nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2012‒05‒08
fifteen papers chosen by
Erik Jonasson
Lund University

  1. Comparing Real Wage Rates By Ashenfelter, Orley
  2. Changes in China's Wage Structure By Ge, Suqin; Yang, Dennis Tao
  3. The formal/informal employment earnings gap: evidence from Turkey By Tansel, Aysit; Kan, Elif Oznur
  4. Sorting and Local Wage and Skill Distributions in France By Combes, Pierre-Philippe; Duranton, Gilles; Gobillon, Laurent; Roux, Sébastien
  5. Labour Supply as a Buffer: Evidence from UK Households By Benito, Andrew; Saleheen, Jumana
  6. Exploring different measures of wage flexibility in a developing economy context: The case for Turkey By Ilkkaracan, Ipek; Levent, Haluk; Polat, Sezgin
  7. The Impact of Greek Labour Market Regulation on Temporary and Family Employment: Evidence from a New Survey By Anagnostopoulos, Achilleas; Siebert, W. Stanley
  8. The Wage Incentive to Management: A Comparison across European Economies By Marco Biagetti; Leone Leonida; Sergio Scicchitano
  9. Mind the Gap: Net Incomes of Minimum Wage Workers in the EU and the US By Marx, Ive; Marchal, Sarah; Nolan, Brian
  10. The Determinants of Earnings Inequalities: Panel data evidence from South Africa By Andrew Kerr; Francis Teal
  11. A New Approach to Measuring the Gap between Marginal Productivity and Wages of Workers By KODAMA Naomi; ODAKI Kazuhiko
  12. Trends in Occupational Segregation by Gender 1970-2009: Adjusting for the Impact of Changes in the Occupational Coding System By Blau, Francine D.; Brummund, Peter; Liu, Albert Yung-Hsu
  13. The returns to private education: evidence from Mexico By Chiara Binelli; Marta Rubio Codina
  14. Equilibrium Unemployment and Retirement By Hairault, Jean-Olivier; Langot, François; Zylberberg, Andre
  15. Great Britain's Second-Order City Regions in Recessions, 1978-2010 By Tony Champion; Alan Townsend

  1. By: Ashenfelter, Orley (Princeton University)
    Abstract: A real wage rate is a nominal wage rate divided by the price of a good and is a transparent measure of how much of the good an hour of work buys. It provides an important indicator of the living standards of workers, and also of the productivity of workers. In this paper I set out the conceptual basis for such measures, provide some historical examples, and then provide my own preliminary analysis of a decade long project designed to measure the wages of workers doing the same job in over 60 countries – workers at McDonald’s restaurants. The results demonstrate that the wage rates of workers using the same skills and doing the same jobs differ by as much as 10 to 1, and that these gaps declined over the period 2000-2007, but with much less progress since the Great Recession.
    Keywords: real wage rates, international comparisons, productivity
    JEL: C81 C82 D24 J31 N30 O57
    Date: 2012–04
  2. By: Ge, Suqin (Virginia Tech); Yang, Dennis Tao (Chinese University of Hong Kong)
    Abstract: Using a national sample of Urban Household Surveys, we document several profound changes in China's wage structure during a period of rapid economic growth. Between 1992 and 2007, the average real wage increased by 202 percent, accompanied by a sharp rise in wage inequality. Decomposition analysis reveals 80 percent of this wage growth to be attributable to higher pay for basic labor, rising returns to human capital, and increases in the state-sector wage premium. Employing an aggregate production function framework, we account for the sources of wage growth and wage inequality in the face of globalization and economic transition. We find capital accumulation, skill-biased technological change, and export expansion to be the major forces behind the evolving wage structure in China.
    Keywords: wage growth, wage premium, wage inequality, capital accumulation, trade expansion, technological change, China
    JEL: J31 E24 O40
    Date: 2012–04
  3. By: Tansel, Aysit; Kan, Elif Oznur
    Abstract: In this study, we examine the formal/informal sector earnings differentials in the Turkish labor market using detailed econometric methodologies and a novel panel data set drawn from the 2006-2009 Income and Living Conditions Survey (SILC). In particular, we test if there is evidence of traditional segmented labor markets theory which postulates that informal workers are typically subject to lower remuneration than similar workers in the formal sector. Estimation of standard Mincer earnings equations at the mean using OLS on a pooled sample of workers confirms the existence of an informal penalty, but also shows that almost half of this penalty can be explained by observable variables. Along wage/self-employment divide, our results are in line with the traditional theory that formal-salaried workers are paid significantly higher than their informal counterparts. Confirming the heterogeneity within informal employment, we find that self-employed are often subject to lower remuneration compared to those who are salaried. Moreover, using quantile regression estimations, we show that pay differentials are not uniform along the earnings distribution. More specifically, we find that informal penalty decreases with the earnings level, implying a heterogeneous informal sector with upper-tier jobs carrying a significant premium and lower-tier jobs being largely penalized. Finally, fixed effects estimation of the earnings gap depict that unobserved individual fixed effects when combined with controls for observable individual and employment characteristics explain the pay differentials between formal and informal employment entirely, thereby implying that formal/informal segmentation may not be a stylized fact of the Turkish labor market as previously thought.
    Keywords: Earnings gap; formal/informal employment; labor market dynamics; panel data; Turkey
    JEL: J40 J31 O17 J21
    Date: 2012–05–01
  4. By: Combes, Pierre-Philippe (GREQAM, University of Aix-Marseille); Duranton, Gilles (University of Toronto); Gobillon, Laurent (INED, France); Roux, Sébastien (DARES French Ministry of Labour)
    Abstract: This paper provides descriptive evidence about the distribution of wages and skills in denser and less dense employment areas in France. We confirm that on average, workers in denser areas are more skilled. There is also strong over-representation of workers with particularly high and low skills in denser areas. These features are consistent with patterns of migration including negative selection of migrants to less dense areas and positive selection towards denser areas. Nonetheless migration, even in the long run, accounts for little of the skill differences between denser and less dense areas. Finally, we find marked differences across age groups and some suggestions that much of the skill differences across areas can be explained by differences between occupational groups rather than within.
    Keywords: skill distribution, wage distribution, sorting
    JEL: J31 J61 R12 R23
    Date: 2012–04
  5. By: Benito, Andrew (Goldman Sachs); Saleheen, Jumana (Bank of England)
    Abstract: This paper examines labour supply adjustment – both hours worked and participation decisions. We focus on the response of each to financial shocks, employing data from the BHPS. Estimated responses are broadly consistent with models of self-insurance that incorporate labour supply flexibility. The shock reflects several factors including financial wealth and a partner's employment situation. The response is significantly larger for those who change job, consistent with the importance of hours constraints within jobs. The propensity to participate in the labour market also appears to respond to the financial shock but that is somewhat less robust than the hours response.
    Keywords: labour supply, self-insurance
    JEL: J22
    Date: 2012–04
  6. By: Ilkkaracan, Ipek (Istanbul Technical University, Faculty of Management); Levent, Haluk (Galatasaray University Economic Research Center); Polat, Sezgin (Galatasaray University Economic Research Center)
    Abstract: In this paper we use Turkish household labor force data to address a number of conceptual issues pertaining to the wage curve, an empirically derived negative relationship between the real wage level and the local unemployment rate. First, we estimate the wage curve using various definitions of the unemployment rate including discouraged and marginally attached workers, or the long-term unemployment rate to explore the most relevant measure of local labor market tension in the wage setting process. We find that broader definitions of unemployment provide a more effective reference point in measuring wage flexibility for women, whose attachment to the labor market is substantially weak in the Turkish context; while in the case of men, long-term unemployment rate yields the highest elasticity. Second, we show that particularly in the case of developing economies where labor markets are segmented by skill level, local unemployment rate disaggregated by education provide more accurate measures of the degree of group-specific wage competition. Finally, using quantile regression we show that wage responsiveness to unemployment can not be assumed to be constant along the wage distribution. In the Turkish case, we find a higher unemployment elasticity of wages around the median segment of wage distribution.
    Keywords: Wage curve; unemployment measurements; quantile regression; discouraged workers
    JEL: J31 J64 R23
    Date: 2012–05–03
  7. By: Anagnostopoulos, Achilleas (TEI (Technological Education Institute) of Larissa); Siebert, W. Stanley (University of Birmingham)
    Abstract: This paper uses an original dataset for 206 workplaces in Thessaly (Greece), to study consequences of Greece's employment protection law (EPL) and national wage minimum for temporary employment. We find higher temporary employment rates especially among a "grey" market group of workplaces that pay low wages and avoid the national wage minimum. A similar factor boosts family employment. We also find that EPL "matters", in particular, managers who prefer temporary contracts because temps are less protected definitely employ more temps. We discuss whether temporary and family work is a form of escape from regulation for less prosperous firms.
    Keywords: temporary work, Greece, employment protection, national wage agreements
    JEL: J38 J41 J81
    Date: 2012–04
  8. By: Marco Biagetti (Ministry of Economic Development, Rome); Leone Leonida (Queen Mary, University of London); Sergio Scicchitano (Ministry of Economic Development, Rome)
    Abstract: We define the wage incentive to management as the wage premium the manager earns because of his/her supervising role. We adopt an approach based on what if questions and estimate the premium at different quantiles of the distribution of wages for 26 European economies. To ease comparisons we make use of the European Union Statistics on Income and Living Conditions inquiry released in 2009. The premium is found to be higher at the right tail of the distribution of wages, suggesting that the incentive to management differs across individuals at different quantiles of the distribution within each economy. Results also suggest that the premium differs across individuals located at the same quantiles of the distribution of different economies.
    Keywords: Distribution of wages, Incentives to management, Semiparametric methods
    JEL: C14 J31 J41
    Date: 2012–01
  9. By: Marx, Ive (University of Antwerp); Marchal, Sarah (University of Antwerp); Nolan, Brian (University College Dublin)
    Abstract: This paper focuses on the role of minimum wages, tax and benefit policies in protecting workers against financial poverty, covering 21 European countries with a national minimum wage and three US States (New Jersey, Nebraska and Texas). It is shown that only for single persons and only in a number of countries, net income packages at minimum wage level reach or exceed the EU's at-risk-of poverty threshold, set at 60 per cent of median equivalent household income in each country. For lone parents and sole breadwinners with a partner and children to support, net income packages at minimum wage are below this threshold almost everywhere, usually by a wide margin. This is the case despite shifts over the past decade towards tax relief and additional income support provisions for low-paid workers. We argue that there appear to be limits to what minimum wage policies alone can achieve in the fight against in-work poverty. The route of raising minimum wages to eliminate poverty among workers solely reliant on it seems to be inherently constrained, especially in countries where the distance between minimum and average wage levels is already comparatively small and where relative poverty thresholds are mostly a function of the dual-earner living standards. In order to fight in-work poverty new policy routes need to be explored. The paper offers a brief discussion of possible alternatives and cautions against 'one size fits all' policy solutions.
    Keywords: minimum wage, poverty, taxes, social transfers, subsidies
    JEL: I3 H2 J8
    Date: 2012–04
  10. By: Andrew Kerr; Francis Teal
    Abstract: In this paper we analyse the relative importance of individual ability and labour market institutions, including public sector wage setting and trade unions, in determining earnings differences across different types of employment. To do this we use the KwaZulu-Natal Income Dynamics Study data from South Africa, which show extremely large average earnings differentials across different types of employment. Our results suggest that human capital and individual ability explain much of the earnings differentials within the private sector, including the union premium, but cannot explain the large premiums for public sector workers. We show that a public sector premium exists only for those moving into the public sector. The paper addresses the challenges of non-random attrition and measurement error bias that panel data bring. Our results show that emphasising a simple binary dichotomy between the formal and informal sector can be unhelpful in attempting to explore how the labour market functions.
    Keywords: Formality; Trade unions; Public sector; Earnings; South Africa
    JEL: J31 J51 J45 O12
    Date: 2012
  11. By: KODAMA Naomi; ODAKI Kazuhiko
    Abstract: The idea that the productivity and wages of workers are not necessarily equal has long attracted the attention of many economists. Indeed, the lack of a method to measure the productivity-wage gap has hindered the development of research on labor economics, productivity analysis, and human capital study. This paper proposes a new empirical method to measure the gap between the value of a worker's marginal product (VMP) and wage. We first define this gap. The method then aggregates the Mincer-type function of each worker's human capital service to obtain the total labor input of a firm. The semi-log form of total labor input can be inserted into Cobb-Douglas and trans-log type production functions and enable expressing of the production function as a linear form of gap parameters. This linear functional form of production function, if applied to employer-employee matched panel data, can control for firm-level productivity differences that would otherwise cause biases in estimating the gap coefficients. We apply the new method to Japanese employee-employer matched panel data and find that the gap between the VMP and wage is not so large. The traditional way of measurement, in which wage acts as a proxy of worker productivity, could be a rough approximation.
    Date: 2012–05
  12. By: Blau, Francine D. (Cornell University); Brummund, Peter (Cornell University); Liu, Albert Yung-Hsu (Mathematica Policy Research)
    Abstract: In this paper, we develop a gender-specific crosswalk based on dual-coded Current Population Survey data to bridge the change in the Census occupational coding system that occurred in 2000 and use it to provide the first analysis of the trends in occupational segregation by sex for the 1970-2009 period based on a consistent set of occupational codes and data sources. We show that our gender-specific crosswalk more accurately captures the trends in occupational segregation that are masked using the aggregate crosswalk (based on combined male and female employment) provided by the U.S. Census Bureau. Using the 2000 occupational codes, we find that segregation by sex declined over the period but at a diminished pace over the decades, falling by 6.1 percentage points over the 1970s, 4.3 percentage points over the 1980s, 2.1 percentage points over the 1990s, and only 1.1 percentage points (on a decadal basis) over the 2000s. A primary mechanism by which occupational segregation was reduced over the 1970-2009 period was through the entry of new cohorts of women, presumably better prepared than their predecessors and/or encountering less labor market discrimination; during the 1970s and 1980s, however, there were also decreases in occupational segregation within cohorts. Reductions in segregation were correlated with education, with the largest decrease among college graduates and very little change in segregation among high school dropouts.
    Keywords: occupations, occupational segregation, gender, discrimination
    JEL: J16 J24 J62 J71
    Date: 2012–04
  13. By: Chiara Binelli (Institute for Fiscal Studies and University of Southampton); Marta Rubio Codina (Institute for Fiscal Studies)
    Abstract: Despite the rapid expansion and increasing importance of private education in developing countries, very little is known about the impact of studying in private schools on educational attainment and wages. This paper contributes to fiÂ…lling this gap by estimating the returns to private high schools in Mexico. We construct a unique dataset that combines labor market outcomes and historical school census data, and we exploit changes in the availability and size of public and private high schools across states and over time for identiÂ…cation. We Â…nd substantial evidence of a positive effect of studying in a private high school on wages after college graduation, and we discuss alternative mechanisms that can explain this Â…finding.
    Keywords: The Market Returns to Private High Schools: Evidence from Mexico
    JEL: J31 J24 C36
    Date: 2012–04
  14. By: Hairault, Jean-Olivier (University of Paris 1 Panthéon-Sorbonne); Langot, François (University of Le Mans); Zylberberg, Andre (University of Paris 1 Panthéon-Sorbonne)
    Abstract: As a preliminary step, we first provide some new empirical evidence that labor market conditions affect retirement decisions at the individual level: unemployed people are more likely to retire. Our main objective in this paper is then to propose an equilibrium unemployment approach to retirement decisions that allows us to unveil the factors which explain why unemployed workers choose to retire earlier and the conditions under which this behavior is optimal. Two main conclusions emerge: the retirement decision of unemployed workers depends on the labor-market frictions whereas that of employed workers does not; the existence of search externalities makes the retirement age of unemployed workers intrinsically suboptimal. Considering Social Security policy issues, we show that the complete elimination of the implicit tax on continued activity is not necessarily welfare-optimizing in a second best world where the labor market equilibrium suffers from distortions.
    Keywords: search, matching, retirement, Social Security
    JEL: J22 J26 H55
    Date: 2012–04
  15. By: Tony Champion; Alan Townsend
    Abstract: While it is now accepted that the 2008-09 recession accentuated regional differences in Britain, it is more difficult to identify the role of major cities, especially over a longer time scale. Using previously established methods focussed on employment, this paper assesses the record of nine city regions in the 2008-09 recession, both in its own right and in comparison with the previous two recessions. The 2008-09 recession is found to have impacted the nine city regions less than the previous ones in absolute terms but not in relative terms compared with the London city region or the rest of Britain. Over the whole period from 1978, the paper has found the city regions to be fairly tightly in the grip of national cyclical trends of recession and recovery, but generally performing less resiliently than Britain as a whole. In comparison, London showed appreciably more cyclical behaviour between 1989 and 2002 than at other times, with the most remarkable recovery from recession in this period. The public sector helped the performance of second-order city regions from 1997 to 2010, including the peak of growth rates in city regions and their cores in 1998-2002, but its employment reductions will dominate the prospects for provincial cities for several years to come.
    Keywords: Recession, resilience, employment change, second-order city, city region, Great Britain
    JEL: J21 O18 R11 R12
    Date: 2012–04

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