nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2014‒10‒17
six papers chosen by
Joseph Marchand
University of Alberta

  1. Unemployment Risk and Wage Differentials By Roberto Pinheiro (University of Colorado); Ludo Visschers (The University of Edinburgh, Universidad Carlos III and CESifo)
  2. Inter-industry labor reallocation and task distance By Ayako Kondo; Saori Naganuma
  3. Imperfect mobility of labor across sectors: a reappraisal of the Balassa-Samuelson effect. By Olivier Cardi; Romain Restout
  4. Market Integration, Wage Concentration, and the Cost and Volume of Traded Machines By Edwards, T. Huw; Perroni, Carlo
  5. What’s in it for the firms? Living wage adoption as signal of ethical practice By Paul Schweinzer; Joanna K. Swaffield
  6. Fiscal Devaluation and Structural Gaps. By F. Langot; L. Patureau; T. Sopraseuth

  1. By: Roberto Pinheiro (University of Colorado); Ludo Visschers (The University of Edinburgh, Universidad Carlos III and CESifo)
    Abstract: Workers in less-secure jobs are often paid less than identical-looking workers in more secure jobs. We show that this lack of compensating differentials for unemployment risk can arise in equilibrium when all workers are identical and firms differ only in job security (i.e. the probability that the worker is not sent into unemployment). In a setting where workers search for new positions both on and off the job, the worker’s marginal willingness to pay for job security is endogenous, increasing with the rent received by a worker in his job, and depending on the behavior of all firms in the labor market. We solve for the labor market equilibrium and find that wages increase with job security for at least all firms in the risky tail of the distribution of firm-level unemployment risk. Unemployment becomes persistent for low-wage and unemployed workers, a seeming pattern of ‘unemployment scarring’ created entirely by firm heterogeneity. Higher in the wage distribution, workers can take wage cuts to move to more stable employment.
    Keywords: Layoff Rates, Unemployment risk, Wage Differentials, Unemployment Scarring
    JEL: J31 J63
    Date: 2014–09–24
  2. By: Ayako Kondo (Yokohama National University); Saori Naganuma (Bank of Japan)
    Abstract: This paper investigates the factors preventing inter-industry labor reallocation by estimating the determinants of inter-industry worker flow and earnings change after a job change. We find that the difference in required tasks is an important reason for reduction in earnings after an inter-industry job change, and the fear of earnings losses may prevent workers from moving to industries requiring a different set of tasks. Also, more workers switch to industries with which their previous industry had larger transactions, although it affects earnings changes only marginally. On the other hand, industry performance does not affect labor inflow or wage changes significantly for inter-industry job changes. Furthermore, earnings loss associated with a move to a distant industry is not necessarily smaller for workers who are relatively more likely to move to a distant industry.
    Keywords: inter-industry labor mobility; task specific human capital
    JEL: J62 J21
    Date: 2014–09–30
  3. By: Olivier Cardi; Romain Restout
    Abstract: This paper investigates the relative price and relative wage effects of a higher productivity in the traded sector compared with the non traded sector in a two-sector open economy model with imperfect substitutability in hours worked across sectors. The Balassa- Samuelson [1964] model predicts that a rise in the sectoral productivity ratio by 1% raises the relative price of non tradables by 1% while leaving unchanged the non traded wage-traded wage ratio. Applying cointegration methods to a panel of fourteen OECD countries over the period 1970-2007, our estimates show that the relative price rises by only 0.78% and the relative wage falls by 0.27%. While our first set of empirical findings cast doubt on the quantitative predictions of the Balassa-Samuelson model, our second set of evidence highlights the role of imperfect labor mobility: the relative price responds more to a productivity differential between tradables and non tradables while the reaction of the relative wage is more muted in countries with higher intersectoral reallocation of labor. We show that the ability of the two-sector model to account for our evidence quantitatively relies upon two ingredients: i) imperfect mobility of labor across sectors, and ii) physical capital accumulation. Finally, our numerical results reveal that the model predicts the relative price response pretty well, and to a lesser extent the relative wage response.
    Keywords: Relative price of non tradables; Sectoral wages; Productivity growth; Sectoral labor reallocation; Investment.
    JEL: E22 F11 F41 F43
    Date: 2014
  4. By: Edwards, T. Huw (Loughborough University); Perroni, Carlo (Department of Economics and CAGE, University of Warwick)
    Abstract: We investigate the theoretical relationship between wage concentration and international market integration. Access to imported varieties lowers the cost of intermediate inputs (“machines”) used to carry out production tasks, causing workers with different comparative abilities to be sorted across a narrower range of tasks and raising the concentration of earnings. The accompanying shift in input use further expands the range of traded varieties, which further lowers the cost of machines. Effects on the volume of intermediate goods trade and the number of varieties produced are mutually reinforcing, resulting in a multiplier effect of market integration on wage concentration.
    Keywords: Trade, Skills, and Tasks; Wage Inequality
    Date: 2014
  5. By: Paul Schweinzer; Joanna K. Swaffield
    Abstract: We analyse the effect of the voluntary adoption of a living wage on firms operating in product markets in which consumption behaviour is at least partly determined by reputational concerns for ethical firm behaviour. We show without recourse to morality or efficiency-wage theories that the adoption of a living wage policy may increase consumer welfare as well as producer surplus through the segmentation of a previously homogenous product market. In particular, we demonstrate that it may serve a firm’s profit maximisation interest to voluntarily adopt a living wage.
    Keywords: Living wage, Signalling, Reputation
    JEL: J31 J38
    Date: 2014–10
  6. By: F. Langot; L. Patureau; T. Sopraseuth
    Abstract: The paper characterizes the optimal tax scheme in an open economy with structural inefficiencies on the labor market and on government size. On analytical grounds first, we show that the economy can use fiscal revaluation to exploit the terms of trade externality and to dampen the impact of an excessive public spending. However, if real labor market rigidities are large enough, fiscal devaluation may be desirable. Second, we provide a quantitative assessment of the optimal tax reform using France as the benchmark economy. Our results show that France would benefit more from fiscal devaluation than a economy where the labor market is more flexible, as the US. We also show that the welfare gains from the optimal tax reform crucially depend on the ability of the government to target its optimal size.
    Keywords: Consumption tax, payroll tax, Ramsey allocation, labor market search, open economy, public spending.
    JEL: E27 E62 H21 J38
    Date: 2014

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