nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2017‒12‒03
nine papers chosen by
Joseph Marchand
University of Alberta

  1. Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence from a Young Workers' Tax Cut in Sweden By Emmanuel Saez; Benjamin Schoefer; David Seim
  2. More effort with less pay: On information avoidance, optimistic beliefs, and performance By Huck, Steffen; Szech, Nora; Wenner, Lukas M.
  3. Finance and the Misallocation of Scientific, Engineering and Mathematical Talent By Giovanni Marin; Francesco Vona
  4. Whistle While You Work: Job Insecurity and Older Workers’ Mental Health in the United States By Italo A. Gutierrez; Pierre-Carl Michaud
  5. Career Risk and Market Discipline in Asset Management By Andrew Ellul; Marco Pagano; Annalisa Scognamiglio
  6. Digital Innovation and the Distribution of Income By Dominique Guellec; Caroline Paunov
  7. The Effects of Fluoride in the Drinking Water By Aggeborn, Linuz; Öhman, Mattias
  8. Is Health Care Infected by Baumol’s Cost Disease? Test of a New Model By Akinwande A. Atanda; Andrea K. Menclova; W. Robert Reed
  9. Adjudicator Compensation Systems and Investor-State Dispute Settlement By David Gaukrodger

  1. By: Emmanuel Saez; Benjamin Schoefer; David Seim
    Abstract: This paper uses administrative data to analyze a large and long-lasting employer payroll tax rate cut from 31% down to 15% for young workers (aged 26 or less) in Sweden. We find a zero effect on net-of-tax wages of young treated workers relative to slightly older untreated workers, even in the medium run (after six years). Simple graphical cohort analysis shows compelling positive effects on the employment rate of the treated young workers, of about 2-3 percentage points, which arise primarily from fewer separations (rather than more hiring). These employment effects are larger in places with initially higher youth unemployment rates. We also analyze the firm-level effects of the tax cut. We sort firms by the size of the tax windfall and trace out graphically the time series of firms' outcomes. We proxy a firm's windfall with its share of treated young workers just before the reform. First, heavily treated firms expand after the reform: employment, capital, sales, value added, and profits all increase. These effects appear stronger in credit-constrained firms, consistent with liquidity effects. Second, heavily treated firms increase the wages of all their workers – young as well as old – collectively, perhaps through rent sharing. Wages of low paid workers rise more in percentage terms. Rather than canonical market-level adjustment, we uncover a crucial role of firm-level mechanisms in the transmission of payroll tax cuts.
    JEL: H31 H32 J23 J31
    Date: 2017–10
  2. By: Huck, Steffen; Szech, Nora; Wenner, Lukas M.
    Abstract: Recent behavioral models argue in favor of avoidance of instrumental information. We explore the role of information avoidance in a real-effort setting. Our experiment offers three main results. First, we confirm that preferences for avoidance of instrumental information exist, studying information structures on performance pay. Second, information avoiders outperform information receivers. This result holds independently of effects of self-selection. Third, the findings support theories on information avoidance that favor an optimistic belief design rather than theories that rationalize such behavior as a way to mitigate selfcontrol problems. This suggests that coarse information structures lead agents to distort their beliefs away from the objective prior.
    Keywords: optimal expectations,belief design,performance,real effort task,coarse incentive structures,workplace incentives
    JEL: D83 D84 J31 M52
    Date: 2017
  3. By: Giovanni Marin (University of Urbino "Carlo Bo"; SEEDS, Ferrara, Italy.); Francesco Vona (OFCE, Sciences Po Paris, France)
    Abstract: The US financial sector has become a magnet for the brightest graduates in the science, technology, engineering and mathematical fields (STEM). We provide quantitative bases for this well-known fact and illustrate its consequences for the productivity growth in other sectors over the period 1980-2014. First, we find that the share of STEM talents grew significantly faster in finance than in other key STEM sectors such as high-tech, and this divergent pattern has been more evident for STEM than for general skills and more pronounced for investment banking. Second, this trend did not reverse after the Great Recession, and a persistent wage premium is found for STEM graduates working in finance and especially in typical financial jobs at the top of the wage distribution. Third, the brain drain of STEM talents into finance has been associated with a cumulative loss of labor productivity growth of 6.6% in the manufacturing sectors. Our results suggest that increasing the number of STEM graduates may not be enough to reignite sluggish economic growth without making their employment in finance more costly.
    Keywords: Finance, skills, STEM workers, brain drain, productivity
    JEL: Q52 Q48 H23 D22
    Date: 2017–11–22
  4. By: Italo A. Gutierrez; Pierre-Carl Michaud
    Abstract: We estimate the effects of job insecurity on older workers’ health outcomes using an instrumental variables approach which exploits downsizing and state-industry level changes in employment. We provide evidence that job insecurity, as measured by the self-reported probability of job loss, increases stress at work, the risk of clinical depression and lowers selfreported health status. IV estimates are much larger than OLS estimates which we interpret as evidence that job insecurity which is outside the control of workers may have much larger effects on mental health. These findings suggest that employers ought to consider actions to offset the detrimental health effects of reducing personnel on their remaining (older) workers and pay attention at the stress that industry level changes in economic conditions may have on workers.
    Keywords: Older workers,Job insecurity,Employer downsizing,Health outcomes,
    JEL: I12 M51
    Date: 2017–11–15
  5. By: Andrew Ellul (Indiana University and CSEF); Marco Pagano (Università di Napoli Federico II, CSEF, EEIF, CEPR and ECGI); Annalisa Scognamiglio (Università di Napoli Federico II and CSEF)
    Abstract: Using hand-collected data on 1,627 hedge fund employees, we investigate the role of talent and luck in their careers. Upon entry in the hedge fund industry, careers accelerate, especially for employees with high-quality education and asset management experience. However, those who achieve high-ranking positions tend to face significant and permanent career setbacks if their fund is liquidated after persistently under-performing its benchmark. Hence, the “scarring effects” of fund liquidation appear to reflect a loss of reputation rather than the materialization of career risk. Our results reveal a new facet of market discipline in asset management, operating via the labor market.
    Keywords: careers, hedge funds, asset managers, market discipline, scarring effects.
    JEL: G20 G23 J24 J62 J63
    Date: 2017–11–21
  6. By: Dominique Guellec; Caroline Paunov
    Abstract: Income inequalities have increased in most OECD countries over the past decades; particularly the income share of the top 1%. In this paper we argue that the growing importance of digital innovation – new products and processes based on software code and data – has increased market rents, which benefit disproportionately the top income groups. In line with Schumpeter’s vision, digital innovation gives rise to ”winner-take-all” market structures, characterized by higher market power and risk than was the case in the previous economy of tangible products. The cause for these new market structures is digital non-rivalry, which allows for massive economies of scale and reduces costs of innovation. The latter stimulates higher rates of creative destruction, leading to higher risk as only marginally superior products can take over the entire market, hence rendering market shares unstable. Instability commands risk premia for investors. Market rents accrue mainly to investors and top managers and less to the average workers, hence increasing income inequality. Market rents are needed to incentivize innovation and compensate for its costs, but beyond a certain level they become detrimental. Public policy may stimulate innovation by reducing ex ante the market conditions which favor rent extraction from anti-competitive practices.
    JEL: D24 D31 D40 L10 O30
    Date: 2017–11
  7. By: Aggeborn, Linuz (Department of Government at Uppsala University, Uppsala Center for Fiscal Studies and Uppsala Center for Labor Studies); Öhman, Mattias (Institute for Housing and Urban Research (IBF) and Department of Women's and Children's Health at Uppsala University)
    Abstract: Fluoridation of the drinking water is a public policy whose aim is to improve dental health. Although the evidence is clear that fluoride is good for dental health, concerns have been raised regarding potential negative effects on cognitive development. We study the effects of fluoride exposure through the drinking water throughout life on cognitive and non-cognitive ability, math test scores and labor market outcomes in a large-scale setting. We use a rich Swedish register dataset for the cohorts born 1985–1992 in the main analysis, together with drinking water fluoride data. To estimate the effects, we exploit intra-municipality variation of fluoride, stemming from an exogenous variation in the bedrock. Taking all together, we investigate and confirm the long-established positive relationship between fluoride and dental health. Second, we find precisely estimated zero-effects on cognitive ability, non-cognitive ability and math test scores for fluoride levels in Swedish drinking water. Third, we find that fluoride improves later labor market outcomes, which indicates that good dental health is a positive factor on the labor market.
    Keywords: fluoride; cognitive development; labor market outcomes; dental health
    JEL: H42 I10 I18
    Date: 2017–10–24
  8. By: Akinwande A. Atanda; Andrea K. Menclova (University of Canterbury); W. Robert Reed (University of Canterbury)
    Abstract: Rising health care costs are a policy concern across the OECD and relatively little consensus exists concerning their causes. One explanation that has received revived attention is Baumol’s Cost Disease (BCD). However, developing a theoretically appropriate test of BCD has been a challenge. In this paper, we construct a two-sector model firmly based on Baumol’s axioms. We then derive several testable propositions. In particular, the model predicts that: 1) the share of total labor employed in the health care sector and (2) the relative price index of the health and non-health care sectors should both be positively related to economy-wide productivity. The model also predicts that (3) the share of labor in the health sector will be negatively related, and (4) the ratio of prices in the health and non-health sectors unrelated, to the demand for non-health services. Using annual data from 28 OECD countries over the years 1995-2016 and from 14 U.S. industry groups over the years 1947-2015, we find little evidence to support the predictions of BCD once we address spurious correlation due to coincident trending and other econometric issues.
    Keywords: Baumol’s Cost Disease, health care industry, panel data
    JEL: I11 J30 E24
    Date: 2017–11–01
  9. By: David Gaukrodger (OECD)
    Abstract: Compensation for adjudicators is generally considered as a core issue for judicial independence and for attracting good judges in the institutional design for courts. This paper examines compensation systems for adjudicators and dispute settlement administrators in investor-state dispute settlement (ISDS). The paper uses in part a comparative perspective based on approaches in domestic courts in advanced economies, an approach rarely taken in analysing investor-state arbitration. The first section of the paper provides historical context and examines the reform of remuneration of judges to replace private litigant fees with salaries in colonial America and the United States, France and England in the 18th and early 19th centuries. Subsequent sections address debates over the impact of compensation systems on adjudicators; contemporary approaches to the compensation of judges in advanced economies; the co-existence in advanced economies of national courts with salaried judges since the early 19th century with generally strong support for commercial arbitration based on ad hoc fee-based remuneration; and similarities and differences between commercial arbitration and investment arbitration, focusing how the largely similar compensation systems may have different effects and be differently perceived by the public. Annexes to the paper report on discussions about adjudicator compensation at the 2016 OECD Investment Treaty Conference and gather some preliminary facts about adjudicator and dispute administrator compensation in investor-state arbitration as well as the investment court system included in the recent EU-Canada CETA trade and investment agreement.
    Keywords: Alexander Hamilton, arbitrator compensation, bilateral investment treaties, comparative law, conflicts of interest, court fees, dispute settlement, domestic courts, economic incentives, foreign investment, international commercial arbitration, international economic law, international investment, international investment agreements, international investment law, investment arbitration, investment treaties, investment treaty policy, investor protection, investor-state dispute settlement, ISDS, Jeremy Bentham, judicial compensation, legal history, litigant fees, Voltaire
    JEL: H4 J3 J33 J44 K23 K33 K41 L33 N20 N4
    Date: 2017–11–24

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