nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2014‒12‒08
eighteen papers chosen by
Joseph Marchand
University of Alberta

  1. More on Recent Evidence on the Effects of Minimum Wages in the United States By David Neumark; J.M. Ian Salas; William Wascher
  2. The Labor Supply of Self-Employed Workers: The Choice of Working Hours in Worker Co-ops By Pencavel, John
  3. Earnings and Employment in Foreign-Owned Firms By Maré, Dave C.; Sanderson, Lynda; Fabling, Richard
  4. Does Transparency Lead to Pay Compression? By Alexandre Mas
  5. Does Public Education Expansion Lead to Trickle-Down Growth? By Böhm, Sebastian; Grossmann, Volker; Steger, Thomas M.
  6. Recovering Ex Ante Returns and Preferences for Occupations using Subjective Expectations Data By Arcidiacono, Peter; Hotz, V. Joseph; Maurel, Arnaud; Romano, Teresa
  7. Macroeconomic Performance under an Evolutionary Dynamics of Profit Sharing By Gilberto Tadeu Lima; Jaylson Jair Silveira
  8. Language Proficiency of Migrants: The Relation with Job Satisfaction and Skill Matching By Hans G. Bloemen
  9. Is it all worth it? The experiences of new PhDs on the job market, 2007-2010 By Brooke Helppie McFall; Marta Murray-Close; Robert J. Willis; Uniko Chen
  10. Zero returns to compulsory schooling: Is it certification or skills that matters? By Sander Gerritsen
  11. Early Life Environment and Racial Inequality in Education and Earnings in the United States By Kenneth Y. Chay; Jonathan Guryan; Bhashkar Mazumder
  12. Resurrecting the Role of the Product Market Wedge in Recessions By Mark Bils; Peter J. Klenow; Benjamin A. Malin
  13. What Should I Be When I Grow Up? Occupations and Unemployment over the Life Cycle By Martin Gervais; Nir Jaimovich; Henry E. Siu; Yaniv Yedid-Levi
  14. Applications and Interviews: Firms' Recruiting Decisions in a Frictional Labor Market By Ronald Wolthoff
  15. Foreign and Native-Born STEM Graduates and Innovation Intensity in the United States By Winters, John V.
  16. Labor Market Dynamics: a Time-varying Analysis By Francesco Zanetti; Haroon Mumtaz
  17. The Effect of Job Loss on Health: Evidence from Biomarkers By Michaud, Pierre-Carl; Crimmins, Eileen; Hurd, Michael D.
  18. Work and Well-Being of Informal Caregivers in Europe By Dörte Heger

  1. By: David Neumark; J.M. Ian Salas; William Wascher
    Abstract: A central issue in estimating the employment effects of minimum wages is the appropriate comparison group for states (or other regions) that adopt or increase the minimum wage. In recent research, Dube et al. (2010) and Allegretto et al. (2011) argue that past U.S. research is flawed because it does not restrict comparison areas to those that are geographically proximate and fails to control for changes in low-skill labor markets that are correlated with minimum wage increases. They argue that using "local controls" establishes that higher minimum wages do not reduce employment of less-skilled workers. In Neumark et al. (2014), we present evidence that their methods fail to isolate more reliable identifying information and lead to incorrect conclusions. Moreover, for subsets of treatment groups where the identifying variation they use is supported by the data, the evidence is consistent with past findings of disemployment effects. Allegretto et al. (2013) have challenged our conclusions, continuing the debate regarding some key issues regarding choosing comparison groups for estimating minimum wage effects. We explain these issues and evaluate the evidence. In general, we find little basis for their analyses and conclusions, and argue that the best evidence still points to job loss from minimum wages for very low-skilled workers - in particular, for teens.
    JEL: J23 J38 J88
    Date: 2014–10
  2. By: Pencavel, John (Stanford University)
    Abstract: Workers in cooperatives are self-employed workers and, if they resemble employees in conventional workplaces, they care about the length of their working hours. In this paper, their choice of hours is characterized as a conventional labor supply decision and a familiar hours-wage relationship is derived. This is estimated using mill-year observations on the plywood co-ops in the Pacific Northwest. The results are compared with those from the work behavior of other self-employed workers and with working hours in capitalist plywood mills.
    Keywords: labor supply, hours, worker co-ops
    JEL: J22 J54
    Date: 2014–10
  3. By: Maré, Dave C. (Motu Economic and Public Policy Research Trust); Sanderson, Lynda (New Zealand Treasury); Fabling, Richard (Motu Economic and Public Policy Research Trust)
    Abstract: This paper examines remuneration and labour mobility patterns among workers in foreign-owned firms operating in New Zealand. By tracking workers as they move across jobs, we document the extent of the "foreign wage premium" distinguishing between compositional factors (eg, differences in industry and employment composition across foreign and domestic firms) and remaining differences in wage levels and growth rates. We find that much of the average earnings gap between foreign and domestically-owned firms is due to compositional factors – foreign firms tend to be larger and employ workers who would have received relatively high wages regardless of where they worked. However, even among apparently similar workers and firms, we find a two to four percent earnings gap between workers in domestic and foreign-owned firms. This gap is primarily associated with a wage increase of around two percent on moving from a domestic to a foreign firm, augmented by higher wage growth among foreign-owned firms. These premia appear to be specific to foreign-firm employment, as workers who return to domestically-owned firms do not appear to retain the additional earnings in their subsequent jobs. We then consider whether foreign-owned firms source workers differently from other New Zealand firms and whether there are systematic differences in the destinations of departing employees by firm ownership. Although foreign-owned firms do not appear to preferentially hire recent immigrants, employees of foreign-owned firms are more geographically mobile within New Zealand and are more likely to emigrate within a year of leaving their job.
    Keywords: foreign direct investment (FDI), earnings, labour mobility
    JEL: D22 J31 F23
    Date: 2014–10
  4. By: Alexandre Mas
    Abstract: This paper asks whether disclosing wages to the public changes wage setting at the top of the public sector income distribution. I evaluate a 2010 California mandate that required cities to submit municipal salaries to the State, to be posted on a public website. City managers--typically the highest paid employees --in cities that had not previously disclosed salaries experienced average compensation declines of approximately 8 percent relative to cities where at the time of the mandate manager wages were already in the public domain. This decline was largely accomplished through nominal pay cuts. The wage cuts were not the result of relatively greater financial stress, as the overall wage bill did not diverge between these sets of cities. Wages were cut irrespective of whether or not they were out of line with (measured) fundamentals. Consequently, the residual variance of manager wages did not decline. Following new disclosure the city manager quit rate increased by 75 percent, suggesting that transparency pressured cities to lower the wages that were already close to reservation levels. The evidence is more consistent with a "populist" response to perceptions of excessive salaries than with the effects of increased accountability.
    JEL: J01 J31 J45 J63
    Date: 2014–10
  5. By: Böhm, Sebastian (University of Leipzig); Grossmann, Volker (University of Fribourg); Steger, Thomas M. (University of Leipzig)
    Abstract: The paper revisits the debate on trickle-down growth in view of the widely discussed evolution of the earnings and income distribution that followed a massive expansion of higher education. We propose a dynamic general equilibrium model to dynamically evaluate whether economic growth triggered by an increase in public education expenditure on behalf of those with high learning ability eventually trickles down to low-ability workers and serves them better than redistributive transfers. Our results suggest that, in the shorter run, low-skilled workers lose. They are better off from promoting equally sized redistributive transfers. In the longer run, however, low-skilled workers eventually benefit more from the education policy. Interestingly, although the expansion of education leads to sustained increases in the skill premium, income inequality follows an inverted U-shaped evolution.
    Keywords: directed technological change, publicly financed education, redistributive transfers, transitional dynamics, trickle-down growth
    JEL: H20 J31 O30
    Date: 2014–10
  6. By: Arcidiacono, Peter (Duke University); Hotz, V. Joseph (Duke University); Maurel, Arnaud (Duke University); Romano, Teresa (Goucher College)
    Abstract: We show that data on subjective expectations, especially on outcomes from counterfactual choices and choice probabilities, are a powerful tool in recovering ex ante treatment effects as well as preferences for different treatments. In this paper we focus on the choice of occupation, and use elicited beliefs from a sample of male undergraduates at Duke University. By asking individuals about potential earnings associated with counterfactual choices of college majors and occupations, we can recover the distribution of the ex ante monetary returns to particular occupations, and how these returns vary across majors. We then propose a model of occupational choice which allows us to link subjective data on earnings and choice probabilities with the non-pecuniary preferences for each occupation. We find large differences in expected earnings across occupations, and substantial heterogeneity across individuals in the corresponding ex ante returns. However, while sorting across occupations is partly driven by the ex ante monetary returns, non-monetary factors play a key role in this decision. Finally, our results point to the existence of sizable complementarities between college major and occupations, both in terms of earnings and non-monetary benefits.
    Keywords: ex ante treatment effects, occupational choice, subjective expectations
    JEL: J24 I23 C31
    Date: 2014–10
  7. By: Gilberto Tadeu Lima; Jaylson Jair Silveira
    Abstract: This paper explores implications for capacity utilization and economic growth driven by effective demand of income distribution featuring the possibility of profit sharing with workers. Firms choose to compensate workers with either a base wage or a share of profits on top of this base wage. In accordance with robust empirical evidence, workers in sharing firms have higher productivity than workers in non-sharing firms. Meanwhile, the joint frequency distribution of employee compensation strategies and labor productivity across firms is evolutionarily time-varying. Two major results carrying relevant theoretical and policy implications obtain from our exploration. First, heterogeneity in employee compensation strategies across firms may emerge as a permanent, long-run equilibrium outcome. Second, in the long run, a higher frequency of profit-sharing firms does not necessarily generate higher rates of capacity utilization and economic growth.
    Keywords: Profit sharing; evolutionary dynamics; income distribution; capacity utilization; economic growth.
    JEL: E12 E25 J33 O40
    Date: 2014–11–07
  8. By: Hans G. Bloemen (VU University Amsterdam)
    Abstract: We empirically analyze the language proficiency of migrants in the Netherlands. Traditionally, the emphasis in studying language proficiency and economic outcomes has been on the relation between earnings and indicators for language proficiency, motivated by the human capital theory. Here we analyze whether there is a relation between proficiency of the destination language and job level. A lack of language skills may induce the migrant to work in jobs of a lower level leading to lower job satisfaction. We use subjective survey information about job satisfaction and the fit between the migrant's education and skill level and the job. We also use objective information on professional level. Our estimation strategy allows for unobservable correlations between language proficiency and labour market outcomes by employing a simultaneous two equations framework which also exploits the panel nature of our data, by allowing for time persistent random effects. We use a variety of different instrumental variables, some of which are related to linguistic distance, to shed light on the robustness of the results. For men, we find evidence for a positive relationship between indicators for language proficiency and satisfaction with work type and professional level. For women, no impact of language proficiency on the level of the job can be found. Rather, women with lower proficiency levels are not selected into employment in the first place.
    Keywords: Skills; Occupational choice; Economics of Immigrants; Panel data models
    JEL: J15 J24 C33
    Date: 2014–11–13
  9. By: Brooke Helppie McFall; Marta Murray-Close; Robert J. Willis; Uniko Chen
    Abstract: This paper describes the job market experiences of new PhD economists, 2007-10. Using information from PhD programs' job candidate websites and original surveys, the authors present information about job candidates' characteristics, preferences and expectations; how job candidates fared at each stage of the market; and predictors of outcomes at each stage. Some information presented in this paper updates findings of prior studies. However, design features of the data used in this paper may result in more generalizable findings. This paper is unique in comparing pre-market expectations and preferences with post-market outcomes on the new PhD job market. It shows that outcomes tend to align with pre-market preferences, and candidates' expectations are somewhat predictive of their outcomes. Several analyses also shed light on sub-group differences.
    JEL: J24 J4
    Date: 2014–11
  10. By: Sander Gerritsen
    Abstract: This paper evaluates the effects of the raising of the minimum school leaving age (ROSLA) from 14 to 15 in the Netherlands in 1971. The policy goal was to increase the number of high school graduates. The analysis shows that the change led to a decrease in the high school dropout rate of approximately 20%. However, there were no benefits in terms of employment or higher wages. I investigate several explanations for this finding and present suggestive evidence in support of the skill-based explanation that no more labor-market relevant skills were learned during this extra year of school compared to those skills previously learned out of school.   
    JEL: I2 J24
    Date: 2014–11
  11. By: Kenneth Y. Chay; Jonathan Guryan; Bhashkar Mazumder
    Abstract: Chay, Guryan and Mazumder (2009) found substantial racial convergence in AFQT and NAEP scores across cohorts born in the 1960's and early 1970's that was concentrated among blacks in the South. We demonstrated a close tracking between variation in the test score convergence across states and racial convergence in measures of health and hospital access in the years immediately after birth. This study analyzes whether the across-cohort patterns in the black-white education and earnings gaps match those in early life health and test scores already established. It also addresses caveats in the earlier study, such as unobserved selection into taking the AFQT and potential discrepancies between state-of-birth and state-of-test taking. With Census data, we find: i) a significant narrowing across the same cohorts in education gaps driven primarily by a relative increase in the probability of blacks going to college; and ii) a similar convergence in relative earnings that is insensitive to adjustments for employment selection, as well as time and age effects that vary by race and state-of-residence. The variation in racial convergence across birth states matches the patterns in the earlier study. The magnitude of the earnings gains is greater than can be explained by only the black gains in education and test scores for reasonable estimates of the returns to human capital. This suggests that other pre-market, productivity factors also improved across successive cohorts of blacks born in the South between the early 1960's and early 1970's. Finally, our cohort-based hypothesis provides a cohesive explanation for the aggregate patterns in several, previously disconnected literatures.
    JEL: I12 I14 J13 J24 J31
    Date: 2014–10
  12. By: Mark Bils; Peter J. Klenow; Benjamin A. Malin
    Abstract: Employment and hours appear far more cyclical than dictated by the behavior of productivity and consumption. This puzzle has been labeled "the labor wedge" -- a cyclical wedge between the marginal product of labor and the marginal rate of substitution of consumption for leisure. The wedge can be broken into a product market wedge (price markup) and a labor market wedge (wage markup). Based on the wages of employees, the literature has attributed the wedge almost entirely to labor market distortions. Because employee wages may be smoothed versions of the true cyclical price of labor, we instead examine the self-employed, intermediate inputs, and work-in-process inventories. Looking at the past quarter century in the U.S., we find that price markup movements are at least as important as wage markup movements -- including in the Great Recession and its aftermath. Thus sticky prices and other forms of countercyclical markups deserve a central place in business cycle research, alongside sticky wages and matching frictions.
    JEL: E24 E32
    Date: 2014–10
  13. By: Martin Gervais; Nir Jaimovich; Henry E. Siu; Yaniv Yedid-Levi
    Abstract: Why is unemployment higher for younger individuals? We address this question in a frictional model of the labor market that features learning about occupational fit. In order to learn the occupation in which they are most productive, workers sample occupations over their careers. Because young workers are more likely to be in matches that represent a poor occupational fit, they spend more time in transition between occupations. Through this mechanism, our model can replicate the observed age differences in unemployment which, as in the data, are due to differences in job separation rates.
    JEL: E0 J0
    Date: 2014–10
  14. By: Ronald Wolthoff
    Abstract: I develop a directed search model of the labor market in which firms choose a recruiting intensity, determining the number of applicants they will interview. Interviewing applicants is costly but reveals their productivity, allowing the firm to hire better workers. I characterize the equilibrium and find that the uniqueness and cyclicality of recruiting intensity crucially depend on parameter values. Calibration of the model to the US labor market indicates a multiplicity of the equilibrium. An increase in aggregate productivity---given selection of a particular equilibrium---causes recruiting intensity to move counter to unemployment, while a shock to the equilibrium selection rule predicts the opposite pattern.
    Keywords: labor market, search, frictions, recruiting, efficiency
    JEL: J64 E24
    Date: 2014–11–10
  15. By: Winters, John V. (Oklahoma State University)
    Abstract: This paper examines the effects of foreign- and native-born STEM graduates and non-STEM graduates on patent intensity in U.S. metropolitan areas. I find that both native and foreign-born STEM graduates significantly increase metropolitan area patent intensity, but college graduates in non-STEM fields have a smaller and statistically insignificant effect on patenting. These findings hold for both cross-sectional OLS and 2SLS regressions. I also use time-differenced 2SLS regressions to estimate the effects of STEM-driven increases in native and foreign college graduate shares and again find that both native and foreign STEM graduates have statistically significant and economically large effects on innovation. Together these results suggest that policies that increase the stocks of both foreign and native STEM graduates increase innovation and provide considerable economic benefits to regions and nations.
    Keywords: STEM, innovation, patents, human capital, higher education
    JEL: I25 J24 J61 O31 R12
    Date: 2014–10
  16. By: Francesco Zanetti; Haroon Mumtaz
    Abstract: This paper studies how key labor market stylized facts and the responses of labor market variables to technology shocks vary over the US postwar period.  It uses a benchmark DSGE model enriched with labor market frictions and investment specific technological progress that enables a novel identification scheme based on sign restrictions on a SVAR with time-varying coefficients and stochastic volatility.  Key findings are: i) the volatility in job finding and separation rates has declined over time, while their correlation varies across time; ii) the job finding rate plays an important role for unemployment, and the two series are strongly negatively correlated over the sample period; iii) the magnitude of the response of labor market variables to technology shocks varies across the sample period.
    Keywords: Technology shocks, labor market frictions, Bayesian SVAR methods, sign restrictions
    JEL: E32 C32
    Date: 2014–10–29
  17. By: Michaud, Pierre-Carl (University of Québec at Montréal); Crimmins, Eileen (University of Southern California); Hurd, Michael D. (RAND)
    Abstract: The effect of job loss on health may play an important role in the development of the SES-health gradient. In this paper, we estimate the effect of job loss on objective measures of physiological dysregulation using longitudinal data from the Health and Retirement Study and biomarker measures collected in 2006 and 2008. We use a variety of econometric methods to account for selection and reverse causality. Distinguishing between layoffs and business closures, we find no evidence that business closures lead to worse health outcomes. We also find no evidence that biomarker health measures predict subsequent job loss because of business closures. We do find evidence that layoffs lead to diminished health. Although this finding appears to be robust to confounders, we find that reverse causality tends to bias downward our estimates. Matching estimates, which account for self-reported health conditions prior to the layoff and subjective job loss expectations, suggest even stronger estimates of the effect of layoffs on health as measured from biomarkers, in particular for glycosylated hemoglobin (HbA1c) and C-reactive protein (CRP). Overall, we estimate that a layoff could increase annual mortality rates by 9.4%, which is consistent with other evidence of the effect of mass layoffs on mortality.
    Keywords: job loss, health, SES-health gradient, biomarkers
    JEL: I14 J10 J14
    Date: 2014–10
  18. By: Dörte Heger
    Abstract: Informal caregivers provide valuable services to elderly persons with long-term care needs, but the consequences of caregiving on caregivers are not yet fully understood. This paper illustrates the interrelation between caregiving and caregivers’ labour force participation, cognitive ability, and health in a simple theoretical model, and estimates the effects of caregiving using panel data from thirteen European countries, which allows to analyze the effect of institutions on caregivers’ outcomes. The results show that caregiving severely and signicantly reduces caregivers’ probability of being employed, but only in countries with few formal care alternatives. Furthermore, caregivers in all countries suffer from worse mental health when caregiving is prompted by poor parental health. The results for the effects of caregiving on physical health and cognitive ability are mixed.
    Keywords: Informal care; labour supply; cognitive ability; physical and mental health
    JEL: I12 J14 J18 J22
    Date: 2014–10

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