nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2015‒04‒02
nineteen papers chosen by
Joseph Marchand
University of Alberta

  1. Severe Air Pollution and Labor Productivity By Li, Teng; Liu, Haoming; Salvo, Alberto
  2. The Effect of Employment Protection on Labor Productivity By Bjuggren, Carl Magnus
  3. Career Choices and the Evolution of the College Gender Gap By Martín Rossi; Christian Ruzzier
  4. Regional Variation of the Minimum Wages in China By Xing, Chunbing; Xu, Jianwei
  5. Children's Own Time Use and its Effect on Skill Formation By Liyousew Gebremedhin Borga
  6. The Great Proletarian Cultural Revolution, Disruptions to Education, and the Returns to Schooling in Urban China By Giles, John T.; Park, Albert; Wang, Meiyan
  7. A Simple Method to Estimate Large Fixed Effects Models Applied to Wage Determinants and Matching By Nikolas Mittag
  8. The Earnings and Employment Losses Before Entering the Disability System By Cervini-Plá, María; Vall-Castello, Judit
  9. The Returns to Schooling in Rural China: Evidence from the Cultural Revolution Education Expansion By Terry Sicular; Juan Yang
  10. Not in My Community: Social Pressure and the Geography of Dismissals By Bassanini, Andrea; Brunello, Giorgio; Caroli, Eve
  11. Offshoring and Labour Market Reforms: Modelling the German Experience By Beissinger, Thomas; Chusseau, Nathalie; Hellier, Joël
  12. Gender and Dynamic Agency: Theory and Evidence on the Compensation of Top Executives By Stefania Albanesi; Claudia Olivetti; Maria Jose Prados
  13. Misallocation of Talent in Competitive Labor Markets By Daniel Ferreira; Radoslawa Nikolowa
  14. Revisiting the Effects of Enhanced Flexibility on the Italian Labour Market By d'Agostino, Giorgio; Pieroni, Luca; Scarlato, Margherita
  15. United, Yet Apart? A Note on Persistent Labour Market Differences between Western and Eastern Germany By Schnabel, Claus
  16. How creative are you? An experimental study on self-selection in a competitive incentive scheme for creative performance By Bradler, Christiane
  17. The Marriage Market, Labor Supply and Education Choice By Pierre-Andre Chiappori; Monica Costa Dias; Costas Meghir
  18. Parental leave and the glass ceiling in Sweden By Albrecht, James; Skogman Thoursie, Peter; Vroman, Susan
  19. Racial Discrimination in Grading: Evidence from Brazil By Fernando Botelho; Ricardo Madeira, Marcos A. Rangel

  1. By: Li, Teng (National University of Singapore); Liu, Haoming (National University of Singapore); Salvo, Alberto (National University of Singapore)
    Abstract: We examine day-to-day fluctuations in worker-level output over 15 months for a panel of 98 manufacturing workers at a plant located in an industrial city in Hebei province, north China. Long-term workers earn piece-rate wages, with no base pay or minimum pay, for homogeneous tasks performed over fixed 8-hour shifts. Over the sample period, ambient fine-particle (PM2.5) mass concentrations measured at an outdoor air monitor located 2 km from the plant ranged between 10 and 773 micrograms per cubic meter (µg/m3, 8-hour means), variation that is an order of magnitude larger than what is observed in the rich world today. We document large reductions in productivity, of the order of 15%, over the first 200 µg/m3 rise in PM2.5 concentrations, with the drop leveling off for further increases in fine-particle pollution. A back-of-the-envelope calculation suggests that labor productivity across 190 Chinese cities could rise by on average 4% per year were the distributions of hourly PM2.5 truncated at 25 µg/m3. We also find reduced product quality as pollution rises. Our model allows for selection into work attendance, though we do not find particle pollution to be a meaningful determinant of non-attendance, which is very low in our labor setting. Subsequent research should verify the external validity of our findings.
    Keywords: air pollution, labor productivity, labor supply, PM2.5, environmental damage
    JEL: J24 Q52
    Date: 2015–03
  2. By: Bjuggren, Carl Magnus (Research Institute of Industrial Economics (IFN))
    Abstract: The theoretical predictions of how employment protection affects firm productivity are ambiguous. In this paper I study the effect of employment protection rules on labor productivity using micro data on Swedish firms. A reform of the employment protection rules in 2001 made it possible for small firms with less than eleven employees to exempt two workers from the seniority rules. I exploit the reform as a natural experiment. My results indicate that increased labor market flexibility increases labor productivity. The increase appears to be driven mainly by the older and the smallest firms. It is not explained by capital intensity or the educational level of workers.
    Keywords: Employment Protection; Labor Market Regulations; Labor Productivity; Last-in-First-out Rules
    JEL: D22 J23 J24 J32 J38 K31 M51
    Date: 2015–03–16
  3. By: Martín Rossi (Department of Economics, Universidad de San Andres); Christian Ruzzier (Department of Economics, Universidad de San Andres)
    Abstract: We propose a complementary explanation for the evolution of the college gender gap that emphasizes the raising opportunity cost of pursuing a college degree for men, due to the increase in the rewards to becoming a superstar in men-dominated occupations, like professional sports. We support our explanation with causal evidence from a natural experiment in European soccer markets that provides exogenous variation in male earnings in a superstar path. Consistent with our story, we nd a signicant positive eect of an increase in male superstar earnings on the ratio of female to male tertiary enrollment in college education.
    Keywords: gender gap, superstars, education
    JEL: I20 J16 J24
    Date: 2015–03
  4. By: Xing, Chunbing (Beijing Normal University); Xu, Jianwei (Beijing Normal University)
    Abstract: This paper analyzes the regional variation of minimum wage in China. We first introduce the institutional background of China's minimum wage policy, and then describe the regional variation of the minimum wages using detailed minimum wage data since the late 1990s. Large regional variation exists in the period studied, and the regional variation has been declining since the late 1990s. Economic factors, including GDP, economic structure, consumption level, are the main determinants for the large regional variation in the minimum wages. There is weak evidence suggesting that the regional variation is influenced by political factors, such as competition of local officials.
    Keywords: minimum wage, regional variation, China
    JEL: J3 E2
    Date: 2015–03
  5. By: Liyousew Gebremedhin Borga
    Abstract: Using time-use data from a longitudinal survey (covering Ethiopia, India and Vietnam), the present study examines how the amount of time children spend on different activities impacts their acquisition of cognitive and non-cognitive skills. Modeling the skill formation production function of children and extending the set of inputs to include the child's own time inputs, the study finds that child involvement in work activities such as domestic chores and paid activities are associated with a reduction in both cognitive and non-cognitive achievements. The results imply that there is an indirect adverse effect of child work on skill development through the reduction of hours of study. The results are consistent across all the study countries and for both young children and adolescents. These results are also robust to a variety of specification checks.
    Keywords: time-use; skill formation; cognitive and non-cognitive ability;
    JEL: J13 J22 J24
    Date: 2015–03
  6. By: Giles, John T. (World Bank); Park, Albert (Hong Kong University of Science & Technology); Wang, Meiyan (Chinese Academy of Social Sciences)
    Abstract: This paper provides new evidence on educational disruptions caused by the Cultural Revolution and identifies the returns to schooling in urban China by exploiting individual-level variation in the effects of city-wide disruptions to education. The return to college is estimated at 49.8% using a conventional Mincer-type specification and averages 37.1% using supply shocks as instruments and controlling for proxies for ability and school quality, suggesting that high-ability students select into higher education. Additional tests show that the results are unlikely to be driven by sample selection bias associated with migration or alternative pathways through which the Cultural Revolution influenced adult productivity.
    Keywords: returns to schooling, wages, education, China
    JEL: I20 J24 J30 O15 O53
    Date: 2015–03
  7. By: Nikolas Mittag
    Abstract: Models with high dimensional sets of fixed effects are frequently used to examine, among others, linked employer-employee data, student outcomes and migration. Estimating these models is computationally difficult, so simplifying assumptions that cause bias are often invoked to make computation feasible and specification tests are rarely conducted. I present a simple method to estimate large two-way fixed effects (TWFE) and worker-firm match effect models without additional assumptions. It computes the exact OLS solution including estimates of the fixed effects and makes testing feasible even with multi-way clustered errors. An application using German linked employer-employee data illustrates the advantages: The data reject the assumptions of simpler estimators and omitting match effects biases estimates including the returns to experience and the gender wage gap. Specification test detect both problems. Firm fixed effects, not match effects, are the main channel through which job transitions drive wage dynamics, which underlines the importance of firm heterogeneity for labor market dynamics.
    Keywords: multi-way fixed effects; linked employer-employee data; matching, wage dynamics;
    JEL: J31 J63 C23 C63
    Date: 2015–03
  8. By: Cervini-Plá, María (Universitat de Girona); Vall-Castello, Judit (Universitat Pompeu Fabra)
    Abstract: Although a number of papers in the literature have shown the employment and wage differences between disabled and non-disabled individuals, not much is known about the potential employment and wage losses that disabled individuals suffer before being officially accepted into the disability insurance system (DI). Therefore, in this paper we distinguish between individuals that enter the DI system due to a working accident (sudden health shock) and individuals that become disabled due to an ordinary illness to identify the differences in employment and wages between these two groups before they are officially accepted into the DI system. We combine matching models and difference-in-difference and we find that the wage (employment) growth patterns of both groups of workers become significantly different three (six) years before entering the DI system. More specifically, our estimates suggest that one year before entering the system, there is a difference of 27 Euros/month in the wages of the two groups (3% of average wage) as well as a 10 percentage point difference in employment probabilities.
    Keywords: disability system, employment, wage loss
    JEL: J31 I13
    Date: 2015–03
  9. By: Terry Sicular (University of Western Ontario); Juan Yang (Beijing Normal University)
    Abstract: During the Cultural Revolution China embarked on a remarkable, albeit temporary, expansion of post-primary education in rural areas. This education expansion affected tens of millions of children who reached secondary school age in the late 1960s and 1970s. Exploiting the education expansion and variation across birth cohorts, we estimate the returns to schooling in rural China using household survey data from the mid-1990s. Our estimated returns of 11 to 20 percent are substantially higher than most previous estimates. We calculate the impact of the education expansion on subsequent labor market outcomes of the affected cohorts and find that they enjoyed significantly higher earnings than pre- and post-expansion cohorts. ;eywords: Education Expansion; Secondary Education; Returns to Schooling; Rural China; Cultural Revolution
    JEL: I21 I28 J24 J31 O15
    Date: 2015
  10. By: Bassanini, Andrea (OECD); Brunello, Giorgio (University of Padova); Caroli, Eve (Université Paris-Dauphine)
    Abstract: We investigate the role of local social pressure in shaping the geographical pattern of firms' firing decisions. Using French linked employer-employee data, we show that social pressure exerted by the local communities where firms' headquarters are located induces CEOs to refrain from dismissing at short distance from their headquarters. More specifically, we find that, within firms, secondary establishments located further away from headquarters have higher dismissal rates than those located closer, taking into account the possible endogeneity of plant location. We also find that the positive effect of distance on dismissals increases with the visibility of the firm in the local community of its headquarters. These effects are stronger the greater the degree of selfishness of the community in which the headquarters are located. This suggests that local social pressure at headquarters is a key determinant of the positive relationship between distance to headquarters and dismissals. We show that our results cannot be entirely accounted for by alternative explanations of the distance-dismissal relationship that are put forward in the literature – e.g. monitoring costs or asymmetric information.
    Keywords: social pressure, layoffs, adjustment costs, selfishness, firm visibility, distance to headquarters
    JEL: J23 J63 M51 R12
    Date: 2015–03
  11. By: Beissinger, Thomas (University of Hohenheim); Chusseau, Nathalie (University of Lille 1); Hellier, Joël (LEMNA - University of Nantes)
    Abstract: A usual interpretation of the high performance of the German economy since 2005 is that the Hartz labour market reforms have boosted German competitiveness, resulting in higher exports, higher production and lower unemployment. This explanation is at odds with the sequence of observed facts. We propose and model an alternative scenario in which offshoring explains the gains in competitiveness but increases unemployment and inequality, and the subsequent labour market reforms lower unemployment by lessening the reservation wage and expanding the non-tradable sector. The model replicates the developments of the German economy since 1995: 1) Germany offshores more intensively than other advanced countries; 2) The increase in competitiveness and in the exports/production ratio occurs before the implementation of the labour market reform, and this comes with both higher inequality and higher unemployment; 3) The implementation of the reform reduces unemployment, but also decreases the exports/production ratio and increases inequality. The model also predicts that the reduction in unemployment in Germany would have occurred without the Hartz reforms, but later and less intensively. We finally discuss the possible extension of this 'strategy' to other Eurozone countries, and alternative policies that activate similar mechanisms without increasing inequality.
    Keywords: Germany, inequality, labour market reform, offshoring, unemployment
    JEL: H55 J31 J65
    Date: 2015–03
  12. By: Stefania Albanesi (Federal Reserve Bank of New York); Claudia Olivetti (Boston University and NBER); Maria Jose Prados (University of Southern California)
    Abstract: We document three new facts about gender differences in executive compensation. First, female executives receive lower share of incentive pay in total compensation relative to males. This difference accounts for 93% of the gender gap in total pay. Second, the compensation of female executives displays lower pay-performance sensitivity. A $1 million dollar increase in firm value generates a $17,150 increase in firm-specific wealth for male executives and a $1,670 increase for females. Third, female executives' compensation is more sensitive to bad firm performance and less sensitive to good firm performance. We find no link between firm performance and the gender of top executives. We discuss evidence on differences in preferences and the cost of managerial effort by gender and examine the resulting predictions for the structure of compensation. We consider two paradigms for the pay-setting process, the efficient contracting model and the "managerial power" or skimming view. The efficient contracting model can explain the first two facts. Only the skimming view is consistent with the third fact. This suggests that the gender differentials in executive compensation may be inefficient.
    Keywords: sensitivity, performance incentives, managerial power, skimming, efficient contracts
    JEL: J31 M12 J41
    Date: 2015–03
  13. By: Daniel Ferreira (London School of Economics); Radoslawa Nikolowa (Queen Mary University of London)
    Abstract: We develop a model in which competition in the labor market may produce worker-firm matches that are inferior to those obtained in the absence of competition. This result contrasts with the conventional wisdom that competition among employers allocates scarce talent efficiently. In a model in which employers asymmetrically learn about the ability of their workers, we show that constraining labor market competition may be socially desirable precisely because it leads to better talent allocation. The model provides a cautionary counterpoint to one of the most popular arguments against the regulation of pay, i.e., the argument that price-distorting regulation leads to inefficient matches of workers and firms.
    Keywords: Labor markets, Asymmetric employer learning, Misallocation, Adverse selection
    JEL: D82 J31 M5
    Date: 2015–03
  14. By: d'Agostino, Giorgio; Pieroni, Luca; Scarlato, Margherita
    Abstract: In this paper, we assess the effects of the Italian labour market reforms which began in 2001 and which led to widespread deployment of temporary work contracts. Using a hitherto unexploited administrative dataset of work histories for the period 2003-2010, we estimate transition probabilities in the states of non-employment and employment and find a small positive effect on job creation, imputed to the reforms. Estimates also indicate a large increase in transitions to temporary contracts, which offset the reduction in permanent employment flows, although transition probabilities for men and women explain little heterogeneity. While we do find a substitution effect of the reforms on the transition between temporary and permanent contracts, the increased probability of being employed in temporary jobs mostly involved young people and workers in the depressed areas of the south of Italy.
    Keywords: Labour market policy; Atypical contract; Panel data; Inverse probability of weighting estimator
    JEL: C33 J41 J58 J64
    Date: 2015
  15. By: Schnabel, Claus (University of Erlangen-Nuremberg)
    Abstract: Comparing aggregate statistics and surveying selected empirical studies, this paper shows that the characteristics and results of labour markets in eastern and western Germany have become quite similar in some respects but still differ markedly in others even 25 years after unification. Whereas no substantial differences can be detected in firms' labour demand decisions and in employees' representation via works councils or trade unions, both parts of the country are somewhat apart concerning labour supply behaviour, labour productivity, wages, and bargaining coverage, and they still exhibit substantially different rates of unemployment. These differences may reflect observable and unobservable characteristics of economic actors as well as differences in behaviour, norms, and individuals' attitudes.
    Keywords: labour market disparities, German unification, transition, Germany
    JEL: J01 J20 J30 J50 P27
    Date: 2015–03
  16. By: Bradler, Christiane
    Abstract: Economic theory suggests that performance pay may serve as an effective screening device to attract productive agents. The existing evidence on the self-selection of agents is largely limited to job tasks where performance is driven by routine, well-defined procedures. This study presents evidence for a creative task and studies how agents self-select into a tournament-based scheme vs. a fixed pay scheme. The experiment allows for the measurement of creative productivity, risk preferences, self-assessments, gender, and other socio-economic characteristics such as the Big Five personality traits. Results show that the two payment schemes systematically attract agents with different characteristics. However, results differ fundamentally from previously found patterns. Agents did not self-select into the tournament scheme according to their creative productivity, but only according to their risk attitudes and self-assessments. The reason for the absence of a selection of the most creative agents into the tournament is that there exist substantial misjudgments of relative creative productivity. Further evidence from a representative German survey data set provides additional support for the experimental results suggesting external validity.
    Keywords: performance pay,tournaments,selection,sorting,creativity,experiment
    JEL: C91 D03 J33 M52
    Date: 2015
  17. By: Pierre-Andre Chiappori (Dept. of Economics, Columbia University); Monica Costa Dias (Institute for Fiscal Studies); Costas Meghir (Cowles Foundation, Yale University)
    Abstract: We develop an equilibrium lifecycle model of education, marriage and labor supply and consumption in a transferable utility context. Individuals start by choosing their investments in education anticipating returns in the marriage market and the labor market. They then match based on the economic value of marriage and on preferences. Equilibrium in the marriage market determines intrahousehold allocation of resources. Following marriage households (married or single) save, supply labor and consume private and public under uncertainty. Marriage thus has the dual role of providing public goods and offering risk sharing. The model is estimated using the British HPS.
    Keywords: Marriage market, Human capital, Labor supply, Life cycle models, Intrahousehold allocations, Collective model, Education choice, Returns to education
    JEL: J12 J16 J22 J24 H31 I24
    Date: 2015–03
  18. By: Albrecht, James (Department of Economics, Georgetown University); Skogman Thoursie, Peter (Department of Economics, Stockholm University); Vroman, Susan (Department of Economics, Georgetown University)
    Abstract: In this paper, we update and extend “Is There a Glass Ceiling in Sweden?” (Albrecht et al. 2003) by documenting the extent to which the gender log wage gap across the distribution in Sweden has changed over the period 1998-2008. We then examine the Swedish glass ceiling in 2008 in more detail by documenting how it differs for white-collar versus blue-collar workers and for private- versus public-sector workers. We also examine when in the life cycle the glass ceiling effect arises and how this effect develops around the birth of the first child. Finally, we investigate the possible connection between the glass ceiling and the parental leave system in Sweden by linking wage data with data on parental leave from different Swedish registers.
    Keywords: Gender gap; parental leave; quantile regression
    JEL: J16 J31 J71
    Date: 2015–03–04
  19. By: Fernando Botelho; Ricardo Madeira, Marcos A. Rangel
    Abstract: We investigate whether racial discrimination taking the form of the biased assessment of students is prevalent within Brazilian schools. Robust evidence is drawn from unique data pertaining to middle-school students and educators. After holding constant performance in blindly scored tests of proficiency and behavioral traits, we find that teacher-assigned Mathematics grades suffer from cardinal and ordinal biases. We unveil strong indications that these effects result from incomplete information issues highlighted in models of statistical discrimination which are made particularly salient by social promotion schemes currently operational in our context.
    Keywords: race; schooling; grading; standardized tests; statistical discrimination
    JEL: I21 J15 I24
    Date: 2015–03–17

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