nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2013‒05‒22
fifteen papers chosen by
Erik Jonasson
National Institute of Economic Research

  1. Has Job Polarization Squeezed the Middle Class? Evidence from the Allocation of Talents By Michael J. Boehm
  2. Exports and Wages: Rent Sharing, Workforce Composition or Returns to Skills? By M. Macis; F. Schivardi
  3. Do Minimum Wage Laws Affect People Who Are Not Covered? Evidence from Documented and Undocumented, Hourly and Piece Rate Workers in U.S. Agriculture By Anita Alves Pena
  5. Dynamics of the Gender Gap in the Workplace: An econometric case study of a large Japanese firm By KATO Takao; KAWAGUCHI Daiji; OWAN Hideo
  6. Social Insurance and Retirement: A Cross-Country Perspective By Laun, Tobias; Wallenius, Johanna
  7. Discrimination and the Effects of Drug Testing on Black Employment By Abigail Wozniak
  8. Ageing and employability. Evidence from Belgian firm-level data. By Vandenberghe, Vincent
  9. Are firms willing to employ a greying and feminizing workforce?. By Vandenberghe, Vincent
  10. Gender Gaps and the Rise of the Service Economy By L. Rachel Ngai; Barbara Petrongolo
  11. Non-financial determinants of retirement By Frank van Erp; Niels Vermeer; Daniel van Vuuren
  12. The Process of Wage Adjustment: An Analysis Using Establishment- Level Data By Alberto Bayo-Moriones; Jose Enrique Galdon-Sanchez; Sara Martinez-de-Morentin
  13. Labor Supply, Aggregation and the Labor Wedge By Jose Lopez
  14. Labour Supply Effects of Conditional Transfers: Analyzing the Dominican Republic's Solidarity By Gustavo Canavire Bacarreza; Harold Vasquez Ruiz
  15. Mental Health: The New Frontier for Labour Economics By Richard Layard

  1. By: Michael J. Boehm
    Abstract: Over the last two decades, earnings in the United States increased at the top and at the bottom of the wage distribution but not in the middle - the intensely debated middle class squeeze. At the same time there was a substantial decline of employment in middle-skill production and clerical occupations - so-called job polarization. I study whether job polarization has caused the middle class squeeze. So far little evidence exists about this because the endogenous selection of skills into occupations prevents credible identification of polarization's effect on wages. I solve the selection-bias problem by studying the changes in returns to occupation-specific skills instead of the changes in occupational wages using data over the two cohorts of the National Longitudinal Study of Youth (NLSY). This data features multidimensional and pre-determined test scores, which predict occupational sorting and thus measure relative occupation-specific skills. My estimation equations are derived from the Roy (1951) model over two cross-sections with job polarization amounting to a shift in the occupation-specific skill prices. In line with polarization, I find that a one percentage point higher propensity to enter high- (low-) as opposed to middle-skill occupations is associated with a .29 (.70) percent increase in expected wages over time. I then compute a counterfactual wage distribution using my estimates of the shifts in occupation-specific skill prices and show that it matches the increase at the top of the wage distribution but fails to explain the increase at the bottom. Thus, despite the strong association of job polarization with changes in the returns to occupation-specific skills, there remains room for alternative (e.g. policy related) explanations about the increase in the lower part of the wage distribution.
    Keywords: Job polarization, wage inequality, talent allocation, Roy model
    JEL: J21 J23 J24 J31
    Date: 2013–05
  2. By: M. Macis; F. Schivardi
    Abstract: We use linked employer-employee data from Italy to explore the relationship between exports and wages. Our empirical strategy exploits the 1992 devaluation of the Italian Lira, which represented a large and unforeseen shock to Italian firms’ incentives to export. The results indicate that the export wage premium is due to exporting firms both (1) paying a wage premium above what their workers would earn in the outside labor market – the “rent-sharing” effect, and (2) employing workers whose skills command a higher price after the devaluation – the “skill composition” effect. The latter effect only emerges once we allow for the value of individual skills to differ in the pre-and post-devaluation periods. In fact, using a fixed measure of skills, as typically done in the literature, we would attribute the wage increase only to rent sharing. We also document that the export wage premium is larger for workers with more export-related experience. This indicates that the devaluation increased the demand for skills more useful for exporting, driving their relative price up.
    Keywords: export wage premium, linked employer employee data
    JEL: F16 J31
    Date: 2012
  3. By: Anita Alves Pena (Colorado State University)
    Abstract: While a stated goal of minimum wage increases is to benefit low-income workers, some employers are not obligated to provide at least minimum wages to all employees. U.S. farm employers comprise one of these groups. Employees of large farms and H2-A workers (temporary nonimmigrant workers lawfully admitted to perform temporary or seasonal agricultural services) are protected by minimum wage legislation, while other migrant workers (especially those who are paid piece rate) are exempt. Furthermore, U.S. agriculture is characterized by a large percentage of illegal migrants, and workers who are illegal may or may not receive wages above minimum levels. This paper presents a case study, drawing from agriculture, that examines if and how minimum wage laws affect uncovered workers. Analysis examines wages and hours worked as functions of federal and state minimum wages using data from a nationally and regionally representative survey of employed farm workers. Results suggest wage increases for both covered and uncovered workers, greatest gains to those who are formally covered, and gains not being at the expense of hours worked.
    Keywords: minimum wage exemptions, poverty, agriculture
    JEL: I32 J33 Q12
    Date: 2013–04
  4. By: Elizabeth Ananat; Shihe Fu; Stephen L. Ross
    Abstract: We demonstrate a striking but previously unnoticed relationship between city size and the black-white wage gap, with the gap increasing by 2.5% for every million-person increase in urban population. We then look within cities and document that wages of blacks rise less with agglomeration in the workplace location, measured as employment density per square kilometer, than do white wages. This pattern holds even though our method allows for non-parametric controls for the effects of age, education, and other demographics on wages, for unobserved worker skill as proxied by residential location, and for the return to agglomeration to vary across those demographics, industry, occupation and metropolitan areas. We find that an individual’s wage return to employment density rises with the share of workers in their work location who are of their own race. We observe similar patterns for human capital externalities as measured by share workers with a college education. We also find parallel results for firm productivity by employment density and share college-educated using firm racial composition in a sample of manufacturing firms. These findings are consistent with the possibility that blacks, and black- majority firms, receive lower returns to agglomeration because such returns operate within race, and blacks have fewer same-race peers and fewer highly-educated same-race peers at work from whom to enjoy spillovers than do whites. Data on self-reported social networks in the General Social Survey provide further evidence consistent with this mechanism, showing that blacks feel less close to whites than do whites, even when they work exclusively with whites. We conclude that social distance between blacks and whites preventing shared benefits from agglomeration isa significant contributor to overall black-white wage disparities.
    Keywords: Black White Wage Gap, Agglomeration Economies, Human Capital Externalities,Information Networks, Total Factor Productivity
    JEL: J15 J24 J31 R23 R32
    Date: 2013–04
  5. By: KATO Takao; KAWAGUCHI Daiji; OWAN Hideo
    Abstract: This paper provides new evidence on the nature and causes of the gender pay gap using confidential personnel records from a large Japanese chemical manufacturing firm. Controlling only for the human capital variables that are typically included in the standard wage function results in a substantial gender pay gap—16% for unmarried and 31% for married workers. However, additionally controlling for job level, skill grade, hours worked, and number of dependents almost eliminates the "unexplained" gender pay gap. We estimate various models of promotion rates and additionally find that (i) there is a statistically and economically significant correlation between hours worked and the odds of promotion for women but not for men; (ii) maternity carries a substantial career penalty (up to a 20-30 percentage-point fall in future earnings), especially for college graduate women; and (iii) the maternity penalty can be avoided by promptly returning from parental leave and not reducing work hours after returning. As such, our evidence points to the importance of women's ability to signal their commitment to work (or the level of family support they receive)—through working long hours and taking shorter parental leave—for their career advancement.
    Date: 2013–05
  6. By: Laun, Tobias (Uppsala Center for Fiscal Studies); Wallenius, Johanna (Department of Economics, Stockholm School of Economics)
    Abstract: In this paper we study the role of social insurance, namely old-age pensions, disability insurance and healthcare, in accounting for the differing labor supply patterns of older individuals across OECD countries. To this end, we develop a life cycle model of labor supply and health with heterogeneous agents. The key features of the framework are: (1) people choose when to stop working, and when/if to apply for disability and pension benefits, (2) the awarding of disability insurance benefits is imperfectly correlated with health, and (3) people can partially insure against health shocks by investing in health, the cost of which is dependent on health insurance coverage. We find that the incentives faced by older workers differ hugely across countries. In fact, based solely on differences in social insurance programs, the model predicts even more cross-country variation in the employment rates of people aged 55-64 than we observe in the data.
    Keywords: Life cycle; Retirement; Disability insurance; Health
    JEL: E24 J22 J26
    Date: 2013–05–03
  7. By: Abigail Wozniak (University of Notre Dame)
    Abstract: Nearly half of U.S. employers test job applicants and workers for drugs. I use variation in the timing and nature of drug testing regulation to study discrimination against blacks related to perceived drug use. Black employment in the testing sector is suppressed in the absence of testing, consistent with ex ante discrimination on the basis of drug use perceptions. Adoption of pro-testing legislation increases black employment in the testing sector by 7–30 percent and relative wages by 1.4–13.0 percent, with the largest shifts among low skilled black men. Results suggest that employers substitute white women for blacks in the absence of testing.
    Keywords: Employment drug testing, discrimination, employment, Current Population Survey
    JEL: J7 J15 K2 K3 M5
    Date: 2012–06
  8. By: Vandenberghe, Vincent
    Abstract: The Belgian population is ageing due to demographic changes, so does the workforce of firms active in the country. Such a trend is likely to remain for the foreseeable future. And it will be reinforced by the willingness of public authorities to expand employment among individuals aged 50 or more. But are older workers employable? The answer depends to a large extent on the gap between older workers’ productivity and their cost to employers. To address this question we use a production function that is modified to reflect the heterogeneity of labour with workers of different age potentially diverging in terms of marginal products. Using unique firm-level panel data we produce robust evidence on the causal effect of ageing on productivity (value added) and labour costs. We take advantage of the panel structure of data and resort to first-differences to deal with a potential time-invariant heterogeneity bias. Moreover, inspired by recent developments in the production function estimation literature, we also address the risk of simultaneity bias (endogeneity of firm’s age-mix choices in the short run) using (1) the structural approach suggested by Ackerberg et al. Structural identification of production functions. Department of Economics, UCLA, (2006), (2) alongside more traditional system-GMM methods (Blundell and Bond in J Econom 87:115–143, 1998) where lagged values of labour inputs are used as instruments. Our results indicate a negative impact of larger shares of older workers on productivity that is not compensated by lower labour costs, resulting in a lower productivity-labour costs gap. An increment of 10 %-points of their share causes a 1.3–2.8 % contraction of this gap. We conduct several robustness checks that largely confirm this result. This is not good news for older individuals’ employability and calls for interventions in the Belgian private economy aimed at combating the decline of productivity with age and/or better adapting labour costs to age-productivity profiles.
    Date: 2012
  9. By: Vandenberghe, Vincent
    Abstract: Are employers willing to employ more older individuals, in particular older women? Higher employment among the older segments of the population will only materialize if firms are willing to employ them. Although several economists have started considering the demand side of the labour market for older individuals, few have considered its gender dimension properly; despite evidence that lifting the overall senior employment rate in the EU requires significantly raising that of women older than 50. In this paper, we posit that labour demand and employability depend to a large extent on how the age/gender composition of the workforce affects firm's profits. Using unique firm-level panel data we produce robust evidence on the causal effect of age/gender on productivity (value added per worker), total labour costs and gross profits. We take advantage of the panel structure of data and resort to first differences to deal with a potential time-invariant heterogeneity bias. Moreover, inspired by recent developments in the production function estimation literature, we also address the risk of simultaneity bias (endogeneity of firm's age-gender mix choices in the short run) by combining first differences with i) the structural approach suggested by Ackerberg, Caves and Frazer (2006), ii) alongside more traditional IV-GMM methods (Blundell and Bond, 1998) where lagged values of labour inputs are used as instruments. Results suggest no negative impact of rising shares of older men on firm's gross profits, but a large negative effect of larger shares of older women. Another interesting result is that the vast and highly feminized services industry does not seem to offer working conditions that mitigate older women's productivity and employability disadvantage, on the contrary. This is not good news for older women's employability and calls for policy interventions in the Belgian private economy aimed at combating women's decline of productivity with age and/or better adapting labour costs to age-gender productivity profiles.
    Date: 2012
  10. By: L. Rachel Ngai; Barbara Petrongolo
    Abstract: This paper explains the narrowing of gender gaps in wages and market hours in recent decades by the growth of the service economy. We propose a model with three sectors: goods, services and home production. Women have a comparative advantage in the production of services in the market and at home. The growth of the services sector, in turn driven by structural transformation and marketization of home services, acts as a gender-biased demand shift and leads to a rise in women's wages and market hours relative to men. Quantitatively, the model accounts for an important share of the observed rise in women's relative wage and market hours and the fall in men's market hours.
    Keywords: gender gaps, structural transformation, marketization
    JEL: E24 J22 J16
    Date: 2013–04
  11. By: Frank van Erp; Niels Vermeer; Daniel van Vuuren
    Abstract: This paper first confronts the observed aggregate retirement pattern in the Netherlands with predictions of traditional economic models of retirement. The retirement peaks observed in the data cannot entirely be reconciled with models putting financial incentives central to individual decision-making. After surveying different explanations from psychology and sociology, the paper concludes that social norms, default options, and reference-dependent utility are likely explanations for the observed individual propensity to retire at standard retirement ages. Most empirical evidence on these factors is, however, not related to the retirement age, so that a great deal of research remains to be done.
    JEL: J26 D01 D03
    Date: 2013–05
  12. By: Alberto Bayo-Moriones (Departamento de Gestión de Empresas-UPNA); Jose Enrique Galdon-Sanchez (Departamento de Economía-UPNA); Sara Martinez-de-Morentin (Departamento de Economía-UPNA)
    Abstract: In this article, we use data from Spanish manufacturing plants to analyze the determinants of the importance attributed to several criteria when wages are adjusted. More specifically, the criteria we take into account in the study are the cost of living, the wages of the firm in relation to its competitors, the fulfillment of collective agreements at sector level, the need to recruit and retain employees, the performance of the organization, and the industrial relations climate. Our results show that the structural characteristics of the establishment, as well as the wage setting arrangements and trade unions, play a role in explaining the importance of the factors mentioned in shaping wage adjustments. The human resource management policies adopted by the employer seem to be less relevant.
    Keywords: human resource management, structural characteristics, trade unions, wage adjustment, wage setting arrangements
    Date: 2013
  13. By: Jose Lopez (HEC PARIS)
    Abstract: This paper discusses the role of household heterogeneity in a model in which idiosyncratic consumption and labor income risks manifest as a distortion to the intra-temporal optimal condition of the representative agent. Aggregation over the undistorted labor-leisure condition of each household leads to a wedge between the Marginal Rate of Substitution, between consumption and leisure, (MRS) and the Marginal Product of Labor (MPL), through the lens of the representative agent model. I use household survey data to assess the properties of this aggregation wedge. I find that it is consistent with the systematic deviation between the MRS and the MPL observed in aggregate data, the so-called "Labor Wedge", for both the long-run and the business cycles. Additionally, I explore the quantitative implications of the model assuming imperfect insurability against idiosyncratic shocks. I show that cyclical changes in the distribution of household productivity and in the degree of risk sharing lead to cyclical changes in the aggregation wedge, as if the representative agent faced higher labor taxes - or was lazier- during recessions. The model also exhibits novel dynamics for labor, relative to the benchmark RBC, because of the various labor supply elasticities induced by the individual productivities and the wealth distribution.
    Date: 2012
  14. By: Gustavo Canavire Bacarreza; Harold Vasquez Ruiz
    Abstract: This paper studies the impact of the conditional cash transfer program Solidaridad on changes in the labor market of the Dominican Republic based on statistical data from the Evaluation of the Social Security Survey 2010. The estimation methodology is based on matching techniques, which can discern the impact on both benene.t-receiving and non-benefit-receiving households. The results show a negative but very small impact of the different components of the program on labor market indicators, especially for the components related to children. However, the estimates show some heterogeneity in the effects on the most vulnerable sectors of the population.
    Date: 2013–04–11
  15. By: Richard Layard
    Abstract: This lecture argues that mental health is a major factor of production. It is the biggest single influence on life satisfaction, with mental health eight years earlier a more powerful explanatory factor than current income. Mental health also affects earnings and educational success. But, most strikingly, it affects employment and physical health. In advanced countries mental health problems are the main illness of working age - amounting to 40% of all illness under 65. They account for over one third of disability and absenteeism in advanced countries. They can also cause or exacerbate physical illness. It is estimated that in the absence of mental illness, the costs of physical healthcare for chronic diseases would be one third lower. The good news is that cost-effective treatments for the most common mental illnesses now exist (both drugs and psychological therapy). But only a quarter of those who suffer are in treatment. Yet psychological therapy, such as cognitive behavioural therapy, if more widely available would pay for itself in savings on benefits and lost taxes. The lecture ends by illustrating how rational policy can be made using life-course models of wellbeing. Such policies should include a much greater role for the treatment and prevention of mental illness.
    Keywords: mental health, wellbeing, employment
    JEL: I30 J30
    Date: 2013–05

This nep-lma issue is ©2013 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.