nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2018‒06‒25
twenty papers chosen by
Joseph Marchand
University of Alberta

  1. The Minimum Wage, Fringe Benefits, and Worker Welfare By Jeffrey Clemens; Lisa B. Kahn; Jonathan Meer
  2. The Impact of Sickness Absenteeism on Productivity: New Evidence from Belgian Matched Panel Data By Grinza, Elena; Rycx, Francois
  3. Just like a Woman? New Comparative Evidence on the Gender Income Gap across Eastern Europe and Central Asia By Blunch, Niels-Hugo
  4. Effects of Taxes and Safety Net Pensions on life-cycle Labor Supply, Savings and Human Capital: the Case of Australia By Fedor Iskhakov; Michael Keane
  5. Wages and employment: The role of occupational skills By Esther Mirjam Girsberger; Miriam Rinawi; Matthias Krapf
  6. Nominal wage rigidity in the EU countries before and after the Great Recession: evidence from the WDN surveys By Eva Branten; Ana Lamo; Tairi Room
  7. Changes in Nutrient Intake at Retirement By Melvin Stephens Jr.; Desmond Toohey
  8. Long-run Trends in the Economic Activity of Older People in the UK By James Banks; Carl Emmerson; Gemma Tetlow
  9. The Shadow Prices of Voluntary Caregiving: Using Panel Data of Well-Being to Estimate the Cost of Informal Care By McDonald, Rebecca; Powdthavee, Nattavudh
  10. Productivity and wage effects of firm-level collective agreements: Evidence from Belgian linked panel data By Andrea Garnero; François Rycx; Isabelle Terraz
  11. Trends in Labor Force Participation of Older Workers in Spain By Pilar García-Gómez; Sergi Jimenez-Martin; Judit Vall Castelló
  12. Wage inequality, labor income taxes, and the notion of social status By Bilancini, Ennio; Boncinelli, Leonardo
  13. Domain-Specific Risk and Public Policy By Kanninen, Ohto; Böckerman, Petri; Suoniemi, Ilpo
  14. Labour Market Decisions of the Self-Employed in the Netherlands at the Statutory Retirement Age By Amparo Nagore Garcia; Mariacristina Rossi; Arthur van Soest
  15. Optimal Spatial Policies, Geography and Sorting By Pablo Fajgelbaum; Cecile Gaubert
  17. Boosting productivity and living standards in Thailand By Vincent Koen; Hidekatsu Asada; Mohamed Rizwan Habeeb Rahuman; Adam Bogiatzis
  18. Labor Market and Distributional Effects of an Increase in the Retirement Age By Geyer, Johannes; Haan, Peter; Hammerschmid, Anna; Peters, Michael
  19. Math, Girls and Socialism By Lippmann, Quentin; Senik, Claudia
  20. Non-base wage components as a source of wage adaptability to shocks: evidence from European firms, 2010–2013 By Babecký, Jan; Berson, Clémence; Fadejeva, Ludmila; Lamo, Ana; Marotzke, Petra; Martins, Fernando; Strzelecki, Pawel

  1. By: Jeffrey Clemens; Lisa B. Kahn; Jonathan Meer
    Abstract: This paper explores the relationship between the minimum wage, the structure of employee compensation, and worker welfare. We advance a conceptual framework that describes the conditions under which a minimum wage increase will alter the provision of fringe benefits, alter employment outcomes, and either increase or decrease worker welfare. Using American Community Survey data from 2011-2016, we find robust evidence that state-level minimum wage changes decreased the likelihood that individuals report having employer-sponsored health insurance. Effects are largest among workers in very low-paying occupations, for whom coverage declines offset 9 percent of the wage gains associated with minimum wage hikes. We find evidence that both insurance coverage and wage effects exhibit spillovers into occupations moderately higher up the wage distribution. For these groups, reductions in coverage offset a more substantial share of the wage gains we estimate.
    JEL: I13 J23 J32 J33
    Date: 2018–05
  2. By: Grinza, Elena (University of Milan); Rycx, Francois (Free University of Brussels)
    Abstract: We investigate the impact of sickness absenteeism on productivity by using rich longitudinal matched employer-employee data on Belgian private firms. We deal with endogeneity, which arises from unobserved firm heterogeneity and reverse causality, by applying a modified version of the Ackerberg et al's (2015) control function method, which explicitly removes firm fixed effects. Our main finding is that, in general, sickness absenteeism substantially dampens firm productivity. An increase of 1 percentage point in the rate of sickness absenteeism entails a productivity loss of 0.24%. Yet, we find that the impact is much diversified depending on the categories of workers who are absent and across different types of firms. Our results show that sickness absenteeism is detrimental mainly when absent workers are high-tenure or blue-collar workers. Moreover, they show that sickness absenteeism is harmful mostly to industrial firms, high capital-intensive companies, and small- and medium-sized enterprises. This overall picture is coherent with the idea that sickness absenteeism is problematic when absent workers embed high levels of firm/task-specific (tacit) knowledge, when the work of absent employees is highly interconnected with the work of other employees (e.g., along the assembly line), and when firms face more limitations in substituting temporarily absent workers.
    Keywords: sickness absenteeism, firm productivity, semiparametric methods for estimating production functions, longitudinal matched employer-employee data
    JEL: D24 M59 I15
    Date: 2018–05
  3. By: Blunch, Niels-Hugo (Washington and Lee University)
    Abstract: I examine the incidence and determinants of the gender income gap in Kazakhstan, Macedonia, Moldova, Serbia, Tajikistan, and Ukraine using recent household data based on an identical survey instrument across countries. Four main results are established, using a range of estimators, including OLS, interval regression, and quantile regression: (1) the presence of a substantively large gender income gap (favoring males) in all six countries; (2) some evidence of a gender-related glass ceiling in some of these countries; (3) some evidence that endowments diminish the income gaps, while the returns to characteristics increase the gaps; and (4) while observed individual characteristics explain part of the gaps, a substantial part of the income gap is left unexplained. In sum, these results are consistent with the presence of income discrimination towards females but at the same time also point towards the importance of continued attention towards institutions and economic policy for decreasing the gender income gap in these former formally gender neutral economies—notably through attention towards the maternity and paternity leave system, as well as public provision of child care.
    Keywords: gender, income gap, Oaxaca-Blinder decomposition, detailed decomposition, maternity/paternity leave policies, Eastern Europe and Central Asia
    JEL: J16 J31 J7
    Date: 2018–05
  4. By: Fedor Iskhakov (Australian National University and ARC Center of Excellence in Population Ageing Research); Michael Keane (UNSW School of Economics and ARC Center of Excellence in Population Ageing Research)
    Abstract: In this paper we structurally estimate a life-cycle model of consumption/savings, labor supply and retirement, using data from the Australian HILDA panel. We use the model to evaluate effects of the Australian aged pension system and tax policy on labor supply, consumption and retirement decisions. Our model accounts for human capital accumulation via learning by doing, as well as wealth accumulation and decumulation over the life cycle, uninsurable wage risk, credit constraints, a non-absorbing retirement decision, and labor market frictions. We account for the “bunching” of hours by discretizing job offers into several hours levels, allowing us to investigate labor supply on both intensive and extensive margins. Our model allows us to quantify the effects of anticipated and unanticipated tax and pension policy changes at different points of the life cycle. Our results imply that the Australian Aged Pension system as currently designed is very poorly targeted, so that means testing and other program rules could be improved.
    Keywords: Labor supply, human capital accumulation, retirement, pensions, taxes, structural model, anticipated and unanticipated policy changes, counterfactual simulations
    JEL: J22 J24 J26 C63
    Date: 2018–05
  5. By: Esther Mirjam Girsberger (University of Lausanne); Miriam Rinawi (Swiss National Bank); Matthias Krapf (University of Basel)
    Abstract: How skills acquired in vocational education and training (VET) affect wages and employment is not clear. We develop and estimate a search and matching model for workers with a VET degree. Workers differ in interpersonal, cognitive and manual skills, while firms require and value different combinations of these skills. Assuming that match productivity exhibits worker-job complementarity, we estimate how interpersonal, cognitive and manual skills map into job offers, unemployment and wages. We find that firms value cognitive skills on average almost twice as much as interpersonal and manual skills, and they prize complementarity in cognitive and interpersonal skills. The average return to VET skills in hourly wages is 9%, similar to the returns to schooling. Furthermore, VET appears to improve labour market opportunities through higher job arrival rate and lower job destruction. Workers thus have large benefits from acquiring a VET degree.
    Keywords: Occupational training, vocational education, labor market search, sorting, multidimensional skills
    JEL: E24 J23 J24 J64
    Date: 2018–06
  6. By: Eva Branten; Ana Lamo; Tairi Room
    Abstract: This paper studies the recent trends in nominal wage rigidity in a large group of EU countries, using survey data. We analyse two forms of nominal wage rigidity: downward nominal wage rigidity (DNWR) and the lagged response of wages to shocks. The frequency of wage changes, which is an indicator of lagged wage setting, slowed down in the aftermath of the Great Recession. We assess the possible reasons for this, and show that it was at least partially caused by a combination of a decline in average wage growth and persistent DNWR. In countries where wage growth slowed down more after the Great Recession, the frequency of wage changes declined more steeply as well. Our data allows evaluating the prevalence of DNWR in diverse economic circumstances. Like earlier research on this topic, we find that DNWR tends to be strongly prevalent, even in periods of slow economic growth and low wage inflation. DNWR declines during severe recessions but even then wage setting does not become completely flexible as the proportion of observed wage cuts is still below the level that would correspond to a flexible regime.
    Keywords: downward nominal wage rigidity, wage change frequency, survey
    JEL: B41 D22
    Date: 2018–06–15
  7. By: Melvin Stephens Jr.; Desmond Toohey
    Abstract: While the literature finding a decrease in food expenditures at retirement suggests households do not adequately save for retirement, subsequent evidence that nutrient intake is unaffected by retirement has tempered these concerns. We further examine nutrient intake changes at retirement both by analyzing a much wider range of datasets, including longitudinal data, and by improving upon the empirical methodology used in earlier work. Our analysis yields four main results. First, unlike prior work, we find that caloric and nutrient intake fall at retirement in numerous cross-sectional datasets. We can reconcile these contrasting results as being due to well-documented differences and improvements in methodologies used to measure food intake. Second, using longitudinal data, we also find that intake falls at retirement. Third, we show that a food consumption index used in prior work to capture the relationship between permanent income and foods eaten can severely underestimate the impact of retirement on consumption. We show that a minor methodological revision circumvents this bias and that the revised consumption index falls at retirement. Finally, while unemployment reduces the consumption index, we find, in contrast to prior work, that the impact of retirement on the consumption index is larger. Overall, we consistently find that retirement reduces food intake.
    JEL: E21 J26
    Date: 2018–05
  8. By: James Banks; Carl Emmerson; Gemma Tetlow
    Abstract: We document employment rates of older men and women in the UK over the last forty years. In both cases growth in employment since the mid 1990s has been stronger than for younger age groups. On average, older men are still less likely to be in work than they were in the mid 1970s although this is not true for those with low education. We highlight issues with using years of schooling as a measure of educational achievement for analysing labour market trends at older ages, not least because a large proportion of men who left school at young ages without any formal qualifications, have subsequently acquired some. Reforms – such as the abolition of the earnings test and rises in the female State Pension Age, have pushed up employment rates. But other factors – such as the shift from defined benefit to defined contribution pensions being offered by private sector employers and the growth in employment rates at younger ages among successive cohorts of women – are also important. We discuss the role of other cohort and economy-wide trends, highlighting that the proportion of older men and women employed in professional, managerial and technical occupations has been particularly strong.
    JEL: H55 J26
    Date: 2018–05
  9. By: McDonald, Rebecca (University of Birmingham); Powdthavee, Nattavudh (University of Warwick)
    Abstract: This paper uses the wellbeing valuation (WV) approach to estimate and monetize the wellbeing impacts of informal care provision on caregivers. Using nationally representative longitudinal data from the U.K., we address two challenging methodological issues related to the economic valuation of informal care: (i) the endogeneity of informal care; and (ii) the sensitivity of income estimates used in valuation. We address the endogeneity issue by decomposing wellbeing losses into those associated with caring for a relative who had recently suffered a serious accident and those associated with caring for a relative who had not had an accident. We use of the Fixed Effects Filtered (FEF) estimator to enable the permanent income coefficient to be estimated free from individual fixed effects bias. This estimate is used instead of the transient income effect in the calculation of shadow prices of informal care. Our estimates suggest that permanent income would have to increase by approximately £102k per year on average to just compensate for the wellbeing losses from providing informal care.
    Keywords: informal care, well-being, compensation variations, permanent income, happiness, shadow prices
    JEL: H8 I18 I31
    Date: 2018–05
  10. By: Andrea Garnero; François Rycx; Isabelle Terraz
    Abstract: How do firm-level collective agreements affect firm performance in a multi-level bargaining system? Using detailed Belgian linked employer-employee panel data, our findings show that firm agreements increase both wage costs and productivity (with respect to sector-level agreements). Relying on a recent approach developed by Bartolucci (2014), they also indicate that firm agreements exert a stronger impact on wages than on productivity, so that profitability is hampered. However, this rent-sharing effect only holds in manufacturing. In private sector services, the raw wage premium associated to firm agreements is entirely driven by compositional effects. Furthermore, estimates show that firm agreements lead to significantly more rent-sharing among firms operating in less competitive environments. Firm agreements are thus mainly found to raise wages beyond productivity when the rents to be shared between workers and firms are relatively big. Overall, this suggests that firm-level agreements benefit to both employers and employees – through higher productivity and wages – without being very detrimental to firms’ performance.
    Keywords: Collective bargaining; productivity; labour costs; linked panel data
    JEL: C33 J24 J31
    Date: 2018–06–04
  11. By: Pilar García-Gómez; Sergi Jimenez-Martin; Judit Vall Castelló
    Abstract: Similar to other OECD countries, labor force participation rates of Spanish older workers were falling until the mid-1990s when there was a reversal in the trend. Labor force participation rates of Spanish men have been increasing since then, although at a slower pace than in other OECD countries. We explore to what extent several factors can be behind these trends. First, we conclude that the (old-age) social security system (except perhaps for the disability component) has played a marginal (at most) role on this reversal given the lack of major changes in social security benefits until the last set of reforms in 2011 and 2013. Second, we also rule out that changes in the health status of the population are responsible for the reversal of this trend. Finally, we find that aggregate economic conditions, and differences across cohorts in both the skill composition and the labor force attachment of wives are potential drivers of these observed changes.
    JEL: J14 J21 J26
    Date: 2018–05
  12. By: Bilancini, Ennio; Boncinelli, Leonardo
    Abstract: The authors investigate the desirability of income taxes when the objective is to mitigate wasteful conspicuous consumption generated by people's status-seeking behavior. They consider the joint role of pre-tax wage inequality and of social norms determining how social status is assigned. They find that if social status is ordinal (i.e., only one's rank in the income distribution matters) then an income tax can decrease waste in conspicuous consumption only if the inequality of pre-tax wages (or earning potentials) is low enough - i.e., inequality and taxation are substitutes. Instead, if status is cardinal (i.e., also the shape of the income distribution matters) then the relationship between the inequality of pre-tax wages and the change in waste can be positive - i.e., inequality and taxation can be complements - although it is in general non-monotonic. This is because the value of social status is endogenous, potentially giving rise to a perverse self-reinforcing mechanism where more waste in conspicuous consumption induces a greater competition for status and vice versa.
    Keywords: social status,relative standing,consumption externalities,labor income,income tax,signalling,conspicuous consumption,income inequality
    JEL: D6 H3 J2
    Date: 2018
  13. By: Kanninen, Ohto (Labour Institute for Economic Research); Böckerman, Petri (Labour Institute for Economic Research); Suoniemi, Ilpo (Labour Institute for Economic Research)
    Abstract: We develop a method to estimate domain-specific risk. We apply the method to sickness insurance by fitting a utility function at the individual level, using European survey data on life satisfaction. Three results stand out. First, relative risk aversion increases with income. Second, marginal utility is higher in the sick state conditional on income, due to an observed fixed cost of sickness. Third, the domain-specificity of risk shifts the focus on the smoothing of utility, not consumption. The optimal policy rule implies that the replacement rates should be non-linear and decrease with income.
    Keywords: risk, risk aversion, state-dependence, social insurance, sickness absence
    JEL: D02 H55 I13
    Date: 2018–05
  14. By: Amparo Nagore Garcia (Luxembourg Institute of Socio-economic Research - LISER, Luxembourg); Mariacristina Rossi (Department of Management, University of Torino, Italy); Arthur van Soest (Department of Econometrics and Operations Research, Tilburg University, The Netherlands)
    Abstract: We investigate retirement decisions of the self-employed in the Netherlands using administrative data. We focus on the time period around which individuals reach the statutory retirement age (SRA, 65 years in most cases). After the statutory retirement age, each Dutch resident receives the Old Age State Pension annuity (AOW), providing an income at the subsistence level. Both the timing and the magnitude of this state pension are well known in advance. According to a standard leisure/consumption trade-off life cycle model, receiving AOW should therefore have no impact on labour supply choices. While employees often face the demand side restriction of mandatory retirement, this does not apply to the self-employed. We investigate whether retirement and earnings of the self-employed change at the SRA and whether any such changes vary with, e.g., the level of financial wealth. We find a peak in retirement when self-employed reach the SRA. The evidence suggests that the benchmark of retiring at 65 is acting as a driver, due to behavioural features like anchoring or a social norm.
    Keywords: Life cycle model, retirement decision, reference point, social norm.
    JEL: D91 D31 J26 L26
    Date: 2018–06
  15. By: Pablo Fajgelbaum; Cecile Gaubert
    Abstract: We study optimal spatial policies in quantitative trade and geography frameworks with spillovers and sorting of heterogeneous workers. We characterize the spatial transfers that must hold in efficient allocations, as well as labor subsidies that would implement them. Assuming homogeneous workers and constant-elasticity spillovers, a constant labor tax over space restores efficiency regardless of micro heterogeneity in fundamentals. Place-specific subsidies are needed to attain optimal sorting if there are spillovers across different types of workers. We show how to quantify optimal spatial transfers, and apply the framework to data across U.S. cities using existing estimates of the spillover elasticities. The results suggest that the U.S. economy features too much spatial sorting by skill and wage inequality in larger cities relative to efficient allocations.
    JEL: F12 H21 H71 R13
    Date: 2018–05
  16. By: Freddy Heylen; Renaat Van de Kerckhove (-)
    Abstract: Rising pressure on the welfare state due to aging, forces governments in all OECD countries to develop effective policies to raise employment, in particular employment among older individuals and low educated individuals. Increased sensitivity to rising inequality in society has made the challenge for policy makers only greater. In this paper we evaluate alternative fiscal policy scenarios to face this challenge. We construct and use an overlapping generations model for an open economy where individuals differ not only by age, but also by innate ability and human capital. The model allows us to study effects on aggregate employment, per capita income and welfare, as well as effects for specific age and ability groups. We show that well-considered fiscal policy changes can significantly improve macroeconomic productive efficiency, without increasing intergenerational or intragenerational welfare inequality. Our results strongly prefer a reduction in the labor tax rate on older workers and on all low-wage earners, financed by an overall reduction in non-employment benefits. These results are to be seen as long-run effects for economies at potential output.
    Keywords: employment by age, employment of low educated individuals, fiscal policy, heterogeneous ability, human capital, welfare inequality, overlapping generations (OLG)
    JEL: E62 H5 I28 J22 J24
    Date: 2018–05
  17. By: Vincent Koen (OECD); Hidekatsu Asada (OECD); Mohamed Rizwan Habeeb Rahuman (OECD); Adam Bogiatzis (OECD)
    Abstract: The Prosperity pillar of the 2030 Agenda for Sustainable Development calls for an integrated approach based on boosting productivity through diversification, upgrading technology and innovation, and increasing employment and entrepreneurship. Thailand needs to address all these challenges to achieve high-income country status by 2036. Over the past decade, limited structural reform and capital investment have held back productivity growth and improvements in well-being, and Thailand has lost ground vis-à-vis regional comparators. More recently, however, economic growth has started to regain momentum helped by a pick-up in global trade, which has supported exports, and by a substantial public infrastructure investment programme. Moving forward, Thailand will need to boost productive capacity in the face of intensified competition with regional peers and rapid demographic ageing. In addition, productivity gains will be increasingly necessary to drive growth. Key areas of focus include improving human resource development, encouraging technology diffusion via cluster development, promoting innovation and digitalisation, improving the SME policy framework and expanding regional integration, as emphasised in the government’s 12th Plan and Thailand 4.0. This Working Paper relates to the Initial Assessment report of the Multi-dimensional Country Review of Thailand ( imensional-review-thailand.htm)
    Keywords: cluster development, digitalisation, education, fiscal consolidation, innovation, monetary policy, productivity, regional integration, regulatory reform, skills, SMEs, structural reform, trade, TVET
    JEL: E44 E62 E66 F13 F15 I25 J21 L78 O15 O38 O47 O53 Q18 R11
    Date: 2018–05–30
  18. By: Geyer, Johannes (DIW); Haan, Peter (DIW); Hammerschmid, Anna (DIW); Peters, Michael (DIW)
    Abstract: We evaluate the labor market and distributional effects of an increase in the early retirement age (ERA) from 60 to 63 for women. We use a regression discontinuity design which exploits the immediate increase in the ERA between women born in 1951 and 1952. The analysis is based on the German micro census which includes about 370,000 households per year. We focus on heterogeneous labor market effects on the individual and on the household level and we study the distributional implications using net household income. In this respect we extend the previous literature which mainly studied employment effects on the individual level. Our results show sizable labor market effects which strongly differ by subgroups. We document larger employment effects for women who cannot rely on other income on the household level, e.g. women with a low income partner. The distributional analysis shows on average no significant effects on female or household income. This result holds as well for heterogeneous groups: Even for the most vulnerable groups, such as single women, women without higher education, or low partner income, we do not find significant reductions in income. One reason for this result is program substitution.
    Keywords: retirement age; pension reform; labor supply; early retirement; distributional effects; spillover effects; household;
    JEL: J14 J18 J22 J26 H31
    Date: 2018–06–18
  19. By: Lippmann, Quentin (Paris School of Economics); Senik, Claudia (Paris School of Economics)
    Abstract: This paper argues that the socialist episode in East Germany, which constituted a radical experiment in gender equality in the labor market and other instances, has left persistent tracks on gender norms. We focus on one of the most resilient and pervasive gender gaps in modern societies: mathematics. Using the German division as a natural experiment, we show that the underperformance of girls in math is sharply reduced in the regions of the former GDR, in contrast with those of the former FRG. We show that this East-West difference is due to girls' attitudes, confidence and competitiveness in math, and not to other confounding factors, such as the difference in economic conditions or teaching styles across the former political border. We also provide illustrative evidence that the gender gap in math is smaller in European countries that used to be part of the Soviet bloc, as opposed to the rest of Europe. The lesson is twofold: (1) a large part of the pervasive gender gap in math is due to social stereotypes; (2) institutions can durably modify these stereotypes.
    Keywords: gender gap in math, institutions, German division, gender stereotypes
    JEL: I2 J16 J24 P36 Z13
    Date: 2018–05
  20. By: Babecký, Jan; Berson, Clémence; Fadejeva, Ludmila; Lamo, Ana; Marotzke, Petra; Martins, Fernando; Strzelecki, Pawel
    Abstract: This paper provides evidence on the role of non-base wage components as a channel for firms to adjust labour costs in the event of adverse shocks. It uses data from a firm-level survey for 25 European countries that covers the period 2010–2013. We find that firms subject to nominal wage rigidities, which prevent them from adjusting base wages, are more likely to cut non-base wage components in order to adjust labour costs when needed. Firms thus use non-base wage components as a buffer to overcome base wage rigidity. We further show that while nonbase wage components exhibit some degree of downward rigidity, they do so to a lesser extent than base wages. JEL Classification: J30, J32, C81, P5
    Keywords: bonuses, downward nominal wage rigidity, European Union, firm survey
    Date: 2018–06

This nep-lma issue is ©2018 by Joseph Marchand. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.