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on Labour Economics |
| By: | Peter Haan (DIW Berlin and Free University Berlin); Viktor Steiner (DIW Berlin, Free University Berlin and IZA Bonn) |
| Abstract: | We evaluate three policy reforms targeted at older unemployed people: (i) an hourly wage subsidy, (ii) an in-work credit, and (iii) a subsidy of social security contributions on low wages. The work incentive, labour supply and welfare effects of these hypothetical reforms are analysed on the basis a detailed micro-simulation model for Germany which includes a structural household labour supply model. We find that the simulated labour supply effects of the three policy reforms would be rather similar and of moderate size, ranging between 20,000 and 30,000 older women and between 10,000 and 20,000 older men. Our results also suggest that the hourly wage subsidy yields the highest welfare gains. |
| Keywords: | in-work support, wage subsidies, unemployment, elderly workers |
| JEL: | J21 J48 H21 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2424&r=lab |
| By: | Helen Robinson (Cardiff University); Jonathan Wadsworth (Royal Holloway, University of London, CEP, London School of Economics and IZA Bonn) |
| Abstract: | The advent of any earnings boost, such as provided by the introduction of a minimum wage, might be expected to reduce the supply of low paid individuals wanting to hold a second job. This paper uses difference-in-differences estimation on a panel of individuals matched across successive Labour Force Surveys around the time of the introduction of the national minimum wage in the United Kingdom in order to estimate the impact of the minimum wage and its subsequent upratings on second job working. There is little evidence to suggest that the extra pay provided by the introduction of the minimum wage was sufficient to affect the incidence of second job holding significantly. However, hours worked in the main job by second job holders may have risen relative to those not covered by the minimum wage; and hours worked in second jobs may have fallen for those whose second job was initially below the minimum. |
| Keywords: | second jobs, minimum wages |
| JEL: | J23 J31 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2445&r=lab |
| By: | Fei Peng (University of Birmingham Business School); W. Stanley Siebert (University of Birmingham Business School and IZA Bonn) |
| Abstract: | This paper analyzes the cyclical behaviour of male real wages in Italy using the European Community Household Panel 1994-2001. We distinguish between job stayers (remaining in the same job), and within- and between-company job movers. Stayers are the large majority. We find stayers in Northern Italy to have high cyclicality of real wages, higher in fact than the US and the UK. The Northern cyclicality is significant for all sub-samples (except for public sector workers), and higher in small firms, the private sector, and for temporary workers, as expected. In contrast, we find little wage cyclicality for any sub-group in the Centre-South, even for workers in small private sector firms. Evidently, labour markets in the North of Italy operate much more competitively than in the Centre and South. |
| Keywords: | real wage cyclicality, job stayers, Italy, ECHP |
| JEL: | E32 J31 K31 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2465&r=lab |
| By: | Hornstein, Andreas; Krusell, Per; Violante, Giovanni L |
| Abstract: | Standard search and matching models of equilibrium unemployment, once properly calibrated, can generate only a small amount of frictional wage dispersion, i.e., wage differentials among ex-ante similar workers induced purely by search frictions. We derive this result for a specific measure of wage dispersion---the ratio between the average wage and the lowest (reservation) wage paid. We show that in a large class of search and matching models this statistic (the 'mean-min ratio') can be obtained in closed form as a function of observable variables (i.e., interest rate, value of leisure, and statistics of labour market turnover). Looking at various independent data sources suggests that, empirically, residual wage dispersion (i.e., inequality among observationally similar workers) exceeds the model's prediction by a factor of 20. We discuss three extensions of the model (risk aversion, volatile wages during employment, and on-the-job search) and find that, in their simplest version, they can improve its performance, but only modestly. We conclude that either frictions account for a tiny fraction of residual wage dispersion, or the standard model needs to be augmented to confront the data. |
| Keywords: | mean-min ratio; search; wage dispersion |
| JEL: | E24 J31 J64 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5935&r=lab |
| By: | Strulik, Holger; Tyran, Jean-Robert; Vanini, Paolo |
| Abstract: | We develop a simple model of short- and long-term unemployment to study how labour market institutions interact with labour market conditions and personal characteristics of the unemployed. We analyze how the decision to exit unemployment and to mitigate human capital degradation by retraining depends on education, skill degradation, age, labour market tightness, taxes, unemployment insurance benefits and welfare assistance. We extend our analysis by allowing for time-inconsistent choices and demonstrate the possibility of an unemployment trap. |
| Keywords: | present-biased preferences; retraining; skill degradation; unemployment; unemployment benefits; welfare assistance |
| JEL: | J31 J38 J64 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5967&r=lab |
| By: | Arnaud Chevalier (Royal Holloway University of London, London School of Economics, University College Dublin and IZA Bonn); Joanne Lindley (University of Sheffield) |
| Abstract: | During the early Nineties the proportion of UK graduates doubled over a very short period of time. This paper investigates the effect of the expansion on early labour market attainment, focusing on over-education. We define over-education by combining occupation codes and a self-reported measure for the appropriateness of the match between qualification and the job. We therefore define three groups of graduates: matched, apparently over-educated and genuinely over-educated; to compare pre- and post-expansion cohorts of graduates. We find the proportion of over-educated graduates has doubled, even though over-education wage penalties have remained stable. This suggests that the labour market accommodated most of the large expansion of university graduates. Apparently over-educated graduates are mostly undistinguishable from matched graduates, while genuinely over-educated graduates principally lack non-academic skills such as management and leadership. Additionally, genuine over-education increases unemployment by three months but has no impact of the number of jobs held. Individual unobserved heterogeneity differs between the three groups of graduates but controlling for it, does not alter these conclusions. |
| Keywords: | over-education, skills |
| JEL: | J24 J31 I2 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2442&r=lab |
| By: | Albrecht, James; van den Berg, Gerard J; Vroman, Susan |
| Abstract: | The Swedish adult education program known as the Knowledge Lift (1997--2002) was unprecedented in its size and scope, aiming to raise the skill level of large numbers of low-skill workers. This paper evaluates the potential effects of this program on aggregate labour market outcomes. This is done by calibrating an equilibrium search model with heterogeneous worker skills using pre-program data and then forecasting the program impacts. We compare the forecasts to observed aggregate labour market outcomes after termination of the program. |
| Keywords: | calibration; job search; program evaluation; returns to education; Swedish labour market; unemployment; wages |
| JEL: | C31 D83 J21 J24 J31 J64 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5927&r=lab |
| By: | Jakob Roland Munch (University of Copenhagen, CEBR and EPRU); Jan Rose Skaksen (Copenhagen Business School, CEBR and IZA Bonn) |
| Abstract: | This paper studies the link between a firm’s education level, export performance and wages of its workers. We argue that firms may escape intense competition in international markets by using high skilled workers to differentiate their products. This story is consistent with our empirical results. Using a very rich matched worker-firm longitudinal dataset we find that firms with high export intensities pay higher wages. However, an interaction term between export intensity and skill intensity has a positive impact on wages and it absorbs the direct effect of the export intensity. That is, we find an export wage premium, but it accrues to workers in firms with high skill intensities. |
| Keywords: | exports, wages, human capital, rent sharing, matched worker-firm data |
| JEL: | J30 F10 I20 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2409&r=lab |
| By: | Alan Manning (London School of Economics and CEP); Barbara Petrongolo (London School of Economics, CEP and IZA Bonn) |
| Abstract: | Women in Britain who work part-time have, on average, hourly earnings about 25% less than that of women working full-time. This gap has widened greatly over the past 30 years. This paper tries to explain this part-time pay penalty. It shows that a sizeable part of the penalty can be explained by the differing characteristics pf FT and PT women. Inclusion of standard demographics halves the estimate of the pay penalty. But inclusion of occupation makes the pay penalty very small, suggesting that almost the entire unexplained gap is due to occupational segregation. The rise in the pay penalty over time is partly a result of a rise in occupational segregation and partly the general rise in wage inequality. Policies to reduce the pay penalty have had little effect and it is likely that it will not change much unless better jobs can be made available on a part-time basis. |
| Keywords: | part-time work, pay gaps, occupational segregation |
| JEL: | J24 J31 J62 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2419&r=lab |
| By: | John T. Addison (University of South Carolina, Queen’s University Belfast, Universidade de Coimbra/GEMF and IZA Bonn); Paulino Teixeira (Universidade de Coimbra); Thomas Zwick (ZEW Mannheim) |
| Abstract: | This paper provides the first full examination of the effect of German works councils on wages using matched employer-employee data (specifically, the LIAB for 2001). We find that works councils are associated with higher earnings. The wage premium is around 11 percent (and is higher under collective bargaining). This result persists after taking account of worker and establishment heterogeneity and the endogeneity of works council presence. Next, using quantile regressions, we find that the works council premium is decreasing with the position of the worker in the wage distribution. And it is also higher for women than for men. Finally, the works council wage premium is associated with longer job tenure. This suggests that some of the premium is a noncompetitive rent, even if works council voice may dominate its distributive effects insofar as tenure is concerned. |
| Keywords: | matched employer-employee data, rent seeking, tenure, wages, wage distribution, works councils |
| JEL: | J31 J50 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2474&r=lab |
| By: | Bart Cockx (Université catholique de Louvain, CESifo and IZA Bonn); Stéphane Robin (BETA-Cereq, University of Strasbourg I, PEGE and Université catholique de Louvain); Christian Goebel (Université catholique de Louvain and ZEW) |
| Abstract: | We verify whether an income support policy for part-time workers in Belgium increases the transition from unemployment to non-subsidised, "regular" employment. Using a sample of 8630 long-term unemployed young women, whose labour market history is observed from 1998 to 2001, we implement the "timing of events" approach proposed by Abbring and Van den Berg (2003) to control for selection effects. Our results suggest that the policy has a significantly positive effect on the transition to non-subsidised employment when one does not control for unobserved heterogeneity. This effect remains positive, but becomes insignificant, when one corrects for selection on unobservable characteristics. |
| Keywords: | active labour market policies, evaluation, mixed proportional hazard models |
| JEL: | J64 J68 C41 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2432&r=lab |
| By: | Pavoni, Nicola; Violante, Giovanni L |
| Abstract: | A Welfare-to-Work (WTW) program is a mix of government expenditures on various labor market policies targeted to the unemployed (e.g., unemployment insurance, job search monitoring, social assistance, wage subsidies). This paper provides a dynamic principal-agent framework suitable for analyzing chief features of an optimal WTW program such as the sequence and duration of the different policies, the dynamic pattern of payments along the unemployment spell, and the emergence of taxes/subsidies upon re-employment. The optimal program endogenously generates an absorbing policy of last resort ('social assistance') characterized by a constant lifetime payment and no active participation by the agent. Human capital depreciation is a necessary condition for policy transitions to be part of an optimal WTW program. The typical sequence of policies is quite simple: the program starts with standard unemployment insurance, then switches into monitored search and, finally, into social assistance. The optimal benefits are decreasing during unemployment insurance and constant during both job search monitoring and social assistance. Whereas taxes (subsidies) can be either increasing or decreasing with duration during unemployment insurance, they must decrease (increase) during a phase of job search monitoring. In a calibration exercise, we use our model to analyze quantitatively the features of the optimal program for the U.S. economy. With respect to the existing U.S. system, the optimal WTW scheme delivers sizeable welfare gains to unskilled workers because the incentives to search for a job can be retained even while delivering more insurance, and using costly monitoring less intensively. |
| Keywords: | human capital; job search monitoring; recursive contracts; unemployment insurance; welfare-to-work |
| JEL: | D82 H21 J24 J64 J65 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5937&r=lab |
| By: | Daniela Del Boca (University of Turin, CHILD and IZA Bonn); Marilena Locatelli (University of Turin, CHILD) |
| Abstract: | In this paper we present important empirical evidence regarding recent trends in women’s participation and fertility in European countries, and provide several interpretations of the differences across countries. Several recent analyses have considered labour supply and fertility as a joint decision and have explicitly taken into account the endogeneity of fertility in labour market participation decisions of women. We survey microeconomic analyses that explore the impact of social policies on the joint decisions of labor market participation and fertility. The results of most analyses indicate that social policies, taking into account several variables (family background, the allocation of time within the household, religion and culture), have a very relevant role in explaining different degrees of incompatibility between employment and child rearing across different countries. The incompatibilities between motherhood and careers find reconciliation in policies that enhance employment flexibility and diminish the potential opportunity costs of children. |
| Keywords: | labor market decisions, fertility, child care, family policies |
| JEL: | J2 C3 D1 H31 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2414&r=lab |
| By: | Lex Borghans (ROA, Maastricht University and IZA Bonn); Bas ter Weel (MERIT, Maastricht University and IZA Bonn); Bruce A. Weinberg (Ohio State University, NBER and IZA Bonn) |
| Abstract: | This paper develops a framework to understand the role of interpersonal interactions in the labor market including task assignment and wages. Effective interpersonal interactions involve caring, to establish cooperation, and at the same time directness, to communicate in an unambiguous way. The ability to perform these tasks varies with personality and the importance of these tasks varies across jobs. An assignment model shows that people are most productive in jobs that match their style and earn less when they have to shift to other jobs. An oversupply of one attribute relative to the other reduces wages for people who are better with the attribute in greater supply. We present evidence that youth sociability affects job assignment in adulthood. The returns to interpersonal interactions are consistent with the assignment model. |
| Keywords: | interpersonal interactions, wage level and structure, assignment |
| JEL: | J21 J24 J31 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2466&r=lab |
| By: | Domeij, David; Ljungqvist, Lars |
| Abstract: | Swedish census data and tax records reveal an astonishing wage compression; the Swedish skill premium fell by more than 30 percent between 1970 and 1990 while the U.S. skill premium, after an initial decline in the 1970s, rose by 8-10 percent. Since then both skill premia have increased by around 10 percentage points in 2002. Theories that equalize wages with marginal products can rationalize these disparate outcomes when we replace commonly used measures of total labour supplies by private sector employment. Our analysis suggests that the dramatic decline of the skill premium in Sweden is the result of an expanding public sector that today comprises roughly one third of the labor force, and that expansion has largely taken the form of drawing low-skilled workers into local government jobs that service the welfare state. |
| Keywords: | employment; private sector; public sector; skill premium; Sweden; United States |
| JEL: | E24 J31 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5921&r=lab |
| By: | Boris Hirsch (University of Erlangen-Nuremberg); Thorsten Schank (University of Erlangen-Nuremberg); Claus Schnabel (University of Erlangen-Nuremberg and IZA Bonn) |
| Abstract: | This paper investigates women's and men's labor supply to the firm within a structural approach based on a dynamic model of new monopsony. Using methods of survival analysis and a linked employer-employee dataset for Germany, we find that labor supply elasticities are small (0.9-2.4) and that women's labor supply to the firm is substantially less elastic than men's (which is the reverse of gender differences in labor supply usually found at the level of the market). One implication of these findings is that the gender pay gap could be the result of wage discrimination by profit-maximizing monopsonistic employers. |
| Keywords: | labor supply, monopsony, gender, discrimination |
| JEL: | J42 J60 J71 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2443&r=lab |
| By: | Geoff Mason; Williams, G., Cranmer, S. |
| Abstract: | This paper makes use of detailed information gathered at university department level, combined with graduate survey data, to assess the impact of different kinds of employability skills initiative on graduate labour market performance. We find that structured work experience has clear positive effects on the ability of graduates, firstly, to find employment within six months of graduation and, secondly, to secure employment in ‘graduate-level’ jobs. The latter job quality measure is also positively associated with employer involvement in degree course design and delivery. However, a measure of departmental involvement in explicit teaching and assessment of employability skills is not significantly related to labour market outcomes. |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:280&r=lab |
| By: | W. Stanley Siebert (University of Birmingham and IZA Bonn) |
| Abstract: | Why should floors be set under wages and working conditions by labour market regulations? This paper finds that efficiency arguments are questionable, because of the disemployment effects of strict regulation. Regulation is better explained in terms of the choices of the employed semi- and unskilled worker group. This group contains the median voter, who rationally desires strict regulation to divert rent from other groups such as the skilled workers and the unemployed. Legal origin may also be important: some countries have fallen under the influence of the interventionist French (or German) legal tradition. Given a predisposition to intervene, these countries begin with some degree of labour regulation, which then creates its own constituency of rent protectors and rent growers. |
| Keywords: | labour market regulation, European Union, median voter, legal origin, minimum wages, working conditions floors, wage inequality, job opportunity inequality, long-term unemployment |
| JEL: | J38 J41 J58 J68 J83 K31 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2430&r=lab |
| By: | Myeong-Su Yun (Tulane University and IZA Bonn) |
| Abstract: | We propose a measure of the industrial gender wage gap which is free from an identification problem by using inter-industry wage differentials, or industrial wage premia. We draw on a recent literature showing that a normalized regression equation can be used to resolve the identification problem in detailed Oaxaca decompositions of wage differentials. By identifying the constant and the coefficients of dummy variables, including the reference category, the normalized equation can resolve the two key identification problems that arise in studying wage gaps: one in detailed Oaxaca decompositions; the other measuring industrial gender wage gaps. |
| Keywords: | industrial wage differentials, invariance, identification, normalized regression |
| JEL: | C20 J70 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2427&r=lab |
| By: | Cuñat, Vicente; Guadalupe, Maria |
| Abstract: | This paper studies the effect of changes in foreign competition on the incentives faced by U.S. managers in the form of wage structures, promotion profiles, and job turnover. We use a panel of executives and measure foreign competition as import penetration. Using tariffs and exchange rates as instrumental variables, we estimate the causal effect of globalization on the labour market outcomes of these workers. We find that higher foreign competition leads to more incentive provision in a variety of ways. First, it increases the sensitivity of pay to performance. Second, it raises the return to a promotion and increases pay inequality among the top executives of the firm, with CEOs typically experiencing wage increases while lower-ranking executives see their wages fall. Third, higher competition is associated with a higher probability of leaving the firm. Finally, we show that higher foreign competition also is associated with a higher demand for talent at the top of the firm. These results indicate that increased foreign competition can explain some of the recent trends in compensation structures. |
| Keywords: | demand for talent; foreign competition; globalization; incentives; job turnover; performance-related pay; product market competition; promotions; wage ladders; wage structure |
| JEL: | J31 L1 M52 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5950&r=lab |
| By: | John S. Heywood (University of Wisconsin and University of Birmingham); W. Stanley Siebert (University of Birmingham and IZA Bonn); Xiangdong Wei (Lingnan University and University of Birmingham) |
| Abstract: | This paper uses establishment data to estimate the determinants of using agency workers. It contends that those employers with less ability to direct effort of core workers are more likely to use agency workers to meet uncertain labor demand. Family friendly practices are viewed as either increasing or decreasing such ability, depending upon their influence upon absence rates. The empirical results imply that special leave practices reduce firms’ ability to direct worker effort, thereby increasing the likelihood of using agency workers. On the other hand, practices linked with flexible working conditions (workplace nurseries, flexitime and job sharing) have the opposite effect. The findings thus distinguish between family friendly practices that make core workers better off without expanding contingent agency jobs, and those that do not. |
| Keywords: | agency work, family friendly work practices, maternity leave, workplace nurseries, flexitime |
| JEL: | J13 J81 M52 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2413&r=lab |
| By: | Robert Drago (Pennsylvania State University); Mark Wooden (University of Melbourne and IZA Bonn); David Black (University of Melbourne) |
| Abstract: | We consider desires for flexibility in weekly hours by analyzing changes in work hours preferences using four years of data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey. We control for work hours preferences in previous years and test for effects on desired labor force participation and, for those wishing to participate, on current hours preferences. Our findings reveal that, in general, women are more sensitive to life events than men. Women’s preferred hours and labor force participation decline sharply with pregnancy and the arrival of children; their preferred hours approach usual levels as children enter school and ultimately decline as they become empty-nesters. We also find women’s preferred hours increasing following separation but falling after divorce, with an opposing pattern for men. Finally, a sizeable minority of retirees have preferences for phased instead of full retirement. |
| Keywords: | working hours, preferences, life events, HILDA survey |
| JEL: | J22 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2404&r=lab |
| By: | Leo Kaas (University of Konstanz and IZA Bonn) |
| Abstract: | This paper considers a labour market model of monopsonistic competition with taste-based discrimination against minority workers to study the effect of equal pay legislation on labour market inequality. When the taste for discrimination is small or competition is weak, the policy removes job segregation and the wage gap completely. However, with a bigger taste for discrimination or stronger competition, equal pay legislation leads to more job segregation, and sometimes minority workers end up earning less than before. Profits of discriminating firms may increase, and discrimination can persist in the long run although it would have disappeared without the policy. |
| Keywords: | discrimination, monopsonistic competition, equal pay legislation |
| JEL: | D43 J71 J78 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2421&r=lab |
| By: | Michal Myck (DIW Berlin and IZA Bonn); Leszek Morawski (Warsaw University); Jerzy Mycielski (Warsaw University) |
| Abstract: | The aggregate average wage is often used as an indicator of economic performance and welfare, and as such often serves as a benchmark for changes in the generosity of public transfers and for wage negotiations. Yet if economies experience a high degree of (nonrandom) fluctuation in employment the composition of the employed population will have a considerable effect on the computed average. In this paper we demonstrate the extent of this problem using data for Poland for the period 1996-2003. During these years employment in Poland fell from 51.2% to 44.2% and most of it occurred between the end of 1998 and the end of 2002. We show that about a quarter of the growth in the average wage during this period could be attributed purely to changes in employment. |
| Keywords: | wage distribution, aggregation, employment dynamics, transition economies |
| JEL: | E24 J21 J31 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2456&r=lab |
| By: | Daniele Checchi (University of Milan); Giorgio Brunello |
| Abstract: | This paper investigates whether at the interaction between family background and school tracking affects human capital accumulation. Our a priori view is that more tracking should reinforce the role of parental privilege, and thereby reduce equality of opportunity. Compared to the current literature, which focuses on early outcomes, such as test scores at 13 and 15, we look at later outcomes, including literacy, dropout rates, college enrolment, employability and earnings. While we do not confirm previous results that tracking reinforces family background effects on literacy, we do confirm our view when looking at educational attainment and labour market outcomes. When looking at early wages, we find that parental background effects are stronger when tracking starts earlier. We reconcile the apparently contrasting results on literacy, educational attainment and earnings by arguing that the signalling role of formal education - captured by attainment - matters more than actual skills - measured by literacy - in the early stages of labour market experience. |
| Keywords: | education, training, literacy, |
| Date: | 2006–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:bep:unimip:1044&r=lab |
| By: | Andrew E. Clark (PSE and IZA Bonn) |
| Abstract: | Although it is now widely-accepted that unemployment is associated with sharply lower levels of individual well-being, relatively little is known about how this effect depends on unemployment duration. Data from three large-scale European panels is used to shed light on this issue; these data allow us to distinguish habituation to unemployment from sample selection. The panel results show little evidence of habituation to unemployment in Europe in the 1990's. |
| Keywords: | life satisfaction, unemployment, unemployment duration, habituation |
| JEL: | C30 J28 J31 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2406&r=lab |
| By: | Deborah A. Cobb-Clark (SPEAR, RSSS, Australian National University and IZA Bonn); Steven Stillman (Motu Economic and Public Policy Research and IZA Bonn) |
| Abstract: | We use the first three waves of the Household Income and Labour Dynamics in Australia (HILDA) Survey to examine the retirement plans of middle-aged workers (aged 45-55). Our results indicate that approximately two-thirds of men and more than half of women appear to be making standard retirement plans. At the same time, more than one in five individuals seem to have delayed their retirement planning and approximately one in ten either do not know when they expect to retire or expect to never retire. Retirement plans are closely related to current labor market position. Specifically, forming expectations about the age at which one will leave the labor market appears to be easier for workers in jobs with welldefined pension benefits and standard retirement ages. Moreover, those who report that they do not know when they expect to retire do in fact appear to face greater uncertainty in their retirement planning. Those who anticipate working forever seem to do so out of concerns about the adequacy of their retirement incomes rather than out of increased job satisfaction or a heightened desire to remain employed. Finally, men alter their retirement plans in response to labor market shocks, while women are more sensitive to their own and their partners’ health changes. |
| Keywords: | retirement, expectations, middle-aged workers |
| JEL: | J26 J10 J80 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2449&r=lab |
| By: | Carsten Ochsen (University of Rostock); Heinz Welsch (University of Oldenburg) |
| Abstract: | The social costs of unemployment, in terms of unemployment’s impact on European citizens’ life satisfaction, relate strongly to unemployment duration. At any level of general joblessness, reducing long-term unemployment is more important than reducing the number of people unemployed at any point in time. |
| Keywords: | unemployment; unemployment duration; life satisfaction; happiness; social costs |
| JEL: | J64 I31 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ros:wpaper:60&r=lab |
| By: | Amelie Constant (IZA Bonn, DIW Berlin and Georgetown University); Liliya Gataullina (IZA Bonn); Klaus F. Zimmermann (IZA Bonn, University of Bonn, DIW Berlin and CEPR) |
| Abstract: | The European Union’s strategy to raise employment is confronted with very low work participation among many minority ethnic groups, in particular among immigrants. This study examines the potential of immigrants’ identification with the home and host country ethnicity to explain that deficit. It introduces a two-dimensional understanding of ethnic identity, as a combination of commitments to the home and host cultures and societies, and links it to the labour market participation of immigrants. Using unique German survey data, the paper identifies marked gender differences in the effects of ethnic identification on the probability to work controlling for a number of other determinants. While ethnically assimilated immigrant men outperform those who are ethnically separated and marginalized, they are not different from those with openness to both cultures. Assimilated immigrant women do better than those separated and marginalized, but those who develop an attachment to both cultures clearly fare the best. |
| Keywords: | ethnicity, ethnic identity, acculturation, immigrant assimilation, immigrant integration, gender, work |
| JEL: | F22 J15 J16 Z10 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2420&r=lab |
| By: | Marcello Estevão (International Monetary Fund); Filipa Sá (MIT and IZA Bonn) |
| Abstract: | Legally mandated reductions in the workweek can be either a constraint on individuals’ choice or a tool to coordinate individuals’ preferences for lower work hours. We confront these two hypotheses by studying the consequences of the workweek reduction in France from 39 to 35 hours, which was first applied to large firms in 2000. Using the timing difference by firm size to set up a quasi-experiment and data from the French labor force survey, we show that the law constrained the choice of a significant number of individuals: dual-job holdings increased, some workers in large firms went to small firms where hours were not constrained, and others were replaced by cheaper, unemployed individuals as relative hourly wages increased in large firms. Employment of persons directly affected by the law declined, although the net effect on aggregate employment was not significant. |
| Keywords: | workweek, coordination, job-sharing, welfare |
| JEL: | E24 J22 C21 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2459&r=lab |
| By: | Eran Yashiv (Tel Aviv University, CEPR and IZA Bonn) |
| Abstract: | The picture of U.S. labor market dynamics is opaque. Empirical studies of U.S. gross worker flows have yielded contradictory findings, and it is not easy to get a sense of the key moments of the data. Debates have emerged regarding the implications of these flows for the understanding of the business cycle. The early view was that worker separations from jobs are the more dominant cyclical phenomenon (relative to the hirings of workers), and that therefore it is important to analyze the causes for separations or job destruction. Later, this view was challenged by the claim that separations are roughly constant over the cycle, and that the key to the understanding of the business cycle is in the cyclical behavior of the job finding rate. This paper aims at clarifying the picture, trying to determine what facts can be established, what are their implications for the business cycle, and what remains to be further investigated. The main findings are: (i) There is considerable cyclicality and volatility of both accessions and separations. Hence, both are important for the understanding the business cycle. The paper delineates the key business cycle facts of the labor market. (ii) The major remaining problems, in need of further study, are the disparities in the measurement of flows between employment and the pool of workers out of the labor force, disagreements on the relative volatility of job finding and separation rates across data sets, and the fact that the fit of the gross flows data with net employment growth data differs across studies and is not high. |
| Keywords: | gross worker flows, labor market dynamics, job finding rate, separation rate, business cycle facts |
| JEL: | E24 J63 J64 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2455&r=lab |
| By: | Etienne Wasmer (Institut d’Etudes Politiques de Paris, OFCE, CEPR and IZA Bonn) |
| Abstract: | Unlike many other contracts, employment contracts are subject to various external administrative procedures governing separations, ranging from compulsory severance payments and advance notice periods (usually seniority based), to collective layoff procedures (usually depending on the firm’s size), and other forms of protections against arbitrary dismissal. These external constraints may raise the wellbeing of workers if everything remains constant, but may fail to do so once other economic channels are accounted for. Here, we explore the effect of such legislation on the firm’s attitude towards insiders (i.e. protected workers), notably worker monitoring, working environment, and ultimately what we could term harassment. We show that during downturns, harassing workers in order to induce a quit is a substitute for greater dismissal freedom, and that intense monitoring and depreciated working conditions will occur. Thus, a more protected workforce may loose more than it gains from non-pecuniary pressures exerted by the firm. We test these mechanisms using data from a panel of Canadian individuals (the National Public Health Survey) including details on work-related stress and the consumption of various medications, including anti-depressants. By exploiting cross-province differences in employment protection legislation (EPL), we cannot reject the theoretical hypothesis: we even find positive links between individual employment protection and some dimensions of stress, and weaker but positive links between employment protection, depression and the consumption of various psychotropic drugs. Tenure and firm size information from another dataset is then used to generate further variance in EPL by imputation. This confirms the previous results, as well as falsification exercises: family stress for instance is not correlated with regional EPL, while financial stress is negatively correlated with EPL. |
| Keywords: | stress at work, employment protection, personnel economics |
| JEL: | J41 J53 J81 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2460&r=lab |
| By: | Lorenz Goette (University of Zurich, CEPR and IZA Bonn); David Huffman (IZA Bonn) |
| Abstract: | We use natural experiments – plausibly exogenous, anticipated increases in the piece rate – to study how effort responds to incentives. Our first finding, like some previous studies, lends little support to the view that incentives increase effort: raising the piece rate has zero effect on total daily effort. Previous studies have speculated that changes in motivation over the course of the workday, caused by the increase in the piece rate, may lead to this result, but have relied on data aggregated to the day. Our data allow us to look within the workday. We find that workers do respond to incentives within the day: they work significantly harder in early hours of work, but significantly less hard later on, with a net effect of zero on total daily effort. We consider different possible explanations for this behavior. The most parsimonious explanation is a model in the spirit of Loewenstein and O'Donoghue (2005), in which a cognitive system, assumed to behave like the standard economic model predicts, is in conflict with the affective system. We review evidence from psychology and neuroscience to argue that the affective system may be strongly influenced by within-day changes in earnings, relative to an earnings goal. The affective system cares less about income once the goal is surpassed, providing an explanation for a drop in effort later in the day, and for the findings of earlier studies. |
| Keywords: | labor supply, loss aversion, affect, intertemporal substitution |
| JEL: | J22 J33 D01 B49 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2400&r=lab |
| By: | Abeler, Johannes (IZA Bonn and University of Bonn); Altmann, Steffen (IZA Bonn and University of Bonn); Kube, Sebastian (University of Karlsruhe); Wibral, Matthias (IZA Bonn and University of Bonn) |
| Abstract: | A growing literature stresses the importance of reciprocity, especially for employment relations. In this paper, we study the interaction of different payment modes with reciprocity. In particular,we analyze how equal wages affect performance and effciency in an environment characterized by contractual incompleteness. In our experiment, one principal is matched with two agents. The principal pays equal wages in one treatment and can set individual wages in the other. We find that the use of equal wages elicits substantially lower efforts and effciency. This is not caused by monetary incentives per se since under both wage schemes it is profit-maximizing for agents to exert high efforts. The treatment difference is rather driven by the fact that reciprocity is violated far more frequently in the equal wage treatment. Agents suffering from a violation of reciprocity subsequently withdraw effort. Our results suggest that individual reward and punishment opportunities are crucial for making reciprocity a powerful contract enforcement device. |
| Keywords: | laboratory experiment; wage setting; wage equality; gift exchange; reciprocity; social norms; incomplete contracts; multiple agents |
| JEL: | C92 J33 J41 M12 M52 |
| Date: | 2006–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ratioi:0109&r=lab |
| By: | Pernilla Andersson (SOFI, Stockholm University, SULCIS); Eskil Wadensjö (SOFI, Stockholm University, SULCIS and IZA Bonn) |
| Abstract: | In many countries unemployed people are helped to become self-employed. Selfemployment, however, does not necessarily lead to success. Many leave self-employment after a short period and the economic outcome varies greatly. It is important to learn more about the economic outcome for unemployed who become self-employed. In the first part of the paper we analyse who became self-employed in the period from 1999 to 2002 of Swedish-born men aged 20 to 60 years who were either wage-earners, unemployed or inactive in 1998. We find that the unemployed, and even more the inactive, are overrepresented among those who become self-employed. In the second part of the paper we study the economic outcome of self-employment in 2002 for Swedish-born men who were either unemployed, inactive or wage-earners in 1998. Economic outcome in 2002 is measured using income from self-employment and having employees in the firm. The estimations show that those who were wage earners in 1998 have higher incomes and are also employing other people in their business to a much higher extent in 2002 than those who in 1998 were unemployed or inactive. This indicates that support to unemployed to become self-employed should be implemented with great care. |
| Keywords: | self-employment, unemployment, inactive, occupational choice, occupational mobility, labour income, income |
| JEL: | J23 J24 J30 J60 J62 J68 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2402&r=lab |
| By: | Hans Gersbach (ETH Zurich and IZA Bonn); Armin Schmutzler (University of Zurich) |
| Abstract: | We consider a three-stage game to examine how market integration affects firms’ incentives to provide general worker training. In stage 1, firms invest in productivity-enhancing training. In stage 2, they can make wage offers for each others’ workers. Finally, Cournot competition takes place. When two product markets become integrated, that is, replaced by a market with greater demand and more firms, training by each firm increases, provided the two markets are initially sufficiently concentrated. When barriers between less concentrated markets are eliminated, training is reduced. Integration increases welfare if it does not reduce training. However, for large parameter regions, welfare decreases if integration reduces training. We also show that opening product markets to countries with publicly funded training or cheap, low-skilled labor can threaten apprenticeship systems. |
| Keywords: | general worker training, human capital, oligopoly, turnover, globalization |
| JEL: | D43 J24 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2403&r=lab |
| By: | Charlene M. Kalenkoski (Ohio University); David C. Ribar (University of North Carolina at Greensboro and IZA Bonn); Leslie S. Stratton (Virginia Commonwealth University and IZA Bonn) |
| Abstract: | The Influence of Wages on Parents’ Allocations of Time to Child Care and Market Work in the United Kingdom |
| Keywords: | time use, child care, wages |
| JEL: | J1 J2 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2436&r=lab |