nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2016‒10‒23
fifteen papers chosen by
Joseph Marchand
University of Alberta

  1. Low Level Equilibrium Trap, Unemployment, School Quality, Child Labour and Human Capital Formation By Chakraborty, Bidisha; Chakraborty, Kamalika
  2. Money or Grit? Determinants of MisMatch by Race and Gender By Russell Cooper; Huacong Liu
  3. Estimating Labor-Supply Elasticities with Joint Borrowing Constraints of Couples By Bredemeier, Christian; Gravert, Jan; Juessen, Falko
  4. Pareto and the upper tail of the income distribution in the UK: 1799 to the present By A.B. Atkinson
  5. Global Talent Flows By Sari Pekkala Kerr; William Kerr; Çaǧlar Özden; Christopher Parsons
  6. Occupational Choice in Early Industrializing Societies: Experimental Evidence on the Income and Health Effects of Industrial and Entrepreneurial Work By Blattman, Christopher J.; Dercon, Stefan
  7. Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance By Brice Corgnet; Joaquín Gómez-Miñambres; Roberto Hernán-Gonzalez
  8. Do Youth Employment Programs Improve Labor Market Outcomes? A Systematic Review By Kluve, Jochen; Puerto, Olga Susana; Robalino, David A.; Romero, Jose M.; Rother, Friederike; Stöterau, Jonathan; Weidenkaff, Felix; Witte, Marc
  9. Dynamics in Health and Employment: Evidence from Indonesia By Mani, Subha; Mitra, Sophie; Sambamoorthi, Usha
  10. Labor Markets and Poverty in Village Economies By Bandiera, Oriana; Burgess, Robin; Das, Narayan; Gulesci, Selim; Rasul, Imran; Sulaiman, Munshi
  11. Is there a Retirement-Health Care utilization puzzle? Evidence from SHARE data in Europe. By Eve Caroli; Claudio Lucifora; Daria Vigani
  12. Monopsony and industrial development in nineteenth century Quebec: The impact of seigneurial tenure By Arsenault Morin, Alex; Geloso, Vincent; Kufenko, Vadim
  13. Learning and Earning: An Approximation to College Value Added in Two Dimensions By Evan Riehl; Juan E. Saavedra; Miguel Urquiola
  14. Compulsory Schooling and the Returns to Education: A Re-examination By Sophie van H¸llen; Duo Qin
  15. Informality in the Process of Development and Growth By Norman V. Loayza

  1. By: Chakraborty, Bidisha; Chakraborty, Kamalika
    Abstract: This paper builds an overlapping generations household economy model and examines the impact of unemployment on child labour and the child's human capital formation and growth through the expectation of adult regarding future employability. The economy consists of two sectors- skilled sector and unskilled sector. If one individual is employed in skilled sector she gets wage proportional to human capital whereas unskilled sector gives a fixed return. Expected future earning of child is included in the parental utility function. Parental choice of schooling vis-a-vis child work is considered. We study the effect of change in unemployment rate, child wage, adult skilled labour wage, adult unskilled labour wage, responsiveness of wage to skill level, change in school quality on schooling and human capital growth rate. We find that in this model the decision regarding full schooling or partial schooling or zero schooling of child is based on parental level of human capital as well as school quality. Increase in child wage will increase schooling and human capital growth rate only if adults earn less than subsistence consumption expenditure. We also find that as the responsiveness of skilled wage to human capital increases, schooling and rate of growth of human capital formation increase but if there is no unemployment then schooling hour and growth rate will be independent of responsiveness of wage to human capital, lower is the employment rate in the skilled sector, lesser is the time devoted to schooling by the child. Increase in unskilled adult wage may or may not decrease child labour. But if there is no unemployment increase in unskilled adult wage will result in decrease in the incidence of child labour and increase in schooling and rise in growth rate. The model dynamics exhibits the possibility of low level equilibrium trap. Suitable policies to escape child labour trap are discussed as well.
    Keywords: Low level equilibrium trap, Child labour, Unemployment, Human capital, Schooling
    JEL: E24 J21 J22 J24 O15
    Date: 2016–10–17
  2. By: Russell Cooper; Huacong Liu
    Abstract: This paper studies mismatch in educational attainment. Mismatch arises when high ability individuals do not obtain a college degree and/or low ability individuals do obtain such a degree. Using data from the NLSY97 survey, the paper estimates a structural model of education choice that matches the moments of mismatch, college attainment and labor market outcomes. The analysis conditions on both gender and race. The model with occasionally binding borrowing constraint fits the moments better than a model with perfect capital markets, indicating that capital market frictions may contribute to mismatch. The influence of parents on educational attainment is present though this channel appears to operate through attitudes rather than through the provision of resources. Once this link between parents and children is taken into account, the influence of borrowing constraints disappears. In this case, mismatch reflects differences in tastes rather than borrowing constraints. The paper also presents a decomposition of the college wage premium into the returns to schooling and the selection into higher education. The analysis highlights the power of selection into higher education as an explanation of the college wage premium by gender and race.
    JEL: E21 E24 I21 I23 I26
    Date: 2016–10
  3. By: Bredemeier, Christian (University of Cologne); Gravert, Jan (University of Wuppertal); Juessen, Falko (University of Wuppertal)
    Abstract: Estimates of Frisch labor-supply elasticities are biased in the presence of borrowing constraints. We show that this estimation bias is less pronounced for secondary than for primary earners. The reason is that, in households with two earners and joint borrowing constraints, wage-rate fluctuations of the secondary earner are less important for the couples’ willingness to borrow than wage-rate changes of the primary earner. We illustrate the differential estimation bias in the framework of an incomplete-markets model with two-earner households and provide empirical support using PSID data. We show that Frisch elasticities can be estimated more consistently in samples of secondary earners. Our empirical results show that Frisch elasticities are larger than often reported in microeconometric studies. Further, we show that differences in labor-supply elasticities of men and women are overestimated when borrowing constraints are ignored.
    Keywords: labor-supply elasticity, incomplete markets, double-earner households
    JEL: E24 J16 J22 E21
    Date: 2016–10
  4. By: A.B. Atkinson
    Abstract: The Pareto distribution has long been a source of fascination to economists, and the Pareto coefficient is widely used, in theoretical and empirical studies, as a summary of the degree of concentration of top incomes. This paper examines the empirical evidence from income tax data concerning top incomes in the UK, contrasting the dramatic changes that took place in the twentieth century, after 1918, with the much more modest changes in the preceding nineteenth century. Probing beneath the surface, it identifies a number of features of the evolution of the UK income inequality that warrant closer attention. These include the changing shape of the upper tail, where there is a link with Pareto's theory of elites, the need for a richer functional form to describe top incomes, and the limited evidence at the top of the distribution for a Kuznets curve in nineteenth century Britain.
    Keywords: Pareto, income, distribution, tail
    JEL: D63 I31 N33
    Date: 2016–10
  5. By: Sari Pekkala Kerr; William Kerr; Çaǧlar Özden; Christopher Parsons
    Abstract: The global distribution of talent is highly skewed and the resources available to countries to develop and utilize their best and brightest vary substantially. The migration of skilled workers across countries tilts the deck even further. Using newly available data, we first review the landscape of global talent mobility, which is both asymmetric and rising in importance. We next consider the determinants of global talent flows at the individual and firm levels and sketch some important implications. Third, we review the national gatekeepers for skilled migration and broad differences in approaches used to select migrants for admission. Looking forward, the capacity of people, firms, and countries to successfully navigate this tangled web of global talent will be critical to their success.
    JEL: F15 F22 J15 J31 J44 L14 L26 O31 O32 O33
    Date: 2016–10
  6. By: Blattman, Christopher J. (Harris School, University of Chicago); Dercon, Stefan (Department for International Development (DFID))
    Abstract: As low-income countries industrialize, workers choose between informal self-employment and low-skill manufacturing. What do workers trade off, and what are the long run impacts of this occupational choice? Self-employment is thought to be volatile and risky, but to provide autonomy and flexibility. Industrial firms are criticized for poor wages and working conditions, but they could offer steady hours among other advantages. We worked with five Ethiopian industrial firms to randomize entry-level applicants to one of three treatment arms: an industrial job offer; a control group; or an "entrepreneurship" program of $300 plus business training. We followed the sample over a year. Industrial jobs offered more hours than the control group's informal opportunities, but had little impact on incomes due to lower wages. Most applicants quit the sector quickly, finding industrial jobs unpleasant and risky. Indeed, serious health problems rose one percentage point for every month of industrial work. Applicants seem to understand the risks, but took the industrial work temporarily while searching for better work. Meanwhile, the entrepreneurship program stimulated self-employment, raised earnings by 33%, provided steady work hours, and halved the likelihood of taking an industrial job in future. Overall, when the barriers to self-employment were relieved, applicants appear to have preferred entrepreneurial to industrial labor.
    Keywords: wage labor, factories, employment, entrepreneurship, cash transfers, field experiment
    JEL: J24 O14 F16 J81 O17
    Date: 2016–10
  7. By: Brice Corgnet (EMLYON Business school - EMLYON Business School, GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS - Centre National de la Recherche Scientifique - UCBL - Université Claude Bernard Lyon 1 - UL2 - Université Lumière - Lyon 2 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - ENS Lyon - École normale supérieure - Lyon); Joaquín Gómez-Miñambres (Chapman University - Chapman University, Bucknell University); Roberto Hernán-Gonzalez (Nottingham University Business School - UON - University of Nottingham, UK)
    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. We show that average performance of agents is higher in the presence of goal setting than in its absence 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. It follows that recognizing 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
  8. By: Kluve, Jochen (Humboldt University Berlin, RWI); Puerto, Olga Susana (Youth Employment Network (UN, ILO, World Bank)); Robalino, David A. (World Bank); Romero, Jose M. (World Bank); Rother, Friederike (World Bank); Stöterau, Jonathan (RWI); Weidenkaff, Felix (ILO International Labour Organization); Witte, Marc (University of Oxford)
    Abstract: This study reviews the evidence on the impact of youth employment programs on labor market outcomes. The analysis looks at the effectiveness of various interventions and the factors that influence program performance including country context, targeted beneficiaries, program design and implementation, and type of evaluation. We identify 113 counterfactual impact evaluations covering a wide range of methodologies, interventions, and countries. Using meta-analysis methods, we synthesize the evidence based on 2,259 effect sizes (Standardized Mean Differences, or SMD) and the statistical significance of 3,105 treatment effect estimates (Positive and Statistically Significant, or PSS). Overall, we find that just more than one-third of evaluation results from youth employment programs implemented worldwide show a significant positive impact on labor market outcomes – either employment rates or earnings. In general, programs have been more successful in middle- and low-income countries; this may be because these programs' investments are especially helpful for the most vulnerable population groups – low-skilled, low-income – that they target. We also conjecture that the more-recent programs might have benefited from innovations in design and implementation. Moreover, in middle and low income countries, skills training and entrepreneurship programs seem to have had a higher impact. This does not imply, however, that those programs should be strictly preferred to others; much depends on the needs of beneficiaries and program design. In high-income countries, the role of intervention type is less decisive – much depends on context and how services are chosen and delivered, a result that holds across country types. We find strong evidence that programs that integrate multiple interventions are more likely to succeed because they are better able to respond to the different needs of beneficiaries. We also find evidence about the importance of profiling and follow-up systems in determining program performance, and some evidence about the importance of incentive systems for services providers.
    Keywords: youth employment, active labor market policy, impact evaluations, systematic review, meta-analysis
    JEL: J21 J48 E24
    Date: 2016–10
  9. By: Mani, Subha (Fordham University); Mitra, Sophie (Fordham University); Sambamoorthi, Usha (West Virginia University)
    Abstract: This paper examines the consequences of disability, identifying for the first time, the separate impacts of onsets and recoveries from disability on both employment status and hours worked using panel data from Indonesia. We find that changes in physical functioning have no affect hours worked among the employed. However, we find that onsets of physical limitations lead to an increase in the probability of leaving employment, while recoveries increase the probability of returning to work. We also find a larger effect among self-employed workers compared to salaried workers. These results overall point towards a need for social protection policies with a focus on health, disability, and employment in Indonesia.
    Keywords: health, disability, aging, employment, hours worked, Indonesia
    JEL: I12 J32 J24
    Date: 2016–10
  10. By: Bandiera, Oriana; Burgess, Robin; Das, Narayan; Gulesci, Selim; Rasul, Imran; Sulaiman, Munshi
    Abstract: We study how women's choices over labor activities in village economies correlate with poverty and whether enabling the poorest women to take on the activities of their richer counterparts can set them on a sustainable trajectory out of poverty. To do this we conduct a large-scale randomized control trial, covering over 21,000 households in 1,309 villages surveyed four times over a seven year period, to evaluate a nationwide program in Bangladesh that transfers livestock assets and skills to the poorest women. At baseline, the poorest women mostly engage in low return and seasonal casual wage labor while wealthier women solely engage in livestock rearing. The program enables poor women to start engaging in livestock rearing, increasing their aggregate labor supply and earnings. This leads to asset accumulation (livestock, land and business assets) and poverty reduction, both sustained after four and seven years. These gains do not crowd out the livestock businesses of noneligible households while the wages these receive for casual jobs increase as the poor reduce their labor supply. Our results show that: (i) the poor are able to take on the work activities of the non-poor but face barriers to doing so, and, (ii) one-off interventions that remove these barriers lead to sustainable poverty reduction.
    JEL: J22 O12
    Date: 2016–10
  11. By: Eve Caroli; Claudio Lucifora (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Daria Vigani (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)
    Abstract: We investigate the causal impact of retirement on health care utilization. Using SHARE data (from 2004 to 2013) for 10 European countries, we show that health care utilization increases when individuals retire. This is true both for the number of doctor’s visits and for the intensity of medical care use (defined as the probability of going more than 4 times a year to the doctor’s). This increase turns out to be driven by visits to general practitioners’, while specialists’ visits are not affected. We also find that the impact of retirement on health care utilization is significantly stronger for workers retiring from jobs characterized by long hours worked - more than 48 hours a week and/or being in the 5th quintile of the distribution of hours worked. This suggests that at least part of the increase in medical care use following retirement is due to the decrease in the opportunity cost of time faced by individuals when they retire.
    Keywords: Retirement, Health, Health Care Utilization.
    JEL: J26 I10 C26
    Date: 2016–10
  12. By: Arsenault Morin, Alex; Geloso, Vincent; Kufenko, Vadim
    Abstract: We argue that the system of seigneurial tenure used in the province of Quebec until the mid-nineteenth centurya system which allowed significant market power in the establishment of plants, factories and mills, combined with restrictions on the mobility of the labor force within each seigneurial estateis best understood as a system of regionalized monopsonies in the non-farm sector. Seigneurs had incentives to reduce their employment in those sectors to reduce wage rates. We use the fact that later, with the Constitutional Act of 1791, all new settled lands had to be settled under a different system (British land laws). This natural experiment allows us to test our hypothesis that seigneurial tenure was a monopsony, using data from the 1831 and 1851 Lower Canada censuses. We find strong evidence that this difference in tenure partially explains the gap in industrial development between Quebec and the neighboring colony of Ontario.
    Keywords: Canadian Economic History,Monopsony,Economic development
    JEL: N11 J42 R52
    Date: 2016
  13. By: Evan Riehl; Juan E. Saavedra; Miguel Urquiola
    Abstract: This paper explores the implications of measuring college productivity in two different dimensions: earning and learning. We compute system-wide measures using administrative data from the country of Colombia that link social security records to students’ performance on a national college graduation exam. In each case we can control for individuals’ college entrance exam scores in an approach akin to teacher value added models. We present three main findings: 1) colleges’ earning and learning productivities are far from perfectly correlated, with private institutions receiving relatively higher rankings under earning measures than under learning measures; 2) earning measures are significantly more correlated with student socioeconomic status than learning measures; and 3) in terms of rankings, earning measures tend to favor colleges with engineering and business majors, while colleges offering programs in the arts and sciences fare better under learning measures.
    JEL: I23 J24 J44
    Date: 2016–10
  14. By: Sophie van H¸llen (Department of Economics, SOAS, University of London, UK); Duo Qin (Department of Economics, SOAS, University of London, UK)
    Abstract: We re-examine the effect of compulsory school law on education in the US pioneered by Angrist and Krueger (1991). We show that the standard instrumental variable approach of the education variable not only yields empirically inconsistent estimates, but is conceptually confused. The confusion arises from the rejection of the key causal variable as a valid conditional variable. By route of a causally explicit model design we are able to identify the circumstances under which the formerly rejected variable can yield valid inference values. Our investigation demonstrates the importance of building data-consistent models over estimator choice in successful research designs.
    Keywords: instrumental variables, randomisation, research design, returns to education, treatment effect
    JEL: C26 C52 H75 I21 I26 J24 N32
    Date: 2016–10
  15. By: Norman V. Loayza (World Bank)
    Abstract: “Informality” is a term used to describe the collection of firms, workers, and activities that operate outside the legal and regulatory systems. It is widespread in the majority of developing countries—in a typical developing economy, the informal sector produces about 35 percent of gross domestic product and employs 70 percent of the labor force. This paper studies informality in the context of economic development by presenting a model and projections that link informality, regulations, migration, and economic growth. This analytical framework highlights the trade-offs between formality and informality, the relationship between the different types of informality, and the connection between them and the forces of labor, capital, and productivity growth. The paper models the behavior of the informal sector based on the following fundamental asymmetry: formal firms confront higher labor costs while informal firms face higher capital costs and lower productivity. Using mandated minimum wages as the policy-induced distortion, the model first studies the static allocation of formal and informal capital and labor in a modern economy. Second, it opens the possibility of labor migration from a rudimentary economy with an ample supply of labor (rural areas or less advanced neighboring countries). Third, the model analyzes the dynamic behavior of the formal and informal sectors, considering how they affect and are affected by economic growth and labor migration. Then, the paper presents projections for the size of labor informality, in the modern and rudimentary economies, in the next two decades for a large group of countries representing all regions of the world. The projections are based on the calibration and simulation of the model and serve to discuss its usefulness and limitations.
    Keywords: Shrinkage, Informality, Minimum Wage, Labor Costs, Economic Growth, Migration, Labor Market, Financial Constraints, Productivity
    JEL: E26 E24 J46 O17 O11 O15 O40 O47
    Date: 2016–10

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