nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2016‒02‒23
twelve papers chosen by
Joseph Marchand
University of Alberta

  1. Cyclical and Market Determinants of Involuntary Part-Time Employment By Valletta, Robert G.; Bengali, Leila; van der List, Catherine
  2. Balanced Growth Despite Uzawa By Gene M. Grossman; Elhanan Helpman; Ezra Oberfield; Thomas Sampson
  3. Earnings Premiums and Penalties for Self-Employment and Informal Employees around the World By Gindling, T. H.; Mossaad, Nadwa; Newhouse, David
  4. Reservation Wages and the Wage Flexibility Puzzle By Koenig, Felix; Manning, Alan; Petrongolo, Barbara
  5. The urban wage premium in imperfect labour markets By Hirsch, Boris; Jahn, Elke J.; Oberfichtner, Michael
  6. Downward Nominal Wage Rigidity in the United States During and After the Great Recession By Fallick, Bruce C.; Lettau, Michael; Wascher, William L.
  7. Incentivizing Quantity and Quality of Output: An Experimental Investigation of the Quantity-Quality Trade-off By Rubin, Jared; Samek, Anya; Sheremeta, Roman
  8. Peer Effects in Employment Status: Evidence from Housing Lotteries for Forced Evacuees in Fukushima By Kondo, Ayako; Shoji, Masahiro
  9. The (Displacement) Effects of Spatially Targeted Enterprise Initiatives: Evidence from UK LEGI By Einiö, Elias; Overman, Henry G
  10. Wages and human capital in finance: international evidence, 1970-2005 By Boustanifar, Hamid; Grant, Everett; Reshef, Ariell
  11. “Do anti-discrimination laws alleviate labor market duality? Quasi-experimental evidence from Korea” By Hoon Choi
  12. Top Incomes and Human Well-Being Around the World By Richard V. Burkhauser; Jan-Emmanuel De Neve; Nattavudh Powdthavee

  1. By: Valletta, Robert G. (Federal Reserve Bank of San Francisco); Bengali, Leila (Yale University); van der List, Catherine (Federal Reserve Bank of San Francisco)
    Abstract: We examine the determinants of involuntary part-time employment, focusing on variation associated with the business cycle and variation attributable to more persistent structural features of the labor market. Our theoretical framework distinguishes between workers' decision to seek part-time work and employer demand for part-time work hours, emphasizing demand and supply determinants of involuntary part-time work such as workplace technology, labor costs, and workforce demographics. We conduct regression analyses using state-level panel and individual data for the years 2003-2014. The results show that the combination of cyclical variation and the influence of market-level factors can explain virtually all of the variation in the aggregate incidence of involuntary part-time employment since the Great Recession.
    Keywords: part-time employment, business cycle, supply and demand
    JEL: J22 J23
    Date: 2016–02
  2. By: Gene M. Grossman; Elhanan Helpman; Ezra Oberfield; Thomas Sampson
    Abstract: Evidence for the United States suggests balanced growth despite falling investment-good prices and less than unitary elasticity of substitution between capital and labor. This is inconsistent with the Uzawa Growth Theorem. We extend Uzawa's theorem to show that introducing human capital accumulation in the standard way does not resolve the puzzle. However, balanced growth is possible if education is endogenous and capital is more complementary with schooling than with raw labor. We describe balanced growth paths for several neoclassical growth models with capital-augmenting technological progress and endogenous schooling. The balanced growth path in an overlapping-generations model in which individuals choose their time in school matches key features of the U.S. record.
    Keywords: Demand, neoclassical growth, balanced growth, technological progress, capital-skill complementarity
    JEL: J2 E1 O1 O4
    Date: 2016–01
  3. By: Gindling, T. H. (University of Maryland, Baltimore County); Mossaad, Nadwa (University of Maryland, Baltimore County); Newhouse, David (World Bank)
    Abstract: This paper examines the earnings premiums associated with different types of employment in 73 countries. Workers are divided into four categories: Non-professional own-account workers, employers and own-account professionals, informal wage employees, and formal wage employees. Approximately half of the workers in low income countries are nonprofessional own-account workers and the majority of the rest are informal employees. Fewer than 10% are formal employees, and only 2% of workers in low income countries are employers or own-account professionals. As per capita GDP increases, there are large net shifts from non-professional own account work into formal wage employment. Across all regions and income levels, non-professional own-account workers and informal wage employees face an earnings penalty compared to formal wage employees. But in low income countries, this earnings penalty is small, and non-professional own-account workers earn a positive premium relative to all wage employees. Earnings penalties for non-professional own account workers tend to increase with GDP and are largest for female workers in high income countries. Men earn greater premiums than women for being employers or own-account professionals. These results are consistent with compensating wage differentials and firm quasi-rents playing important roles in explaining cross-country variation in earnings penalties, and raise questions about the extent to which the unskilled self-employed are rationed out of formal wage work in low-income countries.
    Keywords: self-employment, informal sector, earnings differentials, development
    JEL: J31
    Date: 2016–02
  4. By: Koenig, Felix (CEP, London School of Economics); Manning, Alan (London School of Economics); Petrongolo, Barbara (Queen Mary, University of London)
    Abstract: Wages are only mildly cyclical, implying that shocks to labour demand have a larger short-run impact on unemployment rather than wages, at odds with the quantitative predictions of the canonical search model – even if wages are only occasionally renegotiated. We argue that one source of the wage flexibility puzzles is plausibly the model for the determination of reservation wages, and consider an alternative reservation wage model based on reference dependence in job search. This extension generates less cyclical reservation wages than the canonical model, as long as reference points are less cyclical than forward-looking components of reservation wages such as the arrival rate of job offers. We provide evidence that reservation wages significantly respond to backward-looking reference points, as proxied by rents earned in previous jobs. In a model calibration we show that backward-looking reference dependence markedly reduces the predicted cyclicality of both wages and reservation wages and can reconcile theoretical predictions of the canonical model with the observed cyclicality of wages and reservation wages.
    Keywords: job search, reservation wages, wage cyclicality, reference dependence
    JEL: E24 J31 J64
    Date: 2016–02
  5. By: Hirsch, Boris; Jahn, Elke J.; Oberfichtner, Michael
    Abstract: Using administrative data for West Germany, this paper investigates whether part of the urban wage premium stems from fierce competition in thick labour markets. We first establish that employers possess less wage-setting power in denser markets. Local differences in wage-setting power predict 1.1-1.6% higher wages from a 100 log points increase in population density. We further document that the observed urban wage premium from such an increase drops by 1.1-1.4pp once conditioning on local search frictions. Our results therefore suggest that a substantial part of the urban wage premium roots in differential imperfections across local labour markets.
    Abstract: Mit administrativen verknüpften Betriebs-Beschäftigtendaten für Westdeutschland untersucht diese Studie, ob ein Teil des Urban Wage Premiums durch eine geringere Lohnsetzungsmacht von Arbeitgebern auf dichteren Arbeitsmärkten erklärt werden kann. Wir zeigen zunächst, dass das Arbeitsangebot an Firmen in dichteren Arbeitsmärkten lohnelastischer ist, die Lohnsetzungsmacht der Arbeitgeber also weniger ausgeprägt ist. Diese Unterschiede lassen eine Lohnprämie von 1,1 bis 1,6 Prozent bei einem Anstieg der Bevölke-rungsdichte um 100 Log-Punkte erwarten. Anschließend zeigen wir, dass die geschätzte Lohnprämie bei Kontrolle für unbeobachtete, zeitkonstante Personenheterogenität um 1,1 bis 1,4 Prozentpunkte fällt, wenn wir auf die regionalen Suchfriktionen bedingen. Unsere Ergebnisse legen nahe, dass ein wesentlicher Teil des Urban Wage Premiums auf geringere Suchfriktionen in dichteren Arbeitsmärkten zurückzuführen ist.
    Keywords: urban wage premium,imperfect labour markets,monopsony,search frictions
    JEL: R23 J42 J31
    Date: 2016
  6. By: Fallick, Bruce C. (Federal Reserve Bank of Cleveland,); Lettau, Michael (Bureau of Labor Statistics); Wascher, William L. (Board of Governors of the Federal Reserve System (U.S.))
    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.
    Date: 2016–01–29
  7. By: Rubin, Jared; Samek, Anya; Sheremeta, Roman
    Abstract: Firms face an optimization problem that requires a maximal quantity output given a quality constraint. How firms should incentivize quantity and quality to meet these dual goals remains an open question, potentially due to limitations of field data. We provide a theoretical model and conduct an experiment in which participants are paid for both quantity and quality of a real effort task. Consistent with the theoretical predictions, higher quality incentives encourage participants to shift their attention from quantity to quality, and higher quality incentives reduce inefficient decision-making. We also observe behavioral components in responsiveness to the quality incentive.
    Keywords: quantity, quality, experiment, incentives, real effort, loss aversion
    JEL: D24 J24 J31 J41
    Date: 2016–01–27
  8. By: Kondo, Ayako (Yokohama National University); Shoji, Masahiro (Seijo University)
    Abstract: Does a high peer employment rate increase individual employment probability? We exploit the random assignment of temporary housing to evacuees from the Fukushima Daiichi nuclear power plant accident to identify the effect of neighbors' employment rates on an individual's probability of finding a job post-evacuation. Using unique survey data collected in 14 clusters of temporary housing 2.5 years after the accident, we find a significantly positive peer effect: a one standard deviation increase in the initial employment rate of an individual's peers makes the hazard of restarting work 1.53 times larger during the six months after housing move-in.
    Keywords: peer effect, neighborhood effect
    JEL: J20 J64
    Date: 2016–02
  9. By: Einiö, Elias; Overman, Henry G
    Abstract: We investigate the impacts of a significant area-based intervention (LEGI) that aimed to increase employment and entrepreneurial activity in 30 disadvantaged areas across England. We examine the spatial pattern of effects at a fine spatial scale using panel data for small geographic units and a regression discontinuity design that exploits the programme eligibility rule. The results indicate considerable local displacement effects. Employment increases in treated areas close to the treatment area boundary at the cost of significant employment losses in untreated localities just across the boundary. These differences vanish quickly when moving away from the boundary and do not persist after the programme is abolished. These findings support the view that area-based interventions may have considerable negative displacement effects on untreated parts of the economy. This displacement can substantially reduce (or in this case eliminate) any net benefits.
    Keywords: displacement; employment; place-based policy; programme evaluation
    JEL: H25 J20 O40 R11
    Date: 2016–02
  10. By: Boustanifar, Hamid (BI Norwegian Business School); Grant, Everett (Federal Reserve Bank of Dallas); Reshef, Ariell (Paris 1 Sorbonne-Pantheon, CNRS and Paris School of Economics)
    Abstract: We study the allocation and compensation of human capital in the finance industry in a set of developed economies in 1970-2005. Finance relative skill intensity and skilled wages generally increase but not in all countries, and to varying degrees. Skilled wages in finance account for 36% of increases in overall skill premia, although finance only accounts for 5.4% of skilled private sector employment, on average. Financial deregulation, financial globalization and bank concentration are the most important factors driving wages in finance. Differential investment in information and communication technology does not have causal explanatory power. High finance wages attract skilled international immigration to finance, raising concerns for "brain drain".
    JEL: G2 J2 J3
    Date: 2016–02–01
  11. By: Hoon Choi (AQR Research Group-IREA. University of Barcelona)
    Abstract: Labor market segmentation is a growing phenomenon in many countries across different continents. In 2007, the Korean government undertook a labor reform prohibiting undue discriminatory treatment against fixed-term, part-time, and dispatched workers in an attempt to address income inequality arising from labor market duality. By exploiting a gradual introduction of the anti-discrimination law by firm size, I identify the treatment effects of the antidiscrimination law on gaps in wage and non-wage benefits between regular and non-regular workers, taking a difference-in-differences approach, a quasi-experimental design. My findings suggest that the imposition of the anti-discrimination law has significantly narrowed gaps in labor conditions between regular and non-regular workers. Labor conditions of targeted nonregular workers did not improve at the expense of those of non-targeted non-regular workers. Nevertheless, non-targeted non-regular workers being treated in a less favorable way raises another concern about the possibility of overusing non-targeted non-regular workers.
    Keywords: Discrimination; Wage gap; Non-regular worker; Difference in differences; Korea. JEL classification:J31; J42; J71; J78
    Date: 2016–02
  12. By: Richard V. Burkhauser; Jan-Emmanuel De Neve; Nattavudh Powdthavee
    Abstract: The share of income held by the top 1 percent in many countries around the world has been rising persistently over the last 30 years. But we continue to know little about how the rising top income shares affect human well-being. This study combines the latest data to examine the relationship between top income share and different dimensions of subjective well-being. We find top income shares to be significantly correlated with lower life evaluation and higher levels of negative emotional well-being, but not positive emotional well-being. The results are robust to household income, individual's socio-economic status, and macroeconomic environment controls.
    Keywords: Top income, life evaluation, well-being, income inequality, World Top Income database, Gallup World Poll
    JEL: D63 I3
    Date: 2016–01

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