nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2016‒01‒29
four papers chosen by
Joseph Marchand
University of Alberta

  1. Happy Birthday, your Fired! : The Effects of an Age-Dependent Minimum Wage on Youth Employment Flows in the Netherlands By Kabátek, Jan
  2. Downward Nominal Wage Rigidity in the United States during and after the Great Recession By Fallick, Bruce C.; Lettau, Michael; Wascher, William L.
  3. Leverage, Bank Employee Compensation and Institutions By Bertay, Ata; Uras, Burak
  4. Executive Compensation and Misconduct: Environmental Harm By Dylan Minor

  1. By: Kabátek, Jan (Tilburg University, Center For Economic Research)
    Abstract: This paper investigates the effects of the age-dependent minimum wage on youth employment flow in the Netherlands. The Dutch minimum wage for workers aged 15-23 is defined as a step-wise increasing function of a worker's calendar age. At the aged of 23, workers become eligible for the "adult" minimum wage which does not increase further. This creates an incentive for firms to discriminate against employees on the basis of their age, substituting more expensive older workers with younger ones. IN order to grasp the size of these effects, I analyze monthly flows in and out of employment using administrative records for the entire youth population of the Netherlands. I account for the time remaining until workers' next birthdays, exploiting the fact that firms are facing a sharp discontinuity in labor costs in the month when a worker turns one year older. The results show a significant increase in job separation increases by 1.1% in the three calendar months which are closest to a worker's next birthday. This effect exhibits substantial heterogeneity with respect to a worker's age, showing that young and inexperienced workers are more likely to be affected by the discontinuities. The size of the effect also varies by the sector of employment, being particularly large for supermarket employees. Job accession peaks just after workers' birthdays, representing both entry of the workers with higher reservation wages and re-employment of the workers whose jobs are dissolved around the time of the discontinuity.
    Keywords: minimum wage; age-dependency; labor market flows
    JEL: J23 J31 J38 M51
    Date: 2016
  2. By: Fallick, Bruce C. (Federal Reserve Bank of Cleveland); Lettau, Michael (Bureau of Labor Statistics); Wascher, William L. (Federal Reserve Board of Governors)
    Abstract: Rigidity in wages has long been thought to impede the functioning of labor markets. One recent strand of the research on wage flexibility in the United States and elsewhere has focused on the possibility of downward nominal wage rigidity and what implications such rigidity might have for the macroeconomy at low levels of inflation. The Great Recession of 2008-09, during which the unemployment rate topped 10 percent and price deflation was at times seen as a distinct possibility, along with the subsequent slow recovery and persistently low inflation, has added to the relevance of this line of inquiry. In this paper, we use establishment-level data from a nationally representative establishment-based compensation survey collected by the Bureau of Labor Statistics to investigate the extent to which downward nominal wage rigidity is present in U.S. labor markets. We use several distinct methods proposed in the literature to test for downward nominal wage rigidity, and to assess whether such rigidity is more severe at low rates of inflation and in the presence of negative economic shocks than in more normal economic times. Like earlier studies, we find evidence of a significant amount of downward nominal wage rigidity in the United States. We find no evidence that the high degree of labor market distress during the Great Recession reduced the amount of downward nominal wage rigidity and some evidence that operative rigidity may have increased during that period.
    JEL: E24 J3
    Date: 2016–01–08
  3. By: Bertay, Ata (Tilburg University, Center For Economic Research); Uras, Burak (Tilburg University, Center For Economic Research)
    Abstract: This paper investigates the empirical relationship between financial structure and employee compensation in the banking industry. Using an international panel of banks, we show that well-capitalized banks pay higher wages to their employees. Our results are robust to changes in measurement, model specification and estimation methods. In order to account for the positive association between bank capital and employee compensation, we illustrate a stylized 3-period model and show that well-capitalized banks have incentives to pay higher wages to induce monitoring. Such monitoring rents of employees at capitalized banks are expected to be higher in societies with weak institutions. Further empirical analysis shows that the weaker is institutional quality of a country the stronger is the positive relationship between bank capital and wages - supporting our theoretical conjectures. High compensations in the financial industry received increasing criticism over the course of years following the great recession, whereas capitalization of banks has been encouraged. Our paper is the first to highlight that there is an empirically visible trade-off between the two and that institutions strongly interact with this relationship.
    Keywords: bank financial structure; wage determination; human capital
    JEL: G3 G21 J24 J31
    Date: 2016
  4. By: Dylan Minor (Harvard Business School, Strategy Unit)
    Abstract: We explore the relationship between managerial incentives and misconduct using the setting of environmental harm. We find that high powered executive compensation can increase the odds of environmental law-breaking by 40-60% and the magnitude of environmental harm by over 100%. We document similar results for the setting of executive compensation and illegal financial accounting. Finally, we outline some managerial and policy implications to blunt these adverse incentive effects.
    Keywords: executive compensation, corporate governance, misconduct, environmental performance, accounting scandal, sustainable finance
    JEL: G01 G31 J33 K32
    Date: 2016–01

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