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The Annals of Regional Science

Erschienen in:

01.06.2006 | Original Paper

Restricting access in a job chains model of local employment creation

verfasst von: Joseph Persky, Daniel Felsenstein

Erschienen in: The Annals of Regional Science | Ausgabe 2/2006

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Abstract

The job chains model of local labor market change is a demand-driven analytic device for estimating the effects of new job creation. This paper explores the effects of restricting supply, i.e., limiting job access, on the model’s primary outcomes: vacancy chain multipliers, welfare effects, and distributional impacts. Major sources of labor supply are the local unemployed, out of the labor force and in-migrants. Three simulations are reported relating to (1) restricting new jobs to current local residents (i.e., no in-migrants), (2) restricting new jobs to current residents in the first round of hiring only, and (3) restricting hiring to local unemployed/out of labor force on the first round alone. The results are compared to the basic model that assumes no supply-side restrictions. In terms of chain length, welfare effects, distributional impacts, and policy palatability, first-round restrictions on in-migrants would seem to be the most plausible option. However, as an economic development strategy, well-targeted demand-side initiatives would still seem to be preferable.

Vorheriger Artikel Job search success and employability in local labor markets

Nächster Artikel Innovation and regional absorptive capacity: the labour market dimension

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On job creation and the chain approach see Persky et al.(2004). There is a continuing interest among economists in job-creation as part of the broader process of job creation and destruction. This literature is well-summarized in Davis and Haltiwanger (1999). Job creation and destruction have been identified as central factors in the determination of endogenous growth following the Schumpeterian approach of Aghion and Howitt (1999). These perspectives are potentially consistent with a chain approach, but the job creation/job destruction literature has not intensively explored the connections. Something of an exception in this respect are Schettkat (1996) and Gorter and Schettkat (1999), who speculate on the importance of chains.

Much of the new development economics is highly critical of import substitution policies in poor countries. Development economists now blame overeager and carelessly designed import substitution programs for exacerbating a range of third-world problems (Pack 1987). These are serious charges, although we suspect the pendulum has swung too far.

By local “economic development programs,” we have in mind the traditional type of smokestack chasing in which a municipality or state subsidizes firms locating in their jurisdiction. Implicitly, we assume that the subsidies have no important effects on the composition of employment or the hiring patterns of the firm.

The considerable literature on search and matching models in the labor market are reviewed by Mortennsen and Pissarides (1999). While such models can generate “involuntary” unemployment/underemployment, they often seem to lack the gross inefficiency of earlier Keynesian treatments. As such, our approach seems more consistent with the new Keynesian emphasis on efficiency wages (e.g., Bulow and Summers 1986) as a reasonable formalization of older models of dual labor markets, i.e., Doeringer and Piori (1971).

Ideally, job categories should be defined by a number of relevant characteristics, including, but not limited to wages, working conditions, stress, and security. Research such as that by Gittleman and Howell (1995) makes clear that jobs are multidimensional entities. The present, still exploratory estimation of the Q matrix does not attempt such an ambitious categorization, but this is an obvious direction for future research.

Two data concerns should be noted. First, detailed job data from the PSID are only available for household heads (including unrelated individuals with their own household) and their spouses. Second the PSID data set does not provide a continuous job history even for spouses. On the other hand, the PSID is an attractive data set because it allows us to define both firm changers and position changers, where the first denotes a change of employers and the second a change of jobs within the same business. This means we are considering intrafirm and interfirm mobility as workers move along job chains. For the national PSID sample, about 600 individuals (heads and spouses) a year take new positions, with sufficient documentation to be included in this study. Of these, half are starting with a new employer. For more information on the sample data, its problems and advantages see Persky et al. (2004).

Another potential candidate for terminating a job chain is “job destruction.” Our treatment of job destruction here is similar to that of downward job mobility. A newly created job and resulting chain do not cause job destruction any more than they cause downward mobility. Job destruction is an exogenous event. Thus, the question is “What would the person, whose job is destroyed, be doing in the absence of the vacancy created by the chain?” Implicitly, we are assuming that all displaced workers whose jobs are destroyed and then find employment along a relevant chain would have been proportionately spread among the origin-cells (employed and not locally working) in the appropriate column. This assumption, like the similar assumption about downward mobility, is a key target for future research.

Note that a newly created job at any level might be a direct job, an indirect job, or an induced job in standard input-output terminology. Each new job, whether direct or not and regardless of pay level, gives rise to a vacancy chain.

When Q is taken to be triangular, the chain lengths, M _j, are relatively easy to calculate in a recursive manner. In particular, if we follow our ranking of skill levels from 1 as the highest to n as the lowest, then: \( {\text{M}}_{n} = 1 \mathord{\left/ {\vphantom {1 {{\left( {1 - q_{{nn}} } \right)}{\text{, M}}_{{n{\text{ - 1}}}} = {\left[ {1 \mathord{\left/ {\vphantom {1 {(1 - q_{{{\left( {n - 1} \right)}{\left( {n - 1} \right)}}} )}}} \right. \kern-\nulldelimiterspace} {(1 - q_{{{\left( {n - 1} \right)}{\left( {n - 1} \right)}}} )}} \right]}}}} \right. \kern-\nulldelimiterspace} {{\left( {1 - q_{{nn}} } \right)}{\text{, M}}_{{n{\text{ - 1}}}} = {\left[ {1 \mathord{\left/ {\vphantom {1 {(1 - q_{{{\left( {n - 1} \right)}{\left( {n - 1} \right)}}} )}}} \right. \kern-\nulldelimiterspace} {(1 - q_{{{\left( {n - 1} \right)}{\left( {n - 1} \right)}}} )}} \right]}}{\text{ }}{\left[ {{\text{1 + q}}_{{n{\left( {n{\text{ - 1}}} \right)}}} M_{n} } \right]}{\text{, M}}_{{n{\text{ - 2}}}} = \left[ {1 \mathord{\left/ {\vphantom {1 {{\left( {1 - q_{{{\left( {n - 2} \right)}{\left( {n - 2} \right)}}} } \right)}}}} \right. \kern-\nulldelimiterspace} {{\left( {1 - q_{{{\left( {n - 2} \right)}{\left( {n - 2} \right)}}} } \right)}}} \right.{\left( {1 + q_{{{\left( {n - 2} \right)}{\left( {n - 2} \right)}}} M_{{n + 1}} + q_{{{\left( {n{\left( {n - 2} \right)}} \right)}}} M_{n} } \right)} \ldots \)

By assumption, this figure cannot be greater than 75% of the wage. For sensitivity analysis of the approach used here, see Persky et al. (2004).

In this section, we continue the assumption that demand side interventions take the form of direct subsidies to firms. Supply side interventions would then require firms to demonstrate that they have hired from specified labor pools, e.g., residents, local unemployed, etc.

While churning within a wage group may be associated with some second order welfare improvements, we ignore these in our welfare measure V/w.

However, notice long standing critique of the Appalachian program where in-migrants took many newly created subsidized jobs (Hansen 1970).

Aghion P, Howitt P (1999) Endogenous growth theory. MIT Press, Cambridge, MA

Bartik TJ (1991) Who benefits from state and local economic development policies? W.E. Upjohn Institute for Employment Research. Kalamazoo, MI

Bartik TJ (2001) Jobs for the poor: can labor demand policies help? Russell Sage, New York and W.E. Upjohn Institute for Employment Research, Kalamazoo, MI

Bernhardt et al (2001) Divergent paths: economic mobility in the new American labor market. Russell Sage, New York

Bewley T (1999) Why wages don’t fall during a recession. Harvard Univ. Press, Cambridge, MA

Bulow J, Summers L (1986) A theory of dual labor markets with application to industrial policy, discrimination, and Keynesian unemployment. J Labor Econ 4(3):376–414CrossRef

Davis S, Haltiwanger J (1999) Gross job flows. In: Ashenfelter O, Card D (eds) Handbook of labor economics, vol 3B. Elsevier, Amsterdam

Doeringer P, Piore M (1971) Internal labor markets and manpower analysis. Heath, Lexington, MA

Feldman D (1996) The nature, antecedents and consequences of underemployment. J Manage 22(3):385–407CrossRef

Gittleman M, Howell D (1995) Changes in the structure and quality of jobs in the United States: effects by race and Gender, 1973–1990. Ind Labor Relat Rev 48(3):420–440

Gorter C, Schettkat R (1999) On musical chairs and matching models: do employed job seekers crowd out the unemployed? Mimeo, Department of Regional Economics, Free University, Amsterdam

Hansen N (1970) Rural poverty and the urban crisis. Indiana Univ Press, Bloomington, IN

Mortennsen D, Pissarides C (1999) New developments in models of search in the labor market. In: Ashenfelter O, Card D (eds) Handbook of labor economics, vol 3B. Elsevier, Amsterdam

Pack H (1987) Productivity, technology and industrial development. Oxford Univ Press, Oxford, UK

Persky J, Felsenstein D, Carlson V (2004) Does trickle-down work in local labor markets? Job chains and the evaluation of local economic development. Upjohn Institute of Employment Research, Kalamazoo, MI

Schettkat R (1996) Flows in labor markets: concepts and international comparative results, 14–36. In Schettkat R (ed.) The flow analysis of labor markets. Routledge, London

Titel: Restricting access in a job chains model of local employment creation
verfasst von: Joseph Persky
Daniel Felsenstein
Publikationsdatum: 01.06.2006
Verlag: Springer-Verlag
Erschienen in: The Annals of Regional Science / Ausgabe 2/2006
Print ISSN: 0570-1864
Elektronische ISSN: 1432-0592
DOI: https://doi.org/10.1007/s00168-006-0067-5

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