Comments on “Labor Force and Wage Dynamics” by French, Mazumder and Taber

Discussant dilemma Two approaches –Interpret results –Focus on methods I follow the latter –Results are preliminary –Conference to guide revisions

Question How do wage and employment dynamics –differ over the business cycle? –differ across workers? Policy relevance –Do recessions affect wage growth? –Does welfare to work have potentially large long term effects? Do the least advantaged have different dynamics?

Overview Methodological issues Data Presentation

Methodology General comments –Quality is what I expect from these authors –Face difficult issues that can’t be avoided Technique not for technique’s sake

Methodology Issue #1-- Returns to Tenure –Standard framework--wages grow Within job due to –returns to job specific skills (tenure) –returns to general skills (experience) Between job due to –better job match –offset due to lost returns to tenure

Methodology Authors don’t try to separate returns to tenure from returns to experience –I’m sympathetic since Requires additional strong assumptions Previous studies have shown low returns to tenure for less educated –But it would be useful to policy community Do welfare recipients lose wage gains when they job hop?

Methodology –Suggestion Change exposition to focus on –wage changes within jobs and between jobs –rather than on returns to experience and job match This is all that is identified in this model Study doesn’t provide information on –Returns to specific and general human capital –Whether policy should encourage or discourage job hoping

Methodology Issue #2 -separating returns to experience from shifts in wages that affect everyone –Suppose average wages of workers increase by 4% Does this reflect –returns to experience (and tenure)? –aggregate shifts that affect everyone? Answer important given focus on cycle

Methodology Authors –Reject using non-employed to get time effects unemployed not proper control group –Propose using new entrants to get time effects Assumes –Quality of entrants is independent of cycle –Quality of match is independent of cycle Suggestion –Parameterize time effects by trend and cyclical var This is identified Don’t need to assume parameters change annually Can test rather than eyeball cyclical patterns

Methodology Issue #3 – Selection –Wages increase if workers earn more low wage workers drop out –Solution requires identifying assumption Authors’ assumption: work is independent of –Cyclical variation in wages » make hay while the sun shines –Job match »make hay when farm next door offers job –No suggestion for this problem

Data Use 1984 to 2001 SIPP panels –Good information on Wages employer Problem with monthly data –Seam bias –96 and 01 panels collect employer id only once a wave –Suggestion– treat wave as unit of observation

Presentation Provide better evidence on cyclicality of series Currently cycle is in the eye of the beholder –Indicate recessions –Plot confidence intervals –Parameterize trend and cycle Provide links to trend and cycle in wage inequality

Presentation Provide information on diversity within education groups –Does mean experience of education group apply to most members? Are most (all) welfare recipients likely to have same experiences as average experience of dropouts? Previous evidence suggests not– –Non-managerial job in food industry –In poor family

Presentation Suggestion –Show percentiles of distributions –Quantile regressions

Conclusion Study addresses important question Difficult issues –Well addressed by authors Technique is necessary Cross--tabs won’t do –Early draft that should lead to good paper