1. Michael Reich University of California, Berkeley Capital on Trial conference September 30, 2011

2.  TEW 1979: Combined demand-side gaps and cost-side profit squeezes to identify causes of crises.  Found: Profit-squeeze explained mid1970s crisis, mainly because of RSL.  Caveat: RSL was mainly about rising labor share, not rising labor strength.  In current period, Rising Strength of Management (RSM), especially since 2000.

4.  RSM since 1980s -- decline in union strength -- changes in employment contract- toward more short-term and less commitment --changes in management incentives toward more short term share price What are the consequences? (Note: will ignore globalization, deregulation of finance, etc.)

5.  Main question: Does RSM generate higher UE rates and jobless recoveries?  RSM and changes in incentives to lay off workers  Pieces of the puzzle– in U.S. and Europe  Cycle and trend: estimated changes in Okun’s Law  Data and findings: In Europe, large change in cyclical effect. In U.S., small change in cyclical component, larger change in growth trend  Conclusions

7.  Does RSM generate higher UE rates and jobless recoveries?  Intuition --Unions have declined --LTERs are less common (Farber 2008) -- Increase in short-term, dead-end low-paid jobs = greater labor market dualism --Therefore: more disposable workers and slower productivity growth

8.  Cost-cutting business model: In 1980s and 1990s, share prices increasingly fall less, and rise more, following layoffs (Farber & Hallock 2009)  Consistent with disposable worker thesis of Uchitelle 2006; Gordon 2010, 2011  But in 2000-2007, share price behavior reverts to 1970s pattern (Hallock 2010)  Pattern since 2007?

9.  Temporary contracts = about 10-15 percent of all workers, 35 percent in Spain. Implies 80-90 % of all new hires.  Workers on temp. contracts are paid less, not trained, rarely move to permanent status. (Reich 2009)  Result: more employment variability with business cycle– change in Okun’s Law

10. Figure 2 Trends in temporary (fixed-term) contracts in Europe, 1983-2010

11. Notes: Annual observations. Source: Bertola, Giuseppe 2009. “Labor markets on the verge of a regulation crisis.” Vox-EU.