nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2016‒07‒23
fifteen papers chosen by
Joseph Marchand
University of Alberta

  1. How important is precautionary labor supply? By Jessen, Robin; Rostam-Afschar, Davud; Schmitz, Sebastian
  2. The Effects of State Merit Aid Programs on Attendance at Elite Colleges By David L. Sjoquist; John V. Winters
  3. The role of human capital in pre-industrial societies: Skills and earnings in eighteenth-century Castile (Spain) By Begoña Álvarez; Fernando Ramos Palencia
  4. Spinning the Industrial Revolution By Jane Humphries; Benjamin Schneider
  5. Redistribution of Local Demand Shocks through Firms' Internal Networks By Xavier Giroud; Holger M. Mueller
  6. Insurance Between Firms: The Role of Internal Labor Markets By Giacinta Cestone; Chiara Fumagalli; Francis Kramarz; Giovanni Pica
  7. Further Evidence on the Contribution of Services Outsourcing to the Decline in Manufacturing’s Employment Share in Canada By Matthew Calver; Evan Capeluck
  8. The part-time poverty gap across Europe: How institutions affect the way part-time and full-time workers avoid poverty differently By Jeroen Horemans
  9. Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance By Brice Corgnet; Joaquin Gomez-Minambres; Roberto Hernan-Gonzalez
  10. What Role Did Management Practices Play in SME Growth Post-Recession? By Bryson, Alex; Forth, John
  11. ICT, Offshoring, and the Demand for Part-time Workers: The Case of Japanese Manufacturing By Kozo Kiyota; Sawako Maruyama
  12. Trends in Low-Wage Employment in Canada: Incidence, Gap and Intensity, 1997-2014 By Jasmin Thomas
  13. The Impact of Micro-Credit on Employment: Evidence from Bangladesh and Pakistan By Kahn, Azhar; Rahman, Twyeafur; Wright, Robert E.
  14. Technological progress and (un)employment development By Blien, Uwe; Ludewig, Oliver
  15. Work versus School? The Effect of Work on Educational Expenditures for Children in Mexico By Kaletski, Elizabeth

  1. By: Jessen, Robin; Rostam-Afschar, Davud; Schmitz, Sebastian
    Abstract: We quantify the importance of precautionary labor supply using data from the German Socio- Economic Panel (SOEP) for 2001-2012. We estimate dynamic labor supply equations augmented with a measure of wage risk. Our results show that married men choose about 2.5% of their hours of work or one week per year on average to shield against unpredictable wage shocks. This implies that about 26% of precautionary savings are due to precautionary labor supply. If self-employed faced the same wage risk as the median civil servant, their hours of work would reduce by 4%.
    Keywords: Wage Risk,Labor Supply,Precautionary Saving,Life Cycle,Dynamic Panel Data
    JEL: D91 J22 C23
    Date: 2016
  2. By: David L. Sjoquist (Georgia State University); John V. Winters (Oklahoma State University)
    Abstract: State merit aid programs have been found to reduce the likelihood that students attend college out-of-state. Using the U.S. News & World Report (USNWR) rankings of colleges and universities to measure college quality and Integrated Postsecondary Education Data System data to measure enrollment, we explore how this reduction in out-of-state enrollment differs by the academic quality of the institution. Our difference-in-differences results suggest that state merit aid programs do not induce students to forgo attending top 15 ranked schools. However, state merit aid does induce some students to forgo attending out-of-state schools ranked below the top 15 and shifts them toward lower quality in-state schools, so that the net effect is a reduction in academic quality, as measured by USNWR. These effects may have long-term implications for students’ degree completion rates and labor market earnings.
    Keywords: merit aid; college choice; college quality; elite colleges
    JEL: H31 I22 J24
    Date: 2016–06
  3. By: Begoña Álvarez (Department of Applied Economics, Universidad de Vigo); Fernando Ramos Palencia (Department of Economics, Quantitative Methods and Economic History, Universidad Pablo de Olavide)
    Abstract: Using the Ensenada Cadastre, a unique database on Castilian households circa 1750, we measure the effect of human capital on the structure of male labor earnings. Human capital is proxied by individual indicators of basic skills (literacy and numeracy) and of occupational skills. We employ a Mincerian regression approach and find that, on average, workers with greater skills earned more than otherwise similar workers with lesser skills. This finding is robust to the inclusion of additional controls for age, household composition, job characteristics, and place of residence. Estimated returns were larger for urban than for rural workers and were strongly heterogeneous across activity sectors. The richness of our data set reveals that higher-skilled workers not only reaped positive rewards in their main jobs but also were more likely to diversify and increase their earnings through “by-employment”. However, not all workers benefited to the same degree from increased human capital. Quantile regression analysis shows that earnings disparities between workers with different skills were much smaller at the lower than at the upper end of the earnings distribution. This evidence indicates that, in pre-industrial Castile, human capital contributed to earnings (and income) inequality.
    Keywords: human capital, pre-industrial Spain, skill premia, earnings inequality, quantile regression
    JEL: N33 J24 C21
    Date: 2016–07
  4. By: Jane Humphries (All Souls College, University of Oxford); Benjamin Schneider (Merton College, University of Oxford)
    Abstract: The prevailing explanation for why the Industrial Revolution occurred first in Britain is Robert Allen’s (2009) ‘high-wage economy’ view, which claims that the high cost of labour relative to capital and fuel incentivized innovation and the adoption of new techniques. This paper presents new empirical evidence on hand spinning before the Industrial Revolution and demonstrates that there was no such ‘high-wage economy’ in spinning, a leading sector of industrialization. We quantify the working lives of frequently ignored female and child spinners who were crucial to the British textile industry in the Early Modern period with evidence of productivity and wages from the late sixteenth to the early nineteenth century. Our results show that spinning was a widespread, low-wage, low-productivity employment, in line with the Humphries (2013) view of the motivations for the factory system.
    Keywords: hand spinning, women's wages, Industrial Revolution, textiles, Great Divergence, High Wage Economy interpretation of invention and innovation
    JEL: J24 J31 J42 J46 N13 N33 N63 O14 O31
    Date: 2016–06–05
  5. By: Xavier Giroud; Holger M. Mueller
    Abstract: Local labor market shocks are difficult to insure against. Using confidential micro data from the U.S. Census Bureau’s Longitudinal Business Database, we document that firms redistribute the adverse employment impacts of local demand shocks across regions through their internal networks of establishments. We find large elasticities of non-tradable establishment-level employment with respect to house prices in other counties in which the firm has establishments. Consistent with theory, these elasticities increase with the extent of firms’ financial constraints. Further, and consistent with the notion that firms smooth out the impacts of local demand shocks across regions, we find that establishments of firms with more expansive regional networks exhibit lower elasticities with respect to house prices in the establishment’s own county. To account for general equilibrium adjustments, we also consider total non-tradable employment at the county level. Similar to what we found at the establishment level, we find that non-tradable county-level employment responds strongly to local demand shocks in other counties linked through firms’ internal networks of establishments. These results are not driven by direct demand spillovers from nearby counties, common county-level shocks to house prices, or local demand shocks affecting non-tradable employment in distant counties indirectly through the trade channel. Overall, our results suggest that firms play an important role in the extent to which local labor market risks are shared across regions.
    JEL: E24 E32 G31 J23 J63
    Date: 2016–07
  6. By: Giacinta Cestone (Cass Business School, CSEF and ECGI); Chiara Fumagalli (Università Bocconi, CSEF and CEPR); Francis Kramarz (CREST (ENSAE)); Giovanni Pica (Università di Milano, Centro Studi Luca d’Agliano, CSEF and Paolo Baffi Centre)
    Abstract: We investigate how Internal Labor Markets (ILMs) allow organizations to accommodate shocks calling for costly labor adjustments. Using data on workers’ mobility within French business groups, we find that adverse shocks affecting affiliated firms boost the proportion of workers redeployed to other group units rather than external firms. This effect is stronger when labor regulations are stricter and destination-firms are more efficient or enjoy better growth opportunities. Affiliated firms hit by positive shocks rely on the ILM for new hires, especially high-skilled workers. Overall, ILMs emerge as a co-insurance mechanism within organizations, providing job stability to employees as a by-product.
    Keywords: Internal Labor Markets, Organizations, Business Groups
    JEL: G30 L22 J08 J40
    Date: 2016–06–20
  7. By: Matthew Calver; Evan Capeluck
    Abstract: In October 2015, the Centre for the Study of Living Standards released a report examining how outsourcing of work from the manufacturing sector to the services sector contributed to the recorded decline in Canadian manufacturing employment over the past four decades. The evidence was mixed. An examination of the input-output structure of the economy suggested that the effect of services outsourcing was very small while a decomposition of employment growth by industry and occupation suggested that the effect may have been substantial. This report revisits these results using new custom data products provided by Statistics Canada. In particular, the earlier work examined an input-output structure based on current dollar data which may have skewed the results due to large price swings, particularly in the oil and gas sector. This report uses chained dollar estimates to avoid this problem. Similarly, the employment decomposition used highly aggregated occupational data which may have overstated the contribution of outsourcing to manufacturing’s declining employment share. We use more detailed occupational data from the Census / National Household Survey. We find that the results regarding the contribution of services outsourcing are fairly robust to the choice of data. Furthermore, we are able to reconcile the differing estimates of the importance of services outsourcing between the input-output and occupational decomposition methodologies by noting that much of the decline in manufacturing employment in services occupations might be expected to occur if the manufacturing sector shrank for reasons unrelated to services outsourcing. In particular, the expected share of the decline associated with service occupations in response to a negative shock to the manufacturing sector should be roughly equal to the share of service occupations in total manufacturing employment. Adjusting for this, we find that both exercises suggest the contribution of services outsourcing to the decline of manufacturing’s employment share was quite small, explaining no more than 8.3 per cent.
    Keywords: Manufacturing, Outsouring, Employment, Canada, Input-Output
    JEL: M55 E24 L60 N32 N22 N62
    Date: 2016–07
  8. By: Jeroen Horemans
    Abstract: Drawing on EU-SILC 2012 data, this paper investigates the variation in the degree to which part-time and full-time workers avoid poverty differently by various income components in Europe. We look at three consecutive steps in the income package: individual earnings, market incomes of other household members, and government transfers. The results indicate that on average across Europe full-timers are more likely than part-timers to escape poverty with each step. On the other hand, much variation across countries is discovered. More stringent wage institutions, short working hour cultures and a strong support for working mothers are related with lower differences in earnings poverty between part-time and full-time workers. These institutional characteristics also reduce the difference in the degree to which part-time and full-time workers avoid poverty by other market incomes in the household. The difference in poverty reduction by government transfers between part-timers and full-timers was found to vary little across countries, but the degree to which part-time earnings are combined with benefits tends to be related to a larger difference pre-distribution poverty.
    Keywords: part-time employment, in-work poverty, social policy, working time, labour market institutions
    JEL: I32 I38 J08 J21 J22 J31
    Date: 2016–07
  9. By: Brice Corgnet (Economic Science Institute, Argyros School of Business and Economics); Joaquin Gomez-Minambres (Bucknell University, Department of Economics,); Roberto Hernan-Gonzalez (Business School, University of Nottingham)
    Abstract: We study a principal-agent framework in which principals can assign wage-irrelevant goals to agents. We find evidence that, when given the possibility to set wage-irrelevant goals, principals select incentive contracts for which pay is less responsive to agents’ performance. Agents’ performance is higher in the presence of goal setting despite weaker incentives. We develop a principal-agent model with reference-dependent utility that illustrates how labor contracts combining weak monetary incentives and wage-irrelevant goals can be optimal. The pervasive use of non-monetary incentives in the workplace may help account for previous empirical findings suggesting that firms rely on unexpectedly weak monetary incentives.
    Keywords: Principal-agent models, incentive theory, non-monetary incentives, goal setting, reference-dependent utility, laboratory experiments.
    Date: 2016–09
  10. By: Bryson, Alex (University College London); Forth, John (National Institute of Economic and Social Research (NIESR))
    Abstract: Small and medium-sized enterprises (SMEs) are known to contribute significantly to aggregate economic growth. However, little is known about the role played by management practices in SME growth since recession. We contribute to the literature on SME growth by analysing longitudinal administrative data on firms' employment and turnover, taken from the UK's Business Structure Database (BSD), with data on management practices collected in face-to-face interviews from the HR Managers and employees who were surveyed as part of the 2011 British Workplace Employment Relations Survey (WERS). We find off-the-job training is the only management practice that is robustly and significantly associated with higher employment growth, increased turnover, and a decline in closure probabilities, over the period 2011-2014. The findings suggest SME investment in off-the-job training is sub-optimal in Britain such that firms could benefit economically from increasing the amount of off-the-job training they offer to their non-managerial employees.
    Keywords: SMEs, small and medium-sized enterprises, employment growth, sales, workplace closure, HRM, training, recession
    JEL: L25 M12 M50 M53
    Date: 2016–07
  11. By: Kozo Kiyota (Keio Economic Observatory, Keio University); Sawako Maruyama (Faculty of Economics, Kobe University)
    Abstract: This paper examines the effects of information and communication technology (ICT) and offshoring on the skill demand in Japanese manufacturing. One of the contributions of this paper is that we focus explicitly on the demand for low-wage part-time workers, which we call low skilled workers. Estimating a system of variable factor demands for the period 1980--2011, we found that industries with higher ICT stock shifted demand from middle-low to middle-high and low skilled workers. Offshoring is associated with the increasing demand for high skilled workers but it has insignificant effects on the demand for middle-high, middle-low, and low skilled workers. The results together suggest that the increasing demand for low-wage part-time workers can be attributable to ICT in Japan.
    Keywords: Labor demand, Part-time workers, Offshoring, Information and Communication Technology, Skill
    JEL: F14 J31
    Date: 2016–06–24
  12. By: Jasmin Thomas
    Abstract: This paper introduces two new concepts to the debate on job quality: the low-wage gap and low-wage intensity. These two measures provide information on the depth and severity of low wages. Using Labour Force Survey microdata, we discuss trends in these two measures, along with trends in the incidence of low wages over the 1997-2014 period. For example, in 2014, 27.6 per cent of all employees aged 20 to 64 years earned less than two-thirds of median hourly wages for full-time workers aged 20 to 64 years (or $16.01 per hour), our low-wage cutoff. In this same year, the low-wage gap was 21.0 per cent, which means that the average low-wage employee earned approximately 79.0 per cent of the low-wage cutoff (or $12.66 per hour). Consequently, low-wage intensity, defined as the product of the incidence and the gap (scaled by 100) was 5.8. This is down from an intensity of 6.3 in 1997, which was the result of a slightly higher incidence (27.9 per cent) and a higher gap (22.7 per cent). This paper also provides these results by gender, age, educational attainment, industry, occupation, employment status and province. These detailed results help identify which groups face the highest rates, greatest depths, and largest intensities of low-wage employment in Canada. Furthermore, this paper explores the implications of a $15 minimum wage on the low-wage gap in 2014. Finally, to provide a brief sensitivity analysis, we discuss (1) the results for low-wage employment in Canada using a different cutoff (two-thirds mean hourly wages for full-time employees aged 25 to 54 years) and (2) comparisons of our results to those of CIBC’s Employment Quality Index and the OECD’s low-pay data.
    Keywords: Low-Wages, Low-Wage Employment, Job Quality, Well-Being, Employment Quality, Minimum Wages
    JEL: I31 I32 I38 I30 J39 N32
    Date: 2016–07
  13. By: Kahn, Azhar (University of Strathclyde); Rahman, Twyeafur (University of Strathclyde); Wright, Robert E. (University of Strathclyde)
    Abstract: This paper examines the impact of micro-credit on employment. Household-level data was collected, following a quasi-experimental design, in Bangladesh and Pakistan. Three borrower groups are compared: Current borrowers; Pipeline borrowers and Non-borrowers. Pipeline borrowers are included to control for self-selection effects. It is argued that micro-credit causes a substitution of employment away from employment-for-pay to self-employment. Therefore, the effect on total employment is ambiguous. OLS and fixed effects regression are used to examine separately self-employment and employment-for-pay between three groups of borrowers. For Pakistan, there is no evidence that micro-credit effects employment. However, for Bangladesh, there is robust evidence consistent with this hypothesis.
    Keywords: micro-credit, poverty, self-employment
    JEL: G21 J22 I39
    Date: 2016–07
  14. By: Blien, Uwe (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Ludewig, Oliver (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "One of the key issues in economics is the explanation of unemployment and its variation across different economies. Modern mainstream macroeconomics refers to the effects of financial crises and to institutional structures and their variation across countries. However, unemployment within the European states varies nearly as much as between these countries. In the interior of a country, however, there are only minor differences in institutions. To solve this puzzle, we explain this variation of unemployment building on the regional industry composition and technological progress. It is shown formally that under general and standard preconditions the price elasticity of demand on product markets is decisive: Technological progress leads to an expansion of employment if product demand is elastic. It is accompanied, however, by shrinkage of employment if product demand is inelastic. A transition from the elastic into the inelastic range of the demand function for the most important product(s) can already suffice to plunge a region into crisis. In our empirical analysis we use industry level time series data on output, prices, employment and national income for Germany provided by the Federal Statistical Office. We estimate Marshallian type demand functions using an instrumental variables estimator to derive the price elasticities for different industries and link this information to the regional labour market performance of the respective industries and regions." (Author's abstract, IAB-Doku) ((en))
    JEL: Q33 R11 J23
    Date: 2016–07–12
  15. By: Kaletski, Elizabeth (Ithaca College)
    Abstract: This paper explores the impact of child labor on child welfare, with a specific focus on the relationship between working and education. I look at the empirical relationship between working and educational expenditure budget shares for children age 5-14 in Mexico. I accomplish this using a household fixed effects model and data from two waves of the Mexican Family Life Survey (MxFLS). The results indicate that working increases school expenditure shares for working children. In particular, on average, girls engaged in paid work have total annual education expenditure shares that are 48.6% higher than girls who do not work. This relationship varies significantly with characteristics of both the individual and the household, including the child's gender and type of work performed, as well as the household's income, location, and relative female bargaining power. The results indicate that working does not appear to translate into a decrease in welfare and the additional expenditure is directed towards goods that improve the quality of education.
    Keywords: child labor, education, child welfare, child incentives, household decision making
    JEL: D13 I21 J22 O15
    Date: 2016–07

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