Research

America has a two-dimensional jobs crisis. It faces as persistent jobs deficit — the economy is not producing enough jobs to recoup those lost in the Great Recession — and the quality of jobs as measured by wages, benefits, and job satisfaction has been declining for many years.Yet the government is paralyzed. Nothing is being done to address this crisis, and it appears government is incapable of doing anything significant any time soon. A different approach is needed. In this working paper I attribute the root causes of the crisis to a market failure and an institutional failure. Individual employers do not have an incentive to create jobs in the U.S., but the overall business community does need healthy growth in good-paying jobs. Normally a market failure such as this can be overcome by coordinating the individual parties in some way. Government, labor, or even the business community acting at the association or sector levels might play this coordinating role. But America also suffers from an institutional failure — there is no constructive dialog at the aggregate business community level or across the business, education, and labor communities needed to overcome this market failure. I propose creating a Jobs Compact with a concrete goal — create 20 million high quality jobs by 2020. This is the number of  new jobs the President's Jobs and Competitiveness Council estimates we need to close the jobs deficit by the end of this decade. I suggest universities in general and business schools in particular take the lead in bringing these parties together to negotiate specific provisions of a 20-20 Jobs Compact and to commit to concrete steps needed to reach this goal. I welcome comments and suggestions on how to make this happen.

This Research & Policy Brief provides a discussion of project labor agreements and their role in creating high-road construction jobs. The Los Angeles Unified School District is put forth as an example of a major employer in Los Angeles adhering to such an agreement. The brief highlights the success of the LAUSD in meeting the goals of its agreement. LAUSD has achieved or surpassed its goals around small business enterprise participation and apprentice hires. The school district is on track to achieve its goal of 50 percent local hires.

In this paper I start with the simple observation that workers are more vulnerable in times of economic contraction than in times of economic growth.  The purpose of my paper is two-fold.  First is to unpack the underlying reasons for that phenomenon.  Second is to propose a solution that makes workers less vulnerable during recession, and which employers can buy into.  My solution — to compel bargaining over mass layoffs and plant closings regardless of whether the workers are unionized — is both economically efficient and values the autonomy and dignity of the worker.

"The Relevance of the Wagner Act for Resolving Today's Job-security Crisis" was originally published in the 2010 Labor and Employment Relations' Annual Proceedings, Used with permission.

To improve the employment rates and earnings of Americans workers, we need to create more-coherent and more-effective education and workforce development systems, focusing primarily (though not exclusively) on disadvantaged youth and adults, and with education and training more clearly targeted towards firms and sectors that provide good-paying jobs. This paper proposes a new set of competitive grants from the federal government to states that would fund training partnerships between employers in key industries, education providers, workforce agencies, and intermediaries at the state level, plus a range of other supports and services. The grants would especially reward the expansion of programs that appear successful when evaluated with randomized controlled trial (RCT) techniques. The evidence suggests that these grants could generate benefits that are several times larger than their costs, including higher earnings and lower unemployment rates among the disadvantaged.

Published by the Hamilton Project, Brookings Institution (Karen Anderson, managing director: kanderson@brookings.edu). Used with permission.

Is uncertainty causing small business owners to behave in ways that are hindering the recovery? That question is at the center of an intense public debate. Though reasonable arguments have been presented on both sides, there is not much empirical evidence to draw on. To contribute some to the discussion, we investigated the statistical association between data on small business plans to hire and make capital expenditures and a measure of policy uncertainty. Our analysis suggests that uncertainty is adversely affecting small business owners’ expansion plans.

Shane's co-author, Mark E. Swhweitzer, is senior vice president and director of research at the Federal Reserve Bank of Cleveland.

Published online by the Federal Reserve bank of Cleveland on Nov. 29, 2011.

Private equity critics claim that leveraged buyouts bring huge job losses. To investigate this claim, we construct and analyze a new dataset that covers U.S. private equity transactions from 1980 to 2005. We track 3,200 target firms and their 150,000 establishments before and after acquisition, comparing outcomes to controls similar in terms of industry, size, age, and prior growth. Relative to controls, employment at target establishments declines 3 percent over two years post buyout and 6 percent over five years. ... But target firms also create more new jobs ... When we consider these additional adjustment margins, net relative job losses at target firms are less than 1 percent of initial employment. In contrast, the sum of gross job creation and destruction at target firms exceeds that of controls by 13 percent of employment over two years. In short, private equity buyouts catalyze the creative destruction process in the labor market, with only a modest net impact on employment. The creative destruction response mainly involves a more rapid reallocation of jobs across establishments within target firms.

© Steven J. Davis, John C. Haltiwanger, Ron S. Jarmin, Josh Lerner, Javier Miranda

The younger companies are, the more jobs they create, regardless of their size.

The popular perception that small businesses create most of America's jobs has been the focus of heated debate for three decades. However, the more telling characteristic for predicting job creation is the age of the firm, not its size, according to a new study ... , the researchers conclude that the younger companies are, the more jobs they create, regardless of their size.

"Firm startups account for only 3 percent of employment but almost 20 percent of gross job creation," the authors write. "[T]he fastest growing continuing firms are young firms under the age of five."

                                                                         – Excerpted from Lauren Belsie's NBER digest

National Bureau of Economic Research Working Paper 16300

Using a study of the relationship between bureaucratic work environments and individual rates of entrepreneurship, I revisit a fundamental premise of sociological  approaches to entrepreneurship, namely, that the social context shapes the likelihood of entrepreneurial activity above and beyond any effects of individual characteristics. Establishing such contextual effects empirically complicated by the possibility that unobserved individual traits influence both the contexts in which people are observed and their likelihood of becoming entrepreneurs.

This paper presents the first systematic study of the effects of bureaucracy on entrepreneurship that accounts for unobserved sorting processes. Analyses of data on labor market attachments and transitions to entrepreneurship in Denmark between 1990 and 1997 show that  people who work for large and old firms are less likely to become entrepreneurs, not of a host of observable individual characteristics. Moreover, there is strong evidence to suggest that this negative effect of bureaucracy does not spuriously reflect self-selection by nascent entrepreneurs into different types of firms.  ...

First published in Administrative Science Quarterly, 52 (2007): 387-412. A Russell Sage publication on behalf of Johnson Graduate School of Management at Cornell University.

Abstract: "We use a new database, the National Establishment Time Series (NETS), to revisit the debate about the role of small businesses in job creation. Birch (e.g. 1987) argued that small firms are the most important souce of job creation in the U.S. economy, but Davis et al. (1996a) argued that this conclusion was flawed, and based on improved methods and using data for the manufacturing sector they concluded that there was no relationship between establishment size and net job creation. Using the NETS data, we examine evidence for the overall economy, as well as for different sectors. The results indicate that small establishments and small firms create more jobs, on net, although the difference is much smaller than what is suggested by Birch's methods. However, the negative relationship between establishment size and job creation is much less clear for the manufacturing sector, which may explain some of the earlier findings contradicting Birch's conclusions."

Published in February 2008 by the National Bureau of Economic Research Working Paper 13818.

Reynolds defines biomanufacturing as "a technologically advanced, innovative industry that requires highly skilled workers with commensurately high pay." U.S. biomanufacturing originally located plants where skilled labor lived (chiefly New England and California). U.S. still leads the world in biomanufacture, but increases in productivity, better processes and tax advantages have led to "flat growth in N.A. and Europe 2010 to 2013.” The trend, writes Reynolds, is for companies to "look farther afield to seek out new markets, higher margins." She ends with policy suggestions to keep biomanufacturing, its 300,000 jobs and $90k salaries in the U.S.:

• Lower corporate taxes; encouragement of investment in capital, education and R&D.
• Increase federal R&D funding; cooperate with FDA for effective, efficient regulation.
• Encourage growth in talent pool at community college, baccalaureate and grad school levels.
• Increase communication within the biomanufacturing industry.

 Published in March 2011 by the Massachusetts Institute of Technology Industrial Performance Center.