nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2015‒09‒18
thirteen papers chosen by
Joseph Marchand
University of Alberta

  1. Multidimensional Skill Mismatch By Guvenen, Fatih; Kuruscu, Burhanettin; Tanaka, Satoshi; Wiczer, David
  2. The impact of acute health shocks on the labour supply of older workers: evidence from sixteen European countries By Elisabetta Trevisan; Francesca Zantomio
  3. Adjusted State Teacher Salaries and the Decision to Teach By Dan S. Rickman; Hongbo Wang; John V. Winters
  4. Why Unions Reduce Wage Inequality, II: The Relation between Solidarity and Unity By Stennek, Johan
  5. Decomposing economic mobility transition matrices By Richey, Jeremiah; Rosburg, Alicia
  6. She Cares and He Earns? The Family Gaps in Poland By Ewa Cukrowska-Torzewska
  7. On the Optimal Provision of Social Insurance: Progressive Taxation versus Education Subsidies in General Equilibrium By Dirk Krueger; Alexander Ludwig
  8. A stylized satellite account for human capital By Gang Liu
  9. The labour market position of second-generation immigrants in Belgium By Vincent Corluy; Joost Haemels; Ive Marx; Gerlinde Verbist
  10. Is Growth Declining in the Service Economy? By SASAKI, Hiroaki
  11. Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data By Emmanuel Saez; Gabriel Zucman
  12. Explaining NGO-State Wage Differentials in Afghanistan: Empirical Findings and New Theoretical Models with Policy Implications in General Equilibrium By Dost, Ahmad Najim; Khan, Haider
  13. The Effects of the Tax Deduction for Postsecondary Tuition: Implications for Structuring Tax-Based Aid By Caroline M. Hoxby; George B. Bulman

  1. By: Guvenen, Fatih (Federal Reserve Bank of Minneapolis); Kuruscu, Burhanettin (University of Toronto); Tanaka, Satoshi (University of Queensland); Wiczer, David (Federal Reserve Bank of St. Louis)
    Abstract: What determines the earnings of a worker relative to his peers in the same occupation? What makes a worker fail in one occupation but succeed in another? More broadly, what are the factors that determine the productivity of a worker-occupation match? In this paper, we propose an empirical measure of skill mismatch for a worker-occupation match, which sheds light on these questions. This measure is based on the discrepancy between the portfolio of skills required by an occupation and the portfolio of abilities possessed by a worker for learning those skills. This measure arises naturally in a dynamic model of occupational choice and human capital accumulation with multidimensional skills and Bayesian learning about one’s ability to learn these skills. In this model, mismatch is central to the career outcomes of workers: it reduces the returns to occupational tenure, and it predicts occupational switching behavior. We construct our empirical analog by combining data from the National Longitudinal Survey of Youth 1979 (NLSY79), the Armed Services Vocational Aptitude Battery (ASVAB) on workers, and the O*NET on occupations. Our empirical results show that the effects of mismatch on wages are large and persistent: mismatch in occupations held early in life has a strong negative effect on wages in future occupations. Skill mismatch also significantly increases the probability of an occupational switch and predicts its direction in the skill space. These results provide fresh evidence on the importance of skill mismatch for the job search process.
    Keywords: Skill mismatch; Match quality; Mincer regression; ASVAB; O*NET; Occupational switching
    JEL: E24 J24 J31
    Date: 2015–09–04
  2. By: Elisabetta Trevisan (Department of Economics and Management, University Of Venice Cà Foscari); Francesca Zantomio (Department of Economics, University Of Venice Cà Foscari)
    Abstract: We investigate the consequences of experiencing an acute health shock, namely the first onset of myocardial infarction, stroke or cancer, on the labour supply of older workers in Europe. Despite its policy relevance to social security sustainability, the question has not yet been empirically addressed in the European context. We combine data from the the English Longitudinal Study of Ageing and the Survey of Health, Ageing and Retirement in Europe and cover sixteen European countries, representative of different institutional settings, in the years spanning from 2002 to 2013. The empirical strategy builds on the availability of an extremely rich set of health and labour market information as well as of panel data. To remove the potential confounding bias, a selection on observables strategy is adopted, while the longitudinal dimension of data allows controlling for time invariant unobservables. Implementation is based on a combination of stratification and propensity score matching methods. Results reveal that experiencing an acute health shock on average doubles the risk of an older worker leaving the labour market, and is accompanied by a deterioration in physical functioning and mental health, as well as by a reduction in perceived life expectancy. Men’s labour market response appears driven by the onset of impairment acting as a barrier to work. In in the case of women, preferences for leisure and financial constraints seem to play a prominent role. Heterogeneity in behavioural responses across countries – with the largest labour supply reductions observed in the Nordic and Eastern countries, and England – are suggestive of a relevant role played by social security generosity.
    Keywords: health shocks, labour supply, Europe, older workers, propensity score matching
    JEL: J22 J18 I10 C14
    Date: 2015
  3. By: Dan S. Rickman (Oklahoma State University); Hongbo Wang (Oklahoma State University); John V. Winters (Oklahoma State University)
    Abstract: Using the 3-year sample of the American Community Survey (ACS) for 2009 to 2011, we compute public school teacher salaries for comparison across U.S. states. Teacher salaries are adjusted for state differences in teacher characteristics, cost of living, household amenity attractiveness and federal tax rates. Salaries of non-teaching college graduates, defined as those with occupations outside of education, are used to adjust for state household amenity attractiveness. We then find that state differences in federal tax-adjusted teacher salaries relative those of other college graduates significantly affect the share of education majors that are employed as teachers at the time of the survey.
    Keywords: teachers, teacher salaries, teaching profession, teacher retention
    JEL: H75 I20 I28 J24 J31 R23
    Date: 2015–08
  4. By: Stennek, Johan (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper demonstrates that the decisions by workers of different skills to unite to form industry unions is closely linked to the egalitarian wage policies that such unions pursue. These results help interpret the stylized facts about unions: that they not only increase wages but also reduce wage inequality. I also demonstrate that political caps on collectively negotiated minimum wages may reduce the wages of all blue-collar workers (cf. “internal devaluation”), but that they may also cause unions to disintegrate in the long run.<p>
    Keywords: inequality; wage differences; minimum wages; trade unions; collective negotiations; strategic commitment
    JEL: J31 J51
    Date: 2015–09
  5. By: Richey, Jeremiah; Rosburg, Alicia
    Abstract: The intergenerational mobility literature has consistently found that the distribution of adult economic outcomes differ markedly depending on parental economic status, yet much remains to be understood about the drivers or determinants of this relationship. Existing literature on potential drivers focuses primarily on mean effects. To help provide a more complete picture of the potential forces driving economic persistence, we propose a method to decompose transition matrices and related indices. Specifically, we decompose differences between an estimated transition matrix and a benchmark transition matrix into portions attributable to differences in characteristics between individuals from different households (a composition effect) and portions attributable to differing returns to these characteristics between individuals from different households (a structure effect). We also incorporate a detailed decomposition, based on copula theory, that decomposes the composition effect into portions attributable to specific covariates and their interactions. We illustrate our method using data on white men from the 1979 National Longitudinal Survey of Youth. Estimation is based on an extended Mincer equation that includes cognitive and non-cognitive measures. To address the potential endogeneity of education, we implement an IV strategy that allows us to estimate causal effects and investigate the role of unobserved ability.
    Keywords: Intergenerational mobility, Transition matrices, Decomposition methods
    JEL: C14 C20 J31 J62
    Date: 2015–08–15
  6. By: Ewa Cukrowska-Torzewska (Faculty of Economic Sciences, University of Warsaw)
    Abstract: This paper deals with parenthood induced inequalities in the labour market outcomes of men and women in Poland. It extends the existing framework of research by providing a joint analysis of parenthood impact on working hours and wages for men and women for a transition economy. Using propensity score matching and fixed effects estimation this paper reveals that parenthood is associated with longer working hours and greater wages for men and shorter working hours and lower wages for women. The gaps in working hours may be however partially attributed to unobserved differences between parents and childless individuals. For men, unobserved heterogeneity also explains their greater wages. Mothers are however found to receive significantly lower wages even if their unobserved characteristics and self-selection into employment are accounted.
    Keywords: family gap, wage inequality, fatherhood premium, motherhood penalty, specialization
    JEL: J13 J22 J31
    Date: 2015
  7. By: Dirk Krueger; Alexander Ludwig
    Abstract: In this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk, but distort the education decision of households. Optimally chosen tertiary education subsidies mitigate these distortions. We highlight the quantitative importance of general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers: subsidizing higher education increases the share of workers with a college degree thereby reducing the college wage premium which has important redistributive benefits. We also argue that a full characterization of the transition path is crucial for policy evaluation. We find that optimal education policies are always characterized by generous tuition subsidies, but the optimal degree of income tax progressivity depends crucially on whether transitional costs of policies are explicitly taken into account and how strongly the college premium responds to policy changes in general equilibrium.
    JEL: E62 H21 H24
    Date: 2015–09
  8. By: Gang Liu (Statistics Norway)
    Abstract: This paper presents a satellite account in which investment in human capital is considered as a produced product/asset. It is not the education sector but the individual person taking education or training/courses that is the genuine producer of human capital. The former only provides education services that are used as one of the production inputs for the latter. Since another fundamental input is own labor services, human capital produced and embodied in the individual is regarded as being owned by the person in concern. It is demonstrated that the gross operating surplus generated from the production of human capital equals the differences between the estimates by the cost-based and the income-based approaches, which constitutes the first step towards making reconciliation between the estimates within one and the same framework. Finally, a numerical example based on supply and use tables shows the feasibility of implementing such a satellite account in practice.
    Keywords: human capital; satellite account; output of education sector; supply and use tables
    JEL: C82 E01 H52 I20 J24
    Date: 2015–08
  9. By: Vincent Corluy (Centrum voor Sociaal Beleid Herman Deleeck – Universiteit Antwerpen; Centrum voor Economische Studiën – KU Leuven); Joost Haemels (Centrum voor Sociaal Beleid Herman Deleeck – Universiteit Antwerpen); Ive Marx (Centrum voor Sociaal Beleid Herman Deleeck – Universiteit Antwerpen); Gerlinde Verbist (Centrum voor Sociaal Beleid Herman Deleeck – Universiteit Antwerpen)
    Abstract: Belgium has one of the largest gaps in labour market outcomes between natives and individuals of foreign origin. One might expect that the children of migrants (the so-called second generation) would perform better than the first generation, as they ought to have a better knowledge of the local language, better educational qualifications and greater opportunities for work experience in the domestic labour market. On the basis of data from the ad hoc module of 2008 Labour Force Survey (LFS) we find that employment rates for generation migrants in Belgium are hardly better than those for first generation migrants. This finding stands in marked contrast what is found in neighbouring countries. Using a unique combination of data sources, we examine the labour market position of second-generation migrants in more depth. We find considerable variation in labour market outcomes by country of origin and a Fairlie decomposition yields that education is an important explanatory factor of the employment rate gap. Yet there still remains a large unexplained part.
    Keywords: Second generation immigrants, labour market outcomes, decomposition methods, educational attainment
    JEL: J15 J21 J24 J61
    Date: 2015–09
  10. By: SASAKI, Hiroaki
    Abstract: This study extends Baumol's (1967) two-sector (manufacturing and services) unbalanced growth model to analyze a situation in which, first, services are used for both final consumption and intermediate inputs in manufacturing production, and second, the productivity of the manufacturing and services sectors endogenously evolves. Using this model, we investigate how the employment share of services and economic growth rate evolve through time. Our results are summarized as follows. First, if the human capital accumulation function exhibits constant returns to scale with respect to per capita consumption of services, then we obtain a U-shaped relationship between the employment share of services and the economic growth rate. Second, if the human capital accumulation function exhibits decreasing returns to scale with respect to per capita consumption of services, the economic growth rate decreases at first, begins to increase after some time, decreases again, and finally, approaches zero.
    Keywords: service economy, economic growth, endogenous productivity growth, business services
    JEL: J21 J24 O11 O14 O30 O41
    Date: 2015–09
  11. By: Emmanuel Saez; Gabriel Zucman
    Abstract: This paper combines income tax returns with macroeconomic household balance sheets to estimate the distribution of wealth in the United States since 1913. We estimate wealth by capitalizing the incomes reported by individual taxpayers, accounting for assets that do not generate taxable income. We successfully test our capitalization method in three micro datasets where we can observe both income and wealth: the Survey of Consumer Finance, linked estate and income tax returns, and foundations' tax records. We find that wealth concentration was high in the beginning of the twentieth century, fell from 1929 to 1978, and has continuously increased since then. The top 0.1% wealth share has risen from 7%in 1978 to 22% in 2012, a level almost as high as in 1929. Top wealth-holders are younger today than in the 1960s and earn a higher fraction of the economy's labor income. The bottom 90% wealth share first increased up to the mid-1980s and then steadily declined. The increase in wealth inequality in recent decades is due to the upsurge of top incomes combined to an increase in saving rate inequality. We explain how our findings can be reconciled with Survey of Consumer Finances and estate tax data.
    Keywords: income tax, wealth inequality,
    Date: 2015–08
  12. By: Dost, Ahmad Najim; Khan, Haider
    Abstract: In this paper we present some novel findings on wage differentials between state and NGO (Non Government Organization) employees in Afghanistan. We find that high wages offered by NGOs, as high as 35 times those offered to civil servants, have strong distortionary effects on the local labor market and threaten the future fiscal sustainability of the state within a partial equilibrium setting. To complete the argument at a theoretical level, we also present a general equilibrium model with multiple equilibria that captures the deeper implications of the empirical finding. Among the most significant features of the model is the fact that the wage-gap feature can become permanent and lock the economy in a suboptimal social equilibrium. In light of our empirical finding and theoretical model consistent with the empirics we ask what the appropriate policy measures are. We consider, short of the extreme and implausible case of shutting down the state sector, three recommendations to address the issue and assess the strengths and weaknesses of each. Firstly, the host country could cap NGO wages. This, however, may be the hardest for the NGOs to adhere to given their internal salary scale policies and the need to maintain horizontal and vertical equity. Alternatively, government wages could be raised by a factor to arrive at a less distortionary gap. This would require substantial financial resources, which lie beyond the capacity of the state and the aid community. Thirdly, the NGOs could make contributions proportional to the size of the wage gap to a stabilization fund, earmarked to support future wages and redress current distortions. We argue that this qualifies as the most desirable policy choice given the conditions on the ground.
    Keywords: Foreign aid, wage-differentials, Afghanistan, general equilibrium
    JEL: D58 J31 J38
    Date: 2015–09–15
  13. By: Caroline M. Hoxby; George B. Bulman
    Abstract: The federal tax deduction for tuition potentially increases investments in postsecondary education at minimal administrative cost. We assess whether it actually does this using regression discontinuity methods on the income cutoffs that govern eligibility for the deduction. Although many eligible households take nearly the maximum deduction allowed, we find no evidence that it affects attending college (at all), attending full- versus part-time, attending four- versus two-year college, the resources experienced in college, the amount paid for college, or student loans. Our analysis suggests that the deduction's inefficacy may be due to issues of salience, timing, and the method of receipt. We argue that the deduction might increase college-going if it were modified in simple ways that would not increase costs but would make it more likely to relax liquidity constraints and be perceived as a price change (which they is) as opposed to an income change. We outline how such modifications could be tested. This study has independent applied econometrics interest because households who would be just above a cut-off manage their incomes so that they fall slightly below it. This income management generates bias due to reverse causality, and we explore how to choose "doughnut-holes" that avoid bias without undue loss of statistical power.
    JEL: C21 H2 H24 H26 I22 I23
    Date: 2015–09

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