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on Labour Economics |
| By: | Kari O. E. Alho |
| Abstract: | The paper aims to shed light on the relationships between labour market institutions with respect to wage formation and the effectiveness of economic and labour market policies in enhancing employment and overall economic performance. We evaluate tax and benefit policies under four alternative specifications of wage formation : fixed, market determined, and bargained wages. In the latter, we also distinguish between the short- and long-run effects, and between uncoordinated and coordinated (nation-wide) bargaining. To this end, we build a computable general equilibrium model which is calibrated using data on the Finnish economy and labour market, distinguishing workers of three skill categories by the level of their education. Evaluating policies under various possible labour market institutions, the paper also seeks relevance in a wider EU perspective. Overall, the model simulations show that labour market institutions with respect to wage formation influence to a large extent the effectiveness of many policies aiming at enhancing employment. When wages are allowed to react, policies expanding the demand for labour, which work well under fixed wages, turn out to be quite inefficient in the short run. The reverse emerges with supply side policies such as reducing benefits so that wage reactions reinforce the positive effects of these policies. The reduction of marginal taxes interacts with labour market institutions in quite a sensitive way. Under wage bargaining, tax reductions should be channelled to low-income earners, while the reverse holds under flexible wage formation. Policies directed at raising labour demand for a targeted group, typically the low skilled, are able, on the other hand, to lower unemployment amongst this group of workers also under coordinated wage bargaining. However, if the group concerned enters in a new wage bargaining round unilaterally, the effect of this policy can even be quite negative in terms of its impact on employment due to the rise of compensatory wage claims through the wage-wage links. We also consider a hypothetical, fully flexible labour market and find the extent of the widening of the wage distribution, but also the magnitude of clear economic gains, related to a low rate of unemployment reached through the assumed wage adjustment process. The most effective policy in terms of employment, labour supply and unemployment is the curtailment of social security benefits while out of work. Also a neutral policy of compensating the cut in unemployment benefits by a tax reduction leads, under bargaining, to an expansion in the economy. The results call for coordination in tax and benefit policy measures, so that incentives to work and to stay out of work are not created simultaneously |
| Keywords: | employment, tax and benefit policies, wage formation, CGE model |
| JEL: | J31 J32 H20 |
| Date: | 2006–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:rif:dpaper:1008&r=lab |
| By: | Leo Kaas (University of Konstanz and IZA Bonn); Paul Madden (University of Manchester) |
| Abstract: | We consider a labour market model of oligopsonistic wage competition and show that there is a holdup problem although workers do not have any bargaining power. When a firm invests more, it pays a higher wage in order to attract workers from competitors. Because workers participate in the returns on investment while only firms bear the costs, investment is inefficiently low. A binding minimum wage can achieve the first-best level of investment, both in the short run for a given number of firms and in the long run when the number of firms is endogenous. |
| Keywords: | holdup, investment, minimum wage |
| JEL: | D43 J48 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2043&r=lab |
| By: | Postel-Vinay, Fabien; Turon, Hélène |
| Abstract: | Individual labour earnings observed in worker panel data have complex, highly persistent dynamics. We investigate the capacity of a structural job search model with i.i.d. productivity shocks to replicate salient properties of these dynamics, such as the covariance structure of earnings, the evolution of individual earnings mean and variance with the duration of uninterrupted employment, or the distribution of year-to-year earnings changes. Specifically, we show within an otherwise standard job search model how the combined assumptions of on-the-job search and wage renegotiation by mutual consent act as a quantitatively plausible 'internal propagation mechanism' of i.i.d. productivity shocks into persistent wage shocks. The model suggests that wage dynamics should be thought of as the outcome of a specific acceptance/rejection scheme of i.i.d. productivity shocks. This offers an alternative to the conventional linear ARMA-type approach to modelling earnings dynamics. Structural estimation of our model on a 12-year panel of highly educated British workers shows that our simple framework produces a dynamic earnings structure which is remarkably consistent with the data. |
| Keywords: | covariance structure of earnings; individual shocks; job search; structural estimation |
| JEL: | J31 J41 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5593&r=lab |
| By: | Sebastian Buhai; Coenraad N. Teulings |
| Abstract: | This paper provides a new way of analyzing tenure profiles in wages, by modelling simultaneously the evolution of wages and the distribution of tenures. We develop a theoretical model based on efficient bargaining, where both log outside wage and log wage in the current job follow a random walk, as found empirically. This setting allows the application of real option theory. We derive the efficient separation rule. The model fits the observed distribution of job tenures well. Since we observe outside wages only at job start and job separation, our empirical analysis of within job wage growth is based on expected wage growth conditional on the outside wages at both dates. Our modelling allows testing of the efficient bargaining hypothesis. The model is estimated on the PSID. |
| Keywords: | random productivity growth, efficient bargaining, job tenure, inverse gaussian, wage-tenure profiles, option theory |
| JEL: | C52 J63 O51 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1688&r=lab |
| By: | Catherine Weinberger; Peter Kuhn |
| Abstract: | Using Census and Current Population Survey data spanning 1959 through 1999, we assess the relative contributions of two factors to the decline in the gender wage gap: changes across cohorts in the relative slopes of men’s and women’s age-earnings profiles, versus changes in relative earnings levels at labor market entry. We find that changes in relative slopes account for about one-third of the narrowing of the gender wage gap over the past 40 years. Under quite general conditions, we argue that this provides an upper bound estimate of the contribution of changes in work experience and other post-school investments (PSIs) to the decline of the gender wage gap. |
| JEL: | J7 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12115&r=lab |
| By: | Anders Forslund; Nils Gottfries; Andreas Westermark |
| Abstract: | How are wages set in an open economy? What role is played by demand pressure, international competition, and structural factors in the labour market? How important is nominal wage rigidity and exchange rate policy for the evolution of real wages and competitiveness? To answer these questions, we formulate a theoretical model of wage bargaining in an open economy and use it to derive a simple wage equation where all parameters have clear economic interpretations. We estimate the wage equation on data for aggregate manufacturing wages in Denmark, Finland, Norway, and Sweden from the mid 1960s to the mid 1990s. |
| Keywords: | wage formation, efficiency wage, turnover, bargaining, rent sharing, nominal wage rigidity, exchange rate policy, competitiveness |
| JEL: | E52 F33 F41 J31 J51 J63 J64 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1649&r=lab |
| By: | Gautier, Pieter A; Teulings, Coen N; van Vuuren, Aico |
| Abstract: | We characterize the equilibrium of a search model with a continuum of job and worker types, wage bargaining, free entry of vacancies and on-the-job search. The decentralized economy with monopsonistic wage setting yields too many vacancies and hence too low unemployment compared to first best. This is due to a business- stealing externality. Raising workers’ bargaining power resolves this inefficiency. Unemployment benefits are a second best alternative to this policy. We establish simple relations between the losses in production due to search frictions and wage differentials on the one hand and unemployment on the other hand. Both can be used for empirical testing. |
| Keywords: | on-the-job search; sorting |
| JEL: | J64 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5575&r=lab |
| By: | Gorodnichenko, Yuriy; Sabirianova Peter, Klara |
| Abstract: | This study is the first to provide a systematic measure of bribery using micro-level data on reported earnings, household spending and asset holdings. We use the compensating differential framework and the estimated sectoral gap in reported earnings and expenditures to identify the size of unobserved (unofficial) compensation (i.e., bribes) of public sector employees. In the case of Ukraine, we find that public sector employees receive 24-32% less wages than their private sector counterparts. The gap is particularly large at the top of the wage distribution. At the same time, workers in both sectors have essentially identical level of consumer expenditures and asset holdings that unambiguously indicate the presence of non-reported compensation in the public sector. Using the conditions of labour market equilibrium, we develop an aggregate measure of bribery and find that the lower bound estimate of the extent of bribery in Ukraine is between 460m and 580m U.S. dollars (0.9-1.2% of Ukraine’s GDP in 2003). |
| Keywords: | bribery; corruption; public sector; Ukraine; wage; wage differentials |
| JEL: | J3 J4 O1 P2 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5585&r=lab |
| By: | Victoria Prowse (Nuffield College, Oxford University) |
| Abstract: | This paper investigates the causes of the well documented association between part-time employment and low occupational attainment amongst British women. In particular, the relative importance of structural factors and unobserved heterogeneity to the occupational attainment of women who choose to work part-time is investigated. he results indicate that, depending on observed individual characteristics, structural factors explain between 56% and 87% of the difference in the occupational attainment of full-time and part-time workers. The remainder of the difference in the occupational attainment of full-time and part-time workers is attributed to differences in the unobserved characteristics of the two groups of workers. |
| Keywords: | Dynamic labor supply, Heterogeneity, Occupational attainment, Part-time employment. |
| JEL: | C15 C35 C23 J62 |
| Date: | 2005–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:nuf:econwp:0519&r=lab |
| By: | Euwals, Rob; Hogerbrugge, Maurice |
| Abstract: | Using the Dutch Labour Force Survey 1991-2001, the authors investigate the incidence of part-time employment in the country with the highest part-time employment rate of the OECD countries. Women fulfil most part-time jobs, but a considerable fraction of men works part-time as well. Evidence from descriptive statistics and a macro-econometric model at the sectoral level of industry suggests that the growth of part-time employment in the 1990s relates strongly to the growth in female labour force participation. Factors of labour demand, like the shift from manufacturing to services and the increase in the demand for flexible labour, turn out to play a significant role as well. |
| Keywords: | labour demand; labour supply; panel data; part-time employment |
| JEL: | C33 J21 J23 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5595&r=lab |
| By: | William C. Horrace (Center for Policy Research, Maxwell School, Syracuse University, Syracuse NY 13244-1020); Beyza P. Ural (Department of Economics, Syracuse University); Jin Hwa Jung (Department of Agricultural Economics and Rural Development, Seoul National University) |
| Abstract: | A new gender wage gap decomposition methodology is introduced that does not suffer from the identification problem caused by unobserved non-discriminatory wage structure. The methodology is used to measure the relative size of Korean gender wage gaps from 1994 to 2000 across industries, differentiated by industrial knowledge intensity, where knowledge intensity is the extent to which industries produce or employ high-technology products. Korea represents an important case study, since it possesses one of the fast growing knowledge-intensive economies, among industrialized countries. Empirical results indicate that over this period, discrimination (the unexplained portion of the gender wage gaps) in Korea was statistically smaller in knowledge-intensive industries than in industries with low knowledge intensity. Also, discrimination was declining on average over the period. This suggests that continued growth in knowledge-intensive industries in Korea may lead to further declines in the overall gender gap. |
| Keywords: | discrimination, labor markets, wage differential, compensation |
| JEL: | C12 F16 J31 J71 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:max:cprwps:79&r=lab |
| By: | Iranzo, Susana; Schivardi, Fabiano; Tosetti, Elisa |
| Abstract: | We study the relation between workers' skill dispersion and firm productivity using a unique dataset of Italian manufacturing firms from the early eighties to the late nineties with individual records on all their workers. Our measure of skill is the individual worker's effect obtained as a latent variable from a wage equation. Estimates of a generalized CES production function that depends on the skill composition show that a firm's productivity is positively related to skill dispersion within occupational status groups (production and non-production workers) and negatively related to skill dispersion between these groups. Consistently, the variance decomposition shows that most of the overall skill dispersion is within and not between firms. We find no change over time in the share of each component, in contrast with some evidence from other countries, based on less comprehensive data. |
| Keywords: | matched data; productivity; segregation; skills |
| JEL: | D24 J24 L23 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5539&r=lab |
| By: | Marco Caliendo (DIW Berlin, IAB Nuremberg and IZA Bonn); Katharina Wrohlich (DIW Berlin and IZA Bonn) |
| Abstract: | Increasing work incentives for people with low incomes is a common topic in the policy debate across European countries. The "Mini-Job" reform in Germany - introduced on April 1, 2003 - can be seen in line with these policies, exempting labour income below a certain threshold from taxes and employees’ social security contributions. We carry out an ex-post evaluation to identify the short-run effects of this reform. Our identification strategy uses an exogenous variation in the interview months in the German Socio-Economic Panel, that allows us to distinguish groups that are (or are not) affected by the reform. To account for seasonal effects we additionally use a difference-in-differences strategy. The results show that the short-run effects of the reform are limited. We find no significant short-run effects for marginal employment. However, there is evidence that single men who are already employed react immediately and increase secondary job holding. |
| Keywords: | evaluation, natural experiment, difference-in-differences, marginal employment |
| JEL: | C25 H31 J68 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2041&r=lab |
| By: | Chen, Natalie; Conconi, Paola; Perroni, Carlo |
| Abstract: | Differences in gender-based labour market discrimination across countries imply that migration may affect husbands and wives differently. If migrant wives experience a relative improvement in their labour market position, bargaining theory suggests that they should experience comparatively larger gains. However, if renegotiation possibilities are limited by institutional mechanisms that achieve long-term commitment, the opposite may be true, particularly if women are specialized in household activities and the labour market allows more flexibility in their labour supply choices. Evidence from the German Socio-Economic Panel indeed shows that, as long as renegotiation opportunities are limited, comparatively better wages for migrant women lead them to bear the double burden of market and household work. |
| Keywords: | gender discrimination; international migration; renegotiation |
| JEL: | D1 F2 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5559&r=lab |
| By: | Luis Eduardo Arango; Carlos Esteban Posada |
| Abstract: | The long-run component of the Colombian unemployment rate is estimated for the last twenty years. According to the results, the main determinants of the permanent component of the unemployment rate are the real hourly wage, the non-wage labor costs and the rate of capital accumulation. Given the statistical properties of the variables, a cointegration approach was adopted. |
| Keywords: | Unemployment rate, labor costs, capital accumulation, cointegration |
| JEL: | J32 J23 J60 E24 C32 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:389&r=lab |
| By: | Daniel Cardona; Fernando Sánchez-Losada |
| Abstract: | We analyze the effects of the unemployment benefit system on the economy. In particular, we focus on both the tax structure and the unemployment benefits composition. We show that if the unemployment benefit system is only paid by firms, then employment and production are maximized. Moreover, the way the government contemplates the unemployment benefit system, either as a redistributive or as an insurance institution, is crucial for the dynamics and the equilibria of the economy. |
| Keywords: | unemployment benefit system, payroll tax, wage tax. |
| JEL: | E24 E62 H53 J50 J65 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:ubi:deawps:8&r=lab |
| By: | Tomas Kögel (Dept of Economics, Loughborough University) |
| Abstract: | Recent demographic literature shows in Swedish micro-level data a positive effect of female wage income or female education on fertility. The literature explains this finding with Swedish family policies of high subsidies for bought-in child care and generous parental leave benefits that are calculated on the basis of a woman's prior wage income. Both policies would cause the substitution effect from an increase in female wages on fertility to be dominated by its income effect. This paper shows within an economic model that there are offsetting effects from Swedish family policy that cause the reduction in the magnitude of the substitution effect of female wages to be most likely rather small. |
| Keywords: | Fertility; family policy; gender equality. |
| JEL: | H31 H53 J13 J18 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2006_7&r=lab |
| By: | Assar Lindbeck; Marten Palme; Mats Persson |
| Abstract: | We analyze the consequences for sickness absence of a selective softening of job security legislation for small firms in Sweden in 2001. According to our differences-in-difference estimates, aggregate absence in these firms fell by 0.2-0.3 days per year. This aggregate net figure hides important effects on different groups of employees. Workers remaining in the reform firms after the reform reduced their absence by about one day. People with a high absence record tended to leave reform firms, but these firms also became less reluctant to hire people with a record of high absence. |
| Keywords: | seniority rules, sick pay insurance, firing costs, moral hazard |
| JEL: | H53 I38 J22 J50 M51 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1687&r=lab |
| By: | Dhaval Dave; Inas Rashad; Jasmina Spasojevic |
| Abstract: | While numerous studies have examined how health affects retirement behavior, few have analyzed the impact of retirement on subsequent health outcomes. This study estimates the effects of retirement on health status as measured by indicators of physical and functional limitations, illness conditions, and depression. The empirics are based on six longitudinal waves of the Health and Retirement Study, spanning 1992 through 2003. To account for biases due to unobserved selection and endogeneity, panel data methodologies are used. These are augmented by counterfactual and specification checks to gauge the robustness and plausibility of the estimates. Results indicate that complete retirement leads to a 23-29 percent increase in difficulties associated with mobility and daily activities, an eight percent increase in illness conditions, and an 11 percent decline in mental health. With an aging population choosing to retire at earlier ages, both Social Security and Medicare face considerable shortfalls. Eliminating the embedded incentives in Social Security and many private pension plans, which discourage work beyond some point, and enacting policies that prolong the retirement age may be desirable, ceteris paribus. Retiring at a later age may lessen or postpone poor health outcomes for older adults, raise well-being, and reduce the utilization of health care services, particularly acute care. |
| JEL: | I1 J0 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12123&r=lab |