nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2015‒01‒03
nineteen papers chosen by
Joseph Marchand
University of Alberta

  1. Effects of Labor Taxes and Unemployment Compensation on Labor Supply in a Search Model with an Endogenous Labor Force By Been-Lon Chen; Chih-Fang Lai
  2. Labor Market Effects of Intrauterine Exposure to Nutritional Deficiency: Evidence from Administrative Data on Muslim Immigrants in Denmark By Marie Louise Schultz-Nielsen; Erdal Tekin; Jane Greve
  3. Technological Change and Declining Immigrant Outcomes, Implications for Income Inequality in Canada By Warman, Casey; Worswick, Christopher
  4. Which factors drive the skill-mix of migrants in the long-run? By Andreas Beerli; Ronald Indergand
  5. A new measure of skills mismatch: theory and evidence from the Survey of Adult Skills (PIAAC) By Fichen, Anne; Pellizzari, Michele
  6. The Rise of the Machines: Automation, Horizontal Innovation and Income Inequality By Hemous, David; Olsen, Morten
  7. Reconsidering the impact of family size on labour supply: The twin-problems of the twin-birth instrument By Nils Braakmann; John Wildman
  8. The Long Reach of Education: Early Retirement By Steven Venti; David A. Wise
  9. Employment protection in dual labor markets: Any amplification of macroeconomic shocks? By Lochner, Benjamin
  10. Does Employer Learning Vary by Schooling Attainment? The Answer Depends on How Career Start Dates Are Defined By Light, Audrey; McGee, Andrew
  11. The Impact of Uncertainty Shocks on the Job-Finding Rate and Separation Rate By Markus Riegler
  12. The entrepreneurial earnings puzzle. Evidence from matched person-firm data By Arvid Raknerud; Mirjam van Praag
  13. Employment Adjustment and Part-time Jobs: The US and the UK in the Great Recession By Daniel Borowczyk-Martins; Etienne Lalé
  14. Making Do With Less: Working Harder During Recessions By Edward P. Lazear; Kathryn L. Shaw; Christopher Stanton
  15. Structural reforms and labor market outcomes : international panel data evidence By Hollweg, Claire H.; Lederman, Daniel; Mitra, Devashish
  16. Immigration & Ideas: What Did Russian Scientists 'Bring' to the US? By Ganguli, Ina
  17. Left with Bias? Quantile Regression with Measurement Error in Left Hand Side Variables By Stacy, Brian
  18. The Effect of Perceived Regional Accents on Individual Economic Behavior: A Lab Experiment on Linguistic Performance, Cognitive Ratings and Economic Decisions By Heblich, Stephan; Lameli, Alfred; Riener, Gerhard
  19. How to woo the smart ones? Evaluating the determinants that particularly attract highly qualified people to cities By Buch, Tanja; Hamann, Silke; Niebuhr, Annekatrin; Rossen, Anja

  1. By: Been-Lon Chen (Institute of Economics, Academia Sinica, Taipei, Taiwan); Chih-Fang Lai (Institute of Economics, Academia Sinica, Taipei, Taiwan)
    Abstract: Labor taxes and unemployment compensation were blamed for causing relative declines in labor supply in the EU to the US in the past decades. We propose a model with an endogenous labor force and compare with the model with an exogenous labor force. Because of discouraging the labor force, labor taxes decrease employment in our model less than the model with an exogenous labor force, have ambiguous effects on hours, and decrease less labor supply in our model. Due to boosting the labor force, unemployment compensation increases employment in our model and decreases in the model with an exogenous labor force, but with opposite effects on hours, labor supply is ambiguous in both models. To understand the net effect on labor supply, we feed in the data of increases in labor taxes and unemployment compensation in the EU relative to the US. We find that the model with an exogenous labor force explain excessively of decreases in employment and labor supply, with increases in hours against the data. In contrast, our model explains reasonable decreases in labor supply, with sensible decreases in employment and in hours. Thus, with an endogenous labor force, our model explains relative declines in labor supply better than the model with an exogenous labor force.
    Keywords: search and matching, labor force participation, unemployment, hours worked, labor taxes, and unemployment benefits
    JEL: E24 H20 J22
    Date: 2014–11
  2. By: Marie Louise Schultz-Nielsen; Erdal Tekin; Jane Greve
    Abstract: This paper examines whether nutritional disruptions experienced during the stage of fetal development impair an individual’s labor market productivity later in life. We consider intrauterine exposure to the month of Ramadan as a natural experiment that might cause shocks to the inflow of nutrients essential for fetal development. Specifically, we use administrative data from Denmark to investigate the impact of exposure to Ramadan in utero on labor market outcomes of adult Muslim males, including employment status, annual salary, hourly wage rate, and hours of work. Our findings indicate that potential exposure to nutritional disruptions during a critical stage of fetal development has scarring effects on the fetus expressed as poor labor market outcomes later in life. Specifically, exposure to Ramadan in the 7th month of gestation results in a lower likelihood of employment, a lower salary, and reduced labor supply, but not necessarily a lower wage rate. We also document suggestive evidence that these results may partially be driven by increased disability and to a lesser extent by poor educational attainment among those who were exposed to Ramadan during this particular period in utero.
    JEL: I1 I12 J1 J13 J21 J24 J3
    Date: 2014–12
  3. By: Warman, Casey; Worswick, Christopher
    Abstract: The earnings and occupational task requirements of immigrants to Canada are analyzed. The growing education levels of immigrants in the 1990s have not led to a large improvement in earnings as one might expect if growing computerization was leading to a rising return to non-routine cognitive skills and a greater wage return to university education. Controlling for education, we find a pronounced cross-arrival cohort decline in earnings that coincided with cross cohort declines in cognitive task requirements and cross cohort increases in manual task requirements. The immigrant earnings outcomes had only a small effect on overall Canadian earnings inequality.
    Keywords: Occupational mobility; Earnings; Language Proficiency; Skills; Human Capital; Immigration
    JEL: J15 J24 J31 J61 J62 J71
    Date: 2014–11–25
  4. By: Andreas Beerli; Ronald Indergand
    Abstract: A pervasive, yet little acknowledged feature of international migration to developed countries is that newly arriving immigrants are increasingly highly skilled since the 1980s. This paper analyses the determinants of changes in the skill composition of immigrants using a framework suggested by Grogger & Hanson (2011). We focus on Switzerland, which continuously showed very high immigration rates and dramatic changes in the skill composition of immigrants. In addition, the recent integration of Switzerland into the European labour market in 2002 serves as a policy experiment which allows analysing the influence of a reduction on immigration restrictions on immigrants from European countries in comparison to those from other countries. Our findings suggest that changes of education supply in origin countries and shifts to the relative demand for education groups stand out as the two most important drivers. Yet, while supply alone predicts only a modest increase in the case of highly educated workers and a large increase of middle educated workers, one particular demand channel, the polarisation of labour demand induced by the adoption of computer capital, is crucial to explain the sharp increase in highly educated workers and the mere stabilisation of the share of middle educated immigrant workers. The abolition of quotas for EU residents played a smaller role, yet may have slightly reduced the high skill share among immigrants relative to immigrants from other countries.
    Keywords: International migration, self selection, migration policy, job polarisation
    JEL: F22 J61 J24 J31
    Date: 2014–12
  5. By: Fichen, Anne; Pellizzari, Michele
    Abstract: This paper proposes a new measure of skills mismatch that combines information about skill proficiency, self-reported mismatch and skill use. The theoretical foundations underling this measure allow identifying minimum and maximum skill requirements for each occupation and to classify workers into three groups, the well-matched, the under-skilled and the over-skilled. The availability of skill use data further permit the computation of the degree of under and over-usage of skills in the economy. The empirical analysis is carried out using the first wave of the OECD Survey of Adult Skills (PIAAC), allowing comparisons across skill domains, labor market statuses and countries.
    Keywords: mismatch; skills
    JEL: J0 J20 J24
    Date: 2014–12
  6. By: Hemous, David; Olsen, Morten
    Abstract: We construct an endogenous growth model of directed technical change with automation (the introduction of machines which replace low-skill labor and complement high-skill labor) and horizontal innovation (the introduction of new products, which increases demand for both types of labor). Such an economy endogenously follows three phases. First, low-skill wages are low, which induces little automation, such that income inequality and labor's share of GDP are constant. Second, as low-skill wages increase, investment in automation is stimulated, which depresses the future growth rate of low-skill wages (potentially to negative), and reduces the total labor share. Finally, the share of automated products stabilizes and the economy moves toward an asymptotic steady state, where low-skill wages grow but at a lower rate than high-skill wages. This model therefore delivers persistently increasing wage inequality and stagnating real wages for low skill workers for an extended period of time, features of modern labor markets which have been difficult to reconcile with the theoretical literature on economic growth. We further include middle-skill workers, which allows the model to generate a phase of wage polarization after one where labor income inequality increases uniformly. Finally, we show that an endogenous labor supply response in this framework can quantitatively account for the evolution of the skill premium, the skill ratio and the labor share in the US since the 1960s.
    Keywords: automation; capital-skill complementarity; directed technical change; factor share; horizontal innovation; Income inequality; wage polarization
    JEL: E23 E25 O31 O33 O41
    Date: 2014–11
  7. By: Nils Braakmann (Newcastle University, Business School – Economics, UK); John Wildman (Newcastle University, Business School – Economics, UK)
    Abstract: Twin births are often used to instrument for fertility when investigating the impact of family size on labor market outcomes. In this paper we consider two econometric problems both related to the link between fertility treatments and multiple births. The first is the potential for omitted variable bias caused by the fact that fertility treatments are typically unobserved. We present estimates corrected for this bias and find it to be comparatively small. Second, we show that the effects of twin-birth induced variation in family size vary substantially with time passed since birth, which has consequences for the interpretation of estimates based on a single cross-section.
    Keywords: Twin birth instrument, quantity-quality-tradeoff, labor supply, fertility
    JEL: C26 J13 J22
    Date: 2014–11
  8. By: Steven Venti; David A. Wise
    Abstract: The goal of this paper is to draw attention to the long lasting effect of education on economic outcomes. We use the relationship between education and two routes to early retirement – the receipt of Social Security Disability Insurance (DI) and the early claiming of Social Security retirement benefits – to illustrate the long-lasting influence of education. We find that for both men and women with less than a high school degree the median DI participation rate is 6.6 times the participation rate for those with a college degree or more. Similarly, men and women with less than a high school education are over 25 percentage points more likely to claim Social Security benefits early than those with a college degree or more. We focus on four critical “pathways” through which education may indirectly influence early retirement – health, employment, earnings, and the accumulation of assets. We find that for women health is the dominant pathway through which education influences DI participation. For men, the health, earnings, and wealth pathways are of roughly equal magnitude. For both men and women the principal channel through which education influences early Social Security claiming decisions is the earnings pathway. We also consider the direct effect of education that does not operate through these pathways. The direct effect of education is much greater for early claiming of Social Security benefits than for DI participation, accounting for 72 percent of the effect of education for men and 67 percent for women. For women the direct effect of education on DI participation is not statistically significant, suggesting that the total effect may be through the four pathways.
    JEL: H52 I21 J26
    Date: 2014–12
  9. By: Lochner, Benjamin
    Abstract: Although labor market duality is a widespread phenomenon in many OECD countries, there is yet no research consent on the effects of duality on labor market dynamics and performance. Against this background, using a New Keynesian model with unemployment, this paper theoretically investigates the importance of labor market duality on labor market volatilities. The new insight is that duality leads to a non-linear reaction of unemployment volatility for both supply and demand shocks. A subsequent empirical panel data analysis confirms the model predictions. Uncovering the non-linearity in unemployment volatility helps reconciling previous divergent research results.
    Keywords: Dual Labor Market,Employment Protection,Firing Costs,Unemployment
    JEL: E24 E32 E52 J23 J41 J63
    Date: 2014
  10. By: Light, Audrey (Ohio State University); McGee, Andrew (Simon Fraser University)
    Abstract: We demonstrate that empirical evidence of employer learning is sensitive to how one defines the career start date and, in turn, measures cumulative work experience. Arcidiacono, Bayer, and Hizmo (2010) find evidence of employer learning for high school graduates but not for college graduates, and conclude that high levels of schooling reveal true productivity. We show that their choice of start date – based on first-observed school exit and often triggered by school vacations – systematically overstates experience and biases learning estimates towards zero for college-educated workers. Using career start dates tied to a more systematic definition of school exit, we find that employer learning is equally evident for high school and college graduates.
    Keywords: employer learning, schooling, measurement
    JEL: I21 J24 J31
    Date: 2014–11
  11. By: Markus Riegler
    Abstract: Increases in uncertainty lead to increases in the unemployment rate. Using US data, I show empirically that this is due to both an increase in the separation rate and a decrease in the job-finding rate. By contrast, standard search and matching models predict an increase in the job finding rate in response to an increase in the cross-sectional dispersion of firmsâ productivity levels. To explain observed responses in labour market transition rates, I develop a search and matching model in which heterogeneous firms face a decreasing returns to scale technology, firms can hire multiple workers, and job flows (job creation and job destruction) do not necessarily coincide with worker flows (hires and separations). Costly job creation (in addition to the usual hiring cost) is key to obtaining a decrease in the job-finding rate after an increase in uncertainty. Standard numerical solution techniques cannot be used to obtain an accurate solution efficiently and I propose an alternative algorithm to overcome this problem.
    JEL: C63 E24 E32 J63 J64
    Date: 2014–11–21
  12. By: Arvid Raknerud; Mirjam van Praag (Statistics Norway)
    Abstract: Empirical studies show that the pecuniary returns to an individual's decision to switch from wage employment to entrepreneurship are low. We reconsider the pecuniary gains from this transition using a unified and flexible approach based on a mixed model with heterogeneous returns to entrepreneurship. Addressing the issue of self-selection, we analyze to what extent earlier findings are obscured by mixing individuals who become entrepreneurs without interesting wage alternatives with those who do have a realistic alternative opportunity. Our data set covers the whole Norwegian population of individuals matched to the entire population of firms established in the period 2002-- 2011, and includes extensive income and ownership share measures. The results indicate that the average return to entrepreneurship is significantly negative for individuals entering entrepreneurship through self-employment. Entrepreneurs who establish firms by injecting the minimum (or close to minimum) required amount of equity in an incorporated firm at start-up, have a significantly positive, but low return to entrepreneurship on average. Finally, persons who become entrepreneurs by establishing firms that are at least twice as large as the minimum requirement, increase their earnings by 10 percent on average by becoming entrepreneurs. We identify a significant positive selection by absolute advantage with regard to the choice of becoming an incorporated entrepreneur, but not with regard to self-employment.
    Keywords: Entrepreneurship; Returns to entrepreneurship; Earnings distribution; Matched personfirm data
    JEL: L26 C23 J31
    Date: 2014–11
  13. By: Daniel Borowczyk-Martins (Departement d'Economie de Sciences Po); Etienne Lalé (École Nationale de la Statistique et de l'Administration Économique (ENSAE))
    Abstract: We document a new fact about the cyclical behavior of aggregate hours. Using microdata for the US and the UK, we show that changes in hours per worker are driven by fluctuations in part-time employment, which are in turn explained by the cyclical behavior of transitions between full-time and part-time jobs. This reallocation occurs almost exclusively within firms and entails large changes in employees’ schedules of working hours. These patterns are consistent with the view that employers adjust the hours of their employees in response to shocks, and they partly account for the poor recovery that followed the Great Recession.
    Keywords: Employment; Hours; Part-time Work; Great Recession.
    JEL: E24 E32 J21
    Date: 2014–11
  14. By: Edward P. Lazear; Kathryn L. Shaw; Christopher Stanton
    Abstract: Why did productivity rise during recent recessions? One possibility is that average worker quality increased. A second is that each incumbent worker produced more. The second effect is termed "making do with less." Using data from 2006 to 2010 on individual worker productivity from a large firm, these effects can be measured and separated. For this firm, most of the gain in productivity during the recession was a result of increased effort. Additionally, the increase in effort is correlated with the increase in the local unemployment rate, presumably reflecting the costs of losing a job.
    Keywords: Recession, productivity, sorting
    JEL: M50 D20 E32 L22
    Date: 2014–12
  15. By: Hollweg, Claire H.; Lederman, Daniel; Mitra, Devashish
    Abstract: This paper explores the impact of structural reforms on a comprehensive set of macro-level labor-market outcomes, including the unemployment rate, the average wage index, and overall and female employment levels and labor force participation rates. Together these outcome variables capture the overall health of the labor market and the aggregate welfare of workers. Yet, there seems to be no other comprehensive empirical investigation in the existing literature of the impact of structural reforms at the cross-country macro level on labor-market outcomes other than the unemployment rate. Data were collected from a variety of sources, including the World Bank World Development Indicators, the International Monetary Fund International Financial Statistics, and the International Labor Organization Key Indicators of the Labor Market. The resulting dataset covers up to 88 countries, the majority being developing, for 10 years on either side of structural reforms that took place between 1960 and 2001. After documenting the average trends across countries in the labor-market outcomes up to 10 years on either side of each country’s structural reform year, the authors run fixed-effects ordinary least squares as well as instrumental variables regressions to account for the likely endogeneity of structural reforms to labor-market outcomes. Overall the results suggest that structural reforms lead to positive outcomes for labor. Unlike related literature, the paper does not find conclusive evidence on unemployment. Redistributive effects in favor of workers, along the lines of the Stolper-Samuelson effect, may be at work.
    Keywords: Labor Markets,Labor Policies,Economic Theory&Research,Currencies and Exchange Rates,Banks&Banking Reform
    Date: 2014–11–01
  16. By: Ganguli, Ina (Stockholm Institute of Transition Economics)
    Abstract: This paper examines how high-skilled immigrants contribute to knowledge diffusion using a rich dataset of Russian scientists and US citations to Soviet-era publications. Analysis of a panel of US cities and scientific fields shows that citations to Soviet-era work increased significantly with the arrival of immigrants. A difference-in-differences analysis with matched paper-pairs also shows that after Russian scientists moved to the US, citations to their Soviet-era papers increased relative to control papers. Both strategies reveal scientific field-specific effects. Ideas in high-impact papers and papers previously accessible to US scientists were the most likely to "spill over" to natives.
    Keywords: high skill immigration; citations; innovation; Russia
    JEL: J40 J61 O33
    Date: 2014–11–19
  17. By: Stacy, Brian
    Abstract: This paper examines the effect of measurement error in the dependent variable on quantile regression, because unlike OLS regression, even classical measurement error can generate bias. I examine the pattern and size of the bias using both simulation and an empirical example. The simulations indicate that classical error can cause bias and that non-classical measurement error, particularly heteroskedastic measurement error, has the potential to produce substantial bias. Also, the size and direction of the bias depends on the amount of heterogeneity in the effects across quantiles and the regression error distribution. Using restricted access Health and Retirement Study data containing matched IRS W-2 earnings records, I examine whether estimates of the returns to education statistically differ using a precisely measured and mismeasured earnings variable. I find that returns to education are over-stated by roughly 1 percentage point at the median and 75th percentile using earnings reported by survey respondents.
    Keywords: Quantile Regression,Dependent Variable Measurement Error,Returns to Education
    JEL: C01 C21 C31 J24
    Date: 2014–12–08
  18. By: Heblich, Stephan (University of Bristol); Lameli, Alfred (University of Marburg); Riener, Gerhard (Düsseldorf Institute for Competition Economics (DICE))
    Abstract: Does it matter if you speak with a regional accent? Speaking immediately reveals something of one's own social and cultural identity, be it consciously or unconsciously. Perceiving accents involves not only reconstructing such imprints but also augmenting them with particular attitudes and stereotypes. Even though we know much about attitudes and stereotypes that are transmitted by, e.g. skin color, names or physical attractiveness, we do not yet have satisfactory answers how accent perception affects human behavior. How do people act in economically relevant contexts when they are confronted with regional accents? This paper reports a laboratory experiment where we address this question. Participants in our experiment conduct cognitive tests where they can choose to either cooperate or compete with a randomly matched male opponent identified only via his rendering of a standardized text in either a regional accent or standard accent. We find a strong connection between the linguistic performance and the cognitive rating of the opponent. When matched with an opponent who speaks the accent of the participant's home region – the in-group opponent –, individuals tend to cooperate significantly more often. By contrast, they are more likely to compete when matched with an accent speaker from outside their home region, the out-group opponent. Our findings demonstrate, firstly, that the perception of an out-group accent leads not only to social discrimination but also influences economic decisions. Secondly, they suggest that this economic behavior is not necessarily attributable to the perception of a regional accent per se, but rather to the social rating of linguistic distance and the in-group/out-group perception it evokes.
    Keywords: discrimination, accent, in-group/out-group, lab experiment
    JEL: C90 J70 Z10
    Date: 2014–11
  19. By: Buch, Tanja; Hamann, Silke; Niebuhr, Annekatrin; Rossen, Anja
    Abstract: Human capital is a driving factor of innovation and economic growth. Economic prospects of cities depend on high qualified workers' knowledge and therefore, attracting highly qualified workers plays a fundamental role for cities' prospects. This study contributes to the question which factors primarily determine the mobility-decision of highly qualified workers by investigating the determinants of the migration balance of German cities between 2000 and 2010. Furthermore, it compares the effects of several labour- and amenity-related variables on migration rates of highly qualified workers and the remaining workforce. Findings suggest that local labour market conditions influence the mobility decision but amenities matter too for the high-skilled. The preferences of the highly qualified workers partly differ from those of the rest of the workforce. However, there are also several factors that do not show systematic differences across skill groups.
    Keywords: migration,cities,qualification level,highly qualified,labour market conditions,amenities,Germany
    JEL: C23 J61 R23
    Date: 2014

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