nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2013‒07‒05
ten papers chosen by
Erik Jonasson
National Institute of Economic Research

  1. Maternity Leave and the Responsiveness of Female Labor Supply to a Household Shock By Emma Tominey
  2. Pay Growth, Fairness and Job Satisfaction : Implications for Nominal and Real Wage Rigidity By Smith, Jennifer C
  3. Why Firms Avoid Cutting Wages: Survey Evidence from European Firms By Du Caju, Philip; Kosma, Theodora; Lawless, Martina; Messina, Julián; Rõõm, Tairi
  4. The Effect of High School Exit Exams on Graduation, Employment, Wages and Incarceration By Olesya Baker; Kevin Lang
  5. The Wage Premium and Market Structure: The Case of South Korea and Taiwan By Yen, Meng-Feng
  6. Lassoing the Determinants of Retirement By Malene Kallestrup-Lamb; Anders Bredahl Kock; Johannes Tang Kristensen
  7. Age or Size? Determinants of Job Creation By Lawless, Martina
  8. The Effect of Medicaid Expansions in the Late 1980s and Early 1990s on the Labor Supply of Pregnant Women By Dhaval M. Dave; Sandra L. Decker; Robert Kaestner; Kosali Ilayperuma Simon
  9. Off-Farm Work and Economic Performance on Corn Farms By Nehring, Richard; Mishra, Ashok; Fernandez-Cornejo, Jorge; Hallahan, Charlie; Erickson, Kenneth; Harris, Michael
  10. "Incentive Pay that Causes Inefficient Managerial Replacement" By Meg Sato

  1. By: Emma Tominey
    Abstract: Female labor supply can insure households against shocks to paternal employment. The paper estimates whether the female labor supply response to a paternal employment shock differs by eligibility to maternity employment protection. We exploit time-state variation in the implementation of unpaid maternity leave through the Family and Medical Leave Act (FMLA) in the US which increased employment protection from 0 to 12 weeks. We find that mothers eligible for FMLA speed up their return to work in response to a paternal shock, with a conditional probability of being in work 53% higher than in households with no paternal shock. In contrast, there was a negligible insurance response for mothers with no employment protection.
    Keywords: Female labor Supply; Insurance; Maternity Leave
    JEL: I30 J13 J20 J64
    Date: 2013–06
  2. By: Smith, Jennifer C (Department of Economics, University of Warwick)
    Abstract: Theories of wage rigidity often rely on a positive relationship between pay changes and utility, arising from concern for fairness or gift exchange. Supportive evidence has emerged from laboratory experiments, but the link has not yet been established with field data. This paper contributes a fist step, using representative British data. Workers care about the level and the growth of earnings. Below-median wage increases lead to an insult e¤ect except when similar workers have real wage reductions or fim production is falling. Nominal pay cuts appear insulting even when the firm is doing badly. JEL classification: Pay cuts ; Social comparisons ; Gift exchange JEL codes: J33 ; M52 ; J28 ; E24
  3. By: Du Caju, Philip (National Bank of Belgium); Kosma, Theodora (Bank of Greece); Lawless, Martina (Central Bank of Ireland); Messina, Julián (World Bank and Universitat de Girona); Rõõm, Tairi (Eesti Pank)
    Abstract: The rarity with which firms reduce nominal wages has been frequently observed, even in the face of considerable negative economic shocks. This paper uses a unique survey of fourteen European countries to ask firms directly about the incidence of wage cuts and to assess the relevance of a range of potential reasons for why they avoid cutting wages. Concerns about the retention of productive staff and a lowering of morale and effort were reported as key reasons for downward wage rigidity across all countries and firm types. Restrictions created by collective bargaining were found to be an important consideration for firms in euro area countries but were one of the lowest ranked obstacles in non-euro area countries. The paper examines how firm characteristics and collective bargaining institutions affect the relevance of each of the common explanations put forward for the infrequency of wage cuts.
    Keywords: labour costs, wage rigidity, firm survey, wage cuts, European Union
    JEL: J30 J32 J33 J51 C81 P5
    Date: 2013–06
  4. By: Olesya Baker; Kevin Lang
    Abstract: We evaluate the effects of high school exit exams on high school graduation, incarceration, employment and wages. We construct a state/graduation-cohort dataset using the Current Population Survey, Census and information on exit exams. We find relatively modest effects of high school exit exams except on incarceration. Exams assessing academic skills below the high school level have little effect. However, more challenging standards-based exams reduce graduation and increase incarceration rates. About half the reduction in graduation rates is offset by increased GED receipt. We find no consistent effects of exit exams on employment or the distribution of wages.
    JEL: I21 I24 I28 J24 J3
    Date: 2013–06
  5. By: Yen, Meng-Feng
    Abstract: We seek to understand why the difference between wages earned by skilled and unskilled labor, the so-called “wage premium”, varies across developing countries, using South Korea and Taiwan as empirical case studies. South Korea and Taiwan are both small developing countries with export-led economies that enjoy relatively high incomes compared to their Asian counterparts (excluding Japan). Between 1990 and 2000, Taiwan experienced a decrease in the wage premium, while South Korea remained the same wage premium. In particular, during that period, the wage premium fell from 67% to 25% in Taiwan, but remains around 44% in South Korea (Helms et al, 1999; Choi and Jeong, 2005); the trend continued through 2012 according statistics published by South Korean and Taiwanese Ministries of Labor. The existing academic literature offers several theories of how wage premia are determined. One strand of the literature attributes cross-country variation in the wage premium to differences in relative human capital factor endowments; another strand attributes it to differences in rates of skilled biased technical change; and a third strand attributes it to differences in the degrees of competition at the sectoral level (Leamer 1996; Feenstra and Hanson, 1997; and Krugman, 2001). However, none of these theories adequately explain differences in the wage premium observed between South Korea and Taiwan. Both countries have comparable relative human capital endowments (Guo, 2005), have traded heavily with the U.S. (U.S. census data), and have experienced substantial skill-based technical change over the past decade (Chan, 2005; Choi and Jeong 2005). The puzzling question is then: why is the wage premium in South Korea much higher than in Taiwan? In an effort to resolve the puzzle, we theorize that cross-country variation in the wage premium arises from differences in the degree of competition in markets for differentiated goods. Taiwanese firms are small and operate in a monopolistic competitive environment, whereas South Korean firms are larger and enjoy more government support (Feenstra and Hanson, 1993; Rodrik, 1994). In our paper, we explore whether these differences in market structure can account for the observed differences in the wage premium between the two countries. To understand the impact of competition on the wage premium, we build and analyze a general equilibrium model of two trading partners, one a small developing country with a relatively low skilled labor endowment and the other a large developed country with a relatively high skilled labor requirement. The trading partners produce and trade two types of goods, a homogenous good and a differentiated good, both of which are produced using two types of labor, skilled and unskilled. We analyze the model under different assumptions regarding the competitiveness of the differentiated good market and find that the wage premium in the developing country will be higher if the market for the differentiated good is characterized by oligopolistic competition rather than monopolistic competition. We then test the predictions of our theoretical model empirically. Specifically, we test the hypothesis that that wage premium is positively related to concentration measure. Due to the limitation of two different forms of data available to us — individual- and industry-level data — we employ the two stage regression method developed by Goldberg and Pavcnik (2003). In the first stage, we regress the wage premium on individual characteristics, industry dummies, an education variable and an interaction variable of education level and industry dummies; in the second stage, we regress the parameter estimated in the first stage against a measure of product market competition (i.e., the concentration ratio) and other control variables. To our knowledge, a cross-country level comparison on the influence of product market structure on the wage premium has not been undertaken for developing countries. We employ data from several sources. We use a panel of individual-level and industry-level observations over three distinct years drawn from several sources: the Taiwan Manpower Utilization Survey (TMUS), Academia Sinica (Taiwan), the Korean Labor & Income Panel Study (KLIPS), the OECD Structural Analysis database (STAN), and the U.S. Economic Census. Import and export data are taken from United Nations Commodity Trade Statistics Database and the International Economic Data Bank (IDEB). Data obtained from TMUS and KLPS are at the individual level and the data obtained from sources are at the industry level. We restrict our attention to trade between the Taiwan and the U.S. and between South Korea and the U.S. because for both countries, the U.S. is each country’s most important trade partner. Our analysis departs from the well-established factor endowment and skilled-based technical change literatures, providing a novel explanation that wage premium differences across developing countries differ due to market structure and market power under trade. Our study should provide ample fuel for thought for development economists and policy makers in developing countries who are interested in the impact of trade on economic growth and on the distribution of income among those living in developing countries.
    Keywords: Labor and Human Capital,
    Date: 2013
  6. By: Malene Kallestrup-Lamb (Aarhus University and CREATES); Anders Bredahl Kock (Aarhus University and CREATES); Johannes Tang Kristensen (Aarhus University and CREATES)
    Abstract: This paper uses Danish register data to explain the retirement decision of workers in 1990 and 1998.Many variables might be conjectured to influence this decision such as demographic, socio-economic, financially and health related variables as well as all the same factors for the spouse in case the individual is married. In total we have access to 399 individual specific variables that all could potentially impact the retirement decision.We use variants of the Lasso and the adaptive Lasso applied to logistic regression in order to uncover determinants of the retirement decision. To the best of our knowledge this is the first application of these estimators in microeconometrics to a problem of this type and scale. Furthermore, we investigate whether the factors influencing the retirement decision are stable over time, gender and marital status. It is found that this is the case for core variables such as age, income, wealth and general health. We also point out themost important differences between these groups and explain why these might be present.
    Keywords: Retirement, Register data, High-dimensional data, Lasso, Adaptive Lasso, Oracle property, Logistic regression
    JEL: C01 C25 J0 J14 J62
    Date: 2013–06–29
  7. By: Lawless, Martina (Central Bank of Ireland)
    Abstract: Small firms have often been identified as drivers of job creation, although the evidence on their contribution to net employment growth has been disputed. This paper shows that job turnover and firm growth vary systematically across firm size groups and that smaller firms do indeed make an important contribution to new job creation. There is a significant caveat, however; we find that it is not firm size per se that is driving these results but rather firm age. The considerable overlap between the two properties, as young firms overwhelmingly tend to be small, has perhaps led to much of the effect of firm age being misattributed to size. We show that younger firms are consistently more dynamic than older firms and this holds across all size classes, not just amongst smaller firms. In addition, a relationship between lagged employment and firm growth is found to exist only for young firms.
    Date: 2013–04
  8. By: Dhaval M. Dave; Sandra L. Decker; Robert Kaestner; Kosali Ilayperuma Simon
    Abstract: A substantial body of research has found that expansions in Medicaid eligibility increased enrollment in Medicaid, reduced the rate of uninsured, and reduced the rate of private health insurance coverage (i.e., crowd out). Notably, there has been little research that has examined the mechanism by which crowd-out occurs. This study examines the effects of expansions in Medicaid eligibility for pregnant women in the late 1980s and the early 1990s on labor supply, which is one of the possible mechanisms underlying crowd out. Estimates suggest that the 20 percentage point increase in Medicaid eligibility during the sample period was associated with a 6% to 7% decrease in the probability that a woman who gave birth in the past year was employed. Among unmarried women with less than a high school education, the change in Medicaid eligibility reduced employment by approximately 13% to 16%.
    JEL: D1 J01 J08 J22
    Date: 2013–06
  9. By: Nehring, Richard; Mishra, Ashok; Fernandez-Cornejo, Jorge; Hallahan, Charlie; Erickson, Kenneth; Harris, Michael
    Abstract: This paper examines the effect of off-farm work on the economic performance of corn farms. It estimates returns to scale and technical efficiency following an input distance function approach and compares the relative performance of corn farm operator households with and without off-farm work. We use farm-level data from the USDA’s ARMS survey for 2002-2011. The impact of off-farm work on scale and technical efficiency is examined at the household level. We find that off-farm income boosts scale efficiency on corn farms. We also find that operator hours worked off farm negatively affects technical efficiency, while we find no impact on technical efficiency for spouse hours worked off farm. Finally, we find that corn farms relying on off farm income have comparable returns on farm assets across all size classes, but significantly higher household returns (with off-farm income and assets accounted for) across all size classes.
    Keywords: Consumer/Household Economics, Farm Management, Labor and Human Capital,
    Date: 2013–06
  10. By: Meg Sato (School of Economics, Finance and Marketing, Royal Melbourne Institute of Technology University)
    Abstract:    It is well known that granting incentive pay, such as stock-based compensation, to an agent mitigates the agency problem created by the unobservability of the agent’s e¤ort level. Using contract theory, this paper shows that stock options mitigate the moral hazard problem. However, they create another problem, namely, a misalignment of the interest between the principal and the …rm. Speci…cally, I consider an environment in which the principal can save her payments to the incumbent agent where the rational choice of the principal on whether to replace or retain the incumbent agent becomes an ine¢ cient decision from the perspective of total …rm value. The paper further examines both long- and short-term vested options may exhibit over-replacement of the incumbent agent, but only the short-term vested options may exhibit under-replacement, along the parametric range of control bene…t.
    Date: 2013–06

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