nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2016‒01‒03
sixteen papers chosen by
Joseph Marchand
University of Alberta

  1. Are Starting Wages Reduced by an Insurance Premium for Preventing Wage Decline? Testing the Prediction of Harris and Holmstrom (1982) By Hartog, Joop; Raposo, Pedro
  2. Mismatch of Talent: Evidence on Match Quality, Entry Wages, and Job Mobility By Fredriksson, Peter; Hensvik, Lena; Nordström Skans, Oskar
  3. The Optimal Minimum Wage with Regulatory Uncertainty By Bennett, John; Chioveanu, Ioana
  4. The Personnel Economics of the State By Frederico Finan; Benjamin A. Olken; Rohini Pande
  5. Psychological Incentives, Financial Incentives, and Risk Attitudes in Tournaments: An Artefactual Field Experiment By Cadsby, Bram; Engle-Warnick, Jim; Fang, Tony; Song, Fei
  6. Managers and Productivity Differences By Guner, Nezih; Parkhomenko, Andrii; Ventura, Gustavo
  7. The Individual Perception of Wage Inequality: A Measurement Framework and Some Empirical Evidence By Kuhn, Andreas
  8. The Quantity-Quality Trade-off and the Formation of Cognitive and Non-cognitive Skills By Chinhui Juhn; Yona Rubinstein; C. Andrew Zuppann
  9. Productivity and Organization in Portuguese Firms By Caliendo, Lorenzo; Mion, Giordano; Opromolla, Luca David; Rossi-Hansberg, Esteban
  10. Are Unemployment Rates in OECD Countries Stationary? Evidence from Univariate and Panel Unit Root Tests By Khraief, Naceur; Shahbaz, Muhammad; Heshmati, Almas; Azam, Muhammad
  11. Economic Gains for U.S. States from Educational Reform By Hanushek, Eric A.; Ruhose, Jens; Woessmann, Ludger
  12. Learning Entrepreneurship From Other Entrepreneurs? By Guiso, Luigi; Pistaferri, Luigi; Schivardi, Fabiano
  13. The Effect of Remittances on Labour Supply in the Republic of Haiti By Jadotte, Evans; Ramos, Xavi
  14. Test Scores, Noncognitive Skills and Economic Growth By Balart, Pau; Oosterveen, Matthijs; Webbink, Dinand
  15. Economic Integration, Corporate Tax Incidence and Fiscal Compensation By Nelly Exbrayat; Benny Geys
  16. Changing Faculty Employment at Four-Year Colleges and Universities in the United States By Liang Zhang; Ronald G. Ehrenberg; Xiangmin Liu

  1. By: Hartog, Joop (University of Amsterdam); Raposo, Pedro (Universidade Catolica Portuguesa, Lisbon)
    Abstract: In the model of Harris and Holmstrom (1982) workers pay an insurance premium to prevent a wage decline. As employers are unable to assess the ability of a labour market entrant, they would offer a wage equal to expected productivity of the worker's category and adjust it with unfolding information on true individual productivity. Workers are willing to accept a reduction in starting wage to prevent a reduction in their wage when their productivity is revealed to be below the expected value for their category. While Harris and Holmstrom indicate crystal clear how the prediction can be tested, their prescription has never been applied. Using Portuguese data covering virtually the entire labour force, we find that the prediction is unequivocally rejected. We interpret the results instead as confirmation of earlier results showing that workers are compensated for the financial risk of investing in an education.
    Keywords: risk premium, starting wages, unknown productivity, wage rigidity
    JEL: J31 D86
    Date: 2015–12
  2. By: Fredriksson, Peter (Stockholm University); Hensvik, Lena (IFAU); Nordström Skans, Oskar (Uppsala University)
    Abstract: We examine the direct impact of idiosyncratic match quality on entry wages and job mobility using unique data on worker talents matched to job-indicators and individual wages. Tenured workers are clustered in jobs with high job-specific returns to their types of talents. We therefore measure mismatch by how well the types of talents of recent hires correspond to the talents of tenured workers performing the same jobs. A stylized model shows that match quality has a smaller impact on entry wages but a larger impact on separations and future wage growth if matches are formed under limited information. Empirically, we find such patterns for inexperienced workers and workers who were hired from non-employment, which are also groups where mismatch is more pronounced on average. Most learning about job-specific mismatch happens within a year. Experienced job-to-job movers appear to match under much less uncertainty. They are better matched on entry and mismatch have a smaller effect on their initial separation rates and later wage growth. Instead, match quality is priced into their starting wages.
    Keywords: matching, job search, comparative advantage, employer learning
    JEL: J64 J24 J31 J62
    Date: 2015–12
  3. By: Bennett, John (Royal Holloway, University of London); Chioveanu, Ioana (Brunel University)
    Abstract: For two different regulatory standards, we examine the optimal minimum wage in a competitive labour market when the government is uncertain about supply and demand. Solutions are related to underlying supply and demand conditions, and the extent of uncertainty and of rationing efficiency. We show that regulatory uncertainty does not diminish the rationale for intervention, but may require a low minimum wage that may not bind. With expected earnings-maximization, greater uncertainty widens the range of parameter values for which a minimum wage should be set. With expected worker surplus-maximization and sufficiently efficient rationing, a minimum wage should always be set.
    Keywords: minimum wage, uncertainty, worker surplus
    JEL: J38 J31
    Date: 2015–12
  4. By: Frederico Finan; Benjamin A. Olken; Rohini Pande
    Abstract: Governments play a central role in facilitating economic development. Yet while economists have long emphasized the importance of government quality, historically they have paid less attention to the internal workings of the state and the individuals who provide the public services. This paper reviews a nascent but growing body of field experiments that explores the personnel economics of the state. To place the experimental findings in context, we begin by documenting some stylized facts about how public sector employment differs from that in the private sector. In particular, we show that in most countries throughout the world, public sector employees enjoy a significant wage premium over their private sector counterparts. Moreover, this wage gap is largest among low-income countries, which tends to be precisely where governance issues are most severe. These differences in pay, together with significant information asymmetries within government organizations in low-income countries, provide a prima facie rationale for the emphasis of the recent field experiments on three aspects of the state–employee relationship: selection, incentive structures, and monitoring. We review the findings on all three dimensions and then conclude this survey with directions for future research.
    JEL: D73 J45 O12
    Date: 2015–12
  5. By: Cadsby, Bram (University of Guelph); Engle-Warnick, Jim (McGill University); Fang, Tony (Memorial University of Newfoundland); Song, Fei (Ryerson University)
    Abstract: Tournaments are widely used to assign bonuses and determine promotions because of the link between relative performance and rewards. However, performing relatively well (poorly) may also yield psychological benefits (pain). This may also stimulate effort. Through a real-effort artefactual field experiment with factory workers and university students as a comparison group in China, we examine how both psychological and financial incentives, together with attitudes toward risk, may influence motivation and performance. We provided performance-ranking information both privately and publicly, with and without rank-based financial incentives. Our results show that performance-ranking information had a significant motivational effect on average performance for students, but not for that of workers. Adding financial incentives based on rank provided little evidence of further improvement. Much of the difference between workers and students can be explained by differences in attitudes toward risk. Indeed, for both groups financial and psychological incentive effects are both inversely related to individual levels of risk aversion, and are positive and significant both for workers and for students who are sufficiently risk-tolerant.
    Keywords: tournament, peer pressure, performance feedback, social comparison, incentives, risk aversion, artefactual field experiment
    JEL: J30 J24 J33 C93 C91
    Date: 2015–12
  6. By: Guner, Nezih (MOVE, Barcelona); Parkhomenko, Andrii (Universitat Autònoma de Barcelona); Ventura, Gustavo (Arizona State University)
    Abstract: We document that for a group of high-income countries (i) mean earnings of managers tend to grow faster than for non managers over the life cycle; (ii) the earnings growth of managers relative to non managers over the life cycle is positively correlated with output per worker. We interpret this evidence through the lens of an equilibrium life-cycle, span-of-control model where managers invest in their skills. We parameterize this model with U.S. observations on managerial earnings, the size-distribution of plants and macroeconomic aggregates. We then quantify the relative importance of exogenous productivity differences, and the size-dependent distortions emphasized in the misallocation literature. Our findings indicate that such distortions are critical to generate the observed differences in the growth of relative managerial earnings across countries. Thus, observations on the relative earnings growth of managers become natural targets to discipline the level of distortions. Distortions that halve the growth of relative managerial earnings (a move from the U.S. to Italy in our data), lead to a reduction in managerial quality of 27% and to a reduction in output of about 7% – more than half of the observed gap between the U.S. and Italy. We find that cross-country variation in distortions accounts for about 42% of the cross-country variation in output per worker gap with the U.S.
    Keywords: managers, management practices, distortions, size, skill investments, productivity differences
    JEL: E23 E24 J24 M11 O43 O47
    Date: 2015–12
  7. By: Kuhn, Andreas (Swiss Federal Institute for Vocational Education and Training)
    Abstract: This paper presents a simple conceptual framework specifically tailored to measure individual perceptions of wage inequality. Using internationally comparable survey data, the empirical part of the paper documents that there is huge variation in inequality perceptions both across and within countries as well as survey-years. Focusing on the association between aggregate-level inequality measures and individuals' subjective perception of wage inequality, it turns out that there is both a high correlation between the two measures as well as a considerable amount of misperception of the prevailing level of inequality. The final part of the analysis shows that subjective inequality perceptions appear to be more important, in a statistical sense, in explaining variation in individual-level attitudes towards social inequality than objective measures of inequality. This underlines the conceptual and practical importance of distinguishing between subjective perceptions of inequality and the true level of inequality.
    Keywords: inequality perceptions, inequality, attitudes towards social inequality, (mis-)perceptions of socio-economic phenomena
    JEL: D31 D63 J31
    Date: 2015–12
  8. By: Chinhui Juhn; Yona Rubinstein; C. Andrew Zuppann
    Abstract: We estimate the impact of increases in family size on childhood and adult outcomes using matched mother-child data from the National Longitudinal Survey of Youth 1979. Using twins as an instrumental variable and panel data to control for omitted factors we find that families face a substantial quantity-quality trade-off: increases in family size decrease parental investment, decrease childhood cognitive abilities, and increase behavioral problems. The negative effects on cognitive abilities are much larger for girls while the detrimental effects on behavior are larger for boys. We also find evidence of heterogeneous effects by mother's AFQT score, with the negative effects on cognitive scores being much larger for children of mothers with low AFQT scores.
    JEL: J13 J24
    Date: 2015–12
  9. By: Caliendo, Lorenzo; Mion, Giordano; Opromolla, Luca David; Rossi-Hansberg, Esteban
    Abstract: The productivity of firms is, at least partly, determined by a firm’s actions and decisions. One of these decisions involves the organization of production in terms of the number of layers of management the firm decides to employ. Using detailed employer-employee matched data and firm production quantity and input data for Portuguese firms, we study the endogenous response of revenue-based and quantity-based productivity to a change in layers: a firm reorganization. We show that as a result of an exogenous demand or productivity shock that makes the firm reorganize and add a management layer, quantity-based productivity increases by about 4%, while revenue-based productivity drops by more than 4%. Such a reorganization makes the firm more productive, but also increases the quantity produced to an extent that lowers the price charged by the firm and, as a result, its revenue-based productivity.
    Keywords: firm size; layers; managers; organization; productivity; TFP; wages
    JEL: D22 D24 F16 J24 J31 L23
    Date: 2015–12
  10. By: Khraief, Naceur (University of Sousse); Shahbaz, Muhammad (COMSATS Institute of Information Technology); Heshmati, Almas (Jönköping University, Sogang University); Azam, Muhammad (Universiti Utara Malaysia)
    Abstract: This paper revisits the dynamics of unemployment rate for 29 OECD countries over the period of 1980-2013. Numerous empirical studies of the dynamics of unemployment rate are carried out within a linear framework. However, unemployment rate can show nonlinear behaviour as a result of business cycles or some idiosyncratic factors specific to labour market (Cancelo, 2007). Thus, as a testing strategy we first perform Harvey et al. (2008) linearity unit root test and then apply the newly ESTAR nonlinear unit root test suggested by Kruse (2011). This test has higher power than conventional unit root tests when time series exhibits nonlinear behaviour. Our empirical findings provide significant evidence in favour of unemployment rate stationarity for 25 countries. For robustness purpose, we have also used panel unit root tests without and with structural breaks. The results show that unemployment hysteresis hypothesis is strongly rejected when taking into account the cross-sectional and structural break assumptions. Thus, unemployment rates are expected to return back to their natural levels without executing any costly macroeconomic labour market policies by the OECD's governments.
    Keywords: unemployment, unit root, labour market policy, OECD
    JEL: C23 E24 J48 J64 N30
    Date: 2015–12
  11. By: Hanushek, Eric A. (Stanford University); Ruhose, Jens (Ifo Institute for Economic Research); Woessmann, Ludger (Ifo Institute for Economic Research)
    Abstract: There is limited existing evidence justifying the economic case for state education policy. Using newly-developed measures of the human capital of each state that allow for internal migration and foreign immigration, we estimate growth regressions that incorporate worker skills. We find that educational achievement strongly predicts economic growth across U.S. states over the past four decades. Based on projections from our growth models, we show the enormous scope for state economic development through improving the quality of schools. While we consider the impact for each state of a range of educational reforms, an improvement that moves each state to the best-performing state would in the aggregate yield a present value of long-run economic gains of over four times current GDP.
    Keywords: economic growth, human capital, cognitive skills, schooling, U.S. states
    JEL: I21 J24 O47
    Date: 2015–12
  12. By: Guiso, Luigi; Pistaferri, Luigi; Schivardi, Fabiano
    Abstract: We document that individuals who grew up in areas with high density of firms are more likely, as adults, to become entrepreneurs, controlling for the density of firms in their current location. Conditional on becoming entrepreneurs, the same individuals are also more likely to be successful entrepreneurs, as measured by business income or firm productivity. Strikingly, firm density at entrepreneur’s young age is more important than current firm density for business performance. These results are not driven by better access to external finance or intergenerational occupation choices. They are instead consistent with entrepreneurial capabilities being at least partly learnable through social contacts. In keeping with this interpretation, we find that entrepreneurs who at the age of 18 lived in areas with a higher firm density tend to adopt better managerial practices (enhancing productivity) later in life.
    Keywords: entrepreneurship; learning; spillovers
    JEL: J24 M13 R11
    Date: 2015–12
  13. By: Jadotte, Evans (World Bank); Ramos, Xavi (Universitat Autònoma de Barcelona)
    Abstract: We examine the labour supply effect of remittances in the Republic of Haiti, the prime international remittances recipient country in the Latin American and Caribbean (LAC) region relative to its GDP. Unlike previous empirical literature we address three econometric issues that may bias the estimates. We account for endogeneity of the remittances with respect to labour supply, for the zero-inflated nature of our dependent variable, hours of work, and for the self-selection of the migrant sample. Our results are in line with previous literature, and point to a decline of labour supply in the presence of remittances. However, contrary to previous findings, the labour market response to remittances of female household heads is not as sensitive as male's.
    Keywords: international migration, remittances, labour supply, Republic of Haiti
    JEL: C39 F22 F24 J22
    Date: 2015–12
  14. By: Balart, Pau (University of the Balearic Islands); Oosterveen, Matthijs (Erasmus University Rotterdam); Webbink, Dinand (Erasmus University Rotterdam)
    Abstract: Many studies have found a strong association between economic outcomes of nations and their performance on international cognitive tests. This association is often interpreted as evidence for the importance of cognitive skills for economic growth. However, noncognitive skills, such as motivation and perseverance, are also important for the performance on cognitive tests. This study decomposes the performance on an international test (PISA) into two components that differ with respect to their underlying skills: the starting level and the decline in performance during the test. The first component can be interpreted as a measure of cognitive skills, whereas the second component captures noncognitive skills. We find that countries differ in the starting level and in the decline in performance, and that these differences are stable over time. Both components have a positive and statistically significant association with economic growth, and the estimated effects are quite similar. This suggests that noncognitive skills are important for explaining the relationship between test scores and economic growth.
    Keywords: cognitive skills, noncognitive skills, long run economic growth
    JEL: J24
    Date: 2015–12
  15. By: Nelly Exbrayat (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France, Université Jean Monnet, Saint-Etienne, F-42000, France); Benny Geys (Norwegian Business School BI, Nydalsveien 37, N-0442 Oslo, Norway ; Vrije Universiteit Brussel (VUB), Pleinlaan 2, B-1050 Brussels, Belgium)
    Abstract: Higher corporate taxes are often argued to depress wages (a tax incidence effect), while higher wages may require compensation via lower corporate tax rates (a fiscal compensation effect). Yet, existing empirical evidence ignores that i) both effects are likely to occur simultaneously (necessitating a joint estimation approach), and ii) capital mobility might play a critical moderating role for the strength of both effects. Using a panel dataset comprising 24 OECD countries over the period 1982-2007, we address both these deficiencies. This clearly illustrates the simultaneous existence of tax incidence and fiscal compensation effects. Moreover, capital mobility (and the ensuing relative bargaining power of economic agents) has a significant influence on both the prevalence and strength of these effects.
    Keywords: Tax Incidence, Fiscal Compensation, Corporate taxation, Wage bargaining, Capital mobility
    JEL: H22 H25 J21 J31 H32
    Date: 2015
  16. By: Liang Zhang; Ronald G. Ehrenberg; Xiangmin Liu
    Abstract: We use panel data models to examine variations and changes over time in faculty employment at four-year colleges and universities in the United States. The share of part-time faculty among total faculty has continued to grow over the last two decades, while the share of full-time lecturers and instructors has been relatively stable. Meanwhile, the share of non-tenure track faculty among faculty with professorial ranks has been growing. Dynamic panel data models suggest that employment levels of different types of faculty respond to a variety of economic and institutional factors. Colleges and universities have increasingly employed faculty whose salaries and benefits are relatively inexpensive; the slowly deteriorating financial situations at most colleges and universities have led to an increasing reliance on a contingent academic workforce.
    JEL: I23 J23
    Date: 2015–12

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