nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2018‒12‒17
23 papers chosen by
Joseph Marchand
University of Alberta

  1. Border Walls By Treb Allen; Cauê de Castro Dobbin; Melanie Morten
  2. The Role of Institutions and Immigrant Networks in Firms’ Offshoring Decisions By Simone Moriconi; Giovanni Peri; Dario Pozzoli
  3. Optimal Taxation of Robots By Uwe Thuemmel
  4. Sorting on Unobserved Skills into New Firms By Knutsson, Polina
  5. Increasing inclusiveness for women, youth and seniors in Canada By Andrew Barker
  6. A Lifetime of Changes: State Pensions and Work Incentives at Older Ages in the UK, 1948-2018 By James Banks; Carl Emmerson
  7. Speedy Responses: Effects of Higher Benefits on Take-up and Division of Parental Leave By Moberg, Ylva
  8. Do Male Workers Prefer Male Leaders? An Analysis of Principals' Effects on Teacher Retention By Aliza N. Husain; David A. Matsa; Amalia R. Miller
  9. Vacancy Durations and Entry Wages: Evidence from Linked Vacancy-Employer-Employee Data By Andreas Kettemann; Andreas I. Mueller; Josef Zweimüller
  10. Does Public Sector Outsourcing Decrease Public Employment? Empirical Evidence from OECD Countries By Niklas Potrafke
  11. Self-Confidence and Reactions to Subjective Performance Evaluations By Charles Bellemare; Alexander Sebald
  12. Social Security Programs and Retirement Around the World: Reforms and Retirement Incentives – Introduction and Summary By Axel H. Börsch-Supan; Courtney Coile
  13. Heterogeneous Workers, Trade, and Migration By Inga Heiland; Wilhelm Kohler
  14. The Evolution of Retirement Incentives in the U.S. By Courtney Coile
  15. Occupational Match Quality and Gender over Two Cohorts By John T. Addison; Liwen Chen; Orgul D. Ozturk
  16. The "China shock" revisited: Insights from value added trade flows By Jakubik, Adam; Stolzenburg, Victor
  17. General Equilibrium Feedback Regarding the Employment Effects of Labor Taxes By Minchul Yum
  18. How Much of Barrier to Entry is Occupational Licensing? By Peter Q. Blair; Bobby W. Chung
  19. General Distorted Input Ratios in Vertical Relationships By Martin Peitz; Dongsoo Shin
  20. Consumer Time Budgets and Grocery Shopping Behavior By Bronnenberg, Bart; Klein, Tobias; Xu, Yan
  21. The local impact and multiplier effect of universities in Lower Saxony on the labour market By Stöver, Britta
  22. Is It Worth It? On the Returns to Holding Political Office By Berg, Heléne
  23. Health and the Wage: Cause, Effect, Both, or Neither? New Evidence on an Old Question By Daniel Dench; Michael Grossman

  1. By: Treb Allen; Cauê de Castro Dobbin; Melanie Morten
    Abstract: What are the economic impacts of a border wall between the United States and Mexico? We use confidential data on bilateral flows of primarily unauthorized Mexican workers to the United States to estimate how a substantial expansion of the border wall between the United States and Mexico from 2007 to 2010 affected migration. We then combine these estimates with a general equilibrium spatial model featuring multiple labor types and a flexible underlying geography to quantify the economic impact of the wall expansion. At a construction cost of approximately $7 per person in the United States, we estimate that the border wall expansion harmed Mexican workers and high-skill U.S. workers, but benefited U.S. low-skill workers, who achieved gains equivalent to an increase in per capita income of $0.36. In contrast, a counterfactual policy which instead reduced trade costs between the United States and Mexico by 25% would have resulted in both greater declines in Mexico to United States migration and substantial welfare gains for all workers.
    JEL: F11 F22 J2 R23
    Date: 2018–11
  2. By: Simone Moriconi; Giovanni Peri; Dario Pozzoli
    Abstract: The offshoring of production by multinational firms has expanded dramatically in recent decades, increasing these firms’ potential for economic growth and technological transfers across countries. What determines the location of offshore production? How do countries' policies and characteristics affect the firm’s decision about where to offshore? Do firms choose specific countries because of their policies or because they know them better? In this paper, we use a very rich dataset on Danish firms to analyze how decisions to offshore production depend on the institutional characteristics of the country and firm-specific bilateral connections. We find that institutions that enhance investor protection and reduce corruption increase the probability that firms offshore there, while those that increase regulation in the labor market decrease such probability. We also show that a firm’s probability of offshoring increases with the share of its employees who are immigrants from that country of origin.
    Keywords: offshoring, product market, labor regulations, networks, fixed start-up costs
    JEL: F16 J38 J24
    Date: 2018
  3. By: Uwe Thuemmel
    Abstract: I study the optimal taxation of robots and labor income. In the model, robots substitute for routine labor and complement non-routine labor. I show that while it is optimal to distort robot adoption, robots may be either taxed or subsidized. The robot tax exploits general-equilibrium effects to compress the wage distribution. Wage compression reduces income-tax distortions of labor supply, thereby raising welfare. In the calibrated model, the optimal robot tax for the US is positive and generates small welfare gains. As the price of robots falls, inequality rises but the robot tax and its welfare impact become negligible.
    Keywords: optimal taxation, input taxation, production efficiency, technological change, robots, inequality, general equilibrium, multidimensional heterogeneity
    JEL: D31 D33 D50 H21 H23 H24 H25 J24 J31 O33
    Date: 2018
  4. By: Knutsson, Polina (Department of Economics, Lund University)
    Abstract: Human capital features prominently in theoretical work on post-entry performance of new firms. Empirical analysis has, however, to a large extent overlooked the unobserved component of human capital focusing on years of education or labor market experience. This paper adds to the literature on worker characteristics and post-entry firm performance by putting the unobserved quality of workers in the center of analysis. I find strong evidence that new firms on average employ workers of lower unobserved quality relative to incumbent firms. Among new firms workers of higher unobserved quality are overrepresented in spin-offs and incorporated new firms. I further show that unobserved quality of workers is important for the post-entry performance of firms as it is a strong predictor of new firm survival.
    Keywords: Human capital; occupational choice; sorting; new firms
    JEL: J24 J60 M13
    Date: 2018–11–29
  5. By: Andrew Barker
    Abstract: Women, youth and seniors face barriers to economic inclusion in Canada, with considerable scope to improve their labour market outcomes. There has been no progress in shrinking the gender employment gap since 2009, and women, particularly mothers, continue to earn significantly less than men, in part due to a large gap in unpaid childcare responsibilities. Outside the province of Québec, low (but increasing) rates of government support for childcare should be expanded considerably, as should fathers’ low take-up of parental leave. Skills development should be prioritised to arrest declining skills among youth and weak wage growth among young males with low educational attainment. Fragmented labour market information needs to be consolidated to address wage penalties associated with the widespread prevalence of qualifications mismatch. Growth in old-age poverty should be tackled through further increases in basic pension payments over time. Linking changes in the age of eligibility for public pensions to life expectancy would boost growth by increasing employment of older Canadians still willing and able to work. For all three groups, well-targeted expansions of in-work tax benefits and active labour market spending have the potential to increase employment.
    Keywords: apprenticeship, Canada, child care, employment, gender equality, inclusiveness, labour force participation, labour market participation of seniors, life-long learning, long-term care, parental leave, pensions
    JEL: H55 I38 J26 J40
    Date: 2018–12–11
  6. By: James Banks; Carl Emmerson
    Abstract: We describe the history of state pension policy in the UK since 1948 and calculate summary measures of the generosity of the system over time and the degree to which the it created implicit taxes on, or subsidies to, work at older ages. The time series of these measures, calculated separately for ’example-type’ individuals of different birth cohorts, education and sexes, are then related to the time-series of employment rates at older ages for the equivalent types of individual. The generosity of the system rose over the period as whole but has fallen in recent years, and in contrast to many countries there were generally never large implicit taxes on work arising from the state pension system. What implicit subsidies there were in the years immediately before the State Pension Age have been gradually eliminated and the system is now broadly neutral with regard to work incentives. Exploiting variation in pension wealth and work incentives across different cohort-education-sex groups, created by the timing and phasing of pension reforms, we show that both pension wealth and the implicit work disincentives in the pension system are correlated with employment outcomes for men, with the expected negative sign.
    JEL: H55 J26 J32
    Date: 2018–11
  7. By: Moberg, Ylva (Department of Economics)
    Abstract: Using population wide register data, I exploit the "speed premium" rule in the Swedish parental leave system to estimate the causal effect of a change in the level of benefits per day on the utilization of parental leave. The results show that a 1%(5 SEK ≈ $0.54) increase in the mother's benefit level per day increases her length of leave by 2.6 days ( ≈1%). Fathers respond by reducing their own time on leave by 1.9 days, i.e. about 75% of the mother's increase. This suggests that changes in the benefit level effects not only the recipient's time on leave, but also the division of leave between parents. This is the first paper to causally estimate the elasticity of take-up duration (length of spell) with respect to the parental leave benefit level; which is found to be equal to 1 for mothers.
    Keywords: parental leave; division of labor; labor supply; take-up elasticity
    JEL: D13 J13 J16 J22
    Date: 2018–11–06
  8. By: Aliza N. Husain; David A. Matsa; Amalia R. Miller
    Abstract: Using a 40-year panel of all public school teachers and principals in New York State, we explore how female principals affect rates of teacher turnover—an important determinant of school quality. We find that male teachers are about 12% more likely to leave their schools when they work under female principals than under male principals. In contrast, we find no such effects for female teachers. Furthermore, when male teachers request transfers, they are more likely to be to schools with male principals. These results suggest that opposition from male subordinates could inhibit female progress in leadership.
    JEL: J16 J45 J71 K31 M51
    Date: 2018–11
  9. By: Andreas Kettemann; Andreas I. Mueller; Josef Zweimüller
    Abstract: This paper explores the relationship between the duration of a vacancy and the starting wage of a new job, using unusually informative data comprising detailed information on vacancies, the establishments posting the vacancies and the workers eventually filling the vacancies. We find that vacancy durations are negatively correlated with the starting wage and that this negative association is particularly strong with the establishment component of the starting wage. We also confirm previous findings that growing establishments fill their vacancies faster. To understand the relationship between establishment growth, vacancy filling and entry wages, we calibrate a model with directed search and ex-ante heterogeneous workers and firms. We find a strong tension between matching the sharp increase in vacancy filling for growing firms and the response of vacancy filling to firm-level wages. We discuss the implications of this finding as well as potential resolutions.
    Keywords: vacancy posting, vacancy duration, recruiting, search wages
    JEL: E24 J31 J63
    Date: 2018
  10. By: Niklas Potrafke
    Abstract: I examine the extent to which public sector outsourcing relates to public employment in OECD countries. I use new panel data on public sector outsourcing. The sample includes 26 countries over the period 2009-2015. Contrary to common expectations, the results do not suggest that public sector outsourcing expenditure was negatively related to public employment in the full sample. The relation between public sector outsourcing and public employment, however, does vary across countries. If anything, the growth in public sector outsourcing in period t-1 was positively correlated with the growth in public employment in period t. When public sector outsourcing gives rise to regrouping public employees but not reducing public employment, outsourcing may even increase inefficiencies in the public sector.
    Keywords: public employment, public sector outsourcing, OECD countries, economic policy-making, panel data
    JEL: L33 J45 P16 C23
    Date: 2018
  11. By: Charles Bellemare; Alexander Sebald
    Abstract: Subjective performance evaluations are commonly used to provide feedback and incentives to workers. However, such evaluations can generate significant disagreements and conflicts, the severity of which may be driven by many factors. In this paper we show that a workers’ level of self-confidence plays a central role in shaping reactions to subjective evaluations - overconfident agents engage in costly punishment when they receive evaluations below their own, but provide limited rewards to principals when evaluations exceed their own. In contrast, underconfident agents do not significantly react to evaluations below their own, but reward significantly evaluations exceeding their own. Our analysis exploits data from a principal-agent experiment run with a large sample of the Danish working age population, varying the financial consequences associated with the evaluations workers receive. In contrast to existing economic models of reciprocal behavior, reactions to evaluations are weakly related to the financial consequences of the evaluations. These results point towards a behavioral model of reciprocity that intertwines the desire to protect self-perceptions with over-/underconfidence.
    Keywords: subjective performance evaluations, self-confidence, reciprocity
    JEL: D01 D02 D82 D86 J41
    Date: 2018
  12. By: Axel H. Börsch-Supan; Courtney Coile
    Abstract: This is the introduction and summary to the ninth 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 have explored how disability program provisions affect retirement, 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 been replaced by sharply rising participation rates. Older women’s participation has increased dramatically as well. Over this same period, countries have undertaken numerous reforms of their social security programs, disability programs, and other public benefit programs available to older workers. In this ninth phase of the project, we explore how the financial incentive to work at older ages has evolved from 1980 to the present. We highlight the important role of reforms in these changing incentives and examine how changing incentives may have affected retirement behavior.
    JEL: J14 J26
    Date: 2018–11
  13. By: Inga Heiland; Wilhelm Kohler
    Abstract: We develop a model that combines monopolistic competition on goods markets with skill-type heterogeneity on the labor market to analyze the effects of trade and migration on welfare and inequality. Skill-type heterogeneity and partial specificity to firms’ endogenously chosen skill requirements lead to endogenous worker-firm match quality, endogenous wage markups, and within-firm wage inequality. We identify novel effects of trade and migration. Trade enhances firms’ monopsony power on the labor market and worsens the average quality of worker-firm matches, but the gains from trade theorem survives. Integration of labor markets leads to two-way migration between symmetric countries. Migration enhances competitiveness on the labor market and tends to increase the average quality of worker-firm matches. Trade and migration are complements. Our model clearly advocates opening up labor markets simultaneously with trade liberalization.
    Keywords: two-way migration, gains from trade, heterogeneous workers
    JEL: F12 F16 F22 J24
    Date: 2018
  14. By: Courtney Coile
    Abstract: Employment rates of older men and women in the U.S. have been rising for the past several decades. Over the same period, there have been significant changes in Social Security and private pensions, which may have contributed to this trend. In this study, we examine how the financial incentive to work at older ages has evolved since 1980 as a result of changes in Social Security and private pensions. We find that the implicit tax on work after age 65 has dropped by about 15 percentage points for a typical worker as a result of Social Security reforms; incorporating the change in private pensions, the decline is larger. We provide suggestive evidence that the evolution of retirement incentives has affected retirement behavior.
    JEL: J14 J26
    Date: 2018–11
  15. By: John T. Addison; Liwen Chen; Orgul D. Ozturk
    Abstract: Using a multi-dimensional measure of occupational mismatch, we report distinct gender differences in match quality and changes in match quality over the course of careers. A substantial portion of the gender wage gap stems from match quality differences among more educated individuals. College-educated females are significantly more mismatched than males. Individuals with children and in more flexible occupations also tend to be more mismatched. Again, this is especially true of women. Cohort effects are also discernible: college-educated males of the younger cohort have lower match quality than the older cohort, even as the new generation of women is doing better.
    Keywords: multidimensional skills, occupational mismatch, match quality, wages, gender wage gap, fertility, fertility timing
    JEL: J13 J16 J22 J23 J24 J31 J33 J38
    Date: 2018
  16. By: Jakubik, Adam; Stolzenburg, Victor
    Abstract: We exploit a decomposition of gross trade flows into their value added components to reassess the relationship between increased imports from China and manufacturing jobs in US local labour markets following the seminal paper of Autor, Dorn, and Hanson (2013, ADH). Decomposed trade flows enable us to address identification and measurement issues inherent to gross trade data. In particular, it allows us to remove US value added in Chinese exports from the exposure measure which is mechanically correlated with the dependent variable and overstates the volume of the trade shock. In addition, the decomposition permits to correct for double counting, to remove primary and services inputs in manufacturing exports, and to assign competition to the upstream industry that supplied the value added rather than the final exporting industry. This further reduces the volume of the shock and improves the accuracy of the import exposure measure. Consequently, we find considerable differences in the pattern of regions that are most affected by the trade shock and show that imports from China can explain less of the decline in US manufacturing than what gross trade data would suggest. We then separate the shock into a China-driven domestic reform and a thirdcountry-driven value chain component, and find in line with ADH that the smaller, but still negative labour market effects are indeed China driven. Finally, we observe that the negative effects identified in ADH are not present in the 2008-2014 period, as labour market adjustment has largely concluded. The long time needed for adjustment may have been prolonged by the evolution of China's comparative advantage.
    Keywords: value added trade,labor-market adjustment,local labor markets
    JEL: E24 F14 F16 J23 L60 R23
    Date: 2018
  17. By: Minchul Yum
    Abstract: A higher labor tax rate increases the equilibrium real interest rate and reduces the equilibrium wage in a heterogeneous-agent model with endogenous savings and indivisible labor supply decisions. I show that these general equilibrium adjustments, in particular of the real interest rate, reinforce the negative employment impact of higher labor taxes. However, the representative-agent version of the model, which generates similar aggregate employment responses to labor tax changes, implies that general equilibrium feedback is neutral. The cross-country panel data reveal that the negative association between labor tax rates and the extensive margin labor supply is significantly and robustly weaker in small open economies where the interest rate is less tightly linked to domestic circumstances. This empirical evidence supports the transmission mechanism of labor tax changes for employment in the heterogeneous-agent model.
    Keywords: labor income tax; labor supply elasticity; general equilibrium; cross-country panel
    JEL: E21 E24 J21 J22
    Date: 2018–12
  18. By: Peter Q. Blair; Bobby W. Chung
    Abstract: We exploit state variation in licensing laws to study the effect of licensing on occupational choice using a boundary discontinuity design. We find that licensing reduces equilibrium labor supply by an average of 17%-27%. The negative labor supply effects of licensing appear to be strongest for white workers and comparatively weaker for black workers.
    JEL: J21 K23 L51
    Date: 2018–11
  19. By: Martin Peitz; Dongsoo Shin
    Abstract: A project leader sources an input from a supporter and combines it with an input produced in-house. The leader has private information about the project’s cost environment. We show that if the leader can commit to the in-house input level, the input ratio is distorted upward when the in-house input is not too costly—the in-house input is produced in excess and, thus, partly wasted. By contrast, without the leader’s commitment to the in-house input level, the input ratio is distorted downward when the in-house input is su¢ciently costly—the outsourced input is produced in excess and, thus, partly wasted
    Keywords: labor income tax; labor supply elasticity; general equilibrium; cross-country panel
    JEL: E21 E24 J21 J22
    Date: 2018–12
  20. By: Bronnenberg, Bart; Klein, Tobias; Xu, Yan
    Abstract: Home production not only requires money to buy market goods but also varying degrees of time to shop and to prepare consumption goods. Households' time budgets therefore affect their use of the market and the bundle of market goods chosen. Using a novel household panel data set that combines purchase records with time-budget shifting labor-events, and controlling for demographics, this paper shows how the availability of time affects purchasing behavior. We first find that more discretionary time, due to, e.g., retirement, leads to additional shopping trips across a more diverse set of stores, increased spending on groceries, and more diversity in products chosen. In addition, when time is less scarce, restaurant expenditures go down and grocery expenditures go up. We next classify products according to the time it takes to turn them into consumption experiences. Availability of additional time shifts a household's shopping bundle towards more time-intensive market goods. Our results suggest that product- and retail innovations aimed at forward-integrating into household production are important drivers of demand in CPG industries.
    Keywords: consumer purchase behavior; Household production; retirement; time use
    JEL: D12 D13 J22 M31
    Date: 2018–11
  21. By: Stöver, Britta
    Abstract: This paper quantifies and compares the direct and indirect effects of labour demand generated by each university location in Lower Saxony. The results are classified in order to identify regional patterns. The applied method is based on three components: the importance, the dynamics and the interdependence of the university related labour market in relation to the other economic sectors. The importance of the university locations for their respective local economy and in comparison with each other is assessed by an indicator. The dynamic and change of the importance of the different university locations is shown using a shift-share analysis. Both measures can be applied for a classification and spatial clustering of different types of university locations. Additionally, input-output-based employment multipliers are estimated to display the interaction of the university locations with the local economy. The results can be summarised in the identification of three differing regions. The south-east of Lower Saxony is characterised by big, established, well integrated university locations with low dynamics. Adjacent, smaller university locations have difficulties to emerge of the shadows of the dominant locations. In the western part of Lower Saxony can be found small to big university locations with growing importance and continuous development potential. The university locations in the north east are small to medium sized and rather unimportant for the local as well as the total labour market.
    Keywords: Regional Input-Output table; employment multiplier; spatial analysis; classification; (in)direct employment effects; universities
    JEL: I23 J48 R12 R15
    Date: 2018–12
  22. By: Berg, Heléne (Dept. of Economics, Stockholm University)
    Abstract: Despite the key role played by political payoffs in theory, very little is known empirically about the types of payoffs that motivate politicians. The purpose of this paper is to bring light into this. I estimate causal effects of being elected in a local election on monetary returns. The claim for causality, I argue, can be made thanks to a research design where the income of some candidate who just barely won a seat is compared to that of some other candidate who was close to winning a seat for the same party, but ultimately did not. This research design is made possible thanks to a comprehensive, detailed data set covering all Swedish politicians who have run for office in the period 1991–2006. I establish that monetary returns are absent both in the short and long run. Instead, politicians seem to be motivated by non-monetary returns, and I show that being elected locally once (for exogenous reasons) can be an effective starting point for enjoying such payoffs.
    Keywords: Returns to politics; incumbency effects; regression discontinuity design
    JEL: C23 D72 J44
    Date: 2018–12–04
  23. By: Daniel Dench; Michael Grossman
    Abstract: We investigate two-way causality between health and the hourly wage by employing insights from the human capital and compensating wage differential models, a panel formed from the National Longitudinal Survey of Youth 1997, and dynamic panel estimation methods in this investigation. We uncover a causal relationship between two of five measures of health and the wage in which a reduction in health leads to an increase in the wage rate but find no evidence of a causal relationship running from the wage rate to health. The former result is consistent with a framework in which a large amount of effort in one period is required to obtain promotions and the wage increases that accompany them in subsequent periods. That effort may cause reductions in health and result in a negative effect of health in the previous period on the current period wage. The finding also is consistent with a model in which investments in career advancement compete with investments in health for time—the ultimate scarce resource. The lack of a causal effect of the wage on health may suggest that forces that go in opposite directions in the human capital and compensating wage differential models offset each other.
    JEL: I20 J24
    Date: 2018–11

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