4th Annual CHCS Employment Conference - Recent Developments in the U.S. Labor Market: Analysis and Policy Responses - October 3–4, 2013

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Conference Considers Why Job Growth Is Weak

Is the recovery of the nation’s jobs market maddeningly slow because employers are pushing their current workers harder instead of hiring more people? Or is it because unemployed people can collect jobless benefits longer and are thus less motivated to look for work?

It could be a little of both, along with many more reasons. The Federal Reserve Bank of Atlanta’s Center for Human Capital Studies annual employment conference, held in early October, examined these and other possible explanations for sluggish job growth in the wake of the worst economic downturn since World War II. The nation lost some eight million jobs during the December 2007 to June 2009 recession, and total employment still has not reached its prerecession level.

Companies making employees do more
Two papers presented at the conference considered the importance of “wage rigidity” in the upsurge in unemployment during the Great Recession. One paper found that average inflation-adjusted wages moved less during the recent recession than in previous recessions, perhaps suggesting that wage rigidity indeed contributed to the large increase in unemployment.

A second paper found that firms require existing workers to work more given that their wages are fixed, thus decreasing the need to hire new workers. The authors of this paper—Mark Bils, Yongsung Chang, and Sun-Bin Kim—show that this effect is significant.

The 99-weeks effect
One notable policy change in the recent recession was that Congress extended unemployment insurance benefits to as long as 99 weeks for many eligible workers. Henry Farber and Robert Valetta found that longer unemployment benefits have had a statistically significant effect on how long people remain jobless. But the authors concluded that this phenomenon added less than half a percentage point to the unemployment rate.

In addition to researchers discussing papers, the conference featured a talk by Stanford University economist Ed Lazear. Lazear highlighted three themes from his recent research. First, productivity did not decline in the recent recession—as it typically did in earlier recessions—perhaps because people fear unemployment more when jobs are scarce, so they work harder.

Second, Lazear said, the unemployment rate says less about the general state of the labor market now than it does in normal times because the rate does not count the large number of people who have left the labor force. And third, the weak job market is most likely not permanent but cyclical, Lazear noted. Consequently, job growth will probably improve once economic growth strengthens.

Other presentations delved into such issues as the matching rate for unemployed workers and job vacancies, the effect of labor mobility within currency unions, and the potential influence of the Affordable Care Act on labor market outcomes across firms and different types of workers.