nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2016‒09‒11
nine papers chosen by
Joseph Marchand
University of Alberta

  1. Can overtime premium flexibility promote employment? Firm- and worker-level evidence from a labour law reform By Pedro S. Martins
  2. Should the maximum duration of fixed-term contracts increase in recessions? Evidence from a law reform By Pedro S. Martins
  3. Technological innovation and employment in derived labour demand models: A hierarchical meta-regression analysis By Ugur, Mehmet; Awaworyi, Sefa; Solomon, Edna
  4. Self-Chosen Goals : Incentives and Gender Differences (revision of 2015-021) By Dalton, P.S.; Gonzalez Jimenez, V.H.; Noussair, Charles
  5. No Extension without Representation? Evidence from a Natural Experiment in Collective Bargaining By Alexander Hijzen; Pedro S. Martins
  6. Human capital investments and expectations about career and family By Wiswall, Matthew; Zafar, Basit
  8. Mincer earnings regression in the form of the double Pareto-lognormal model By Masato Okamoto
  9. Do heavily-unionized companies compensate their CEOs less in periods of financial distress? Evidence from Canadian companies during the financial crisis. By Muhammad Umar Boodoo

  1. By: Pedro S. Martins
    Abstract: In 2012, in the midst of a recession, a labour law reform in Portugal allowed firms to reduce the overtime premium paid to their workers by 50% or more. Until then, overtime premiums were set by law at a relatively high level and could not be cut unilaterally. We analyse matched employer-employee panel data, including worker-level base and overtime hours and pay, to shed light on the effects of the resulting greater flexibility in overtime pay setting. We find that half of the firms using overtime in 2011 did reduce their overtime premiums in a manner consistent with the reform, in particular those firms making greater use of overtime and paying higher premiums. Moreover, using difference-in-differences matching and a long list of covariates, we find that those firms that cut overtime premiums exhibit significant relative increases in overtime usage, employment and sales following the reform. Overall, our results highlight the important but not exclusive role of legal restrictions behind downward nominal pay rigidity. Our findings also suggest a significant potential of overtime pay flexibility to promote employment, even during a downturn.
    Keywords: Working time, wage rigidity, employment resilience, labour reforms
    JEL: J22 J23 J38
    Date: 2016–08
  2. By: Pedro S. Martins
    Abstract: Fixed-term contracts (FTCs) may be an important tool to promote hirings and employment, particularly in recessions or when permanent contracts are costly. Therefore, it may be useful to let some of the legal parameters of FTCs (as well as those of other labour market institutions) vary systematically over the business cycle, namely increasing their flexibility during downturns. We evaluate this idea by examining the short-term effects of a new law introduced in Portugal, in the midst of a recession, which increased the maximum duration of FTCs from three to four and a half years. Our analysis is based on regression-discontinuity (and difference-in-differences) methods, applied to matched panel data. We find a considerable take up of this measure, as conversions to permanent contracts drop by 20%. Moreover, while we do not detect significant effects on employment status in the subsequent year, worker churning is reduced significantly, as mobility of eligible fixed-term workers to other firms drops by 10%.
    Keywords: Employment law, worker mobility, segmentation, counterfactual evaluation
    JEL: J23 J41 J63
    Date: 2016–08
  3. By: Ugur, Mehmet; Awaworyi, Sefa; Solomon, Edna
    Abstract: The effect of technological innovation on employment is of major concern for workers and their unions, policy-makers and academic researchers. We aim to provide a quantitative synthesis of the evidence base and the extent of heterogeneity therein. Analysing 567 estimates from 35 primary studies that estimate a derived labour demand model we report the following findings: (i) the effect on employment is positive but small and highly heterogeneous; (ii) publication selection bias reflects a tendency to support the twin hypotheses that process innovation is associated with job destruction whereas product innovation is associated with job creation; (iii) the effects of process and product innovations do not conform to theoretical predictions or narrative review findings after selection bias is controlled for; (iv) only a small part of the residual heterogeneity is explained by moderating factors; (v) country-specific effect-size estimates are related to labour-market and product-market regulation in six OECD countries in a U-shaped fashion; and (vi) OLS estimates reflect upward bias whereas those based on time-differenced or within estimators reflect a downward bias. Our findings bridge the evidence gap in the research field and point out to data quality and modeling issues that should be considered in future research.
    Keywords: Innovation, employment, technological change, labour demand, meta-analysis
    JEL: C49 C80 J23 O30 O33
    Date: 2016–07–06
  4. By: Dalton, P.S. (Tilburg University, Center For Economic Research); Gonzalez Jimenez, V.H. (Tilburg University, Center For Economic Research); Noussair, Charles (Tilburg University, Center For Economic Research)
    Abstract: To boost employees’ performance, firms often offer monetary bonuses when production goals are reached. However, the available evidence indicates that the particular level at which a goal is set is critical to the effectiveness of this practice. Goals must be challenging yet achievable. Computing optimal goals when employees have private information about their own abilities may be impossible for an employer. To solve this problem, we propose a compensation scheme, in which workers set their own production goals and bonuses. We provide a simple model of self-chosen goals and test its predictions in the laboratory. The model predicts that (a) the self-chosen goal contract is more cost effective than a piece rate contract for an employer interested in attaining a desired level of output, and that (b) workers set goals that they systematically outperform. Our experimental data support both predictions. We also observe sharp gender differences in the experiment. The self-chosen goal contract increases the performance of men but not of women relative to a piece rate contract. Women set lower goals, but outperform them to a greater extent than men.
    Keywords: contracts; bonus ; goal-dependant preferences; endogenous goals; productivity; gender differences
    JEL: C91 C92 J16 J24
    Date: 2016
  5. By: Alexander Hijzen; Pedro S. Martins
    Abstract: In many countries, notably across Europe, collective bargaining coverage is enhanced by government-issued extensions that widen the reach of collective agreements beyond their signatory parties to all firms and workers in the same sector. This paper analyses the causal impact of such extensions on employment using a natural experiment in Portugal: the immediate suspension by the government that took office in 21 June 2011 of the (until then) nearly automatic extensions. The combination of this suspension and the time needed for processing the extension applications resulted in a sharp and unanticipated decline in the extension probability of agreements signed several month earlier around 1 March 2011. Our results, based on a regression discontinuity design and matched employer-employee-agreement panel data, suggest that extensions had a negative impact on employment growth. Moreover, the effects tend to be concentrated among non-affiliated firms. The lack of representativeness of employer associations is a potentially important factor behind the adverse effect of extensions. Another is the role of retro-activity in combination with the administrative delay in processing extensions. This is particularly relevant in the context of a recession.
    Keywords: Wages and employment;Portugal;Wage bargaining;Wage increases;Labor market reforms;collective bargaining, industrial relations, employer associations, wage setting, employment
    Date: 2016–07–21
  6. By: Wiswall, Matthew (University of Wisconsin-Madison and Arizona State University, W.P. Carey School of Business); Zafar, Basit (Federal Reserve Bank of New York)
    Abstract: This paper studies how individuals believe human capital investments will affect their future career and family life. We conducted a survey of high-ability currently enrolled college students and elicited beliefs about how their choice of college major, and whether to complete their degree at all, would affect a wide array of future events, including future earnings, employment, marriage prospects, potential spousal characteristics, and fertility. We find that students perceive large “returns" to human capital not only in their own future earnings, but also in a number of other dimensions (such as future labor supply and potential spouse’s earnings). In a recent follow-up survey conducted six years after the initial data collection, we find a close connection between the expectations and current realizations. Finally, we show that both the career and family expectations help explain human capital choices.
    Keywords: human capital; subjective expectations; college major; uncertainty; marriage; fertility; labor supply; gender
    JEL: D81 D84 I21 I23 J10 J12 J13 J16 J24
    Date: 2016–08–01
  7. By: Olivier Cardi; Peter Claeys; Romain Restout
    Abstract: This paper develops a two-sector open economy model with imperfect mobility of labor across sectors in order to account for time-series evidence on the aggregate and sectoral effects of a government spending shock. Using a panel of sixteen OECD coun- tries over the period 1970-2007, our VAR evidence shows that a rise in government consumption i) increases hours worked and GDP and produces a simultaneous decline in investment and the current account, ii) increases non traded output relative to GDP and thus its output share (in real terms) and lowers the output share of tradables, and iii) causes both the relative price and the relative wage of non tradables to appreciate. While the second set of findings reveals that the government spending shock is biased toward non tradables and triggers a shift of resources for this sector, the third find- ing indicates the presence of labor mobility costs, thus preventing wage equalization across sectors. Turning to cross-country differences, empirically we detect a positive relationship between the magnitude of impact responses of sectoral output shares and the degree of labor mobility across sectors. Our quantitative analysis shows that our empirical findings for aggregate and sectoral variables can be rationalized as long as we allow for a difficulty in reallocating labor across sectors along with adjustment costs to capital accumulation. Finally, the model is able to generate a cross-country relationship between the degree of labor mobility and the responses of sectoral output shares which is similar to that in the data.
    Keywords: Fiscal policy; Labor mobility; Investment; Relative price of non tradables; Sectoral wages.
    JEL: E22 E62 F11 F41 J31
    Date: 2016
  8. By: Masato Okamoto (National Coalition of Independent Scholars (NCIS), U.S.A.)
    Abstract: In this study, the standard Mincer earnings regression equation in the form of the lognormal (LN) model is generalized into the form of the double-Pareto-lognormal (dPLN) model, substantially improving the goodness-of-fit to wage data. The empirical study contrasts the new and traditional models with respect to relationships between the wage and its determinant factors other than the primary equation for the conditional mean of log-wage, given potential work experience and education, such that, the wage distributions predicted by the dPLN-regression model faithfully reproduce the log-wage quantile regression results of the original data, whereas those by the LN-regression model fail such reproduction. Furthermore, the dPLN-regression model predicts that higher education has statistically significant positive effects on wage dispersion, particularly at the higher end, whereas the LN-regression model predicts insignificant negative effects even when heteroskedasticity in the error term is incorporated into the model. Thus, the new model is expected to be useful for not only accurately estimating contributions of wage determinant factors to wage dispersions and the shares of low-wage workers, but also improving the existing analysis methods using earnings equations such as the Oaxaca-Blinder decomposition and return of education by utilizing the dispersion regression equations.
    Keywords: Distributional regression, heteroskedasticity, mixture distribution, quantile regression, wage dispersion.
    JEL: D31 D63 J31
    Date: 2016–08
  9. By: Muhammad Umar Boodoo
    Abstract: This paper studies the strategic interaction between employee stakeholders, in particular labor unions, and top management, and evaluates the effect of the two parties’ inherent competitive rent-seeking behavior on CEO pay. Using a panel of firms listed on the S&P/TSX composite index, this paper finds that CEO compensation withstood the financial crisis despite lower and even negative corporate performance. Further, heavily-unionized companies were associated with higher CEO pay in terms of non-equity elements such as salary and pension allocations. The presence of unions had no observed effect in reducing bonuses, stock options, and restricted stock units. These findings have implications for the debate on income inequality, and the power of unions to bring about change.
    Keywords: Executive labor market; Economic inequality; Executive pay; Labor union; Great Recession; Union wage effects
    JEL: J33
    Date: 2016

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