nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2014‒03‒30
thirteen papers chosen by
Joseph Marchand
University of Alberta

  1. What Has Happened to Middle-Class Earnings? Distributional Shifts in Earnings in Canada, 1970-2005 By Beach, Charles M.
  2. The Role of Gender in Promotion and Pay over a Career By John T. Addison; Orgul D. Ozturk; Si Wang
  3. The Impact of Multinationals’ Overseas Expansion on Employment at Suppliers at Home: New Evidence from Firm-Level Transaction Relationship Data for Japan By Keiko Ito; Ayumu Tanaka
  4. The Effect of the Hartz Reform on Unemployment Duration and Post-Unemployment Outcomes. A Difference-in-Differences Approach. By Bruno Amable; Baptiste Françon
  5. The Effects of Family Policy on Mothers' Labor Supply: Combining Evidence from a Structural Model and a Natural Experiment By Johannes Geyer; Peter Haan; Katharina Wrohlich
  6. Welfare Dependence and Self-Control: An Empirical Analysis By Marc K Chan
  7. Labour supply and taxation with restricted choices By Magali Beffy; Richard Blundell; Antoine Bozio; Guy Laroque
  8. Interdependent durations in joint retirement By Bo Honore; Aureo de Paula
  9. Wage Incentive Profiles in Dual Labor Markets By Marco Di Cintio; Emanuele Grassi
  10. Optimal Employment Contracts with Hidden Search By Rasmus Lentz
  11. Effect of Sexual Orientation on Job Satisfaction: Evidence from Greece By Drydakis, Nick
  12. The Vulnerability of Minority Homeowners in the Housing Boom and Bust By Patrick Bayer; Fernando Ferreira; Stephen L. Ross
  13. Modelling Exposure to Risk of Experiencing Discrimination in the Context of Endogenous Ethnic Identification By Hunter, Boyd; Howlett, Monica; Biddle, Nicholas

  1. By: Beach, Charles M.
    Abstract: This paper examines how middle-class earnings in Canada have changed between 1970 and 2005 using Census microdata. Middle-class earnings are defined as workers’ earnings between 50 and 150 percent of the median or as earnings between the 20th and 80th percentile earnings. The analysis looks at the proportion of workers (“workers’ shareâ€) with middle-class earnings and the proportion of earnings (“earnings shareâ€) received by middle-class workers. The study finds: (i) there has been a marked decline of full-time full-year middle-class workers and corresponding marked increases of higher- and lower-earning workers in the Canadian workplace; (ii) there has been an even larger shift in earnings with middle-class workers losing out to strong earnings gains of higher-earning workers; and (iii) the majority of the decline of the middle-class earnings share was due to the fall in their workers’ share for male and for full-time full-year female workers.
    Keywords: middle-class earnings, polarization of earnings, Canadian inequality
    JEL: J24 J31 J39
    Date: 2014–03–26
  2. By: John T. Addison (Department of Economics, Moore School of Business, University of South Carolina, Department of Economics and Finance, Durham University Business School, and GEMF, University of Coimbra); Orgul D. Ozturk (Department of Economics, Moore School of Business, University of South Carolina); Si Wang (Department of Economics, Moore School of Business, University of South Carolina)
    Abstract: Using data from the National Longitudinal Survey of Youth (NLSY79), this paper considers the role of gender in promotion and subsequent earnings development and how this evolves over a career. In its use of three career stages, the study builds on earlier work using the NLSY79 that considers gender differences in the early career years alone. The raw data suggest reasonably favorable promotion outcomes for females over a career. But the advantages seem to be confined to less-educated females. And while there are strong returns to education for males through enhanced promotion probability and attendant wage growth in later career this is not the case for females. Although this latter finding is not inconsistent with fertility choices on the part of educated females, choice is seemingly only part of the explanation.
    Keywords: promotion, earnings, early/mid/peak career, gender, public sector, private sector.
    JEL: J16 J31 J51 J62
    Date: 2014–02
  3. By: Keiko Ito; Ayumu Tanaka
    Abstract: This paper focuses on non-internationalized supplier firms and investigates how the expansion of overseas activities by their main customer firms affects their employment, utilizing a unique dataset that includes information on buyer-supplier transaction relationships for Japanese manufacturing firms for the period 1998-2007. We do not find any negative effect of top buyers’ overseas expansion on domestic suppliers’ employment.􀀁 Instead, we find a significant positive effect. Our result implies that, contrary to fears of a potential hollowing out of domestic supporting industries, the expansion of overseas activities of customer firms has a positive impact on suppliers’ employment. Expansion of overseas production by downstream firms may increase purchases from upstream firms in Japan and this would be the case if downstream firms can increase their world-wide sales by expanding overseas production. Therefore, our result suggests that having a transaction relationship with successful downstream multinational firms that expand their global sales through overseas production is important for non-internationalized suppliers in Japan.
    Keywords: Labor demand; Supplier firms; Multinational enterprises; Transaction relationships; Japan.
    JEL: F23 F14 F16 J23
  4. By: Bruno Amable (Centre d'Economie de la Sorbonne); Baptiste Françon (Centre d'Economie de la Sorbonne)
    Abstract: In this paper, we investigate the microeconomic effects of one major feature of the German Hartz Reforms (2003-2005), namely the reduction in compensation duration for older unemployed above 45 years of age. We look at two potential effects of this measure: on job take-up rates, but also on post-unemployment outcomes, through various indicators of matching quality (job stability, skill adequacy) and job quality (type of job contract). Applying difference-in-differences estimators, we show that the effects of this specific feature were rather scant. Regarding unemployment duration, only unemployed within a specific age group (55 to 59 years old) were affected by the reform. Evidence suggests that this is because they previously used unemployment schemes as a bridge to early retirement. In addition, there is some evidence of detrimental effects on job or matching quality.
    Keywords: Unemployment benefits, unemployment duration, job matching, job quality, early retirement, difference-in-differences.
    JEL: C41 J64 J26
    Date: 2014–03
  5. By: Johannes Geyer; Peter Haan; Katharina Wrohlich
    Abstract: Parental leave and subsidized child care are prominent examples of family policies supporting the reconciliation of family life and labor market careers for mothers. In this paper, we combine different empirical strategies to evaluate the employment effects of these policies for mothers in Germany. In particular we estimate a structural labor supply model and exploit a natural experiment, i.e. the reform of parental leave benefits. By exploiting and combining the advantages of the different methods, i.e the internal validity of the natural experiment and the external validity of the structural model, we can go beyond evaluation studies restricted to one particular methodology. Our findings suggest that a combination of parental leave benefits and subsidized child care leads to sizable employment effects of mothers.
    Keywords: Labor supply, parental leave benefits, childcare costs, structural model, natural experiment
    JEL: J22 H31 C52
    Date: 2014
  6. By: Marc K Chan (Economics Discipline Group, University of Technology, Sydney)
    Abstract: We use data from Florida Transition Program, a welfare reform experiment in the 1990s, to estimate a discrete choice dynamic programming model of labor supply and welfare participation with potentially time-inconsistent individuals. The time preference parameters are identified through exclusion restrictions generated by welfare time limits. Around one-fourth of the individuals can be regarded as present-biased, and they exhibit a low degree of naivety. Time-inconsistency reduces income by 15 percent and the net tax contribution by almost half. Present-biased individuals are generally more responsive to policy changes than time-consistent individuals. By aggravating the commitment problem, an increase in welfare benefits reduces utility from a time-consistent perspective. An expansion of Earned Income Tax Credit (EITC) can be revenue-neutral due to cross-subsidization between present-biased and time-consistent individuals. A “prowork time limit” is proposed as a more incentivizing policy than standard time limits. A dynamic nonwork tax that is triggered by past employment can generate strong commitment-related incentives and increase utility from a time-consistent perspective. The nonwork tax can be implemented as a targeting intervention, as an estimated 70 percent of present-biased individuals will adopt the policy as a commitment device.
    Keywords: Welfare dependence; hyperbolic discounting; time limits; female labor supply; welfare reform; policy experiment; discrete choice dynamic programming
    JEL: I3 C3 J2
    Date: 2014–03–01
  7. By: Magali Beffy (Institute for Fiscal Studies); Richard Blundell (Institute for Fiscal Studies and University College London); Antoine Bozio (Institute for Fiscal Studies and Paris School of Economics); Guy Laroque (Institute for Fiscal Studies and University College London)
    Abstract: A model of labour supply is developed in which individuals face restrictions on hours choices. Observed hours reflect both the distribution of preferences and the distribution of offers. In this framework the choice set is limited and observed hours may not appear to satisfy the revealed preference conditions for `rational' choice. We show first that when the offer distribution is known, preferences can be identified. We then show that, where preferences are known, the offer distribution can be fully recovered. We also develop conditions for identification of both preferences and the offer distribution. We illustrate this approach in a labour supply setting with non-linear budget constraints. The occurrence of non-linearities in the budget constraint can directly reveal restrictions on choices. This framework is then used to study the labour supply choices of a large sample of working age mothers in the UK, accounting for nonlinearities in the tax and welfare benefit system, fixed costs of work and restrictions on hours choices.
    Date: 2014–03
  8. By: Bo Honore (Institute for Fiscal Studies and Princeton); Aureo de Paula (Institute for Fiscal Studies and University College London)
    Abstract: This paper introduces a bivariate version of the generalized accelerated failure time model. It allows for simultaneity in the econometric sense that the two realized outcomes depend structurally on each other. The proposed model also has the feasure that it will generate equal durations with positive probability. The motivating example is retirement decisions by married couples. In that example it seems reasonable to allow for the possibility that the each partner's optimal retirement time depends on the retirement time of the spouse. Moreover, the data suggest that the wife and the husband retire at the same time for a non-negligible fraction of couples. Our approach takes as starting point a stylized economic model that leads to a univariate generalized accelerated failure time model. The covariates of that generalized accelerated failure time model act as utility-flow shifters in the economic model. We introduce simultaneity by allowing the utility flow in retirement to depend on the retirement status of the spouse. The econometric model is then completed by assuming that the observed outcome is the Nash bargaining solution in that simple economic model. The advantage of this approach is that it includes independent realizations from the generalized accelerated failure time model as a special case, and deviations from this special case can be given an economic interpretation. We illustrate the model by studying the joint retirement decisions in married couples using the Health and Retirement Study. We provide a discussion of relevant identifying variation and estimate our model using indirect inference. The main empirical nding is that the simultaneity seems economically important. In our preferred specication the indirect utility associated with being retired increases by approximately 5% if one's spouse is already retired and unobservables exhibit positive correlation. The estimated model also predicts that the indirect eect of a change in husbands' pension plan on wives' retirement dates is about 4% of the direct eect on the husbands.
    JEL: J26 C41 C3
    Date: 2014–03
  9. By: Marco Di Cintio (Department of Management, Economics, Mathematics and Statistics, University of Salento, Italy); Emanuele Grassi (Department of Management, Economics, Mathematics and Statistics, University of Salento, Italy)
    Abstract: This paper formalizes the use of flexible labor contracts in an efficiency wage framework and derives market dualism as an endogenous outcome. By allowing temporary contracts to be either renewed or converted into permanent contracts, new theoretical insights emerge both on the equilibrium wage structure and the incentive problem faced by workers and firms. Since temporary workers weigh the outside option of entering the labor market through permanent positions, the rate at which fixed-term contracts are converted into open-ended contracts is itself an incentive device which acts as a substitute for the wage. It follows that, even if temporary workers face a higher job loss risk, firms pay a wage differential in favor of permanent workers. The model also predicts that in equilibrium firms hire exclusively under flexible contracts, then half of them is converted into stable contracts while the remaining contracts are left to expire. Thus, in steady state, firms let permanent positions to survive in order to sustain the wage incentive structure.
    Keywords: Dual Labor Market, Efficiency Wages, Wage Differentials, Flexible Contracts
    JEL: J31 J41 J63
    Date: 2014–03
  10. By: Rasmus Lentz
    Abstract: In this paper I explore optimal employment contract design in a random search framework, where workers search on and off the job for employment opportunities similar to that of Lentz (2010) and Bagger and Lentz (2013). The worker determines the frequency by which employment opportunities arrive through a costly choice of search intensity, which is unobserved by the firm and cannot be directly contracted upon. Firms differ in productivity by which they employ workers. Firms compete over workers in terms of utility promises in a fashion otherwise similar to that of Postel-Vinay and Robin (2002). As in Burdett and Coles (2003) and Burdett and Coles (2010), optimal tenure conditional contracts are shown to be back loaded to discourage the worker from generating outside competitive pressure. The analysis establishes existence, uniqueness and provides characterization of the core mechanism. The paper applies the framework to the analysis of firm provided general human capital training. It is shown that more productive firms provide more training and pay higher wages.
    JEL: E24 J01 J24 J31 J33 J41 J6 J63 J64
    Date: 2014–03
  11. By: Drydakis, Nick (Anglia Ruskin University)
    Abstract: This study investigates the differences in four aspects of job satisfaction between gay men/lesbians and heterosexuals. The analysis results suggest that gay men and lesbians are less satisfied with their jobs, by all job satisfaction measures, than heterosexual employees, all other factors being held constant. Gay men and lesbians who have disclosed their sexual orientation at their present job are more satisfied with their jobs than those who have not. In addition, gay men and lesbians who disclosed their sexual orientation at their current workplace longer ago are more satisfied with their jobs than gay men and lesbians who disclosed their sexual orientation more recently. Moreover, adverse mental health symptoms have the same negative impact on employees' job satisfaction regardless of sexual orientation. Furthermore, gay men and lesbians receive lower wages than comparable heterosexual employees. Whilst, the wage gap due to sexual orientation is greater in the group of very dissatisfied men than in the group of very satisfied men, and gay men and lesbians who have disclosed their sexual orientation at their present job receive lower wages than those who have not, but they still have higher levels of job satisfaction. It seems that the effect of disclosure on job satisfaction is the net effect of the connections between disclosure and job satisfaction.
    Keywords: job satisfaction, sexual orientation
    JEL: J28 C93 J7 J16 J31 J42 J64 J71
    Date: 2014–03
  12. By: Patrick Bayer (Duke University); Fernando Ferreira; Stephen L. Ross (University of Connecticut)
    Abstract: This paper examines mortgage outcomes for a large, representative sample of individual home purchases and refinances linked to credit scores in seven major US markets in the recent housing boom and bust. We find that among those with similar credit scores, black and Hispanic homeowners had much higher rates of delinquency and default in the downturn. These differences are not explained by the likelihood of receiving a subprime loan or by differential exposure to local shocks in the housing and labor market and are especially pronounced for loans originated near the peak of the boom. There is also heterogeneity within minorities: black and Hispanics that live in areas with lower employment rates and that have high debt to income ratios are the driving force of the observed racial differences in foreclosures and delinquencies. Our findings suggest that those black and Hispanic homeowners drawn into the market near the peak were especially vulnerable to adverse economic shocks and raise serious concerns about homeownership as a mechanism for reducing racial disparities in wealth.
    Keywords: Mortgage, Foreclosure, Delinquency, homeownership, minority, wealth disparities
    JEL: I38 J15 J71 R21
    Date: 2014–03
  13. By: Hunter, Boyd (Australian National University); Howlett, Monica (Australian National University); Biddle, Nicholas (Australian National University)
    Abstract: Gneezy et al. (2012) uses attribution theory from the psychology literature to argue that when the object of discrimination is a matter of choice (e.g. sexual orientation), observed discrimination may motivated by animus, which exacerbates or intensifies the emotional response to the object of discrimination. This paper builds on this insight based on the understanding that ethnicity is largely a social construct where individuals can often choose to identify with an ethnic group that may be the object of discrimination. A theoretical model is constructed that predicts that the choice to identify interacts with the observability of ethnicity, and the exposure to situations where there is a risk of discrimination, to produce a non-linear relationship with reported episodes of discrimination. Evidence from the 2008 National Aboriginal and Torres Strait Islanders Social Survey (NATSISS) is presented that is consistent with the predictions of this theory.
    Keywords: discrimination, racial bias, identity, social networks
    JEL: J15 J71 Z13
    Date: 2014–03

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