nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2018‒02‒12
fifteen papers chosen by
Joseph Marchand
University of Alberta

  1. The impact of public employment: evidence from Bonn By Becker, Sascha O.; Heblich, Stephan; Sturm, Daniel
  2. Do Lower Minimum Wages for Young Workers Raise their Employment? Evidence from a Danish Discontinuity By Kreiner, Claus T.; Reck, Daniel; Skov, Peer Ebbesen
  3. Evaluating Public-Private Partnerships in Employment Services: The Case of the UK Work Programme By Danula K. Gamage; Pedro S. Martins
  4. Higher Education Funding Reforms: A Comprehensive Analysis of Educational and Labour Market Outcomes in England By Ghazala Azmat; Stefania Simion
  5. The mightier, the stingier: Firms’ market power, capital intensity, and the labor share of income By Adrjan, Pawel
  6. Confidence and career choices: An experiment By Barron, Kai; Gravert, Christina
  7. Technological change, automation and employment: A Short review of theory and evidence By K.V. Ramaswamy
  8. Medicaid Benefit Generosity and Labor Market Outcomes: Evidence from Medicaid Adult Vision Benefits By Boudreaux, Michel; Lipton, Brandy
  9. The Impact of a Negative Labor Demand Shock On Fertility - Evidence From the Fall of the Berlin Wall By Liepmann, Hannah
  10. Creative and science-oriented employees and firm-level innovation By Stephan Brunow; Antonia Birkeneder; Andrés Rodríguez-Pose
  11. Competing for Talent By Yuhta Ishii; Aniko Ory; Adrien Vigier
  12. Dynamic Analysis of a Disequilibrium Macroeconomic Model with Dual Labor Markets By Ogawa, Shogo
  13. Wage Dynamics and Financial Performance: Evidence from Czech Firms By Jan Babecky; Kamil Galuscak; Diana Zigraiova
  14. Inequality, employment and public policy By S. Mahendra Dev
  15. Winner-Take-All and Proportional-Prize Contests: Theory and Experimental Results By Cason, Timothy; Masters, William; Sheremeta, Roman

  1. By: Becker, Sascha O.; Heblich, Stephan; Sturm, Daniel
    Abstract: This paper evaluates the impact of public employment on private sector activity using the relocation of the German federal government from Berlin to Bonn in the wake of the Second World War as a source of exogenous variation. To guide our empirical analysis, we develop a simple economic geography model in which public sector employment in a city can crowd out private employment through higher wages and house prices, but also generates potential productivity and amenity spillovers. We find that relative to a control group of cities, Bonn experiences a substantial increase in public employment. However, this results in only modest increases in private sector employment with each additional public sector job destroying around 0.2 jobs in industries and creating just over one additional job in other parts of the private sector. We show how this finding can be explained by our model and provide several pieces of evidence for the mechanisms emphasised by the model
    Keywords: economic geography; public employment; place-based policies; German division
    JEL: F15 J45 N44 R12
    Date: 2018–01–01
  2. By: Kreiner, Claus T.; Reck, Daniel; Skov, Peer Ebbesen
    Abstract: We estimate the impact of youth minimum wages on youth employment by exploiting a large discontinuity in Danish minimum wage rules at age 18, using monthly payroll records for the Danish population. The hourly wage jumps up by 40 percent at the discontinuity. Employment falls by 33 percent and total input of hours decreases by 45 percent, leaving the aggregate wage payment almost unchanged. We show theoretically how the discontinuity may be exploited to evaluate policy changes. The relevant elasticity for evaluating the effect on youth employment of changes in their minimum wage is in the range 0.6-1.1.
    Keywords: employment; minimum wage policy; Regression Discontinuity
    JEL: H2 J2 J3
    Date: 2017–12
  3. By: Danula K. Gamage; Pedro S. Martins
    Abstract: Although there are many public-private partnerships in employment services around the world, relatively little is known about the link between the design and structures of these partnerships and their labour market effects. Here we examine the case of the UK Work Programme (WP), which features considerable flexibility in interventions and offers financial incentives that vary strongly with jobseeker profiles and outcomes. We draw on data on all two million WP participants between 2011 and 2016 and exploit the programme's structure to disentangle the role of the different providers and jobseeker profiles from business cycle and other confounding effects. Our main results are: 1) the WP has a much stronger effect in increasing transitions out of unemployment than increasing transitions to employment, even if its incentives are related to the latter outcomes; 2) the performance differences across providers are small, despite their large number and the flexibility in interventions; 3) although transitions to employment of harder-to-help jobseekers are significantly better rewarded, these individuals still performed significantly worse than participants closer to the labour market.
    Keywords: Public employment services, job search, public policy evaluation
    JEL: J64 J68 J22
    Date: 2018–01
  4. By: Ghazala Azmat; Stefania Simion
    Abstract: This paper investigates the impact of changes in the funding of higher education in England on students' choices and outcomes. Over the last two decades - through three major reforms in 1998, 2006 and 2012 - undergraduate university education in public universities moved from being free to students and state funded to charging substantial tuition fees to all students. This was done in conjunction with the government offering generous means-tested maintenance grants and loans. Using detailed longitudinal micro-data that follows all students attending state schools in England (more than 90 percent of all school-aged children) from lower education to higher education, we document the socio-economic distributional effects of the 2006 and 2012 policy reforms on a comprehensive set of outcomes, including enrolment, relocation decisions, selection of institution, program of study, and performance within university. For a subset of students, we track them after completing higher education, allowing us to study the labour market effects of the policy reforms. Despite the substantial higher education funding reforms, we do not find large aggregate effect on student enrolment or on other margins. Moreover, the small negative impacts found on enrolment were largely borne on those in higher parts of the wealth distribution - reducing the enrolment gap across socioeconomic groups.
    Keywords: higher education, tuition fees, means-tested support, career choices, career outcomes
    JEL: I22 I23 I29 J30
    Date: 2018–02
  5. By: Adrjan, Pawel
    Abstract: What determines the proportion of a firm’s income that workers receive as compensation? This paper uses longitudinal firm data from a period of substantial labor share variation to understand the firm-level determinants of the labor share of income—a question that has so far only been addressed with country- and sector-level data. Firms with greater market power and a higher ratio of capital to labor allocate a smaller proportion of their value added to workers. These results suggest that firm-level drivers play a key role in the evolution of the aggregate labor share, which have declined significantly since the 1970s.
    Keywords: Labor Share, Employee Compensation, Factor Income Distribution, Market Power, Capital Intensity
    JEL: D33 E25 J24 J30
    Date: 2018–01–13
  6. By: Barron, Kai; Gravert, Christina
    Abstract: Confidence is often seen as the key to success. Empirical evidence about whether such beliefs causally map into actions is, however, sparse. In this paper, we experimentally investigate the causal effect of an increase in confidence about one's own ability on two central choices made by workers in the labor market: choosing between jobs with different incentive schemes, and the subsequent choice of how much effort to exert within the job. Using a hard-easy task manipulation to shift beliefs, we find that beliefs can be shifted, which in turn shifts decisions. In our setting, the beliefs of low ability individuals are more malleable than those of high ability individuals. Therefore, the treatment induces an increase in confidence and detrimental decision making by low ability workers but does not affect the outcomes of high ability workers. Men and women react similarly to the treatment. However, men hold higher baseline beliefs, implying that women make better incentive choice decisions. Policy implications regarding pre-labor market confidence development by means of feedback and grade inflation are discussed.
    Keywords: overconfidence,experiment,beliefs,real-effort,grade inflation
    JEL: C91 D03 M50 J24
    Date: 2018
  7. By: K.V. Ramaswamy (Indira Gandhi Institute of Development Research; Institute of Economic Growth)
    Abstract: A selective survey of recent papers in the area of technological change, automation and employment is presented. The objective is to convey analytical ideas and the empirical evidence that have informed studies in this area of contemporary policy relevance. Automation occurs when a machine does work that might previously have been done by a person. How robots and automation affect the availability of jobs for labor force? There are very few emerging studies that address the issue with detailed data on robots usage and employment in different sectors of the economy. Based on our review of available studies and empirical evidence the following statements can be made: (1) Increasing automation and robots adoption do not seem to cause loss of employment in the aggregate (2) Low skilled workers in routine jobs are more likely to suffer job losses. (3) There will be demand for new types of skilled workers or new specializations within occupations. Prospective automation intensifies the degree of uncertainty in labor markets across countries.
    Keywords: Technological change,Automation, Robots,Skill Bias, employment
    JEL: J20 J23 J24 O30 O33
    Date: 2018–01
  8. By: Boudreaux, Michel; Lipton, Brandy
    Abstract: Previous work suggests that Medicaid eligibility expansions may lead to declines in labor market activity. This paper explores the related, but novel question of whether variation in Medicaid benefit generosity alters employment outcomes. We consider adult vision benefits as a case study. Our findings suggest that vision benefits have a net positive effect on intensive margin measures including hours worked and occupational skill requirements, but no significant effect on the likelihood of being employed. These results indicate that Medicaid’s effect on labor market activity is sensitive to the set of covered services.
    Keywords: Health insurance, Medicaid, Employment, Vision care
    JEL: H75 I13 I18 J22
    Date: 2018–01–12
  9. By: Liepmann, Hannah (Humboldt University Berlin)
    Abstract: How does a negative labor demand shock impact fertility? I analyze this question in the context of the East German fertility decline after the fall of the Berlin Wall in 1989. I exploit differential pressure for restructuring across East German industries which led to unexpected, exogenous, and permanent changes to labor demand. I find that throughout the 1990s, women more severely impacted by the demand shock had relatively more children than their less-severely-impacted counterparts. Thus, the demand shock did not only depress the aggregate fertility level but also changed the composition of mothers. My paper shows that these two effects do not necessarily operate in the same direction.
    Keywords: fertility; labor demand shock; industrial restructuring; east germany;
    JEL: J13 J23 P36
    Date: 2018–01–24
  10. By: Stephan Brunow; Antonia Birkeneder; Andrés Rodríguez-Pose
    Abstract: This paper examines the link between innovation and the endowments of creative and science-oriented STEM - Science, Technology, Engineering and Mathematics ? workers at the level of the firm and at the city-/regional-level in Germany. It also looks into whether the presence of these two groups of workers has greater benefits for larger cities than smaller locations, thus justifying policies to attract these workers in order to make German cities 'smarter'. The empirical analysis is based on a probit estimation, covering 115,000 firm-level observations between 1998 and 2015. The results highlight that firms that employ creative and STEM workers are more innovative than those that do not. However, the positive connection of creative workers to innovation is limited to the boundaries of the firm, whereas that of STEM workers is as associated to the generation of considerable innovation spillovers. Hence, attracting STEM workers is more likely to end up making German cities smarter than focusing exclusively on creative workers.
    Keywords: Innovation, Creative workers, STEM workers, Smart Cities, Spillover, Germany
    JEL: D22 J82 R12 J21 J24 R23
    Date: 2018–02
  11. By: Yuhta Ishii (Centro de Investigaci´on Econ´omica, Mexico); Aniko Ory (Cowles Foundation, Yale University); Adrien Vigier (BI Norwegian Business School)
    Abstract: In many labor markets, e.g., for lawyers, consultants, MBA students, and professional sport players, workers get offered and sign long-term contracts even though waiting could reveal significant information about their capabilities. This phenomenon is called unraveling. We examine the link between wage bargaining and unraveling. Two firms, an incumbent and an entrant, compete to hire a worker of unknown talent. Informational frictions prevent the incumbent from always observing the entrant’s arrival, inducing unraveling in all equilibria. We analyze the extent of unraveling, surplus shares, the average talent of employed workers, and the distribution of wages within and across firms.
    Keywords: Unraveling, Talent, Wage Bargaining, Competition, Uncertainty
    JEL: C7 D8 J3
    Date: 2018–02
  12. By: Ogawa, Shogo
    Abstract: We extend the general disequilibrium model of Malinvaud(1980) by using dual labor market theory. By considering two tiers of workers, we find that while the duality of the labor market expands an equilibrium regime in the short term, it does not always keep an equilibrium in the medium term. In the medium term, the business cycle converges toward a disequilibrium regime unless the goods market is potentially in equilibrium. Employment and wages at the steady state are affected by the size of the government, and the stability of wage bargaining is only a sufficient condition of the local stability of our dynamic system. Therefore, involuntary unemployment can be remedied only when goods demand is sufficiently large.
    Keywords: Disequilibrium macroeconomics; Non-Walrasian analysis; Segmented labor markets; Business cycles
    JEL: E12 E24 E32 J42
    Date: 2018–01–23
  13. By: Jan Babecky; Kamil Galuscak; Diana Zigraiova
    Abstract: This paper examines how the financial performance of a firm affects its wage policy. For this purpose, we match data on Czech firms from the Wage Dynamics Network survey covering the period 2010-2013 with balance sheet data. Controlling for a number of firm-specific characteristics and the environment in which firms operate, we find that financial performance matters for wage setting: contractual wages are more likely to grow in firms with a higher ratio of cash flow to total assets and in firms that invest more. Conversely, firms that froze or cut contractual wages during the survey period had lower cash flow over total assets, but not necessarily a lower investment ratio. The flexible wage component exhibits a similar pattern, but is more sensitive to demand shocks and firms' financial conditions.
    Keywords: Base wages, financial performance, flexible wage component, survey data, wage setting
    JEL: C83 J31 J41 L11
    Date: 2017–12
  14. By: S. Mahendra Dev (Indira Gandhi Institute of Development Research)
    Abstract: This paper examines dimensions of inequality including labour market inequalities and discusses public policies needed for reduction in inequalities. It discusses both inequality of outcomes and inequality of opportunities. In terms of income, India is the second highest inequality country in the world next to South Africa. Wealth inequalities are also high in India. Most of the inequalities will have labour market dimension. Labour market inequalities can be found across sectors, wages and earnings, quality of work, labour market access and, between organised and unorganised sectors. On public policies and inequalities, the paper discusses redistribution measures, macro policies, sectoral policies and impact on employment, social policies such as education, health, hunger and malnutrition, social protection, corruption, gender disparities and climate change. The paper argues for fundamentals change to human capital and universal basic services. Investments in social infrastructure, health, education, affirmative action and provision of public services can lead to the creation of egalitarian society.
    Keywords: Inequality of outcomes, inequality of opportunities, consumption, income, wealth, labour market, wage inequality, fiscal policy, monetary policy, trade policy, human capital, health, education, informal sector, inclusive growth, gender, climate change
    JEL: D63 E24 J28
    Date: 2018–01
  15. By: Cason, Timothy; Masters, William; Sheremeta, Roman
    Abstract: This study provides a unified framework to compare three canonical types of contests: winner-take-all contests won by the best performer, winner-take-all lotteries where probability of success is proportional to performance, and proportional-prize contests in which rewards are shared in proportion to performance. We derive equilibria and observe outcomes from each contest in a laboratory experiment. Equilibrium and observed efforts are highest in winner-take-all contests. Lotteries and proportional-prize contests have the same Nash equilibrium, but empirically, lotteries induce higher efforts and lower, more unequal payoffs. Behavioral deviations from theoretical benchmarks in different contests are caused by the same underlying attributes, such as risk-aversion and the utility of winning. Finally, we find that subjects exhibit consistent behavior across different types of contests, with subjects exerting higher effort in one contest also exerting higher effort in another contest.
    Keywords: contests, rent-seeking, lotteries, incentives in experiments, risk aversion
    JEL: C72 D72 D74 J33
    Date: 2018–01–29

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