February 2000, Vol. 123, No. 2
Précis
Unemployment
and wealth
High
performance practices
Going
back to work
Erratum
To what extent are workers able to finance their unemployment spells with their own wealth holdings? Jonathan Gruber of the Massachusetts Institute of Technology addresses this and related questions in NBER Working Paper No. 7348, "The Wealth of the Unemployed: Adequacy and Implications for Unemployment Insurance."
Gruber notes that the unemployed have a number of possible sources for financing consumption, including savings, unemployment insurance benefits, other government transfers such as food stamps, and transfers from relatives or charitable organizations. In this study, Gruber focuses on wealth as a mechanism for financing unemploy-ment.
Data for his analysis are from the 1984–92 panels of the Survey of Income and Program Participation (SIPP). The SIPP interviews respondent households every four months over the course of two to three years in order to gather information on income and labor force participation—in addition, the survey gathers some data on wealth holdings, usually at two points in the panel.
Gruber finds that the median worker has savings that could finance about two-thirds of the income loss from a spell of unemployment. However, nearly a third of workers are not able to even replace 10 percent of income loss.
The subject of high-performance work practices came up in two recent pieces. In the Winter 2000 EPI Journal, Eileen Appelbaum briefly reviews some of the major findings of her book Manufacturing Advantage: Why high performance work systems pay off (co-authored with Tom Bailey, Peter Berg, and Arne Kalleberg). Their surveys in three manufacturing industries indicate that, "with some variance within these industries, workplace practices that promoted coherent work systems produced benefits such as increased productivity, better financial performance, higher target wages for workers, as well as reduced inventory, space requirements, and excess labor costs." A separate survey of workers found that, at least in the steel and apparel industries, workers in high-performance systems tend to have higher wages.
Peter Cappelli and David Neumark also examined these two aspects of the high-performance work practices issue in "Do ‘High Performance’ Work Practices Improve Establishment-Level Outcomes?" (NBER Working Paper 7374). On one hand, their results suggest that practices that expand employee involvement do not have an unambiguous effect on productivity, although the results point more toward positive effects. The evidence is stronger for the idea that such practices raise average labor costs per employee. However, their data suggest that high performance work practices do not adversely affect labor efficiency as measured by output per dollar of labor costs. "Thus," they conclude, "despite raising labor cost/compensation implementing such practices should not hurt competitiveness."
Both Appelbaum and Cappelli and Neumark discuss the fact that high-performance work practices also have a positive effect on factors that are beneficial to the work establishment and workers, but may not be captured by the chosen performance measures. Examples of such effects include, higher morale, greater adaptability, lower waste, increased trust, better job satisfaction, and stronger commitment.
Over roughly the past 50 years, labor force participation among the mothers of young children has gone up dramatically. According to Lisa Barrow’s article, "Child care costs and the return-to-work decisions of new mothers," in the Federal Reserve Bank of Chicago’s Economic Perspectives, the participation rate of women with pre-school aged children rose from 12.0 percent in 1947 to 62.3 percent in 1996. Her analysis goes on to model the return-to-work decisions that contribute to the latter figure.
Barrow finds that while higher wages and lower child care costs would certainly have a significant impact on the decision to return to work within a year of bearing a first child, delayed child bearing may have a greater impact on the labor force participation rate. Other factors that influence the decision to work include education and having had at age 14 a female role model that worked. Factors that tended to work against a decision to return to work included higher income earned by a spouse or partner and higher local unemployment rates in the year following the child’s birth.
The final clause of the second paragraph of our December 1999 precis of "Assessing Affirmative Action" by Harry Holzer and Davis Neumark should have read: " …—this is in contrast to laws that only prohibit actions that disadvantage women and members of minority groups, such as refusing to employ them."
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