nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2023‒07‒10
nineteen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Incentives, Health, and Retirement - Evidence from a Finnish Pension Reform By Joonas Ollonqvist; Kaisa Kotakorpi; Mikko Laaksonen; Pekka Martikainen; Jukka Pirttilä; Lasse Tarkiainen
  2. Long-Term Effects of Hiring Subsidies for Low-Educated Unemployed Youths By Albanese, Andrea; Cockx, Bart; Dejemeppe, Muriel
  3. Child Health, Parental Well-Being, and the Social Safety Net By Achyuta Adhvaryu; N. Meltem Daysal; Snaebjorn Gunnsteinsson; Teresa Molina; Herdis Steingrimsdottir
  4. Maternal Life Satisfaction and Child Development from Toddlerhood to Adolescence By Datta Gupta, Nabanita; Jessen, Jonas; Spiess, C. Katharina
  5. Which income comparisons matter to people, and how? Evidence from a large field experiment By Xiaogeng Xu; Satu Metsälampi; Michael Kirchler; Kaisa Kotakorpi; Peter Hans Matthews; Topi Miettinen
  6. The Career Effects of Union Membership By Dodini, Samuel; Salvanes, Kjell G.; Willén, Alexander; Zhu, Li
  7. Do reduced working hours for older workers have health consequences and prolong work careers? By Terhi Ravaska
  8. Firm Closures and Labor Market Policies in Europe: Evidence from Retrospective Longitudinal Data By Theodoropoulos, Nikolaos; Voucharas, Georgios
  9. Healthcare Procurement and Firm Innovation: Evidence from AI-powered Equipment By Sofia Patsali; Michele Pezzoni; Jackie Krafft
  10. When Immigrants Meet Exporters: A Reassessment of the Immigrant Wage Gap By Léa Marchal; Guzmán Ourens; Giulia Sabbadini
  11. Striking Evidence: The Impact of Railway Strikes on Competition from Intercity Bus Services in Germany By Matthias Beestermöller; Levke Jessen-Thiesen; Alexander Sandkamp; Alexander-Nikolai Sandkamp
  12. Do household tax credits increase consumption? The role of demand elasticity and the extent of demand By Jarkko Harju; Sami Jysmä; Aliisa Koivisto; Tuomas Kosonen Koivisto
  13. Discrete Labor Supply: Quasi-Experimental Evidence and Implications By Tuomas Kosonen; Tuomas Matikka
  14. Socioemotional Development during Adolescence: Evidence from a Large Macro Shock By Azmat, Ghazala; Kaufmann, Katja Maria; Özdemir, Yasemin
  15. Reconciling Estimates of the Long-Term Earnings Effect of Fertility By Bensnes, Simon; Huitfeldt, Ingrid; Leuven, Edwin
  16. Helping and Antisocial Behavior in the Workplace By Haylock, Michael; Kampkötter, Patrick; Kosfeld, Michael; von Siemens, Ferdinand
  17. Firm Responses to an Interest Barrier: Empirical Evidence By Jarkko Harju; Ilpo Kauppinen; Olli Ropponen
  18. Public Procurement and the Risk of Severe Weather Events By Andrea Bafundi; Riccardo Camboni; Edoardo Grillo; Paola Valbonesi
  19. Overconfident Boys: The Gender Gap in Mathematics Self-Assessment By Adamecz-Völgyi, Anna; Jerrim, John; Pingault, Jean-Baptiste; Shure, Nikki

  1. By: Joonas Ollonqvist (Finnish Institute for Health and Welfare); Kaisa Kotakorpi (Tampere University, Finnish Centre of Excellence in Tax Systems Research); Mikko Laaksonen (Finnish Centre for Pensions); Pekka Martikainen (University of Helsinki, Max Planck Institute for Demographic Research, and Max Planck â University of Helsinki Center for Social Inequalities in Population Health); Jukka Pirttilä (University of Helsinki, VATT Institute for Economic Research, and Finnish Centre of Excellence in Tax Systems Research); Lasse Tarkiainen (University of Helsinki)
    Abstract: We analyse the effects of changes in retirement incentives on retirement behaviour, utilising a Finnish pension reform implemented in 2005. The reform generated financial incentives to postpone retirement for some groups of individuals. Using detailed administrative data on individual health, we focus on whether individual reactions to incentives vary according to health status, and analyse whether individuals with poor health are also able to take advantage of the potential monetary benefits associated with the reform. We find that many types of individuals react to retirement incentives, and the reaction does not vary according to health status in a systematic way. Hence there does not seem to be a trade-off between providing incentives to postpone retirement and equal treatment of individuals with different health status.
    Keywords: Pension reform, retirement incentives, health
    JEL: H55 J26
    Date: 2023–05
  2. By: Albanese, Andrea (LISER); Cockx, Bart (Ghent University); Dejemeppe, Muriel (Université catholique de Louvain)
    Abstract: We use a regression discontinuity design and difference-in-differences estimators to estimate the impact of a one-shot hiring subsidy for low-educated unemployed youths during the Great Recession recovery in Belgium. The subsidy increases job-finding in the private sector by 10 percentage points within one year of unemployment. Six years later, high school graduates accumulated 2.8 quarters more private employment. However, they substitute private for public and self-employment; thus, overall employment does not increase but is still better paid. For high school dropouts, no persistent gains emerge. Moreover, the neighboring employment hub of Luxembourg induces a complete deadweight loss near the border.
    Keywords: hiring subsidies, youth unemployment, low-educated, regression discontinuity design, difference-in-differences, spillover effects
    JEL: C21 J08 J23 J24 J64 J68 J61
    Date: 2023–05
  3. By: Achyuta Adhvaryu; N. Meltem Daysal; Snaebjorn Gunnsteinsson; Teresa Molina; Herdis Steingrimsdottir
    Abstract: How do parents contend with threats to the health and survival of their children? Can the social safety net mitigate negative economic effects through transfers to affected families? We study these questions by combining the universe of cancer diagnoses among Danish children with register data for affected and matched unaffected families. Parental income declines substantially for 3-4 years following a child's cancer diagnosis. Fathers’ incomes recover fully, but mothers' incomes remain 3% lower 12 years after diagnosis. Using a policy reform that introduced variation in the generosity of targeted safety net transfers to affected families, we show that such transfers play a crucial role in smoothing income for these households and, importantly, do not generate work disincentive effects. The pattern of results is most consistent with the idea that parents’ preferences to personally provide care for their children during the critical years following a severe health shock drive changes in labor supply and income. Mental health and fertility effects are also observed but are likely not mediators for impacts on economic outcomes.
    JEL: I10 J13 J22
    Date: 2023–05
  4. By: Datta Gupta, Nabanita (Aarhus University); Jessen, Jonas (IZA); Spiess, C. Katharina (Bundesinstitut für Bevölkerungsforschung (BiB))
    Abstract: In this paper we analyse the association between maternal well-being and child develop- ment at different ages. We use data from the German Socio-Economic Panel (SOEP) which captures maternal life satisfaction and numerous cognitive and non-cognitive child development outcomes. We identify a strong positive association between mothers' life satisfaction and their children's development when these are toddlers (2-3 years, VAB scores), of primary school age (5-10 years, SEB scores and Big 5) and in adolescence (11-14 years, life satisfaction, school grades and self-reported Big 5). This relationship holds when we control for a wide range of potentially confounding factors, including maternal education, employment, household income and maternal personality traits. We confirm our main findings with an IV estimation where we instrument contemporaneous maternal life satisfaction with that measured pre-birth and with a value-added model as some child outcomes are observed twice at different ages. Our findings suggest that mothers' life satisfaction is beneficial for their children's development at all ages and that it is fruitful for policy makers to identify measures through which maternal well-being can be raised.
    Keywords: life satisfaction, subjective well-being, mothers, child development, skill formation
    JEL: J13 I22
    Date: 2023–05
  5. By: Xiaogeng Xu (Hanken School of Economics, and Helsinki GSE); Satu Metsälampi (University of Turku); Michael Kirchler (University of Innsbruck); Kaisa Kotakorpi (Tampere University, Finnish Centre of Excellence in Tax Systems Research); Peter Hans Matthews (Middlebury College, Aalto School of Business, and Helsinki GSE); Topi Miettinen (Hanken School of Economics, and Helsinki GSE)
    Abstract: Received wisdom holds that income rank matters for life satisfaction. In much of the literature, however, income comparisons are limited to the national pop- ulation and evidence is correlational. In this paper, we investigate differences in the causal effects of rank information across reference groups. In a represen- tative sample of mid-career Finns, we randomize individuals to receive personal rank information about educational, municipal, occupational, or age reference groups, and compare the effects, for a set of alternative welfare measures, to the standard national reference group and to a control group that receives no information. We also characterize the accuracy of rank beliefs across groups. Our data, which integrates experimental and register data, finds that rank in- formation causes differences in satisfaction with disposable income, perceived fairness of own income, and wage satisfaction, but not life satisfaction. We also find substantial variation in the effects across reference groups, with those for the national reference group both weak and insignificant.
    Keywords: Relative position, individual welfare, fairness, comparison group, information provision
    JEL: D63 D8 D91 I31
    Date: 2023–05
  6. By: Dodini, Samuel (Norwegian School of Economics); Salvanes, Kjell G. (Norwegian School of Economics); Willén, Alexander (Norwegian School of Economics); Zhu, Li (Norwegian School of Economics)
    Abstract: We combine exogenous variation in union membership with detailed administrative data and a novel field survey to estimate the career effects of labor union membership. In the survey, we show how workers perceive the role of unions in setting wages and determining work amenities. In the administrative data, we causally examine through which channels unions influence worker outcomes, whether unions influence workers differently across their careers, and what the overall long-run effects of individual union membership are. Our results highlight that the career effect of union membership differs greatly depending on the age at which workers enroll. In addition, we show that focusing on a restricted set of outcomes, such as wages and employment, generates a fractionalized understanding of the multidimensional career effect that union membership has on workers.
    Keywords: unions, wage premiums, job protection, work environment
    JEL: J51 J31 J32 J16 J63 J65 J81
    Date: 2023–05
  7. By: Terhi Ravaska (Tampere University & VATT Institute for Economic Research)
    Abstract: I examine the effects of reduced working hours on various health outcomes. I focus on individuals close to retirement and exploit a reform in part-time pen- sion rules. Using detailed register data on health and job spells together with a difference-in-differences approach, I find that an earlier eligibility age for part-time pension program increased purchases of prescription drugs by approximately 1.0 percentage point over the following 6 years. In relative terms, this effect is small, around 2%, but is economically significant as drug purchases are largely subsidized by the state. However, looking at the long-term effects I do not find effects on mortality or severe health diagnoses. I also look at labour market exits and find that the reform did not reduce the risk of early withdrawal from the labour market.
    Keywords: taxation, emigration
    JEL: I11 H42 I18
    Date: 2023–02
  8. By: Theodoropoulos, Nikolaos; Voucharas, Georgios
    Abstract: We examine the impact of active and passive labor market policies expenditures on the probability of re-employment, re-employment duration, unemployment duration, and re-employment wages in the case of job displacements due to firm closures. We use retrospective homogeneous longitudinal data from the Survey of Health, Ageing and Retirement in Europe and OECD data for 24 countries over the period 1985-2017 and we operate within alternative econometric frameworks. Our findings suggest that, in contrast to passive labor market policies, investing in active labor market policies increases the re-employment probability and the re-employment duration, reduces the risk of staying unemployed, and leads to higher wages at the lower end of the conditional wage distribution. Passive labor market policies estimates offset active labor market estimates and their interaction effect is always negative, but complementarities effects are found for Northern countries. By breaking down active and passive labor market policies into eight subcomponents, our results indicate that they have significant heterogeneous effects within and across labor market outcomes. Further, expenditures on labor market policies vary substantially across regions. For instance, active labor market policies have a stronger impact for Eastern countries, whereas passive labor market policies such as out-of-work income has a positive impact for Southern countries. Further, females are found to benefit more from active labor market policies in terms of re-employment probability, duration of re-employment, and risk of unemployment, but not in terms of wages, compared to males. Policymakers may consider the importance of implementing diverse reforms tailored to different countries and groups to enhance the effectiveness of labor market policies.
    Keywords: labor market policies, plant closures, job loss, re-employment probability, unemployment duration, re-employment wages
    JEL: C21 E24 J08 J65
    Date: 2023
  9. By: Sofia Patsali (Université Côte d'Azur, France; CNRS, GREDEG); Michele Pezzoni (Université Côte d'Azur, France; CNRS, GREDEG; Observatoire des Sciences et Techniques, HCERES, France; ICRIOS, Bocconi University, Italy); Jackie Krafft (Université Côte d'Azur, France; CNRS, GREDEG)
    Abstract: In line with the innovation procurement literature, this work investigates the impact of becoming a supplier of a national network of excellence regrouping French hospitals on the supplier's innovative performance. It investigates whether a higher information flow from hospitals to suppliers, proxied by the supply of AI-powered medical equipment, is associated with higher innovative performance. Our empirical analysis relies on a dataset combining unprecedented granular data on procurement bids and equipment with patent data to measure the firm's innovative performance. To identify the firm's innovative activities relevant to the bid, we use an advanced neural network algorithm for text analysis linking firms' equipment descriptions with relevant patent documents. Our results show that firms becoming hospital suppliers have a significantly higher propensity to innovate. About the mechanism, we show that supplying AI-powered equipment further boosts the suppliers' innovative performance, and this raises potential important policy implications.
    Keywords: Innovation performance, public procurement, medical equipment, hospitals, artificial intelligence
    JEL: H57 D22 O31 C81
    Date: 2023–03
  10. By: Léa Marchal (Centre d'Economie de la Sorbonne, Université Paris 1 Panthéon-Sorbonne & Institut Convergences Migrations); Guzmán Ourens (Department of Economics - Tilburg University); Giulia Sabbadini (Düsseldorf Institute for Competition Economics)
    Abstract: This article shows that wage inequalities between native and immigrant workers depends on the export activity of the employing firm. We build a model with heterogeneous firms and workers showing that white-collar immigrants capture an informational rent in exporting firms that help them close the wage gap with natives. We use French employer-employee data for the manufacturing sector from 2005 to 2015 to support this mechanism. We show that wages react to changes in export intensity when the export destination coincides with the region of origin of immigrant workers
    Keywords: Export; Firm; Immigrants; Wage inequality
    JEL: F14 F22 F16
    Date: 2023–05
  11. By: Matthias Beestermöller; Levke Jessen-Thiesen; Alexander Sandkamp; Alexander-Nikolai Sandkamp
    Abstract: This paper investigates the impact of the largest rail strikes in German history on intercity buses – a then newly liberalised market. Using unique booking data of bus services, we exploit variation in rail service cancellations across routes to show that the disruption in rail transport increases bus ticket sales. Crucially, the effect persists beyond the strike, indicating that travellers do not return to their originally preferred mode of transport. It is particularly pronounced for passengers travelling on weekends. The findings suggest that customers were previously under-experimenting. Beyond transportation, our results highlight the importance of service reliability, as temporary disruptions can cause customers to permanently switch to competitors.
    Keywords: experimentation, inter-modal substitution, learning, optimisation, strike, switching costs, transport
    JEL: C81 D83 L92 R41
    Date: 2023
  12. By: Jarkko Harju (Tampere University, Finnish Centre of Excellence in Tax Systems Research (FIT)); Sami Jysmä (Labour Institute for Economic Research Labore); Aliisa Koivisto (VATT Institute for Economic Research); Tuomas Kosonen Koivisto (VATT Institute for Economic Research, Finnish Centre of Excellence in Tax Systems Research (FIT))
    Abstract: This paper studies the effects of household tax credit (HTC) on service demand and tax evasion. HTC is a tax credit for consumers to reclaim a share of the labor costs of home improvement services, such as renovation and cleaning work. The aim of this widely used tax credit has been both to increase demand for services to boost employment in the service sector and to curb tax evasion. We use data on firm-level monthly value added tax reports and annual tax filings to study the effects of the introduction of HTC for home cleaning services in Sweden in July 2007 together with a difference-in-differences approach using small Finnish service sector firms as a control group. Our results show that, at best, the HTC system has very limited effects on demand for services in the cleaning sector. We provide counterfactual analysis suggesting that the demand elasticity is low, and that the extent of population consuming cleaning services could be low, which is important to consider in ex ante policy analysis. In addition, we do not find HTC to be ef- ficient in reducing tax evasion. Our survey evidence suggests that consumers are poorly informed about the details of HTC rules, which is one likely explanation for the limited responses to the tax credit.
    Keywords: Household tax credit, demand, employment, consumer price, tax evasion
    JEL: H24 H25 H26 H31
    Date: 2023–03
  13. By: Tuomas Kosonen (VATT Institute for Economic Research, Finnish Centre of Excellence in Tax Systems Research (FIT)); Tuomas Matikka (VATT Institute for Economic Research, CESifo)
    Abstract: We provide quasi-experimental evidence of discrete labor supply. We utilize a novel institutional setting where a reform shifted an income notch to a higher income level, and compare earnings distributions of treated and non-treated individuals before and after the reform. We find transparent evidence of widespread changes in the earnings distribution, which is consistent with discrete but not continuous labor supply. We present a simple application for estimating changes in a distribution to detect discrete responses to local tax changes.
    Keywords: discrete labor supply, tax elasticity, distributions
    JEL: J22 H24 H21
    Date: 2023–04
  14. By: Azmat, Ghazala (Sciences Po, Paris); Kaufmann, Katja Maria (University of Bayreuth); Özdemir, Yasemin (University of Bayreuth)
    Abstract: We exploit a large quasi-exogenous shock to study the development of socioemotional skills during adolescence and the consequences for long-term behavior and labor market outlook. Using novel, longitudinal, microdata on cohorts of East German adolescents before and after a large macro shock (the German Reunification), we causally estimate the impact on socioemotional skills, finding substantial negative effects in the short run. These effects are substantially larger among those affected by the shock in their early adolescence (13-14 years old), relative to older adolescents (16-17 years old). Changes in socioemotional skills have a lasting (negative) impact on them as adults, especially among those affected early in their adolescence, in terms of their expressions of externalizing behavior (e.g., physical fighting) and behavioral control problems (i.e., substance abuse), as well as internalizing behavior (i.e., mental health) and in their (labor-market) optimism and expectations. This study highlights the permanent effects of uncertainty on socioemotional skills during formative years.
    Keywords: socioemotional development, youths, behavior, health, education
    JEL: D91 I12 I31 J13 J16 J24
    Date: 2023–05
  15. By: Bensnes, Simon (Statistics Norway); Huitfeldt, Ingrid (Norwegian Business School (BI)); Leuven, Edwin (University of Oslo)
    Abstract: This paper presents novel methodological and empirical contributions to the child penalty literature. We propose a new estimator that combines elements from standard event study and instrumental variable estimators and demonstrate their relatedness. Our analysis shows that all three approaches yield substantial estimates of the long-term impact of children on the earnings gap between mothers and their partners, commonly known as the child penalty, ranging from 11 to 18 percent. However, the models not only estimate different magnitudes of the child penalty, they also lead to very different conclusions as to whether it is mothers or partners who drive this penalty – the key policy concern. While the event study attributes the entire impact to mothers, our results suggest that maternal responses account for only around one fourth of the penalty. Our paper also has broader implications for event-study designs. In particular, we assess the validity of the event-study assumptions using external information and characterize biases arising from selection in treatment timing. We find that women time fertility as their earnings profile flattens. The implication of this is that the event-study overestimates women's earnings penalty as it relies on estimates of counterfactual wage profiles that are too high. These new insights in the nature of selection into fertility show that common intuitions regarding parallel trend assumptions may be misleading, and that pre-trends may be uninformative about the sign of the selection bias in the treatment period.
    Keywords: child penalty, female labor supply, event study, instrumental variable
    JEL: C36 J13 J16 J21 J22 J31
    Date: 2023–05
  16. By: Haylock, Michael (University of Tübingen); Kampkötter, Patrick (University of Tübingen); Kosfeld, Michael (Goethe University Frankfurt); von Siemens, Ferdinand (University of Amsterdam)
    Abstract: We offer a comprehensive analysis of the organizational and behavioral foundations of employees' helping and antisocial behavior as an integral part of a firm's workplace culture and working climate. Using representative employer-employee panel data of larger German private-sector firms, we document a large variation in helping and antisocial behavior across firms. Our regression results show that differences in supervisors' people skills, as well as workforce trust, social preferences, and personality traits explain these firm-level differences in helping and antisocial behavior in the workplace. Our measures are derived from established survey constructs and include preference items that have been behaviorally validated in experimental games by prior research. Together, the results corroborate the importance of both leadership quality and workforce composition for the manifestation of helpful and hostile workplace cultures.
    Keywords: helping, antisocial behavior, leadership, social preferences, trust, personality, human resource management practices
    JEL: D01 M14 M21 M50
    Date: 2023–05
  17. By: Jarkko Harju (Tampere University, Finnish Centre of Excellence in Tax Systems Research (FIT), VATT Institute for Economic Research and CESifo); Ilpo Kauppinen (VATT Institute for Economic Research and CESifo); Olli Ropponen (Etla Economic Research)
    Abstract: This paper studies the effects of an interest barrier (IB) that was introduced in Finland to restrict the profit-shifting opportunities of multinational enterprises (MNEs). We employ Orbis database on Finnish, Swedish and Danish MNEs and a difference-in-differences methodology, where Swedish and Danish MNEs serve as a control group. We find that Finnish MNEs responded to IB by decreasing their financial expenses. We also find that the most affected firms decreased their debt levels due to the reform. Our results suggest that the financial expense response is followed by a change in the use of transfer pricing as a method to shift profits between tax jurisdictions. We do not find evidence of total output changes among treated firms, suggesting that the IB did not affect the real activity of MNEs.
    Keywords: Corporate income tax, Multinational firms, Capital structure, Profit shifting, Interest barrier
    JEL: H25 H26 G32
    Date: 2023–02
  18. By: Andrea Bafundi (University of Padova); Riccardo Camboni (University of Padova); Edoardo Grillo (University of Padova); Paola Valbonesi (University of Padova)
    Abstract: This paper studies how severe weather events (SWEs) affect the awarding procedures of public procurement contracts. We draw on a large dataset of Italian public procurement tenders for the construction and the maintenance of buildings and roads in the period 2008-2021. We find that municipalities previously hit by SWEs during the execution of procurement works are more likely to adopt procurement procedures that give them discretion in the selection of participating firms. When the firm winning the contract has already worked with the municipality in the past, such discretion reduces the likelihood of time overruns in work completion. Relational contracts aimed at overcoming the contractual incompleteness caused by SWEs can explain the previous findings. In a simple theoretical setting, we show that the public buyer can reward firms that handled past SWEs well by selecting them as participants in future tenders.
    Keywords: Public procurement; relational contract; severe weather events
    Date: 2023–05
  19. By: Adamecz-Völgyi, Anna (KRTK KTI; Centre for Economic and Regional Studies, Institute of Economics); Jerrim, John (University College London); Pingault, Jean-Baptiste (University College London); Shure, Nikki (University College London)
    Abstract: It is well established that boys perceive themselves to be better in mathematics than girls, even when their ability is the same. We examine the drivers of this male overconfidence in self-assessed mathematics ability using a longitudinal study of twins. This allows us to control for family fixed effects, i.e. shared genetic and environmental factors, and exploit the random assignment of the sex of one's co-twin. Using measures of individual self-assessment in mathematics from childhood and adolescence, along with mathematics levels and test scores, cognitive skills, parent and teacher mathematics assessments, and characteristics of their families and siblings, we examine potential channels of the gender gap. Our results confirm that objective mathematics abilities only explain a small share of the gender gap in self-assessed mathematics abilities, and the gap is even larger within opposite-sex twin pairs. We find that having a confident male co-twin increases the confidence of boys but decreases the confidence of girls, not just in mathematics, but also in their self-assessment of other abilities. Male overconfidence might explain why men self-select into top jobs or STEM courses, making entry more difficult for women. We also find that parents are more likely to overestimate boys' and underestimate girls' mathematics abilities. Gender-biased parental assessments explain a large part of the gender gap in mathematics self-assessment, highlighting the importance of the intergenerational transmission of gender stereotypes.
    Keywords: gender gaps, self-assessed mathematics ability, twins, overconfidence, peer effects
    JEL: I24 J16
    Date: 2023–05

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