nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2017‒03‒19
five papers chosen by
Joseph Marchand
University of Alberta

  1. The Perfect Storm: Graduating in a Recession in a Segmented Labor Market By Fernández-Kranz, Daniel; Rodríguez-Planas, Núria
  2. How to Use One Instrument to Identify Two Elasticities By Gavrilova, Evelina; Zoutman, Floris T.; Hopland, Arnt O.
  3. Instrumental Variables and Causal Mechanisms: Unpacking The Effect of Trade on Workers and Voters By Christian Dippel; Robert Gold; Stephan Heblich; Rodrigo Pinto
  4. Long Term Impacts of Class Size in Compulsory School By Leuven, Edwin; Løkken, Sturla Andreas
  5. Local Labor Markets and Human Capital Investments By Weinstein, Russell

  1. By: Fernández-Kranz, Daniel (IE Business School, Madrid); Rodríguez-Planas, Núria (Queens College, CUNY)
    Abstract: This paper analyzes the effects of entry labor-market conditions on workers' career in Spain, a country well known for its highly segmented labor market and rigid labor-market institutions. In contrast with more flexible labor markets, we find that the annual earnings losses of individuals without a university degree are greater and more persistent than those of college graduates. For workers without a college degree, the effect is driven by a lower likelihood of employment. For college graduates, the negative impact on earnings is driven by both a higher probability of non-employment, and employment in jobs with fixed-term contracts. While a negative shock increases mobility of college graduates across firms and industries, there is no earnings recovery, just secondary labor-market job churning. Our results are consistent with tight regulations of the Spanish labor market such as binding minimum wages and downward wage rigidity caused by collective bargaining agreements.
    Keywords: full and dynamic effect of poor labor market conditions at entry, wage rigidity, fixed-term and permanent contract
    JEL: E32 J22 J31
    Date: 2017–02
  2. By: Gavrilova, Evelina (Dept. of Business and Management Science, Norwegian School of Economics); Zoutman, Floris T. (Dept. of Business and Management Science, Norwegian School of Economics); Hopland, Arnt O. (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: We show that an insight from taxation theory allows identification of both the supply and demand elasticities with only one instrument. Ramsey (1928) and subsequent models of taxation assume that a tax levied on the demand side only affects demand through the price after taxation. Econometrically, we show that this assumption functions as an additional exclusion restriction. Under the Ramsey Exclusion Restriction (RER) a tax reform can serve to simultaneously identify elasticities of supply and demand. We develop a TSLS estimator for both elasticities, a test to assess instrument strength and a test for the RER. Our result extends to a supply-demand system with J goods, and a setting with supply-side or non-linear taxes. Further, we show that key results in the sufficient statistics literature rely on the RER. One example is Harberger’s formula for the excess burden of a tax. We apply our method to the Norwegian labor market.
    Keywords: Tax Reform; Instrumental Variable; Supply and Demand Elasticities; Tax Incidence; Payroll Taxation
    JEL: C36 H22 H31 H32 J22 J23
    Date: 2017–02–27
  3. By: Christian Dippel; Robert Gold; Stephan Heblich; Rodrigo Pinto
    Abstract: It is often the case that an endogenous treatment variable causally affects an intermediate variable that in turn causally affects a final outcome. Using an Instrumental Variable (IV) identifies the causal effect of the endogenous treatment on both the intermediate and the final outcome variable, but not the extent to which the intermediate variable affects the final outcome. We present a new testable framework in which a single IV suffices to also estimate the causal effect of the intermediate variable on the final outcome. We use this framework to investigate to what extent German voters responded to the labor market turmoil caused by increasing trade with low-wage manufacturing countries. We first establish that import competition increased voters’ support for only extreme (right) parties. We then decompose this populist ‘total effect’ into a ‘mediated effect’ running through labor market adjustments and a ‘direct effect’ of trade exposure on voting behavior. We find the total consists of a large populist effect driven by labor markets and a relatively smaller but moderating direct effect. Our approach provides a template that may be useful in a broad range of empirical applications studying causal mechanisms in observational data.
    JEL: F1 F6 J2
    Date: 2017–03
  4. By: Leuven, Edwin (University of Oslo); Løkken, Sturla Andreas (Statistics Norway)
    Abstract: How does class size in compulsory school affect peoples' long run education and earnings? We use maximum class size rules and Norwegian administrative registries allowing us to observe outcomes up to age 48. We do not find any indication of beneficial effects of class size reduction in compulsory school. For a 1 person reduction in class size we can rule out effects on income as small as 0.087 percent in primary school and 0.12 percent in middle school. Population differences in parental background, school size or competitive pressure do not appear to reconcile our findings with previous studies.
    Keywords: class size, schooling, earnings, regression discontinuity
    JEL: I21 I28 J24 C30
    Date: 2017–02
  5. By: Weinstein, Russell (Rensselaer Polytechnic Institute)
    Abstract: I study whether human capital investments are based on local rather than national demand, and whether this is explained by migration or information frictions. I analyze three sector-specific shocks with differential local effects, including the dot-com crash, the 2008 financial crisis, and a shock transforming Delaware into an international financial center. I find universities in areas more exposed to sectoral shocks experience greater changes in sector-relevant majors. Using rich student-level data, I find this is not explained by information frictions, but more likely by migration frictions. The results suggest encouraging human capital investments based on national demand may increase mismatch.
    Keywords: college major choice, local labor markets, migration frictions, information frictions
    JEL: J24 I20 R12
    Date: 2017–02

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