nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2016‒08‒14
seventeen papers chosen by
Joseph Marchand
University of Alberta

  1. Labor Supply Shocks, Native Wages, and the Adjustment of Local Employment By Christian Dustman; Uta Schönberg; Jan Stuhler
  2. CEO Pay and the rise of Relative Performance Contracts: A Question of Governance? By Brian Bell; John Van Reenen
  3. Time Discounting and Economic Decision-making Among the Elderly By David Huffman; Raimond Maurer; Olivia S. Mitchell
  4. Does “Ban the Box” Help or Hurt Low-Skilled Workers? Statistical Discrimination and Employment Outcomes When Criminal Histories are Hidden By Jennifer L. Doleac; Benjamin Hansen
  5. Education, Participation, and the Revival of U.S. Economic Growth By Dale W. Jorgenson; Mun S. Ho; Jon D. Samuels
  6. No Pain, No Gain: The Effects of Exports on Effort, Injury, and Illness By David Hummels; Jakob Munch; Chong Xiang
  7. Increasing the credibility of the Twin birth instrument By Farbmacher, Helmut; Guber, Raphael; Vikström, Johan
  8. The Effect of Population Aging on Economic Growth, the Labor Force and Productivity By Nicole Maestas; Kathleen J. Mullen; David Powell
  9. Estimating Local Fiscal Multipliers By Juan Carlos Suárez Serrato; Philippe Wingender
  10. The Scandinavian Fantasy: The Sources of Intergenerational Mobility in Denmark and the U.S. By Rasmus Landersø; James J. Heckman
  11. The Morale Effects of Pay Inequality By Emily Breza; Supreet Kaur; Yogita Shamdasani
  12. Estimation of a Roy/Search/Compensating Differential Model of the Labor Market By Christopher Taber; Rune Vejlin
  13. Analyzing the Impact of the World’s Largest Public Works Project on Crime By Satadru Das; Naci Mocan
  14. Can Paying Firms Quicker Affect Aggregate Employment? By Jean-Noel Barrot; Ramana Nanda
  15. Examining The Impact of ASEAN-China Free Trade Agreement on Indonesian Manufacturing Employment By Koon Peng Ooi
  16. The Labor Market Effects of Credit Market Information By Marieke Bos; Emily Breza; Andres Liberman
  17. Missing Men:World War II Casualties and Structural Change By christoph Eder

  1. By: Christian Dustman (University College London); Uta Schönberg (University College London); Jan Stuhler (Universidad Carlos III de Madrid)
    Abstract: By exploiting a commuting policy that led to a sharp and unexpected inflow of Czech workers to areas along the German-Czech border, we examine the impact of an exogenous immigration-induced labor supply shock on local wages and employment of natives. On average, the supply shock leads to a moderate decline in local native wages and a sharp decline in local native employment. These average effects mask considerable heterogeneity across groups: while younger natives experience larger wage effects, employment responses are particularly pronounced for older natives. This pattern is inconsistent with standard models of immigration but can be accounted for by a model that allows for a larger labor supply elasticity or a higher degree of wage rigidity for older than for young workers. We further show that the employment response is almost entirely driven by diminished inflows of natives into work rather than outflows into other areas or non-employment, suggesting that “outsiders†shield “insiders†from the increased competition.
    Keywords: Immigration, wage effects, labor supply elasticity, internal migration
    JEL: J21 J22 J61 R23
    Date: 2016–08
  2. By: Brian Bell; John Van Reenen
    Abstract: Would moving to relative performance contracts improve the alignment between CEO pay and performance? To address this we exploit the large rise in relative performance awards and the share of equity pay in the UK over the last two decades. Using new employer-employee matched datasets we find that the CEO pay-performance relationship remains asymmetric: pay responds more to increases in shareholders’ return performance than to decreases. Further, this asymmetry is stronger when governance appears weak. Second, there is substantial “pay-for-luck” as remuneration increases with random positive shocks, even when the CEO has equity awards that explicitly condition on firm performance relative to peer firms in the same sector. A reason why relative performance pay fails to deal with pay for luck is that CEOs who fail to meet the terms of their past performance awards are able to obtain more generous new equity rewards in the future. Moreover, this “compensation effect” is stronger when the firm has weak corporate governance. These findings suggest that reforms to the formal structure of CEO pay contracts are unlikely to align incentives in the absence of strong shareholder governance.
    JEL: J33
    Date: 2016–07
  3. By: David Huffman; Raimond Maurer; Olivia S. Mitchell
    Abstract: This paper evaluates the extent of heterogeneity in time discounting among elderly Americans, as well as its role in explaining older peoples’ key behaviors. We first show how older Americans evaluate simple (hypothetical) intertemporal choices in which payments now are compared with payments in the future. This adds to the literature on time horizon experiments by focusing on a nationally representative sample of persons age 70+. Using the indicators derived from this experiment, we show how differences in discounting patterns are associated with characteristics of particular importance in elderly populations, such as serious health and mental conditions. We then relate our discounting measure to key outcome variables including wealth, the timing of retirement, investments in health, and decisions about end of life care.
    JEL: D01 D03 D12 D14 E21 G11 I12 J26
    Date: 2016–07
  4. By: Jennifer L. Doleac; Benjamin Hansen
    Abstract: Jurisdictions across the United States have adopted "ban the box" (BTB) policies preventing employers from conducting criminal background checks until late in the job application process. Their goal is to improve employment outcomes for those with criminal records, with a secondary goal of reducing racial disparities in employment. However, removing information about job applicants' criminal histories could lead employers who don't want to hire ex-offenders to try to guess who the ex-offenders are, and avoid interviewing them. In particular, employers might avoid interviewing young, low-skilled, black and Hispanic men when criminal records are not observable. This would worsen employment outcomes for these already-disadvantaged groups. In this paper, we use variation in the details and timing of state and local BTB policies to test BTB's effects on employment for various demographic groups. We find that BTB policies decrease the probability of being employed by 3.4 percentage points (5.1%) for young, low-skilled black men, and by 2.3 percentage points (2.9%) for young, low-skilled Hispanic men. These findings support the hypothesis that when an applicant's criminal history is unavailable, employers statistically discriminate against demographic groups that are likely to have a criminal record.
    JEL: J15 J7 J78 K42
    Date: 2016–07
  5. By: Dale W. Jorgenson; Mun S. Ho; Jon D. Samuels
    Abstract: Labor quality growth captures the upgrading of the labor force through higher educational attainment and greater experience. Our first finding is that average levels of educational attainment of new entrants will remain high, but will no longer continue to rise, so that growing educational attainment will gradually disappear as a source of U.S. economic growth. Our second finding is that the investment boom of 1995-2000 drew many younger and less-educated workers into employment. Participation rates for these workers declined during the recovery of 2000-2007 and dropped further during the Great Recession of 2007-2009. In order to assess the prospects for recovery of participation as a potential source U.S. economic growth, we project the participation rates of each age-gender-education group. Our third finding is that the recovery of participation rates will provide an important opportunity for the revival of U.S. economic growth. Participation rates for less-educated workers are unlikely to recover the peak levels that followed the investment boom of 1995-2000. However, these rates can achieve the levels that preceded the Great Recession. While labor quality will grow more slowly, hours worked will grow much faster.
    JEL: E01 E24 O4 O47
    Date: 2016–07
  6. By: David Hummels; Jakob Munch; Chong Xiang
    Abstract: Increased job effort can raise productivity and income but put workers at increased risk of illness and injury. We combine Danish data on individuals’ health with Danish matched worker-firm data to understand how rising exports affect individual workers’ effort, injury, and illness. We find that when firm exports rise for exogenous reasons: 1. Workers work longer hours and take fewer sick-leave days; 2. Workers have higher rates of injury, both overall and correcting for hours worked; and 3. Women have higher sickness rates. For example, a 10% exogenous increase in exports increases women’s rates of injury by 6.4%, and hospitalizations due to heart attacks or strokes by 15%. Finally, we develop a novel framework to calculate the marginal dis-utility of any non-fatal disease, such as heart attacks, and to aggregate across multiple types of sickness conditions and injury to compute the total utility loss. While the ex-ante utility loss for the average worker is small relative to the wage gain from rising exports, the ex-post utility loss is much larger for those who actually get injured or sick.
    JEL: F1 F6 I1 J2 J3
    Date: 2016–07
  7. By: Farbmacher, Helmut (Munich Center for the Economics of Aging, Max Planck Society); Guber, Raphael (Munich Center for the Economics of Aging, Max Planck Society); Vikström, Johan (IFAU - Institute for Evaluation of Labour Market and Education Policy)
    Abstract: Twin births are an important instrumental variable for the endogenous fertility decision. However, in many economic settings, twins are not exogenous as dizygotic twinning is known to be correlated with maternal characteristics and fertility treatments. Following the medical literature, we assume that monozygotic twins are exogenous, and construct a new instrument, which corrects for the selection bias although monozygotic twinning is usually unobserved. We use longitudinal administrative data from Sweden and US census data and show that the usual twin instrument is not only related to observed but also to unobserved determinants of economic outcomes, while our new instrument is not. We demonstrate the relevance of our new instrument in two labor market applications and find that the classical twin instrument underestimates the true negative effect of fertility on labor force participation and earnings.
    Keywords: Twin birth instrument;
    JEL: C26 J13 J22
    Date: 2016–06–09
  8. By: Nicole Maestas; Kathleen J. Mullen; David Powell
    Abstract: Population aging is widely assumed to have detrimental effects on economic growth yet there is little empirical evidence about the magnitude of its effects. This paper starts from the observation that many U.S. states have already experienced substantial growth in the size of their older population and much of this growth was predetermined by historical trends in fertility. We use predicted variation in the rate of population aging across U.S. states over the period 1980-2010 to estimate the economic impact of aging on state output per capita. We find that a 10% increase in the fraction of the population ages 60+ decreases the growth rate of GDP per capita by 5.5%. Two-thirds of the reduction is due to slower growth in the labor productivity of workers across the age distribution, while one-third arises from slower labor force growth. Our results imply annual GDP growth will slow by 1.2 percentage points this decade and 0.6 percentage points next decade due to population aging.
    JEL: J11 J14 J23 J26 O47
    Date: 2016–07
  9. By: Juan Carlos Suárez Serrato; Philippe Wingender
    Abstract: We propose a new source of cross-sectional variation that may identify causal impacts of government spending on the economy. We use the fact that a large number of federal spending programs depend on local population levels. Every ten years, the Census provides a count of local populations. Since a different method is used to estimate non-Census year populations, this change in methodology leads to variation in the allocation of billions of dollars in federal spending. Our baseline results follow a treatment-effects framework where we estimate the effect of a Census Shock on federal spending, income, and employment growth by re-weighting the data based on an estimated propensity score that depends on lagged economic outcomes and observed economic shocks. Our estimates imply a local income multiplier of government spending between 1.7 and 2, and a cost per job of $30,000 per year. A complementary IV estimation strategy yields similar estimates. We also explore the potential for spillover effects across neighboring counties but we do not find evidence of sizable spillovers. Finally, we test for heterogeneous effects of government spending and find that federal spending has larger impacts in low-growth areas.
    JEL: E62 H5
    Date: 2016–07
  10. By: Rasmus Landersø; James J. Heckman
    Abstract: This paper examines the sources of differences in social mobility between the U.S. and Denmark. Measured by income mobility, Denmark is a more mobile society, but not when measured by educational mobility. There are pronounced nonlinearities in income and educational mobility in both countries. Greater Danish income mobility is largely a consequence of redistributional tax, transfer, and wage compression policies. While Danish social policies for children produce more favorable cognitive test scores for disadvantaged children, these do not translate into more favorable educational outcomes, partly because of disincentives to acquire education arising from the redistributional policies that increase income mobility.
    JEL: I24 I28 I32 P51
    Date: 2016–07
  11. By: Emily Breza; Supreet Kaur; Yogita Shamdasani
    Abstract: The idea that worker utility is affected by co-worker wages has potentially broad labor market implications. In a month-long experiment with Indian manufacturing workers, we randomize whether co-workers within production units receive the same flat daily wage or different wages (according to baseline productivity rank). For a given absolute wage, pay inequality reduces output and attendance by 0.24 standard deviations and 12%, respectively. These effects strengthen in later weeks. Pay disparity also lowers co-workers’ ability to cooperate in their self-interest. However, when workers can clearly observe productivity differences, pay inequality has no discernible effect on output, attendance, or group cohesion.
    JEL: D03 E24 J3 O15
    Date: 2016–08
  12. By: Christopher Taber; Rune Vejlin
    Abstract: In this paper we develop a model capturing key features of the Roy model, a search model, compensating differentials, and human capital accumulation on-the-job. We establish which features of the model can be non-parametrically identified and which can not. We estimate the model and use it to asses the relative contribution of the different factors for overall wage inequality. We find that Roy model inequality is the most important component accounting for the majority of wage variation. We also demonstrate that there is substantial interaction between the other features - most notably the importance of the job match obtained by search frictions varies from around 9% to around 29% depending on how we account for other features. Compensating differentials and search are both very important for explaining other features of the data such as the variation in utility. Search is important for turnover, but so is compensating differentials: 1/3 of all choices between two jobs would have resulted in a different outcome if the worker only cared about wages.
    JEL: J3
    Date: 2016–07
  13. By: Satadru Das; Naci Mocan
    Abstract: India started the implementation of a rural public works program in 2006, covering all districts of the country within three years. The program quarantees 100 days of employment per year at minimum wage to each rural household on demand, with the goal of reducing joblessness and poverty. We exploit the design and implementation of this program to investigate its employment impact on various types of crimes, ranging from burglary to kidnapping to riots. We show that the program acts as an insurance scheme because an increase in rainfall, which is negatively correlated with agricultural production, lowers the demand for jobs under the program. Controlling for rainfall, we find that employment generated by the program has a negative impact on both property and violent crime. Although crime elasticities with respect to employment are small, this finding represents another dimension of the social benefit generated by the program.
    JEL: H0 I3 I38 J08 J43 K42
    Date: 2016–08
  14. By: Jean-Noel Barrot; Ramana Nanda
    Abstract: In 2011, the federal government accelerated payments to their small business contractors, spanning virtually every county and industry in the US. We study the impact of this reform on county-sector employment growth over the subsequent three years. Despite firms being paid just 15 days sooner, we find payroll increased 10 cents for each accelerated dollar, with two-thirds of the effect coming from an increase in new hires and the balance from an increase in earnings. Importantly, however, we document substantial crowding out of non-treated firms employment, particularly in counties with low rates of unemployment. Our results highlight an important channel through which financing constraints can be alleviated for small firms, but also emphasize the general-equilibrium effects of large-scale interventions, which can lead to a substantially lower net impact on aggregate outcomes.
    JEL: E2 G2 H57 J2
    Date: 2016–07
  15. By: Koon Peng Ooi
    Abstract: There are very few studies that explicitly examine the costs and benefits of participating in regional trade agreements (henceforth RTAs), especially for developing countries. This is an important research question given that many developing countries are currently involved in negotiating RTAs, such as the Trans-Pacific Partnership (TPP), the Regional Comprehensive Partnership Agreement (RCEP) and the Pacific Alliance. This paper attempts to address this gap in the trade literature by analyzing the impact of the ASEAN-China Free Trade Agreement (ACFTA) on Indonesian manufacturing employment. It finds that even though the increase in the preference margin for China decreases employment by 2.60% (80,000 jobs lost), the reciprocal increase in the preference margin for Indonesia increases employment by 0.81% (25,000 jobs created) in export-oriented industries. These results highlight that the trade-off in an RTA is not merely between improving long-run productivity and increasing short-run unemployment in import-competing industries, as conventional trade literature may suggest. Within employment, there is a further trade-off between the contraction of import-competing industries and the expansion of export-oriented industries. Further, plant-level analysis reveals that these employment changes are attributed equally to job creation and job destruction. In addition, there is no evidence that the ACFTA increased the rate of job reallocation. Finally, this paper also shows that the impact of trade liberalization differs according to plant and worker characteristics. In Indonesia, large domestic plants are more severely affected by import competition than small plants or foreign plants. However, they are also the only ones that leveraged on the reduction in trading partner’s tariff rates and expand. In terms of workers, I find that employment changes are more volatile for production workers than non-production workers.
    Keywords: Trade Policy; Economic Integration; Trade and Labour Market Interactions
    JEL: F15 F16 J21
    Date: 2016
  16. By: Marieke Bos; Emily Breza; Andres Liberman
    Abstract: Credit information affects the allocation of consumer credit, but its effects on other markets that are relevant for academic and policy analysis are unknown. This paper measures the effect of negative credit information on the employment and earnings of Swedish individuals at the margins of the formal credit and labor markets. We exploit a policy change that generates quasi-exogenous variation in the retention time of past delinquencies on credit reports and estimate that one additional year of negative credit information causes a reduction in wage earnings of $1,000. In comparison, the decrease in credit is only one-fourth as large. Negative credit information also causes an increase in self-employment and a decrease in mobility. We exploit differences in the information available to employers and banks to show suggestive evidence that this cost of default is borne inefficiently by the relatively more creditworthy individuals among previous defaulters.
    JEL: D12 D14 G21 G23 J20
    Date: 2016–07
  17. By: christoph Eder (University of Innsbruck, Department of Public Finance, Universitätsstraβe 15/4, 6020 Innsbruck, Austria)
    Abstract: A shock to the sector composition of the local labor market can affect long-run economic development of a location. Because structural change ultimately shifts labor from agriculture to services, an early transition to manufacturing may hamper longrun prosperity. The identification strategy exploits military World War II (WWII) casualties in Austrian municipalities as an exogenous shock to the local labor market. WWII casualties shifted labor out of agriculture into manufacturing in the short-run, which eventually led to a differential path of structural change. In the long-run, I find a strong and robust negative effect of WWII casualties on subsequent economic output.
    Keywords: Spatial equilibrium, local labor markets, structural change, World War II, Austria.
    JEL: R11 R12 J40 N14
    Date: 2016–08

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