nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2011‒09‒05
23 papers chosen by
Erik Jonasson
Lund University

  1. Elasticity of Supply to the Firm and the Business Cycle By Depew, Briggs; Sorensen, Todd
  2. Explaining Age and Gender Differences in Employment Rates: A Labor Supply Side Perspective By Stephan Humpert; Christian Pfeifer
  3. Does It Pay to Be Productive? The Case of Age Groups By Cataldi, Alessandra; Kampelmann, Stephan; Rycx, Francois
  4. Minimum Wages and Teen Employment: A Spatial Panel Approach By Kalenkoski, Charlene M.; Lacombe, Donald J.
  5. Informal-Formal Worker Wage Gap in Turkey : Evidence From A Semi-Parametric Approach By Yusuf Soner Baskaya; Timur Hulagu
  6. Gender Gaps across Countries and Skills: Supply, Demand and the Industry Structure By Olivetti, Claudia; Petrongolo, Barbara
  7. Are occupations paid what they are worth? An econometric study of occupational wage inequality and productivity By Stephan K. S. Kampelmann; François Rycx
  8. Scarring Effects of Remaining Unemployed for Long-Term Unemployed School-Leavers By Cockx, Bart; Picchio, Matteo
  9. Underreporting of Earnings and the Minimum Wage Spike By Tonin, Mirco
  10. Spousal Labor Market Effects from Government Health Insurance: Evidence from a Veterans Affairs Expansion By Melissa A. Boyle; Joanna N. Lahey
  11. Wage premium of fatherhood and labor supply in Japan By Yukawa, Shiho
  12. Downward wage rigidity in Hungary By Gábor Kátay
  13. The Effect of Variable Pay Schemes on Workplace Absenteeism By Pouliakas, Konstantinos; Theodoropoulos, Nikolaos
  14. Incentive pay and gender gaps in the Nordic countries By Westling, Tatu
  15. How Does the First Job Matter for an Individual’s Career Life in Japan? By Hamaaki, Junya; Hori, Masahiro; Maeda, Saeko; Murata, Keiko
  16. Taxes, Wages and Working Hours By Ericson, Peter; Flood, Lennart
  17. English as the Lingua Franca and the Economic Value of Other Languages: the Case of the Language of Work of Immigrants and Non-immigrants in the Montreal Labour Market. By Gilles Grenier; Serge Nadeau
  18. The Trend over Time of the Gender Wage Gap in Italy By Mussida, Chiara; Picchio, Matteo
  19. Wage Dispersion and Labor Turnover with Adverse Selection By Carrillo-Tudela, Carlos; Kaas, Leo
  20. Labour Market, International Trade, and Unemployment in a less Developed Country By Fernando Mesa
  21. Employed or inactive? Cross-national differences in coding parental leave beneficiaries in Labour Force Survey data By MIKUCKA Malgorzata; VALENTOVA Marie
  22. Managerial Attributes and Executive Compensation By John R. Graham; Si Li; Jiaping Qiu
  23. Risk Aversion or Risk Management?: How Measures of Risk Aversion Affect Firm Entry and Firm Survival By Cho, In Soo; Orazem, Peter

  1. By: Depew, Briggs (University of Arizona); Sorensen, Todd (University of California, Riverside)
    Abstract: A body of recent empirical work has found strong evidence that the labor elasticity of supply to the firm is finite, implying that firms may have wage setting power. However, these studies capture only snapshots of the parameter. We study this parameter over a period that provides substantial variation in the business cycle. Using a rich employee level dataset from the inter-war period, we are able to estimate the elasticity of supply to the firm during several recessions and expansions. Our analysis suggests that the elasticity is indeed lower during recessions, consistent with the comparative statics from the Burdett-Mortensen search model. This differential wage setting power over the business cycle provides an alternative explanation of the pro-cyclicality of wages.
    Keywords: business cycles, labor market frictions, monopsony
    JEL: J42 J31 J64
    Date: 2011–08
  2. By: Stephan Humpert (Institute of Economics, Leuphana University Lueneburg, Germany); Christian Pfeifer (Institute of Economics, Leuphana University Lueneburg, Germany)
    Abstract: This paper takes a labor supply perspective (neoclassical labor supply, job search) to explain the lower employment rates of older workers and women. The basic rationale is that workers choose non-employed if their reservation wages are larger than the offered wages. Whereas the offered wages depend on workers' productivity and firms' decisions, reservation wages are largely determined by workers' endowments and preferences for leisure. To shed some empirical light on this issue, we use German survey data to analyze age and gender differences in reservation and entry wages, preferred and actual working hours, and satisfaction with leisure and work.
    Keywords: Age; Family gap; Gender; Job search; Labor supply; Reservation wages
    JEL: J14 J22 J64
    Date: 2011–08
  3. By: Cataldi, Alessandra (Sapienza University of Rome); Kampelmann, Stephan (University of Lille 1); Rycx, Francois (Free University of Brussels)
    Abstract: Using longitudinal matched employer-employee data for the period 1999-2006, we investigate the relationship between age, wage and productivity in the Belgian private sector. More precisely, we examine how changes in the proportions of young (16-29 years), middle-aged (30-49 years) and older (more than 49 years) workers affect the productivity of firms and test for the presence of productivity-wage gaps. Results (robust to various potential econometric issues, including unobserved firm heterogeneity, endogeneity and state dependence) suggest that workers older than 49 are significantly less productive than prime age and young workers. In contrast, the productivity of middle-age workers is not found to be significantly different compared to young workers. Findings further indicate that average hourly wages within firms increase significantly and monotonically with age. Overall, this leads to the conclusion that young workers are paid below their marginal productivity while older workers appear to be "overpaid" and lends empirical support to theories of deferred compensation over the life-cycle (Lazear, 1979).
    Keywords: wages, productivity, aging, matched panel data
    JEL: J14 J24 J31
    Date: 2011–08
  4. By: Kalenkoski, Charlene M. (Ohio University); Lacombe, Donald J. (West Virginia University)
    Abstract: The authors employ spatial econometrics techniques and Annual Averages data from the U.S. Bureau of Labor Statistics for 1990-2004 to examine how changes in the minimum wage affect teen employment. Spatial econometrics techniques account for the fact that employment is correlated across states. Such correlation may exist if a change in the minimum wage in a state affects employment not only in its own state but also in other, neighboring states. The authors show that state minimum wages negatively affect teen employment to a larger degree than is found in studies that do not account for this correlation. Their results show a combined direct and indirect effect of minimum wages on teen employment to be -2.1% for a 10% increase in the real effective minimum wage. Ignoring spatial correlation underestimates the magnitude of the effect of minimum wages on teen employment.
    Keywords: minimum wage, teen employment, spatial econometrics
    JEL: J08 J21 J38 J48 C31
    Date: 2011–08
  5. By: Yusuf Soner Baskaya; Timur Hulagu
    Abstract: Using individual level data from Turkstat Household Labor Force Survey for 2005-2009 period, we analyze whether there is a wage gap between formal and informal workers with comparable observable characteristics, where the formality of employment is defined with respect to individuals' registry status to compulsory Social Security System. We find that both standard Mincerian regressions and the propensity score matching exercises indicate a sizable formal employment wage premium in Turkey. This contrasts with earlier studies stating that findings on wage gap between formal and informal workers is not robust to estimation methodology. However, we find that the estimation methodology matters for the relative size of formal employment wage premium across demographic groups : While Mincerian regressions give similar estimates for formal-informal wage gap across males and females or old and young workers, the propensity score matching suggest that earning inequality due to differences in formality status is higher among females and young workers.
    Keywords: Formal/Informal Employment, Formal Employment Wage Premium, Propensity Score Matching
    JEL: C14 J30 J42 J60 O17
    Date: 2011
  6. By: Olivetti, Claudia (Boston University); Petrongolo, Barbara (London School of Economics)
    Abstract: The gender wage gap varies widely across countries and across skill groups within countries. Interestingly, there is a positive cross-country correlation between the unskilled-to-skilled gender wage gap and the corresponding gap in hours worked. Based on a canonical supply and demand framework, this positive correlation would reveal the presence of net demand forces shaping gender differences in labor market outcomes across skills and countries. We use a simple multi-sector framework to illustrate how differences in labor demand for different inputs can be driven by both within-industry and between-industry factors. The main idea is that, if the service sector is more developed in the US than in continental Europe, and unskilled women tend to be over-represented in this sector, we expect unskilled women to suffer a relatively large wage and/or employment penalty in the latter than in the former. We find that, overall, the between-industry component of labor demand explains more than half of the total variation in labor demand between the US and the majority of countries in our sample, as well as one-third of the correlation between wage and hours gaps. The between-industry component is relatively more important in countries where the relative demand for unskilled females is lowest.
    Keywords: gender gaps, education, demand and supply, industry structure
    JEL: E24 J16 J31
    Date: 2011–08
  7. By: Stephan K. S. Kampelmann; François Rycx
    Abstract: Labour economists typically assume that pay differences between occupations can be explained with variations in productivity. The empirical evidence on the validity of this assumption is surprisingly thin and subject to various potential biases. The authors use matched employer-employee panel data from Belgium for the years 1999-2006 to examine occupational productivity-wage gaps. They find that occupations play distinct roles for remuneration and productivity: while the estimations indicate a significant upward-sloping occupational wage-profile, the hypothesis of a flat productivity-profile cannot be rejected. The corresponding pattern of over- and underpayment stands up to a series of robustness tests.
    Keywords: Labour productivity; wages; occupations; production function; matched employer-employee data
    JEL: J24 J31 J44
    Date: 2011–08
  8. By: Cockx, Bart (Ghent University); Picchio, Matteo (Tilburg University)
    Abstract: This study investigates whether and to what extent further unemployment experience for youths who are already long-term unemployed imposes a penalty on subsequent labor market outcomes. We propose a flexible method for analyzing the effect on wages aside of transitions from unemployment and employment within a multivariate duration model that controls for selection on observables and unobservables. We find that prolonging unemployment drastically decreases the chances of finding employment, but hardly affects the quality of subsequent employment. The analysis suggests that negative duration dependence in the job finding rate is induced by negative signaling and not by human capital depreciation.
    Keywords: scarring effect of unemployment duration, employment quality, wage in multivariate duration model, selectivity
    JEL: C33 C41 J62 J64
    Date: 2011–08
  9. By: Tonin, Mirco (University of Southampton)
    Abstract: This paper documents a positive correlation within European labour markets between the proportion of full-time employees with earnings on the minimum wage and the extent of underreporting of earnings in the economy. Using a simple model of a competitive labour market, I show how this correlation can emerge as a result of the common dependence of both quantities on the strength of enforcement of fiscal regulation. This suggests that a high spike in the wage distribution at the minimum wage level is, in some contexts, an issue of fiscal enforcement, more than a labour market issue.
    Keywords: minimum wage, spike, underreporting, lighthouse effect
    JEL: J38 H26
    Date: 2011–08
  10. By: Melissa A. Boyle (Department of Economics, College of the Holy Cross); Joanna N. Lahey (Department of Economics, Texas A&M University)
    Abstract: Although government expansion of health insurance to older workers leads to labor supply reductions for recipients, there may be spillover effects on the labor supply of affected spouses who are not covered by the programs. In the simplest model, health insurance on the job is paid for in terms of lower compensation on the job. Receiving health insurance exogenous to employment is akin to a positive income shock for the household, causing total household labor supply to drop. However, it is not clear within the household whether this decrease in labor supply will be borne by both spouses or by a specific spouse. We use a mid-1990s expansion of health insurance for U.S. veterans to provide evidence on the effects of expanding health insurance availability on the labor supply of spouses. Using data from the Current Population Survey, we employ a difference-in-differences strategy to compare the labor market behavior of the wives of older male veterans and non-veterans before and after the VA health benefits expansion to test the impact of public health insurance on these spouses. Our findings suggest that although household labor supply may decrease because of the income effect, the more flexible labor supply of wives allows the wife’s labor supply to increase, particularly for those with lower education levels.
    Keywords: Health Economics, Labor force participation
    JEL: I11 I18 H51 J26
    Date: 2011–08
  11. By: Yukawa, Shiho
    Abstract: Using data from the Japanese Panel Survey of Consumers (JPSC)1994-2006, we examine the effect of child birth on fathers’ wage rates and labor supply in Japan. We also compare effects of fatherhood among different cohorts by dividing the JPSC sample into two birth year cohorts (born in or before 1960 and born after 1960). We find that birth of child significantly increase hourly wage rates by 2.8 percents and annual work by 65 hours. Comparing with results in the U.S. (Lundberg and Rose 2002), the effect of child birth on labor supply is large but the effect on wage rates are relatively small in Japan. We also find that child birth have different impact on labor market outcome between the early and the later cohorts. In the early cohort, birth of child significantly increases wage rates but has no significant effect on labor supply. On the contrary, birth of child does not increases wage rates but significantly increases labor supply in the later cohort. Finally, we examine how gender difference of children matters. Although the impact of gender difference is not so large, the effect of birth of sons is larger than the effect of birth of daughters.
    Keywords: child birth; labor supply; wage premium
    JEL: J13 C23 J22
    Date: 2011
  12. By: Gábor Kátay (Magyar Nemzeti Bank, Department of Economics, 1850 Budapest, Szabadság tér 8-9, Hungary.)
    Abstract: Following the approach recently developed for the International Wage Flexibility Project (IWFP), the paper presents new estimates of downward real and nominal wage rigidity for Hungary. Results suggest that nominal rigidity is more prominent in Hungary than real rigidity. When compared to other countries participating in the IWFP, Hungary ranks among the countries with the lowest degree of downward real rigidity. The estimated downward nominal rigidity for Hungary is higher, the measure is close to but still below the overall cross-country average. Using the same methodology, the paper also con…firms the widespread view that the wage growth bargained at the national level has little compulsory power in Hungary. On the other hand, the minimum wage remains an important source of potential downward wage rigidity in Hungary. JEL Classification: C23, E24, J3, J5.
    Keywords: Downward nominal and real wage rigidity, wage change distributions, wage flexibility.
    Date: 2011–08
  13. By: Pouliakas, Konstantinos (European Centre for the Development of Vocational Training (Cedefop)); Theodoropoulos, Nikolaos (University of Cyprus)
    Abstract: We estimate the effect of variable pay schemes on workplace absenteeism using two cross sections of British establishments. Private sector establishments that explicitly link pay with individual performance are found to have significantly lower absence rates. This effect is stronger for establishments that offer variable pay schemes to a greater share of their non-managerial workforce. Matched employer-employee data suggest that the effect is robust to a number of sensitivity tests. We also find that firms that tie a greater proportion of employees’ earnings to variable pay schemes are also found to experience lower absence rates. Further, quintile regression results suggest that variable pay schemes have a stronger effect on establishments with an absence rate that is higher than an average or “sustainable” level. Finally, panel data suggest that a feedback mechanism is present, whereby high absenteeism in the past is related to a greater future incidence of individual variable pay schemes, which, in turn, is correlated with lower absence rates.
    Keywords: performance-related pay, absenteeism, incentives, Britain
    JEL: J22 J33 C21
    Date: 2011–08
  14. By: Westling, Tatu
    Abstract: This paper explores the effect of incentive pay on gender pay gaps in Finland, Norway and Sweden among professionals and managers within MNCs. Mercer 2009 Total Remuneration Survey data is utilised. Uniform job ladder, occupation, industry and wage definitions enable consistent cross-country comparisons. In addition to the between-country variation, the within-country variation of gender gap with respect to incentive pay is analysed. The results indicate that gender pay gaps differ among the Nordics and that occupation and industry controls have dissimilar effects across countries. Irrespective of wage element, Finland and Norway are characterised by higher gender gaps than Sweden. Incentives tend to accentuate gender pay gaps. In intention to alleviate the absence of job performance data, this study utilises a rudimentary, promotion-based measure for job performance. In Finland it does affect the gender gap. However, irrespective of gender, high-performers are penalised in Sweden but not in Finland or Norway. The Finnish data also allows the identification of low-performers. Low job performance is rewarded in Finland. Nonetheless, the job performance findings should be interpreted with cautions.
    Keywords: Wage differential; incentive pay; job ladder; gender; job performance
    JEL: J31 J70
    Date: 2011–08–31
  15. By: Hamaaki, Junya; Hori, Masahiro; Maeda, Saeko; Murata, Keiko
    Abstract: Exploiting annual career records of female workers constructed from the Japanese Panel Survey of Consumers (JPSC), this paper examines how the first job matters for an individual’s future job career. Using the regional unemployment rate in the year of graduation as an instrument for the first job status (i.e., regular job or not), we confirm that an individual’s first job status matters significantly for the future job status even for female workers in Japan, although the effect gradually declines over the years and effectively disappears within around ten years from graduation. However, the observed first job effect appears to depend on the post-graduation career path taken by an individual, in the sense that someone who was unsuccessful during the first job hunt at the time of graduation can make up for the negative effect if she is lucky enough to secure a job as a regular employee within a reasonable time period.
    Keywords: youth labor market, initial labor market conditions, cost of recessions, Japan
    JEL: J13 J62
    Date: 2011–05
  16. By: Ericson, Peter (Empirica); Flood, Lennart (Göteborg University)
    Abstract: This paper presents estimates of individuals' responses in hourly wages to changes in marginal tax rates. Estimates based on register panel data of Swedish households covering the period 1992 to 2007 produce significant but relatively small net-of-tax rate elasticities. The results vary with family type, with the largest elasticities obtained for single males and the smallest for married/cohabitant females. Despite these seemingly small elasticities, evaluation of the effects of a reduced state tax using a microsimulation model shows that the effort effect matters. The largest effect is due to changes in number of working hours yet including the effort effect results in an almost self-financed reform. As a reference to the earlier literature we also estimate taxable income elasticities. As expected, these are larger than for the hourly wage rates. However, both specifications produce significantly and positive income effects.
    Keywords: income taxation, hourly wage rates, work effort, micro simulation
    JEL: C8 D31 H24 J22 J31
    Date: 2011–08
  17. By: Gilles Grenier (Department of Economics, University of Ottawa, Ottawa, ON); Serge Nadeau (Department of Economics, University of Ottawa, Ottawa, ON)
    Abstract: With data from the 2006 Canadian census, we investigate the determinants and the economic values of different languages used at work in the Montreal metropolitan area. The working population is divided into three mother tongues groups: French, English and Others. Three indicators are defined: use of French at work as a second language, and use of an official language at work as opposed to an non-official language. One interesting result is that there is no relationship between schooling and the use of French at work for the English mother tongue group, while schooling is positively related to the use of English at work for the French mothe tongue group and to the use of an offical language at work for the Other mother tongues group. We look at the returns to using a second language at work by means of earnings regressions (with both OLS and IV to account for the endogeneity of the language of work). We find that for the English mother tongue group, using French at work does not pay. In contract, there is a high payoff to using English at work for the French Mother tongue group. For the Other mother tongues group, there is a high payoff to using an official language at work and a modest one to using English instead of French.
    Keywords: language of work, mother tongue, immigrants, Montreal, earnings
    JEL: J20 J24
    Date: 2011
  18. By: Mussida, Chiara (University of Milan); Picchio, Matteo (Tilburg University)
    Abstract: We analyse gender wage inequalities in Italy in the mid-1990s and in the mid-2000s. In this period important labour market developments occurred: institutional changes have loosened the use of flexible and atypical contracts; the female employment rates and educational levels have substantially increased. We identify the time trends of different components of the gender wage gap by estimating wage distributions in the presence of covariates and sample selection and by counterfactual microsimulations. We find that women swam against the tide: whilst the trend in female qualifications slightly reduced the gender wage gap, the gender relative trends in the wage structure significantly increased it.
    Keywords: gender wage gap, counterfactual distributions, decompositions, hazard function, labour market reforms
    JEL: C21 C41 J16 J31 J71
    Date: 2011–08
  19. By: Carrillo-Tudela, Carlos (University of Essex); Kaas, Leo (University of Konstanz)
    Abstract: We consider a model of on-the-job search where firms offer long-term wage contracts to workers of different ability. Firms do not observe worker ability upon hiring but learn it gradually over time. With sufficiently strong information frictions, low-wage firms offer separating contracts and hire all types of workers in equilibrium, whereas high-wage firms offer pooling contracts designed to retain high-ability workers only. Low-ability workers have higher turnover rates, they are more often employed in low-wage firms and face an earnings distribution with a higher frictional component. Furthermore, positive sorting obtains in equilibrium.
    Keywords: adverse selection, on-the-job search, wage dispersion, sorting
    JEL: D82 J63 J64
    Date: 2011–08
  20. By: Fernando Mesa
    Abstract: This paper constructs a trade general equilibrium model for a less developed country with three sectors. One is the informal and un-tradable sector characterized by flexible wages, while the other two sectors are tradable, export and import sectors. The model imposes a binding minimum wage over the unskilled labour and efficient wage distortions on the skilled labour. Comparative statics is driven to analyze the effects on the labour market as consequence of opening the economy, raising the minimum wage and the introduction of an augmenting productivity in the export sector.
    Date: 2011–08–23
  21. By: MIKUCKA Malgorzata; VALENTOVA Marie
    Abstract: In survey research the parental leave beneficiaries are usually coded as either employed or inactive. One of the exceptions is the European Labor Force Survey (EU-LFS), which (from 2006) includes parental leave among other forms of being employed but temporarily not working. This paper explores classification of parental leave takers in EU-LFS, focusing on cross-country discrepancies and their consequences. Our results show that classification rules differ cross-nationally: in some countries parental leave takers are considered inactive, in others – employed but temporarily not working. In particular in the Czech Republic, Estonia, Hungary and Slovakia the EU-LFS data do not reflect the actual use of parental leaves because beneficiaries are coded as inactive. We estimate the actual number of mothers on parental leave in these countries and show that EU-LFS employment rates of women aged 18-40 are biased downwards 2-7 percentage points; for mothers of children aged 0-2 the bias reaches 12-45 percentage points . Our study shows the limited comparability of EU-LFS employment rates, warns about possible bias in cross-national studies and shows the importance of transparent and consistent survey measurement of employment status.
    Keywords: parental leave; labor market status; employment status; cross-country comparability; Labour Force Survey; Czech Republic; Estonia; Hungary; Slovakia
    JEL: J21 J28 J48
    Date: 2011–08
  22. By: John R. Graham; Si Li; Jiaping Qiu
    Abstract: We study the role of firm- and manager-specific heterogeneities in executive compensation. We decompose the variation in executive compensation and find that time invariant firm and especially manager fixed effects explain a majority of the variation in executive pay. We then show that in many settings, it is important to include fixed effects to mitigate potential omitted variable bias. Furthermore, we find that compensation fixed effects are significantly correlated with management styles (i.e., manager fixed effects in corporate policies). Finally, the method used in the paper has a number of potential applications in financial economics.
    JEL: C23 G22 G3 J24 J31 J33
    Date: 2011–08
  23. By: Cho, In Soo; Orazem, Peter
    Abstract: The link between measured risk aversion and the decision to become an entrepreneur is well established, but the link between risk preferences and entrepreneurial success is not. Standard theoretical models of occupational choice under uncertainty imply a positive correlation between an individual’s degree of risk aversion and the expected return from an entrepreneurial venture at the time of entry. Because the expected return is the risk neutral equivalent value, a higher expected return implies a higher survival probability, and so more risk averse entrepreneurs should survive more frequently than their less risk averse counterparts. We test that prediction using successive entry cohorts of young entrepreneurs in the National Longitudinal Survey of Youth 1979 (NLSY79). The empirical results soundly reject the prediction: the most successful entrepreneurs are the least risk averse. This surprising finding calls into question the interpretation of common measures of risk aversion as measures of taste for risk. Instead, measured risk attitudes perform as if they are indicators of entrepreneurial ability– the least risk averse are apparently those who can best assess and manage risks. Indeed, our interpretation is consistent with the work of recent experimental studies that find that the less risk averse have higher cognitive ability.
    JEL: J24 L24 M1
    Date: 2011–08–24

This nep-lma issue is ©2011 by Erik Jonasson. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.