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The Us Labor Market Questions and Challenges for Public Policy THE US LABOR MARKET QUESTIONS AND CHALLENGES FOR PUBLIC POLICY Dean Baker Martin Feldstein Bhash Mazumder George J. Borjas Jason Furman Robert A. Moffitt Richard V. Burkhauser & Betsey Stevenson Casey B. Mulligan & Mary C. Daly Harry J. Holzer Pia M. Orrenius Peter Cappelli Glenn Hubbard & Madeline Zavodny Miles Corak Melissa S. Kearney Timothy M. Smeeding Tyler Cowen Robert Z. Lawrence Justin Wolfers Edited by Michael R. Strain AMERICAN ENTERPRISE INSTITUTE THE US LABOR MARKET QUESTIONS AND CHALLENGES FOR PUBLIC POLICY Dean Baker Martin Feldstein Bhash Mazumder George J. Borjas Jason Furman Robert A. Moffitt & Betsey Stevenson Richard V. Burkhauser Casey B. Mulligan & Mary C. Daly Harry J. Holzer Pia M. Orrenius Peter Cappelli Glenn Hubbard & Madeline Zavodny Miles Corak Melissa S. Kearney Timothy M. Smeeding Tyler Cowen Robert Z. Lawrence Justin Wolfers Edited by Michael R. Strain AMERICAN ENTERPRISE INSTITUTE ISBN-13: 978-0-8447-5007-1 (hardback) ISBN-10: 0-8447-5007-7 (hardback) ISBN-13: 978-0-8447-5008-8 (paperback) ISBN-10: 0-8447-5008-5 (paperback) ISBN-13: 978-0-8447-5009-5 (ebook) ISBN-10: 0-8447-5009-3 (ebook) © 2016 by the American Enterprise Institute. All rights reserved. No part of this publication may be used or reproduced in any man- ner whatsoever without permission in writing from the American Enterprise Institute except in the case of brief quotations embodied in news articles, critical articles, or reviews. The views expressed in the publications of the American Enterprise Institute are those of the authors and do not necessarily reflect the views of the staff, advisory panels, officers, or trustees of AEI. The American Enterprise Insti- tute is a nonpartisan, nonprofit, 501(c)(3) educational organization and does not take institutional positions on any issues. American Enterprise Institute 1150 17th St. NW Washington, DC 20036 www.aei.org Contents Acknowledgments vii Preface ix Michael R. Strain I. Should We Be Concerned About the State of Economic Mobility in the US? 1 How Much Social Mobility? More, but Not Without Other Things 2 Miles Corak What Should Be Done to Increase Intergenerational Mobility in the US? 14 Bhash Mazumder II. Is Productivity the Most Important Determinant of Compensation? 29 Marginally True: The Connection of Pay to Productivity 30 Dean Baker Does Productivity Still Determine Worker Compensation? Domestic and International Evidence 42 Robert Z. Lawrence iii iv THE US LABOR MARKET III. How Can We Build Workers’ Skills? 63 Is “Skill” a Topic for Policy? 64 Peter Cappelli Worker Skills and the US Labor Market: What Role Should Policy Play? 77 Harry J. Holzer IV. How Can We Make Work Pay? 95 Supporting Work, Inclusion, and Mass Prosperity 96 Glenn Hubbard What Do We Really Know About the Employment Effects of the Minimum Wage? 106 Justin Wolfers V. Do Public Policies That Reduce the Reward to Work Significantly Diminish Labor Supply? 121 The US Safety Net and Work Incentives: Is There a Problem? What Should Be Done? 122 Robert A. Moffitt The Rise of Employment Taxation 138 Casey B. Mulligan VI. What Are the Economic Effects of Lesser-Skilled Immigration on Lesser-Skilled Native Workers? 151 Low-Skill Immigration 152 George J. Borjas Less-Skilled Immigration: Economic Effects and Policy Responses 166 Pia M. Orrenius and Madeline Zavodny CONTENTS v VII. Would Cutting the Corporate Tax Rate Significantly Increase Jobs in the US? 179 Would Reducing the US Corporate Tax Rate Increase Employment in the United States? 180 Martin Feldstein Business Tax Reform and the Labor Market 187 Jason Furman and Betsey Stevenson VIII. What Should We Do About Those Americans Who Are Especially Difficult to Employ? 203 Making Work a Priority for Working-Age People with Disabilities 204 Richard V. Burkhauser and Mary C. Daly How to Help the Hard to Employ: A Focus on Young Men, Especially the Ex-Incarcerated 221 Timothy M. Smeeding IX. Should We Be Concerned About Income Inequality? 247 Is the Concept of Inequality the Best Way of Thinking About Our Economic Problems? 248 Tyler Cowen Should We Be Concerned About Income Inequality in the United States? 264 Melissa S. Kearney About the Authors 281 Acknowledgments I thank Rachel Ayerst Manfredi for pushing me to edit a volume on the labor market, and for reminding me that there would be conse- quences if I didn’t come through. I’m very grateful to Harry J. Holzer for his advice in the early stages of this project, to Jon Rodeback and Sarah Crain for their excellent work in editing the papers in this volume, to Claude Aubert for taking Word documents and turning them into a beautiful finished product, to Judy Mayka Stecker for her hard work and support, and to all the others at the American Enterprise Institute who contributed to this volume. And I am grate- ful, in advance, to the AEI staff who will promote this volume far and wide. Bradley Wassink is due special recognition. He played a key role in this project’s conception and in shepherding that idea to its final form. It is quite fair to say that this volume would not exist—at least not as you see it in these pages—without him. vii Preface f I asked you to tell me about yourself, there’s a good chance you’d I begin with your job. “I’m a teacher.” “I’m a nurse.” There is some- thing noble behind the impulse to lead with your occupation: we want to contribute to society, and for many of us employment is a key avenue for social contribution. Especially in a market economy— where comparative advantage is rewarded and incentives exist to discover yours, nurture it, and apply it—who we are is, to a large degree, how we choose to contribute. Work allows us to provide and care for our children. (That the national income statistics don’t reflect much of this work says noth- ing about its immense value.) Work fosters community—there is something unique and edifying in enjoying the company of your coworkers after that long, hard project is finally completed or the work week has come to a close. The best antidote for boredom and vice is often a good job. Among other features, the expressive- ness inherent in work—its creative element—is, or at least can be, deeply spiritual. Indeed, work is central to the flourishing life. And public policy, in its effort to promote the common good, is properly interested in helping to create a vibrant labor market in which individuals can earn their own success, realize their potential, and enjoy the dignity that hard work provides. This effort is challenged, of course, by the realities and evolu- tion of the labor market. There are short-term challenges, to be sure. But the labor market faces longer-term, slower-burning challenges as well—a long-standing decline in workforce participation among working-age men, high unemployment among minority youth, low rates of employment among the less educated, changes to the struc- ture of family and community, the effects of technological change on ix x THE LABOR MARKET IN THE UNITED STATES the structure of occupations and earnings, the globalization of labor and product markets, the economic and social effects of immigra- tion, persistent poverty, changes and challenges in skill acquisition, unintended consequences of existing public policy, changes in the relationship between workers and firms, and so much more. How should policy respond, adapt, keep up? How should we know whether a new or changing feature of today’s labor market is a problem that merits concern, or is just a reality to be accepted? A good way to start is by asking the right questions. This volume asks some (though far from all) of the most important: Should we be concerned about economic mobility in the US? Is productivity the most important determinant of compensation? How can we make work pay? Would cutting corporate tax rates increase jobs in the US? Do public policies that reduce the reward to work significantly diminish labor supply? How can we build workers’ skills? Does lesser-skilled immigration hurt lesser-skilled native workers? What should we do about workers who are especially difficult to employ? Should we be concerned about inequality? These are hard questions, without clear or obvious answers. To make progress on them, let me advance an argument: a competitive market in ideas is the best way to figure out the world, and to find the best solutions to our problems. This volume makes manifest that argument. In its pages, each of the questions outlined above is answered by economists—twice. Two papers address each of the questions above, each with a differ- ent point of view and a different emphasis. These challenges aren’t going anywhere anytime soon—the essays in this volume will be relevant for many years to come. But these essays can inform policy, helping it to move in a better direction—in a direction that will help the economy, sure. But more importantly, in a direction that will help all of us to contribute, to realize our poten- tial, to lead lives of dignity and fulfillment. M. R. Strain Washington, DC June 2016 I Should We Be Concerned About the State of Economic Mobility in the US? 1 How Much Social Mobility? More, but Not Without Other Things MILES CORAK University of Ottawa hania Twain is one of my favorite musicians. What’s not to like? SHer powerful voice, heartfelt songs, and unstoppable energy propelled her to the top of the charts during the 1990s and early 2000s. In fact, that’s an understatement. She was among the best- selling country-pop singers of all time, album after album winning award after award.
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