LABOR MARKET OUTCOMES AND EMPLOYMENT POLICY A DISSERTATION IN Economics and Mathematics Presented to the Faculty of the University of Missouri-Kansas City in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY by Brandon Oakley McCoy B.A., Lewis & Clark College, 2011 M.A., University of Missouri-Kansas City, 2016 Kansas City, Missouri 2020 LABOR MARKET OUTCOMES AND EMPLOYMENT POLICY Brandon Oakley McCoy, Candidate for the Doctor of Philosophy Degree University of Missouri-Kansas City, 2020 ABSTRACT The first chapter contains an empirical analysis of labor market outcomes. Using the Quarterly Census of Employment and Wages microdata, individual labor market experiences are tracked over time. Not only is the employment relationship unstable, but the instability is concentrated among a subset of the population and is strongly correlated with earnings. There exist two explanations for the observed segmentation of the labor market: feedbacks from fluctuations across the business cycle and segmentation of labor divides workers and thus strengthens the relative power of capital over labor. The last two chapters focus on employment policy, addressing each of the two explanations of segmentation in turn. The second chapter develops a stock-flow consistent model that considers how the Employer of Last Resort policy, which guarantees jobs to all those who are willing and able, and increases stability by reducing fluctuations and uncertainty across the business cycle. The third chapter examines the institutional structure from which power emerges and argues that the Employer of Last Resort would displace the problematic institutions and facilitate an institutional adjustment towards a more inclusive provisioning process. iii APPROVAL PAGE The faculty listed below, appointed by the Dean of the School of Graduate Studies, have examined a dissertation titled “Labor Market Outcomes and Employment Policy,” presented by Brandon Oakley McCoy, candidate for the Doctor of Philosophy degree, and certify that in their opinion it is worthy of acceptance. Supervisory Committee Peter Eaton, Ph.D., Committee Chair Department of Economics James Sturgeon, Ph.D. Department of Economics Ellis Scharfenaker, Ph.D. Department of Economics Majid Bani, Ph.D. Department of Mathematics David Spade, Ph.D. Department of Mathematics iv CONTENTS ABSTRACT ....................................................................................................................... iii LIST OF ILLUSTRATIONS .......................................................................................... viii LIST OF TABLES ............................................................................................................. ix ACKNOWLEDGMENTS ...................................................................................................x Chapter 1. AN UNSTABLE AND SEGMENTED LABOR MARKET: EVIDENCE FROM THE QUARTERLY CENSUS OF EMPLOYMENT AND WAGES MICRODATA ...................................................................................................1 Abstract .....................................................................................................1 Introduction ...............................................................................................2 On the Existing Literature .........................................................................4 On the Data ...............................................................................................5 On the Measurement of Variables ............................................................8 On the Magnitude and Composition of Labor Market Flows .................13 On the Distribution of Labor Market Flows ...........................................23 Conclusion ..............................................................................................27 2. THE EMPLOYER OF LAST RESORT AND ECONOMIC STABILITY: A STOCK-FLOW CONSISTENT MODEL ....................................................29 Abstract ...................................................................................................29 Introduction .............................................................................................30 Theoretical Framework ...........................................................................32 The Model ...............................................................................................36 The Institutional Setting and Key Assumptions....................37 v The Accounting Framework .................................................41 The Real Production Decision ..............................................45 Prices .....................................................................................47 Banks, Loans, and Inside Money ..........................................48 Households ............................................................................50 Households Real Decisions ...................................................53 The Inflation Process ............................................................54 The Government ...................................................................56 Simulating the Model ..............................................................................59 Simulation 1: Introducing the ELR .......................................61 Simulation 2: Increasing the Markup ....................................63 Simulation 3: Decreasing Government Expenditure ............66 Discussion of Price Dynamics ..............................................67 Discussion of Labor Market Flows .......................................71 Future Developments ..............................................................................73 Segmented Labor Market ......................................................74 Investment .............................................................................75 3. THE EMPLOYER OF LAST RESORT: AN INSTITUTIONAL ADJUSTMENT TOWARDS AN INCLUSIVE PROVISIONING PROCESS .........................78 Abstract ...................................................................................................78 Social Problems and the Institutional Structure ......................................79 Employment and Community .................................................................83 Ownership and the Price System ............................................................89 vi Conclusion ..............................................................................................94 Appendix EQUATIONS, PARAMETERS, AND VARIABLES .............................................96 REFERENCES ................................................................................................................102 VITA ................................................................................................................................109 vii ILLUSTRATIONS Figure Page 1.1. Employment Level .................................................................................................15 1.2. Worker Flows.........................................................................................................16 1.3. Components of Worker Flows ...............................................................................17 1.4. Worker Flows as Percent of Employment Level ...................................................18 1.5. Components of Job Flows ......................................................................................19 1.6. Job Flows ...............................................................................................................20 1.7. Job Flows as Percent of Employment Level ..........................................................21 1.8. Churning Flows ......................................................................................................22 1.9. Churning Flows as Percent of Worker Flows ........................................................22 1.10. Histogram for Quarterly Job-Match Destruction ...................................................25 1.11. Percent of Total Employees Grouped According to Number of Separations ........26 1.12. Percent of Separations According to Individual Employee’s Experience .............27 2.1. Evolution of Unemployment Rate and Labor Force Participation. .......................30 2.2. Evolution of Unemployment Rate by Race ...........................................................32 2.3. Introducing ELR with Higher Wage: Output, Employment, and Prices ...............62 2.4. Introducing ELR with Lower Wage: Output, Employment, and Prices ................63 2.5. Positive Shock to Markup: Output, Employment, and Prices ...............................64 2.6. Causal Loop Diagram: How ELR Stabilizes Output, Employment, and Prices ....65 2.7. Positive Shock to Markup: Nominal Incomes .......................................................66 2.8. Negative Shock to Government Expenditure: Output, Employment and Prices ...67 2.9. Evolution of Total Capacity Utilization .................................................................70 viii TABLES Table Page 1.1. Mean Rates Before, During, and After the Recession ...........................................14 1.2. Max and Min Labor Market Flows and Employment Level .................................14 1.3. Max and Min Values of the Components of Flows ...............................................14 1.4. Employees who Experienced at Least One Separation ..........................................26 2.1. Behavioral Transactions Matrix .............................................................................43