Susan N. Houseman

Job security and work force adjustment: How different are U.S. and Japanese practices?

Abstract The paper compares employment and hours adjustment in Japanese and U.S. manufacturing. In contrast to some previous work, we find that adjustment of total labor input to demand changes is significantly greater in the United States than in Japan; adjustment of employment is significantly greater in the United States, while that of average hours is about the same in the two countries. Although workers in Japan enjoy greater employment stability than do U.S. workers, we find considerable variability in the adjustment patterns across groups within each country. In the United States, most of the adjustment is borne by production workers. In Japan, female workers, in particular, bear a disproportionate share of adjustment.

The Effects of Temporary Services and Contracting Out on Low-Skilled Workers: Evidence from Auto Suppliers, Hospitals, and Public Schools

We examine why employers use temporary agency and contract company workers and the implications of these practices for the wages, benefits, and working conditions of workers in low-skilled labor markets. Through intensive case studies in manufacturing (automotive supply), services (hospitals), and public sector (primary and secondary schools) industries, we define the circumstances under which these workers are likely to be adversely affected, minimally affected, or even benefitted by such outsourcing. Adverse effects on compensation are clearest when companies substitute agency temporaries or contract company workers for regular employees on a long-term basis because low-skilled workers within the organization receive relatively high compensation and employment and labor law or workers and their unions do not block companies from such substitution. Often, however, organizations only contract out management functions or utilize agency temporaries for brief periods of time, with little direct effect on in-house, low-skilled workers. Moreover, employers often use temporary agencies to screen workers for permanent positions. Because temporary agencies lower the cost to employers of using workers with poor work histories or other risky characteristics, agencies may benefit these workers by giving them opportunities to try out for positions they otherwise might not have had.

Manufacturers? Outsourcing to Staffing Services

The authors estimate the effects of U.S. manufacturers use of staffing services on measured employment and labor productivity between 1989 and 2009. Using time series data constructed from the Occupational Employment Statistics program, they document the dramatic increase in manufacturers use of staffing services to fill core production occupations and to adjust employment levels during recessions. In 2006, just before the recent recession, staffing services added an estimated 9.2% to manufacturing employment, compared with only 2.3% in 1989. Outsourcing to staffing services significantly dampened measured employment volatility and inflated the growth and volatility of measured labor productivity in manufacturing.

Offshoring Bias in U.S. Manufacturing: Implications for Productivity and Value Added

The rapid growth of offshoring has sparked a contentious debate over its impact on the U.S. manufacturing sector, which has recorded steep employment declines yet strong output growth--a fact reconciled by the notable gains in manufacturing productivity. We maintain, however, that the dramatic acceleration of imports from developing countries has imparted a significant bias to the official statistics. In particular, the price declines associated with the shift to low-cost foreign suppliers are generally not captured in input cost and import price indexes. Although cost savings are a primary driver of the shift in sourcing to foreign suppliers, the price declines associated with offshoring are not systematically observed; this is the essence of the measurement problem. To gauge the magnitude of these discounts, we draw on a variety of evidence from import price microdata from the Bureau of Labor Statistics, industry case studies, and the business press. To assess the implications of offshoring bias for manufacturing productivity and value added, we implement the bias correction developed by Diewert and Nakamura (2009) to the input price index in a growth accounting framework, using a variety of assumptions about the magnitude of the discounts from offshoring. We find that from 1997 to 2007 average annual multifactor productivity growth in manufacturing was overstated by 0.1 to 0.2 percentage point and real value added growth by 0.2 to 0.5 percentage point. Furthermore, although the bias from offshoring represents a relatively small share of real value added growth in the computer and electronic products industry, it may have accounted for a fifth to a half of the growth in real value added in the rest of manufacturing.

Domestic Outsourcing in the United States: A Research Agenda to Assess Trends and Effects on Job Quality

The goal of this paper is to develop a comprehensive research agenda to analyze trends in domestic outsourcing in the United States — firms’ use of contractors and independent contractors — and its effects on job quality and inequality. In the process, we review definitions of outsourcing, the available scant empirical research, and limitations of existing data sources. We also summarize theories that attempt to explain why firms contract out for certain functions and assess their predictions about likely impacts on job quality. We then lay out in detail a major research initiative on domestic outsourcing, discussing the questions it should answer and providing a menu of research methodologies and potential data sources. Such a research investment will be a critical resource for policymakers and other stakeholders as they seek solutions to problems arising from the changing nature of work.

Job Security and Work Force Adjustment: How Different are U.S. and Japanese Practices?

This paper compares employment and hours adjustment in Japanese and U.S. manufacturing. In contrast to some previous work, we find that adjustment of total labor input to demand changes is significantly greater in the United States than in Japan; adjustment of employment is significantly greater in the United States, while that of average hours is about the same in the two countries. Although workers in Japan enjoy greater employment stability than do U.S. workers, we find considerable variability in the adjustment patterns across groups within each country. In the United States, most of the adjustment is borne by production workers. In Japan, female workers, in particular, bear a disproportionate share of adjustment.

Work to Welfare: How Men Become Detached from the Labour Market

Work to Welfare addresses the important but understudied phenomenon of declining labor force attachment among men. Although the study relies on data from Britain, the phenomenon is widespread in industrialized countries. The fraction of British men not employed (either unemployed or not looking for work) was 15 percent among those aged 25 to 54 and 41 percent among those aged 55 to 64 in Britain in 1997. The corresponding percentages were only somewhat lower (12% and 35%) in the United States and were considerably higher in some European countries. The authors of this book examine why inactivity has grown, especially among older working-age men, the special problems these men face, and policies to increase their employment and well-being. The book’s core contribution is analysis of a survey of about 1700 men who had not been working for at least six months or, in a small fraction of cases, had been working part-time for at least six months. The survey was conducted in seven rural and metropolitan areas of Britain. In-depth interviews were conducted on a subsample in two regions. The survey data form the basis for a series of articles included in the volume that provide insights into who these men are, how their situation developed, and the problems they face when they try to reenter employment. A common theme of the book is that high rates of inactivity among working age men hide substantial unemployment. Britain, like many European countries, responded to high rates of unemployment in the 1980s and 1990s with policies to encourage early retirement and easier access to disability insurance. Beatty and Fothergill document the sharp decline in unemployment, accompanied by a sharp rise in economic inactivity among working age men in Britain in the 1990s. They also show a strong correlation between low employment rates and economically depressed regions. In national household survey data in Britain, most inactive men are not classified as unemployed, even though economic conditions affect the status of many. The same pattern is evident in the survey sample of 1700 men: only about a fourth are unemployed while over half are either long-term sick or disabled (37%) or early retired (18%). Moreover, about half of long-term sick or disabled report wanting full-time work. In a clever use of survey data, Beatty and Fothergill estimate the magnitude of hidden unemployment among economically inactive men in Britain. Several chapters utilize the survey data, including in-depth interviews, to give a more nuanced view about how men drop out of the labor force. For instance, the typical economically inactive man over age 50 was affected by downsizing, by either lay-off or early retirement. This group is highly dependent on government assistance, with almost two-thirds receiving some type of benefit. Often these men report a change in employment status as time passes, from unemployed to “retired” or “disabled,” with little apparent objective change in their condition. Many of these men labeled disabled are discouraged workers, who would not be claiming disability insurance were the economy stronger. Many still wish to work, but have little hope of doing so. Several chapters, including the Conclusion, critique existing policies toward men and call for reforms. The authors are especially critical of arguments that many nonemployed are caught in a so-called benefits trap in which the level of government benefits is high relative to the wages individuals could earn working. In such cases, individuals have little financial incentive to get off of public assistance and find a job. Despite their criticism of benefits trap arguments, the authors provide ample evidence that low wages relative to benefits levels is a

Book Review: Economic and Social Security and Substandard Working Conditions: Low-Wage Workers in the New EconomyLow-Wage Workers in the New Economy. By KazisRichard and MillerMarc S., Washington, D.C.: Urban Institute Press, 2001. 360 pp. ISBN 0-87766-705-5,

Unions, Gunderson and Verma conclude that international legislation for collective bargaining is unlikely. They expect international industrial relations to be shaped by an interplay between market and social forces, as the three core actors in IR (the union, the state, and employers) negotiate the changing status quo. Internationalization is also a theme high on Paul Adlers agenda in Towards Collaborative Interdependence: A Century of Change in the Organization of Work. Adler argues that a trend toward collaborative interdependence is evident in the progress from welfare work to scientific management, human relations, system rationalization, employee involvement, and, finally, the current stage of Business Process ReEngineering. Adler observes, however, that [there is a] gap, often a huge one, between the rhetoric of work organization as expressed in management literature and the reality of work organization as experienced by workers (p. 392). The third section starts with Richard Beau-

32.50 (paper).

American employers rely heavily on layoffs to reduce the size of their work force during downturns. While layoffs are unavoidable in any competitive economy, they are far more common in the United States than in other industrialized countries. But can US workers be offered more secure employment without burdening the companies that employ them?. Katharine Abraham and Susan Houseman address this question by comparing labor adjustment practices in the US where existing policies arguably encourage layoffs, with those in Germany, a country with much stronger job protection for workers. Based on statistical analysis of the two countries manufacturing sectors, they conclude that German policies generally have been successful in providing workers with more stable employment without inhibiting labour adjustment. In their assessment of the German experience, Abraham and Houseman emphasize the interaction of various labour market policies. Stronger job security in Germany has been accompanied by an unemployment insurance system that facilitates short-term work as a substitute for layoffs. In the US the unemployment insurance system has encouraged layoffs while discouraging the use of work-sharing schemes. The authors recommend reforms of the US unemployment insurance system that include stronger experience rating and an expansion of short-term compensation programs. They also point to the critical link between job security and the system of worker training in Germany, and advocate policies that would encourage more training by US companies.