nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2018‒12‒03
sixteen papers chosen by
Joseph Marchand
University of Alberta

  1. Entry Barriers and the Labor Market Outcomes of Incumbent Workers: Evidence from a Deregulation Reform in the German Crafts Sector By Philipp Lergetporer; Jens Ruhose; Lisa Simon
  2. The Wider Benefits of Adult Learning: Work-Related Training and Social Capital By Jens Ruhose; Stephan L. Thomsen; Insa Weilage
  3. Politicians' Payments in a Proportional Party System By Heléne Berg
  4. Life Skills Development of Teenagers through Spare-Time Jobs By Rune V. Lesner; Anna Piil Damm; Preben Bertelsen; Mads Uffe Pedersen
  5. Do Higher Wages Produce Career Politicians? Evidence from Two Discontinuity Designs By Jan Palguta; Filip Pertold
  6. Rent Sharing and Inclusive Growth By Brian Bell; Pawel Bukowski; Stephen Machin
  7. Immigration and Offshoring By Michael Landesmann; Sandra M. Leitner
  8. The Relative Impact of Different Forces of Globalisation on Wage Inequality: A Fresh Look at the EU Experience By Stefan Jestl; Sebastian Leitner; Sandra M. Leitner
  9. Production and Learning in Teams By Kyle Herkenhoff; Jeremy Lise; Guido Menzio; Gordon Phillips
  10. Work Hard or Play Hard? Degree Class, Student Leadership and Employment Opportunities By Baert, Stijn; Verhaest, Dieter
  11. Inflation and the Gig Economy: Have the Rise of Online Retailing and Self-Employment Disrupted the Phillips Curve? By Duca, John V.
  12. Employment Effects of Three Rounds of Federal Minimum Wage Hikes By Kenneth J. McLaughlin
  13. A General Equilibrium Theory of Occupational Choice under Optimistic Beliefs about Entrepreneurial Ability By Michele Dell'Era; Luca David Opromolla; Luís Santos-Pinto
  14. Increasing competitiveness at any price? By Nora Albu; Heike Joebges; Rudolf Zwiener
  15. Improving skills and their use in Germany By Andrés Fuentes Hutfilter; Stephanie Lehmann; Eun Jung Kim
  16. Income Effect on Labor Outcomes for People Living in Poverty: the case of PROGRESA By Juliana Mesén Vargas

  1. By: Philipp Lergetporer; Jens Ruhose; Lisa Simon
    Abstract: We study the labor market outcomes of a deregulation reform in Germany that removed licensing requirements to become self-employed in some occupations. Using longitudinal social security data, we implement a matched difference-in-differences design with entropy balancing to account for observable characteristics and unobserved individual heterogeneity. The reform tripled the number of businesses within ten years and led to slower earnings growth and higher unemployment for incumbent workers in deregulated occupations. However, the reform effect seems rather small, which we attribute to the relatively low competitiveness of new businesses. Supporting this view, the reform did not lead to overall employment growth.
    Keywords: deregulation, entry barriers, self-employment, labor market outcomes, entropy balancing, matched difference-in-differences
    JEL: J31 J24 L11
    Date: 2018
  2. By: Jens Ruhose; Stephan L. Thomsen; Insa Weilage
    Abstract: We propose a regression-adjusted matched difference-in-differences framework to estimate non-pecuniary returns to adult education. This approach combines kernel matching with entropy balancing to account for selection bias and sorting on gains. Using data from the German SOEP, we evaluate the effect of work-related training, which represents the largest portion of adult education in OECD countries, on individual social capital. Training increases participation in civic, political, and cultural activities while not crowding out social participation. Results are robust against a variety of potentially confounding explanations. These findings imply positive externalities from work-related training over and above the well documented labor market effects.
    Keywords: non-pecuniary returns, social capital, work-related training, matched difference-in-differences approach, entropy balancing
    JEL: J24 I21 M53
    Date: 2018
  3. By: Heléne Berg
    Abstract: Is politics a lucrative business? The question is approached in this paper, as one of few to quantify the monetary returns to holding political office in a typical developed democracy where parties are the main political actors. By applying a difference-in-difference setting with a carefully chosen control group to rich data on candidates to the Swedish national parliament, both short and long-run effects of being elected on different types of income are estimated. Results show that, yes, mostly thanks to relatively high remuneration while still in office, politics can be a lucrative business. In the long-run however, the effect is instead compositional in the sense that ex-politicians receive more pension income and work less.
    Keywords: returns to politics, difference-in-difference
    JEL: C23 D72 J44
    Date: 2018
  4. By: Rune V. Lesner (Department of Economics and Business Economics, Aarhus University, Denmark); Anna Piil Damm (Department of Economics and Business Economics, Aarhus University, Denmark); Preben Bertelsen (Department of Psychology and Behavioural Sciences,, Aarhus University, Denmark); Mads Uffe Pedersen (Department of Psychology and Behavioural Sciences, Centre for Alcohol and Drug Research, Aarhus University, Denmark)
    Abstract: We set up an on-the-job learning model to explain how spare-time on-the-job training affects life skills formation of adolescents. We obtain causal estimates by exploiting variation between employed twins and estimation of a value-added model using full population Danish administrative data. We find that spare-time work experience has no effect on school absenteeism, reduces crime, increases school grades and the speed of enrollment into upper secondary education. We interpret our findings as evidence that the positive effect from on-the-job learning in spare-time jobs on life skill formation more than outweigh the potential negative consumption and time-use externalities of spare-time work.
    Keywords: Student employment, Spare-time jobs, Teenagers, Youth, Character skills, Life skills, Human capital, Crime, Juvenile Delinquency, Risky behavior, Educational attainment
    JEL: J24 J22 I21
    Date: 2018–11–19
  5. By: Jan Palguta; Filip Pertold
    Abstract: Wages paid to politicians affect both the selection of candidates into electoral races and the on-the-job performance incentives of incumbents. We differentiate between selection and incentive effects using two regression discontinuity designs based on: 1) population thresholds shifting politicians' wages and 2) electoral seat thresholds splitting candidates into those who narrowly won or lost. We find that higher wages do not increase the electoral incumbency advantage, suggesting that the incentive effect of higher wages does not impact re-election rates. We further show that higher wages motivate narrowly elected incumbents to run again much less often than past narrowly non-elected candidates.
    Keywords: re-election; political selection; electoral competition; wages; incumbency advantage; regression discontinuity design; municipal legislatures;
    JEL: M52 J45 H57 H70
    Date: 2018–11
  6. By: Brian Bell; Pawel Bukowski; Stephen Machin
    Abstract: The long-run evolution of rent sharing is empirically studied. Based upon a comprehensive and harmonized panel of the top 300 publicly quoted British companies over thirty five years, the paper reports evidence of a significant fall over time in the extent to which firms share rents with workers. It confirms that companies do share their profits with employees, but at much smaller scale today than they did during the 1980s and 1990s. This is a robust finding, corroborated with industry-level analysis for the US and EU. The decline in rent sharing is coincident with the rise of product market power that has occurred as worker bargaining power has dropped. Although firms with more market power previously shared more of their profits, they experienced a stronger fall in rent sharing after 2000.
    Keywords: rent sharing, inclusive growth
    JEL: J30
    Date: 2018–11
  7. By: Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw); Sandra M. Leitner (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Two Forces of ‘Globalisation’ and Their Impact on Labour Markets in Western Europe 2005-2014 This paper investigates with a joint approach the impact of immigration and different measures of ‘offshoring’ on the labour demand and demand elasticities of native workers in four different occupational groups managers/professionals, clerks, craft workers and manual workers. It shows that of all measures of globalisation considered immigration has the most consistent and strongest negative effect on the employment of native workers, particularly on managers/professionals, clerks and manual workers. The employment effects of offshoring differ by the measure used and are positive for craft workers but, in contrast to what is typically found in the literature, negative for the high-skilled group of managers/professionals. Furthermore, immigration and offshoring both impact on natives’ labour demand elasticities but the effect differs by occupational group. Thus, while the immigration of craft workers reduces labour demand elasticities for native craft workers, the immigration of managers/professionals and clerks has the opposite effect on native workers in the same occupations. Furthermore, we test for cross effects of migration and outsourcing between the different occupational groups.
    Keywords: offshoring, immigration, labour demand, labour demand elasticity, occupations
    JEL: F16 F22
    Date: 2018–11
  8. By: Stefan Jestl (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Sandra M. Leitner (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This paper analyses the contribution of immigration, trade and FDI to wage inequality of native workers in a sample of old and new EU Member States between 2008 and 2013. Methodologically, we use the regression-based Shapley value decomposition approach of Shorrocks (2013) to filter out their relative importance. We find that globalisation has very mixed effects and generally contributes little to wage inequality. Regarding their relative contributions, immigration and FDI are key contributors to wage inequality in old EU Member States, while trade is the key source of wage inequality in new EU Member States. For immigration, the associated increase in wage inequality is strongest and most consistent among Southern EU Member States. We also show that immigration, trade and FDI have different effects across the wage distribution that are however strongest at its centre. For trade and FDI, we also find sporadic inequality-reducing effects that are strongest at the top of the wage distribution.
    Keywords: wage inequality, trade, FDI, immigration, Shapley value decomposition
    JEL: J31 O15 F16
    Date: 2018–11
  9. By: Kyle Herkenhoff (University of Minnesota); Jeremy Lise (University College London); Guido Menzio (University of Pennsylvania); Gordon Phillips (Dartmouth College Tuck School of Business)
    Abstract: The effect of coworkers on the learning and the productivity of an individual is measured combining theory and data. The theory is a frictional equilibrium model of the labor market in which production and the accumulation of human capital of an individual are allowed to depend on the human capital of coworkers. The data is a matched employer-employee dataset of US firms and workers. The measured production function is supermodular. The measured human capital function is non-linear: Workers catch up to more knowledgeable coworkers, but are not dragged down by less knowledgeable ones. The market equilibrium features a pattern of sorting of coworkers across teams that is inefficiently positive. This inefficiency results in low human capital individuals having too few chances to learn from more knowledgeable coworkers and, in turn, in a stock of human capital and a flow of output that are inefficiently low.
    Keywords: human capital, knowledge diffusion, search frictions
    JEL: E24 J24
    Date: 2018–11
  10. By: Baert, Stijn; Verhaest, Dieter
    Abstract: We investigated the impact on first hiring outcomes of two main curriculum vitae (CV) characteristics by which graduates with a tertiary education degree distinguish themselves from their peers: degree class and extra-curricular activities. These characteristics were randomly assigned to 2,800 fictitious job applications that were sent to real vacancies in Belgium. Academic performance and extra-curricular engagement both enhanced job interview rates by about 7%. The effect of a higher degree class was driven by female (versus male) candidates and candidates with a master’s (versus a bachelor’s) degree. We did not find evidence for these CV characteristics to be substitutes or to reinforce each other’s effect.
    Keywords: degree class,extra-curricular activities,hiring,field experiment
    JEL: J23 J24 I23 C93
    Date: 2018
  11. By: Duca, John V. (Oberlin College and Federal Reserve Bank of Dallas)
    Abstract: During the recovery from the Great Recession, inflation did not reach the central bank’s 2 percent objective as quickly as many models had predicted. This coincided with increases in online shopping, which arguably made retail markets more contestable and damped retail inflation. This hypothesis is tested using data on the online share of retail sales, which are incorporated into an econometric model. Results imply that the rise of online retail has flattened the Phillips Curve, reducing the sensitivity of inflation to unemployment rate changes. Improvement in fit from just including the online share is tiny—so far. Other results indicate that market-based price indexes are more sensitive to unemployment than measures such as core PCE, which puts a sizable weight on items with imputed prices that may slowly adjust to market conditions. Further, measures of online sales that internalize substitution between online and traditional mail order sales better help track the impact of online sales on inflation dynamics. {{p}} A complementary factor is the “gig” economy and the rise of self-employment, which by reducing the bargaining power of labor, could lower the natural rate of unemployment. Model performance and fits are improved using a hybrid approach in which the rise of online sales can flatten the slope of the Phillips Curve by reducing retail pricing power and the prevalence of gig or self-employment can lower the natural rate of unemployment. {{p}} By omitting important structural changes in both goods and labor markets, conventional Phillips Curve models have failed to track how the rise of online retailing has flattened the Phillips Curve and how the rise of the gig economy (self-employment) has lowered the natural rate of unemployment. One notable difference between the price-price and wage-price results is that the combined effects of online shopping and self-employment are more notable on wage inflation than on price inflation. This could plausibly reflect that improvements in information technology may have undermined the pricing power of workers in labor markets to a greater degree than they have affected the pricing power of producers in goods markets.
    Keywords: gig economy; self-employment; online sales; inflation; unemployment; wages; Phillips Curve
    JEL: E31 J30 L10
    Date: 2018–11–16
  12. By: Kenneth J. McLaughlin (Hunter College and the Graduate Center, CUNY)
    Abstract: This paper presents event-study estimates of the effects of the 1990–1991, 1996– 1997, and 2007–2009 rounds of federal minimum wage hikes on the employment of teens and high school dropouts in states without super-federal minimum wages. In state-year panel data from the Current Population Survey, a control group of people ages 25–59 with at least a high school education generates counterfactual series that track teen and dropout employment rates quite well (outside the periods of wage hikes). Deviations from the counterfactual series in the post-hike period identify the employment effects of the minimum wage hikes. For the 1990–1991 and 2007–2009 rounds, the employment effects for teens and dropouts are negative, statistically significant, economically large, and robust to the treatment of trends and year effects. Differences by sex and race are small compared to the difference by age: disemployment effects for younger teens (ages 15–17) are twice the size of the effects for older teens (ages 18–19). Welfare reform contaminates analysis of the 1996–1997 round, but monthly estimates of the employment effects in that round resemble monthly estimates in the 1990–1991 round until welfare reform rolled out in the second half of 1997.
    Keywords: Minimum wage, teen employment, dropout effect, current population survey
    JEL: J21 J24 J38 J64
    Date: 2018
  13. By: Michele Dell'Era; Luca David Opromolla; Luís Santos-Pinto
    Abstract: This paper studies the impact of optimism on occupational choice using a general equilibrium framework. The model shows that optimism has four main qualitative effects: it leads to a misallocation of talent, drives up input prices, raises the number of entrepreneurs, and makes entrepreneurs worse off. We calibrate the model to match U.S. manufacturing data. This allows us to make quantitative predictions regarding the impact of optimism on occupational choice, input prices, the returns to entrepreneurship, and output. The calibration shows that optimism can explain the empirical puzzle of the low mean returns to entrepreneurship compared to average wages.
    Keywords: general equilibrium, entrepreneurship, optimism
    JEL: D50 H21 J24 L26
    Date: 2018
  14. By: Nora Albu; Heike Joebges; Rudolf Zwiener
    Abstract: Dustmann/ Fitzenberger/ Schönberg/ Spitz-Oener (2014) praise the flexibility of German labour market institutions for the German turn-around from "Sick Man of Europe to Economic Superstar": The more decentralized, firm-specific wage-setting process since the mid-1990s increased wage inequality and reduced pay increases. According to the authors' novel calculations for unit labour costs of the "end product" the German export-oriented manufacturing sector experienced a very high decrease in unit labour costs between the mid-1990s and 2007. The authors claim that this increase in price competitiveness is behind exporting success and (implicitly) the turn-around in economic growth.While we value the authors' efforts to incorporate inputs from other sectors into the calculation of unit labour costs of the manufacturing sector through an input-output approach, we show that the calculation is unconvincing in several regards and overstates the costs reduction. Besides this, we also show that the link from unit labour costs to exports is weaker than implicitly assumed by the authors. We also criticize the implicit assumption that export success based on low wage growth furthers GDP growth, as the positive effect of low wages on exports has to be balanced against the negative effect on domestic demand. Overall, our findings suggest, the policy conclusions from the authors -real wage cuts were necessary to improve German competitiveness for turning around the economy - overstate the role of unit labour costs for GDP growth.
    Keywords: German export success, labour market reforms, Hartz reforms, price competitiveness, unit labour costs, REER, wage-led economy, bazaar economy, German unification costs
    JEL: E02 F16 J31 J32
    Date: 2018
  15. By: Andrés Fuentes Hutfilter; Stephanie Lehmann; Eun Jung Kim
    Abstract: Cognitive skills, such as reading and numeric skills, are key determinants of wages, employment and long-term economic growth. Good cognitive skills also reduce poverty risk and improve non-material wellbeing, such as health and social cohesion. Non-cognitive skills, such as skills to use information and communication technology as well as managerial skills, also help workers adapt to new technologies and globalisation. In Germany cognitive skills among adults are above OECD average, but weaker than in leading economies, especially among individuals with low and middle qualifications. Much progress has been made to improve learning outcomes of youth with disadvantaged socio-economic background. Nonetheless, high-quality childcare, early childhood and full-day primary education still need to expand. The vocational education system is very successful in integrating young people well in the labour market. Strengthening general education within the successful vocational education and training system could help ensure the capacity of graduates to adapt to technological change at higher age in the future. Participation in life-long learning could be encouraged by better addressing individual training needs. This could improve prospects for adults without professional qualifications. Women’s skills are used less well than men’s, calling for policies to address gender imbalances in the labour market. This Working Paper relates to the 2018 OECD Economic Survey of Germany ( c-survey-germany.htm)
    Keywords: childcare, cognitive skills, early childhood education, education, employment, full-day schooling, lifelong learning, mismatch, primary education, skills, vocational education and training, wages
    JEL: I24 I25 I28 J31 J61 J62 J68
    Date: 2018–11–28
  16. By: Juliana Mesén Vargas (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This paper studies the income effect of cash transfers on adult labor outcomes. I use data of PROGRESA, a large cash transfer program in Mexico that provides money to households subject to the condition that school aged kids go to school. I focus on a subsample of the eligibles for whom the conditionality is not a constraint. This allows me to shut-down the substitution effect that the conditionality of the transfer may induce. In practice, it is as if PROGRESA was an unconditional cash transfer for this subpopulation. Contrary to standard beliefs, I find that the income effect on labor outcomes is not negative.
    Keywords: Conditional Cash Transfers, Poverty, Labor Supply
    JEL: O12 C93 I32 J22
    Date: 2018–10–30

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