Where Are All the Good Jobs Going?: What National and Local Job Quality and Dynamics Mean for U.S. Workers

Chapter 5: Good Jobs and Firm Dynamics

128 “A giant sucking sound” was the way Ross Perot described the effect of globalization on middle-income American jobs during the 1982 presidential election. The alleged vanishing of well-paid jobs has been a theme of newspaper and magazine articles ever since. These concerns make sense. Although the forces of technological change, globalization, and deregulation may lead to greater productivtity, this is hardly reassuring to workers who face the loss of current jobs and suffer uncertainty about the earnings in their future jobs. The previous chapters have identified the importance of good jobs— and the economic costs borne by workers who lose good jobs and cannot replace them, especially in smaller metro areas with much restructuring and less growth. But it is also important to understand how good jobs can be regenerated. What has happened to the number and type of jobs within each industry through boom and bust? What is the role of new and exiting employers in determining the number of jobs? Have the employers offering good jobs been replaced by employers offering worse jobs than before ? And what do these changes mean for job stability—the retention of workers in existing jobs? In sum, what is the role of employer dynamics and job volatility? There is strong evidence that many employers make a business decision to pay a wage premium: in earnings per worker, output per worker, and worker mix across businesses within narrowly defined industries, there are substantial and persistent differences that remain even after conChapter 5 Good Jobs and Firm Dynamics Good Jobs and Firm Dynamics 129 trolling for the observable characteristics of workers and firms. There is also good evidence that employer dynamics play an important role in determining the mix of good jobs—new businesses exhibit even greater heterogeneity in earnings and productivity than do mature businesses—and that they adjust their worker mix in a manner consistent with learning over time and with market selection based on that learning. As firms age, businesses that have made “errors” with their worker mix (and on other dimensions) either exit or adjust their worker skill mix in the direction of the profiles of mature businesses (Haltiwanger, Lane, and Spletzer 2007). And as noted in chapter 2, there are distinct patterns of pay by industry and firm size categories. The magnitude of the relationship between job volatility and the turbulence associated with employer dynamics is hard to overstate: in any given quarter, about one in four job matches either begins or ends, one in thirteen jobs is created or destroyed, and one in twenty establishments closes or is born (Brown, Haltiwanger, and Lane 2006). Forty percent of new businesses die within three years of their birth, and more than half of all jobs destroyed in any three-year period are due to the death of establishments (Spletzer 2000). Anderson and Meyer (1994) and Simon Burgess , Julia Lane, and Kevin McKinney (2009) estimate that the quarterly worker reallocation rate exceeds 40 percent.1 John Abowd and Lars Vilhuber (2010), in updated research, found that the average worker reallocation rate is 46.4 percent; the average job reallocation rate is 12.6 percent; and the excess reallocation rate (churning), or the difference between the two, is 33.8 percent. In other words, there is neither a “fixed” number of good jobs in the United States nor any guarantee that a worker, once in a good job, will retain it.2 Not only is that turbulence a fact of life, but it has important positive effects on economic growth. By some estimates, firm entry and exit were responsible for more than one-quarter of the increase in aggregate productivity between 1977 and 1987 and more than half of U.S. postwar productivity growth (Foster, Haltiwanger, and Krizan 2001, 2006; Gabler and Licandro 2006). The importance of allowing workers to reallocate across firms is clear from some recent research that suggests that the industry index of labor productivity in the average U.S. manufacturing industry is 50 percent higher than it would be if employment shares were randomly allocated within industries; the same differential, however, is only twenty to thirty log points in western Europe, and close to zero in the very inflexible economies of central and eastern Europe at the beginning of their transition to a market economy (Bartelsman, Haltiwanger, and Scarpetta 2009). Similar work using matched employer-employee data shows that 130 Where...