nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2017‒04‒09
seven papers chosen by
Joseph Marchand
University of Alberta

  1. Only the brave? Risk and time preferences of decision makers and firms’ investment in worker training By Anika Jansen; Harald Pfeifer; Julia Raecke
  2. Long term impacts of class size in compulsory school By Edwin Leuven; Sturla A. Løkken
  3. Sticky Wages, Monetary Policy and Fiscal Policy Multipliers By Dupor, William D.; Li, Rong; Li, Jingchao
  4. Worker Overconfidence: Field Evidence and Implications for Employee Turnover and Returns from Training By Mitchell Hoffman; Stephen V. Burks
  5. Routine and ageing? The Intergenerational Divide In The Deroutinisation Of Jobs In Europe By Piotr Lewandowski; Roma Keister; Wojciech Hardy; Szymon Gorka
  6. The adaptation of management control systems to different agents By Zhang, Jingwen
  7. Discrimination as favoritism: The private benefits and social costs of in-group favoritism in an experimental labor market By David L. Dickinson; David Masclet; Emmanuel Perterle

  1. By: Anika Jansen (Federal Institute for Vocational Education and Training (BIBB), Bonn); Harald Pfeifer (Federal Institute for Vocational Education and Training (BIBB), Bonn, and Research Centre for Education and the Labour Market (ROA), Maastricht); Julia Raecke (Federal Institute for Vocational Education and Training (BIBB), Bonn)
    Abstract: In this paper, we study the relation between decision makers’ preferences and training investments of their firms. First, we develop a theoretical framework, which takes the possibility into account that individual preferences of decision makers may influence firm behavior with respect to training. We then develop and test the hypothesis that the willingness to take risks or the preference for future profits of decision makers is positively related and procrastination negatively related to firms’ investment in worker training. Using unique firm-level data, including both person-level preference measures and firm-level information about training costs, we find empirical support for our hypothesis. Training investment is higher in firms with risk-inclined decision makers and lower in firms with procrastinating decision makers. The preference for future profits is relevant for training participation and the number of trained workers, but not for the training investment per worker. The results imply that firms have scope to adjust their profit-maximizing strategies by taking the individual preferences of their decision makers into account.
    Keywords: Risk and time preferences, training investment, profit maximization
    JEL: J24 J31
    Date: 2017–03
  2. By: Edwin Leuven; Sturla A. Løkken (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: 2017–03
  3. By: Dupor, William D. (Federal Reserve Bank of St. Louis); Li, Rong (Renmin University of China); Li, Jingchao (East China University of Science and Technology)
    Abstract: This paper demonstrates how adding nominal wage rigidity to a standard sticky price model can create a mechanism by which increases in government spending cause increases in consumption. The increase in output arising from government purchases puts upward pressure on the price level. At a fixed short-run nominal wage, this bids down the real wage, which leads producers to increase labor demand. Increased labor demand allows households to both finance the tax bill associated with the government spending as well as increase their own consumption. Our approach does not rely upon existing ingredients for generating large fiscal multipliers, such as the zero lower bound, borrowing constrained households or an interaction between consumption and government purchases in the utility function.
    Keywords: government spending; multipliers; sticky wages
    JEL: E52 E62
    Date: 2017–03–27
  4. By: Mitchell Hoffman; Stephen V. Burks
    Abstract: Combining weekly productivity data with weekly productivity beliefs for a large sample of truckers over two years, we show that workers tend to systematically and persistently over-predict their productivity. If workers are overconfident about their own productivity at the current firm relative to their outside option, they should be less likely to quit. Empirically, all else equal, having higher productivity beliefs is associated with an employee being less likely to quit. To study the implications of overconfidence for worker welfare and firm profits, we estimate a structural learning model with biased beliefs that accounts for many key features of the data. While worker overconfidence moderately decreases worker welfare, it also substantially increases firm profits. This may be critical for firms (such as the main one we study) that make large initial investments in worker training.
    JEL: D03 J24 J41 M53
    Date: 2017–03
  5. By: Piotr Lewandowski; Roma Keister; Wojciech Hardy; Szymon Gorka
    Abstract: This paper analyses the age dimension of changes in the task composition of jobs in 12 European countries between 1998 and 2014. We use the approach proposed by Autor et al. (2003) and Acemoglu & Autor (2011), and combine O*NET occupation content data with EU-LFS individual data to construct five task content measures: non-routine cognitive analytical, non-routine cognitive interpersonal, routine cognitive, routine manual, and non-routine manual physical. We find that the shift away from routine work and toward non-routine work occurred much faster among workers born between 1970 and 1989 than among workers born between 1950 and 1969. We find that in the majority of countries, the ageing of the workforce occurred more quickly in occupations that were initially more routine-intensive, as the share of young workers in these occupations was declining. We estimate logit models that show that individuals in these occupations were increasingly likely to be unemployed, especially if they were between the ages of 15 and 34.
    Keywords: task content of jobs, routinisation, ageing, occupational change, O*NET
    JEL: J21 J23 J24
    Date: 2017–03
  6. By: Zhang, Jingwen (Tilburg University, School of Economics and Management)
    Abstract: Management control systems are commonly used by firms, but it is challenging to design an optimal control system because of the complexity of organizational contexts, and varieties of individuals with different preferences, beliefs and work relations within firms. In this dissertation, I examine how firms can adjust control decisions, such as target setting and monitoring intensity, to agents with different traits. I also study the outcome of implementing different controls, to describe how firms can benefit from this adaptation. In Chapter 2 we investigate how a principal can reduce the costs caused by explicit incentive contracts. We expect that the relation between principal and agents developed through repeated interactions can influence the target update process and help to mitigate the target ratchet effect. Using the data from a dealership, we empirically show that principals ratchet targets less for committed dealers in order to mute perverse effects of target ratcheting, and this motivates committed dealers to exert effort. Chapter 3 discusses the rationale of using same nonfinancial targets for each business unit (uniform targets) and investigates how to support the achievability of these targets, as uniform targets are not adjusted according to individual ability. We argue that firms may exploit the cause-and-effect relations between different performance measures to increase the achievability of nonfinancial targets (wage budget-employee satisfaction-customer satisfaction-revenue chain). We find that firms grant more wage budgets to managers who deliver substandard nonfinancial performance but outperform their peers, to facilitate their nonfinancial performance. Chapter 4 explores whether supervisors are able to know their agents and adapt monitoring intensity according to the tenure and confidence level of different agents. We predict and find that supervisors impose less monitoring to well-performed junior agents so that juniors can experiment and develop knowledge. We also find that monitoring increases for overconfident managers to control their risk-taking behavior. These results suggest that supervisors can indeed modify their level of direct supervision according to agent’s personal makeup and characteristics.
    Date: 2017
  7. By: David L. Dickinson (Appalachian State University, IZA, ESI); David Masclet (Université de Rennes 1, CREM, CNRS); Emmanuel Perterle (Université Bourgogne Franche-Comté, CRESE)
    Abstract: In this paper, we examine labor market favoritism in a unique laboratory experiment design that can shed light on both the private benefits and spillover costs of employer favoritism (or discrimination). Group identity is induced on subjects such that each laboratory « society » consists of eight individuals each belonging to one of two different identity groups. In some treatments randomly assigned employer-subjects give preference rankings of potential worker-subjects who would make effort choices that impact employer payoffs. Though it is common knowledge that group identity in this environment provides no special productivity information and cannot facilitate communication or otherwise lower costs for the employer, employers preferentially rank in-group members. In such instances, the unemployed workers are aware that an intentional preference ranking resulted in their unemployment. Unemployed workers are allowed to destroy resources in a final stage of the game, which is a simple measure of the spillover effects of favoritism in our design. Though we find evidence that favoritism may privately benefit a firm in terms of higher worker effort, the spillover costs that result highlight a reason to combat favoritism/discrimination. This result also identifies one potential micro-foundation of societal unrest that may link back to labor market opportunity.
    Keywords: Discrimination, Experimental Economics, Social identity, Conflicts.
    JEL: C9 J24 J70
    Date: 2017–03

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