The Unassuming Economist

A new VOX post “reviews the evidence on the main causes of the secular decline in employment since the turn of the century. Labour demand factors – notably import competition from China and the rise of industrial robots – emerge as the key drivers. Some labour supply and institutional factors also have contributed to the decline, but to a lesser extent.”

“Among the effects for which we were able to construct an estimate, increased import competition from China is the single largest contributing factor to the decline in employment. A great deal of empirical evidence links import competition from China to the decline in manufacturing employment. These import pressures also had negative employment effects on ‘upstream’ intermediate goods industries, as well as other non-manufacturing industries (Acemoglu et al. 2016, Autor et al. 2015). Estimates from Acemoglu et al. (2016) are the basis for our estimate that the 302% increase in Chinese imports (measured in 2007 US dollars) from 1999 to 2016 led to displacement of approximately 2.65 million workers, a 1.04 percentage point shift in the employment-population ratio.”

“The employment effects from industrial robots are most clearly documented by Acemoglu and Restrepo (2017), who find that each additional robot per thousand workers between 1993 and 2007 reduced employment by 5.6 workers. This estimate implies that the rise in the stock of robots between 2007 and 2016 displaced 0.95 million workers, equivalent to a 0.37 percentage point decline in the employment-to-population ratio.Although improvements in computing technology have been if anything even more ubiquitous, Autor et al. (2015) find that competition from computing technology affects only routine task-intensive occupations, and that any employment losses in those occupations were offset by employment gains in abstract and manual task-intensive occupations.”

Labour supply factors as a group have been considerably less important than labour demand factors in driving the decline in employment.The claim that expanded safety net support through SNAP (food stamps) or Medicaid led to sizable decreases in employment is hard to square with either the institutional features of these programmes or the evidence on causal linkages. Careful work finds little to no labour supply effects of these programmes, and as a practical matter, they offer very little by way of income support to able-bodied childless adults (see, for example, Hoynes and Schanzenbach 2016 on SNAP, and Leung and Mas 2016 on Medicaid.)

That said, the availability of lifelong disability insurance benefits through the Social Security Disability Insurance (SSDI) programme and the Veterans Affairs Disability Compensation (VADC) programme has contributed modestly to falling employment rates. Applying age-group specific causal labour supply estimates from Maestes et al. (2013) to the growth in the SSDI caseload over and above that due to the population becoming older yields an estimated 0.14 percentage point decline in the e/pop ratio over our time period owing to growth in this programme. Applying the labour supply elasticity from a recent study of an exogenous policy change to VADC program eligibility (Autor et al. 2016) to an estimate of the excess VADC caseload implies that programme’s growth led to an e/pop decline of perhaps 0.06 percentage points.

One might expect the tremendous rise in incarceration in the US to have been a significant driver of declining employment, but because so many incarcerated individuals had low levels of labour force attachment even before their prison term, we estimate only a modest aggregate effect. Applying the causal estimates from Mueller-Smith (2015) to rough estimates of the number of former prisoners by length of time served and prior earnings history, our very rough estimate is that perhaps 0.13 percentage points of the decline in e/pop between 1999 and 2016 can be attributed to policy-induced increases in incarceration. Minimum wage increases probably also had a small but non-negligible impact, especially among younger, less-skilled workers. Taking account of the range of estimates produced by credible study designs, we estimate that increases in state and local minimum wages might have contributed 0.10 percentage points to the e/pop decline.

Other plausible factors driving the decline in employment are the sharp rise in occupational licensing (Kleiner and Krueger 2013), the decline in geographic mobility (Molloy et al. 2011), and increased difficulties securing affordable, high-quality child care. We do not attempt to assign a magnitude to these factors because we lack sufficient evidence to establish the causal impact of these factors or, in the case of child care, to assess how much the factor itself has changed. Another open question is to what extent anecdotes about worsening mismatch between the skills workers possess and those that employers need are borne out in the data.

Scholars have noted the connection of both increased leisure time (including time playing video games) (Aguiar et al. 2017) and increased opioid use (Krueger 2017, Currie et al. 2018) with non-employment, but whether one is causing the other or vice versa, or they are all manifestations of other societal changes, is not easy to disentangle.”