New Faculty Q&A: Wilbur Townsend on Labor Markets, Wage-Setting, and Why Bad Jobs Persist

Berkeley's economics department recently added labor economist Wilbur Townsend to its faculty. In this Q&A with PhD student Jimmy Chin, Townsend discusses his path from studying economics, philosophy, and mathematics in New Zealand to specializing in labor markets and wage-setting. His research challenges assumptions about immigration policy, showing how restrictions meant to protect native workers can backfire when firms set uniform wages. Now he's investigating why terrible jobs persist—and why workers often don't discover a job is terrible until after they've started.

You grew up and went to university in New Zealand before coming to the US. You did your undergraduate study in economics, philosophy, and mathematics. Why did you ultimately decide to go for economics? 

I decided economics was a bit more useful for the world. 

Later you would specialize in labor economics. What motivated your interest in labor?

Much of our life is spent working. For many of us, that time is spent working for low wages in boring jobs. That seems bad, and it would be nice if we could improve things a little. 

Also, there is just so much to say about the labor market. How do firms set wages? How do workers choose a job? These are fundamental questions that we still don't really know the answers to. The labor market is so complicated and mysterious and fascinating. What a treat to get to study it.

What are some books or papers that shaped your thinking about labor economics?

When I was an undergrad, my favourite paper was Akerlof and Yellen's "The Fair Wage-Effort Hypothesis and Unemployment". In that paper, Akerlof and Yellen argue that workers don't work hard when they think their employers are ripping them off, and employers account for this when setting wages. This mechanism turns out to have enormous predictive power in explaining involuntary unemployment and wage inequality. I thought it was a brilliant example of how to combine different forms of evidence to support an important and interesting theory.

More recently, I've been working with "labor monopsony" models. The key idea in those models is that when firms want to expand, they need to increase wages, because different workers will have different preferences over different jobs. A canonical exposition of that model is in "Firms and Labor Market Inequality" by Dave Card, Ana Cardoso, Joerg Heining, and Pat Kline. Perhaps my field would look very different if not for that paper.

Your job market paper studies the consequences of a visa policy in New Zealand that required migrants to work only at firms that could not recruit native workers. The motivation for this policy was to protect native jobs. Perhaps surprisingly, you find that loosening the mobility restriction could make migrants better off with little negative impact on native wages (if not slightly positive). Can you walk through this result?

When firms set wages, they account for the other job options of their prospective workers. For example, if workers typically have strong outside options, then firms will need to match those options if they want to recruit those workers. If we assume that each firm sets the same wage for migrants and non-migrants – which seems to be the case in New Zealand – then weakening migrants' job options will induce firms to set lower wages across the board. 

Do you think your findings are relevant for the current debates surrounding immigration in the US?

Maybe! In my paper, I argue that to understand the effect of labor market policie,s we need to understand how firms set wages. New Zealand firms seem to typically set a constant wage for all workers in a given position, so weakening migrants' job options also affects non-migrants. I suspect American firms are more likely to negotiate over wages with individual workers, especially for high-skilled positions. Perhaps that willingness to negotiate would insulate Americans from the restrictions on migrants' job options. I'm not sure.

What motivated your decision to join Berkeley? The economics faculty at Berkeley have produced many important papers on wage-setting and imperfect competition. Did that play a role in your decision?

It did. Berkeley is, perhaps, the best place in the world to be a labor economist. There are many brilliant labor economists here and whenever I talk to my colleagues I am struck by how lucky I am to get to talk to them. Also, I don't like winters.

What are some research questions you are currently working on?

I'm thinking about why so many jobs are so bad. Often, we don't know what it's like to work in a job until we start --- we don't know whether the manager is an arsehole, or whether we might be expected to work dumb hours, or whether our colleagues will be nice people to be around. My hypothesis is that crappy jobs persist because prospective workers often don't know they are crappy until they begin, and then they get stuck there while trying to find another option.

Where do you see the study of wage-setting going in the future?

No idea! There is so much we don't understand, so it's hard to predict what questions we'll be asking more than, like, five years into the future. I'm very excited to find out.