problem is, a bunch of them have only been doing it for a couple years so they don't have data back to the 2001 recession. However - almost all (notable exceptions include Ohio and Massachusetts, unfortunately) will have data through THIS recession. That data will be ready for me to crunch by the time I'm writing my dissertation - all 3,000 plus counties. So who knows - maybe I'll work on it, maybe I won't - but doing this work now and getting my name on it could help me profitably work in this field later.