Transcript Recent Trends in Worker Quality: A Midwest Perspective Daniel Aaronson and Daniel Sullivan Federal Reserve Bank of Chicago November 2002

Recent Trends in Worker Quality:
A Midwest Perspective
Daniel Aaronson and Daniel Sullivan
Federal Reserve Bank of Chicago
November 2002
Worker Quality
• AKA Worker Composition
• Quantifies impact on labor productivity of
certain aspects of the human capital stock
–
–
–
–
Years of Education
Years of Potential Experience
Sex
Other factors?
Worker Quality
• One of several factors underlying labor
productivity growth
– Accounts for 0.22 of 2.7 percent average
growth in labor productivity since 1967
• Drives wages as well
• May be influenced by public policies
Worker Quality Methodology
• Basic assumption is that variation in wages
across workers reflects productivity
• Can use cross-sectional data to quantify the
impact of worker characteristics on wages
• Implies we can quantify the productivity
impact of changes over time in the
distribution of worker characteristics
Methodological Caveats
• Misses all but the most gross variation in
education and work experience
– Year at Harvard = Year at Community College
• Wages may not equal productivity
– Discrimination, signaling, rat race, etc
• Misses externalities from education
– workers may not capture the full benefits their
of education
Preview of Results
• Labor quality growth varies over time
• Relatively rapid in late 1980s and early
1990s (0.5 percentage points per year)
• Recently about half that fast
• Labor quality growth likely to slow further
– Education levels will be rising more slowly
– Baby boomers will be going over the hill
Midwest
•
•
•
•
•
Very similar to the nation as a whole
Recently caught up to nation in education
Somewhat better than nation on experience
Overall, slightly above nation in level
Modestly faster growth over last 20 years
U.S. Educational Attainment
• Very large increases over the last century
• Rapid increases in early 1970s and 1980s
– Driven by entrance of large baby-boom cohorts
• Slowing somewhat since then
– Less favorable demographics offset increases
in enrollment rates
• Significant role for adult education?
Current Population Survey
• Monthly “mini census”
• March Annual Demographic Files
– At least 50,000 households per year
– Available (conveniently) since 1964
• Outgoing Rotation Groups (Earner Study)
– At least 150,000 households per year
– Available since 1979
U.S. Age Distribution
• Average age of workers rose over the last
century
• Average age declined significantly with
entry of baby boom
• Started rising again in the mid 1980s
• Soon we will see a falling share of primeage workers
Age Distribution
• Mean is not a sufficient statistic
• Wages first rise, then eventually fall with
work experience
• Define
– Young: Under 30
– Prime age: 30-54
– Old: 55 and and up
Other Workforce Characteristics
• Rising fraction of work force is female
• Minority share is growing
– Midwest has lower share of minorities
• Fraction married is shrinking
– Midwest somewhat above average
• Unionization is declining
– Midwest much higher than average
Fraction of Working Population that is Female
0.5
0.48
0.46
0.44
0.42
0.4
0.38
0.36
0.34
0.32
Midwest
U.S.
00
20
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
19
70
19
68
19
66
19
19
64
0.3
Fraction of Population that is Nonwhite
0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
U.S.
Midwest
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
0
Fraction of Working Population that is Union
0.35
0.3
0.25
0.2
0.15
0.1
0.05
Midwest
U.S.
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
0
Midwest
U.S.
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
00
98
96
94
92
90
88
86
84
82
80
78
76
74
72
70
68
66
64
Fraction of Population that is Married
0.8
0.75
0.7
0.65
0.6
0.55
0.5
Labor Quality Methodology
• Estimate regression model for logarithm of
wages as a function of
– Education (< HS, HS only, Some College,
College, Post-graduate)
– Potential experience (Age minus years of
education) interacted with sex
– Other variables (Race, Marital status, etc)
Labor Quality Methodology
• Predict wages of sampled workers at time
t0 and time t1 using time t0 regression
• Calculate ratio of average predicted wages
in the two periods
• Repeat using time t1 regression
• Take geometric average to get growth rate
of worker quality from t0 to t1
Labor Quality Methodology
• For some calculations we use a single
regression model estimated in the middle
(1980) year of period
• Get predicted level of wages for a region
in a particular year assuming the national
structure of wages in 1980
Forecast Methodology
• Take as given Census Bureau forecasts of
population over the decade
• Estimate a model of educational attainment
as a function of age, cohort and
demographic characteristics
– Extrapolate to get educational propensities
for cohorts not yet in the data
Forecast Methodology
• Estimate model of labor force participation
as a function of age, cohort, demographic
characteristics, and educational attainment
– Extrapolate to get labor force participation
propensity for cohorts not yet in the data
• Evaluate the predicted worker distributions
of characteristics using regression model for
last time period
U.S.
Midwest
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
Labor quality level
Regional Labor Quality, Education only
March CPS
3.4
3.3
3.2
3.1
3.0
2.9
2.8
2.7
2.6
2.5
State Labor Quality, Education only, ORG CPS
3.5
3.4
3.3
3.2
3.1
3
2.9
U.S.
Ohio
Illinois
Wisconsin
Indiana
Iowa
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
2.8
Michigan
U.S.
Midwest
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
Labor quality level
Regional Labor Quality, Experience only
March CPS
1.75
1.70
1.65
1.60
1.55
State Labor Quality, Experience Only, ORG CPS
1.7
1.68
1.66
1.64
1.62
1.6
1.58
1.56
1.54
1.52
U.S.
Ohio
Illinois
Wisconsin
Indiana
Iowa
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1.5
Michigan
Regional Labor Quality, Education plus Experience
March CPS
5.00
4.90
4.70
4.60
4.50
4.40
4.30
4.20
4.10
U.S.
Midwest
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
4.00
1964
Labor quality level
4.80
State Labor Quality, Education and Experience, ORG CPS
5.1
5
4.9
4.8
4.7
4.6
4.5
4.4
4.3
U.S.
Ohio
Illinois
Wisconsin
Indiana
Iowa
Michigan
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
4.2
State Labor Quality in 2001
U.S.
Illinois
Indiana
Iowa
Michigan
Ohio
Wisconsin
Low State
High State
Education
Experience
Both
3.207
1.632
4.839
3.229
1.621
4.851
3.153
1.648
4.801
3.208
1.626
4.835
3.229
1.635
4.864
3.197
1.637
4.834
3.174
1.631
4.805
3.112
1.579
4.732
3.440
1.658
5.019
Labor Quality, Education plus Experience, By Major Midwest MSA
(1990 rates of return)
7.0
6.9
6.8
6.7
6.6
6.5
6.4
6.3
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Cleveland
Indianapolis
Chicago
Milwaukee
Des Moines
U.S.
Detroit
Distribution of Real GSP per Worker
25
15
10
5
State Rank
1980
1990
2000
49
46
43
40
37
34
31
28
25
22
19
16
13
10
7
4
0
1
Real GSP per Capita
20
Variation in Real GSP per worker
Std Dev
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
1.77
1.83
1.93
2.11
2.04
1.88
1.83
1.90
1.75
1.89
1.91
2.03
1.95
1.96
1.99
2.02
2.04
2.14
2.16
2.28
2.19
2.10
2.20
1 Alaska, Louisiana, Texas.
Coef of Variation
No DC,
No DC
Alaska
All
0.36
0.37
0.38
0.41
0.41
0.37
0.35
0.36
0.33
0.35
0.35
0.37
0.35
0.35
0.35
0.35
0.35
0.36
0.36
0.36
0.34
0.32
0.33
0.25
0.25
0.28
0.31
0.30
0.25
0.24
0.26
0.21
0.25
0.24
0.24
0.22
0.19
0.18
0.18
0.17
0.17
0.17
0.16
0.15
0.16
0.16
0.15
0.15
0.15
0.14
0.14
0.14
0.14
0.14
0.15
0.15
0.16
0.16
0.16
0.16
0.15
0.15
0.15
0.15
0.15
0.15
0.15
0.15
0.16
No DC,
Oil states 1
0.15
0.15
0.15
0.14
0.14
0.14
0.14
0.14
0.15
0.15
0.16
0.17
0.16
0.16
0.15
0.15
0.15
0.15
0.15
0.15
0.15
0.16
0.16
GSP per Worker vs. Labor Quality in 2000
No DC or Alaska
2.4
log(GSP per Worker, 2000)
2.2
2
1.8
1.6
1.4
1.2
1
1.76
y = 0.83x + 0.34
(1.12) (2.03)
1.78
1.8
1.82
log(Labor Quality, 2000)
1.84
1.86
1.88
Growth in GSP per worker vs. Labor Quality
No DC or Alaska
GSP per worker growth, 1980-2000
0.7
0.6
0.5
0.4
0.3
0.2
y = 0.98x + 0.27
(0.87) (0.05)
0.1
0
0
0.02
0.04
0.06
Labor quality growth, 1980-2000
0.08
0.1
Regressions of annual log real GSP per worker on
annual log labor quality level, 1980-2000
Coefficient
OLS
simple std error
robust, state clustered std err
0.646
(0.146)
(0.319)
Robust regression
simple std error
0.607
(0.117)
Quantile regression
25th percentile
simple bootstrapped std error
0.813
(0.217)
50th percentile
simple bootstrapped std error
0.564
(0.244)
75th percentile
simple bootstrapped std error
0.408
(0.155)
All regressions include year and state fixed effects.
Summary
• Worker quality growth is slowing due to
less favorable demographic trends
• Midwest as a whole very similar to the U.S.
• (Very) modest evidence of the importance
of worker quality for gross state product