nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2015‒09‒05
fourteen papers chosen by
Joseph Marchand
University of Alberta

  1. Stemming the tide. What have EU countries done to support low-wage workers in an era of downward wage pressure? By Sarah Marchal; Ive Marx
  2. Gender gap in pay in the Russian Federation : twenty years later, still a concern By Atencio,Andrea; Posadas,Josefina
  3. Skill Gaps in the Workplace: Measurement, Determinants and Impacts By McGuinness, Seamus; Ortiz, Luis
  4. Where Does the Surplus Go? Disentangling the Capital-Labor Distributive Conflict By Francesco Bogliacino; Dario Guarascio; Valeria Cirillo
  5. The Misallocation of Labor in Village Economies By Oriana Bandiera; Robin Burgess; Narayan Das; Selim Gulesci; Imran Rasul; Munshi Sulaiman
  6. The Value and Risk of Human Capital By Benzoni, Luca; Chyruk, Olena
  7. First-Place Loving and Last-Place Loathing: How Rank in the Distribution of Performance Affects Effort Provision By Gill, David; Kissová, Zdenka; Lee, Jaesun; Prowse, Victoria L.
  8. The Turnaround of Swedish Industry: Reforms, Firm Diversity and Job and Productivity Dynamics By Heyman, Fredrik; Norbäck, Pehr-Johan; Persson, Lars
  9. The Effects of Test-based Retention on Student Outcomes over Time: Regression Discontinuity Evidence from Florida By Guido Schwerdt; Martin R. West; Marcus A. Winters
  10. Intra Firm Bargaining and Shapley Values By Björn Brügemann; Pieter Gautier; Guido Menzio
  11. A Theory of Intergenerational Mobility By Becker, Gary; Kominers, Scott Duke; Murphy, Kevin M.; Spenkuch, Jörg L.
  12. The Logic of Agglomeration By Gilles Duranton; William R. Kerr
  13. The Effects of Two Influential Early Childhood Interventions on Health and Healthy Behaviors By Gabriella Conti; James J. Heckman; Rodrigo Pinto
  14. Do More of Those in Misery Suffer from Poverty, Unemployment or Mental Illness? By Sarah Flèche; Richard Layard

  1. By: Sarah Marchal; Ive Marx
    Abstract: Governments across the EU have been striving to get more people into work while at the same time acknowledging that more needs to be done to ‘make work pay’. Yet this drive comes at a time when structural economic shifts are putting pressure on wages, especially of less skilled workers. This article focuses on trends in minimum wages, income taxes, and work-related benefits within a selection of 16 EU countries, for the period 2001-2012, with three US states included as reference cases. We find evidence for eroding relative minimum wages in various EU countries, yet combined with catch-up growth in the new Member States. We also find that governments counteracted eroding minimum wages through direct income support measures, especially for lone parents. Most prevalent among these were substantial declines in income tax liabilities. More generally we see a trend unfolding towards a fiscalization of income support policies.
    Keywords: social policy, in-work benefits, minimum wages
    JEL: I38
    Date: 2015–08
  2. By: Atencio,Andrea; Posadas,Josefina
    Abstract: This paper decomposes the gender gap in pay in the Russian Federation along the earnings distribution for the period 1996?2011. The analysis uses a reweighted, recentered influence function decomposition that allows estimating the contribution of each covariate on the wage structure and composition effects along the earnings distribution. The paper finds that women are in flat career paths compared with men; the importance of observable characteristics that proxy human capital in the gender pay gap decrease along the earnings distribution; and if women?s pay took into account their educational degrees as much as men?s, the gender pay gap would disappear or even reverse at the top of the earnings distribution. The results suggest that women at the bottom of the earnings distribution should be helped to increase their labor market skills, and women at the top of the distribution should be helped to break the glass ceiling and be remunerated for their skills to the same extent as men.
    Keywords: Labor Markets,Population Policies,Labor Policies,Rural Development Knowledge&Information Systems,Gender and Development
    Date: 2015–08–27
  3. By: McGuinness, Seamus (Economic and Social Research Institute, Dublin); Ortiz, Luis (Universitat Pompeu Fabra)
    Abstract: Optimal training decisions require employers to have accurate information about their workers' training needs. However, little is known with regard to the key factors determining the accurate transmission of worker training requirements. Using one of the few linked employer-employee surveys in the world, the 2006 Irish National Employment Survey, this paper identifies the key factors determining the correct identification of skill gaps within firms. The impact of skill gaps on average training expenditures and labour costs is also measured. The research finds that both HRM and collective bargaining arrangements are important factors in facilitating the accurate identification of skill gaps within firms. The analysis confirms that skill gaps are a key determinant of training expenditures and tend to raise average labour costs. Finally, the evidence suggests that employee perceptions of skill gaps may be prone to higher levels of subjective bias relative to those based on the employers' views.
    Keywords: skill gaps, subjective bias, labour costs, training costs
    JEL: J20 J24 J50
    Date: 2015–08
  4. By: Francesco Bogliacino; Dario Guarascio; Valeria Cirillo
    Abstract: The evidence on growing inequality in OECD countries has raised an important debate over its main drivers, pointing out an increasing importance of capital-labour conflict. In this contribution, we aim at disentangling the role of some of the forces shaping this process. Our identification strategy relies on the sequential nature of wage setting and profits realization, in line with theoretical insights from the range theory of wages (postulating rents sharing at the shop floor level) and the principle of effective demand. In particular we focus on the role of technology and offshoring as instruments to create surplus and to shape the bargaining power of the parties involved in wage setting, and on different sources of demand as heterogeneous determinants of profits realization. The empirical analysis is performed on a panel of 38 manufacturing and service sectors over four time periods from 1995 to 2010, covering Germany, France, Italy, Spain, and United Kingdom. The contrasting effects of R&D and offshoring emerge as determinants of wages. Investment and internal demands are key variables in the realization of profits. When we look at the heterogeneity of the effects we see three main stylized facts. First of all, distinguishing for technological domain using Pavitt classes we can see that rents are effectively related with upgraded industries. Secondly, when we distinguish for the degree of openness we can see that, again, rents are mainly shared in open industries. Finally, when we disentangle the effect on wages per skill level, it is possible to confirm the intuition that offshoring hits the medium-low skill categories.
    Keywords: rent; surplus; distribution; inequality; offshoring; R&D
    JEL: O33 F15 J31
    Date: 2015–08–19
  5. By: Oriana Bandiera; Robin Burgess; Narayan Das; Selim Gulesci; Imran Rasul; Munshi Sulaiman
    Abstract: We study how the poor in village economies allocate their labor across work activities, and how their choices shape village-wide outcomes. We combine data from 21000 poor and non-poor households in 1309 villages in Bangladesh with the randomized evaluation of a program that provides a large, one-off, transfer of assets and skills to the poorest women. The evidence suggests the poor face imperfections in capital markets that keep them in a low asset-low employment poverty trap where they are only able to engage in low return and seasonal casual wage labor. The transfer of assets and skills allows them to address this misallocation of labor by undertaking more productive capital-intensive work activities, thus increasing total labor supply, earnings, savings and asset holdings. The improved earnings capacity and resource base of the poor allows them to engage in financial intermediation that benefits non-poor households and leads to village-wide increases in savings, saving rates and capital accumulation. Lifting the poor out of the poverty trap therefore sets in place a virtuous cycle that improves the allocation of labor and places the entire village economy on a trajectory out of poverty.
    JEL: J22 O12
    Date: 2015–08
  6. By: Benzoni, Luca (Federal Reserve Bank of Chicago); Chyruk, Olena (Federal Reserve Bank of Chicago)
    Abstract: Human capital embodies the knowledge, skills, health and values that contribute to making people productive. These qualities, however, are hard to measure, and quantitative studies of human capital are typically based on the valuation of the lifetime income that a person generates in the labor market. This article surveys the theoretical and empirical literature that models a worker’s life-cycle earnings and identifies appropriate discount rates to translate those cash flows into a certainty equivalent of wealth. This paper begins with an overview of a stylized model of human capital valuation with exogenous labor income. The authors then discuss extensions to this framework that study the underlying economic sources of labor income shocks, the choices, such as work, leisure, retirement and investment in education, that people make over their life and their implications for human capital valuation and risk.
    Keywords: human capital; labor income; employment
    JEL: G10 G12 J22 J24 J26 J31
    Date: 2015–07–20
  7. By: Gill, David (University of Oxford); Kissová, Zdenka (PricewaterhouseCoopers LLP); Lee, Jaesun (Cornell University); Prowse, Victoria L. (Cornell University)
    Abstract: Rank-order relative-performance evaluation, in which pay, promotion and symbolic awards depend on the rank of workers in the distribution of performance, is ubiquitous. Whenever firms use rank-order relative-performance evaluation, workers receive feedback about their rank. Using a real-effort experiment, we aim to discover whether workers respond to the specific rank that they achieve. In particular, we leverage random variation in the allocation of rank among subjects who exerted the same effort to obtain a causal estimate of the rank response function that describes how effort provision responds to the content of rank-order feedback. We find that the rank response function is U-shaped. Subjects exhibit 'first-place loving' and 'last-place loathing', that is subjects increase their effort the most after being ranked first or last. We discuss implications of our findings for the optimal design of firms' performance feedback policies, workplace organizational structures and incentives schemes.
    Keywords: relative performance evaluation, relative performance feedback, rank order feedback, dynamic effort provision, real effort experiment, flat wage, fixed wage, taste for rank, status seeking, social esteem, self esteem, public feedback, private feedback
    JEL: C23 C91 J22 M12
    Date: 2015–08
  8. By: Heyman, Fredrik (Research Institute of Industrial Economics (IFN)); Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN))
    Abstract: In this paper, we argue that fundamental reforms of the Swedish business sector can explain the remarkable productivity and employment growth that followed the deep economic crisis in Sweden in the early 1990s. In the 1970s and 1980s, Sweden had one of the most regulated business sectors in the developed world. In the 1990s, however, Sweden reformed its labour market, product market, and corporate tax system as well as removed barriers to foreign direct investment (FDI). Our main finding from our institutional and theoretical examination is that the removal of barriers to entry and growth for new and productive firms and the increased rewards for investments in human capital and effort in workplaces were crucial to the success of these reforms. We find support for our thesis using detailed matched plant-firm-worker data. In particular, we observe increased allocative efficiency, measured as increased market share for more productive firms. Moreover, we show that foreign firms substantially contributed to productivity and employment growth during this period, which suggests that the liberalization of FDI was an important factor in the success of the reforms. Finally, we discuss how other countries can benefit from the Swedish experience by examining factors that appear to be specific to Sweden and others that can be generalized to other countries.
    Keywords: Regulations; Allocative efficiency; Productivity; Job dynamics; Matched employer-employee data; Industrial structure and structural change
    JEL: D22 E23 J21 J23 K23 L11 L16 L51
    Date: 2015–09–01
  9. By: Guido Schwerdt; Martin R. West; Marcus A. Winters
    Abstract: Many American states require that students lacking basic reading proficiency after third grade be retained and remediated. We exploit a discontinuity in the probability of retention under Floridas test-based promotion policy to study the causal effect of retention on student outcomes over time. Although OLS estimates suggest negative effects on achievement, regression discontinuity estimates indicate large positive achievement effects and reduced retention probabilities in future years. After six years, the achievement gains from retention fade out entirely when retained students are compared to their same-age peers, but remain substantial when compared to peers in the same grade. Contrary to prior research based on observational data, we find that early grade retention has no effect on the probability that students graduate from high school.
    JEL: H52 I21 I28
    Date: 2015–08
  10. By: Björn Brügemann (VU University Amsterdam); Pieter Gautier (VU University Amsterdam); Guido Menzio (University of Pennsylvania, United States)
    Abstract: The paper revisits the problem of wage bargaining between a firm and multiple workers. We show that the Subgame Perfect Equilibrium of the extensive-form game proposed by Stole and Zwiebel (1996a) does not imply a profile of wages and profits that coincides with the Shapley values as claimed in their classic paper. We propose an alternative extensive-form bargaining game, the Rolodex Game, that follows a simple and realistic protocol and that, under some mild restrictions, admits a unique Subgame Perfect Equilibrium generating a profile of wages and profits that are equal to the Shapley values. The vast applied literature that refers to the Stole and Zwiebel game to give a game-theoretic foundation to the use of the Shapley values as the outcome of the bargain between a firm and multiple workers should instead refer to the Rolodex game.
    Keywords: Intra firm bargaining; Shapley value
    JEL: D21 J30
    Date: 2015–08–18
  11. By: Becker, Gary; Kominers, Scott Duke; Murphy, Kevin M.; Spenkuch, Jörg L.
    Abstract: We develop a model of intergenerational resource transmission that emphasizes the link between cross-sectional inequality and intergenerational mobility. By drawing on first principles of human capital theory, we derive several novel results. In particular, we show that, even in a world with perfect capital markets and without differences in innate ability, wealthy parents invest, on average, more in their offspring than poorer ones. As a result, persistence of economic status is higher at the top of the income distribution than in the middle. Successive generations of the same family may even cease to regress towards the mean. Moreover, we demonstrate that government interventions intended to ameliorate inequality may in fact lower intergenerational mobility—even when they do not directly favor the rich. Lastly, we consider how mobility is affected by changes in the marketplace.
    Keywords: intergenerational mobility; human capital; inequality;
    JEL: D1 D10 D31 J0
    Date: 2015–08
  12. By: Gilles Duranton; William R. Kerr
    Abstract: This review discusses frontier topics in economic geography as they relate to firms and agglomeration economies. We focus on areas where empirical research is scarce but possible. We first outline a conceptual framework for city formation that allows us to contemplate what empiricists might study when using firm-level data to compare the functioning of cities and industries with each other. We then examine a second model of the internal structure of a cluster to examine possibilities with firm-level data for better exposing the internal operations of clusters. An overwhelming theme of our review is the vast scope for enhancements of our picture of agglomeration with the new data that are emerging.
    JEL: J2 J6 L1 L2 L6 O1 O3 R10 R3
    Date: 2015–08
  13. By: Gabriella Conti; James J. Heckman; Rodrigo Pinto
    Abstract: This paper examines the long-term impacts on health and healthy behaviors of two of the oldest and most widely cited U.S. early childhood interventions evaluated by the method of randomization with long-term follow-up: the Perry Preschool Project (PPP) and the Carolina Abecedarian Project (ABC). There are pronounced gender effects strongly favoring boys, although there are also effects for girls. Dynamic mediation analyses show a significant role played by improved childhood traits, above and beyond the effects of experimentally enhanced adult socioeconomic status. These results show the potential of early life interventions for promoting health.
    JEL: C12 C93 I12 I13 J13 J24
    Date: 2015–08
  14. By: Sarah Flèche; Richard Layard
    Abstract: Studies of deprivation usually ignore mental illness. This paper uses household panel data from the USA, Australia, Britain and Germany to broaden the analysis. We ask first how many of those in the lowest levels of life-satisfaction suffer from unemployment, poverty, physical ill health, and mental illness. The largest proportion suffer from mental illness. Multiple regression shows that mental illness is not highly correlated with poverty or unemployment, and that it contributes more to explaining the presence of misery than is explained by either poverty or unemployment. This holds both with and without fixed effects.
    Keywords: Mental health, life-satisfaction, wellbeing, poverty, unemployment
    JEL: I1 I31 I32
    Date: 2015

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