nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2014‒10‒03
seven papers chosen by
Joseph Marchand
University of Alberta

  1. The Signaling Role of Not Being Promoted: Theory and Evidence By Xin Jin
  2. Childcare Availability, Household Structure, and Maternal Employment By Yukiko Asai; Ryo Kambayashi; Shintaro Yamaguchi
  3. Estate Taxation and Human Capital with Information Externalities By Aaron Hedlund
  4. Taxing the Job Creators: Effcient Progressive Taxation with Wage Bargaining By Nicholas Lawson
  5. The cleansing effect of minimum wage : Minimum wage rules, firm dynamics and aggregate productivity in China By Sandra Poncet; Florian Mayneris; Tao Zhang
  6. Partner ethnicity and ethnic minority socio- economic occupation: evidence from the UK By Morando, Greta
  7. Adaptive Learning and Labour Market Dynamics By Federico di Pace; Kaushik Mitra; Shoujian Zhang

  1. By: Xin Jin (Department of Economics, University of South Florida)
    Abstract: This article studies the negative signals associated with non-promotion. I first show theoretically that, when workers’ productivity rises little with additional years on the same job level, the negative signal associated with non-promotion leads to wage decreases. On the other hand, when additional job-level tenure leads to a sizable increase in productivity, workers’ wages increase. I test my model’s predictions using the personnel records from a large US firm from 1970-1988. I find a clear hump-shaped wage-job-tenure profile for workers who stay in the same job level, which supports my model’s prediction.
    Keywords: Asymmetric Information, Human Capital Accumulation, Signaling, Promotion, Wages
    JEL: J24 J31 M51
    Date: 2014–09
  2. By: Yukiko Asai; Ryo Kambayashi; Shintaro Yamaguchi
    Abstract: We estimate the causal effects of childcare availability on the maternal employment rate using prefecture panel data constructed from the Japanese quinquennial census 1990-2010. We depart from previous papers on Japan by controlling for prefecture fixed effects, without which the estimates can be severely biased upward. Contrary to popular belief, childcare availability is uncorrelated with maternal employment when prefecture fixed effects are controlled. Evidence suggests that this is because households shift from using informal childcare provided by grandparents to the accredited childcare service, as more and more households do not live with grandparents. If this change of the household structure did not occur, the growth of childcare availability would have increased the maternal employment rate by two percentage points, which accounts for about 30% of the growth in the maternal employment rate from 1990 to 2010.
    Keywords: childcare, female labor supply, maternal employment, nuclear family, three-generation family
    JEL: J13 J21 J22
    Date: 2014–09
  3. By: Aaron Hedlund (Department of Economics, University of Missouri-Columbia)
    Abstract: This paper investigates the effects of estate taxation when firms cannot directly observe worker skill levels. Imperfect labor market signaling gives rise to an information externality that causes workers to free-ride off of others' human capital acquisition. Inherited wealth exacerbates the information externality because risk-averse workers with larger inheritances exert less effort to acquire skills. By reducing these inheritances, an estate tax induces greater skill acquisition effort, resulting in a higher number of skilled workers, and in many cases, increased wages and output. In a parametrized model, I establish that the optimal estate tax rate is significantly above zero.
    Keywords: information externalities, signaling, free-rider problem, labor markets, bequests, inheritance taxes
    JEL: D62 D82 E21 E24 E60 H21
    Date: 2014–08–08
  4. By: Nicholas Lawson (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM))
    Abstract: The standard economic view of the personal income tax is that it is a distortionary way of raising revenue which nonetheless has value because it tends to increase equality. However, when wages deviate from marginal product, the laissez-faire equilibrium is inefficient, and there can be an independent efficiency rationale for income taxation. I study a setting of wage bargaining within hierarchical teams of workers and managers, and show that the efficiency case for taxing managers depends on a "job-creation" effect: if increased labour supply allows managers to supervise larger teams and thus collect larger rents, they will have an incentive to work too hard to create jobs at their firm. In other words, it is because of their job-creation activity that the "job creators" should be heavily taxed. Simulation of a calibrated model suggests an efficient tax schedule that is progressive over most of the income distribution with a top marginal rate of between 50% and 60%, and this result is not sensitive to the magnitude of the labour supply response to taxation. For a planner with redistributive motives, optimal marginal tax rates are also considerably higher at the top of the distribution in the presence of wage bargaining rather than a competitive labour market.
    Keywords: optimal income taxation; progressive taxation; wage bargaining; team production
    Date: 2014–08
  5. By: Sandra Poncet; Florian Mayneris; Tao Zhang
    Abstract: We study how the 2004 reform of minimum wage rules in China has affected the survival, average wage, employment and productivity of local firms. To identify the causal effect of minimum wage growth, we use firm-level data for more than 160,000 manufacturing firms active in 2003 and complement the triple difference estimates with an IV strategy that builds on the institutional features of the 2004 reform. We find that the increase in city-level minimum wages resulted in lower survival probability for firms that were the most exposed to the reform. For surviving firms, wage costs increased without negative repercussions on employment. The main explanation for this finding is that productivity significantly improved, allowing firms to absorb the cost shock without hurting their employment nor their profitability. At the city-level, our results show that higher minimum wages fostered aggregate productivity growth thanks to productivity improvements of incumbent firms and net entry of more productive ones. Hence, in a fast-growing economy like China, there is a cleansing effect of labor market standards. Minimum wage growth allows more productive firms to replace the least productive ones and forces incumbent firms to strengthen their competitiveness, these two mechanisms boosting the aggregate efficiency of the economy.
    Keywords: minimum wages;firm-level performance;aggregate TFP;China
    JEL: F10 F14 O14
    Date: 2014–09
  6. By: Morando, Greta
    Abstract: What role does integration play in reducing disparities in the labour market between ethnic minority and white majority populations? We shed light on this question by comparing the socio-economic positions of ethnic minorities in co- and inter-ethnic partnerships. We implement propensity score matching techniques to account for selection bias. We find that ethnic minorities in co- and inter-ethnic unions are rarely comparable and a large part of the labour market differences is explained by their individual socio-demographic characteristics. Finally, having a white majority group partner affects the occupational position and labour market participation of only some groups of women.
    Date: 2014–09–03
  7. By: Federico di Pace (University of St Andrews); Kaushik Mitra (University of St Andrews); Shoujian Zhang (University of St Andrews)
    Abstract: It is well known that the standard search and matching model with Rational Expectations (RE) is unable to generate amplification in unemployment and vacancies. We show that relaxing the RE assumption has the potential to provide a solution to this well known unemployment volatility puzzle. A model in which agents use Recursive Least Square algorithms to update their expectations as new information becomes available is presented. Firms choose vacancies by making infinite horizon forecasts over (un)employment rates, wages and interest rates at each point in time. Firms have much greater incentive for vacancy posting because of overoptimism about the discounted value of expected profits at the time a positive TFP shock hits the economy. The model with adaptive learning is able to match the relative volatility of labour market variables in US data and the properties of forecast errors of unemployment rates obtained from the Survey of Professional Forecasters.
    Keywords: adaptive learning, bounded-rationality, search and matching frictions
    JEL: E24 E25 E32 J64
    Date: 2014–09–10

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