nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2019‒02‒18
fourteen papers chosen by
Joseph Marchand
University of Alberta

  1. The Causal Effects of the Minimum Wage Introduction in Germany: An Overview By Marco Caliendo; Carsten Schröder; Linda Wittbrodt
  2. Returns to farm child labor in Tanzania By Pierre ANDRE; Esther DELESALLE; Christelle DUMAS
  3. Tax Policy and Local Labor Market Behavior By Daniel G. Garrett; Eric C. Ohrn; Juan Carlos Suárez Serrato
  4. The Impact of a Conditional Cash Transfer Program on Households' Well-Being By Daniela Del Boca; Chiara Pronzato; Giuseppe Sorrenti
  5. Real wages, labour conditions and the standard of living in Denmark: 1500-1900 By Radu, Cristina Victoria
  6. The economics of parenting By Matthias Doepke; Giuseppe Sorrenti; Fabrizio Zilibotti
  7. The evolution of the occupational structure in Italy in the last decade By Gaetano Basso
  8. The Tail that Wags the Economy: Beliefs and Persistent Stagnation By Kozlowski, Julian; Veldkamp, Laura; Venkateswaran, Venky
  9. Unequal Migration and Urbanisation Gains in China By Pierre-Philippe Combes; Sylvie Démurger; Shi Li; Jianguo Wang
  10. Analysing the glass ceiling and sticky floor effects in Bangladesh: Evidence, extent and elements By Faruk, Avinno
  11. Human capital investment and job creation: the role of the education and production systems By Sonedda, Daniela
  12. Minimum Wage Policy with Optimal Taxes and Unemployment By Adam M. Lavecchia
  13. Marginal Compensated Effects in Discrete Labor Supply Models By John K. Dagsvik; Steinar Strøm; Marilena Locatelli
  14. On the Political Feasibility of Increasing the Legal Retirement Age By Benjamin Bittschi; Berthold U. Wigger

  1. By: Marco Caliendo; Carsten Schröder; Linda Wittbrodt
    Abstract: In 2015, Germany introduced a statutory hourly minimum wage that was not only universally binding but also set at a relatively high level. We discuss the short-run effects of this new minimum wage on a wide set of socio-economic outcomes, such as employment and working hours, earnings and wage inequality, dependent and selff-employment, as well as reservation wages and satisfaction. We also discuss diffculties in the implementation of the minimum wage and the measurement of its effects related to non-compliance and suitability of data sources. Two years after the minimum wage introduction, the following conclusions can be drawn: while hourly wages increased for low-wage earners, some small negative employment effects are also identifiable. The effects on aspired goals, such as poverty and inequality reduction, have not materialized in the short run. Instead, a tendency to reduce working hours is found, which alleviates the desired positive impact on monthly income. Additionally, the level of non-compliance was substantial in the short run, thus drawing attention to problems when implementing such a wide reaching policy.
    Keywords: Minimum wage, Evaluation, Earnings, Working hours, Employment
    JEL: J22 J23 J31 J38
    Date: 2018
  2. By: Pierre ANDRE (Université de Cergy-Pontoise); Esther DELESALLE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Christelle DUMAS (University of Fribourg)
    Abstract: In developing countries, the opportunity costs of children's time can significantly hinder universal education. This paper studies one of these opportunity costs: we estimate the agricultural productivity of children aged 10 to 15 years old using the LSMS-ISA panel survey in Tanzania. Since child labor can be endogenous, we exploit the panel structure of the data and instrument child labor with changes in the age composition of the household. One day of child work leads to an increase in production value by roughly US$0.89. Children enrolled in school work 26 fewer days than nonenrolled children. Compensating enrolled children for loss in income can be accomplished with monthly payments of $1.92. However, a complete simulation of a hypothetical conditional cash transfer shows that even $10/month transfers would fail to achieve universal school enrollment of children aged 10 to 15 years old.
    Keywords: Child labor, Human capital investment, Conditional cash transfer, Farm house-hold, Production function, Tanzania
    JEL: D1 O1 J3
    Date: 2019–01–30
  3. By: Daniel G. Garrett; Eric C. Ohrn; Juan Carlos Suárez Serrato
    Abstract: Since 2002, the US government has encouraged business investment using accelerated depreciation policies that significantly reduce investment costs. We provide the first in-depth analysis of this stimulus on employment and earnings. Our local labor markets approach exploits cross-industry differences in policy generosity interacted with county-level variation in industry concentration. Places that experience larger decreases in investment costs see a level increase in employment that implies a $53,000 cost-per-job. We find no positive effects on average earnings. In contrast, we document a persistent growth in capital. These results imply a capital-labor substitution elasticity that grows over time and can exceed unity.
    JEL: E62 H25 H32 J23 J38
    Date: 2019–02
  4. By: Daniela Del Boca; Chiara Pronzato; Giuseppe Sorrenti
    Abstract: We evaluate the impact of a conditional cash transfer (CCT) program that we designed on family well-being among low-income families with young chil- dren. Although most CCTs have been implemented in low-income countries, our research is in the context of a high-income country, Italy, where the recent economic crises have worsened the conditions of families with children, especially among immigrants. Our objective is to evaluate the introduction of conditionality (attendance of courses) into a pre-existing unconditional cash transfer program. Using a randomized controlled trial, we find that CCT families search more ac- tively for work, and they work more hours and more regularity than the cash transfer and control groups. CCT families also are able to save more money and eat healthier foods. The CCT intervention appears to be more effective than cash transfer alone in changing households' behavior in several dimensions of well-being. Our findings add to the accumulating evidence on the impact of con- ditional cash transfers versus unconditional ones and to the literature concerning multidimensional incentive programs.
    Keywords: cash transfers, poverty, use of money, labor supply, parenting
    JEL: I10 I20 J24 I31
    Date: 2018
  5. By: Radu, Cristina Victoria (Department of Business and Economics)
    Abstract: It is well established that Denmark is one of the richest economies in the world nowadays with high living standards and wages. But what about earlier times? This paper makes three contributions: firstly, it creates and describes a new and rich data set on historical wage developments in Denmark, based on data gathered by the Danish Price History Project for the period 1660‐1800; secondly, it tests the traditional view of Denmark being very poor during that period by offering insight into eighteenth century Danish living standards; and thirdly, it tests whether the country followed the traditional story of the Little Divergence by constructing a long run real wage series for 1500‐1900. Comparing real wages across Europe, I find incomes in the countryside actually converged in the sixteenth century. In this context, Denmark moved from being poor, to an average income level, becoming rich only in the nineteenth century. An analysis of the eighteenth century shows that the value of the skill premium was higher than that of leading countries in Europe, but the gender wage gap tended to close towards the end. Married women in skilled occupations earned more than unmarried ones, but no difference was seen for unskilled occupations.
    Keywords: Little Divergence; Denmark; consumer price index; real wages; skill premium; gender gap; casual and full time workers; married/unmarried women; urban/rural workers; living standards
    JEL: J30 J40 J80 N33 N93
    Date: 2019–02–06
  6. By: Matthias Doepke; Giuseppe Sorrenti; Fabrizio Zilibotti
    Abstract: Parenting decisions are among the most consequential choices people make throughout their lives. Starting with the work of pioneers such as Gary Becker, economists have used the toolset of their discipline to understand what parents do and how parents’ actions affect their children. In recent years, the literature on parenting within economics has increasingly leveraged findings and concepts from related disciplines that also deal with parent-child interactions. For example, economists have developed models to understand the choice between various parenting styles that were first explored in the developmental psychology literature, and have estimated detailed empirical models of children’s accumulation of cognitive and noncognitive skills in response to parental and other inputs. In this paper, we survey the economic literature on parenting and point out promising directions for future research.
    Keywords: Parenting, parenting style, skill acquisition, peer effects, altruism, paternalism
    JEL: J13 J24 R20
    Date: 2019–02
  7. By: Gaetano Basso (Bank of Italy)
    Abstract: Many advanced economies have experienced significant job polarization in the last decades, with an increase in the employment share and relative wage of both low-wage and high-wage workers at the expense of middle-wage workers. This polarization has probably been spurred by the substitution of routine-intensive labour with automation and information and communication technologies. This note explores whether the Italian labour market has experienced similar patterns and, if so, whether they are the consequence of a pure technology-driven shock. The evidence is mixed. While the share of low-wage manual occupations has increased markedly, that of high-wage professional occupations has fallen slightly. The share of middle-wage jobs has declined significantly but, unlike the case of the US, the wages have not. Regression analyses based on occupational task characteristics (Goos et al., 2014) do not fully align with the routine-biased technical change hypothesis either, consistently with the limited adoption of automation technology in Italy. Among the most likely factors, cross-sector reallocation, which favoured the low value added service sector, and the rise of low skilled migrant and college graduate labour supply explain most of the observed occupational changes.
    Keywords: labour demand, occupational choice
    JEL: J23 J24
    Date: 2019–01
  8. By: Kozlowski, Julian (Federal Reserve Bank of St. Louis); Veldkamp, Laura (Columbia University, Columbia Business School); Venkateswaran, Venky (Federal Reserve Bank of Minneapolis)
    Abstract: The Great Recession was a deep downturn with long-lasting effects on credit, employment and output. While narratives about its causes abound, the persistence of GDP below pre-crisis trends remains puzzling. We propose a simple persistence mechanism that can be quantified and combined with existing models. Our key premise is that agents don't know the true distribution of shocks, but use data to estimate it non-parametrically. Then, transitory events, especially extreme ones, generate persistent changes in beliefs and macro outcomes. Embedding this mechanism in a neoclassical model, we find that it endogenously generates persistent drops in economic activity after tail events.
    Keywords: Stagnation; tail risk; propagation; belief-driven business cycles
    JEL: D84 E32
    Date: 2019–02–03
  9. By: Pierre-Philippe Combes (Univ Lyon, CNRS, GATE UMR 5824, F-69130 Ecully, France; Sciences Po, Department of Economics, 28, Rue des Saints-Pères, 75007 Paris, France. Research fellow at CEPR); Sylvie Démurger (Univ Lyon, CNRS, GATE UMR 5824, F-69130 Ecully, France. Research fellow at IZA); Shi Li (Business School, Beijing Normal University, China. Research fellow at IZA); Jianguo Wang (Beijing Information Science and Technology University, China)
    Abstract: We assess the role of internal migration and urbanisation in China on the nominal earnings of three groups of workers (rural migrants, low-skilled natives, and high-skilled natives). We estimate the impact of many city and city-industry characteristics that shape agglomeration economies, as well as migrant and human capital externalities and substitution effects. We also account for spatial sorting and reverse causality. Location matters for individual earnings, but urban gains are unequally distributed. High-skilled natives enjoy large gains from agglomeration and migrants at the city level. Both conclusions also hold, to a lesser extent, for low-skilled natives, who are only marginally negatively affected by migrants within their industry. By contrast, rural migrants slightly lose from migrants within their industry while otherwise gaining from migration and agglomeration, although less than natives. The different returns from migration and urbanisation are responsible for a large share of wage disparities in China.
    Keywords: urban development, agglomeration economies, wage disparities, migrants, human capital externalities, China
    JEL: O18 R12 R23 J31 O53
    Date: 2019
  10. By: Faruk, Avinno
    Abstract: With deep-seated gender imbalances prevalent in Bangladesh, it is compelling to understand how those women, who do manage to get employed, are faring in terms of equity. A popular approach involves analysing the gender wage gap across the entire distribution. With the assistance of data from QLFS 2016-17, the Mincerian model is estimated under various specifications, and then the final model decomposed using Oaxaca-Blinder decomposition method. Using these analyses at the mean as benchmarks, the entire distribution is examined by employing the conditional quantile regression model and Quantile Counterfactual Decomposition technique. The paper has then proceeded to posit the existence of a strong sticky floor effect and a weaker glass ceiling effect in Bangladesh, with discriminatory rewards to observed characteristics being the dominant feature of the observed wage gap across the entire distribution. Policy prescriptions and potential avenues for further scope concerning the paper are also mentioned in the end.
    Keywords: Gender Equity; Gender Wage Gap; Sticky Floor; Glass Ceiling; Mincerian Regression; Oaxaca-Blinder Decomposition; Quantile Regression; Quantile Counterfactual Decomposition
    JEL: C21 J16 J31 J71
    Date: 2019–01
  11. By: Sonedda, Daniela
    Abstract: This paper provides empirical evidence on two mechanisms through which a committed investment in human capital serves as a stepping stone into permanent employment. I verify whether regional disparities in general education and production systems affect the capacity of the apprenticeship labour contract to create job matches that persist over time. I find that when the quality of the regional education system is good, the medium-run gains in terms of permanent employment can be moderate. However, a small number of productive firms in a region limits the quantity of job entries as apprentices.
    Keywords: Human capital; permanent employment; education system; production system
    JEL: J0 J24 R23
    Date: 2018–12
  12. By: Adam M. Lavecchia
    Abstract: Using a search model, I derive formula that links the welfare gains from the minimum wage to its effect on low-skilled labor force participation and employment. This formula shows that the minimum wage is welfare improving if pushing the low-skilled labor market tightness downwards brings it closer to its efficient level. I estimate the causal effect of the minimum wage on low-skilled labor force participation and employment using federal and state minimum wage variation. I discuss the policy implications of my estimates when viewed through the lens of the marginal welfare gain formula.
    Keywords: Minimum wage, Sufficient statistics, Optimal policy, Labor force participation
    JEL: H21 H23 J21 J38 J64
    Date: 2019–02
  13. By: John K. Dagsvik; Steinar Strøm; Marilena Locatelli
    Abstract: This paper develops analytic results for marginal compensated effects of discrete labor supply models, including Slutsky equations. It matters, when evaluating marginal compensated effects in discrete choice labor supply models, whether one considers wage increase (right marginal effects) or wage decrease (left marginal effects). We show how the results obtained can be used to calculate the marginal cost of public funds in the context of discrete labor supply models. Subsequently, we use the empirical labor supply model of Dagsvik and Strøm (2006) to compute numerical compensated (Hicksian) and uncompensated marginal (Marshallian) effects resulting from wage changes. The mean Hicksian labor supply elasticities are larger than the Marshallian, but the difference is small.
    Keywords: Slutsky equations, discrete choice labor supply
    JEL: J22 C51
    Date: 2019
  14. By: Benjamin Bittschi; Berthold U. Wigger
    Abstract: Within a politico-economic model we first establish three hypotheses: (i) Retirees generally prefer a higher retirement age than workers, whereby just retired individuals prefer the highest retirement age, (ii) in equilibrium the level of the legal retirement age is increasing in longevity and (iii) decreasing in the public pension replacement rate. We then test these hypotheses empirically. Employing micro data for Germany we corroborate the first hypothesis with descriptive regressions and a fuzzy regression discontinuity (FRD) design. We show that just retired individuals are indeed most in favor of an increase in the legal retirement age. On the basis of cross country panel IV regressions we provide evidence for the second and third hypothesis. We demonstrate that a one percentage point increase in the share of the elderly increases the legal retirement age by 0.3 to 0.5 years, and that a 10 percentage point increase in the replacement rate reduces the legal retirement age by 0.5 to 3 years. We conclude that if policy contains the generosity of public pensions, increasing the legal retirement age becomes politically more feasible.
    Keywords: retirement age, pension reform, longevity, replacement rate
    JEL: D72 H55 J26
    Date: 2019

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