The drive to mandate paid family leave

From the Cato Institute comes this Cato Daily Podcast in which Vanessa Brown Calder talks to Caleb O. Brown about the effects of mandate paid family leave.

What can federally mandated unpaid family leave tell us about the likely impacts of a proposed mandate for paid family leave?

The history and future of workplace automation

There is much written about the effects that automation and robots will have on human employment and normally we are told it's all bad. The Luddites are still with us.

In a new article in the Journal of Economic Perspectives David H. Autor considers the effects on automation on jobs and asks Why Are There Still So Many Jobs? The History and Future of Workplace Automation. The abstract reads:

In this essay, I begin by identifying the reasons that automation has not wiped out a majority of jobs over the decades and centuries. Automation does indeed substitute for labor—as it is typically intended to do. However, automation also complements labor, raises output in ways that leads to higher demand for labor, and interacts with adjustments in labor supply. Journalists and even expert commentators tend to overstate the extent of machine substitution for human labor and ignore the strong complementarities between automation and labor that increase productivity, raise earnings, and augment demand for labor. Changes in technology do alter the types of jobs available and what those jobs pay. In the last few decades, one noticeable change has been a "polarization" of the labor market, in which wage gains went disproportionately to those at the top and at the bottom of the income and skill distribution, not to those in the middle; however, I also argue, this polarization and is unlikely to continue very far into future. The final section of this paper reflects on how recent and future advances in artificial intelligence and robotics should shape our thinking about the likely trajectory of occupational change and employment growth. I argue that the interplay between machine and human comparative advantage allows computers to substitute for workers in performing routine, codifiable tasks while amplifying the comparative advantage of workers in supplying problem-solving skills, adaptability, and creativity.

So machines are both a substitute and a complement to labour, and when thinking about the effects of automation on employment we need to keep both these factors in mind. Machines have not, so far, replaced all workers, in fact employment is growing, and it's unlikely that they will replace all jobs in the future. The complementarities between labour and machines are stronger than many people seem to realise.

Is deregulating firm entry good for the workers? And if so, which workers?

While it is generally agreed that deregulating firm entry is good for firms there is another question of, Is it good for their workers? A VoxEU.org column presents new research on the deregulation of firm entry and how it affects different types of workers. Using a natural experiment from Portugal, the evidence suggests that deregulating firm entry appears to boost competition and employment (and possibly aggregate income) but its gains seem largely to be reaped by better-off, better-educated workers.

The column, by Ana P Fernandes, Priscila Ferreira and L Alan Winters, looks at a natural experiment in Portugal.

Prior to 2005, starting a business in Portugal took 11 procedures, 20 forms and 78 days, and cost around 13.5 % of GDP per capita. In May 2005, however, a new government introduced the ‘On the Spot Firm’ (‘Empresa na Hora’) programme by which entrepreneurs could register a company at a one-stop shop within an hour, receiving the company identification card, the corporate taxpayer number and the social-security number in the same day and at a cost of 3% of GDP per capita. Even better, the programme was largely unanticipated and was rolled out across districts more or less randomly over a four year period, making it a good quasi-natural experiment for research [ ... ] and extensive data are available on firms and their workers before and during the roll out.

The questions in the study have to do with the effects of the 'On the Spot Firm' programme on competition and wages.

We focus on private firms in the manufacturing and services sectors covering over the period 2002-09, which gives us a sample of 431,000 firms and 3.9 million workers. Having established that the skill premium (the difference between skilled and unskilled wages) appears to be greater where competition is greater, we look directly at the effects of the ‘On the Spot Firm’ programme. Working with the 308 municipalities in Portugal, we treat each as joining the programme from the year in which it gets its first ‘one-stop shop’ for conducting registrations. We find that the ‘On the Spot Firm’ programme significantly increased the number of firm registrations even after allowing for differences between municipalities, sectors and years. [ ... ]

We then consider how the wages of workers with different skill levels are affected by this entry, making use of the different timing of the introduction of ‘one-stop shops’ across municipalities to identify the effect. That is, we ask whether the returns to skill or to education vary between included and excluded municipalities and over the periods before and after the deregulation reform was introduced. Our rich data allow us to identify the characteristics of the worker and the firm employing her, the industry and the municipality and so we are able to allow for most of the other factors that may affect wages. This increases our confidence that the programme effects we identify are genuine.

Our regression results [ ... ] show the effects of inclusion in the ‘On the Spot Firm’ programme on workers with different levels of education.

The conclusions?

The results are highly significant statistically, strongly consistent and rather striking:

• Wages in general appear to be 1% lower in municipalities with an ‘On the Spot Firm’ one-stop shop.

This might be because the increased entry of marginal firms increases competition for the outputs that less-educated workers can provide (since we do not have data on firms with no employees – i.e. with only owners – we will miss any returns that such owners receive).

• On top of this negative effect, secondary educated workers receive slightly over 1% extra, restoring them to parity between included and excluded districts.
• Upper-secondary and Higher-educated workers receive stronger stimuli – over 2% and nearly 5% respectively.

The results for skill levels – as defined by workers’ occupations – are similar to those for education, except that low and medium skilled workers appear to gain little (and possibly to lose) while the premium to more skilled occupations is about 3% higher in ‘On the Spot Firm’ municipalities.

Recalling all the effects we have allowed for in making these comparisons, the 3% and 5% premium for skills and higher education are economically important.

• Deregulating firm entry appears to boost competition and employment (and possibly aggregate income, although this has not been investigated) but its gains seem largely to be reaped by the better-off.

This may be quite acceptable to policymakers – and after all it increases the incentives for people to obtain education, which presumably helps Portugal’s competitiveness relative to other countries. However, in these days of sensitivity to inequality, it is not something which governments should be ignorant of.

What we see here is a common pattern these days in the distribution of the gains from economic change. That is, there are better returns to the better educated. These results show an education premium, which should provide an incentive for people to obtain higher levels of skills and education.

Education and labour markets

Bill Kaye-Blake writes In praise of liberal arts:

One of the issues we examined was ‘mismatch’. With the NZ data, there wasn’t much we could do. There just isn’t enough information on what happens to students after they leave tertiary education. I know that the pay-off to a liberal arts education for me was a long time coming — it isn’t enough to follow people for two years or five years. To cite our conclusion:

Finally, mismatches between employment and field of study and/or qualification level are often cited as a possible driver of low returns. There is little evidence that observed mismatches are in fact mismatches at all. However, if persistent mismatching is going on due to policy or market failures, this could be having a significant impact on returns. Whether that is the case or not is an open question.

Mismatch actually refers to two separate things. One is qualification mismatch — people getting Bachelor’s degrees when employers really want trade qualifications. The second is subject-matter mismatch — university students studying French literature when employers want computer science grads.

But if there is a mismatch in either sense, isn't the real question, What are prices not adjusting? If there is an excess demand (supply) for a particular qualification/skill why are wages not increasing (decreasing)? Thus is the problem got more to do with labour markets, and their regulation, than it has to do with education as such?