nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2013‒06‒09
sixteen papers chosen by
Erik Jonasson
National Institute of Economic Research

  1. Female labour supply, human capital and welfare reform By Richard Blundell; Monica Costa Dias; Costas Meghir; Jonathan Shaw
  2. The Impact of Wage Subsidies on Jobseekers' Outcomes and Firm Employment By Sarah Crichton; Maré, David C
  3. How Public Pension affects Elderly Labor Supply and Well-being: Evidence from India By Neeraj Kaushal
  4. How have Labour Market Developments Affected Labour Costs in China? By Wenlang Zhang; Gaofeng Han
  5. The effects of school entry laws on educational attainment and starting wages in an early tracking system By Martina Zweimüller
  6. Do wages reflect labor productivity? The case of Belgian regions By Jozef Konings; Luca Marcolin
  7. Earned income tax credits, unemployment benefits and wages: empirical evidence from Sweden By Bennmarker, Helge; Calmfors, Lars; Larsson Seim, Anna
  8. Over-education among A8 migrants in the UK By Stuart Campbell
  9. Strike, coordination, and dismissal in uniform wage settings By Karina Gose; Abdolkarim Sadrieh
  10. Inequality in Unemployment Risk and in Wages By Josep Pijoan-Mas; Hernan Ruffo; Claudio Michelacci
  11. Testing for discrimination against lesbians of different marital status: A field experiment By Doris Weichselbaumer
  12. Do Preferences for Job Attributes Provide Evidence of 'Hierarchy of Needs' By Cem BaÅŸlevent; Hasan KirmanoÄŸlu
  13. The effect of culture on self-employment By Marcén, Miriam
  14. Wage Determination and Labor Market Volatility under Mismatch By William Hawkins
  15. Wage Bargaining Institutions – from crisis to crisis By Jelle Visser
  16. Income Comparison, Income Formation, and Subjective Well-Being: New Evidence on Envy versus Signaling By Heinz Welsch; Jan Kühling

  1. By: Richard Blundell (Institute for Fiscal Studies and University College London); Monica Costa Dias (Institute for Fiscal Studies and Institute for Fiscal Studies); Costas Meghir (Institute for Fiscal Studies and Yale University); Jonathan Shaw (Institute for Fiscal Studies)
    Abstract: We consider the impact of tax credits and income support programs on female education choice, employment, hours and human capital accumulation over the life-cycle. We analyse both the short run incentive effects and the longer run implications of such programs. By allowing for risk aversion and savings, we quantify the insurance value of alternative programs. We find important incentive effects on education choice and labour supply, with single mothers having the most elastic labour supply. Returns to labour market experience are found to be substantial but only for full-time employment, and especially for women with more than basic formal education. For those with lower education the welfare programs are shown to have substantial insurance value. Based on the model, marginal increases to tax credits are preferred to equally costly increases in income support and to tax cuts, except by those in the highest education group.
    Date: 2013–05
  2. By: Sarah Crichton (Labour and Immigration Research Centre, Ministry of Business, Innovation and Employment); Maré, David C (Motu Economic and Public Policy Research)
    Abstract: The study examines the impact of wage subsidies on assisted jobseekers and on the firms that employ them, using propensity matching methods. Overall we find that starting a subsidised job leads to significant employment and earning benefits for assisted jobseekers over several years. Subsidised workers are disproportionately hired into expanding firms, though we cannot determine whether the expansion would have occurred in the absence of the subsidy.
    Keywords: wage subsidy, active labour market policies, propensity matching
    JEL: J08 J38 J64
    Date: 2013–05
  3. By: Neeraj Kaushal
    Abstract: We study the effect of a recent expansion in India’s National Old Age Pension Scheme on elderly well-being. Estimates suggest that public pension has a modestly negative effect on the employment of elderly/near elderly men with a primary or lower education but no effect of the employment of similar women. Pension raised family expenditures, lowering poverty, and the effect was smaller on families headed by illiterate persons suggesting lower pension coverage of this most disadvantaged group. Further, households spent most of the pension income on medical care and education. We find some weak evidence that pension raised longevity.
    JEL: I3
    Date: 2013–05
  4. By: Wenlang Zhang (Hong Kong Monetary Authority); Gaofeng Han (Hong Kong Monetary Authority)
    Abstract: Labour markets in China have experienced remarkable changes in the past decade. In this paper we use above-scale industrial firm-level data of 2001-2008 to study how labour market developments have affected labour costs of firms across regions, and different levels of technology and ownership in China. Our estimates suggest that, labour market tightness has had some impact on the labour costs of Hong Kong-Macau-Taiwan (HMT) firms and private enterprises, particularly in coastal areas, but overall the impact is limited. Our research also shows that labour migration has had some impact on the labour costs and employment of HMT and private firms in East China. Our analysis suggests that China has not yet seen an absolute shortage of labour, but there have been structural problems in the labour market. Demand for young low-end workers and skilled workers has outpaced supply, while the opposite is true for better educated workers such as young college graduates. As the majority of the employees of HMT and private enterprises are at the low-education end, wage pressures for these firms have increased accordingly. As such, it is necessary to remove the barriers that hinder rural labour forces from working in urban areas and to develop vocational and technical education. It is also useful to upgrade production chains to reduce the relative demand for low-end workers and increase that for better-educated workers to reduce skill mismatch in labour markets.
    Keywords: Labour Market Tightness, Labour Migration, Labour Costs
    JEL: J21 J23 J31
    Date: 2013–05
  5. By: Martina Zweimüller
    Abstract: Empirical evidence suggests that relative age, which is determined by date of birth and the school entry cutoff date, has a causal effect on track choice. Using a sample of male labor market entrants drawn from Austrian register data, I analyze whether the initial assignment to different school tracks has persistent effects on educational attainment and earnings in the first years of the career. I estimate the reduced-form effect of the school entry law on starting wages and find a wage penalty of 1.1–2.0 percent for students born in August (the youngest) compared to students born in September (the oldest). The analysis of educational attainment suggests that significant differences in the type of education exist. Younger students are more likely to pursue an apprenticeship and less likely to have higher education. After five years of labor market experience, the wage penalty amounts to 0.8–1.1 percent, suggesting a persistent (albeit decreasing) negative effect of the school entry rule on labor market outcomes in an early tracking system.
    Keywords: School entry law, early tracking, educational attainment, earnings, labor market entrants
    JEL: I21 J24 J31
    Date: 2013–05
  6. By: Jozef Konings; Luca Marcolin
    Abstract: Unemployment rates are significantly different across regions in Belgium. In the search for an explanation for this fact, we simultaneously estimate a wage and labor productivity equations where we include regional dummies as explanatory variables. We find that the wage-productivity gap reached 11% for Brussels and 4.2% for Wallonia in the years 2005-2012. This was driven by the negative performance in labor productivity of the firms in these regions relative to Flanders, which more than compensated for the advantage in unit labor costs they could profit from. On the other hand, the gap for Brussels is found to be currently decreasing in time thanks to a positive growth rate in labor productivity. The sign and magnitude of the wage-productivity gap is robust to the estimation of the relationship using hours worked instead of employees, and including benefits to salaries into the cost of labor. These results are coherent with the existence at the regional level of institutional barriers to the firm-level adjustment of wages to labor productivity. Among the possible explanations for this, our estimations suggest that a reduction in the gap between labor costs and productivity may be achieved through greater wage flexibility at the regional level.
    Date: 2013
  7. By: Bennmarker, Helge (IFAU - Institute for Evaluation of Labour Market and Education Policy); Calmfors, Lars (Institute for International Economics Study, Stockholm University); Larsson Seim, Anna (Department of Economics, Stockholm University)
    Abstract: Although there is a large literature on employment effects of earned income tax credits (EITCs) and unemployment benefits, less is known about wage effects. In our model the impact is via the net (after-tax) replacement rate. Using a panel of individuals from Sweden, we find a positive relationship between the net replacement rate and wages with semi-elasticities in the range 0.2-0.4. This implies that a one percent reduction in the unemployment benefit level or a one percent increase in the net-of-tax rate is associated with a fall in the before-tax wage of 0.1-0.2 per cent. EITCs and unemployment benefit reductions are thus likely to induce wage moderation.
    Keywords: Earned income tax credit; unemployment benefits; wage formation
    JEL: H24 J31 J38
    Date: 2013–05–10
  8. By: Stuart Campbell (Department of Quantitative Social Science, Institute of Education, University of London)
    Abstract: I present new evidence on the incidence and wage associations of over-education among migrants to the UK from the ‘A8’ EU accession countries of Central and Eastern Europe from 2004-2011. Using the Labour Force Survey, I employ a novel strategy to maximise the number of migrants drawn from the dataset over the period of interest, creating a survey sample of A8 migrants of unprecedented size. I also use a new method of classifying education attained outside the UK, which takes account of different European education systems. I find that A8 migrants face a substantially higher risk of over-education in the UK than other recent EU migrants, and that this additional risk remains after taking account of observed characteristics. I argue that this result is driven by unobserved differences between the groups, arising from distinct self-selection processes associated with the institutional context of the EU accession. I also find that in non-graduate occupations, the wage penalties faced by A8 migrants in the UK are of such strength that even the over-educated are paid less than matched UK nationals. Moreover, A8 migrants are concentrated in a particular sub-group of occupations, where higher wages are not available for the over-educated.
    Keywords: Immigration, educational mismatch, labour market, skill recognition
    JEL: J24 J61 J62 F22
    Date: 2013–05–30
  9. By: Karina Gose (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Abdolkarim Sadrieh (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: In our laboratory experiment, the employer in a gift exchange game with 12 workers can incur a loss, if the employees fail to provide enough effort. When the employer can offer individually differentiated wages, we observe high wage and effort choices. When restricted to uniform wages, however, trust and reciprocity drop dramatically due to widespread free-riding by employees on the workforce's reputation. Introducing two collective action mechanisms, strike and effort coordination, does not mitigate the free-riding problem. Introducing employment risk, however, reduces free-riding substantially and reinstalls employees´ reciprocity at the price of a small, but sustained unemployment.
    Keywords: fair wage-effort hypothesis, efficiency wages, wage compression, labor unions, contract design
    JEL: C92 D23 J33 M52
    Date: 2013–03
  10. By: Josep Pijoan-Mas (CEMFI); Hernan Ruffo (UTDT); Claudio Michelacci (CEMFI)
    Abstract: Distinguishing between the relative roles of skills and luck in the determination of wages is a main concern for economic policy. Variation in observed characteristics of workers and firms typically account for one third of total variance in wages in the US. Luck, as a result of frictions in the process of job search, might explain some of the remaining proportion, but search models can only fill a tiny part of this gap when calibrated to mean transition rates. The aim of this paper is to highlight the existence of heterogeneity in finding and separation rates and to show its impact on inequality. In particular, we first reassess the role of frictions in wage dispersion by introducing heterogeneity in unemployment risk, both as exogenous fixed heterogeneity and with some duration dependence. Secondly, to endogenize this heterogeneity, we borrow from Ljungqvist and Sargent (1998), extending it to account for endogenous separation, and build a quantitative search model with human capital accumulation. In this context, a job is valuable for the inexperienced worker not only because of the wage but also for the opportunity to accumulate skills. At the same time, the unemployment spell is damaging for an experienced worker not only because of the foregone earnings but also for the loss of human capital that it entails. Thus, reservation wages and transition rates depend on individual labor market histories. We calibrate the model to match the observed heterogeneity in finding and separation rates and show that the implied wage dispersion is almost the residual wage dispersion in the data. Furthermore, when we shock the model to account for the change in human capital accumulation process in the US economy, we are able to explain all of the increase in inequality over the last decades. We conclude that heterogeneity in unemployment risk and the incentives related to human capital accumulation and depreciation are main drivers of frictional wage dispersions.
    Date: 2012
  11. By: Doris Weichselbaumer
    Abstract: In this paper, a correspondence testing experiment is conducted to examine sexual orientation discrimination against lesbians in Germany. Applications for four fictional female characters are sent out in response to job advertisements: a heterosexual single, a married heterosexual, a single lesbian and a lesbian who is in a ‘same-sex registered partnership’. Different results are obtained for the two cities investigated, Munich and Berlin. While single lesbians and lesbians in a registered partnership are equally discriminated in comparison to the heterosexual women in the city of Munich, no discrimination based on sexual orientation has been found in Berlin. Furthermore, for a subset of our data we can compare the effects of a randomized versus a paired testing approach, which suggests that under certain conditions, due to increased conspicuity, the paired testing approach may lead to biased results.
    JEL: C93 J15 J71
    Date: 2013–05
  12. By: Cem BaÅŸlevent (Department of Economics, Istanbul Bilgi University); Hasan KirmanoÄŸlu (Department of Economics, Istanbul Bilgi University)
    Abstract: We examine whether employees’ preferences for various job attributes are associated with their individual characteristics in ways that are in line with ‘hierarchy of needs’ theories. Using data from the fifth round of the European Social Survey, we observe the influence of socio-demographic and dispositional characteristics as well as socialization experiences on opinions regarding the importance of five different desirable job attributes. An item-by-item examination of the attributes (including ‘security’ and ‘offering a high income’) reveals that dispositional factors (measured using the battery of items in Schwartz’s theory of basic personal values) influence job attitudes in expected ways, but employees also tend to place more importance on attributes that concern them more directly. For example, while female employees care more about being able to combine work and family responsibilities, younger workers value training opportunities more highly than older ones. Regarding socialization experiences, we find that job security is more important for those who have been unemployed in the past. We interpret our findings to mean that hierarchy of needs theories are valid in the context of job attitudes in the sense that the ranking of preferred job attributes is quite predictable once individual characteristics are accounted for.
    Keywords: preferred job attributes, hierarchy of needs, basic personal values, European Social Survey
    JEL: C25 J28
    Date: 2012–01
  13. By: Marcén, Miriam
    Abstract: This work examines the effect of cultural differences on self-employment. All the individuals considered in the analysis are second-generation immigrants who were born and live under the same laws and institutions in the US. Following an epidemiological approach, the variation in self-employment rates by ancestors’ national origin can be considered as supporting evidence of the effect of culture on self-employment. Our results show that culture has quantitatively significant effects on self-employment. This finding is robust to alternative specifications and to the introduction of several controls. Additional analysis shows that there are differences in the impact of culture on self-employment by gender, in that men are more sensitive than women to culture; and by economic activity, in that those individuals involved in professional, scientific, and technical activities, and those in accommodation and food service activities, are more affected by the impact of cultural differences. We also examine the transmission of culture, observing an important role of the inter-generational transfer of culture, although the impact of culture on self-employment diminishes from generation to generation.
    Keywords: Self-Employment, Culture
    JEL: J10 J20 J61 Z1
    Date: 2013
  14. By: William Hawkins (University of Rochester)
    Abstract: Shimer (2007, American Economic Review) introduced a model of mismatch, in which limited mobility of vacant jobs and unemployed workers provides a microfoundation for their coexistence in equilibrium. Shimer assumed that the short side of a local labor market receives all the gains from trade, and argues that the model helps to explain the volatility of unemployment and the vacancy-unemployment ratio in response to productivity shocks. I show that the assumption on wages is essential for this conclusion by considering alternative assumptions. When wages are determined according to the Shapley value, they depend more smoothly on local labor market conditions, but unemployment and the vacancy-unemployment ratio are even more volatile. However, in both cases amplification relative to the Mortensen-Pissarides benchmark arises only because the implied process for wages is more volatile.
    Date: 2012
  15. By: Jelle Visser
    Abstract: This essay reviews half a century of developments in bargaining coverage, the structure of bargaining, and bargaining coordination respectively in thirty countries, with an emphasis on the last twenty years. Under coverage or the extent of collective bargaining and pay setting, the connection with union density, employer organization, and administrative extension is analysed. In the section on bargaining structure the main issues are decentralisation, multi- or single-employer bargaining, the level at which most bargaining takes place, the organization or articulation of multi-level bargaining, and the existence and use of opening clauses. The discussion of coordination includes an attempt to identify different mechanisms through which wage leadership may be established, varying from state controls to social pacts, and from associational controls to trend- or pattern setting behaviour.
    JEL: D30 J50
    Date: 2013–04
  16. By: Heinz Welsch (University of Oldenburg, Department of Economics); Jan Kühling (University of Oldenburg, Department of Economics)
    Abstract: Drawing on the distinction between envy and signaling effects in income comparison, this paper uses 307,465 observations for subjective well-being and its covariates from Germany, 1990-2009, to study whether the nature of income comparison has changed in the process of economic development, and how such changes are related to changes in the nature of income formation. By conceptualizing a person’s comparison income as the income predicted by an earnings equation, we find that, while in 1990-1999 envy has been the dominant concern in West Germany and signaling the dominant factor in East Germany, income comparison was non-existing in 2000-2009. We also find that the earnings equation reflects people’s ability more accurately in the second than in the first period. Together, these findings suggest that comparing one’s income with people of the same ability is important only when ability is insufficiently reflected in own income.
    Keywords: income comparison; envy; signaling; subjective well-being; income formation
    JEL: D31 I31 J31 P36 Z13
    Date: 2013–04

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