December 2006 Monthly Luncheon
"Employment in the 1990's Boom: Implications for 2007 and Beyond."
Review of Remarks by Harry Holzer
By Ignez Tristao
This last December, the SGE monthly luncheon was pleased to have Harry Holzer as a speaker on the changes in employer hiring behavior during boom of the 1990's. Dr. Holzer is a Professor of Public Policy at Georgetown University and a Visiting Fellow at the Urban Institute in Washington, D.C. His research has focused primarily on the labor market problems of low-wage workers and other disadvantaged groups. He has published a series of books on the topic, including Reshaping Workforce Policies for a Changing Economy (coedited with Demetra Nightingale), forthcoming by the Urban Institute Press. In his talk, Dr. Holzer used his paper "Employer in the Boom: How did the hiring of Less-skilled Workers Change During the 1990s?" (coauthored with S. Raphael and M. Stoll and published in the Review of Economics and Statistics, May 2006) as a jump-off point to talk about labor market tightness.
According to Dr. Holzer, during the 1990s boom there was an increase in the employment as well as the starting wages of minorities (with the exception of employment among young black men), and in employer’s willingness to hire less-skilled and less-experienced workers, as well as stigmatized workers such as welfare recipients. Although it is well recognized that tight labor markets benefit workers in general, the notion that less-skilled workers disproportionately benefited from such labor markets is less known. In particular, he found employers more willing to consider certain kinds of stigmatized workers (such as welfare recipients and those with poor employment histories).
Dr. Holzer also mentioned that during the boom period, employers shifted from traditional screening methods used during hiring (such as high school diplomas and previous work experience) to more cost-effective screening methods (such as training requirements, drug test and background checks), which have became more widely available and cheaper over time. In his opinion, market tightness made screening methods more costly, and in some cases they are poor predictors of workers’ ability. Since screening errors can be particularly costly during times of tight labor markets, employers may be forced to rationalize the process by which they recruit and screen workers. Although there were other changes that occurred during the 1990s that likely affected employer behavior—like the long-term shift in demand towards more highly skilled labor and the use of new technologies and institutions such as the Internet and temp agencies—Dr. Holzer argues that the robustness of his findings gives them great confidence in the validity of their results.
Dr. Holzer’s findings are based on his examination of employer surveys collected in various metropolitan areas over the 1992-2001 period. Although these surveys are cross-sectional, there was enough commonality in the sampling frame and question design to analyze employer behavior over time as well as across and within areas. In these surveys, employers were asked a variety of questions, including the demographics of the last worker they hired and the last job they filled. In addition, employers were asked about their willingness to hire certain types of workers as well as the screening methods they used to fill the job.
By looking at how employers responded to the tight labor market of the late 1990s, we can learn how they adjust to different labor market conditions. In addition, we can learn which group of workers benefit from the changes and which changes are more likely to persist over time, even after tight labor markets abate over time.
Understanding the implications of these findings can help shed some light on what to expect in future periods of labor market tightness. Whether we are now entering such a period in the labor market was discussed. Dr. Holzer also predicts that the retirement of baby boomers could create a general period of labor market tightness that lasts for many years. However, how this market tightness will affect employers and workers will depend on how new forms of technology can be used to substitute for scarce workers, and how quickly baby boomers actually retire. Further, growing globalization could change the labor market substantially in the coming years. In particular, it could all come down to whether employers will be able to outsource more and how outsourcing can affect labor market tightness. Will outsourcing have a “skill bias”? Will globalization and outsourcing offset the baby boomers' effects? Dr. Holzer thinks that, regardless of how these forces net out, there will still exist pockets of market tightness in certain key sectors and areas, such as the health care sector, a labor market that will likely remain quite tight.
The analysis and conclusions expressed in this summary are those of the author and should not be interpreted as those of the Congressional Budget Office.