nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2017‒12‒18
fifteen papers chosen by
Joseph Marchand
University of Alberta

  1. How Does Firm Performance Affect Wages? Evidence from Idiosyncratic Export Shocks By Andrew Garin; Filipe Silverio
  2. Probing the Effects of the Australian System of Minimum Wages on the Gender Wage Gap By Barbara Broadway; Roger Wilkins
  3. UNREAL WAGES? REAL INCOME AND ECONOMIC GROWTH IN ENGLAND, 1260-1850 By Jane Humphries; Jacob Weisdorf
  4. The Labor Market Effects of an Educational Expansion. A Theoretical Model with Applications to Brazil By David Jose Jaume
  5. High Wage Workers Work for High Wage Firms By Katarína Borovičková; Robert Shimer
  6. Offshoring and the Age-Skill Composition of Labour Demand By Sotiris Blanas
  7. How do firms adjust to rises in the minimum wage? Survey evidence from Central and Eastern Europe By Katalin Bodnár; Ludmila Fadejeva; Stefania Iordache; Liina Malk; Desislava Paskaleva; Jurga Pesliakaite; Nataša Todorovic Jemec; Peter Tóth; Robert Wyszynski
  8. Wage Inequality and Job Stability By Pessoa de Araujo, Ana Luisa
  9. The impact of minimum wage increases on the South African economy in the Global Policy Model By Strauss, Llan.; Isaacs, Gilad.; Capaldo, Jeronim.
  10. Commuting and Sickness Absence By Laszlo Goerke; Olga Lorenz
  11. Ensuring a dynamic skills-training and life-long learning system in Switzerland By Petar Vujanovic; Christine Lewis
  12. Social Insurance and Occupational Mobility By Cubas, German; Silos, Pedro
  13. To the Victor Belongs the Spoils? Party Membership and Public Sector Employment in Brazil By Brollo, Fernanda; Forquesato, Pedro; Gozzi, Juan Carlos
  14. Earnings inequality in Germany: A decomposition-analysis By Ulrike Stein
  15. Is Job Polarization a Recent Phenomenon? Evidence from Sweden, 1950–2013, and a Comparison to the United States By Gustavsson, Magnus

  1. By: Andrew Garin; Filipe Silverio
    Abstract: In the canonical competitive labor market model, firms are wage-takers and idiosyncratic shocks to individual firms do not affect wages. However, when labor markets are frictional, wages may directly depend on firm-specific factors. We test how sensitive wages are to firm-level labor demand by estimating the incidence of idiosyncratic export demand shocks on the wages of incumbent workers in Portugal during the Great Recession (2008-2010). Using detailed export records, we construct measures of firm exposure to unanticipated shocks to the demands of different countries for specific products. The shocks predict changes in output and payroll at affected firms, but not at other similar firms. We combine the export demand measures with firm balance sheet data and matched longitudinal administrative employer-employee records to estimate the impact of idiosyncratic firm-level demand shocks on employee outcomes. We find that idiosyncratic shocks that decreased sales or value added by 10 percent caused wages to grow 1.5 percent less for incumbent workers who were employed by affected firms in 2007. Furthermore, we find that these pass-through effects are stronger in industries with higher durability of employment relationships and lower employee turnover rates. These results support a model in which barriers to replacing incumbent workers give rise to internal labor markets within the firm, exposing workers to their employersâ idiosyncratic conditions.
    JEL: J31 J23 M52
    Date: 2017–12–13
  2. By: Barbara Broadway (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); Roger Wilkins (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne)
    Abstract: When wage setting is more regulated, the gender wage gap tends to decrease. We examine whether this holds for a complex system of occupation- and industry-specific minimum wages, which cover both low-pay and high-pay segments of the labour market. The system has the potential to close the gender wage gap by ensuring equal minimum pay for equal jobs, but i also has the potential to widen it by discriminating against jobs more commonly held by women. We carefully describe wage levels as well as returns to experience and their association with individual gender as well as the male employment share in the individual’s field (industry or occupation) of work. We find that the gender wage gap among employees receiving a minimum wage is less than half the magnitude of the gap among other employees. Despite this, there is nonetheless evidence that, within the minimum-wage system, there is a wage penalty for employment in jobs more commonly held by women, although only for employees without university degrees. Our results suggest that, for university-educated women, the regulated setting of minimum wages helps to close the gender wage gap and counteracts the undervaluation of work typically undertaken by women. However, for less-educated women, who comprise approximately 82% of female minimum-wage employees, minimum wages could do more to close the gender wage gap if they were neutral with respect to the gender composition of jobs.
    Keywords: Gender wage gap, minimum wagesn
    JEL: J31 J16
    Date: 2017–12
  3. By: Jane Humphries (Professor of Economic History, All Souls College, Economics and Business, University of Oxford); Jacob Weisdorf (Professor of Economics, Department of Economics and Business, University of Southern Denmark, DK-5320 Odense)
    Abstract: Historical estimates of workers’ earnings suffer from the fundamental problem that annual incomes are inferred from day wages without knowing the length of the working year. This uncertainty raises doubts about core growth theories that rely on existing income estimates to explain the origins of the wealth of nations. We circumvent the problem by building an income series of workers employed on annual rather than casual contracts. Our data suggests that existing annual income estimates based on day wages are badly off target, because they overestimate the medieval working year but underestimate the working year during the industrial revolution. Our revised annual income estimates indicate that modern economic growth began almost two centuries earlier than commonly thought and was driven by an ‘Industrious Revolution’.
    Keywords: England; Industrial Revolution; Industrious Revolution; Labour Supply; Living standards; Malthusian Model; Modern Economic Growth; Real Wages
    JEL: J3 J4 J5 J6 J7 J8 N33
    Date: 2017–12
  4. By: David Jose Jaume
    Abstract: Most countries are rapidly increasing the educational attainment of their workforce. This paper develops a novel framework to study, theoretically and empirically, the effects of an educational expansion on the occupational structure of employment and distinct aspects of the wage distributionâwage levels, wage gaps, and poverty and inequality indicatorsâwith an application to Brazil. I proceed in three steps. First, I provide some stylized facts of the Brazilian economy between 1995 and 2014: A large educational expansion took place; the occupational structure of employment remained surprisingly fixed; workers of all educational groupsâprimary or less, secondary, and universityâwere increasingly employed in occupations of lower ranking as measured by average wages over the period; and wages of primary educated workers increased while wages of more educated workers declined, bringing forth reductions in poverty and inequality. Second, I build a model that traces these heterogeneous patterns of occupations and wages to the educational expansion. The model assigns workers with three levels of education to a continuum of occupations that vary in complexity and are combined to produce a final good. I investigate three different policy experiments: An increase in university level, an increase in secondary level, and a simultaneous increase in both. The predicted effects depend on the policy analyzed. Considering the educational expansion that took place in Brazil (simultaneous increases in university and secondary levels), the model predicts qualitatively all the observed labor market changes in the occupational structure of employment and the wage distribution. Finally, I calibrate the model with the data from 1995 and show that, through its lens, the observed educational expansion in Brazil explains 66 percent of the occupational downgrading and around 80 percent of the changes in wage levels, inequality, and poverty during the period of 1995-2014.
    JEL: I25 J24 O15
    Date: 2017–11–21
  5. By: Katarína Borovičková; Robert Shimer
    Abstract: We develop a new approach to measuring the correlation between the types of matched workers and firms. Our approach accurately measures the correlation in data sets with many workers and firms, but a small number of independent observations for each. Using administrative data from Austria, we find that the correlation between worker and firm types lies between 0.4 and 0.6. We use artificial data sets with correlated worker and firm types to show that our estimator is accurate. In contrast, the Abowd, Kramarz and Margolis (1999) fixed effects estimator suggests no correlation between types in our data set. We show both theoretically and empirically that this reflects an incidental parameter problem.
    JEL: E24 J3 J6
    Date: 2017–11
  6. By: Sotiris Blanas
    Abstract: This paper is the first to study the impact of offshoring on the age-skill composition of labour demand. In doing so, it provides novel empirical evidence firmly supporting the argument that the age profile of a worker is at least as crucial a criterion as the skill to be taken into account by firms while they make optimal labour utilisation adjustments through offshoring. The analysis is conducted on a sample of manufacturing and service industries in 12 developed countries for the period 1995-2005. Its main findings are that material and service offshoring to high-income countries decrease the relative demands for older more skilled workers, while they increase the relative demands for the youngest less skilled. In addition, material and service offshoring to low/middle-income countries decrease the relative demands for the youngest workers, while they mostly increase the relative demands for older workers. These findings are explained by the relative abundance of offshoring destinations in skills and in aspects of employment associated with workers' age profiles, such as the level of human capital and expertise, the returns to training and the level of employment protection.
    Keywords: offshoring, relaitve labour demand, age-skill profile
    JEL: F14 F16 J21 J23 J24 J31
    Date: 2017
  7. By: Katalin Bodnár (Magyar Nemzeti Bank); Ludmila Fadejeva (Latvijas Banka); Stefania Iordache (Banca Nationala a Romaniei); Liina Malk (Eesti Pank); Desislava Paskaleva (Bulgarian National Bank); Jurga Pesliakaite (Lietuvos Bankas); Nataša Todorovic Jemec (Banka Slovenije); Peter Tóth (Národná banka Slovenska); Robert Wyszynski (Narodowy Bank Polski)
    Abstract: We study the transmission channels for rises in the minimum wage using a unique firm-level dataset from eight Central and Eastern European countries.Representative samples of firms in each country were asked to evaluate the relevance of a wide range of adjustment channels following specific instances of rises in the minimum wage during the recent post-crisis period. The paper contributes to the literature by presenting the reactions of firms to rises in the minimum wage as a combination of strategies, and evaluates the relative importance of those strategies. Our findings suggest that the most popular adjustment channels are cuts in non-labour costs, rises in product prices, and improvements in productivity. Cuts in employment, which is the adjustment channel most commonly studied in the empirical literature, is less popular and occurs mostly through reduced hiring rather than direct layoffs. Our study also provides evidence of potential spillover effects that rises in the minimum wage can have on firms without minimum wage workers. Finally, we analyse the different firm-level characteristics that drive the choice of adjustment strategies.
    Keywords: minimum wages, adjustment channels, firm survey
    JEL: D22 E23 J31
    Date: 2017–12
  8. By: Pessoa de Araujo, Ana Luisa (Federal Reserve Bank of Minneapolis)
    Abstract: How much wage inequality in Brazil is caused by firing costs? To answer this question, I develop and estimate a general equilibrium search and matching model with heterogeneous layoff rates among firms. Using matched employer-employee data from Brazil, I estimate the model, and I find that it replicates the observed residual wage inequality in the data. I simulate a counterfactual removal of existing firing costs, and I find that residual wage inequality drops by 26% as measured by wage variance and by 4.4% as measured by the p95-p5 ratio among 25- to 55-year-old males working in the private sector with at most a high school degree. Worker welfare among this subgroup of households increases by almost 1% in response to the abolishment of firing costs.
    Keywords: Layoff rates; Earnings inequality; Firm heterogeneity; Matched employer-employee data; Wage differentials; Equilibrium search model
    JEL: E61 J31 J63
    Date: 2017–12–05
  9. By: Strauss, Llan.; Isaacs, Gilad.; Capaldo, Jeronim.
    Abstract: This paper uses the United Nations Global Policy Model (GPM) to assess how increasing minimum wages might impact the South African economy by increasing the share of income going to workers (the ‘labour share’) – in contrast to the share that accrues to capital through profits and property income. We simulate the implementation of a national minimum wage through increasing labour compensation in a manner which sees real-wage growth ‘catching up’ to and then outstripping labour-productivity growth in the period 2015–2025; we refer to this as increasing ‘relative’ real wages. The results indicate that higher ‘relative’ real wage growth rebalances national income: the labour share increases since relative wages rise (by definition) and employment is roughly maintained (endogenous response). A rising labour share has in turn a positive effect overall on the South African economy in the model: consumption expenditure rises as national income shifts towards wage earners as a whole, who have a higher propensity to consume than profit earners. However, there are moderate or small negative effects as investment as a share of GDP falls marginally, as the profit rate falls (though the absolute level of investment is higher as GDP rises), employment declines marginally, and there is slight weakening of the current account.
    Date: 2017
  10. By: Laszlo Goerke (Institute for Labour Law and Industrial Relations in the European Union IAAEU), Trier University); Olga Lorenz (Institute for Labour Law and Industrial Relations in the European Union IAAEU), Trier University)
    Abstract: We investigate the causal effect of commuting on sickness absence from work using German panel data. To address reverse causation, we use changes in commuting distance for employees who stay with the same employer and who have the same residence during the period of observation. In contrast to previous papers, we do not observe that commuting distances are associated with higher sickness absence, in general. Only employees who commute long distances are absent about 20% more than employees with no commutes. We explore various explanations for the effect of long distance commutes to work and can find no evidence that it is due to working hours mismatch, lower work effort, reduced leisure time or differences in health status.
    Keywords: sickness absence, absenteeism, commuting, health, labour supply
    JEL: I10 J22 R2 R40
    Date: 2017–12
  11. By: Petar Vujanovic; Christine Lewis
    Abstract: Switzerland makes more use of its human resources than most other OECD countries. Labour force participation is high and the unemployment rate low for most segments of society. This ensures a high standard of living for most Swiss people. Nevertheless, productivity growth is relatively slow. While this may in part be attributable to already being an advanced economy, it also means that Switzerland cannot be complacent with regard to education and skills. Its admirably low youth joblessness suggests that the transition from education to work is functioning soundly. However, there is mounting evidence that as the structure of industry is changing, due to globalisation and digitalisation for instance, vacancies and skills mismatches are spreading. The mix of skills being taught differs from those taught in most other high income OECD countries in which a common secondary school track predominates and the emphasis is on equipping young adults with academic tertiary qualifications. In this context, it is important that the system is flexible enough to respond to shifts in the demand for skills and that workers continue to learn. While the participation of women and immigrants in the economy compares relatively well, more can still be done to improve equity in the accumulation of skills. This Working Paper relates to the 2017 OECD Economic Survey of Switzerland ( c-survey-switzerland.htm).
    Keywords: skills, Switzerland, training, vocational education
    JEL: I24 I25 I28 J24 J48
    Date: 2017–12–12
  12. By: Cubas, German; Silos, Pedro
    Abstract: This paper studies how insurance from progressive taxation improves the matching of workers to occupations. We propose an equilibrium dynamic assignment model to illustrate how social insurance encourages mobility. Workers experiment to find their best occupational fit in a process filled with uncertainty. Risk aversion and limited earnings insurance induce workers to remain in unfitting occupations. We estimate the model using microdata from the United States and Germany. Higher earnings uncertainty explains the U.S. higher mobility rate. When workers in the United States enjoy Germany’s higher progressivity, mobility rises. Output and welfare gains are large.
    Keywords: Progressive Taxation, Social Insurance, Occupational Choice
    JEL: E21 H24 J31
    Date: 2017–12
  13. By: Brollo, Fernanda (University of Warwick, CAGE and CEPR); Forquesato, Pedro (PUC-Rio); Gozzi, Juan Carlos (University of Warwick)
    Abstract: We analyze how political discretion affects the selection of government workers, using individual-level data on political party membership and matched employer-employee data on the universe of formal workers in Brazil. Exploiting close mayoral races, we find that winning an election leads to an increase of over 40% in the number of members of the winning party working in the municipal bureaucracy. Employment of members of the ruling party increases relatively more in senior positions, but also expands in lower-ranked jobs, suggesting that discretionary appointments are used both to influence policymaking and to reward supporters. We find that party members hired after their party is elected tend be of similar or even higher quality than members of the runner-up party, contrary to common perceptions that political appointees are less qualified. Moreover, the increased public employment of members of the ruling party is long-lasting, extending beyond the end of the mayoral term.
    Keywords: bureaucracy, patronage, political parties, public sector employment JEL Classification: D72, D73, H70, J45
    Date: 2017
  14. By: Ulrike Stein
    Abstract: Several studies have shown that income inequality has risen in Germany until 2005. Less focus was put on the rise of earnings inequality which continued to rise until 2010. We distinguish different groups in the labour market with respect to working-time, gender and region by exploiting data from the German Socio-Economic panel (GSOEP) for the years 1995 till 2014. Using the decomposition of the Theil1-index we demonstrate that the increase in earnings inequality is primarily the result of diverging average earnings of the various groups in the labour market (between-group inequality) and to some extent due to increasing earnings heterogeneity within groups (within-group inequality). The former effect is larger than the latter. Without the inequality reducing effect on earnings inequality due to the continuous decrease in the share of full-time working employees and the increase in the female labour participation rate (compositional effect) earnings inequality would have actually further increased after 2010. Independent of the policy target, policy measures to reduce inequality need always to be designed in such a way that they take the whole work force into account in order to achieve measurable effects.
    Keywords: Earnings inequality, Theil decomposition, part-time employment, female participation rate, German Socio-Economic Panel (GSOEP)
    JEL: D31 J21 J39
    Date: 2017
  15. By: Gustavsson, Magnus (Department of Economics)
    Abstract: In this paper, I first show that Swedish job polarization is––contrary to common belief––a long-run phenomenon: the share of middle-wage jobs has declined relative to the highest- and lowest-paid jobs since at least the 1950s. Based on previous results for the US, I then demonstrate that the same major employment shifts across routine and nonroutine jobs drive long-run job polarization in both Sweden and the US. In particular, the shrinking manufacturing sector, with the subsequent decline of routine manual (blue-collar) jobs, stands out as the main explanation for why job polarization is a long-run phenomenon. However, consistent with the hypothesis of routine-biased technological change, both countries display across-the-board declines of routine jobs from around the 1980s, as well as polarizing employment patterns not only between but also within industries. But despite these trend breaks, Sweden actually experienced a stronger job-polarization process—a more pronounced hollowing out of the job-wage distribution—in the pre- than in the post 1980-era.
    Keywords: Automation; Industrial Composition; Routine-Biased Technological Change; Routinization; Structural Change
    JEL: J21 J23 N10 N30 O33
    Date: 2017–11–16

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