nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2016‒03‒29
twenty-one papers chosen by
Joseph Marchand
University of Alberta

  1. Do Financial Incentives Influence GPs’ Decisions to Do After-Hours Work? A Discrete Choice Labour Supply Model By Barbara Broadway; Guyonne Kalb; Jinhu Li; Anthony Scott
  2. Optimal fiscal policy with labor selection By Chugh, Sanjay K.; Lechthaler, Wolfgang; Merkl, Christian
  3. Expanding Employment Discrimination Protections for Individuals with Disabilities: Evidence from California By Patrick Button
  4. What has Been Happening to UK Income Inequality Since the Mid-1990s? Answers from Reconciled and Combined Household Survey and Tax Return Data By Richard V. Burkhauser; Nicolas Hérault; Stephen P. Jenkins; Roger Wilkins
  5. China’s Expansion of Higher Education: the Labour Market Consequences of a Supply Shock By John Knight; Deng Quheng; Li Shi
  6. Congruence of higher education: determinants and effects of the allocation process in the labor market, applied case to Colombia By Mónica Ospina Londoño; Juan José Estrada
  7. No Role for the Hartz Reforms? Demand and Supply Factors in the German Labor Market, 1993-2014 By Michael C. Burda; ; ;
  8. Wage Inequality and Cognitive Skills: Re-Opening the Debate By Stijn Broecke; Glenda Quintini; Marieke Vandeweyer
  9. Preference for the workplace, investment in human capital, and gender By Wiswall, Matthew; Zafar, Basit
  10. The more they spend, the more I earn? Firms’ training investments and post-training wages of apprentices By Hans Dietrich; Harald Pfeifer; Felix Wenzelmann
  11. Households in Times of War : Adaptation Strategies during the Nepal Civil War By François Libois
  12. Can Fixed-Term Contracts Put Low Skilled Youth on a Better Career Path? Evidence from Spain By J. Ignacio García-Pérez; Judit Vall Castelló; Ioana Marinescu
  13. Accounting for Labor Gaps. By F. Langot; A. Pizzo
  14. Growth through Rigidity: An Explanation for the Rise in CEO Pay By Kelly Shue; Richard Townsend
  15. Intergenerational Transfers and Wealth in the Euro-Area: The Relevance of Inheritances and Gifts in Absolute and Relative Terms By Anita Tiefensee; Christian Westermeier
  16. Quasi-experimental evidence on the effects of mother tongue-based education on reading skills and early labour market outcomes By Argaw, Bethlehem A.
  17. Particulate matter and labor supply: evidence from Peru By Fernando M. Aragon; Juan Jose Miranda; Paulina Oliva
  18. The Effects of Trade Policy By Pinelopi K. Goldberg; Nina Pavcnik
  19. The Effect of Education and School Quality on Female Crime By Javier Cano-Urbina; Lance Lochner
  20. The Merits of Universal Scholarships: Benefit-Cost Evidence from the Kalamazoo Promise By Timothy J. Bartik; Brad J. Hershbein; Marta Lachowska
  21. Understanding Irish Labour Force Participation By Byrne, Stephen; O'Brien, Martin D.

  1. By: Barbara Broadway (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; and ARC Centre of Excellence for Children and Families Over the Life Course); Guyonne Kalb (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; ARC Centre of Excellence for Children and Families Over the Life Course; Institute for the Study of Labour (IZA)); Jinhu Li (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; and ARC Centre of Excellence for Children and Families Over the Life Course); Anthony Scott (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: This paper analyses doctors’ supply of after-hours care, and how it is affected by personal and family circumstances as well as the earnings structure. We use detailed survey data from a large sample of Australian General Practitioners to estimate a structural, discrete-choice model of labour supply and after-hours care. This allows us to jointly model how many daytime-weekday hours a doctor works, and his or her probability of providing after-hours care. The underlying utility function varies across individual and family characteristics. We simulate labour supply responses to an increase in doctors’ hourly earnings, both in a daytime-weekday setting and for after-hours care. Among doctors overall, men and women increase their daytime-weekday working hours if their hourly earnings in this setting increases, but only to a very small extent. Men’s labour supply elasticities do not change if their family circumstances change, but for women the small behavioural response disappears completely if they have preschool-aged children. Doctors are somewhat more likely to provide after-hours care if their hourly earnings in that setting increases, but again the effect is very small and is only evident in some sub-groups. Moreover, higher earnings in weekday-daytime practice reduces the probability of providing after-hours care, particularly for men. Increasing doctors’ earnings appears to be at best relatively ineffective in encouraging increased provision of after-hours care, and may even prove harmful if incentives are not well-targeted.
    Keywords: Labour supply, after-hours care, wage elasticity, health workforce, MABEL
    JEL: I11 J22 J44 J21
    Date: 2016–03
  2. By: Chugh, Sanjay K.; Lechthaler, Wolfgang; Merkl, Christian
    Abstract: This paper characterizes long-run and short-run optimal fiscal policy in the labor selection framework. In a calibrated non-Ramsey decentralized equilibrium, labor market volatility is inefficient. Keeping fixed the structural parameters, the Ramsey government achieves efficient labor market volatility; doing so requires labor-income tax volatility that is orders of magnitude larger than the tax-smoothing results based on Walrasian labor markets, but a few times smaller than the results based on search and matching markets. We analytically characterize selection-modelconsistent wedges and inefficiencies in order to understand optimal tax volatility.
    Keywords: labor market frictions,hiring costs,efficiency,optimal taxation,labor wedge,zero intertemporal distortions
    JEL: E24 E32 E50 E62 E63 J20
    Date: 2016
  3. By: Patrick Button (Department of Economics, Tulane University)
    Abstract: Individuals with less severe impairments are often ineligible for disability programs and are not covered under the Americans with Disabilities Act, but this group still faces employment barriers through discrimination or requiring on-the-job accommodations. Effective 2001, California passed the Prudence Kay Poppink Act which broadened California’s disability employment discrimination law to cover individuals with less severe impairments by lowering the burden of proof to establish a disability. I estimate how this act affected the labor market outcomes for individuals with disabilities using both difference-in-differences and difference-in-differences-in-differences regression analyses using data from the Current Population Survey’s Annual Social and Economic Supplement. The results show either no effect on employment, or, in the preferred specifications, a large increase in employment. This suggests that an expansion of disability discrimination protections leads to, at a minimum, no negative employment effects, but more likely leads to an increase in employment.
    Keywords: disability, discrimination, employment law, Prudence Kay Poppink Act, Americans with Disabilities Act, Sutton Trilogy, Americans with Disabilities Amendments Act
    JEL: J14 J71 J78 K31
    Date: 2016–02
  4. By: Richard V. Burkhauser; Nicolas Hérault; Stephen P. Jenkins; Roger Wilkins
    Abstract: Estimates of UK income inequality trends differ substantially according to whether estimates are based on household survey data (used for official statistics) or tax return data (used in the top incomes literature). We reconcile differences in variable definitions and combine survey and tax return data in order to take advantage of the much better coverage of top incomes in the latter, and provide improved estimates of UK inequality trends since the mid-1990s. We show there was a marked increase in income inequality in the early 2000s that survey-based estimates do not reveal, and our conclusions are robust to changes in the definitions of income, income-sharing unit, and summary inequality measure. In addition, our reconciled and combined data provide more comparable estimates of UK-US inequality trends than the top incomes literature to date.
    JEL: C81 D31
    Date: 2016–02
  5. By: John Knight; Deng Quheng; Li Shi
    Abstract: In the decade 1998-2008 China expanded enrolment in higher education almost six-fold. For the examination of its short term labour market consequences, this unprecedentedly huge and sudden policy change might be regarded as a natural experiment. After providing a theoretical framework for analysis, the paper uses urban labour market surveys to analyse how the labour market adjusted to the supply shock. Three outcomes are examined: the effect of the expansion on wages, on unemployment, and on access to ‘good jobs’. The shock is found to reduce relative wages, raise the unemployment rate, and reduce the proportion in good jobs, but only for the entry-year or entry-period cohort of graduates. The effect is fairly powerful for entrants, especially university rather than college graduates, but incumbent graduates are largely protected from the supply shock. An attempt is made to examine the labour market effects of the quantitative expansion on educational quality. The paper provides insight into the operation of China’s labour market in recent years.
    Keywords: China; cohort effects; graduate unemployment; higher education; labour market; returns to higher education
    JEL: I21 I23 J24 J31
    Date: 2016
  6. By: Mónica Ospina Londoño; Juan José Estrada
    Abstract: Abstract: This paper provides new evidences to the literature of assignment in the labor market for the Colombian case. Specifically it focuses on the existing relationship between acquired human capital in higher education and its congruence in the labor market. Differing from previews studies, the misallocation analysis is not only based on the horizontal component and the educational mismatch, but it also includes the vertical mechanism (vertical mechanism is related to skills mismatch and horizontal mechanism is related to professional career mismatch). Another contribution is how we measure the abilities through an exploratory factor analysis. The data are taken from the Survey of Graduates of Higher Education Institutions 2014, provided by OLE. We employ a two-step treatment effect method proposed by Heckman (1974, 1979) and Lee (1978)), we found that generic abilities raise the probability of horizontal mismatch and diminish the probability of vertical mismatch. On the other hand, specific abilities lower the probability of both horizontal and vertical mismatch. In terms of wages, we found evidence that confirmed the results of the assignment models because it exists a wage penalty for the mismatched individuals (Sattinger, 1993).
    Keywords: Horizontal and vertical mismatch; assignment theory; generic and specific skills;congruence; productivity and wages
    JEL: C35 J24 J31
    Date: 2016–02–22
  7. By: Michael C. Burda; ; ;
    Abstract: The supply and demand framework of Katz and Murphy (1992) provides new evidence on the source of changes in socially insured full-time and part-time employment in years preceding and following the implementation of the landmark Hartz reforms in Germany. Our findings are consistent with a stable demand for labor, especially in western Germany, implying that supply factors were decisive for the evolution of the labor market after 2003. The correlation of changes in wages and labor force participation is also consistent with a positive labor supply shock at a given working-age population. We also show that part-time employment played a decisive role in the post-2003 improvement of the German labor market.
    Keywords: German labor market miracle, Hartz reforms, part-time work, wage inequality
    JEL: E24 J21
    Date: 2016–02
  8. By: Stijn Broecke; Glenda Quintini; Marieke Vandeweyer
    Abstract: Inequality in the United States is high by international standards, and keeps rising. This is likely to bring significant social as well as economic costs, including lower growth. In this paper, we use the Survey of Adult Skills (PIAAC) to revisit the debate on the relative importance of skills in explaining international differences in wage inequality. While simple decomposition exercises suggest that skills only play a very minor role, demand and supply analysis indicates that the relative net supply of skills could explain 29% of the higher top-end wage inequality in the United States. Our analysis also suggests that skills could explain a substantial portion of the racial wage gap, as well as between individuals from different socio-economic backgrounds. Finally, we find little support for the argument that higher wage inequality in the United States may be compensated for by better relative employment outcomes of the low-skilled.
    JEL: I24 J24 J31
    Date: 2016–02
  9. By: Wiswall, Matthew (Arizona State University); Zafar, Basit (Federal Reserve Bank of New York)
    Abstract: In this paper, we use a hypothetical choice methodology to robustly estimate preferences for workplace attributes. Undergraduate students are presented with sets of jobs that vary in their attributes (such as earnings and job hours flexibility) and asked to state their probabilistic choices. We show that this method robustly identifies preferences for various job attributes, free from omitted variable bias and free from considering the equilibrium matching of workers to jobs. While there is substantial heterogeneity in preferences, we find that women, on average, have a higher willingness to pay for jobs with greater work flexibility (lower hours, and part-time option availability) and job stability (lower risk of job loss), while men have a higher willingness to pay for jobs with higher earnings growth. In the second part of the paper, using data on students’ perceptions about the types of jobs that would be offered to them conditional on their college major choices, we relate these job attribute preferences to major choice. We find that students perceive jobs offered to humanities majors to have fewer hours, more worktime flexibility, and higher stability than jobs offered to economics/business majors. These job attributes are found to play a role in major choice, with women exhibiting greater sensitivity to nonpecuniary job attributes in major choice.
    Keywords: workplace preferences; compensating differentials; human capital; college majors; gender
    JEL: J16 J24
    Date: 2016–03–01
  10. By: Hans Dietrich (Institute for Employment Research (IAB), Nuremberg); Harald Pfeifer (Federal Institute for Vocational Education and Training (BIBB), Bonn and Research Centre for Education and the Labour Market (ROA)); Felix Wenzelmann (Federal Institute for Vocational Education and Training (BIBB), Bonn)
    Abstract: In this paper, we examine the relation between a firm’s training investment and the post-training wages of apprenticeship graduates. For our analysis, we first calculate a training investment indicator using detailed information about firm-level training costs. We then merge the firm-level data with individual-level administrative data on employment and wages of apprenticeship graduates. Using regression models controlling for selection into employment, we find that a firm investment in training relates positively with graduates’ post-training wages. Doubling a firm’s training investment leads to a wage mark-up of about 2.8%. This result is robust to different specifications. However, we find that especially graduates from low-investment firms benefit from a higher training investment. The wage mark-up for graduates from firms with already high investment levels is small and statistically not significant.
    Keywords: Training investment, post-training wages, apprenticeship system
    JEL: J24 J31 J62
    Date: 2016–03
  11. By: François Libois (CRED, University of Namur)
    Abstract: This paper analyses short and medium term consequences of the Nepalese civil war on rural households livelihoods and on the inter-group distribution of income. Conclusions rely on two very rich datasets: the Nepal Living Standards Survey collected before, during and after the war and data on the number of killings by month and village during the eleven years of the conflict. Using the survey timing as a quasi-natural experiment, results indicate that in the short-run all households loose, but high castes by a larger extent. Short-term coping strategies determine medium term diverging recovery paths. Non-high castes allocate more labour in agriculture and loose more in the medium term. High castes diversify their income sources, notably by relying on migration, which allows them to recover.
    Keywords: Civil war ; Income distribution ; Labour ; Inequality ; Migration ; Nepal
    JEL: O1 D1 D74 Q12 N45
    Date: 2016–02
  12. By: J. Ignacio García-Pérez; Judit Vall Castelló; Ioana Marinescu
    Abstract: By reducing the commitment made by employers, fixed-term contracts can help low-skilled youth find a first job. However, the long-term impact of fixed-term contracts on these workers’ careers may be negative. Using Spanish social security data, we analyze the impact of a large liberalization in the regulation of fixed-term contracts in 1984. Using a cohort regression discontinuity design, we find that the reform raised the likelihood of male high-school dropouts working before age 19 by 9%. However, in the longer run, the reform reduced number of days worked (by 4.5%) and earnings (by 9%).
    JEL: J3 J41 J48 J64
    Date: 2016–02
  13. By: F. Langot; A. Pizzo
    Abstract: In this paper we develop a balanced growth model with labor supply and search and matching frictions in the labor market, to study the impact of economic policy variables on the two margins which constitute the (total) labor input: the extensive margin (the rate of employment) and the intensive margin (the hours worked per worker). We show that the dynamics of taxes primarily have an impact on hours worked, while labor market institutions have a significant influence on the rate of employment. However, our findings emphasize that there is an interaction between the two margins. The model is tested on four countries (US, France, Germany and the UK), which have experienced different tax and labor market dynamics since the sixties. Using this structural approach, we can then perform counterfactual experiments about the evolution of the policy variables, and compare the implications of policy changes in terms of production as well as average welfare.
    Keywords: Taxes, labor market institutions, hours, employment, labor market search.
    JEL: E20 E60 J22 J60
    Date: 2016
  14. By: Kelly Shue; Richard Townsend
    Abstract: The dramatic rise in CEO compensation during the 1990s and early 2000s is a longstanding puzzle. In this paper, we show that much of the rise can be explained by a tendency of firms to grant the same number of options each year. Number-rigidity implies that the grant-date value of option awards will grow with firm equity returns, which were very high on average during the tech boom. Further, other forms of CEO compensation did not adjust to offset the dramatic growth in the value of option pay. Number-rigidity in options can also explain the increased dispersion in pay, the difference in growth between the US and other countries, and the increased correlation between pay and firm-specific equity returns. We present evidence that number-rigidity arose from a lack of sophistication about option valuation that is akin to money illusion. We show that regulatory changes requiring transparent expensing of the grant-date value of options led to a decline in number-rigidity and helps explain why executive pay increased less with equity returns during the housing boom in the mid-2000s.
    JEL: D03 G3 J3 K2 M52
    Date: 2016–02
  15. By: Anita Tiefensee; Christian Westermeier
    Abstract: Private wealth is a crucial factor for the economic well‐being of households. Key determinants of private wealth include intergenerational wealth transfers (gifts and inheritances), which are gaining importance since 1990, as research suggests. We conduct a detailed investigation of the distribution of wealth transfers in eight Euro‐area countries. First, we investigate the patterns of prevalence and level of past wealth transfers in the individual countries: Who received transfers, and what is their present value in absolute terms? We find that in most countries the percentages of households with a transfer as well as the mean present value of those transfers is increasing along the distribution of net wealth. Using a series of country‐specific multivariate regressions, we find that households with higher income and education levels have both a higher probability of receiving transfers and higher absolute transfer value. We then analyze the present value of transfers as a percent of current net worth. Here, in relative terms, some of the results are reversed, as the relative importance of intergenerational transfers does not increase with the level of wealth or income. Using a fractional logit regression we conclude that for higher income quintiles the share of current net worth due to past intergenerational transfers tends to be decreasing.
    Keywords: Intergenerational transfers, inheritances and gifts, wealth distribution
    JEL: D64 D31 D14
    Date: 2016
  16. By: Argaw, Bethlehem A.
    Abstract: Prior to the introduction of mother tongue based education in 1994, the language of instruction for most subjects in Ethiopia's primary schools was the official language (Amharic) - the mother tongue of only one third of the population. This paper uses the variation in individual's exposure to the policy change across birth cohorts and mother tongues to estimate the effects of language of instruction on reading skills and early labour market outcomes. The results indicate that the reading skills of birth cohorts that gained access to mother tongue-based primary education after 1994 improved significantly by about 11 percentage points. The provision of primary education in mother tongue halved the reading skills gap between Amharic and non-Amharic mother tongue users. The improved reading skills seem to translate into gains in the labour market in terms of the skill contents of jobs held and the type of payment individuals receive for their work. An increase in school enrollment and enhanced parental educational investment at home are identified as potential channels linking mother tongue instruction and an improvement in reading skills.
    Keywords: language of instruction,mother tongue,reading skills,labour market,policy evaluation
    JEL: I24 I25 I28 J24
    Date: 2016
  17. By: Fernando M. Aragon (Simon Fraser University); Juan Jose Miranda (The World Bank); Paulina Oliva (University of California, Santa Barbara)
    Abstract: This paper examines the effect of air pollution on labor supply using the case of Lima, Peru. We focus on fine particulate matter (PM2.5), an important air pollutant, and show that moderate levels of pollution reduce hours worked for working adults. The effect is concentrated among households with susceptible dependents, i.e., small children and elderly adults. This indicates that caregiving is likely a mechanism linking air pollution to labor supply. We find no evidence of intra-household attenuation behavior. For instance, there is no re-allocation of labor across household members, and earnings decrease. Finally, we show evidence of non-linearities in the dose response function: at higher concentrations, households without susceptible dependents also start experiencing negative effects.
    Keywords: pollution, labor supply, cost of pollution
    JEL: Q52 Q53
    Date: 2016–02
  18. By: Pinelopi K. Goldberg; Nina Pavcnik
    Abstract: The last two decades have witnessed a shift in the focus of international trade research from trade policy to other forms of trade frictions (e.g., transportation, information and communication costs). Implicit in this development is the widespread view that trade policy no longer matters. We confront this view by critically examining a large body of evidence on the effects of trade policy on economically important outcomes. We focus on actual as opposed to hypothetical policy changes. We begin with a discussion of the methodological challenges one faces in the measurement of trade policy and identification of its causal effects. We then discuss the evidence on the effects of trade policy on a series of outcomes that include: (1) aggregate outcomes, such as trade volumes (and their price and quantity subcomponents), the extensive margin of trade, and static, aggregate gains from trade; (2) firm and industry performance, i.e., productivity, costs, and markups; (3) labor markets, i.e., wages, employment, and wage inequality; (4) long-run aggregate growth and poverty, secondary distortions and misallocation, uncertainty. We conclude that the perception that trade policy is no longer relevant arises to a large extent from the inability to precisely measure the various forms of non-tariff barriers that have replaced tariffs as the primary tools of trade policy. Better measurement is thus an essential prerequisite of policy-relevant research in the future. Despite measurement challenges and scant evidence on the impact of actual policy changes, existing evidence when properly interpreted points to large effects of trade policy on economically relevant outcomes, especially when trade policy interacts with other developments, e.g., technological change. We point to areas and opportunities for further research and draw lessons from the past to apply to future studies.
    JEL: F10 F13 F14 L11
    Date: 2016–02
  19. By: Javier Cano-Urbina (Florida State University); Lance Lochner (The University of Western Ontario)
    Abstract: This paper estimates the effects of educational attainment and school quality on crime among American women. Using changes in compulsory schooling laws as instruments, we estimate significant effects of schooling attainment on the probability of incarceration using Census data from 1960-1980. Using data from the 1960-90 Uniform Crime Reports, we also estimate that increases in average schooling levels reduce arrest rates for violent and property crime but not white collar crime. The estimated reductions in crime for women are smaller in magnitude than comparable estimates for men; however, the effects for women are larger in percentage terms (relative to baseline crime rates). Our results suggest small and mixed direct effects of school quality (as measured by pupil-teacher ratios, term length, and teacher salaries) on incarceration and arrests. Finally, we show that the effects of education on crime for women is unlikely to be due to changes in labor market opportunities and may be more related to changes in marital opportunities and family formation.
    Date: 2016
  20. By: Timothy J. Bartik (W.E. Upjohn Institute for Employment Research); Brad J. Hershbein (W.E. Upjohn Institute for Employment Research); Marta Lachowska (W.E. Upjohn Institute for Employment Research)
    Abstract: As the costs of higher education rise, many communities have begun to adopt their own financial aid strategy: place-based scholarships for students graduating from the local school district. Some place-based scholarships impose merit- and/or need-based restrictions, while others require little more than residency and graduation. In this paper, we examine the reach and cost-effectiveness of the Kalamazoo Promise, one of the more universal and more generous place-based scholarships. Building upon estimates of the program’s heterogeneous effects on degree attainment, individual-level scholarship cost data, and projections of future earning profiles by education, we examine the Promise’s benefit-cost ratios for different types of students differentiated by income, race, and gender. Although the average break-even rate of return of the program is about 11 percent, rates of return vary greatly by group. The Promise has high returns for both low-income and non-low-income groups, for nonwhites, and for women, while benefit assumptions matter more for whites and men. Our results show that universal scholarships can reach many students and have a high rate of return, particularly for places with a high percentage of African American students.
    Keywords: place-based scholarship, enrollment, college completion, natural experiment, difference-in-differences, financial aid policy, benefit-cost analysis
    JEL: I21 I22 I24
    Date: 2016–02
  21. By: Byrne, Stephen (Central Bank of Ireland); O'Brien, Martin D. (Central Bank of Ireland)
    Abstract: This paper explores developments in the labour force participation rate in Ireland. Given the important role of labour supply in explaining Irish economic growth, we aim to identify the relative infl uence of structural and cyclical factors in the recent dynamics of Irish labour force participation. Using a number of empirical approaches our results highlight the role of age, nationality and gender on the participation rate. We also find that the recent decline in female participation is entirely a response to the stage in the economic cycle given the weaker labour market, whereas the fall in male and overall participation also refl ects the in uence of some structural factors. Accordingly a rise in the participation rate is to be expected in the near term as the economic recovery continues, and current measures of slack in the economy should account for this. Combining our results and various population projection scenarios, we show that policy actions to increase female participation may not in and of themselves yield significant changes in the aggregate trend participation rate over the medium term owing to the stronger in uence of the falling male trend. Higher immigration is the most effective way of offsetting the expected decline in trend participation out to 2025.
    JEL: J11 J21
    Date: 2016–03

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