12/9/2014: Q2 2014 Employment Growth in the Euro Area

Eurostat latest figures on employment growth in the EU are worrying, despite some positives in quarterly comparatives.

In q/q terms, employment growth slightly accelerated in Q2 2014 to 0.2% from Q1 2014 0.1% reading. And y/y growth also accelerated from 0.1% in Q1 2014 to 0.4% in Q2 2014.

Still, at current rates of growth, it will take euro area some 9 years to return to the pre-crisis levels of employment.

Looking at the countries data, Ireland posted relatively healthy readings in y/y growth terms (1.7% in Q2 2014), but average in q/q terms (0.2% in Q2 2014 up on 0.1% in Q1 2014, identical to the euro area as a whole). In trend terms, things are more worrying. In H2 2013 Ireland managed to expand employment at an annual rate of 3.2% and an average quarterly rate of 0.7%. In H1 2014, the same rates of growth fell to 2% for y/y growth and 0.15% for q/q growth.

In quarterly growth terms, Ireland ranked 4th in the EU28 in employment growth in Q3 2013, 6th in Q4 2013, 16th in Q1 2014 and 10th in Q2 2014. In y/y terms, we ranked 2nd in Q3 and Q4 2013 and 4th in Q1 2014 and Q2 2014. So deterioration in Irish conditions is in part related to the y/y trends in the euro area, but is more pronounced and idiosyncratic in quarterly trends.

Two charts to illustrate:

Ireland still stands in a better condition compared to other so-called 'peripheral' countries. In contrast to Ireland,

• Greece posted an H2 2013 average q/q decline in employment of 2.75% followed by an average q/q decline of 0.5% in H1 2014. In y/y terms, H2 2013 saw a decline of 0.25% in employment against zero growth in H1 2014.
• Spain posted q/q average decline rate of 2% in H2 2013 and returned to employment growth of 0.4% on average q/q in H1 2014, which outperformed Ireland's growth rates for the same period. In y/y terms Spain's employment grew 0.1% in H2 2013 and 0.35% in H2 2014. The latter figure is better than Ireland's performance, but comes on foot of much shallower growth in previous 6 months.
• Italy continued on the trend for falling employment with H2 2013 q/q average decline of 1.95 moderating to a 0.9% drop in H1 2014. In y/y terms, Italian employment averaged decline of 0.1% in H2 2013 and this switched to growth of 0.1% in H1 2014.
• Cyprus was the worst performer of all 'peripheral' states. The economy posted an average rate of employment decline q/q of 5.05% in H2 2013 and followed up with an average rate of decline of 2.4% in H1 2014. Year on year employment dropped on average by 0.6% in H2 2013 and declined further by 0.25% in H1 2014.
• Portugal, however, showed some significant gains. Average q/q growth rates in H2 2013 were negative -0.85% but turned strongly positive at +1.5% in H1 2014, outperforming Ireland. In y/y terms, Portugal's employment averaged growth of 0.5% in H2 2013 and this slipped to +0.3% in H1 2014.

22/8/2014: Minimum Wage and Employment: Recent Study

The effects of minimum wage laws on employment levels and employment prospects for various categories of workers are subject of voluminous literature in economics. Still, little consensus exists on whether higher minimum wages impede new jobs creation or destroy existent jobs or suppress earnings growth for lower wage employees.

A recent paper by Meer, Jonathan and West, Jeremy, titled "Effects of the Minimum Wage on Employment Dynamics" (June 26, 2012, http://ssrn.com/abstract=2094726) offers estimates "how the minimum wage affects both employment levels and dynamics... To do so, we employ the Business Dynamics Statistics, a long (1977-2009) panel of administrative data on the aggregate population of non-agriculture private-sector employers in the United States, broken out based on establishment location. These data offer the ability to examine gross job creation and destruction separately, an important advantage."

The authors first discuss "why even a carefully-designed study may not find a statistically significant effect of the minimum wage on employment levels":

1) "…Newly hired employees within a company are more likely to be paid minimum wage than are more senior employees. …It follows that minimum wage employees are likely to be relatively recent hires. …A direct implication is that minimum wage increases are most likely to affect workers who are (or would be) recent hires."

2)"…any reduction in new employment should also be reflected in total employment, so theoretically the decision of which of these outcomes to analyze is arbitrary. However, for estimates using a finite panel of real-world data, the distinction becomes much more important because the impact of an unrelated shock to total employment may easily overwhelm an effect of the minimum wage. Furthermore, …relatively rapid transitions to higher wages are common for minimum wage workers; we… calculate that nearly two-thirds of minimum wage workers who remain employed after one year earn more than the minimum wage. This illustrates the policy importance of focusing on the job creation margin; if higher minimum wages reduce employment entry by these workers, they never have the opportunity to develop the skills or tenure to earn even higher wages."

3) "…inflation can inhibit identification of statistically significant employment effects,
especially in studies relying on data from the 1970s-1980s, which experienced relatively
high rates of inflation. Historically, minimum wages have been set in nominal dollars and not adjusted for inflation, so any nominal wage differential between two states will become economically less meaningful over time."

4) "…sooner or later every state experiences a nominal increase in its minimum wage, either due to a revision to a state law or because the federal minimum wage increases. Unlike the slow erosion of nominal minimum wage gaps brought about by inflation, a discrete increase to the counterfactual's minimum wage may quickly close or even reverse this gap. To put this another way: in the long run, there is no permanent control group. This situation would not be problematic if the minimum wage affected employment in an abrupt, discrete manner. But if the minimum wage primarily affects new employment, then it may take years to observe a statistically significant effect on total employment."

So the authors conclude that "considered together, we believe that examining employee hiring and job growth directly provides for a more accurate assessment of minimum wage effects than examining total
employment. There are also theoretical arguments for why minimum wages are more likely to impact employment dynamics than employment levels."

The authors find that "…the minimum wage significantly reduces rates of job growth, that this occurs primarily through reductions in job creation, and that this effect is somewhat more pronounced in continuing establishments than for establishment births. We also find that the reduction in job creation cannot be attributed to reductions in employee turnover, as well as no effects on the entry and exit of establishments."

12/2/2014: ICT, Productivity & Employment in the US Manufacturing

More recent research, to follow up on previous post (which dealt with jobless recoveries). This time around on the key issue of workers displacement by technology.

"RETURN OF THE SOLOW PARADOX? IT, PRODUCTIVITY, AND EMPLOYMENT IN U.S. MANUFACTURING" by Daron Acemoglu, David Autor, David Dorn, Gordon H. Hanson and Brendan Price (NBER Working Paper 19837, http://www.nber.org/papers/w19837 from January 2014) looks into the validity of the 'technological discontinuity' paradigm - the one that "suggests that IT-induced technological changes are rapidly raising productivity while making workers redundant."

Here's the justification of the tested thesis: "An increasingly influential “technological-discontinuity” paradigm suggests that IT-induced technological changes are rapidly raising productivity while making workers redundant. This paper explores the evidence for this view among the IT-using US manufacturing industries."

Basic argument here is that modern workplace is continuing to become more automated, transformed by the ICT capital. Two implications of this are:

"First, all sectors—but particularly IT-intensive sectors—are experiencing major increases in productivity. Thus, Solow’s paradox is long since resolved: computers are now everywhere in our productivity statistics."

"Second, IT-powered machines will increasingly replace workers, ultimately leading to a substantially smaller role for labor in the workplace of the future. Adding urgency to this argument, labor’s share of national income has fallen in numerous developed and developing countries over roughly the last three decades, a phenomenon that Karabarbounis and Neiman (forthcoming) attribute to IT-enabled declines in the relative prices of investment goods. And many scholars have pointed to the seeming “decoupling” between robust U.S. productivity growth and sclerotic or negligible growth rates of median U.S. worker compensation (Fleck, Glaser and Sprague 2011) as evidence that the “race against the machine” has already been run—and that workers have lost."


Top conclusion of the paper: "There is some limited support for more rapid productivity growth in IT-intensive industries depending on the exact measures, though not since the late 1990s."

But there are some serious nuances involved.

"We find, unexpectedly, that earlier “resolutions” of the Solow paradox may have neglected certain paradoxical features of IT-associated productivity increases, at least in U.S. manufacturing." Of these, the paper highlights two:

"First, focusing on IT-using (rather than IT-producing) industries, the evidence for faster productivity growth in more IT-intensive industries is somewhat mixed and depends on the measure of IT intensity used. There is also little evidence of faster productivity growth in IT-intensive industries after the late 1990s.

"Second and more importantly, to the extent that there is more rapid growth of labor productivity (ln(Y=L)) in IT-intensive industries, this is associated with declining output (ln Y ) and even more rapidly declining employment (lnL). If IT is indeed increasing productivity and reducing costs, at the very least it should also increase output in IT-intensive industries. As this does not appear to be the case, the current resolution of the Solow paradox does not appear to be what adherents of the technological-discontinuity view had in mind."

In other words: "Most challenging to this paradigm, and our expectations, is that output contracts in IT-intensive industries relative to the rest of manufacturing. Productivity increases, when detectable, result from the even faster declines in employment."

Goes some miles explaining the declining role of primary labour…