nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2015‒08‒01
seven papers chosen by
Joseph Marchand
University of Alberta

  1. Long Term Impacts of Vouchers for Vocational Training: Experimental Evidence for Colombia By Orazio Attanasio; Arlen Guarín; Carlos Medina; Costas Meghir
  2. The Effect of Income on Mortality - New Evidence for the Absence of a Causal Link By Ahammer, Alexander; Horvath, Gerard Thomas; Winter-Ebmer, Rudolf
  3. Weak Markets, Strong Teachers: Recession at Career Start and Teacher Effectiveness By Nagler, Markus; Piopiunik, Marc; West, Martin R.
  4. Inequality when Effort Matters By Martin Ravallion
  5. The effects of vocational education on adult skills and wages: What can we learn from PIAAC? By Giorgio Brunello; Lorenzo Rocco
  6. Financing Constraints and Fixed-term Employment Contracts: Evidence from 2008-09 Financial Crisis By Ana P. Fernandes; Priscila Ferreira
  7. When Do Punishment Institutions Work? By Patrick Aquino; Robert S. Gazzale; Sarah Jacobson

  1. By: Orazio Attanasio; Arlen Guarín; Carlos Medina; Costas Meghir
    Abstract: We use experimental data of a training program in 2005 in Colombia. We find that even up to ten years ahead, the JeA program had a positive and significant effect on the probability to work in the formal sector. Applicants in the treatment group also contributed more months to social security during the analyzed period, and to work for a large firm. Earnings of treated applicants were 11.8% higher in the whole sample, and they made larger contributions to social security. In addition, we also present non parametric bounds that for some percentiles of the sample of women, there are positive and nearly significant effects of the program. Thus, the effects of the program would have been capitalized both in increases in the likelihood of being formal, and increases in productivity. We also present evidence that the estimated program effects on the likelihood of working for the formal sector, the likelihood of working for a large firm, and the earnings in the formal sector, are not an artifact of analyzing multiple outcomes. We also find that for the whole sample of applicants, those in the treatment group have 0.315 more years of education, and have a probability of graduating from high school 10 percent higher than the control group. We find no significant effect on the probability of attending college or any school program, nor on fertility decisions, marital status or some dimensions of assortative mating. Among applicants matching to the census of the poorest population, we find that beneficiaries are more likely to participate in the labor market, to be employed, and to be enrolled in a private health insurance at the time of the survey. Finally, we find that the benefits of the JeA program are higher than it costs, leading to an internal rate of return of at least 22.1 percent. On the whole, the program was a cost-effective alternative, worth to consider to bridging the transit of youths from the informal to the formal sector in the future.
    JEL: J24 O15
    Date: 2015–07
  2. By: Ahammer, Alexander; Horvath, Gerard Thomas; Winter-Ebmer, Rudolf
    Abstract: We analyze the effect of income on mortality in Austria using administrative social security data. To tackle potential endogeneity concerns arising in this context, we estimate time-invariant firm-specific wage components and use them as instruments for actual wages. While we do find quantitatively small yet statistically significant effects in our naïve least squares estimations, IV regressions reveal a robust zero-effect of income on ten-year death rates for prime-age workers, both in terms of coecient magnitude and statistical significance. These results are robust to a number of different sample specifications and both linear and non-linear estimation methods.
    Keywords: income; mortality; wage decomposition
    JEL: I10 J14 J31
    Date: 2015–07
  3. By: Nagler, Markus; Piopiunik, Marc; West, Martin R.
    Abstract: How do alternative job opportunities affect teacher quality? We provide the first causal evidence on this question by exploiting business cycle conditions at career start as a source of exogenous variation in the outside options of potential teachers. Unlike prior research, we directly assess teacher quality with value-added measures of impacts on student test scores, using administrative data on 33,000 teachers in Florida public schools. Consistent with a Roy model of occupational choice, teachers entering the profession during recessions are significantly more effective in raising student test scores. Results are supported by placebo tests and not driven by differential attrition.
    Keywords: teacher value-added; talent allocation; business cycle; Roy model
    JEL: E32 H75 I20 J24
    Date: 2015–07
  4. By: Martin Ravallion
    Abstract: It is sometimes argued that poorer people choose to work less, implying less welfare inequality than suggested by observed incomes. Social policies have also acknowledged that efforts differ, and that people respond to incentives. Prevailing measures of inequality (in outcomes or opportunities) do not, however, measure incomes consistently with personal choices of effort. The direction of bias is unclear given the heterogeneity in efforts and preferences. Data on the labor supplies of single American adults suggest that adjusting for effort imposing common preferences attenuates inequality, although the effect is small. Allowing for preference heterogeneity consistently with behavior suggests higher inequality.
    JEL: D31 D63 I32 J22
    Date: 2015–07
  5. By: Giorgio Brunello; Lorenzo Rocco
    Abstract: Vocational education and training are highly valued by many. The European Ministers for Vocational Education and Training, the European Social Partners and the European Commission have issued in 2010 the Bruges Communiqué, which describes the global vision for VET in Europe 2020. In this vision, vocational skills and competencies are considered as important as academic skills and competencies. VET is expected to play an important role in achieving two Europe 2020 headline targets set in the education field: a) reduce the rate of early school leavers from education to less than 10 percent; b) increase the share of 30 to 40 years old having completed tertiary or equivalent education to at least 40 percent. However, there is limited hard evidence that VET can improve education and labour market outcomes. The few existing studies yield mixed results partly due to differences in the structure and quality of VET across countries. In this report we investigate the effects of VET on adult skills and labour market outcomes by using the PIAAC survey. Data comparability across countries, the breath of countries involved, and the almost unique presence of information on assessed skills, training, earnings and employment makes this survey especially valuable to study the different facets of VET as compared to more academic education. Our approach is to think of the possible education careers available to individuals as alternative treatments in a multivalued treatment framework. Focusing mainly but not exclusively on upper secondary, post-secondary and tertiary education, we assume that individuals are exposed to four alternative treatments: 1. vocational education at the upper secondary or post-secondary level; 2. academic education at the upper secondary or post-secondary level; 3. vocational education at the tertiary level; 4. academic education at the tertiary level. In most of this paper, comparisons between vocational and academic education are made at the same level of educational attainment, hence outcomes of treatment 1 (3) are compared to those of treatment 2 (4). Depending on the research question being investigated, other comparisons are possible and may deliver a different picture than the one presented here. Isolating the effect of VET courses is difficult in the absence of students’ ability at the time of entry. In this paper, we assume that the assignment of individuals to the treatments listed above is explained by parental education, country of birth, the number of books in the house at age 16 as well as the pupil/teacher ratio in primary school and the proportion of residents in rural areas at the age of selection. We discuss in the report how plausible this assumption is in the context of the data being used. This is important for the interpretation of our results. Only if this assumption holds we can treat our estimates of the effects of alternative treatments as causal effects. If it does not, a more modest interpretation is in order that views our findings as interesting correlations at best. In particular, if there are factors affecting selection into different curricula that we cannot control for with the data at hand, our estimates may still be affected by selection bias, which could amplify the estimate gap in labour market outcomes associated to alternative curricula. The results are encouraging in some ways while disappointing in others. Overall, at the ISCED 3 and 4 level, we find that VET performs about as well as academic education as far as earnings are concerned and a bit better in terms of employment outcomes. VET at the ISCED 3-4 level is also associated with higher training incidence. Finally, our findings support the view that the presence of vocational tracks helps keeping students with limited academic attitudes in school. On the other hand and despite the emphasis put on creating and/or expanding VET opportunities at the ISCED 5 level, we find a clear advantage of academic education at this level across all outcomes considered. Unsurprisingly, there are large cross-country differences in the estimates reported above, most likely explained by differences in the quality of VET instructions. For instance, there is evidence that the wage and employment returns to VET are higher in countries where the relative supply of VET graduates is lower. In these countries, skill performance by VET graduates is also better. However, in spite of the growing interest attracted by dual systems, which alternate school and work, we do not find systematic evidence that returns to VET are higher in the countries where vocational education systematically combines school and work. More specifically, at the ISCED 3-4 level, a vocational curriculum is associated to only slightly lower hourly earnings but a higher probability of being currently employed, and a higher share of the completed working life spent in paid employment. The estimated differences are small: for earnings, the negative gap ranges between -1.3 percent for males and -4.8 percent for females; for the probability of employment and the share of time spent in paid employment, the estimated positive gaps are 2.2 and 3.3 percentage points for males and 1.9 and 0.6 percentage points for females. On the other hand, the comparison between vocational and academic education is much more disappointing when we consider tertiary education (ISCED 5). In this case, the earnings gap between vocational and academic education at the time of the interview is as big as -19 percent for males and -21.7 percent for females. There is also a small negative gap in the probability of being currently employed. This gap should however be contrasted with the positive gap in the share of the working life spent in paid jobs, estimated at 6.9 percentage points in the case of males and at 3.7 percentage points in the case of females. Overall, the evidence we have on different ISCED levels suggests that vocational education does not perform as well as academic education when earnings are concerned, and performs slightly better than academic education when employability measures are considered. VET also performs less well than academic education on a number of other non-monetary outcomes. Independently of the ISCED level, we find that individuals with vocational education have a higher likelihood of being NEET (not employed and with no education or training in the past 12 months), report poorer health and have poorer civic behaviour than comparable individuals with academic education. There is also evidence that vocational education is associated to poorer labour market returns among older than younger cohorts. Whether these differences simply reflect cohort effects or also indicate the presence of age effects is impossible to tell with the data at hand, which are a cross section of individuals. This issue is important but must be left to better data and further research. When we consider the proficiency in foundation skills we find individuals with vocational education to be less proficient than those with academic education, for any ISCED level. This is true for both genders and, in spite of some heterogeneity, for all countries. The negative gap is larger for those with tertiary education and increases with the country-specific share of vocational students. In particular, we estimate that the negative percentage gap associated to vocational education at the secondary or post-secondary level ranges from -2.0 to -2.2 percent for literacy, from -1.9 to -2.9 percent for numeracy and from -1.8 to -2.3 for problem solving skills. In the case of tertiary education, the negative gap is larger and ranges from -5.7 to -5.9 for literacy, from -6.7 to -7 percent for numeracy and from -4.4 to -4.7 percent for problem solving skills. We also find that the relationship between initial vocational education and training and continuing vocational education and training varies with the level of education. When we consider upper secondary or post-secondary education, there is evidence that VET is associated with higher training incidence. The estimated positive gap with respect to academic education ranges from 2.4 percentage points for females to 4.0 percentage points for males. When we focus instead on tertiary education, the evidence suggests that those who have completed vocational curricula have on average a much lower investment in further training than those with an academic curriculum. In this case, the estimated negative gap is close to 10 percentage points. These results hold for both genders, even when we distinguish between on-the-job and off-the-job training. Interestingly, the negative effect of a vocational curriculum is larger in absolute value in countries with higher employment protection. Finally, we compare the labour market outcomes and the current skills of individuals who have completed upper secondary or post-secondary vocational education and individuals who have completed at most lower secondary education (ISCED 2). It is often said that the presence of vocational tracks helps keeping students with limited academic attitudes in school. Our empirical evidence shows that upper secondary VET is associated to substantially higher hourly earnings, employability and skills with respect to lower education. For males, we estimate an hourly earnings premium of 10.3 percent and an employment premium of 11.9 percentage points. VET graduates also enjoy close to 11 percent higher level of measured numeracy skills with respect to comparable individuals with at most lower secondary education. In spite of spending more time at school than the latter, the former also end up spending a higher percentage of time in paid employment.
    JEL: I21 I28 J01 J08 J24
    Date: 2015–07–29
  6. By: Ana P. Fernandes (University of Exeter); Priscila Ferreira (Universidade do Minho, NIMA)
    Abstract: This paper investigates the effects of financing constraints on employment decisions of firms, when it is possible to choose between permanent and fixed-term workers. We use linked employer-employee data for the universe of private sector firms in Portugal, and the 2008-09 financial crisis as a shock for identification. We find that firms in sectors that intrinsically rely more on external finance increased the share of fixed-term employment and hires after the crisis, while the effect for firms with wider access to buyer-supplier credit is relatively lower. At the worker level, workers in sectors that require significant external financing are more likely to be hired with a fixed-term contract after the crisis, while those in sectors that have wider access to supplier credit are less likely. Our results suggest that the crisis induced financially constrained firms to use the more flexible fixed-term contracts more intensively. Credit from suppliers alleviated this effect by potentially providing an alternative source of funds to credit from financial institutions.
    Keywords: Financial crisis, Credit constraints, Employment, Fixed-term Contracts
    JEL: J2 J41 G20 M51
    Date: 2015–06
  7. By: Patrick Aquino (Harvard Graduate School of Education); Robert S. Gazzale (University of Toronto); Sarah Jacobson (Williams College)
    Abstract: The public good literature has often found that a punishment option increases cooperation while the gift exchange literature has found the opposite. We use a novel experiment to seek the cause of this difference. We begin with a gift exchange game with punishment as it has typically been implemented therein, and modify two features to replicate conditions more like those usually used in a public good game: punishment's power and its timing (whether the punisher publicly pre-commits to punishment before the punishee decides or acts after the punishee). We replicate the result that punishment institutions as they have typically been implemented in gift exchange games "backfire," but show that this bad outcome disappears if punishment is more powerful. We find three reasons that punishment decreases cooperation: lower wages are offered (a stick is substituted for a carrot); punishment is poorly chosen by many punishers; and some agents spitefully choose low cooperation in retribution against a punishing principal, but only if the punishment is weak so that spite is relatively cheap. We find that punishment that is not publicly pre-committed to is not effective in this game, even though this kind of punishment is similar to that used in many public good games in the literature where punishment does seem to increase cooperation. The only punishment institution that increases cooperation is high-power punishment that is publicly pre-committed to. Finally, the existence of a punishment institution often decreases social surplus (when punishment-related losses are considered), although it may eventually increase social surplus if it is powerful and publicly pre-committed to.
    Keywords: punishment, cooperation, reciprocity, gift exchange, public good
    JEL: C91 D03 D64 H41 J41
    Date: 2015–07

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