Labor Economics Redux

By Freeman, Richard B. | NBER Reporter, January-February 2007 | Go to article overview

Labor Economics Redux

Freeman, Richard B., NBER Reporter

Labor economics has increased the number of tools it uses to analyze people's behavior in market settings by augmenting econometrics and models of rational behavior with increased analyses of field or laboratory experiments. This widening, and a greater focus on the ways economic institutions affect outcomes, as opposed to how hypothetical rational actors behave in ideal competitive settings, has helped the field to become an increasingly important and growing contributor to economic research. This growth is evidenced in the massive increase in the number of NBER Working Papers produced in the Labor Studies Program. In 1979, the Program published ten working papers over the entire year. In a single month in 2007 (February), the Program produced 18 working papers, making it the single largest producer of Working Papers among all NBER programs, as it was in 2006 when the program published 176 Working Papers. Once upon a time, I read all of the papers, but this has become a near impossiblity. Moreover, labor specialists have spawned additional programs at the NBER--Education, Children, Aging--and smaller groups of labor researchers are working on particular topics, including personnel economics, shared capitalism, the science and engineering work force, immigration, and the economics of the welfare state in Sweden.

One reason for the growth in the NBER's Labor Studies Program has been the increased attention given to labor issues in economic debate. One of the great economic issues of our time relates to the differing economic performance of capitalist economies. In the 1980s many researchers sought to understand the great success of Japan. From the 1990s to the present, many analysts have sought to explain the difference between European Union and U.S. economic performance in terms of the more market-oriented labor institutions and weaker welfare state in the United States. Seeking to explain why some firms or establishments do better than others, other analysts have looked at differences in incentives and work practices. In international trade, the most contentious issue relates to how trade affects workers, including the likelihood and costs of displacement, the role of off-shoring in reducing demand for skilled as well as unskilled labor, and the impact of trade on earnings inequality.

The concern over rising inequality has generated a huge labor literature in which NBER researchers have played a significant role as they seek to document the effect of institutions, technology, and\or trade in the growth of inequality in wages and hours worked in the United States. In addition, there is always interest in such perennial labor topics as the minimum wage, unions, female labor force participation, immigration, discrimination, and crime. Indicative of the standing of labor in economics is that, at this writing, the head of the President's Council of Economics Advisers, Ed Lazear, is a longstanding Research Associate in the Program (author of 10 percent of the 1979 crop of Working Papers). The field must be doing something right!

One of the things that the labor field is definitely doing right is widening the range of topics covered. When the leading Australian economist, Bob Gregory, visited NBER in the 1980s, he remarked that American labor economists were narrower in their research topics than Australian labor economists. Why? It was the economics of specialization in a large market. The United States had so many labor economists that we invariably ended up specializing to a greater extent than labor economists in Australia, where a small band had to cover the whole field and, in some cases, work on trade, monetary policy, and natural resource economics as well. Breadth over depth, as it were.

But over time the topics that have attracted NBER labor research have widened and widened. Consider, for example, some of the subjects of labor Working Papers in January and February 2007: happiness and well-being (1); peer effects in juvenile corrections and attack assignments in terror organizations (2); interpersonal styles and labor outcomes; the production of female artists (3). …

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