nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2017‒09‒10
six papers chosen by
Joseph Marchand
University of Alberta

  1. Mental Health, Human Capital and Labor Market Outcomes By Cronin, C.J.; Forsstrom, M.P.; Papageorge, N.W.;
  2. Firms' Choices of Wage-Setting Protocols in the Presence of Minimum Wages By Christopher Flinn; James Mabli; Joseph Mullins
  3. Credit and the Labor Share: Evidence from U.S. States By Leblebicioglu, Asli; Weinberger, Ariel
  4. Measuring Productivity Dispersion: Lessons from counting one-hundred million ballots By Ethan Ilzetzki; Saverio Simonelli
  5. Taken by Storm: Hurricanes, Migrant Networks, and U.S. Immigration By Parag Mahajan; Dean Yang
  6. Early Childhood Health Shocks and Adult Wellbeing: Evidence from Wartime Britain By Jeffrey C. Schiman; Robert Kaestner; Anthony T. Lo Sasso

  1. By: Cronin, C.J.; Forsstrom, M.P.; Papageorge, N.W.;
    Abstract: There are two primary treatment alternatives available to those with mild to moderate depression or anxiety: psychotherapy and medication. The medical literature and our analysis suggests that in many cases psychotherapy, or a combination of therapy and medication, is more curative than medication alone. However, few individuals choose to use psychotherapy. We develop and estimate a dynamic model in which individuals make sequential medical treatment and labor supply decisions while jointly managing mental health and human capital. The results shed light on the relative importance of several drawbacks to psychotherapy that explain patients’ reluctance to use it: (1) therapy has high time costs, which vary with an individual’s opportunity cost of time and flexibility of the work schedule; (2) therapy is less standardized than medication, which results in uncertainty about its productivity for a given individual; and (3) therapy is expensive. The estimated model is used to simulate the impacts of counterfactual policies that alter the costs associated with psychotherapy.
    Keywords: Mental Health; Demand for Medical Care; Labor Supply; Structural Models;
    JEL: I10 I12 J22 J24
    Date: 2017–08
  2. By: Christopher Flinn (New York University); James Mabli (Mathematica Policy Research); Joseph Mullins (University of Western Ontario)
    Abstract: We study the formation of wages in a frictional search market where firms can choose either to bargain with workers or post non-negotiable wage offers. Workers can secure wage increases for themselves by engaging in on-the-job search and either moving to firms that offer higher wages or, when possible, leveraging an outside offer into a higher wage at the current firm. We characterize the optimal wage posting strategy of non-negotiating firms and how this decision is influenced by the presence of renegotiating firms. We quantitatively examine the model's unique implications for efficiency, wage dispersion, and worker welfare by estimating it using data on the wages and employment spells of low-skill workers in the United States. In the estimated steady state of the model, we find that more than 10% of job acceptance decisions made while on the job are socially sub-optimal. We also find that, relative to a benchmark case without renegotiation, the presence of even a small number of these firms increases the wage dispersion attributable to search frictions, deflates wages, and reduces worker welfare. Moving to a general equilibrium setting, we use the estimated model to study the impact of a minimum wage increase on firm bargaining strategies and worker outcomes. Our key finding is that binding minimum wages lead to an increase in the equilibrium fraction of renegotiating firms which, relative to a counterfactual in which this fraction is fixed, significantly dampens the reduction in wage dispersion and gains in worker welfare that can typically be achieved with moderate minimum wage increases. Indeed, the presence of endogenous bargaining strategies reverses the sign of the average welfare effect of a $15 minimum wage from positive to negative.
    Keywords: wage posting, wage bargaining, minimum wage, worker mobility
    JEL: J31 J63 J68
    Date: 2017–09
  3. By: Leblebicioglu, Asli (University of Texas at Dallas); Weinberger, Ariel (University of Oklahoma)
    Abstract: We analyze the role of credit markets in explaining the changes in the U.S. labor share by evaluating the effects of state-level banking deregulation, which resulted in improved access to cheaper credit. Utilizing a difference-in-differences strategy, we provide causal evidence showing labor share declined following the interstate banking deregulation. We show that the lower cost of credit, increase in the availability of credit, and greater bank competition in each state are mechanisms that led to the decline in the labor share. We use this evidence to obtain the elasticity of labor share with respect to borrowing costs, which itself is informative about the aggregate elasticity of substitution between capital and labor. Finally, we focus on manufacturing and services to show that the impact of banking deregulation is particularly important in capital intensive and external finance dependent industries.
    JEL: E21 E22 E25 G21 G28
    Date: 2017–08–01
  4. By: Ethan Ilzetzki (London School of Economics (LSE); Centre for Macroeconomics (CFM)); Saverio Simonelli (University of Naplpes Federico II; enter for Studies in Economics and Finance)
    Abstract: We measure output per worker in nearly 8,000 municipalities in the Italian electoral process using ballot counting times in the 2013 general election and two referenda in 2016. We document large productivity dispersion across provinces in this very uniform and low-skill task that involves nearly no technology and requires limited physical capital. Using a development accounting framework, this measure explains up to half of the firm-level productivity dispersion across Italian provinces and more than half the north-south productivity gap in Italy. We explore potential drivers of our measure of labor efficiency and find that its association with measures of work ethic and trust is particularly robust.
    Keywords: Labor productivity, Development accounting, Work ethic, Cultural economics
    JEL: O47 E24 J24 Z10
    Date: 2017–08
  5. By: Parag Mahajan; Dean Yang
    Abstract: How readily do potential migrants respond to increased returns to migration? Even if origin areas become less attractive vis-à-vis migration destinations, fixed costs can prevent increased migration. We examine migration responses to hurricanes, which reduce the attractiveness of origin locations. Restricted-access U.S. Census data allows precise migration measures and analysis of more migrant-origin countries. Hurricanes increase U.S. immigration, with the effect increasing in the size of prior migrant stocks. Large migrant networks reduce fixed costs by facilitating legal immigration from hurricane-affected source countries. Hurricane-induced immigration can be fully accounted for by new legal permanent residents (“green card” holders).
    JEL: F22 O15 Q54
    Date: 2017–08
  6. By: Jeffrey C. Schiman; Robert Kaestner; Anthony T. Lo Sasso
    Abstract: A growing literature argues that early environments affecting childhood health may influence significantly later-life health and financial wellbeing. We present new evidence on the relationship between child health and later-life outcomes using variation in infant mortality in England and Wales at the onset of World War II. Using data from the British Household Panel Survey, we exploit the variation in infant mortality across birth cohorts and region to estimate the associations between infant mortality and adult outcomes such as disability and employment. Our findings suggest that higher infant mortality is significantly associated with higher likelihood of disability, a lower probability of employment, and less earned income.
    JEL: I15 N3
    Date: 2017–08

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