nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2018‒06‒18
23 papers chosen by
Joseph Marchand
University of Alberta

  1. Social Security Programs and Retirement Around the World: Working Longer – Introduction and Summary By Courtney Coile; Kevin S. Milligan; David A. Wise
  2. The Recent Rise of Labor Force Participation of Older Workers in Sweden By Lisa Laun; Mårten Palme
  3. The Chinese are Here: Firm Level Analysis of Import Competition and Performance in Sub-Saharan Africa By Christian K. Darko; Giovanni Occhiali; Enrico Vanino
  4. An International Comparison of the Contribution to Job Creation by High-growth Firms By Anyadike-Danes, Michael; Bjuggren, Carl Magnus; Dumont, Michel; Gottschalk, Sandra; Hölzl, Werner; Johansson, Dan; Maliranta, Mika; Myrann, Anja; Nielsen, Kristian; Zheng, Guanyu
  5. Long-run patterns of labour market polarisation: Evidence from German micro data By Bachmann, Ronald; Cim, Merve; Green, Colin
  6. Early Social Security Claiming and Old-Age Poverty: Evidence from the Introduction of the Social Security Early Eligibility Age By Gary V. Engelhardt; Jonathan Gruber; Anil Kumar
  7. Firm heterogeneity and macroeconomic dynamics: a datadriven investigation By Mihnea Constantinescu; Aurelija Proskute
  8. The Nature of Household Labor Income Risk By Seth Pruitt; Nicholas Turner
  9. Measuring Physicians’ Response to Incentives: Evidence on Hours Worked and Multitasking By Bruce Shearer; Nibene Habib Somé; Bernard Fortin
  10. Decomposing value chains within Swedish multinationals By Eliasson, Kent; Hansson, Pär; Lindvert, Markus
  11. The productivity-wage premium: Does size still matter in a service economy? By Giuseppe Berlingieri; Sara Calligaris; Chiara Criscuolo
  12. The disutility of commuting? The effect of gender and local labour markets By Munford, L.;; Rice, N.;; Roberts, J.;; Jacob, N.;
  13. Labor Force Demographics and Corporate Innovation By Derrien, François; Kecskes, Ambrus; Nguyen, Phuong-Anh
  14. Gender, informal employment and trade liberalization in Mexico By Ben Yahmed, Sarra; Bombarda, Pamela
  15. Skill, Innovation and Wage Inequality: Can Immigrants be the Trump Card? By Gouranga Gopal Das; Sugata Marjit
  16. Aggregate behavior in matching markets with flexible contracts and non-transferable representations of preferences By John K. Dagsvik; Zhiyang Jia
  17. From Classes to Copulas: Wages, capital, and top incomes By Rolf Aaberge; Anthony B. Atkinson; Sebastian Königs
  18. Inclusive Growth: The Case of Germany By Schmid, Günther
  19. Employment Shocks and anti-EU Sentiment By Lechler, Marie
  20. Structural Labour Supply Models and Microsimulation By Rolf Aaberge; Ugo Colombino
  21. Performance Pay and Enterprise Productivity: The Details Matter By Kato, Takao; Kauhanen, Antti
  22. Risky Business? Earnings Prospects of Employees at Young Firms By Pawel Adrjan
  23. “What drives the spatial wage premium for formal and informal workers? The case of Ecuador” By Alessia Matano; Moisés Obaco; Vicente Royuela

  1. By: Courtney Coile; Kevin S. Milligan; David A. Wise
    Abstract: This is the introduction and summary to the eighth phase of an ongoing project on Social Security Programs and Retirement Around the World. This project, which compares the experiences of a dozen developed countries, was launched in the mid 1990s following decades of decline in the labor force participation rate of older men. The first several phases of the project document that social security program provisions can create powerful incentives for retirement that are strongly correlated with the labor force behavior of older workers. Subsequent phases of the project have explored disability program provisions and their effects on retirement as well as potential obstacles to promoting work at older ages, including whether there is a link between older employment and youth unemployment and whether older individuals are healthy enough to work longer. In the two decades since the project began, the dramatic decline in men’s labor force participation has ended and been replaced by sharply rising participation rates. Older women’s participation has been rising as well. In this eighth phase of the project, we explore this phenomenon of working longer. We document trends in participation and employment and also consider factors that may help to explain these changes in behavior. We conclude that social security reforms as well as other factors such as the movement of women into the labor force have likely played an important role.
    JEL: J14 J26
    Date: 2018–05
  2. By: Lisa Laun; Mårten Palme
    Abstract: This paper studies the background to the increase in labor force participation of older workers in Sweden since 2000. In the first part, we study how the characteristics of the elderly have changed with respect to health, education level and work environment, as well as the impact of joint decision-making within the household. In the second part, we study the importance of institutional changes, including a major reform of the old-age pension system, introduction of tax credits for older workers, changes of the mandatory retirement age and stricter eligibility criteria in the disability insurance program. We find that the rise in labor force participation has coincided with improvements in health and educational attainment across birth cohorts as well as increased screening stringency in the disability insurance program.
    JEL: J26
    Date: 2018–05
  3. By: Christian K. Darko (University of Birmingham); Giovanni Occhiali (Fondazione Eni Enrico Mattei and Overseas Development Institute); Enrico Vanino (London School of Economics)
    Abstract: This study uses firm level data on 19 Sub-Saharan Africa countries between 2004 and 2016 to provide a rigorous analysis on the impact of Chinese import competition on productivity, skills, and performance of firms., We measure import competition and ports accessibility at the city-industry level to identify the relevance of firms’ location in determining the impact of Chinese imports competition. To address endogeneity concerns, a time-varying instrument for Chinese imports based on the interaction between an exogenous geographic characteristic and a shock in transportation technology is developed. The results show that imports competition has a positive impact on firm performance, mainly in terms of productivity catch-up and skills upgrading. Of particular interest is the finding that the effects of import competition from China are stronger for more remote firms that have lower port accessibility, an indication that Chinese imports in remote areas improves productivity of laggard firms, employment, and intensity of skilled workers. Our findings indicate that African firms are improving their performance as a consequence of the higher Chinese import intensity, mainly through direct competition and the use of higher quality inputs of production sourced from China.
    Keywords: Import Competition, Productivity Catch-up, Trade Infrastructure, Skills, Employment, Sub-Saharan Africa, China
    JEL: F16 R11 J21 J24
    Date: 2018–05
  4. By: Anyadike-Danes, Michael (Aston Business School and Enterprise Research Centre, UK); Bjuggren, Carl Magnus (Research Institute of Industrial Economics (IFN)); Dumont, Michel (Federal Planning Bureau and Ghent University, Belgium); Gottschalk, Sandra (ZEW, Germany); Hölzl, Werner (Austrian Institute of Economic Research (WIFO), Austria); Johansson, Dan (Orebro University and HUI Research, Sweden); Maliranta, Mika (ETLA and University of Jyväskylä, Finland); Myrann, Anja (Ragnar Frisch Centre for Economic Research, Norway); Nielsen, Kristian (Aalborg University, Denmark); Zheng, Guanyu (Productivity Commission, New Zealand)
    Abstract: The basic principle governing the development of the accounting framework is the choice of appropriate comparators. Firstly, when measuring contributions to job creation, we should focus on just job creating firms, otherwise we are summing over contributions from firms with positive, zero, and negative job creation numbers. Secondly, because we know growth depends in part on size, the ’natural’ comparison for HGFs is with job creation by similar-sized firms which simply did not grow as fast as HGFs. However, we also show how the measurement framework can be further extended to include, for example, a consistent measure of the contribution of small job creating firms. On the empirical side, we find that the HGF share of job creation by large job creating firms varies across countries by a factor of two, from around one third to two thirds. A relatively small proportion of this cross-country variation is accounted for by variations in the influence of HGFs on job creation. On average HGFs generated between three or four times as many jobs as large non-HGF job creating firms, but this ratio is relatively similar across countries. The bulk of the cross-country variation in HGF contribution to job creation is accounted for by the relative abundance (or rarity) of HGFs. Moreover, we also show that the measurement of abundance depends upon the choice of measurement framework: the ’winner’ of a cross-national HGF
    Keywords: High-growth firms; Firm growth; Job creation
    JEL: D22 E24 L11 L25 L26 M13
    Date: 2018–05–23
  5. By: Bachmann, Ronald; Cim, Merve; Green, Colin
    Abstract: The past four decades have witnessed dramatic changes in the structure of employment. In particular, the rapid increase in computational power has led to large-scale reductions in employment in jobs that can be described as intensive in routine tasks. These jobs have been shown to be concentrated in middle skill occupations. A large literature on labour market polarisation characterises and measures these processes at an aggregate level. However to date there is little information regarding the individual worker adjustment processes related to routine-biased technological change. Using an administrative panel data set for Germany, we follow workers over an extended period of time and provide evidence of both the short-term adjustment process and medium-run effects of routine task intensive job loss at an individual level. We initially demonstrate a marked, and steady, shift in employment away from routine, middle-skill, occupations. In subsequent analysis, we demonstrate how exposure to jobs with higher routine task content is associated with a reduced likelihood of being in employment in both the short term (after one year) and medium term (five years). This employment penalty to routineness of work has increased over the past four decades. More generally, we demonstrate that routine task work is associated with reduced job stability and more likelihood of experiencing periods of unemployment. However, these negative effects of routine work appear to be concentrated in increased employment to employment, and employment to unemployment transitions rather than longer periods of unemployment.
    Keywords: polarization,occupational mobility,worker flows,tasks
    JEL: J23 J24 J62 E24
    Date: 2018
  6. By: Gary V. Engelhardt; Jonathan Gruber; Anil Kumar
    Abstract: Social Security faces a major financing shortfall. One policy option for addressing this shortfall would be to raise the earliest age at which individuals can claim their retirement benefits. A welfare analysis of such a policy change depends critically on how it affects living standards. This paper estimates the impact of the Social Security early entitlement age on later-life elderly living standards by tracing birth cohorts of men who had access to different potential claiming ages. The focus is on the Social Security Amendments of 1961, which introduced age 62 as the early entitlement age (EEA) for retired-worker benefits for men. Based on data from the Social Security Administration and March 1968-2001 Current Population Surveys, reductions in the EEA in the long-run lowered the average claiming age by 1.4 years, which lowered Social Security income for male-headed families in retirement by 1.5% at the mean, 3% at the median, and 4% at the 25th percentile of the Social Security income distribution. The increase in early claiming was associated with a decrease in total income, but only at the bottom of the income distribution. There was a large associated rise in elderly poverty and income inequality; the introduction of early claiming raised the elderly poverty rate by about one percentage point. Finally, for the 1885-1916 cohorts, the implied elasticity of poverty with respect to Social Security income for male-headed families is 1.6−. Overall, we find that the introduction of early claiming was associated with a reduction in income and an increase in the poverty rate in old age for male-headed households.
    JEL: H31 J26
    Date: 2018–05
  7. By: Mihnea Constantinescu (Bank of Lithuania); Aurelija Proskute (Bank of Lithuania)
    Abstract: In this paper we offer a unique firm-level view of the empirical regularities underlying the evolution of the Lithuanian economy over the period of 2000 to 2014. Employing a novel data-set, we investigate key distributional moments of both the financial and real characteristics of Lithuanian firms. We focus in particular on the issues related to productivity, firm birth and death and the associated employment creation and destruction across industries, firm sizes and trade status (exporting vs. non-exporting). We refrain from any structural modeling attempt in order to map out the key economic processes across industries and selected firm characteristics. We uncover similar empirical regularities as already highlighted in the literature: trade participation has substantial benefits on firm productivity, the 2008 recession has had a cleansing effect on the non-tradable sector, firm birth and death are highly pro-cyclical. The richness of the dataset allows us to produce additional insights such as the change in the composition of assets and liabilities over the business cycles (tilting both liabilities and assets towards the short-term) or the increasing share of exporting firms but the constant share of importing ones since 2000.
    Keywords: productivity, firm dynamism, job creation and destruction, firm heterogeneity, Lithuanian economy
    JEL: D22 D24 E30 J21 J24 J30 L11 L25
    Date: 2018–05–14
  8. By: Seth Pruitt; Nicholas Turner
    Abstract: What is the nature of labor income risk facing households? We answer this question using detailed administrative data on household earnings from the U.S. Internal Revenue Service. By analyzing total household labor earnings as well as each member's earnings, we offer several new findings. One, households face substantially less risk than males in isolation. Second, households face roughly half the countercyclical increase in risk that males face. Third, spousal labor income ameliorates household earnings risk through both extensive and intensive margins.
    Keywords: Earnings risk ; Household labor dynamics
    JEL: J21 E24 D13 E32
    Date: 2018–05–15
  9. By: Bruce Shearer; Nibene Habib Somé; Bernard Fortin
    Abstract: We measure the response of physicians to monetary incentives using matched administrative and time-use data on specialists from Québec (Canada). These physicians were paid fee-for-service contracts and supplied a number of different services. Our sample covers a period during which the Québec government changed the prices paid for clinical services. We apply these data to a multitasking model of physician labour supply, measuring two distinct responses. The first is the labour-supply response of physicians to broad-based fee increases. The second is the response to changes in the relative prices of individual services. Our results confirm that physicians respond to incentives in predictable ways. The own-price substitution effects of a relative price change are both economically and statistically significant. Income effects are present, but are overridden when prices are increased for individual services. They are more prominent in the presence of broad-based fee increases. In such cases, the income effect empirically dominates the substitution effet, which leads physicians to reduce their supply of clinical services.
    Keywords: Physician labour supply, multitasking, incentive pay
    JEL: I10 J22 J33 J44
    Date: 2018
  10. By: Eliasson, Kent (Growth Analysis); Hansson, Pär (Örebro University School of Business); Lindvert, Markus (Growth Analysis)
    Abstract: Multinational enterprises (MNE) have been highly instrumental in the processes leading to the increased fragmentation of production within global value chains. We examine the relationship between relative demands for skills, non-routine or non-offshorable tasks in Swedish MNE parents (onshore) and their employment shares in affiliates abroad (offshore), as well as the impact on relative demand in Swedish enterprises at home when establishing an affiliate abroad. The period of study is 2001 to 2013, a period of expansion for Swedish MNEs, particularly in low-income countries such as China. Our instrumental variable estimates suggest that there is a causal relationship of increased employment shares in affiliates abroad (offshore) on higher relative demand for skills and non-routine tasks in the parents at home (onshore) and that the impact of such offshore employment changes onshore is non-negligible. Furthermore, we estimate the relationships between absolute employment onshore (skilled and less-skilled labor) and employment in affiliates offshore (high- and low-income countries). Increased employment in affiliates in lowincome countries is negatively related to the employment of less-skilled workers in manufacturing MNE parents (substitute), whereas increased employment in affiliates in high-income countries is positively related to the employment of both skilled and lessskilled workers in service at MNE parents (complement).
    Keywords: multinational enterprises; relative labor demand; offshoring; skill upgrading; non-routine; offshorable tasks
    JEL: F14 F16 F23 J23 J24
    Date: 2018–06–12
  11. By: Giuseppe Berlingieri (OECD); Sara Calligaris (OECD); Chiara Criscuolo (OECD)
    Abstract: The literature has established two robust stylised facts: (i) the existence of a firm size-wage premium; and (ii) a positive relationship between firm size and productivity. However, the existing evidence is mainly based on manufacturing data only. With manufacturing nowadays accounting for a small share of the economy, whether productivity, size, and wages are closely linked, and how tight this link is across sectors, is still an open question. Using a unique micro-aggregated dataset covering the whole economy in 17 countries over 1994-2012, this paper compares these relationships across sectors. While the size-wage and size-productivity premia are significantly weaker in market services compared to manufacturing, the link between wages and productivity is stronger. The combination of these results suggests that, in a service economy the “size-wage premium” becomes more a “productivity-wage premium”. These results have first-order policy implications for both workers and firms.
    Keywords: Productivity, Size-Premium, Wages
    JEL: D2 E2 J3
    Date: 2018–06–12
  12. By: Munford, L.;; Rice, N.;; Roberts, J.;; Jacob, N.;
    Abstract: Commuting is an extremely important modern phenomenon characterised by the spatial interaction of housing and labour markets. The average commuter in the UK spends nearly an hour a day travelling to and from employment. Standard economic theory postulates that commuting is a choice behaviour undertaken when compensated through either lower rents or greater amenities in the housing market or through greater wages in the labour market. By exploiting exogenous shocks to commuting time, this paper investigates the impact on wellbeing of increased commuting. Ceteris paribus, exogenous increases in commuting time are expected to lower wellbeing. We find this holds for women but not men. This phenomenon can be explained, in part, by the different labour markets in which women operate. Where local labour markets are thin, women report significantly lower wellbeing when faced with an increased commute. This does not hold for tight local labour markets. Further our findings reveal that it is full-time working women in the managerial and professional tier of the occupational hierarchy who are most affected.
    Keywords: commuting; exogenous shocks; well-being; panel data econometrics;
    JEL: C1 I1
    Date: 2018–06
  13. By: Derrien, François; Kecskes, Ambrus; Nguyen, Phuong-Anh
    Abstract: Firms in younger labor markets produce more innovation. We establish this using the local labor force projected based on historical births in each local labor market in the United States. Three successive levels of analysis – labor markets, firms, and inventors – allow us to separate out effects such as firm and inventor life cycles. We also find that corporate innovation activities reflect the innovative characteristics of younger labor forces, and firms in younger labor markets have higher valuations. Our results indicate that younger people as a group – inventors interacting with non-inventors – produce more innovation for firms through the labor supply channel rather than through a financing supply or consumer demand channel.
    Keywords: Innovation; Demographics; Age structure; Labor markets; Firms; Inventors; Patents
    JEL: G31 J11 J13 J21 J24 O31 O32 O33 O34
    Date: 2018–04–17
  14. By: Ben Yahmed, Sarra; Bombarda, Pamela
    Abstract: We study how trade liberalization affects formal employment across gender. We propose a theoretical mechanism to explain how male and female formal employment shares can respond differently to trade liberalization through labor reallocation across tradable and non-tradable sectors. Using Mexican data over the period 1993-2001, we find that tariff cuts increase the probability of working formally for both men and women within 4-digit manufacturing industries. The formalization of jobs within tradable sectors is driven by large firms. Constructing a regional tariff measure, we find that regional exposure to trade liberalization increases the probability of working formally in the manufacturing sector for both men and women, and especially for men. However in the service sectors, the probability of working formally decreases for low-skilled women.
    Keywords: formal and informal labor,gender,trade liberalization,Mexico
    JEL: F11 F16 O17
    Date: 2018
  15. By: Gouranga Gopal Das (Department of Economics, Hanyang University.); Sugata Marjit (Centre for Studies in Social Sciences, Calcutta(CSSSC).)
    Abstract: With the ensuing immigration reform in the US, the paper shows that targeted skilled immigration into the R&D sector that helps low-skilled labor is conducive for controlling inequality and raising wage. Skilled talent-led innovation could have spillover benefits for the unskilled sector while immigration into the production sector will always reduce wage, aggravating wage inequality. In essence, we infer: (i) if R&D inputs contributes only to skilled sector, wage inequality increases in general; (ii) for wage gap to decrease, R&D sector must produce inputs that goes into unskilled manufacturing sector; (iii) even with two types of specific R&D inputs entering into the skilled and unskilled sectors separately, unskilled labor is not always benefited by high skilled migrants into R&D-sector. Rather, it depends on the importance of migrants’ skill in R&D activities and intensity of inputs. Inclusive immigration policy requires inter-sectoral diffusion of ideas embedded in talented immigrants targeted for innovation.
    Keywords: H1B, Immigration, Innovation, Wage gap, Skill, R&D, Policy, RAISE Act
    JEL: F22 J31 O15
    Date: 2018–05–22
  16. By: John K. Dagsvik; Zhiyang Jia (Statistics Norway)
    Abstract: This paper modifies and extends the aggregate equilibrium models for matching markets developed earlier in the literature. Agents in the matching market search for a match among potential partners, including agreements about a flexible contract, such as hours and wage combinations in the labor market. Under general utility representations that are non-transferable and assuming the matching is stable, we derive a probabilistic framework for the probability of realizing a particular match, including the choice of contract. We also show that the popular transferable utility model with transferable utilities can be viewed as a limiting case within our modelling framework. The framework is practical to apply for empirical analysis and is at the same time sufficiently general to accommodate essential features of matching markets with heterogeneous agents.
    Keywords: Matching markets; Aggregation; Latent choice sets; Random utility matching models
    JEL: J22 C51
    Date: 2018–05
  17. By: Rolf Aaberge (Statistics Norway); Anthony B. Atkinson; Sebastian Königs
    Abstract: Public debates about the rise in top income shares often focus on the growing dispersion in earnings, and the soaring pay for top executives and financial-sector employees. But can the change in the marginal distribution of earnings on its own explain the rise in top income shares? Are top executives replacing capital owners in the group of top-income earners, or are we rather witnessing a fusion of top capital and top earnings? This paper proposes an extension of the copula framework and uses it for exploring the changing composition of top incomes. It illustrates that changes in top income shares can easily be decomposed into respective changes in the marginal distributions of labour and capital income and the changing association between the two types of income. An application using tax record data from Norway shows that the association between top labour and capital incomes grew stronger between 1995 and 2005 in the top half of the wage and capital income distribution, though it declined for the top 1 per cent of capital income receivers. A gender decomposition demonstrates that the association of wage and capital incomes at the top is particularly striking for men, while women are largely under-represented in the top halves of the two marginal distributions.
    Keywords: Top incomes; wages; capital incomes; copula
    JEL: D31 H24 J30
    Date: 2018–06
  18. By: Schmid, Günther (WZB - Social Science Research Center Berlin)
    Abstract: This paper argues that inclusive growth appears to be the only suitable strategy for realising the right to decent work (RDW) in the digital economy. This reasoning is in blunt opposition to the current mood of giving up this right in favour of an unconditional basic income (UBI). The study starts by briefly expanding the basic argument and by defining the principles of inclusive versus exclusive growth (1); a comprehensive overview of German labour market policy and labour law reforms since the beginning of this millennium assesses to what extent Germany is pursuing these principles, accompanied by selective evidence of their consequences for the German labour market performance (2); a stylised and descriptive overview of the inclusive impact of these reforms in quantitative and qualitative terms follows, with an essay reflecting the concept of the inclusive labour contract (3).
    Keywords: labour market policy, labour law, human right law, inclusion, institutions, growth, non-standard work, Germany
    JEL: J41 J48 K31 O43 R11
    Date: 2018–06
  19. By: Lechler, Marie
    Abstract: Euroscepticism and the rise of populist parties have often been linked to economic insecurity. This paper identifies regional employment changes as causal factors for forming attitudes towards the European Union and voting for eurosceptic parties in European Parliament elections. To do so, I combine industry-specific employment data for roughly 260 European NUTS II regions with individual-level Eurobarometer survey data for the past 20 years and regional voting results. I apply panel data and instrumental variable methods; for the latter I construct a Bartik-style instrument, which predicts employment changes on the basis of regional industry specialization and Europe-wide sector specific employment growth rates. The effect of employment changes on attitudes towards the EU is particularly strong for unemployed and low-skilled workers in regions with a high share of migrants from other European member states, which supports the narrative that ‘losers of globalization’ tend to be more skeptical towards economic and political integration.
    Keywords: European Integration; Regional Employment; EU Attitudes; European Parliament Elections; EU Migration
    JEL: E24 J21 O52 P16
    Date: 2018
  20. By: Rolf Aaberge (Statistics Norway); Ugo Colombino
    Abstract: The purpose of the paper is to provide a discussion of the various approaches for accounting for labour supply responses in microsimulation models. The paper focus attention on two methodologies for modelling labour supply: • The discrete choice model • The random utility – random opportunities model The paper then describes approaches to utilising these models for policy simulation in terms of producing and interpreting simulation outcomes, outlining an extensive literature of policy analyses utilising these approaches. Labour supply models are not only central for analyzing behavioural labour supply responses but also for identifying optimal tax-benefit systems, given some of the challenges of the theoretical approach. Combining labour supply results with individual and social welfare functions enables the social evaluation of policy simulations. Combining welfare functions and labour supply functions, the paper discusses how to model socially optimal income taxation.
    Keywords: Behavioural microsimulation; Labour supply; Discrete choice; Tax reforms
    JEL: C50 D10 D31 H21 H24 H31 J20
    Date: 2018–06
  21. By: Kato, Takao (Colgate University); Kauhanen, Antti (ETLA - The Research Institute of the Finnish Economy)
    Abstract: Much of the empirical literature on PRP (Performance Related Pay) focuses on a question of whether the firm can increase firm performance in general and enterprise productivity in particular by introducing PRP and if so, how much. However, not all PRP programs are created equal and PRP programs vary significantly in a variety of attributes. This paper provides novel and rigorous evidence on the productivity effect of varying attributes of PRP and shows that the details of PRP indeed matter. In so doing we exploit the panel nature of our Finnish Linked Employer-Employee Data on the details of PRP. We first establish that the omitted variable bias is serious, makes the cross-sectional estimates on the productivity effect of the details of PRP biased upward substantially. Relying on the fixed effect estimates that account for such bias, we find: (i) group incentive PRP is more potent in boosting enterprise productivity than individual incentive PRP; (ii) group incentive PRP with profitability as a performance measure is especially powerful in raising firm productivity; (iii) when a narrow measure (such as cost reduction) is already used, adding another narrow measure (such as quality improvement) yields no additional productivity gain; and (iv) PRP with greater Power of incentives (the share of PRP in total compensation) results in greater productivity gains, and returns to Power of incentives diminishes very slowly.
    Keywords: performance pay and productivity
    JEL: M52 J33 J24 J53 O53
    Date: 2018–05
  22. By: Pawel Adrjan
    Abstract: Young ï¬ rms are an engine of job creation, but little is known about the quality of the jobs that they offer. I use a matched employer-employee dataset to study how starting wages and lifecycle earnings of employees differ between young and mature ï¬ rms. I ï¬ nd that young ï¬ rms pay a small premium to new hires, but subsequent wage growth is better at mature ï¬ rms, both within continuing job matches and when individuals change jobs. These results are conï¬ rmed by several approaches to addressing sorting and selection of employees into ï¬ rms of different ages. There is substantial heterogeneity of outcomes: the few young ï¬ rms that survive and become highly productive pay higher wages to employees from the outset than less successful young ï¬ rms. Overall, highly-paid and stable jobs at young ï¬ rms are rare. Policies that aim to stimulate job growth by encouraging the formation of new ï¬ rms should therefore pay close attention to the types of ï¬ rms that form as a result.
    JEL: J21 J23 J31 L26
    Date: 2018–06–01
  23. By: Alessia Matano (AQR-IREA, University of Barcelona (UB). Tel.: +34-934021825; Fax.: +34-934021821. Department of Econometrics, Statistics and Applied Economics, University of Barcelona, Diagonal 690, 08034 Barcelona, Spain.); Moisés Obaco (AQR-IREA, University of Barcelona, Av. Diagonal 690 (08034), Barcelona, Spain.); Vicente Royuela (AQR-IREA, University of Barcelona, Av. Diagonal 690 (08034), Barcelona, Spain.)
    Abstract: This article investigates the incidence of agglomeration externalities in a typical developing country, Ecuador. In particular, we analyze the role of the informal sector within these relations, since informal employment accounts for a significant part of total employment in the developing countries. Using individual level data and instrumental variable techniques, we investigate the impact of spatial externalities, in terms of population size and local specialization, on the wages of workers in Ecuadorian cities. The results show that spatial externalities matter also for a typical developing country, especially as far as urbanization externalities are concerned. Moreover, analysis of the interaction between spatial externalities and the informal economy shows a general penalization for informal workers in terms of benefits arising from agglomeration externalities. Finally, by investigating the possible channels behind the heterogeneity found in spatial agglomeration gains between formal and informal workers, we show that the advantages from agglomeration for formal workers may well be accounted for by positive sorting and better gains from job changes, while for informal workers they arise from positive learning externalities.
    Keywords: Agglomeration Externalities, Developing Economies, Informal Employment, Workers’ Wages, FUAs, Ecuador. JEL classification:J31, J46, R23, R12.
    Date: 2018–06

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