in the news and journals
The Intensity of Job Recruiting
Four years after the financial crisis triggered a wave of layoffs, US unemployment remains unusually high. With so many Americans seeking work, employers should be filling vacancies quickly. In reality, the job-filling rate has been disappointingly slow. According to new research by Steven Davis, William H. Abbott Professor of International Business and Economics, the slow pace of job-filling reflects a previously overlooked factor: employers devote fewer resources to filling each vacant job when labor markets are slack.
In "Recruiting Intensity During and after the Great Recession: National and Industry Evidence," published in the May 2012 issue of American Economic Review, Davis and his coauthors from the Federal Reserve Bank of Chicago and the University of Maryland develop a new measure of employer recruiting intensity. Their measure captures the role of advertising expenditures, screening methods, hiring standards, compensation packages, and other tools that employers use to influence the rate at which they fill open jobs.
The authors find that "recruiting intensity fell sharply during the Great Recession" and remains 11 percent below its prerecession level. Certain industries play an outsized role in the cyclical behavior of recruiting intensity. Construction, for example, "accounts for more than 40 percent of the swings in the national job-filling rate during and after the recession, despite making up less than 5 percent of employment."
The study reveals the value of measuring employer recruitment activity across industries and over time. "Data limitations require an indirect approach to the measurement of recruiting intensity," Davis writes, a limitation that he hopes his study will help to overcome. - Dan Kedmey
Photo by Jason Smith
How Marketers Use Feedback to Shape Their Messages
In her recent research in the Journal of Consumer Research, Ayelet Fishbach, Jeffrey Breakenridge Keller Professor of Behavioral Science and Marketing, examines how marketers can improve their campaigns by aligning their messaging to the expertise and commitment levels of their target demographic.
In "Tell Me What I Did Wrong: Experts Seek and Respond to Negative Feedback," Fishbach and a colleague at Columbia University suggest that variances among audiences' preferences for positive or negative feedback may be a result of a consumer's level of involvement with a product.
To test this, they devised five distinct studies to investigate how people motivate themselves to pursue goals, and the ways in which experts and novices (real or perceived) react to differing types of feedback in a variety of situations. The results indicate that participants already committed to a goal ("experts") benefit from negative feedback because they use such feedback as a tool for monitoring their progress; whereas, those less committed ("novices") are bolstered by positive feedback, as it validates their perceived value of the goal, and encourages them to pursue it.
For example, a consumer who has been using a skin care product for a year (an expert) would more highly value feedback that showed her ways to improve her usage of the product than someone who had been using the product only briefly (a novice). The novice would more highly value feedback that confirmed her choice of the product as a means of achieving the goal of healthier skin.
Ultimately, the authors find valuable implications for marketers in shaping messaging strategies. "Companies that desire to have consumers engage more with their product," they write, "might want to target new users of their products by telling them how well they already utilize their sophisticated products and target experienced users by telling them how they can improve their usage of such sophisticated products." - Erin O'Neill
Photo by Beth Rooney
Modeling Urban Decline: Detroit Case Study
In hard times all neighborhoods suffer, but poorer and richer areas suffer differently, according to Veronica Guerrieri, professor of economics, and Erik Hurst, V. Duane Rath Professor of Economics and John E. Jeuck Faculty Fellow.
In their paper, "Within-City Variation in Urban Decline: The Case of Detroit," Guerrieri and Hurst show that when residents leave a struggling city, the poorest neighborhoods lose more population than the richest neighborhoods and the richest neighborhoods lose more income than the poorest neighborhoods.
The authors anticipate that housing prices in some Detroit neighborhoods would fall lower than they might otherwise because of declining amenities. But they find that there was not much difference in house price appreciation rates across rich and poor neighborhoods during the last 30 years - a departure from the experience of other cities during the same time period.
The professors arrive at their findings using a model they developed with a research economist for the Federal Reserve Bank of Cleveland. In an earlier paper, their model identified that during boom times the poorer neighborhoods that border richer areas attract richer outsiders. The once-poor neighborhoods then develop amenities that otherwise would not have existed, a phenomenon that researchers call "endogenous gentrification."
This time, Guerrieri and Hurst find changes in income and population consistent with the model - but only in reverse - as they study Detroit's long decline in population, income, and housing prices. They compare that trend to what happened in two other samples - the city of Chicago and a composite of US cities between 1980 and the late 2000s.
In the 1980s, Detroit and Chicago had similar median household incomes, but over the following 30-year period, Detroit's population plummeted dramatically. Also, the Motor City's median housing values increased much less in comparison to those in Chicago and the composite city sample.
Guerrieri and Hurst chose Detroit because of its steep declines in income and population during that period, making the city "a natural candidate to study within-city properties of urban decline." - Kalliope E. Dimitrakopoulos
Photos by Chris Lake
Are Stocks Riskier in the Long Run?
Investors have long taken for granted that the risk associated with stock investments decreases with the investment horizon, but new research from Lubos Pastor, Charles P. McQuaid Professor of Finance, and a colleague at the University of Pennsylvania Wharton School challenges what many consider the cornerstone of modern investment strategy.
Historically, economists believed that stock prices followed a random walk path, meaning that myriad variables that determine a stock's value prevented investors from analyzing past patterns to forecast future market performance. But in the 1980s, researchers observed a historical pattern of bear and bull markets consistently following one another, which creates a "slight mean reversion" that indicated stock prices should remain stable or increase over any thirty-year period.
The paper "Are Stocks Really Less Volatile in the Long Run?" challenges this interpretation, arguing that "stocks are substantially more volatile over long horizons from an investor's perspective." By examining 206 years of real stock returns, Pastor and his colleague find that long-term variance exceeds short-term variance, on a per-year basis. Furthermore, they find that many high-level investors share their concern, and that most CFOs actually rate the variance of ten-year stock returns as at least twice that of one-year stock returns.
The authors cite numerous reasons for this - including uncertainty about the magnitude of the equity premium - but assert that because of variance, many popular target-date mutual funds may carry far more risk than their investors realize. - Erin O'Neill
Photo by Beth Rooney
Walmart: A Boon to the Neighborhood
Shoppers expect lower prices when a Walmart moves into a neighborhood, but if you're shopping for a home, you could pay more if you're close to a Walmart store.
Devin Pope, associate professor of behavioral science and Robert King Steel Faculty Fellow, and his brother Jaren Pope, assistant professor of economics at Brigham Young University, investigate the question of whether the arrival of a Walmart store lowers local property values.
In their National Bureau of Economics Research working paper, "When Walmart Comes to Town: Always Low Housing Prices? Always?," Pope and Pope studied residential housing transactions that occurred within four miles of 159 Walmarts that opened between 2000 and 2006. The authors find that houses within a half mile of a Walmart saw a price increase of between 2 and 3 percent. Homes between a half mile and one mile away experienced an increase of between 1 and 2 percent.
"For the average priced home in these areas, this translates into an approximate $7,000 increase in housing prices for homes within a half mile of a newly opened Walmart and a $4,000 increase for homes between a half and one mile," the authors write.
The research suggests that many homeowners prefer to live near a Walmart and the other stores that it attracts because the benefits of easy access to lower-priced goods outweigh any increase in crime, traffic, noise, light pollution, or other problems. That is not to say that residents living closest to the big-box store don't face these major inconveniences.
The findings don't apply to rural areas, where housing data was not available. - Kalliope E. Dimitrakopoulos
Photo by Beth Rooney