nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2015‒06‒20
nine papers chosen by
Joseph Marchand
University of Alberta

  1. Firms and Skills: The Evolution of Worker Sorting By Håkanson, Christina; Lindqvist, Erik; Vlachos, Jonas
  2. The Effects of Compulsory Military Service Exemption on Education and Labor Market Outcomes: Evidence from a Natural Experiment By Huzeyfe Torun; Semih Tumen
  3. How Does Collective Reputation Affect Hiring? Selection and Sorting in an Online Labour Market By Guo Xu
  4. Wages in high-tech start-ups - do academic spin-offs pay a wage premium? By Dorner, Matthias; Fryges, Helmut; Schopen, Kathrin
  5. Do green jobs differ from non-green jobs in terms of skills and human capital? By Davide Consoli; Giovanni Marin; Alberto Marzucchi; Francesco Vona
  6. Holdup and hiring discrimination with search friction By BI, Sheng; LI, Yuanyuan
  7. The Information Value of Central School Exams By Guido Schwerdt; Ludger Woessmann
  8. Stabilizing Wage Policy By Mordecai Kurz
  9. How can the labor market accounts for the effectiveness of fiscal policy over the business cycle? By Thierry BETTI; Thomas COUDERT

  1. By: Håkanson, Christina (Sveriges Riksbank); Lindqvist, Erik (Stockholm School of Economics); Vlachos, Jonas (Department of Economics,)
    Abstract: We document a significant increase in the sorting of workers by cognitive and non-cognitive skills across Swedish firms between 1986 and 2008. The weight of the evidence suggests that the increase in sorting is due to stronger complementarities between worker skills and technology. In particular, a large fraction of the increase can be explained by the expansion of the ICT sector and a reallocation of engineers across firms. We also find evidence of increasing assortative matching, in the sense that workers who are particularly skilled in their respective educational groups are more likely to work in the same firms. Changes in sorting patterns and skill gradients can account for a about half of the increase in between-firm wage dispersion.
    Keywords: Skill sorting; Skilled-biased technological change; Outsourcing; Globalization; Cognitive skills; Non-cognitive skills; Personality; Employer-employee matched data
    JEL: J24 J62 L21 O33
    Date: 2015–06–04
  2. By: Huzeyfe Torun (Research and Monetary Policy Department, Central Bank of the Republic of Turkey); Semih Tumen (Research and Monetary Policy Department, Central Bank of the Republic of Turkey)
    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: 2015–06
  3. By: Guo Xu
    Abstract: How does collective reputation affect hiring and selection into jobs? Using detailed hiring data from a global online labour market, where the country of residence is the salient group characteristic, we document a mechanism through which collective reputation can perpetuate initial group inequality. Using an instrumental variable strategy, we first identify reputational externalities between an employer's very first hire and the propensity to contract more workers from the same country. Employers, contingent on their first worker's performance (as measured by a public rating), go on to almost exclusively hire from the same country. This coincides with a strong and positive supply-side sorting response: Observing their predecessor's success, workers from the same country are more likely to apply and tend to be of higher quality. Employers, facing better applicants, are in turn more likely to continue providing top ratings for later hires from the first hire country. Collective reputation hence appears to serve as a coordination device that enables workers to positively sort with employers: Good workers then attract more good workers from the same country and vice versa.
    JEL: J7 J16 L14
    Date: 2015–05
  4. By: Dorner, Matthias; Fryges, Helmut; Schopen, Kathrin
    Abstract: "Due to their origin from universities, academic spin-offs operate at the forefront of the technological development. Therefore, spin-offs exhibit a skill-biased labour demand, i.e. spin-offs have a high demand for employees with cutting edge knowledge and technical skills that distinguish them even from other high-tech start-up firms. In order to accommodate this demand, spin-offs may have to pay a relative wage premium compared to other high-tech start-ups. However, neither a comprehensive theoretical assessment nor the empirical literature on wages in start-ups unambiguously predicts the existence and the direction of wage differentials between spin-offs and non-spin-offs. This paper addresses this research gap and examines empirically whether or not spin-offs pay their employees a wage premium. Using a unique linked employer-employee data set of German high-tech start-ups, we estimate Mincer-type wage regressions applying the Hausman-Taylor panel estimator. Our results show that spin-offs do not pay a wage premium in general. However, a notable exception from this general result is that spin-offs that commercialise new scientific results or methods provide higher wages to employees with linkages to the university sector - either as university graduates or as student workers." (Author's abstract, IAB-Doku) ((en))
    Keywords: Unternehmensgründung, Hochschule, Wissenschaftler, Akademiker, Hochqualifizierte, Berufsanforderungen, Qualifikationsanforderungen, Lohnhöhe, Hochtechnologie, Integrierte Erwerbsbiografien
    JEL: J31 L26 M13 O34
    Date: 2015–06–09
  5. By: Davide Consoli (INGENIO CSIC-UPV, Valencia (Spain)); Giovanni Marin (IRCrES-CNR, Milano (Italy); OFCE-SciencesPo, Sophia Antipolis (France)); Alberto Marzucchi (Catholic University of Milan (Italy), SPRU, University of Sussex, Brighton (UK)); Francesco Vona (OFCE-SciencesPo, Sophia Antipolis (France), SKEMA Business School, Sophia Antipolis (France))
    Abstract: This paper elaborates an empirical analysis of labour force characteristics associated to environmental sustainability. Using data on the United States we compare green and non-green occupations to detect differences in terms of skill content and of human capital. Our empirical profiling reveals that green jobs use high-level abstract skills significantly more than non-green jobs. Moreover, green occupations exhibit higher levels of education, work experience and on-the-job training. While preliminary, this exploratory exercise calls attention to an underdeveloped theme, namely the labour market implications associated with the transition towards green growth.
    Keywords: Skills, Green Jobs, Task Model, Human Capital
    JEL: J21 J24 O31 O33 Q20 Q40
    Date: 2015–05
  6. By: BI, Sheng; LI, Yuanyuan
    Abstract: A holdup problem on workers’ skill investment arises when employers can adopt discriminatory hiring norm to extract higher than socially optimal profit. In such an economy, productivity (skills) and non-productivity oriented characteristics (discrimination) both matter when determining which worker has priority. The resulting firms’ preference is an intertwined ranking order, by virtue of which the strategic interdependence in skill choices between discriminated and favored groups endogenously arises. We consider frictional markets with either posted or bargained wage. With posted wage, discrimination makes all workers worse off, firms gain. Through that payoff interdependence, we identify two effects along which one group’s underinvestment may benefit all groups. With bargained wage, the discriminated (favored) group is always worse (better) off, and firms incur cost for an intermediated range of bargaining power when they discriminate. This suggests that the holdup-discrimination problem can be mitigated when search is random and wages bargained, a result in the opposite direction of Acemoglu and Shimer (1999b).
    Keywords: Discrimination; Directed Search; Pre-matching Investment
    JEL: J42 J70
    Date: 2015–06–15
  7. By: Guido Schwerdt (Department of Economics, University of Konstanz, Germany); Ludger Woessmann (University of Munich, Ifo Institute, Germany)
    Abstract: The central vs. local nature of high-school exit exam systems can have important repercussions on the labor market. By increasing the informational content of grades, central exams may improve the sorting of students by productivity. To test this, we exploit the unique German setting where students from states with and without central exams work on the same labor market. Our difference-in-difference model estimates whether the earnings difference between individuals with high and low grades differs between central and local exams. We find that the earnings premium for a one standard-deviation increase in high-school grades is indeed 6 percent when obtained on central exams but less than 2 percent when obtained on local exams. Choices of higher-education programs and of occupations do not appear major channels of this result.
    Keywords: Central exit exams, labor-market sorting, earnings, measurement error, difference-in-difference, Germany
    JEL: I20 J24 J31
    Date: 2015–06–08
  8. By: Mordecai Kurz (Stanford University)
    Abstract: A rapid recovery from deflationary shocks that result in transition to the Zero Lower Bound (ZLB) requires that policy generate an inflationary counter-force. Monetary policy cannot achieve it and the lesson of the 2007-2015 Great Recession is that growing debt give rise to a political gridlock which prevents restoration to full employment with deficit financed public spending. Even optimal investments in needed public projects cannot be undertaken at a zero interest rate. Hence, failure of policy to arrest the massive damage of eight year’s Great Recession shows the need for new policy tools. I propose such policy under the ZLB called "Stabilizing Wage Policy" which requires public intervention in markets instead of deficit financed expenditures. Section 1 develops a New Keynesian model with diverse beliefs and inflexible wages. Section 2 presents the policy and studies its efficacy. The integrated New Keynesian (NK) model economy consists of a lower s ub-economy under a ZLB and upper sub-economy with positive rate, linked by random transition between them. Household-firm-managers hold heterogenous beliefs and inflexible wage is based on a four quarter staggered wage structure so that mean wage is a relatively inflexible function of inflation, of unemployment and of a distributed lag of productivity. Equilibrium maps of the two sub-economies exhibit significant differences which emerge from the relative rates at which the nominal rate, prices and wage rate adjust to shocks. Two key results: first, decline to the ZLB lower sub- economy causes a powerful debt-deflation spiral. Second, output level, inflation and real wages rise in the lower sub-economy if all base wages are unexpectedly raised. Unemployment falls. This result is explored and explained since it is the key analytic result that motivates the policy. A Stabilizing Wage Policy aims to repair households' balance sheets, expedite recovery and exit from the ZLB. It raises base wages for policy duration with quarterly cost of living adjustment and a prohibition to alter base wages in order to nullify the policy. I use demand shocks to cause recession under a ZLB and a deleveraging rule to measure recovery. The rule is calibrated to repair damaged balance sheets of US households in 2007-2015. Sufficient deleveraging and a positive rate in the upper sub-economy without a wage policy are required for exit hence at exit time inflation and output in the lower sub-economy are irrelevant for exit decision. Simulations show effective policy selects high policy intensity at the outset and given the 2007-2015 experience, a constant 10% increased base wages raises equilibrium mean wage by about 5.5%, generates a controlled inflation of 5%-6% at exit time and attains recovery in a fraction of the time it takes for recovery without policy. Under a successful policy inflation exceeds the target at exit time and when policy terminates, inflation abates rapidly if the inflation target is intact. I suggest that a stabilizing wage policy with a constant 10% increased base wages could have been initiated in September 2008. If controlled inflation of 5% for 2.25 years would have been politically tolerated, the US would have recovered and exited the ZLB in 9 quarters and full employment restored by 2012. Lower policy intensity would have resulted in smaller increased mean wage, lower inflation but increased recession’s duration. The policy would not have required any federal budget expenditures, it would have reduced public deficits after 2010 and the US would have reached 2015 with a lower national debt. The policy negates the effect of demand shocks which cause the recession and the binding ZLB. It attains it’s goal with strong temporary intervention in the market instead of generating demand with public expenditures. It does not solve other long term structural problems that persist after exit from the ZLB and which require other solutions.
    Keywords: New Keynesian Model; wage scale; reference wage; inflexible wages; sticky prices; heterogenous beliefs; market belief; Rational Belie fs; Great Recession; Depression; monetary policy; Stabilizing Wage Policy
    JEL: D21 E12 E24 E3 E4 E52 E6 H3 J3 J6
    Date: 2015–05
  9. By: Thierry BETTI; Thomas COUDERT (LaRGE Research Center, Université de Strasbourg)
    Abstract: We develop a new-Keynesian model with a two-sector search and matching labor market framework. We investigate the first and second order effects of fiscal policy on labor market and on output. The model includes four fiscal instruments: a labor income tax, a social protection tax paid by firms, public wage and public vacancies. First-order simulations of the model indicate that whatever instrument is used, fiscal expansion significantly increases total employment and reduce unemployment. We explicit the different transmission channels at work. The main contribution is to use a second-order approximation of the model to investigate the effects of fiscal shocks for two states of the economy: a low unemployment state (6%) and a high unemployment state (12%). For the four fiscal instruments, response of employment is greater when the steady-state unemployment rate is high. We also emphasize a new channel for explaining a larger output fiscal multiplier in periods of economic downturn: the wage channel that plays a crucial role for explaining the non-linear effects of fiscal policy.
    Keywords: Labor Market Search, Wage Bargaining, Public Wage, Business Cycle, Fiscal Policy, Second Order.
    JEL: E62 J38
    Date: 2015

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