nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2013‒04‒13
sixteen papers chosen by
Erik Jonasson
National Institute of Economic Research

  1. High-Impact Minimum Wages and Heterogeneous Regions By Philipp vom Berge; Hanna Frings; Alfredo R. Paloyo
  2. Wage Growth and Human Capital in the UK Finance Sector By Joanne Lindley
  3. Steady-State Labor Supply Elasticities: An International Comparison By Olivier Bargain; Andreas Peichl
  4. Migration and Wage Effects of Taxing Top Earners: Evidence from the Foreigners' Tax Scheme in Denmark By Kleven, Henrik; Landais, Camille; Saez, Emmanuel; Schultz, Esben
  5. Hours and Participation with Job Assignment Frictions By Josep Pijoan-Mas; Claudio Michelacci
  6. New Evidence on Self-Employment Transitions Among Older Americans with Career Jobs By Kevin E. Cahill; Michael D. Giandrea; Joseph F. Quinn
  7. How sensitive are individual retirement expectations to raising the retirement age? By Fouarge D.; Grip A. de; Montizaan R.M.
  8. Household Interaction and the Labor Supply of Married Women By Eckstein, Zvi; Lifshitz, Osnat
  9. Cohort Size Effects on Promotion and Pay: Evidence from personnel data By ARAKI Shota; KATO Takao; KAWAGUCHI Daiji; OWAN Hideo
  10. Youth Labour Market Performance in Spain and its Determinants: A Micro-Level Perspective By Juan J. Dolado; Marcel Jansen; Florentino Felgueroso; Andrés Fuentes; Anita Wölfl
  11. Bridge Unemployment in Germany: Response in Labour Supply to an Increased Early Retirement Age By Matthias Giesecke; Michael Kind
  12. Compensated Labor Supply Probabilities and Slutsky Elasticities in Discrete Labor Supply Models By Strom Steinar; Locatelli Marilena; Dagsvik John K.
  13. Wage Dynamics along the Life-Cycle of Manufacturing Plants By Emin Dinlersoz; Henry Hyatt; Sang Nguyen
  14. Theory of Collusion in the Labor Market By Pedro Gonzaga; António Brandão; Hélder Vasconcelos
  15. Labour Market Performance by Age Groups: A Focus on France By Hervé Boulhol; Patrizio Sicari
  16. Happy in the Informal Economy? A Case Study of Well-Being Among Day Labourers in South Africa By PF Blaauw, I Botha, R Schenck and C Schoeman

  1. By: Philipp vom Berge; Hanna Frings; Alfredo R. Paloyo
    Abstract: We estimate the effects on wage and employment growth rates of the introduction and subsequent increases of a substantial minimum wage in the main construction industry of Germany. Using a regional dataset constructed from individual employment histories, we exploit the spatial dimension and border discontinuities of the regional data to account for spillovers between districts and unobserved heterogeneity at the local level. The results indicate that the minimum wage increased the wage growth rate for East Germany but did not have a significant impact on the West German equivalent. The estimated eff ect on the employment growth rate reveals a contraction in the East of about 2.6 to 3.1 percentage points for a one-standard-deviation increase in the minimum-wage bite, amounting to roughly half of the overall decline in the growth rate, but no significant change is observed for the West.
    Keywords: Construction sector; Germany; minimum wage; spatial heterogeneity; spatial panel data
    JEL: J31 J38
    Date: 2013–03
  2. By: Joanne Lindley (University of Surrey)
    Abstract: Despite the recent financial crisis the UK financial pay premium has continued to rise. To some extent this is a consequence of increased skill intensity in the finance sector, but this paper shows that finance workers have higher cognitive skills, on average, and this partly explains their higher wages. These are significant across all post-secondary education groups and not just those at the top. However, after controlling for unobserved heterogeneity we still find unexplainable rents to finance sector workers which are largely a consequence of bonuses. Though we also show that finance workers are more likely to be insecure about their job especially those that receive higher bonuses. In keeping with the existing literature on inequality we estimate demand and supply models to explain increasing inequality between finance workers vis-à-vis other workers. We find that finance workers are not perfect substitutes for non-finance workers in production, which is consistent with them having higher cognitive skills. Finally, we find relative demand shifts in favour of finance sector workers which are partially correlated with increased financial innovation and technical change, but most importantly we find that these demand shifts are slowing down.
    JEL: J20 J31 I24
    Date: 2013–03
  3. By: Olivier Bargain (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS, and IZA); Andreas Peichl (IZA, U. of Cologne, CESifo and ISER)
    Abstract: This note provides an extensive survey of studies estimating steady-state labor supply elasticities for Western Europe and the US. Differences are driven by the heterogeneity in work preferences across countries and by methodological difference across studies (data, selection or model estimation and specification). While the former exists but is shown to be relatively small (Bargain et al., 2013), we focus here on modeling choices: Large elasticities are mainly found in studies estimated in the 1980s and relying on the Hausman approach. More recent estimates based on discrete-choice models with tax-benefit simulations show smaller and more similar estimates across countries. While we confirm that elasticities decline over time in the US, there is some evidence that both time effect and modeling choices affect estimates for Europe.
    Keywords: household labor supply, elasticity, taxation, Europe, US.
    JEL: C25 C52 H31 J22
    Date: 2013–03–27
  4. By: Kleven, Henrik; Landais, Camille; Saez, Emmanuel; Schultz, Esben
    Abstract: This paper analyzes the effects of income taxation on the international migration and earnings of top earners using a Danish preferential foreigner tax scheme and population-wide Danish administrative data. This scheme, introduced in 1991, allows new immigrants with high earnings to be taxed at a preferential flat rate for a duration of three years. We obtain three main results. First, the scheme has doubled the number of highly paid foreigners in Denmark relative to slightly less paid ineligible foreigners, which translates into a very large elasticity of migration with respect to the net-of-tax rate on foreigners, between 1.5 and 2. Hence, preferential tax schemes for highly paid foreign workers could create severe tax competition between countries. Second, we find compelling evidence of a negative effect of scheme-induced increases in the net-of-tax rate on pre-tax earnings at the individual level. This finding cannot be explained by the standard labor supply model where pay equals marginal productivity, but it can be rationalized by a matching frictions model with wage bargaining where there is a gap between pay and marginal productivity. Third, we find no evidence of positive or negative spillovers of the scheme-induced influx of high-skilled foreigners on the earnings of highly paid natives.
    Keywords: International Migration; Taxation; Wage Bargaining
    JEL: H22 H31 J61
    Date: 2013–03
  5. By: Josep Pijoan-Mas (CEMFI); Claudio Michelacci (CEMFI)
    Abstract: We consider a competitive equilibrium matching model where technological progress is embodied in new jobs. Jobs are slowly created over time and in equilibrium there is dispersion in job technologies. Workers can be employed in at most one job. They decide on whether to participate in the labor market and on how many hours to work when assigned to a job. This endogenously generates inequality in wages and in labor supply. When the pace of technological progress accelerates differences in job technologies widen and the technology gap with respect to the frontier increases more in worse jobs. As a result, the balance of income and substitution effects on labor supply is asymmetric across jobs and it becomes optimal to work longer hours in the top jobs and work less hours in the worst ones. With a fixed cost of labor supply this implies that the participation rate falls as workers work less often in order to avoid the worst jobs, and they supply longer hours on average when employed. This model can explain the simultaneous fall in labor force participation and the increase in working hours experienced by US male workers since the mid 70s in a context of raising wage inequality. In addition, it can ex- plain the differences across education groups. In the data, less educated workers see both participation and hours fall. Our model predicts assortative matching, and hence, less educated individuals have access to the worst jobs in the economy, those that worsen the most with the increase in the speed of embodied technical change. Hence, for these workers the returns on market work fall disproportionately and they reduce labor supply in both margins
    Date: 2012
  6. By: Kevin E. Cahill (Sloan Center on Aging and Work at Boston College); Michael D. Giandrea (U.S. Bureau of Labor Statistics); Joseph F. Quinn (Boston College)
    Abstract: How have post-career transitions into and out of self-employment been impacted by the Great Recession? Research from the 1990s and 2000s has shown that the prevalence of self employment increases substantially later in life, partly because self employment provides older workers with opportunities and flexibility not found in wage-and-salary jobs. Post-career transitions into and out of self employment have also been identified as an important pathway to retirement among older Americans. This paper examines post-career self-employment transitions during the recent recession that began in late 2007 and during the ensuing lackluster recovery. We utilize the Health and Retirement Study (HRS), a nationally-representative longitudinal dataset of older Americans, to investigate the role of self-employment in the retirement transitions of HRS Core respondents over nearly two decades, from 1992 to 2010, with particular emphasis on the most recent years. We find that post-career transitions into and out of self employment remain common in the face of the Great Recession, and that health status, occupation, and financial variables continue to be important determinants of switches from wage-and-salary career employment to self-employed bridge jobs. The latest evidence confirms that self employment continues to be an important pathway to retirement even during recessionary times.
    Keywords: Economics of Aging, Partial Retirement, Self Employment
    JEL: J26 J14 J32 H55
    Date: 2013–04
  7. By: Fouarge D.; Grip A. de; Montizaan R.M. (ROA)
    Abstract: This paper investigates the causal effects of the announcement of an increase in the statutory pension age on employee retirement expectations. In June 2010, the Dutch government signed a new pension agreement with the employer and employee organizations that entailed an increase in the statutory pension age from 65 currently to 66 in 2020 for all inhabitants born after 1954. Given the expected increase in average life expectancy, it was also decided that in 2025 the pension age would be further increased to 67 for those born after 1959. This new pension agreement received huge media coverage. Using representative matched administrative and survey data of public sector employees, we find that the proposed policy reform increased the expected retirement age by 3.6 months for employees born between 1954 and 1959 and by 10.8 months for those born after 1959. This increase is reflected in a clear shift in the retirement peak from age 65 to ages 66 and 67 for the respective treated cohorts. Men respond less strongly to the policy reform than women, but within couples we find no evidence that the retirement expectations of one spouse are affected by an increase in the statutory pension age of the other. Furthermore, we show that treatment effects are largely driven by highly educated individuals but are lower for employees whose job involves physically demanding tasks or managerial and supervisory tasks.
    Keywords: Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination;
    Date: 2013
  8. By: Eckstein, Zvi; Lifshitz, Osnat
    Abstract: Changing social norms, as reflected in the interactions between spouses, are hypothesized to affect the employment rates of married women. A model is built in order to estimate this effect, in which the employment of married men and women is the outcome of an internal household game. The type of the household game is exogenously determined as either Classical or Modern. In the former type of household, the spouses play a Stackelberg leader game in which the wife’s labor supply decision is based on her husband’s employment outcome while the latter type of household is characterized by a symmetric and simultaneous game that determines the spouses’ joint labor supply as Nash equilibrium. Females in Modern households are predicted to have higher employment rates than women in Classical households if they have narrower labor market opportunities and/or higher relative risk aversion. The household type is exogenously determined when the couple gets married and is treated as unobserved heterogeneity. The model is estimated using the Simulated Moments Method (SMM) and data from the Panel Study of Income Dynamics (PSID) survey for the years 1983-93. The estimated model provides a good fit to the trends in employment rates and wages. We estimate that 38 percent of households are Modern and that the participation rate of women in those households is almost 80 percent, which is about 10 higher than in Classical households. Meanwhile, the employment rate among men is almost identical in the two types of household.
    Keywords: dynamic discrete choice; household game; household labor supply
    JEL: E24 J2 J3
    Date: 2013–01
  9. By: ARAKI Shota; KATO Takao; KAWAGUCHI Daiji; OWAN Hideo
    Abstract: This paper provides econometric evidence on the cohort size effect on promotion and pay using detailed personnel records of all workers who joined two large manufacturers in Japan during the period 1991-2010. We find that entering the labor market when the economy is in a bad year and joining the firms with fewer colleagues increase the probability of promotion and pay. Our finding implies that cohorts can be a reasonable proxy for the contestant pool.
    Date: 2013–04
  10. By: Juan J. Dolado; Marcel Jansen; Florentino Felgueroso; Andrés Fuentes; Anita Wölfl
    Abstract: This paper provides both descriptive and empirical evidence about the main youth labour market problems in Spain. Using the experiences of other EU economies as a benchmark, we document the performance of Spain as regards a wide set of youth labour market dimensions. These include employment and unemployment rates, youth wages, decisions to work and study, youth mobility, type of employment contract, time to find a first job, skill mismatch, etc. Cross-country econometric evidence from different micro-datasets is reported to understand the role played by several underlying supply/demand factors which might explain the difficulties faced by the Spanish youth labour market (<P>L'insertion des jeunes sur le marché du travail espagnol : résultats et facteurs déterminants - une perspective microéconomique<BR>Le présent document apporte des éléments descriptifs et empiriques sur les problèmes principaux auxquels sont confrontés les jeunes sur le marché du travail en Espagne. Nous comparons les résultats de l'Espagne avec ceux d’autres États membres de l’UE au regard de multiples indicateurs de l’emploi des jeunes, notamment les taux d’emploi et de chômage, le salaire des jeunes actifs, les décisions relatives au travail et aux études, la mobilité des jeunes, les types de contrat de travail, la durée nécessaire pour trouver un premier emploi, l’inadéquation des compétences, etc. Des données économétriques internationales, tirées de plusieurs micro-bases de données, sont utilisées pour mieux comprendre le rôle joué par plusieurs facteurs sous-jacents de l’offre et de la demande pouvant expliquer les difficultés du marché du travail des jeunes en Espagne (
    Keywords: Spain, youth employment, youth unemployment, youth labour market youth mobility, overqualification, skill mismatch, job search, duality, Espagne, emploi des jeunes, chômage des jeunes, marché du travail des jeunes, surqualification, inadéquation des compétences, recherche d'emploi, dualité
    JEL: J20 J30 J40 J60
    Date: 2013–03–27
  11. By: Matthias Giesecke; Michael Kind
    Abstract: This study examines an increase in the early retirement age from 60 to 63 for the group of older unemployed men in Germany. As consequence of this policy reform, the time to retirement is increased from the perspective of recently unemployed individuals and therefore serves as a source of exogenous variation. We estimate continuous time hazard models for individuals at risk of leaving the state unemployment into employment or into early retirement due to exceptional rules. We find a positive impact of an increase in the early retirement age on the reemployment probability whereas the probability to retire early due to exceptional rules is not affected.
    Keywords: Labour supply; retirement behaviour; old age unemployment; duration analysis
    JEL: J14 J26 J64
    Date: 2013–03
  12. By: Strom Steinar; Locatelli Marilena; Dagsvik John K. (University of Turin)
    Abstract: This paper discusses the calculation of compensated choice probabilities in random utility models. The methodology of Compensating Variation and Compensated Choice Probability was developed recently by Dagsvik and Karlström (2005). In this paper we demonstrate how one can apply this methodology in practice. In particular, we compute compensated labor supply probabilities and Slutsky elasticities in a particular discrete labor supply mode
    Date: 2013–02
  13. By: Emin Dinlersoz; Henry Hyatt; Sang Nguyen
    Abstract: This paper explores the evolution of average wage paid to employees along the life-cycle of a manufacturing plant in U.S. Average wage starts out low for a new plant and increases along with labor productivity, as the plant survives and ages. As a plant experiences productivity decline and approaches exit, average wage falls, but more slowly than it rises in the case of surviving new plants. Moreover, average wage declines slower than productivity does in failing plants, while it rises relatively faster as productivity increases in surviving new plants. These empirical regularities are studied in a dynamic model of labor quality and quantity choice by plants, where labor quality is reflected in wages. The model’s parameters are estimated to assess the costs a plant incurs as it alters its labor quality and quantity in response to changes in its productivity over its life-cycle.
    Keywords: Wage dynamics; plant productivity; firm dynamics; plant life-cycle; employment dynamics; manufacturing.
    Date: 2011–08
  14. By: Pedro Gonzaga (Faculdade de Economia da Universidade do Porto); António Brandão (Faculdade de Economia da Universidade do Porto); Hélder Vasconcelos (Faculdade de Economia da Universidade do Porto)
    Abstract: Despite the major concern of the competition authority to forbid and prosecute formal cartels who cooperatively fix prices, limit production or divide markets, there seems to be little regulation and investigation of collusive practices in the labor market. For that reason, this article analyzes the economic effects of cooperative wage fixing in industries that use one type of labor as the only input, while the other assumptions are kept as general as possible. Under the one input assumption it was found that collusion in the labor market and collusion in the product market have exactly the same results, which include the rise in prices and the fall in output, employment and wages. The higher prices and lower wages in cartelized industries are not only associated with the elimination of the well known business stealing effect, but also with the elimination of the labor force stealing effect. The conclusions in this paper can be generalized to industries that use more than one input, as long as the cartel is able to fix the prices of all the inputs.
    Keywords: Collusion, labor market, oligopoly, oligopsony, business stealing effect, labor force stealing effect.
    JEL: L11 L13 L41 L44
    Date: 2013–01
  15. By: Hervé Boulhol; Patrizio Sicari
    Abstract: This paper analyses the age structure of employment rates across OECD countries with a focus on France. The statistical contribution of each age group to total unemployment-rate differentials is also computed. An estimate of the sensitivity of age-specific unemployment rates to the economic cycle is provided for OECD countries. France is one of the OECD countries having the highest dispersion of employment rates across age groups. The “within” component of the 15-29 age group accounts for over half of France’s total unemployment rate differential with best-performing countries. Youth unemployment rate is especially sensitive to cyclical fluctuations in Spain, Belgium and France.<P>Performances du marché du travail par groupes d'âge : La France en point de mire<BR>Cette étude propose une analyse comparée entre pays de l’OCDE de la structure par âge des taux d’emplois. La contribution statistique de chaque groupe d’âge aux écarts totaux de taux de chômage est également calculée. La sensibilité au cycle économique des taux de chômage par classe d’âge est estimée pour les pays de l’OCDE. La France est un des pays de l’OCDE ayant la plus grande dispersion des taux d’emplois par âge. La composante « within » du groupe des 15-29 ans contribue à plus de la moitié de l’écart de taux de chômage total avec les pays les plus performants. Le taux de chômage des jeunes est particulièrement sensible aux variations cycliques en Espagne, en Belgique et en France.
    Keywords: unemployment, France, employment, age, youth, Okun’s Law, chômage, France, emploi, âge, jeunes, loi d’Okun
    JEL: J21 J22 J64
    Date: 2013–02–21
  16. By: PF Blaauw, I Botha, R Schenck and C Schoeman
    Abstract: Past research provided evidence of the negative effect that individual unemployment can have on subjective well-being. The persistent high levels of unemployment and poverty in South Africa have been well documented. Many people are forced into the informal economy, where they engage in a variety of survivalist activities such as day labouring. As no previous study has been conducted on the well-being of day labourers, the aim of this paper is to investigate the determinants of the well-being of South African day labourers. Objective and subjective functions are compared to determine the role of income and other variables in the well-being of day labourers. The determinants are categorised according to economic, comparison and attitudinal variables. The objective function uses income and the subjective function uses the binary measure of ‘experiencing a good week in terms of wages’ as dependent variables. The results showed that comparison variables are important determinants for the subjective measure of well-being, and attitudinal variables are important for the objective measure of well-being. The economic variables were important in both functions. The findings of this paper confirm other research findings showing that personal income is important for well-being in a poor community. The difference between these functions indicates that the subjective and objective measures of well-being both capture valuable characteristics of SWB in a poor community.
    Keywords: Day labouring, Well-being, Happiness, Informal economy
    JEL: J21 J24
    Date: 2013

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