The NEP-LTV Blog

September 27, 2010

This blog is an experiment to explore the feasibility of scientific discussion on an Economics blog. NEP-LTV disseminates every week new working papers in the field of Unemployment, Inequality & Poverty. Among them, the NEP-LTV editor selects one to be discussed. Everyone is invited to comment. Try to stay civil, or your comments will be removed. And encourage others to read or join in the discussion.

What, If Anything, Can Labor Do to Rejuvenate Itself and Improve Worker Well-being in an Era of Inequality and Crisis-driven Austerity?

November 12, 2014

By: Freeman, Richard Barry


The economic position of workers has weakened in much of the advanced world. Over the past 30–40 years the share of national income going to labor has fallen. Labor earnings have become more unequally distributed. The proportion of workers in trade unions has trended downward, accompanied in some countries with commensurate declines in collective bargaining coverage. Union influence on the direction of the economy has diminished even in countries where firms and unions negotiate wage and working conditions for most employees and where left-oriented parties are in government. Increases in government deficits and debt resulting from the Great Recession have induced many governments to introduce austerity policies that are likely to perpetuate high joblessness and inequality into the foreseeable future. Finance’s speculative excesses fed market capitalism but much of the costs of the implosion of finance and ensuing Great Recession will fall on labor into the foreseeable future. There is no easy answer to the title question. As the phrase “if anything†indicates, it is unclear whether labor can rejuvenate itself and pressure societies to restore full employment and raise living standards in the face of inequality and pressures for austerity programs. Differences in the labor relations systems among countries, in levels of inequality, in the importance of money in politics, and in the post Great Recession state of economies will undoubtedly produce different responses across countries and labor movements. In this paper I examine the situation in the US, where the ability of trade unions to represent labor’s interest has declined more than in any other major economy. Collective bargaining in the US is co-terminus with union density. For over half a century union density has fallen in the private sector. In 2012 6.6% of private sector workers were union members (US BLS, 2013, table 3) – below the 1900 level when total density, then based almost entirely on private sector workers, was 6.8% (Freeman, 1998, p 291). In the 2000s unions gained so few members in National Labor Relations Board representation elections or in other ways that the anti-unionists’ once quixotic dream of a union-free labor market has become a reality in the private sector. American labor law and custom makes it difficult for workers and firms to substitute other forms of workplace labor activity for collective bargaining. The law forbids employer-initiated works councils. There are no mechanisms for extending collective contracts beyond the firm and local unions who negotiate and sign a contract. Employer associations are more interested in undermining collective bargaining than in discussing labor issues with the AFL-CIO or some other union federation. Unionism and collective bargaining have followed a different path in the public sector. Union density increased from the 1960s to the 2000s when about 37% of employees were union members, including teachers, police, firefighters, university professors, graduate student teaching assistants, as well as bus drivers, clerical workers, and so on.1 When recession-induced budget crises hit cities and states in the late 2000s, however, opponents of unions attacked public sector bargaining as a contributing factor to the deficits. In the US federal system, state law governs state and local government collective bargaining. Some states encourage public sector collective bargaining. Other states, largely in the South, make it illegal for public sector employers to bargain with unions. Following the 2008 elections, Republican-dominated legislatures in several states that had encouraged collective bargaining passed bills to restrict bargaining, outlaw dues checkoffs/agency fees (which provide a funding stream to unions), and limit union political activities. Wisconsin, which had pioneered laws favorable to public sector bargaining, added provisions to its budget bill that effectively eliminated collective bargaining for all state and local workers except police and fire. Ohio enacted legislation of a similar kind that targeted all state and local employees including police and fire. Opponents of the Wisconsin legislation forced the state’s governor into a recall election but failed to turn him out of office or reverse the legislative decision. Opponents of the Ohio legislation overturned their law in a referendum (Freeman and Han, 2012), which seemed to stem the anti-union movement. But in 2012 the Republican dominated legislature in historically pro-union Michigan passed a bill to weaken unions there. At this writing anti-union groups have bills pending in the legislatures of many other states. Unions have circled their wagons to defend the one part of the labor market where they still hold considerable sway. The experience of the US is extreme but nonetheless informative for other advanced countries where crisis-driven austerity and increased inequality weaken union ability to represent workers and may embolden groups opposed to collective action, welfare state protections of workers and the like to follow the lead of their US counterparts. The failure of US unions to develop alternatives to collective bargaining to advance worker interests as union density fell is a “canary in the mine†warning to labor elsewhere. The new efforts by US labor activists, social entrepreneurs, some unions, and in 2013 the AFL-CIO itself to mobilize citizens to defend workers’ interests without collective bargaining directs attention to innovative ways for labor to develop countervailing power and press for full employment and rising living standards for all. The paper is divided into three sections. Section one reviews the decline in labor as a force determining outcomes in modern capitalism, with particular attention to the collapse of the firm-based collective bargaining model in the US. Section two highlights the need for a strong labor movement to help reform the finance-dominated model of capitalism that underlies the implosion of Wall Street and ensuing economic crisis. Section three examines the ways that labor activists, social entrepreneurs, and unions are developing ways to rejuvenate labor power and improve labor conditions absent collective bargaining. There is a brief conclusion.

Online networks and subjective well-being

November 12, 2014

By: Fabio Sabatini
Francesco Sarracino


Does Facebook make people lonely and unhappy? Empirical studies have produced conflicting results about the effect of social networking sites (SNS) use on individual welfare. We use a representative sample of the Italian population to investigate how actual and virtual networks of social relationships influence subjective well-being (SWB). We find a significantly negative correlation between online networking and self-reported happiness. We address endogeneity in online networking by exploiting technological characteristics of the pre-existing voice telecommunication infrastructures that exogenously determined the availability of broadband for high-speed Internet. We try to further disentangle the direct effect of SNS use on well-being from the indirect effect possibly caused by the impact of SNS’s on trust and sociability in a SEM analysis. We find that online networking plays a positive role in SWB through its impact on physical interactions. On the other hand, SNS use is associated with lower social trust, which is in turn positively correlated with SWB. The overall effect of networking on individual welfare is significantly negative.

Keywords: Social participation; online networks; Facebook; social trust; social capital; subjective well-being; hate speech; broadband; digital divide.

JEL: C36 D85 O33 Z13

Shocking Labor Supply: A Reassessment of the Role of World War II on Women’s Labor Supply

November 5, 2014

By: Goldin, Claudia D.
Olivetti, Claudia


The most prominent feature of the female labor force across the past hundred years is its enormous growth. But many believe that the increase was discontinuous. Our purpose is to identify the short- and long-run impacts of WWII on the labor supply of women who were currently married in 1950 and 1960. Using WWII mobilization rates by state, we find a wartime impact on weeks worked and the labor force participation of married white (non-farm) women in both 1950 and 1960. The impact, moreover, was experienced almost entirely by women in the top half of the education distribution.


November 5, 2014

By: Erling Barth
Alex Bryson
James C. Davis
Richard Freeman


This paper links data on establishments and individuals to analyze the role of establishments in the increase in inequality that has become a central topic in economic analysis and policy debate. It decomposes changes in the variance of ln earnings among individuals into the part due to changes in earnings among establishments and the part due to changes in earnings within-establishments and finds that much of the 1970s-2010s increase in earnings inequality results from increased dispersion of the earnings among the establishments where individuals work. It also shows that the divergence of establishment earnings occurred within and across industries and was associated with increased variance of revenues per worker. Our results direct attention to the fundamental role of establishment-level pay setting and economic adjustments in earnings inequality.

Keywords: earnings; earnings inequality; productivity
JEL: J3 J31 D3

How useful is inequality of opportunity as a policy construct?

October 23, 2014

By: Ravi Kanbur (Cornell University)
Adam Wagstaff (The World Bank)


The academic literature on equality of opportunity has burgeoned. More recently, the concepts and measures have begun to be used by policy institutions, including in specific sectors like health and education. Indeed, it is argued that one advantage of focusing on equality of opportunity is that policy makers are more responsive to that discourse than on equality of outcomes per se. This paper presents a critique of equality of opportunity in the policy context. While the empirical analysis to which the literature has given rise is useful and is to be welcomed, current methods for quantifying and implementing the concept with a view to informing the policy discourse face a series of fundamental questions that remain unanswered. Without a full appreciation of these difficulties, these methods may prove to be misleading in the policy context.

Career Progression, Economic Downturns and Skills

October 23, 2014

By: Jérôme Adda (University College London – London’s Global University)
Christian Dustmann (University College London – London’s Global University (UCL))
Costas Meghir (UCL Department of Economics)
Jean-Marc Robin (Département d’économie)
This paper analyzes the career progression of skilled and unskilled workers, with a focus on how careers are affected by economic downturns and whether formal skills, acquired early on, can shield workers from the effect of recessions. Using detailed administrative data for Germany for numerous birth cohorts across different regions, we follow workers from labor market entry onwards and estimate a dynamic life-cycle model of vocational training choice, labor supply, and wage progression. Most particularly, our model allows for labor market frictions that vary by skill group and over the business cycle. We find that sources of wage growth differ: learning-by-doing is an important component for unskilled workers early on in their careers, while job mobility is important for workers who acquire skills in an apprenticeship scheme before labor market entry. Likewise, economic downturns affect skill groups through very different channels: unskilled workers lose out from a decline in productivity and human capital, whereas skilled individuals suffer mainly from a lack of mobility.

Shelter from the Storm: Upgrading Housing Infrastructure in Latin American Slums

October 21, 2014

By: Sebastian Galiani (University of Maryland)
Paul Gertler (UC Berkeley)
Ryan Cooper (J-PAL)
Sebastian Martinez (Inter-American Development Bank)
Adam Ross (Bill & Melinda Gates)
Raimundo Undurraga (New York University)
This paper provides empirical evidence on the causal effects that upgrading slum dwellings has on the living conditions of the extremely poor. In particular, we study the impact of providing better houses in situ to slum dwellers in El Salvador, Mexico and Uruguay. We experimentally evaluate the impact of a housing project run by the NGO TECHO which provides basic pre-fabricated houses to members of extremely poor population groups in Latin America. The main objective of the program is to improve household well-being. Our findings show that better houses have a positive effect on overall housing conditions and general well-being: treated households are happier with their quality of life. In two countries, we also document improvements in children’s health; in El Salvador, slum dwellers also feel that they are safer. We do not find this result, however, in the other two experimental samples. There are no other noticeable robust effects on the possession of durable goods or in terms of labor outcomes. Our results are robust in terms of both internal and external validity because they are derived from similar experiments in three different Latin American countries.
JEL: I12 I31 J13 O15 O18


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