nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2015‒06‒27
twenty papers chosen by
Joseph Marchand
University of Alberta

  1. Comparing Micro-Evidence on Rent Sharing from Three Different Approaches By Dobbelaere, Sabien; Mairesse, Jacques
  2. The UK's Productivity Puzzle By Bryson, Alex; Forth, John
  3. Peers' Composition Effects in the Short and in the Long Run: College Major, College Performance and Income By Anelli, Massimo; Peri, Giovanni
  4. Not Working at Work: Loafing, Unemployment and Labor Productivity By Burda, Michael C.; Genadek, Katie R.; Hamermesh, Daniel S.
  5. The Information Value of Central School Exams By Schwerdt, Guido; Woessmann, Ludger
  6. The effects of firing costs on the wage contracts under adverse selection. By Anne Bucher; Sébastien Ménard
  7. Explaining the Unexplained: Residual Wage Inequality, Manufacturing Decline, and Low-Skilled Immigration By Gould, Eric D.
  8. Did the Intergenerational Solidarity Pact Increase the Employment Rate of Older Workers in Belgium? A Macro-Econometric Evaluation By Dejemeppe, Muriel; Smith, Catherine; Van der Linden, Bruno
  9. Can Employment Reduce Lawlessness and Rebellion? A Field Experiment with High-Risk Men in a Fragile State By Christopher Blattman; Jeannie Annan
  10. Do Wage Expectations Influence the Decision to Enroll in Nursing College? By Schweri, Jürg; Hartog, Joop
  11. A Big Fish in a Small Pond: Ability Rank and Human Capital Investment By Elsner, Benjamin; Isphording, Ingo E.
  12. Does the gender mix among employers influence who gets hired? A labor market experiment By Alexia Gaudeul; Ayu Okvitawanli; Marian Panganiban
  13. Human Capital Quality and Aggregate Income Differences: Development Accounting for U.S. States By Eric A. Hanushek; Jens Ruhose; Ludger Woessmann
  14. The Effects of Earnings Disclosure on College Enrollment Decisions By Justine Hastings; Christopher A. Neilson; Seth D. Zimmerman
  15. Do Employment Protection Reforms Affect Well-Being? By Dräger, Vanessa
  16. How can the labor market accounts for the effectiveness of fiscal policy over the business cycle? By Thierry Betti; Thomas Coudert
  17. Job Polarization and Structural Change By Zsofia Barany; Christian Siegel
  18. Street based self-employment: A poverty trap or a stepping stone for migrant youth in Africa? By Bezu, Sosina; Holden, Stein
  19. Does Worker Wellbeing Affect Workplace Performance? By Bryson, Alex; Forth, John; Stokes, Lucy
  20. On the Effect of the Costs of Operating Formally: New Experimental Evidence By Sebastian Galiani; Marcela Meléndez; Camila Navajas

  1. By: Dobbelaere, Sabien (VU University Amsterdam); Mairesse, Jacques (CREST-INSEE)
    Abstract: Empirical labor economists have resorted to estimating the responsiveness of workers' wages on firms' ability to pay to assess the extent to which employers share rents with their employees. This paper compares this labor economics approach with two other approaches that rely on standard micro production data only: the productivity approach for which estimates of the output elasticities of labor and materials and data on the respective revenue shares are needed and the accounting approach which boils down to directly computing the extent of rent sharing from firm accounting information. Using matched employer-employee data on 60,294 employees working in 9,849 firms over the period 1984-2001 in France, we quantify industry differences in rent-sharing parameters derived from the three approaches. We find a median absolute extent of rent sharing of about 0.30 using either the productivity or the accounting approach. Only exploiting firm-level information brings this median rent-sharing parameter down to 0.16 using the labor economics approach. Controlling for unobserved worker ability further reduces the median absolute extent of rent sharing to 0.08. Our analysis makes clear that the three different approaches face important trade-offs. Hence, empirical economists interested in establishing that profits are shared should select the appropriate approach based on the particular research question and on the data at hand.
    Keywords: rent sharing, wage equation, production function, matched employer-employee data
    JEL: C23 D21 J31 J51
    Date: 2015–06
  2. By: Bryson, Alex (National Institute of Economic and Social Research (NIESR)); Forth, John (National Institute of Economic and Social Research (NIESR))
    Abstract: The 2008 Great Recession was notable in the UK for three things: the enormity of the output shock; the muted unemployment response; and the very slow rate of recovery. We review the literature which finds most of the decline in productivity is within sector and within firm before presenting new micro-analysis of workplace-level behaviour between 2004 and 2011 to gain insights into the processes that may have contributed to this aggregate picture. We find clear evidence of labour intensification but employers appeared incapable of turning this effort into improved workplace level productivity. Widespread pay freezes and cuts were often initiated in direct response to the recession. Workplace closure rates were little different to those experienced prior to the recession, but there is some evidence of a "cleansing" effect with poorer performing workplaces being more likely to close. There is some evidence of labour "hoarding", especially hoarding of high skilled labour: this has had no discernible impact on the rate of innovation. There is no impact of recession on either the number of HRM practices workplaces invested in, nor their returns on those investments. There is no evidence that workplaces have benefited from Britain’s "flexible" labour market as indicated by using recruitment channels used by welfare recipients or the use of numerically flexible workers. On the contrary, workplaces with increasing unionisation appeared to benefit in terms of improved workplace performance.
    Keywords: productivity, recession
    JEL: D22 E22 E23 E24 J23 J24 J3
    Date: 2015–06
  3. By: Anelli, Massimo (University of California, Davis); Peri, Giovanni (University of California, Davis)
    Abstract: In this paper we use a newly constructed dataset following 30,000 Italian individuals from high school to labor market and we analyze whether the gender composition of peers in high school affected their choice of college major, their academic performance and their labor market income. We leverage the fact that the composition of high school classmates (peers), within school-cohort and teacher-group, was not chosen by the students and it was as good as random. We find that male students graduating from classes with at least 80% of male peers were more likely to choose "prevalently male" (PM) college majors (Economics, Business and Engineering). However, this higher propensity to enroll in PM majors faded away during college (through transfers and attrition) so that men from classes with at least 80% of male peers in high school did not have higher probability of graduating in PM majors. They had instead worse college performance and did not exhibit any difference in income or labor market outcomes after college. We do not find significant effects on women.
    Keywords: peer effects, high school, gender, choice of college major, academic performance, wages
    JEL: I21 J16 J24 J31 Z13
    Date: 2015–06
  4. By: Burda, Michael C. (Humboldt University Berlin); Genadek, Katie R. (University of Minnesota); Hamermesh, Daniel S. (Royal Holloway; University of Texas at Austin)
    Abstract: Using the American Time Use Survey (ATUS) 2003-12, we estimate time spent by workers in non-work while on the job. Non-work time is substantial and varies positively with the local unemployment rate. While the average time spent by workers in non-work conditional on any positive non-work rises with the unemployment rate, the fraction of workers who report time in non-work varies pro-cyclically, declining in recessions. These results are consistent with a model in which heterogeneous workers are paid efficiency wages to refrain from loafing on the job. That model correctly predicts relationships of the incidence and conditional amounts of non-work with wage rates and measures of unemployment benefits in state data linked to the ATUS, and it is consistent with observed occupational differences in non-work.
    Keywords: time use, non-work, loafing, shirking, efficiency wage, labor productivity
    JEL: J22 E24
    Date: 2015–06
  5. By: Schwerdt, Guido (University of Konstanz); Woessmann, Ludger (Ifo Institute for Economic Research)
    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
  6. By: Anne Bucher; Sébastien Ménard
    Abstract: We develop a two-period principal-agent model to investigate the effects of firing costs on self-selection mechanisms and on the optimal wage contracts under adverse selection. There are two types of risk-averse workers who differ by their ability. The worker’s ability is private information but revealed once engaged in production. The adverse selection problem may be solve by workers’ selection from a menu of separating contracts that specifies a sequence of wages with dismissal being the only form of punishment to a worker who overstated his ability. We find that as firing costs increase, the wage-tenure profile of high-ability workers gets steeper while the information rent left to low-ability workers vanishes. For higher levels of firing costs, an incentive menu of contracts provides the most able workers with a lower starting wage than the less able workers. As the expected profit from separating contracts decreases with dismissal costs, there exists a threshold above which the employer prefers to offer a pooling wage that might drive good workers out of the labor market.
    Keywords: Adverse Selection, Principal Agent, Labor Contracts, Wage, Firing Costs.
    JEL: D82 J31 J41 J08
    Date: 2015
  7. By: Gould, Eric D. (Hebrew University, Jerusalem)
    Abstract: This paper investigates whether the increasing "residual wage inequality" trend is related to manufacturing decline and the influx of low-skilled immigrants. There is a vast literature arguing that technological change, international trade, and institutional factors have played a significant role in the inequality trend. However, most of the trend is unexplained by observable factors. This paper attempts to "explain" the growth in the unexplained variance of wages by exploiting variation across locations (states or cities) in the United States in the local level of "residual inequality." The evidence shows that a shrinking manufacturing sector increases inequality. In addition, an influx of low-skilled immigrants increases inequality, but this effect is concentrated in areas with a steeper manufacturing decline. Similar results are found for two alternative measures linked to increasing inequality: the increasing return to education and the decline in the employment rate of non-college men. The overall evidence suggests that the manufacturing and immigration trends have hollowed-out the overall demand for middle-skilled workers in all sectors, while increasing the supply of workers in lower skilled jobs. Both phenomena are producing downward pressure on the relative wages of workers at the low end of the income distribution.
    Keywords: inequality, manufacturing, low-skilled immigration
    JEL: J31
    Date: 2015–06
  8. By: Dejemeppe, Muriel (Université catholique de Louvain); Smith, Catherine (Catholic University Louvain); Van der Linden, Bruno (IRES, Université catholique de Louvain)
    Abstract: In December 2005, the Belgian government adopted the law on the Intergenerational Solidarity Pact (ISP) aiming at increasing the employment rate of older workers. The main policies of the ISP consist in a pension bonus, reductions in employers' social security contributions and measures discouraging early retirement while encouraging working time reductions at the end of the career. We aim at evaluating the overall effectiveness of the ISP in rising the employment rate of older workers. To that purpose, we compare the actual evolution of the employment rate after the implementation of the policies to its predicted (counterfactual) evolution based on the estimation of a macroeconometric model in a period prior to the ISP. The results suggest a slight positive impact of the ISP on the employment rate of older workers but to the detriment of the younger workers. However, there is a lack of statistical power to draw firm conclusions on the overall effect of the ISP.
    Keywords: aging, evaluation of labor market policies, macro-econometrics
    JEL: J21 J26 H53 E32
    Date: 2015–06
  9. By: Christopher Blattman; Jeannie Annan
    Abstract: States and aid agencies use employment programs to rehabilitate high-risk men in the belief that peaceful work opportunities will deter them from crime and violence. Rigorous evidence is rare. We experimentally evaluate a program of agricultural training, capital inputs, and counseling for Liberian ex-fighters who were illegally mining or occupying rubber plantations. 14 months after the program ended, men who accepted the program offer increased their farm employment and profits, and shifted work hours away from illicit activities. Men also reduced interest in mercenary work in a nearby war. Finally, some men did not receive their capital inputs but expected a future cash transfer instead, and they reduced illicit and mercenary activities most of all. The evidence suggests that illicit and mercenary labor supply responds to small changes in returns to peaceful work, especially future and ongoing incentives. But the impacts of training alone, without capital, appear to be low.
    JEL: C93 D74 J21 O12
    Date: 2015–06
  10. By: Schweri, Jürg (Swiss Federal Institute for Vocational Education and Training); Hartog, Joop (University of Amsterdam)
    Abstract: As Switzerland experiences a severe shortage of nurses, this paper investigates the impact of students' ex ante wage expectations on their choice to pursue a nursing college education. This analysis contributes to a small yet rapidly developing body of literature that uses subjective expectation data to predict educational choices. We surveyed a full cohort of healthcare trainees in their third year of training. The main result is that those trainees (in upper-secondary education) who expected a greater return from nursing college (tertiary education) were more likely to enroll in nursing college later on. This suggests that policies that increase returns from studying nursing can attract students to nursing. In addition, the results confirm that subjective wage expectation data are useful in modeling individual choice.
    Keywords: college choice, fractional regression, healthcare, human capital, nursing, subjective expectations, training, wage
    JEL: I11 I21 J24 J31 D84
    Date: 2015–06
  11. By: Elsner, Benjamin (IZA); Isphording, Ingo E. (IZA)
    Abstract: We study the impact of a student's ordinal rank in a high school cohort on educational attainment several years later. To identify a causal effect, we compare multiple cohorts within the same school, exploiting idiosyncratic variation in cohort composition. We find that a student's ordinal rank significantly affects educational outcomes later in life. If two students with the same ability have a different rank in their respective cohort, the higher- ranked student is significantly more likely to finish high school, attend college, and complete a 4-year college degree. These results suggest that low-ranked students under-invest in their human capital even if they have a high ability compared to most students of the same age. Exploring potential channels, we find that students with a higher rank have higher expectations about their future career, a higher perceived intelligence, and receive more support from their teachers.
    Keywords: human capital, ordinal rank, peer effects, educational attainment
    JEL: I21 I23 J24
    Date: 2015–06
  12. By: Alexia Gaudeul (Friedrich-Schiller-Universität, Jena); Ayu Okvitawanli (Friedrich-Schiller-Universität, Jena); Marian Panganiban (Friedrich-Schiller-Universität, Jena, and Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: We consider in this paper whether the gender mix at the level of decision-makers in firms can influence gender representation at the employee level. We run a laboratory experiment whereby we present a pair of independent employers with applications from two potential employees. We consider whether the gender of the other employer will influence an employer's hiring decision. We find that the gender mix among employers plays a role in the individual hiring decisions of female members. Female employers when paired with a male employer are more likely to choose a female applicant over an equally competent male applicant. Results of an Implicit Association Test (IAT) and answers to a post-experimental questionnaire show that explicit beliefs about relative gender performance are significantly associated with the observed hiring bias, while implicit attitudes do not appear to play a role.
    Keywords: discrimination, hiring, IAT, implicit attitudes, gender quotas, labor markets, employment
    JEL: J71 J78 C91
    Date: 2015–06–18
  13. By: Eric A. Hanushek; Jens Ruhose; Ludger Woessmann
    Abstract: Although many U.S. state policies presume that human capital is important for state economic development, there is little research linking better education to state incomes. In a complement to international studies of income differences, we investigate the extent to which quality-adjusted measures of human capital can explain within-country income differences. We develop detailed measures of state human capital based on school attainment from census micro data and on cognitive skills from state- and country-of-origin achievement tests. Partitioning current state workforces into state locals, interstate migrants, and immigrants, we adjust achievement scores for selective migration. We use the new human capital measures in development accounting analyses calibrated with standard production parameters. We find that differences in human capital account for 20-35 percent of the current variation in per-capita GDP among states, with roughly even contributions by school attainment and cognitive skills. Similar results emerge from growth accounting analyses.
    JEL: I25 J24 O47
    Date: 2015–06
  14. By: Justine Hastings; Christopher A. Neilson; Seth D. Zimmerman
    Abstract: We test the impact of information about institution- and major-specific labor market outcomes on college enrollment decisions using a randomized controlled trial administered within the online Chilean federal student loan application process. Using linked secondary and post-secondary education records and tax returns for fourteen cohorts of Chilean high school graduates, we created measures of past-cohort earnings for nearly all institution and major combinations in the Chilean higher education system. Applicants were asked a series of survey questions about their enrollment plans and their beliefs about earnings and cost outcomes. Following the survey questions, randomly selected applicants were given information on earnings and costs for past students at their planned enrollment choices, as well as access to a searchable database that allowed them to compare earnings and costs across degrees. Students have unbiased but highly variable beliefs about costs, and upward-biased beliefs about earnings outcomes. Poorer students have less accurate information and choose lower-earning degrees conditional on baseline ability and demographics. While treatment has no effect on whether students enroll in postsecondary education, it does cause low-SES students to enroll in degrees where earnings net of costs were higher for past enrollees. Though effect sizes are small, they substantially exceed the cost of implementing the disclosure policy.
    JEL: H0 H52 I22 I23 I24 J3
    Date: 2015–06
  15. By: Dräger, Vanessa (University of Cologne)
    Abstract: This paper examines reforms in German employment protection for permanent workers (EPLP) on workers' well-being. Using variation in how the reforms affected firms of different sizes, I apply a difference-in-differences approach in conjunction with individual fixed effects. I find that life satisfaction of temporary workers decreases by around 0.5 (10-point scale) when EPLP decreases. I investigate effect heterogeneity and discuss mechanisms. Placebo tests are conducted. An increase in EPLP had no effect. Due to the design of the EPLP reforms, the majority of permanent workers did not face major changes in EPLP.
    Keywords: employment protection reforms, well-being, quasi-experiment, difference-in-difference
    JEL: J32 J38
    Date: 2015–06
  16. By: Thierry Betti; Thomas Coudert
    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, PublicWage, Business Cycle, Fiscal Policy, Second Order.
    JEL: E62 J38
    Date: 2015
  17. By: Zsofia Barany (Département d'économie); Christian Siegel (University of Exeter)
    Abstract: We document that job polarization – contrary to the consensus – has started as early as the 1950s in the US: middle-wage workers have been losing both in terms of employment and average wage growth compared to low- and high-wage workers. Given that polarization is a long-run phenomenon and closely linked to the shift from manufacturing to services, we propose a structural change driven explanation, where we explicitly model the sectoral choice of workers. Our simple model does remarkably well not only in matching the evolution of sectoral employment, but also of relative wages over the past fifty years.
    Keywords: Job Polarization; Structural Change; Roy Model
    JEL: E24 J22 O41
    Date: 2015–06
  18. By: Bezu, Sosina (Centre for Land Tenure Studies, Norwegian University of Life Sciences); Holden, Stein (Centre for Land Tenure Studies, Norwegian University of Life Sciences)
    Abstract: Street vending of goods and services is a common phenomenon in urban areas of Africa. Although such street based self-employment activities often lack legal recognition and are sometimes criminalized, significant share of the youth labor force in urban areas earn their livelihood from such activities. This study examines whether street based self-employment is a viable livelihood with a potential for transition or a poverty trap for youth migrants. The study is based on a survey of 445 youth who are engaged in shoe shining and coffee vending activities in two urban areas in Ethiopia. We found that street based self-employment is indeed dominated by migrant youth. In this sample, 96% of those engaged in the street based self-employment are youth and 98% are migrants from rural areas or smaller towns. We found that the average monthly earning of these self-employed youth is better than the minimum wage in public sector and much larger than the official poverty line. We found that most of the youth consider this as transitory employment and accumulate skill and capital with a view to establishing their own enterprise or joining skilled employment. While young women are in general found to be less likely than young men to seek exit out of street based self-employment, education increases the likelihood that young women aspire for a change in their employment situation. Youth with better-off parents back home and those with larger network in their new residence are more likely to change their current occupation.
    Keywords: Informal employment; youth migration; youth unemployment; Africa; Ethiopia
    JEL: J20 J60 O15 O17
    Date: 2015–06–15
  19. By: Bryson, Alex (National Institute of Economic and Social Research (NIESR)); Forth, John (National Institute of Economic and Social Research (NIESR)); Stokes, Lucy (National Institute of Economic and Social Research (NIESR))
    Abstract: This paper uses linked employer-employee data to investigate the relationship between employees' subjective well-being and workplace performance in Britain. The analyses show a clear, positive and statistically-significant relationship between the average level of job satisfaction at the workplace and workplace performance. This finding is present in both cross-sectional and panel analyses and is robust to various estimation methods and model specifications. In contrast, we find no association between levels of job-related affect and workplace performance.
    Keywords: subjective wellbeing, job satisfaction, job-related affect, workplace performance
    JEL: J28
    Date: 2015–06
  20. By: Sebastian Galiani; Marcela Meléndez; Camila Navajas
    Abstract: This paper analyzes the impact of the elimination of the initial fixed costs of registration on the decision of informal firms to operate formally in Bogotá, Colombia. The Chamber of Commerce of Bogotá (CCB) conducts workshops for prospective formal-sector entrants and arranges personalized meetings for them with CCB agents. The CCB’s decision to significantly reduce the transaction costs of registration and the entry into force of Act No. 1429 of 2010, which eliminated the costs of the initial procedure for registering as a formal enterprise and provided exemptions from relevant taxes during the first years after formalization, provided us with an ideal experiment for studying how the elimination of the initial fixed costs of formalization would influence firms’ decision to operate formally or not. We obtained two important results. First, while a workshop treatment had no effect on firms’ formalization decisions, meetings at the firm with CCB agents raised the likelihood that a business would begin to operate formally by 5.5 percentage points for all the firms that were invited, at random, to participate in this arm of the intervention and by 32 percentage points for the firms that accepted the invitation. Second, the effect on the treatment firms did not persist over time. After a year of formal operation, it disappeared. These results indicate that substantial reductions in the fixed costs of operating formally are not effective in formalization choices, since such reductions had no lasting effect on formalization decisions.
    JEL: J21
    Date: 2015–06

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