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February 1999, Vol. 122, No. 2

Précis

Unemployment reviewed
Playing with technology

Précis from past issues

Unemployment reviewed

The Economic Review of the Federal Reserve Bank of Cleveland carried three thought-provoking articles on labor markets and unemployment in their 1998 Quarter 3 issue. Terry J. Fitzgerald introduces the "search theory of unemployment" in the lead article. Although the author states that search theories have flourished most in the 1980s and 1990s, it should also be noted that the concepts underlying the development of the Current Population Survey (CPS) were quite directly influenced by the concept of job search. In the CPS, a survey developed in the 1940s and 1950s, classification as unemployed is conditioned very strongly on active job search on the part of a potential worker. While few would argue with Fitzgerald about search theory’s role as "a valuable tool for understanding the factors which determine the unemployment rate," many could take issue with the conclusion that the theory necessarily implies that "unemployed workers are not idle, but instead are engaging in the socially beneficial activity of finding a productive job match."

Paul Gomme examines the application of labor market theories, including search theory, to the hypothesis that there is a "new economy" in which historical relationships between unemployment and price change have been altered. In a model of search with imperfect information on the part of the worker, Gomme finds that where a permanent technology shock shifts the distribution of wages to the right, unemployment will only fall temporarily, and as workers learn of the shift, the jobless rate will return to previous levels. In theories that permit multiple equilibria, he finds that such technology shock can move an economy from a high-unemployment to a low-unemployment equilibrium, even if the shock were not permanent. Finally, he examines the thought that the technology will operate on the function that matches unemployed workers to job vacancies so that more matches are "consummated" and unemployment thus lowered. In his conclusion, Gomme is not convinced that any of his theoretical explorations would unambiguously indicate the workings of a "new economy."

David Andolfatto and Paul Gomme wrap up the issue with an article warning that "some care should be exercised when constructing a map between labor market behavior and economic welfare and that, generally speaking, such interpretations are not justified in the absence of information concerning the economic circumstances that determine individual labor market choices." Some relevant circumstances include nonlabor income and the value of leisure vis-à-vis the wage rate.

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Playing with technology

Why haven’t computers and advanced telecommunication devices made work more productive? Perhaps because they can often be used as toys as well as tools, according to a cleverly pointed NBER working paper by Daniel S. Hamermesh and Sharon M. Oster.

Using quite standard economic reasoning, they create and test three propositions on the impact of high technology on patterns of collaboration and productive quality in scholarly economics:

1) Because communication is costly, distant co-authorships — working with partners who were not living in the same metropolitan area in the four years prior to publication — will be more productive than close coauthorships (or even working solo).

2) Because communication costs are being driven down by technology, the share of distant co-authorships in the production of research will increase.

3) Again because costs are declining, the productivity advantage of distant co-authorships will decrease over time.

After examining roughly a quarter-century’s worth of journal citations, Hamermesh and Oster are able to find support only for proposition 2 — there has indeed been a higher share of distantly co-authored articles in high-quality economics journals since 1979. However, contrary to their other propositions, the productivity of such collaborations, as measured by subsequent citations, has been lower than that of close co-authored articles and there has been no decline in their disadvantage over time.

They reconcile these findings with theory by arguing that "high-technology functions as a consumption rather than an investment good. As such, it can be welfare-increasing without increasing productivity." Essentially, some distant coauthorship projects reflect, to some extent, a willingness to pay to collaborate with friends, rather than choose the most productive possible co-author.

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