Micro Data For Macro Models
Fall 2012
Topic 1: Labor Market in Great
Recession
Course Pre-Amble
1998 – 2000 Cohort That Are Tenured at Top Schools
(with some omissions)
Marianne Bertrand (Chicago)
Ananth Seshadri (Wisconsin)
Esther Duflo (MIT)
Amil Petrin (Minnesota)
Mike Greenstone (MIT)
Muhamet Yildiz (MIT)
Emmanuel Saez (Berkeley)
Marco Battaglini (Princeton)
Jonathan Levin (Stanford)
Xavier Gabaix (NYU)
Sendhil Mullainathan (Harvard)
Monika Piazzesi (Stanford)
Chang-Tai Hseih (Chicago)
Ricardo Reis (Columbia)
Erik Hurst (Chicago)
Enrico Moretti (Berkely)
Dirk Krueger (Penn)
Martin Schneider (Stanford)
Luigi Pistaferri (Stanford)
Annette Vissing-Jorgensen (Northwestern)
David Autor (MIT)
Mark Duggan (Wharton)
Mark Aguiar (Princeton)
Fabrizio Perri (Minnesota)
Marc Melitz (Harvard)
Alessandra Fogli (Minnesota)
Victor Chevnozhakov (MIT)
Wouter Dessein (Columbia GSB)
Ted Miguel (Berkeley)
~ 900 people got a Ph.D. from top 15
Markus Bruennermeier (Princeton)
David Lee (Princeton)
departments during this time period
~ 40- 50 (~5%) of people got tenured at top
15 departments
1998 – 2000 Cohort That Are Tenured at Top Schools
(with some omissions)
Marianne Bertrand (Chicago)
Ananth Seshadri (Wisconsin)
Esther Duflo (MIT)
Amil Petrin (Minnesota)
Mike Greenstone (MIT)
Muhamet Yildiz (MIT)
Emmanuel Saez (Berkeley)
Marco Battaglini (Princeton)
Jonathan Levin (Stanford)
Xavier Gabaix (NYU)
Sendhil Mullainathan (Harvard)
Monika Piazzesi (Stanford)
Chang-Tai Hseih (Chicago)
Ricardo Reis (Columbia)
Erik Hurst (Chicago)
Enrico Moretti (Berkely)
Dirk Krueger (Penn)
Martin Schneider (Stanford)
Luigi Pistaferri (Stanford)
Annette Vissing-Jorgensen (Northwestern)
David Autor (MIT)
Mark Duggan (Wharton)
Mark Aguiar (Princeton)
Fabrizio Perri (Minnesota)
Marc Melitz (Harvard)
Ed Vytlacil (NYU)
Victor Chevnozhakov (MIT)
Wouter Dessein (Columbia GSB)
Ted Miguel (Berkeley)
~ 900 people got a Ph.D. from top 15
Markus Bruennermeier (Princeton)
David Lee (Princeton)
departments during this time period
~ 40- 50 (~5%) of people got tenured at top
15 departments
Publishing?
•
The median Ph.D. from a top 20 department never publishes anything
in a peer reviewed journal
•
The median peer reviewed article has less than 15 citations.
•
See Dan Hamermesh’s web site for:
“Young Economist’s Guide to Professional Etiquette”
https://webspace.utexas.edu/hamermes/www/JEP92.pdf
The Good News
•
The creation of research is a skill just like inverting a matrix, solving
DSGE models, computing standard errors, etc.
•
The more you work on it, the better you will become.
•
Read the early work of those recently tenured at top schools. Every
single one of you could have written the same papers!
It is not only our technical prowess that distinguishes us throughout our
careers, it is our ability to innovate and/or to come up with good questions.
Those who have impact on the profession due so because of their ideas.
What Skill Are Ph.D. Students Most Deficient?
•
Having the ability to identify interesting research questions
•
The confusion of theoretical or empirical fire power as being an “end” as
opposed to a “means”.
•
Not having the ability to explain why anyone would care about their
research.
Goal of This Class
•
Get you to start thinking about writing your dissertation
•
Familiarize you with many data sets that are used by macro economists
(and others) to be used as part of your dissertation.
•
Expose you to literatures within macroeconomics that have strong
empirical components.
•
Help you turn good research ideas into good research papers.
•
Teach you how to communicate your ideas to others.
Some Housekeeping….
•
T.A.:
•
Lots of work – hopefully all of it useful
o
o
o
Jonathan (with set up an email list for class participants
including auditors)
Reading
Homeworks
Virtual Paper
•
Slides/Course Info
•
Co-Taught with Steve Davis: Timing
Very Important
•
If you are seeking take the prelim in the Macro Sequence (this course plus
the remaining courses by Lars and Veronica), you must:
1) Complete a full version of your virtual paper in order to pass the
portion of the prelim related to our part of the course.
2) We will not offer questions on the prelim (although the faculty who
teach the other parts of the sequence - Lars and Veronica – will still
write prelim questions).
3) You have to notify Steve and Erik by end of April if you are
planning to take the applied macro prelim. We will give you feedback
about our expectations for your paper.
My Portion of the Course
Topic 1:
Labor Market in Current Recession
Topic 2:
Consumption Inequality
Topic 3:
Lifecycle Consumption
Topic 4:
Home Production
Topic 5:
Occupational Choice
Topic 6:
Understanding Small Businesses
Steve’s Portion of the Class
See Steve’s reading list…..
Where Do Research Question Come From
A few words from Erik and Steve…..
Topic 1:
Labor Markets in the Recent Recession
Part A:
Conceptual framework for changes in
employment
Why Does Employment Change?
A Look at the Labor Market: Labor Demand
Wages
(W)
Labor Demand (ND)
Employment
(N)
•
Labor Demand results from firm optimization – is a function of things like
productivity, comparative advantage, trade, policy, etc.
Why Does Employment Change?
A Look at the Labor Market: Labor Supply
Wages
(W)
Labor Supply (NS)
(Holding Lifetime Income
Fixed)
Employment
(N)
•
Labor Supply is the result of household optimization - is a function of government
policies (taxes and transfers), household wealth, immigration, etc.
Where Does Non-employment Come From?
A Look at the Labor Market: Labor Market Equilibrium
NS
Wages
(W)
W0*
ND
N0*
Employment
(N)
Non-employment Theory 1: Great Vacation?
NS
Wages
(W)
0
W0*
1
W1*
ND
N1* N0*
Employment
(N)
Non-employment Theory 1: Great Vacation?
NS
Wages
(W)
0
W0*
1
W1*
ND
N1* N0*
•
•
Employment
(N)
Firms desire less labor. Some workers choose not to work at lower wages.
Workers transition to non-employment through unemployment.
Non-employment Theory 1: Great Vacation?
NS
Wages
(W)
0
W0*
1
W1*
ND
N1* N0*
•
•
Employment
(N)
Decline in labor demand could be permanent (structural change in economy).
Decline in labor demand could be temporary (recession – temporary decline).
Non-employment Theory 1: Great Vacation?
NS
Wages
(W)
0
W0*
1
W1*
ND
N1* N0*
•
Employment
(N)
Potential policy response if temporary - Shift labor demand back to the right.
Non-employment Theory 2: Sticky Wages
NS
Wages
(W)
W0*
1
0
ND
N2
•
N0*
Employment
(N)
Same labor demand shock, but wages are prevented from adjusting downward.
Non-employment Theory 2: Stick Wages
NS
Wages
(W)
unemployment
W0*
ND
N2
•
•
N0*
Employment
(N)
Same labor demand shock, but wages are prevented from adjusting downward.
“Cyclical” unemployment could occur.
Non-employment Theory 2: Stick Wages
NS
Wages
(W)
W0*
ND
N2
Policy response:
N0*
Employment
(N)
Try to shift the labor demand curve back to the right.
Was the negative labor demand shift temporary?
Non-employment Theory 3:
Policy and Labor Supply
NS
Wages
(W)
1
W0*
0
ND
N0*
•
Employment
(N)
Some policies may result in a reduction of labor supply (extend unemployment
benefits and people have less incentive to find a job).
Non-employment Theory 4:
Mismatch Unemployment
•
Harder to illustrate graphically.
•
Need some individual and sectorial heterogeneity in the model
Individuals with different skills/jobs with different skill requirements
Individuals with different sectorial experience/jobs in different sectors
Spatial differences in people in jobs
•
Adjustment costs may prevent people from easily switching sectors.
•
If a negative shock hits one sector (low skilled, housing, Nevada), it may take
time for individuals to adjust to the other sectors (high skilled, nursing, or
Texas).
•
Generic policies designed to reduce unemployment may not be that effective if
the unemployment is structural.
Non-employment Theory 5:
Search Theory
•
Harder
Important Questions that Should Be Answered
•
How much of the unemployment is due to cyclical/temporary forces?
o Implies that there may be room for potential policy interventions.
o Still need to understand source of shock (balance sheet effects, firm
access to credit, uncertainty, TFP declines, etc.)
•
How much is due to policy induced effects on labor supply?
o Causes a trade off between different types of policy goals?
•
How much is due to “structural” forces (mismatch, sector declines)?
o Traditional recessionary policies are likely to be relatively ineffective.
Part B:
Nonemployment in Current Recession
Some Facts About The Recent Labor Market
• “The Labor Market In The Great Recession”
Mike Elsby, Bart Hobijn, and Aysegul Sahin
• Compares the labor market during the recent recession to the labor
market during all other previous post war recessions.
• Conclusions:
(1)
From a wide range of labor market outcomes, the recent recession
was the deepest recession in post war period.
(2)
Early on, the nature of labor adjustment in the recent recession
displayed a notable resemblance to that of other severe recessions.
(3)
During the latter part of recession (and recovery), the path of
adjustment exhibited important departures from other deep
recessions.
Figure 3. Okun’s Law, 1949-2010 Q4
Unemployment gap
6
2009Q4
2009Q3 2010Q1
2010Q2
2010Q4
2010Q3
2009Q2
4
2009Q1
2
2008Q4
2008Q3
2008Q2
2008Q1
0
No recession
Recessions
-2
-4
-6
-10
-8
-6
-4
-2
0
2
4
Output gap
Source: Bureau of Economic Analysis, Bureau of Labor Statistics, and Congressional Budget Office
6
8
Revisions led to partial reversal Okun’s Law
Okun's Law
Based on CBO potential output and NAIRU estimates (1949Q1-now) Unemployment gap
6
5
4
2011Q2
3
2
2007 Recession
and after
1
0
-1
-2
-3
-4
-10
-8
-6
-4
-2
Output gap
0
2
4
6
Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Congressional Budget Office, FRBSF staff
Elsby/Hobijn/Sahin/Valletta
9/16/2011
Labor Market In the Great Recession: An
Update
33
Recent drop in unemployment through participation
Unemployment and Labor Force Participation rates
Monthly observations; seasonally adjusted
Percent
12
Percent
68
Labor force participation rate
10
67
8
66
6
65
4
64
Unemployment rate
2
63
0
1990
62
1995
2000
2005
2010
Source: Bureau of Labor Statistics
Elsby/Hobijn/Sahin/Valletta
9/16/2011
Labor Market In the Great Recession: An
Update
35
Unemployment Rate by Gender
Seasonally Adjusted
Unemployment Rate
Unemployment Rate
12
12
10
10
2.7
1.1
8
8
Men
6
6
Women
4
4
2
1990
2
1993
1996
1999
Source: Bureau of Labor Statistics
2002
2005
2008
2011
Unemployment to Non-Participation by Gender
Seasonally Adjusted
Percent Women
Percent Men
0.3
0.4
0.25
Women
0.3
0.2
Men
0.2
0.15
0.1
1990
1994
1998
Source: Bureau of Labor Statistics
0.1
2002
2006
2010
Unemployment to Employment by Gender
Seasonally Adjusted
Percent
Percent
0.4
0.4
Men
0.3
0.2
0.1
1990
1994
1998
Source: Bureau of Labor Statistics
0.3
0.2
Women
0.1
2002
2006
2010
Employment to Unemployment by Gender
Seasonally Adjusted
Percent
Percent
0.03
0.03
0.02
0.02
Men
0.01
0
1990
1994
1998
Source: Bureau of Labor Statistics
0.01
Women
0
2002
2006
2010
Nonparticipation to Unemployment by Gender
Seasonally Adjusted
Percent
Percent
0.05
0.05
0.04
0.04
Men
0.03
0.03
0.02
0.02
Women
0.01
0
1990
1994
1998
Source: Bureau of Labor Statistics
0.01
0
2002
2006
2010
Change in Unemployment Rates
Table 1: Change in Unemployment Rates (ppt)
Change in Unemployment Rate
Gender
Male
Female
Age
16-24
25-54
55+
Education
Less than High Scool
High School
Some College
College or Higher
Race
White
Black
Hispanic
Recession
Recovery
5.5
-0.9
6.5
4.3
-1.6
-0.2
8.8
5.4
4.0
-1.6
-0.9
-0.3
8.3
6.5
5.3
2.9
-0.6
-1.0
-0.9
-0.4
5.2
7.5
7.2
-1.1
0.3
-1.1
Notes: The recession refers to 2007Q2 to 2009Q4 and the recovery
2009Q4 to 2011Q2
Elsby/Hobijn/Sahin/Valletta
9/16/2011
Labor Market In the Great Recession: An
Update
41
The Unemployment Rate By Skills: All (20-45)
2007
Unemp
Rate
2011
Unemp
Rate
Change
in
Rate
Share
of
Pop.
Share
Weighted
Change
Percent of
Total
Unemp
Rate
Explained
High School
or Less
7.1%
15.2%
8.2%
41%
3.3%
~65%
Some College
4.2%
8.9%
4.7%
30%
1.5%
~25%
College or
More
1.9%
4.5%
2.6%
29%
0.7%
~10%
All
4.6%
9.9%
Education
5.3%
The Unemployment Rate By Skills: All (20-45)
2007
Unemp
Rate
2011
Unemp
Rate
Change
in
Rate
Share
of
Pop.
Share
Weighted
Change
Percent of
Total
Unemp
Rate
Explained
High School
or Less
7.1%
15.2%
8.2%
41%
3.3%
~65%
Some College
4.2%
8.9%
4.7%
30%
1.5%
~25%
College or
More
1.9%
4.5%
2.6%
29%
0.7%
~10%
All
4.6%
9.9%
Education
5.3%
Jobs By Educational Attainment
Unemployment Duration
Historically Low Outflows Even After Recession
Flow hazard rates into and out of unemployment
Monthly hazard based on Shimer (2005); 3-month moving averages
Outflow hazard
120%
Inflow hazard
6.0%
Inflow hazard, s(t)
100%
5.0%
80%
4.0%
60%
3.0%
40%
Outflow hazard, f(t)
2.0%
20%
1.0%
0%
0.0%
1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008
Source: Bureau of Labor Statistics and authors' calculations
Elsby/Hobijn/Sahin/Valletta
9/16/2011
Labor Market In the Great Recession: An
Update
46
Pick-up in Outflows to Non-participation
Outflow rates out of unemployment by destination
Seasonally adjusted; 3-month moving average
Percent of unemployed
40
35
To Employment
30
25
20
To Non-participation
15
10
5
0
1967
1972
1977
1982
1987
1992
1997
2002
2007
Source: Shimer (2007), based on Ritter data provided by Hoyt Bleakley, Bureau of Labor Statistics, authors' calculations
Elsby/Hobijn/Sahin/Valletta
9/16/2011
Labor Market In the Great Recession: An
Update
47
Outflow Rates by Duration and Destination
Monthly outflow rates out of unemployment
Average July 2010 - June 2011
Percent
60
50
Total
40
30
to out of the labor force
20
10
to employment
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23 24+
Duration (months)
Source: Current Population Survey and authors' calculations
Elsby/Hobijn/Sahin/Valletta
9/16/2011
Labor Market In the Great Recession: An
Update
48
Very High Inflows from Non-participation
Inflow rates into unemployment by origin
Seasonally adjusted; 3-month moving average
Percent of labor force
2.5
From Employment
2
1.5
From Non-participation
1
0.5
0
1967
1972
1977
1982
1987
1992
1997
2002
2007
Source: Shimer (2007), based on Ritter data provided by Hoyt Bleakley, Bureau of Labor Statistics, authors' calculations
Elsby/Hobijn/Sahin/Valletta
9/16/2011
Labor Market In the Great Recession: An
Update
49
Evidence of increased frictions
Actual and fitted Beveridge Curve
Monthly observations; pre-2007-recession fit
Job openings rate
5%
Fitted
4%
before 2007 recession
3%
Jun-11
Gap: 2.6%
2%
since 2007 recession
2%
3%
4%
5%
6%
7%
Unemployment rate
8%
9%
10%
1%
11%
Source: JOLTS, CPS, and authors' calculations
Elsby/Hobijn/Sahin/Valletta
9/16/2011
Labor Market In the Great Recession: An
Update
50
Evidence of increased frictions
Fitted and "New" Beveridge Curve
Monthly observations; pre-2007-recession fit
Job openings rate
5%
Fitted "New" BC
4%
before
2007 recession
3%
Jun-11
2%
since 2007 recession
2%
3%
4%
5%
6%
7%
Unemployment rate
8%
9%
10%
1%
11%
Source: JOLTS, CPS, and authors' calculations
Elsby/Hobijn/Sahin/Valletta
9/16/2011
Labor Market In the Great Recession: An
Update
51
Evidence of increased frictions
Shimer’s Web Page
52
Broadbased decline in finding rates
Unemployment Outflow Hazards by Industry
12-m moving averages of monthly data
Monthly outflow hazard
0.8
0.7
0.6
Construction
0.5
Total
0.4
0.3
Information
Durable Goods
0.2
Financial
0.1
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Bureau of Labor Statistics and authors' calculations
Elsby/Hobijn/Sahin/Valletta
9/16/2011
Labor Market In the Great Recession: An
Update
53
Part C:
Regional Variation in Nonemployment Rates
Mian and Sufi (2012)
Regional Variation in Nonemployment Rate Changes
• American Community Survey (2005-7 pooled vs. 2009-10 pooled).
• Focus men with less than a 4-yr college degree, 21-55 – collapse data to MSA
Distribution of Changes in Nonemployment Across MSAs.
10th Percentile
25th Percentile
50th Percentile
75th Percentile
90th Percentile
95th Percentile
0.005
0.027
0.063
0.071
0.100
0.111
Other Notables
Naples, FL
Reno, NV
Orlando, FL
Detroit, MI
0.132
0.107
0.093
0.089
Phoenix, AZ
Las Vegas, NV
Chicago, IL
Boston, MA
0.086
0.077
0.055
0.051
Los Angeles, CA 0.044
Austin, TX
0.032
New Orleans, LA 0.006
Mian and Sufi (2012) (First slide of their talk)
• The decline in aggregate demand, driven by the household
balance sheet channel, is responsible for 65% of the jobs
lost from 2007 to 2009
• We are confident this represents a separate channel from
the uncertainty channel or the construction-related
structural employment channel
• We provide suggestive evidence on the frictions that would
translate demand shocks into employment losses
The Shock
2005
2006
2007
1
.8
.6
.4
Auto sales
1
.9
.8
.7
.6
House prices
Auto sales
(normalized to 1 in 2006)
House prices
2008
2009
2005
2006
2005
2006
2007
2008
2009
2008
2009
1
.9
Groceries
1.1 1.2 1.3
Groceries
(normalized to 1 in 2006)
1
.9
.8
.7
Other durables
1.1
Other durables
2007
2008
2009
2005
2006
High leverage counties, 2006
Low leverage counties, 2006
2007
The Effect on Employment: First Pass
-.2
-.1
0
.1
(Figure 2)
.5
1
1.5
2
2.5
Debt to Income 2006
3
3.5
4
Motivating Example:
Auto Retail versus Auto Manufacturing
(Figure 3)
Auto Manufacturing
0
-1
-2
-.4
-.2
0
.2
Auto Manufacturing Employment Growth 07Q1-09Q1
1
.4
Auto Retail
.5
1
1.5
2
2.5
Debt to Income 2006
3
3.5
4
.5
1
1.5
2
2.5
Debt to Income 2006
3
3.5
4
Employment Growth: Non-Tradable and Tradable Industries
(Figure 4)
0
-.2
-.4
-.6
-.2
-.1
0
Tradable Employment Growth 07Q1-09Q1
.1
.2
Tradable
.2
Non-tradable (excluding construction)
.5
1
1.5
2
2.5
Debt to Income 2006
3
3.5
4
.5
1
1.5
2
2.5
Debt to Income 2006
3
3.5
4
Employment Growth: Non-Tradable and Tradable Industries:
Herfindahl-Based Definition
(Figure 5)
Tradable
-.2
-.5
0
(based on high geographical concentration)
-.1
0
.1
Tradable Sector Employment Growth 07Q1-09Q1
.5
.2
Non-Tradable
.5
1
1.5
2
2.5
Debt to Income 2006
3
3.5
4
.5
1
1.5
2
2.5
Debt to Income 2006
3
3.5
4
Conclusion
.2
Tradable
.2
Non-tradable (excluding construction)
0
-.2
-.4
-.6
-.2
-.1
0
Tradable Employment Growth 07Q1-09Q1
.1
Household balance sheet channel explains
65% of jobs lost
.5
1
1.5
2
2.5
Debt to Income 2006
3
3.5
4
.5
1
1.5
2
2.5
Debt to Income 2006
3
3.5
4
Part D:
Structural Changes in
U.S. Economy During 2000s
Charles, Hurst, and Notowidigdo (2012)
See attached second set of slides…