Essays on Changing Labor Markets and the Macroeconomy

Abstract

This thesis furthers our understanding of several recent changes affecting labor markets and the macroeconomy. Chapter 1 addresses the role of technological change in the recent polarization of the labor market through a quantitative assessment of the relative price of investment channel, using an extension of the standard growth model, allowing for an endogenously determined supply and demand for occupational labor. The model is able to account for a substantial fraction of changes in relative employment and wages across occupations, but only through the year 2000, suggesting a reduced role for technological change in the last decade. The model is also able to capture 25% of the observed decline in the labor share and 35% of the decline in the employment to population ratio after 2000, suggesting a substantial role for secular factors in recently sluggish labor markets.

Chapter 2 addresses the recent decline of the U.S. labor share and its relation to changes across occupations specializing in different tasks, reaching two main conclusions. First, the labor share decline is linked to the decline of compensation of workers employed in routine occupations. Second, until the year 2000, most of this decline in routine compensation was offset by growth in income paid to high-skill occupations, but this growth ceased in the year 2000, generating the accelerated decline in the labor share thereafter. I show that this recent slowdown of high skill compensation is specific to certain detailed industries and occupations and suggest implications of this evidence for theories of the slowdown.

Chapter 3 makes several points regarding changes in the cyclicality of labor productivity. I show the that change in cyclical productivity is not statistically synonymous with recent jobless recoveries, but is synonymous with the change in the relative cyclical volatility of hours and output. I show there is substantial heterogeneity in this relative volatility within industries and across time, and that aggregate changes in this relative volatility are also partially explained by changes in between industry co-movements. Existing theories focusing on changes in labor frictions appear unable to fully reconcile these facts.