nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2014‒06‒28
eleven papers chosen by
Joseph Marchand
University of Alberta

  1. Life Cycle Earnings, Education Premiums and Internal Rates of Return By Manudeep Bhuller; Magne Mogstad; Kjell G. Salvanes
  2. Consumption and wage humps in a life-cycle model with education By Kraft, Holger; Munk, Claus; Seifried, Frank Thomas; Steffensen, Mogens
  3. Are we wasting our talent? Overqualification and overskilling among PhD graduates By Antonio Di Paolo; Ferran Mañé
  4. Explaining the U-Shape of the Referral Hiring Pattern in a Search Model with Heterogeneous Workers By Yuliia Stupnytska
  5. Stock-based Compensation Plans and Employee Incentives By Jan Zabojnik
  6. Recent Extensions of U.S. Unemployment Benefits: Search Responses in Alternative Labor Market States By Valletta, Robert G.
  7. The Effects of a Non-Contributory Pension Program on Labor Force Participation: The Case of 70 y Más in Mexico By Laura Juárez González; Tobias Pfutze
  8. Leaving Poverty Behind? The Effects of Generous Income Support Paired with Activation By Markussen, Simen; Røed, Knut
  9. The Distributional Impacts of an Energy Boom in Western Canada By Marchand, Joseph
  10. Ode to the sea: Workplace Organizations and Norms of Cooperation By Uri Gneezy; Andreas Leibbrandt; John A. List
  11. Echoes of the crises in Spain and US in the Colombian labor market: a differences-in-differences approach By Luis E. Arango; Dolores de la Mata; Nataly Obando

  1. By: Manudeep Bhuller; Magne Mogstad; Kjell G. Salvanes
    Abstract: What do the education premiums look like over the life cycle? What is the impact of schooling on lifetime earnings? How does the internal rate of return compare with opportunity cost of funds? To what extent do progressive taxes attenuate the incentives to invest in education? This paper exploits Norwegian population panel data with nearly career long earnings histories to answer these important questions. We provide a detailed picture of the causal relationship between schooling and earnings over the life cycle, following individuals over their working lifespan. To account for endogeneity of schooling, we apply three commonly used identification strategies. Our estimates show that additional schooling gives higher lifetime earnings and steeper age-earnings profile, in line with predictions from human capital theory. These estimates imply an internal rate of return of around 10 percent, after taking into account income taxes and earnings-related pension entitlements. Under standard conditions, this finding suggests it was financially profitable to take additional schooling because the rates of return were substantially higher than the market interest rates. By comparison, Mincer regressions understate substantially the rates of return. We explore the reasons for this downward bias, finding that it is driven by Mincer's assumptions of no earnings while in school and exogenous post-schooling employment.
    JEL: J24 J31
    Date: 2014–06
  2. By: Kraft, Holger; Munk, Claus; Seifried, Frank Thomas; Steffensen, Mogens
    Abstract: The observed hump-shaped life-cycle pattern in individuals' consumption cannot be explained by the classical consumption-savings model. We explicitly solve a model with utility of both consumption and leisure and with educational decisions affecting future wages. We show optimal consumption is hump shaped and determine the peak age. The hump results from consumption and leisure being substitutes and from the implicit price of leisure being decreasing over time; more leisure means less education, which lowers future wages, and the present value of foregone wages decreases with age. Consumption is hump shaped whether the wage is hump shaped or increasing over life. --
    Keywords: education,leisure,consumption hump,wage hump
    JEL: D11 D14 D91 I21 J24
    Date: 2014
  3. By: Antonio Di Paolo (Grup d'Anàlisi Quantitativa Regional, AQR-IREA, Universitat de Barcelona, Av. Diagonal, 690, 08034 Barcelona, Spain); Ferran Mañé (Universitat Rovira i Virgili & CREIP)
    Abstract: Drawing on a very rich data set from a recent cohort of PhD graduates, we examine the correlates and consequences of qualification and skills mismatch. We show that job characteristics such as the economic sector and the main activity at work play a fundamental direct role in explaining the probability of being well matched. However, the effect of academic attributes seems to be mainly indirect, since it disappears once we control for the full set of work characteristics. We detected a significant earnings penalty for those who are both overqualified and overskilled and also showed that being mismatched reduces job satisfaction, especially for those whose skills are underutilized. Overall, the problem of mismatch among PhD graduates is closely related to demand-side constraints of the labor market. Increasing the supply of adequate jobs and broadening the skills PhD students acquire during training should be explored as possible responses.
    Keywords: overskilling, overqualification, doctors, earnings, job satisfaction
    JEL: I20 J24 J28 J31
    Date: 2014–06
  4. By: Yuliia Stupnytska (Center for Mathematical Economics, Bielefeld University; Center for Mathematical Economics, Bielefeld University)
    Abstract: This paper presents a search model with heterogeneous workers, social networks and endogenous search intensity. There are three job search channels available to the unemployed: costly formal applications and two costless informal channels - through family and professional networks. The gain from being employed is increasing in the productivity, so the lowest motivation for preparing formal applications is proved to be among the least productive worker types. We assume that professional contacts exhibit a strong degree of homophily, thus it is profitable for firms to direct their network search towards the more productive incumbent employees. So the probability of a professional referral is increasing in the productivity of the worker, which mitigates the incentives to use the formal channel of search. Therefore, the model predicts that workers in the right (left) tail of the productivity distribution have the highest propensity of finding a job with a help of professional (family) contacts, whereas the formal channel of search is mostly utilized by workers in the middle range of the distribution. This explains the U-shaped referral hiring pattern in the model. The endogenous sorting of workers across channels also implies that professional (family) referrals are associated with wage premiums (penalties) compared to the formal channel of search. The average effect of referrals on wages is, however, ambiguous and depends on the relative proportions of high and low productivity types in the population. These findings help to explain the contradicting empirical evidence concerning the effect of referrals on wages.
    Keywords: endogenous search intensity, family contacts, professional networks, U-shape, referral puzzle, wage premiums and penalties
    JEL: J23 J31 J38 J64
    Date: 2014–06
  5. By: Jan Zabojnik (Queen's University)
    Abstract: Standard principal-agent theory predicts that large firms should not use employee stock options and other stock-based compensation to provide incentives to non-executive employees. Yet, business practitioners appear to believe that stock-based compensation improves incentives, and mounting empirical evidence points to the same conclusion. This paper provides an explanation for why stock-based incentives can be effective. In the model of this paper, employee stock options complement individual measures of performance in inducing employees to invest in firm-specific knowledge. In some situations, a contract that only consists of options is more efficient than a contract based solely on individual performance.
    Keywords: Stock-based Compensation, Employee Stock Options, Optimal Incentive Contracts, Firm-specific Knowledge
    JEL: D86 J33 M52
    Date: 2014–06
  6. By: Valletta, Robert G. (Federal Reserve Bank of San Francisco)
    Abstract: In response to the 2007-09 “Great Recession,” the maximum duration of U.S. unemployment benefits was increased from the normal level of 26 weeks to an unprecedented 99 weeks. I estimate the impact of these extensions on job search, comparing them with the more limited extensions associated with the milder 2001 recession. The analyses rely on monthly matched microdata from the Current Population Survey. I find that a 10-week extension of UI benefits raises unemployment duration by about 1.5 weeks, with little variation across the two episodes. This estimate lies in the middle-to-upper end of the range of past estimates.
    Keywords: unemployment benefits, job search
    JEL: J64 J65
    Date: 2014–06
  7. By: Laura Juárez González; Tobias Pfutze
    Abstract: We estimate the effect of 70 y Mas, an age-conditioned transfer program for individuals age 70 and older in rural Mexico, on the labor force participation of beneficiaries and of younger individuals who live with them. Using data from the 2010 Mexican Census, we exploit the age and locality population thresholds to identify the effects of the program. We find that the program reduces the labor force participation of elderly men, particularly of those who live alone and who are relatively poor, but has a much weaker effect on that of elderly women. The program has no statistically significant effect on the labor force participation of either prime-age men or women who live with potential beneficiaries, and it has a negative and significant effect on the labor force participation of boys age 12 to 17, particularly those in the lowest wealth quintiles, but not on that of same-age girls. These results suggest that the program affects mostly the labor supply of the intended beneficiaries, and that of marginal workers, like adolescent boys.
    Keywords: Pensions, Social Protection, Labor Force Participation, Mexico.
    JEL: D04 J26 O12
    Date: 2014–06
  8. By: Markussen, Simen (Ragnar Frisch Centre for Economic Research); Røed, Knut (Ragnar Frisch Centre for Economic Research)
    Abstract: We evaluate a comprehensive activation program in Norway targeted at hard-to-employ social assistance claimants with reduced work capacity. The program offers a combination of tailored rehabilitation, training and job practice, and a generous, stable, and non-means-tested benefit. Its main aims are to mitigate poverty and subsequently promote self-supporting employment. Our evaluation strategy exploits a geographically staggered program introduction, and the causal effects are identified on the basis of changes in employment prospects that coincide with local program implementation in a way that correlates with the predicted probability of becoming a participant. We find that the program raised employment prospects considerably.
    Keywords: poverty, vocational rehabilitation, social insurance, treatment effects, program evaluation
    JEL: C21 C26 H55 I30 J24
    Date: 2014–06
  9. By: Marchand, Joseph
    Abstract: In the energy-rich region of Western Canada, inequality rose over the past two decades, while poverty declined, begging the question of whether the recent energy boom was a contributing factor. This study uses measures of inequality and poverty across local labor markets that vary in energy extraction intensity to identify these distributional impacts. The evidence shows that, overall, the boom increased inequality and decreased poverty. There are, however, a few notable cases where these relationships are reversed. The significance and relative magnitude of growth across and between distributional segments were consistent with these findings.
    Keywords: distribution, energy boom, inequality, local labor markets, poverty
    JEL: J31 Q33 R23
    Date: 2014–06–16
  10. By: Uri Gneezy; Andreas Leibbrandt; John A. List
    Abstract: The functioning and well-being of any society and organization critically hinges on norms of cooperation that regulate social activities. Empirical evidence on how such norms emerge and in which environments they thrive remains a clear void in the literature. To provide an initial set of insights, we overlay a set of field experiments in a natural setting. Our approach is to compare behavior in Brazilian fishermen societies that differ along one major dimension: the workplace organization. In one society (located by the sea) fishermen are forced to work in groups whereas in the adjacent society (located on a lake) fishing is inherently an individual activity. We report sharp evidence that the sea fishermen trust and cooperate more and have greater ability to coordinate group actions than their lake fishermen counterparts. These findings are consistent with the argument that people internalize social norms that emerge from specific needs and support the idea that socio-ecological factors play a decisive role in the proliferation of pro-social behaviors.
    JEL: C93 J0
    Date: 2014–06
  11. By: Luis E. Arango; Dolores de la Mata; Nataly Obando
    Abstract: This paper presents evidence of the effect of the recent phases of the business cycle in Spain and United States, proxied by their respective unemployment rates, on the labor market of Colombian cities with high migration tradition. These countries are the main destination for labor Colombian migrants. Using information from the household survey between 2006 and 2011 for urban areas in Colombia and a differences-in-differences approach we find that unemployment rates of those countries negatively affect the probability and the amount of remittances received by Colombian households living in areas with high and moderate migration tradition. At a second stage we provide evidence that unemployment rates of those countries positively affect the labor force participation decisions in Colombian regions with the highest migration tradition. Classification JEL: C21, J21, J22
    Date: 2014–06

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