nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2019‒05‒06
thirty papers chosen by
Joseph Marchand
University of Alberta

  1. Wages, Experience and Training of Women By Richard Blundell; Monica Costa Dias; David Goll; Costas Meghir
  2. Fraudulent Financial Reporting and the Consequences for Employees By Choi, Jung Ho; Gipper, Brandon
  3. Robots and firms By Michael Koch; Ilya Manuylov; Marcel Smolka
  4. Opting out of Workers' Compensation: Non-Subscription in Texas and Its Effects By Jinks, Lu; Kniesner, Thomas J.; Leeth, John D.; Lo Sasso, Anthony T.
  5. Technology, Skills, and Globalization: Explaining International Differences in Routine and Nonroutine Work Using Survey Data By Piotr Lewandowski; Albert Park; Wojciech Hardy; Du Yang
  6. Firms, Skills, and Wage Inequality By Pinheiro, Roberto; Tasci, Murat
  7. The Lost Ones: The Opportunities and Outcomes of Non-College-Educated Americans Born in the 1960s By Borella, Margherita; De Nardi, Mariacristina; Yang, Fang
  8. Cyclical income risk in Great Britain By Konstantinos Angelopoulos; Spyridon Lazarakis; Jim Malley
  9. The Effect of Employment Protection on Firms' Worker Selection By Butschek, Sebastian; Sauermann, Jan
  10. Occupational Choice and the Dynamics of Human Capital, Inequality and Growth By Dvorkin, Maximiliano; Monge-Naranjo, Alexander
  11. Automation and New Tasks: How Technology Displaces and Reinstates Labor By Acemoglu, Daron; Restrepo, Pascual
  12. How Local Economic Conditions Affect School Finances, Teacher Quality, and Student Achievement: Evidence from the Texas Shale Boom By Marchand, Joseph; Weber, Jeremy
  13. Zero Hours Contracts and Their Growth By Farina, Egidio; Green, Colin; McVicar, Duncan
  14. Impacts of Industrial and Entrepreneurial Jobs on Youth: 5-year Experimental Evidence on Factory Job Offers and Cash Grants in Ethiopia By Christopher Blattman; Stefan Dercon; Simon Franklin
  15. The Effect of the Universal Primary Education Program on Labor Market Outcomes: Evidence from Tanzania By Esther Delesalle
  16. Is an Army of Robots Marching on Chinese Jobs? By Giuntella, Osea; Wang, Tianyi
  17. Do Employee Share Owners Face Too Much Financial Risk? By Kruse, Douglas L.; Blasi, Joseph; Weltmann, Dan; Kang, Saehee; Kim, Jung Ook; Castellano, William
  18. Credit supply and human capital: evidence from bank pension liabilities By Barbosa, Luciana; Bilan, Andrada; Célérier, Claire
  19. How Stable Is Labour Market Dualism? Reforms of Employment Protection in Nine European Countries By Eichhorst, Werner; Marx, Paul
  20. Long-Run Tax Incidence in a Human Capital-based Endogenous Growth Model with Labor-Market Frictions By Been-Lon Chen; Hung-Ju Chen; Ping Wang
  21. Matching in Cities By Dauth, Wolfgang; Findeisen, Sebastian; Moretti, Enrico; Suedekum, Jens
  22. Search and Multiple Jobholding By Lalé, Etienne
  23. Estimation of the Economic Opportunity Cost of Labor: An Operational Guide for Mozambique By Glenn P. Jenkins; Pejman Bahramain; Mikhail Miklyaev
  24. Estimating Who Benefits from Productivity Growth: Direct and Indirect Effects of City Manufacturing TFP Growth on Wages, Rents, and Inequality By Hornbeck, Richard; Moretti, Enrico
  25. Wage Equalization and Regional Misallocation: Evidence from Italian and German Provinces By Boeri, Tito; Ichino, Andrea; Moretti, Enrico; Posch, Johanna
  26. The Impact of Soft-Skills Training for Entrepreneurs in Jamaica By Diego Ubfal; Irani Arraiz; Diether Beuermann; Michael Frese; Alessandro Maffioli; Daniel Verch
  27. Patronage and Selection in Public Sector Organizations By Colonnelli, Emanuele; Prem, Mounu; Teso, Edoardo
  28. Inconsistent time preferences and on-the-job search - when it pays to be naive By Matthias Fahn; Regina Seibel
  29. Tax Bunching at the Kink in the Presence of Low Capacity of Enforcement: Evidence from Uruguay By Bergolo, Marcelo; Burdín, Gabriel; De Rosa, Mauricio; Giaccobasso, Matias; Leites, Martin
  30. Repercussions of Negatively Selective Migration for the Behavior of Nonmigrants When Preferences Are Social By Stark, Oded; Budzinski, Wiktor

  1. By: Richard Blundell (University College London and Institute for Fiscal Studies); Monica Costa Dias (Institute for Fiscal Studies and University of Porto); David Goll (University College London and Institute for Fiscal Studies); Costas Meghir (Cowles Foundation, Yale University, NBER, IZA, CEPR, and Institute for Fiscal Studies)
    Abstract: We investigate the role of training in reducing the gender wage gap using the UK- BHPS which contains detailed records of training. Using policy changes over an 18 year period we identify the impact of training and work experience on wages, earnings and employment. Based on a lifecycle model and using reforms as a source of exogenous variation we evaluate the role of formal training and experience in defining the evolution of wages and employment careers, conditional on education. Training is potentially important in compensating for the effects of children, especially for women who left education after completing high school.
    Keywords: Workplace training, On the job training, Female labor supply, Gender wage differentials, Human capital, Fertility and the gender wage gap, Lifecycle labor supply
    JEL: E24 H24 I28 J16 J22 J24 J31 J71
    Date: 2019–04
  2. By: Choi, Jung Ho (Stanford University Graduate School of Business); Gipper, Brandon (Stanford University Graduate School of Business)
    Abstract: We examine employment effects, such as wages and employee turnover, before, during, and after periods of fraudulent financial reporting. To analyze these effects, we combine U.S. Census data with SEC enforcement actions against firms with serious misreporting (“fraud†). We find compared to a matched sample that fraud firms’ employee wages decline by 9% and the separation rate is higher by 12% during and after fraud periods while employment growth at fraud firms is positive during fraud periods and negative afterward. We discuss several reasons that plausibly drive these findings. (i) Frauds cause informational opacity, misleading employees to still join or continue to work at the firm. (ii) During fraud, managers overinvest in labor changing employee mix, and after fraud the overemployment is unwound causing effects from displacement. (iii) Fraud is misconduct; association with misconduct can affect workers in the labor market. We explore the heterogeneous effects of fraudulent financial reporting, including thin and thick labor markets, bankruptcy and non-bankruptcy firms, worker movements, pre-fraud wage levels, and period of hire. Negative wage effects are prevalent across these sample cuts, indicating that fraudulent financial reporting appears to create meaningful and negative consequences for employees possibly through channels such as labor market disruptions, punishment, and stigma.
    JEL: D83 J23 J31 M48 M51
    Date: 2019–03
  3. By: Michael Koch; Ilya Manuylov; Marcel Smolka
    Abstract: We study the implications of robot adoption at the level of individual firms using a rich panel data-set of Spanish manufacturing firms over a 27-year period (1990-2016). We focus on three central questions: (1) Which firms adopt robots? (2) What are the labor market effects of robot adoption at the firm level? (3) How does firm heterogeneity in robot adoption affect the industry equilibrium? To address these questions, we look at our data through the lens of recent attempts in the literature to formalize the implications of robot technology. As for the first question, we establish robust evidence that ex-ante larger and more productive firms are more likely to adopt robots, while ex-ante more skill-intensive firms are less likely to do so. As for the second question, we find that robot adoption generates substantial output gains in the vicinity of 20-25% within four years, reduces the labor cost share by 5-7%-points, and leads to net job creation at a rate of 10%. These results are robust to controlling for non-random selection into robot adoption through a difference-in-differences approach combined with a propensity score reweighting estimator. Finally, we reveal substantial job losses in firms that do not adopt robots, and a productivity-enhancing reallocation of labor across firms, away from non-adopters, and toward adopters.
    Keywords: automation, robots, firms, productivity, technology
    JEL: D22 F14 J24 O14
    Date: 2019
  4. By: Jinks, Lu (University of Illinois at Chicago); Kniesner, Thomas J. (Claremont Graduate University); Leeth, John D. (Bentley University); Lo Sasso, Anthony T. (University of Illinois at Chicago)
    Abstract: Texas is the only state that does not mandate that employers carry workers' compensation insurance (WC) coverage. We employ a quasi-experimental design paired with a novel machine learning approach to examine the effects of switching from traditional workers' compensation to a so-called non-subscription program in Texas. Specifically, we compare before and after effects of switching to non-subscription for employees in Texas to contemporaneously measured before and after differences for non-Texas-based employees. Importantly, we study large self-insured companies operating the same business in multiple states in the US; hence the non-Texas operations represent the control sites for the Texas treatment sites. The resulting difference-in-differences estimation technique allows us to control for any companywide factors that might be confounded with switching to non-subscription. Our empirical approach also controls for injury characteristics, employment characteristics, industry, and individual characteristics such as gender, age, number of dependents, and marital status. Outcomes include number of claims reported, medical expenditures, indemnity payments, time to return to work, likelihood of having permanent disability, likelihood of claim denial, and likelihood of litigation. The data include 25 switcher companies between the years 2004 and 2016, yielding 846,376 injury incidents. Regression findings suggest that indemnity, medical payments, and work-loss fall substantially. Claim denials increase and litigation falls.
    Keywords: workers' compensation insurance, non-subscription, difference-in-differences, triple differences, machine learning, PDS-LASSO
    JEL: C54 I13 J32 J38
    Date: 2019–04
  5. By: Piotr Lewandowski; Albert Park; Wojciech Hardy; Du Yang
    Abstract: The shift away from manual and routine cognitive work, and towards non-routine cognitive work is a key feature of labor markets. There is no evidence, however, if the relative importance of various tasks differs between workers performing seemingly similar jobs in different countries. We develop worker-level, survey-based measures of task content of jobs – non-routine cognitive analytical and personal, routine cognitive and manual – that are consistent with widely-used occupation-specific measures based on O*NET database. We apply them to representative surveys conducted in 42 countries at different stages of development. We find substantial cross-country differences in the content of work within occupations. Routine task intensity (RTI) of jobs decreases significantly with GDP per capita for high-skill occupations but not for middle- and low-skill occupations. We estimate the determinants of workers’ RTI as a function of technology (computer use), globalization (specialization in global value chains), structural change, and supply of skills, and decompose their role in accounting for the variation in RTI across countries. Computer use, better education, and higher literacy skills are related to lower RTI. Globalization (as measured by sector foreign value-added share) increases RTI in poorer countries but reduces RTI in richer countries. Differences in technology endowments and in skills’ supply matter most for cross-country differences in RTI, with globalization also important. Technology contributes the most to the differences in RTI among workers in high-skilled occupations and non-off-shorable occupations; globalization contributes the most to differences among workers in low-skilled occupations and offshorable occupations.
    Keywords: tasks, deroutinisation, routine-replacing technical change, off-shoring, PIAAC, STEP, CULS
    JEL: J21 J23 J24
    Date: 2019–04
  6. By: Pinheiro, Roberto (Federal Reserve Bank of Cleveland); Tasci, Murat (Federal Reserve Bank of Cleveland)
    Abstract: We present a model with search frictions and heterogeneous agents that allows us to decompose the overall increase in US wage inequality in the last 30 years into its within- and between-firm and skill components. We calibrate the model to evaluate how much of the overall rise in wage inequality and its components is explained by different channels. Output distribution per firm-skill pair more than accounts for the observed increase over this period. Parametric identification implies that the worker-specific component is responsible for 85 percent of this, compared to 15 percent that is attributable to firm-level productivity shifts.
    Keywords: Multi-agent firms; skill distributions; wage inequality;
    JEL: D02 D21 J2 J3
    Date: 2019–04–19
  7. By: Borella, Margherita (Università di Torino); De Nardi, Mariacristina (Federal Reserve Bank of Minneapolis); Yang, Fang (Louisiana State University)
    Abstract: White, non-college-educated Americans born in the 1960s face shorter life expectancies, higher medical expenses, and lower wages per unit of human capital compared with those born in the 1940s, and men's wages declined more than women's. After documenting these changes, we use a life-cycle model of couples and singles to evaluate their effects. The drop in wages depressed the labor supply of men and increased that of women, especially in married couples. Their shorter life expectancy reduced their retirement savings but the increase in out-of-pocket medical expenses increased them by more. Welfare losses, measured as a one-time asset compensation, are 12.5%, 8%, and 7.2% of the present discounted value of earnings for single men, couples, and single women, respectively. Lower wages explain 47-58% of these losses, shorter life expectancies 25-34%, and higher medical expenses account for the rest.
    JEL: E21 H31
    Date: 2019–03–18
  8. By: Konstantinos Angelopoulos; Spyridon Lazarakis; Jim Malley
    Abstract: This paper establishes new evidence on the cyclical behaviour of household income risk in Great Britain and assesses the role of social insurance policy in mitigating against this risk. We address these issues using the British Household Panel Survey (1991-2008) by decomposing stochastic idiosyncratic income into its transitory, persistent and fixed components. We then estimate how income risk, measured by the variance and the skewness of the probability distribution of shocks to the persistent component, varies between expansions and contractions of the aggregate economy. We first find that the volatility and left-skewness of these shocks is a-cyclical and counter-cyclical respectively. The latter implies a higher probability of receiving large negative income shocks in contractions. We also find that while social insurance (tax-benefits) policy reduces the levels of both measures of risk as well as the counter-cyclicality of the asymmetry measure, the mitigation effects work mainly via benefits.
    Keywords: household income risk, social insurance policy, aggregate fluctuations
    JEL: D31 E24 J31
    Date: 2019
  9. By: Butschek, Sebastian (University of Cologne); Sauermann, Jan (SOFI, Stockholm University)
    Abstract: To estimate the causal effect of employment protection on firms' worker selection, we study a policy change that reduced dismissal costs for the employers of over a tenth of Sweden's workforce. Our difference-in-differences analysis of firms' hiring uses individual ability measures including estimated worker fixed effects and cognitive test scores. We find that the reform reduced minimum hire quality by 5% of a standard deviation, half of which we can attribute to firms' hiring becoming more selective. Our results help discriminate between existing theories, supporting the prediction that firms shift their hiring standards in response to changes in dismissal costs.
    Keywords: worker selection, screening, hiring standard, employment protection, dismissal costs
    JEL: M51 D22 J24 J38
    Date: 2019–04
  10. By: Dvorkin, Maximiliano (Federal Reserve Bank of St. Louis); Monge-Naranjo, Alexander (Federal Reserve Bank of St. Louis)
    Abstract: We develop a tractable dynamic Roy model in which workers choose occupations to maximize their lifetime utility. In our setting, a worker’s human capital is driven by his labor market choices, given idiosyncratic occupation-specific productivity shocks and the costs of switching occupations. We characterize the equilibrium assignment of workers to jobs and show that the resulting evolution of aggregate human capital across occupations ultimately determines the long-run rate of growth of the economy. We then use our model to quantitatively study the impact of labor-saving technical changes on workers’ occupational choices and on the economy’s income inequality, job polarization and long-run growth.
    Keywords: Occupational Choice; Human Capital; Dynamics; Inequality; Endogenous Growth; General Equilibrium
    JEL: E24 J24 J31 J62
    Date: 2019–04–23
  11. By: Acemoglu, Daron (MIT); Restrepo, Pascual (Boston University)
    Abstract: We present a framework for understanding the effects of automation and other types of technological changes on labor demand, and use it to interpret changes in US employment over the recent past. At the center of our framework is the allocation of tasks to capital and labor – the task content of production. Automation, which enables capital to replace labor in tasks it was previously engaged in, shifts the task content of production against labor because of a displacement effect. As a result, automation always reduces the labor share in value added and may reduce labor demand even as it raises productivity. The effects of automation are counterbalanced by the creation of new tasks in which labor has a comparative advantage. The introduction of new tasks changes the task content of production in favor of labor because of a reinstatement effect, and always raises the labor share and labor demand. We show how the role of changes in the task content of production – due to automation and new tasks – can be inferred from industry-level data. Our empirical decomposition suggests that the slower growth of employment over the last three decades is accounted for by an acceleration in the displacement effect, especially in manufacturing, a weaker reinstatement effect, and slower growth of productivity than in previous decades.
    Keywords: automation, displacement effect, labor demand, inequality, productivity, reinstatement effect, tasks, technology, wages
    JEL: J23 J24
    Date: 2019–04
  12. By: Marchand, Joseph (University of Alberta, Department of Economics); Weber, Jeremy (University of Pittsburgh)
    Abstract: Whether improved local economic conditions lead to better student outcomes is theoretically ambiguous and will depend on how schools use additional revenues and how students and teachers respond to rising private sector wages. The Texas boom in shale oil and gas drilling, with its large and localized effects on wages and the tax base, provides a unique opportunity to address this question that spans the areas of education, labor markets, and public finance. An empirical approach using variation in shale geology across school districts shows that the boom reduced test scores and student attendance, despite tripling the local tax base and creating a revenue windfall. Schools spent additional revenue on capital projects and debt service, but not on teachers. As the gap between teacher wages and private sector wages grew, so did teacher turnover and the percentage of inexperienced teachers, which helps explain the decline in student achievement. Changes in student composition did not account for the achievement decline but instead helped to moderate it. The findings illustrate the potential value of using revenue growth to retain teachers in times of rising private sector wages.
    Keywords: local labor markets; local school finances; resource booms; student achievement; teacher quality
    JEL: H70 I22 J31 J40 Q33 R23
    Date: 2019–05–01
  13. By: Farina, Egidio (Queen's University Belfast); Green, Colin (Norwegian University of Science and Technology (NTNU)); McVicar, Duncan (Queen's University Belfast)
    Abstract: This paper studies the prevalence and nature of zero-hours contracts (ZHCs) in the UK labour market. The headline count of ZHC workers based on the Labour Force Survey has long underestimated and continues to underestimate the number of workers in ZHC or ZHC-like jobs. ZHC jobs and workers are heterogeneous, but ZHC jobs have become increasingly concentrated among young workers, full-time students, migrants, black and minority ethnic workers, in personal service and elementary occupations, and in the distribution, accommodation and restaurant sector over time. Compared to other forms of employment, median wages in ZHC jobs have also fallen over time. The most common prior labour market state for ZHC workers is non-ZHC employment, particularly part-time employment, and we cannot reject that part of the reported growth in ZHCs has been driven by reclassification of existing employment relationships. Similarly, we cannot reject that growth in public awareness of ZHCs contributed substantially to recent growth in reported ZHCs, particularly over the period 2013/14.
    Keywords: zero hours contracts, no guaranteed hours contracts, casual work, precarious employment, atypical employment
    JEL: J21 J48 M55
    Date: 2019–04
  14. By: Christopher Blattman; Stefan Dercon; Simon Franklin
    Abstract: We study two interventions for underemployed youth across five Ethiopian sites: a $300 grant to spur self-employment, and a job offer to an industrial firm. Despite significant impacts on occupational choice, income, and health in the first year, after five years we see nearly complete convergence across all groups and outcomes. Shortrun increases in productivity and earnings from the grant dissipate as recipients exit their micro-enterprises. Adverse effects of factory work on health found after one year also appear to be temporary. These results suggest that one-time and one-dimensional interventions may struggle to overcome barriers to wage- or self-employment.
    JEL: F16 J24 J81 O14 O17
    Date: 2019–04
  15. By: Esther Delesalle
    Abstract: The purpose of this article is to study the effect of education on labor market participation and household consumption in a rural environment. The Tanzanian Universal Primary Education (UPE) program, which provides variations in education across locations and over time, is used as a natural experiment. Exploiting these two exogenous variations to instrument education, I find that education increases household consumption, especially in agriculture and in nonfarm self-employment activities. I also provide evidence that education increases the probability of working in agriculture. These results, initially surprising, suggest that returns to education in agriculture are positive, provided that the skills taught at school are suitable for agriculture.
    JEL: I20 J24 O15 O22
    Date: 2019–04
  16. By: Giuntella, Osea (University of Pittsburgh); Wang, Tianyi (University of Pittsburgh)
    Abstract: A handful of studies have investigated the effects of robots on workers in advanced economies. According to a recent report from the World Bank (2016), 1.8 billion jobs in developing countries are susceptible to automation. Given the inability of labor markets to adjust to rapid changes, there is a growing concern that the effect of automation and robotization in emerging economies may increase inequality and social unrest. Yet, we still know very little about the impact of robots in developing countries. In this paper we analyze the effects of exposure to industrial robots in the Chinese labor market. Using aggregate data from Chinese prefectural cities (2000-2016) and individual longitudinal data from China, we find a large negative impact of robot exposure on employment and wages of Chinese workers. Effects are concentrated in the state-owned sector and are larger among low-skilled, male, and prime-age and older workers. Furthermore, we find evidence that exposure to robots affected internal mobility and increased the number of labor-related strikes and protests.
    Keywords: emerging economies, labor markets, robots
    JEL: J23 J24 O33
    Date: 2019–04
  17. By: Kruse, Douglas L. (Rutgers University); Blasi, Joseph (Rutgers University); Weltmann, Dan (Western Connecticut State University); Kang, Saehee (Rutgers University); Kim, Jung Ook (Rutgers University); Castellano, William (Rutgers University)
    Abstract: A major theoretical objection against employee ownership is that workers become inadequately diversified and exposed to excessive financial risk. Recent theory concludes that 10-15% of a worker's wealth portfolio can be prudently invested in employer stock provided the rest of the portfolio is properly diversified. This paper analyzes employee share ownership in U.S. family financial portfolios using data from the 2004-2016 Survey of Consumer Finances. We find that 15.3% of families with private-sector employees had employer stock in their portfolio, with a median value of $6,000 and a median percent of family net worth of 3.1%. About one in five (19.2%) of the families with employer stock exceed the 15% threshold. This may be overstated given that the 15% threshold pertains to purchased stock and not to stock granted with no sacrifice by the employee. A higher percentage of families exceed the threshold for stock bought directly than for stock in pension plans. The analysis shows that employee ownership appears to generally add to, rather than substitute for, other wealth, which lessens the financial risk. We also find that families with employer stock are found to express more tolerance of financial risk, have higher self-rated knowledge of personal finances, and are more likely to understand the value of diversification. While financial risk does not appear to represent a substantial problem in practice for most employee share owners, a small minority may face excessive risk. We conclude with approaches to address excessive financial risk in company stock when it appears.
    Keywords: employee ownership, financial risk, wealth, diversification
    JEL: J32 J33 J54 D31 P13
    Date: 2019–04
  18. By: Barbosa, Luciana; Bilan, Andrada; Célérier, Claire
    Abstract: We identify the effects of exogenous credit constraints on firm ability to attract and retain skilled workers. To do so, we exploit a shock to the value of the pension obligations of Portuguese banks resulting from a change in accounting norms. Using bank-firm credit exposures that we match with a census of all Portuguese employees, we show that firms in a relationship with affected banks borrow less and reduce employment mostly of high-skilled workers. High-skilled workers are more likely to exit and less likely to join affected firms. Overall, credit market frictions might have long lasting effects on firm productivity and growth through firm accumulation of human capital. JEL Classification: G21, J21, J24
    Keywords: credit frictions, employment, skills, wages
    Date: 2019–04
  19. By: Eichhorst, Werner (IZA); Marx, Paul (University of Duisburg-Essen)
    Abstract: Labour market segmentation currently is at the forefront of national and European policy debates. While the European Commission and the OECD try to promote what they see as more inclusive policies, academic observers remain skeptical. Particularly the dualisation literature points to stable political economy equilibria that stack the cards against overcoming divisions between labour market insiders and outsiders. Other contributions point to a more dynamic political setting, in which negative feedback effects tend to challenge any 'dualisation consensus'. Against this background, this paper traces recent reform trajectories in a diverse group of European countries that are characterised by a high share of temporary employment: France, Germany, Italy, Netherlands, Poland, Portugal, Slovenia, Spain, and Sweden. Our case studies show that recent reforms of employment regulation are characterised by much more dynamism than one would expect based on the experiences of the two preceding decades - or based on dualisation or insider-outsider theory. The reform trajectories are characterised by rather contradictory approaches, sometimes in close succession. This even includes, in several cases, substantive deregulation of dismissal protection for open-ended contracts.
    Keywords: fixed-term contracts, labour market dualism, segmentation, employment protection, labour market reforms
    JEL: J41 J42 J65
    Date: 2019–04
  20. By: Been-Lon Chen; Hung-Ju Chen; Ping Wang
    Abstract: In a second-best optimal growth setup with only factor taxes, it is in general optimal to fully replace capital by labor income taxation in the long run. We revisit this important issue by developing a human capital-based endogenous growth model with frictional labor search, allowing each firm to create multiple vacancies and each worker to determine market participation. We find that the conventional efficient bargaining condition is necessary but not sufficient for achieving constrained social optimality. We then conduct tax incidence exercises in balanced growth by calibrating to the U.S. economy with a pre-existing 20% flat tax on capital and labor income. Our quantitative results suggest that, due to a dominant channel via the interactions between vacancy creation and market participation, it is optimal to switch only partially from capital to labor taxation in a benchmark economy where human capital formation depends on both physical and human capital stocks. This main finding is robust even along the transition with time-varying factor tax rates. Moreover, our quantitative analysis under alternative setups suggest that while endogenous human capital and labor market frictions are essential for obtaining a positive optimal capital tax, endogenous leisure, nonlinear human capital accumulation and endogenous growth are not crucial.
    JEL: E62 H22 J24 O41
    Date: 2019–04
  21. By: Dauth, Wolfgang (University of Würzburg); Findeisen, Sebastian (University of Mannheim); Moretti, Enrico (University of California, Berkeley); Suedekum, Jens (Heinrich Heine University Düsseldorf)
    Abstract: In most countries, average wages tend to be higher in larger cities. In this paper, we focus on the role played by the matching of workers to firms in explaining geographical wage differences. Using rich administrative German data for 1985-2014, we show that wages in large cities are higher not only because large cities attract more high-quality workers, but also because high-quality workers are significantly more likely to be matched to high-quality plants. In particular, we find that assortative matching—measured by the correlation of worker fixed effects and plant fixed effects—is significantly stronger in large cities. The elasticity of assortative matching with respect to population has increased by around 75% in the last 30 years. We estimate that in a hypothetical scenario in which we keep the quality and location of German workers and plants unchanged, and equalize within-city assortative matching geographical wage inequality in Germany would decrease significantly. Overall, assortative matching magnifies wage differences caused by worker sorting and is a key factor in explaining the growth of wage disparities between communities over the last three decades. If high-quality workers and firms are complements in production, moreover, increased assortative matching will increase aggregate earnings. We estimate that the increase in within-city assortative matching observed between 1985 and 2014 increased aggregate labor earnings in Germany by 2.1%, or 31.32 billion euros. We conclude that assortative matching increases earnings inequality across communities, but it also generates important efficiency gains for the German economy as a whole.
    Keywords: local labor markets, agglomeration
    JEL: J20
    Date: 2019–04
  22. By: Lalé, Etienne (University of Québec at Montréal)
    Abstract: A search-theoretic model of the labor market with idiosyncratic fluctuations in hours worked, search both off- and on-the-job, and multiple jobholding is developed. Taking on a second job entails a commitment to hold onto the primary employer, enabling the worker to use the primary job as her outside option to bargain with the secondary employer. The model performs well at explaining multiple jobholding inflows and outflows, and it is informative for understanding the secular decline in multiple jobholding. While some worry that this decline heralds a less-flexible labor market, the model reveals that it has contributed to reducing search frictions.
    Keywords: multiple jobholding, employment, hours worked, job search
    JEL: E24 J21 J62
    Date: 2019–04
  23. By: Glenn P. Jenkins (Department of Economics, Queen's University, Kingston, Canada and Eastern Mediterranean University, North Cyprus); Pejman Bahramain (Postdoctoral Fellow, JDINT’L Executive Programs,Department of Economics, Queen’s University Kingston, Ontario, Canada, K7L3N6); Mikhail Miklyaev (JDINT’L Executive Programs,Department of Economics, Queen’s University Kingston, Ontario, Canada, K7L3N6, and Senior Associate/ Economist Cambridge Resources International Inc.)
    Abstract: Using the supply price approach, the economic opportunity cost of labor (EOCL) was estimated for a number of labor market situation in Mozambique. The (EOCL) varies by skill, location, and labor market. The approach presented in this paper incorporates these factors in the estimation process. Due to the influence of diverse labour market conditions at the time of project implementation one is not able to provide a single estimate of the EOCL that can be used in the evaluation of all projects. Instead our objective is to develop an operational framework with examples that will serve as a guide for the estimation of the EOCLs across a range of circumstances typical to Mozambique. Our findings indicate that the range of the EOCL in Mozambique can vary from near equality with the project wage for unskilled workers to about 63% of the project wage for foreign-sourced skilled workers. These rates depend heavily on location and on the highly-differentiated skills of the labor employed and, most importantly, the wage paid by the project relative to the minimum wage required (the supply price) to attract sufficient workers with the required skills. Similarly, the consideration of the international mobility of workers further enriches this analysis.
    Keywords: Economic Cost, Labor, Supply Price, Protected Wage, Investment Appraisal
    JEL: H43 J23
    Date: 2019–04
  24. By: Hornbeck, Richard (Harris School, University of Chicago); Moretti, Enrico (University of California, Berkeley)
    Abstract: We estimate direct and indirect effects of total factor productivity growth in manufacturing on US workers' earnings, housing costs, and purchasing power. Drawing on four alternative instrumental variables, we consistently find that when a city experiences productivity gains in manufacturing, there are substantial local increases in employment and average earnings. For renters, increased earnings are largely offset by increased cost of living; for homeowners, the benefits are substantial. Strikingly, local productivity growth in manufacturing reduces local inequality, as it raises earnings of local less-skilled workers more than the earnings of local more-skilled workers. This is due, in part, to lower geographic mobility of less-skilled workers. However, local productivity growth also has important indirect effects through worker mobility. We estimate that 38% of the overall increase in workers' purchasing power occurs outside cities directly affected by local TFP growth. The indirect effects on worker earnings are substantially greater for more-skilled workers, due to greater geographic mobility of more-skilled workers, which increases inequality in other cities. Neglecting these indirect effects would both understate the overall magnitude of benefits from productivity growth and misstate their distributional consequences. Overall, US workers benefit substantially from manufacturing productivity growth. Summing direct and indirect effects, we find that manufacturing TFP growth from 1980 to 1990 increased purchasing power for the average US worker by 0.5-0.6% per year from 1980 to 2000. These gains do not depend on a worker's education; rather, the benefits from productivity growth mainly depend on where workers live.
    Keywords: local labor markets
    JEL: J20
    Date: 2019–04
  25. By: Boeri, Tito (Bocconi University); Ichino, Andrea (European University Institute); Moretti, Enrico (University of California, Berkeley); Posch, Johanna (European University Institute)
    Abstract: In many European countries, wages are determined by collective bargaining agreements intended to improve wages and reduce inequality. We study the local and aggregate effects of collective bargaining in Italy and Germany. The two countries have similar geographical differences in firm productivity – with the North more productive than the South in Italy and the West more productive than the East in Germany – but have adopted different models of wage bargaining. Italy sets wages based on nationwide contracts that allow for limited local wage adjustments, while Germany has moved toward a more flexible system that allows for local bargaining. We find that, as a consequence, Italy exhibits limited geographical wage differences in nominal terms and almost no relationship between local productivity and local nominal wages, while Germany has larger geographic wage differences and a tighter link between local wages and local productivity. While the Italian system is successful at reducing nominal wage inequality, it also creates costly geographic imbalances. In Italy, low productivity provinces have significantly higher non-employment rates than high productivity provinces, because employers cannot lower wages, while in Germany the relationship between non-employment and productivity is significantly weaker. In Italy, the relationship between real wages and productivity is negative, with lower real wages in the North compared to the South, since the latter has low housing costs but similar nominal wages. Thus, conditional on having a job, Italian workers have higher purchasing power in the South, but the probability of having a job is higher in the North. We conclude that the Italian system has significant costs in terms of forgone aggregate earnings and employment because it generates a spatial equilibrium where workers queue for jobs in the South and remain unemployed while waiting. If Italy adopted the German system, aggregate employment and earnings would increase by 11.04% and 7.45%, respectively. Our findings are relevant for several other European countries with systems similar to Italy's.
    Keywords: local labor markets
    JEL: J20
    Date: 2019–04
  26. By: Diego Ubfal; Irani Arraiz; Diether Beuermann; Michael Frese; Alessandro Maffioli; Daniel Verch
    Abstract: A randomized control trial with 945 entrepreneurs in Jamaica shows positive shortterm impacts of soft-skills training on business outcomes. The effects are concentrated among men, and disappear twelve months after the training. We argue that the main channel is increased adoption of recommended business practices, exclusively observed in the short run. We see persistent effects on an incentivized behavioral measure of perseverance after setbacks, a focus of this training. We compare a course focused only on soft-skills to one that combines soft-skills training with traditional business training. The effects of the combined training are never statistically significant. Keywords: Business Training, entrepreneurship, soft skills JEL Codes: J24, L25, M13, O12
    Date: 2019
  27. By: Colonnelli, Emanuele; Prem, Mounu; Teso, Edoardo
    Abstract: In all modern bureaucracies, politicians retain some discretion in public employment decisions, which may lead to frictions in the selection process if political connections substitute for individual competence. Relying on detailed matched employer-employee data on the universe of public employees in Brazil over 1997-2014, and on a regression discontinuity design in close electoral races, we establish three main findings. First, political connections are a key and quantitatively large determinant of employment in public organizations, for both bureaucrats and frontline providers. Second, patronage is an important mechanism behind this result. Third, political considerations lead to the selection of less competent individuals.
    JEL: D72 J45 O10
    Date: 2019–04
  28. By: Matthias Fahn; Regina Seibel
    Abstract: We study optimal employment contracts for present-biased employees who can conduct on-the-job search. Presuming that firms cannot offer long-term contracts, we find that individuals who are naive about their present bias will actually be better off than sophisticated or time-consistent individuals. Moreover, they search more, which partially counteracts the inefficiencies caused by their present bias.
    Keywords: present bias, on-the-job search
    JEL: D21 D83 D90 J31 J32
    Date: 2019
  29. By: Bergolo, Marcelo (IECON, Universidad de la República); Burdín, Gabriel (Leeds University Business School); De Rosa, Mauricio (Universidad de la República, Uruguay); Giaccobasso, Matias (University of California, Los Angeles); Leites, Martin (Universidad de la República, Uruguay)
    Abstract: By using a bunching design on rich administrative tax records from Uruguay's tax agency we explore how individual taxpayers respond to personal income taxation in a context with high sheltering opportunities. We estimate a moderated elasticity of taxable income in the first kink point (0.16) driven by a combination of gross labor income and deductions responses. Taxpayers use personal deductions more intensively close to the kink point and undereport income unilaterally or through employer-employee collusion. Our results suggest that policy efforts should be directed at broadening the tax base and improving the enforcement capacities rather than eroding tax progressivity.
    Keywords: deductions behavior, elasticity of labor income, tax bunching, personal income taxation, misreporting, developing economies
    JEL: H21 H24 H30 J22
    Date: 2019–04
  30. By: Stark, Oded (University of Bonn); Budzinski, Wiktor (University of Warsaw)
    Abstract: We study how the work effort and output of non-migrants in a village economy are affected when a member of the village population migrates. Given that individuals dislike low relative income, and that migration modifies the social space of the non-migrants, we show why and how the non-migrants adjust their work effort and output in response to the migration-generated change in their social space. When migration is negatively selective such that the least productive individual departs, the output of the non-migrants increases. While as a consequence of this migration statically calculated average productivity rises, we identify a dynamic repercussion that compounds the static one.
    Keywords: social preferences, distaste for low relative income, work effort, per capita output, migration
    JEL: D01 D31 J24 O15
    Date: 2019–04

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