nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2015‒02‒11
thirteen papers chosen by
Joseph Marchand
University of Alberta

  1. Trade Reform and Regional Dynamics: Evidence From 25 Years of Brazilian Matched Employer-Employee Data By Rafael Dix-Carneiro; Brian K. Kovak
  2. Offshoring of Medium-skill Jobs, Polarization, and Productivity Effect: Implications for Wages and Low-skill Unemployment By Vallizadeh, Ehsan; Muysken, Joan; Ziesemer, Thomas
  3. What do data on millions of U.S. workers reveal about life-cycle earnings risk? By Guvenen, Fatih; Karahan, Fatih; Ozkan, Serdar; Song, Jae
  4. Changes in Wage Inequality in Canada: An Interprovincial Perspective By Fortin, Nicole M.; Lemieux, Thomas
  5. The Effect of Regulatory Harmonization on Cross-border Labor Migration: Evidence from the Accounting Profession By Matthew J. Bloomfield; Ulf Brüggemann; Hans B. Christensen; Christian Leuz
  6. Wage Inequality and Firm Growth By Holger M. Mueller; Paige P. Ouimet; Elena Simintzi
  7. (Why) Are Internal Labor Markets Active in French Business Groups? By Giacinta Cestone; Chiara Fumagalli; Francis Kramaz; Giovanni Pica
  8. The Effects of Compulsory Military Service Exemption on Education and Labor Market Outcomes: Evidence from a Natural Experiment By Torun, Huzeyfe; Tumen, Semih
  9. Disability Insurance Incentives and the Retirement Decision: Evidence from the U.S. By Courtney Coile
  10. Parametric Pension Reform and the Intensive Margin of Labor Supply, Evidence from Colombia By Darwin Cortés; Darío Maldonado; Giselle Vesga
  11. Understanding Heterogeneity in the Effects of Birth Weight on Adult Cognition and Wages By C. Justin Cook; Jason M. Fletcher
  12. Separate and Unequal in the Labor Market: Human Capital and the Jim Crow Wage Gap By Celeste K. Carruthers; Marianne H. Wanamaker
  13. Voluntary Public Unemployment Insurance By Parsons, Donald O.; Tranæs, Torben; Lilleør, Helene Bie

  1. By: Rafael Dix-Carneiro; Brian K. Kovak
    Abstract: We empirically study the dynamics of labor market adjustment following the Brazilian trade reform of the 1990s. We use variation in industry-specific tariff cuts interacted with initial regional industry mix to measure trade-induced local labor demand shocks, and then examine regional and individual labor market responses to those one-time shocks over two decades. Contrary to conventional wisdom, we do not find that the impact of local shocks is dissipated over time through wage-equalizing migration. Instead, we find steadily growing effects of local shocks on regional formal sector wages and employment for 20 years. This finding can be rationalized in a simple equilibrium model with two complementary factors of production, labor and industry-specific factors such as capital, that adjust slowly and imperfectly to shocks. Next, we document rich margins of adjustment induced by the trade reform at the regional and individual level. Workers initially employed in harder hit regions face continuously deteriorating formal labor market outcomes relative to workers employed in less affected regions, and this gap persists even 20 years after the beginning of trade liberalization. Negative local trade shocks induce workers to shift out of the formal tradable sector and into the formal nontradable sector. Non-employment strongly increases in harder-hit regions in the medium run, but in the longer run, non-employed workers eventually find re-employment in the informal sector. Working age population does not react to these local shocks, but formal sector net migration does, consistent with the relative decline of the formal sector and growth of the informal sector in adversely affected regions.
    JEL: F14 F16 J23
    Date: 2015–01
  2. By: Vallizadeh, Ehsan; Muysken, Joan; Ziesemer, Thomas
    Abstract: We examine the effects of endogenous offshoring on cost-efficiency, wages and unemployment in a task- assignment model with skill heterogeneity. Exact conditions for the following insights are derived. The distributional effect of offshoring (high-) low-skill-intensive tasks is similar to (unskilled-) skill-biased technology changes, while offshoring medium-skill-intensive tasks induces wage polarization. Offshoring improves cost-efficiency through international task reallocation and puts a downward pressure on all wages through domestic skill-task reallocation. If elasticities of task substitution are low (high), the downward pressure on wages in neighboring skill segments is low (high) with a net effect of higher (lower) wages and employment.
    Keywords: Task Assignment, Offshoring, Skills, Cost-efficiency Effect, Equilibrium Unemployment
    JEL: F16 J21 J24 J64
    Date: 2015–02–04
  3. By: Guvenen, Fatih; Karahan, Fatih (Federal Reserve Bank of New York); Ozkan, Serdar; Song, Jae (Federal Reserve Bank of New York)
    Abstract: We study the evolution of individual labor earnings over the life cycle, using a large panel data set of earnings histories drawn from U.S. administrative records. Using fully nonparametric methods, our analysis reaches two broad conclusions. First, earnings shocks display substantial deviations from lognormality—the standard assumption in the literature on incomplete markets. In particular, earnings shocks display strong negative skewness and extremely high kurtosis—as high as 30 compared with 3 for a Gaussian distribution. The high kurtosis implies that, in a given year, most individuals experience very small earnings shocks, and a small but non-negligible number experience very large shocks. Second, these statistical properties vary significantly both over the life cycle and with the earnings level of individuals. We also estimate impulse response functions of earnings shocks and find important asymmetries: Positive shocks to high-income individuals are quite transitory, whereas negative shocks are very persistent; the opposite is true for low-income individuals. Finally, we use these rich sets of moments to estimate econometric processes with increasing generality to capture these salient features of earnings dynamics.
    Keywords: earnings dynamics; life-cycle earnings risk; nonparametric estimation; kurtosis; skewness; non-Gaussian shocks; normal mixture
    JEL: E24 J24 J31
    Date: 2015–02–01
  4. By: Fortin, Nicole M.; Lemieux, Thomas
    Abstract: This paper uses the Canadian Labour Force Survey to understand why the level and dispersion of wages have evolved differently across provinces from 1997 to 2013. The starker interprovincial differences are the much faster increase in the level of wages and decline in wage dispersion in Newfoundland, Saskatchewan, and Alberta. This is accounted for by the growth in the extractive resources sectors, which benefited less educated and younger workers the most. We also find that increases in minimum wages since 2005 are the main reason why wages at the very bottom grew more than in the middle of the distribution.
    Keywords: wage inequality, provinces, minimum wage, extractive resources industries
    JEL: J31 I24
    Date: 2015–01–25
  5. By: Matthew J. Bloomfield; Ulf Brüggemann; Hans B. Christensen; Christian Leuz
    Abstract: The paper examines the effect of international regulatory harmonization on cross-border labor migration. We analyze directives in the European Union (EU) that harmonized accounting and auditing standards. This regulatory harmonization should make it less costly for those who work in the accounting profession to move across countries. Our research design compares the cross-border migration of accounting professionals relative to tightly-matched other professionals before and after regulatory harmonization. We find that, on average, labor migration in the accounting profession increases relative to comparable professions by roughly 15% after harmonization. The findings illustrate that diversity in rules constitutes an important economic barrier to cross-border labor mobility and, more specifically, that accounting harmonization can have meaningful effect on cross-border migration.
    JEL: D10 E24 F22 F55 J44 J61 J62 K22 L84 M41 M42
    Date: 2015–01
  6. By: Holger M. Mueller; Paige P. Ouimet; Elena Simintzi
    Abstract: We examine how within-firm skill premia–wage differentials associated with jobs involving different skill requirements–vary both across firms and over time. Our firm-level results mirror patterns found in aggregate wage trends, except that we find them with regard to increases in firm size. In particular, we find that wage differentials between high- and either medium- or low-skill jobs increase with firm size, while those between medium- and low-skill jobs are either invariant to firm size or, if anything, slightly decreasing. We find the same pattern within firms over time, suggesting that rising wage inequality–even nuanced patterns, such as divergent trends in upper- and lower-tail inequality–may be related to firm growth. We explore two possible channels: i) wages associated with “routine” job tasks are relatively lower in larger firms due to a higher degree of automation in these firms, and ii) larger firms pay relatively lower entry-level managerial wages in return for providing better career opportunities. Lastly, we document a strong and positive relation between within-country variation in firm growth and rising wage inequality for a broad set of developed countries. In fact, our results suggest that part of what may be perceived as a global trend toward more wage inequality may be driven by an increase in employment by the largest firms in the economy.
    JEL: J24 J31
    Date: 2015–01
  7. By: Giacinta Cestone (Cass Business School, CSEF and ECGI); Chiara Fumagalli (Università Bocconi, CSEF and CEPR); Francis Kramaz (Crest, ENSAE and CEPR); Giovanni Pica (Università di Salerno, CSEF, Paolo Baffi Centre and Centro Luca D’Agliano)
    Abstract: Exploiting matched employer-employee data merged with information on the ownership structure of business groups, we document that French groups actively operate Internal Labor Markets (ILMs). For the average group-affiliated firm, the probability to absorb a worker previously employed in its same group exceeds by 9 percentage points the probability to absorb a worker employed outside the group. This average figure hides substantial heterogeneity: ILM activity is higher in more diversified groups, in groups experiencing plant/firm closures and is highest for high-skill occupations. We also find that closure events boost the proportion of separating workers redeployed to group affiliated partners (as opposed to external labor market partners) relative to normal times, i.e. more than 4 years before closure. Those episodes of closure spur ILM activity mainly for blue collar occupations. Overall, these findings suggest that groups respond to idiosyncratic shocks disproportionately relying on ILMs because they allow to save on search costs for human capital intensive occupations, while reducing firing costs for the more unionized occupational categories.
    Keywords: Internal Labor Markets, Business Groups, Job-to-Job Mobility
    Date: 2015–01–22
  8. By: Torun, Huzeyfe; Tumen, Semih
    Abstract: Based on a law enacted in November 1999, males born on or before December 31st 1972 are given the option to benefit from a paid exemption from the compulsory military service in Turkey. Exploiting this natural experiment, we devise an empirical strategy to estimate the intention-to-treat effect of this paid exemption on the education and labor market outcomes of the individuals in the target group. We find that the paid exemption reform reduces the years of schooling among males who are eligible to benefit from the reform relative to the ineligible ones. In particular, the probability of receiving a college degree or above falls among the eligible males. The result is robust to alternative estimation strategies. We find no reduction in education when we implement the same exercises with (i) data on females and (ii) placebo reform dates. The interpretation is that the reform has reduced the incentives to continue education for the purpose of deferring military service. We also find suggestive evidence that the paid exemption reform reduces the labor income for males in the target group. The reduction in earnings is likely due to the reduction in education.
    Keywords: Compulsory military service; draft avoidance; intention to treat; education; earnings.
    JEL: C21 I21 J21 J31
    Date: 2015–01–29
  9. By: Courtney Coile
    Abstract: A rising share of older workers in the U.S. make use of the Disability Insurance (DI) program in their transition to retirement, with about one in seven men and one in nine women ages 60 to 64 now enrolled in the program. This study explores how financial incentives from Social Security and DI affect retirement decisions, using an option value approach. We find that financial incentives have a significant effect on retirement, particularly for those in poor health or with low education, who may be more actively considering retirement at younger ages. Simulations suggest that increasing the stringency of the screening process for DI would increase the expected working life of DI applicants.
    JEL: J14 J26
    Date: 2015–01
  10. By: Darwin Cortés; Darío Maldonado; Giselle Vesga
    Abstract: Abstract: We analyze the effect of a parametric reform of the fully-funded pension regime in Colombia on the intensive margin of the labor supply. We take advantage of a threshold defined by law in order to identify the causal effect using a regression discontinuity design. We find that a pension system that increases retirement age and the minimum weeks during which workers must contribute to claim pension benefits causes an increase of around 2 hours on the number of weekly worked hours; this corresponds to 4% of the average number of weekly worked hours or around 14% of a standard deviation of weekly worked hours. The effect is robust to different specifications, polynomial orders and sample sizes.
    Keywords: Labor supply, Regression discontinuity, pension system reform, Colombia
    JEL: D91 J26
    Date: 2015–01–29
  11. By: C. Justin Cook; Jason M. Fletcher
    Abstract: A large economics literature has shown long term impacts of birth weight on adult outcomes, including IQ and earnings that are often robust to sibling or twin fixed effects. We examine potential mechanisms underlying these effects by incorporating findings from the genetics and neuroscience literatures. We use a sample of siblings combined with an “orchids and dandelions hypothesis”, where the IQ of genetic dandelions is not affected by in utero nutrition variation but genetic orchids thrive under advantageous conditions and wilt in poor conditions. Indeed, using variation in three candidate genes related to neuroplasticity (APOE, BDNF, and COMT), we find substantial heterogeneity in the associations between birth weight and adult outcomes, where part of the population (i.e., “dandelions”) is not affected by birth weight variation. Our results help uncover why birth weight affects adult outcomes.
    JEL: I1 J1 J24
    Date: 2015–01
  12. By: Celeste K. Carruthers (Department of Economics, University of Tennessee); Marianne H. Wanamaker (Department of Economics, University of Tennessee)
    Abstract: We decompose the 1940 black-white earnings gap into that part attributable to differences in human capital and an unexplained portion that traces the upper bound of labor market discrimination. We find that differences in measurable human capital play a predominant role in determining 1940 wage and occupational status gaps. Our range of estimates for the unexplained gap, 11 to 17 log points, coincides with the higher end of the range of estimates from the post-Civil Rights era. We estimate that a counterfactual “separate but equal” school quality standard would have reduced wage inequalities by as much as 52 percent.
    Date: 2015–01
  13. By: Parsons, Donald O. (George Washington University); Tranæs, Torben (Rockwool Foundation Research Unit); Lilleør, Helene Bie (Rockwool Foundation Research Unit)
    Abstract: Denmark has drawn much attention for its active labor market policies, but is almost unique in offering a voluntary public unemployment insurance program requiring a significant premium payment. A safety net program – a less generous, means-tested social assistance plan – completes the system. The voluntary system emerged as one of many European "Ghent systems," essentially government subsidized trade union plans, but has since lost many key features of such plans. We assess system performance using a 10% sample of the Danish population drawn from administrative data. Coverage rates for the voluntary programs are surprisingly high, approximately 80 percent of the workforce, but the program has predictable selection effects, including adverse selection across risk classes and a substantial charity hazard (low coverage among those with generous treatment under the safety net program). The latter appears to explain the difficulty of shifting to a compulsory system; redistribution effects would be concentrated among the previously uninsured in the lowest decile of the income distribution, a problem in the Danish welfare state.
    Keywords: unemployment insurance, social assistance, early retirement
    JEL: J65 H4
    Date: 2015–01

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