nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2019‒11‒25
sixteen papers chosen by
Joseph Marchand
University of Alberta

  1. Skill Prices, Occupations, and Changes in the Wage Structure for Low Skilled Men By Christopher R. Taber; Nicolas A. Roys
  2. Income Growth and its Distribution from Eisenhower to Obama: The Growing Importance of In-Kind Transfers (1959-2016) By James Elwell; Kevin Corinth; Richard V. Burkhauser
  3. Decomposing Employment Trends of Disabled Workers By Pierre Koning; Heike Vethaak
  4. The Self-Employment Option in Rigid Labor Markets: An Empirical Investigation By Joaquin Garcia-Cabo; Rocio Madera
  5. The Impact of Internship Experience During Secondary Education on Schooling and Labour Market Outcomes By Neyt, Brecht; Verhaest, Dieter; Baert, Stijn
  6. Occupation Mobility, Human Capital and the Aggregate Consequences of Task-Biased Innovations By Maximiliano Dvorkin; Alexander Monge-Naranjo
  7. Heterogeneous Effect of a Non-contributory Pension. Evidence from Bolivia By Miguel Angel Borrella-Mas; Mariano Bosch; Marcello Sartarelli
  8. The tax elasticity of formal work in African countries By Pirttilä Jukka; McKay Andy; Schimanski Caroline
  9. Slavery, Corruption, and Institutions By Michael Rauscher; Bianca Willert
  10. How Would 401(k) ‘Rothification’ Alter Saving, Retirement Security, and Inequality? By Vanya Horneff; Raimond Maurer; Olivia S. Mitchell
  11. Working Time Accounts and Turnover By Andrey Launov
  12. Estimating Labor Market Slack, U.S. 1994-2019 By John Komlos
  13. Does Electricity Drive Structural Transformation? Evidence from the United States By Paul Gaggl; Rowena Gray; Ioana Marinescu; Miguel Morin
  14. Working until you drop: Image concerns or prosocial motives? By Erkut, Hande; Shalvi, Shaul
  15. Training, Human Capital, and Gender Gaps in Entrepreneurial Performance By Brixiová, Zuzana; Kangoye, Thierry
  16. The Tale of the Two Italies: Regional Price Parities Accounting for Differences in the Quality of Services By Martina Menon; Federico Perali; Ranjan Ray; Nicola Tommasi

  1. By: Christopher R. Taber; Nicolas A. Roys
    Abstract: This paper studies the effect of the change in occupational structure on wages for low skilled men. We develop a model of occupational choice in which workers have multi-dimensional skills that are exploited differently across different occupations. We allow for a rich specification of technological change which has heterogenous effects on different occupations and different parts of the skill distribution. We estimate the model combining four datasets: (1) O*NET, to measure skill intensity across occupations, (2) NLSY79, to identify life-cycle supply effects, (3) CPS (ORG), to estimate the evolution of skill prices and occupations over time, and (4) NLSY97 to see how the gain to specific skills has changed. We find that while changes in the occupational structure have affected wages of low skilled workers, the effect is not dramatic. First, the wages in traditional blue collar occupations have not fallen substantially relative to other occupations-a fact that we can not reconcile with a competitive model. Second, our decompositions show that changes in occupations explain only a small part of the patterns in wage levels over our time period. Price changes within occupation are far more important. Third, while we see an increase in the payoff to interpersonal skills, manual skills still remain the most important skill type for low educated males.
    JEL: J21 J24 J3
    Date: 2019–11
  2. By: James Elwell; Kevin Corinth; Richard V. Burkhauser
    Abstract: Using Census Bureau estimates of the market value of in-kind transfers and Current Population Survey (ASEC-CPS) data over the period 1979 to 2007, Burkhauser et al. (2012b) construct measures of income and its distribution. We extend their work forward to 2016 and back to 1967 using ASEC-CPS data and decennial Census data for 1959. With this newly linked data set, we provide a fresh look at the twenty-year period 1959 to 1979 that encompasses the inauguration of New Frontier and Great Society programs as well as the first survey-based look at levels and trends in income and its distribution from 1959 to 2016. We find that the dramatic decline in the market income of the middle class (measured as the median American tax unit or the mean value of the middle quintile of American tax units) began in 1969. However, we find that this decline was more than offset by government tax and transfer programs—especially in-kind transfers. Conventional measures of median income and income inequality that exclude the market value of in-kind transfers will substantially understate the impact of government policies in offsetting the stagnation of median market income growth and the rise in market income inequality since 1969.
    JEL: D31 H24 J3
    Date: 2019–11
  3. By: Pierre Koning (Vrije Universiteit Amsterdam); Heike Vethaak (Leiden University)
    Abstract: Many OECD countries are facing decreases in the employment rates of disabled workers. To uncover the driving forces of these trends, this paper estimates Age-Period-Cohort (APC) models on administrative data of Disability Insurance (DI) application cohorts for the Netherlands between 1999 and 2013. Our main finding is that the substantial decrease in employment rates of applicant cohorts in this time period is almost fully explained by cohort effects - equalling about 30 percentage points - and that the impact of period effects is only small. In turn, cohort effects stem from changes in the observed composition of applicants, with increasing shares of workers without (permanent) contracts in the year before the application. These changes are largely confined to years following two major DI reforms that increased self-screening among potential applicants. We also expand the APC model by allowing for distinct effects for awarded and rejected DI applicants. Assuming common compositional cohort effects for these two groups, difference-in-difference estimates of cohort effects indicate that the effect of changes in benefit conditions (`incentive effects') is limited. Disability reforms thus predominantly affected the stringency of the DI system and induced substantial self-screening in the sickness period before the DI decision, rather than changing individual employment rates.
    Keywords: Disability Insurance, employment, age-period-cohort model
    JEL: H75 J21 C23
    Date: 2019–11–17
  4. By: Joaquin Garcia-Cabo; Rocio Madera
    Abstract: This paper studies selection into and returns to self-employment in labor markets with stringent employment protection. Using Spanish administrative panel data, we characterize self-employment dynamics in the presence of rigidities that affect workers’ outside options. We document the negative selection into self-employment when workers enter from unemployment, and the pro-cyclicality of the decision. We identify career heterogeneity in the data and estimate a rich life-cycle income process. The self-employed face shocks with smaller variances but lower returns compared to fixed-term workers—the prevalent contract out of unemployment. These facts call for a revision of active labor market policies in place.
    Keywords: Self-employment ; Business cycles ; Unemployment ; Employment protection
    JEL: J24 J64 E32
    Date: 2019–11–14
  5. By: Neyt, Brecht; Verhaest, Dieter; Baert, Stijn
    Abstract: The literature on workplace learning in secondary education has mainly focussed on vocational education programmes. In this study, we examine the impact of internship experience in secondary education on a student’s schooling and early labour market outcomes, by analysing unique, longitudinal data from Belgium. To control for unobserved heterogeneity, we model sequential outcomes by means of a dynamic discrete choice model. In line with the literature on vocational education programmes, we find that internship experience has a positive effect on labour market outcomes that diminishes over time, although within the time window of our study, we find no evidence for a null or negative effect over time.
    Keywords: internship,transitions in youth,education,labour
    JEL: I21 I26 J21 J24
    Date: 2019
  6. By: Maximiliano Dvorkin; Alexander Monge-Naranjo
    Abstract: We construct a dynamic general equilibrium model with occupation mobility, human capital accumulation and endogenous assignment of workers to tasks to quantitatively assess the aggregate impact of automation and other task-biased technological innovations. We extend recent quantitative general equilibrium Roy models to a setting with dynamic occupational choices and human capital accumulation. We provide a set of conditions for the problem of workers to be written in recursive form and provide a sharp characterization for the optimal mobility of individual workers and for the aggregate supply of skills across occupations. We craft our dynamic Roy model in a production setting where multiple tasks within occupations are assigned to workers or machines. We solve for the balanced-growth path and characterize the aggregate transitional dynamics ensuing task-biased technological innovations. In our quantitative analysis of the impact of task-biased innovations in the U.S. since 1980, we find that they account for an increased aggregate output in the order of 75% and for a much higher dispersion in earnings. If the U.S. economy had higher barriers to mobility, it would have experienced less job polarization but substantially higher inequality and lower output as occupation mobility has provided an "escape" for the losers from automation.
    Keywords: dynamic roy models, automation, human capital, aggregation
    JEL: E24 J23 J24 J62 O33 E25
    Date: 2019–11
  7. By: Miguel Angel Borrella-Mas (Universidad de Navarra.); Mariano Bosch (Inter-American Development Bank.); Marcello Sartarelli (Universidad Complutense de Madrid and ICAE.)
    Abstract: We test whether eligibility for the Renta Dignidad social pen- sion mitigates old-age poverty and induces (in)direct behavioural responses by using a regression discontinuity design as the age cut- off determining eligibility is set at 60. We find that, first, neither poverty nor consumption or labour supply are affected by spouses’ eligibility and, second, the probability of co-residing grandchildren in households with both spouses eligible is higher. We contribute to the literature by showing how the role of gender in decisions with an intergenerational component can help rationalising apparent limita- tions of the pension in fighting poverty in the short-run.
    Keywords: Consumption; Gender; Household composition; Labour supply; Poverty; Regression discontinuity; Renta Dignidad; Social pension.
    JEL: D13 H2 J22 J26
    Date: 2019–11
  8. By: Pirttilä Jukka; McKay Andy; Schimanski Caroline
    Abstract: A key policy problem in most developing countries is the size of the informal sectorÂÂ and its persistence over time. In need to increase their tax revenues, policy makers face a trade-offÂÂ between decreasing tax rates (making formalizing potentially more attractive) and alternativelyÂÂ raising tax rates (potentially slowing down the formalization of the economy if people preferÂÂ informal employment or self-employment). Evidence on formal versus informal wages and jobÂÂ characteristics in different sectors and the impact of tax changes on the extent of informality inÂÂ developing countries is, however, very limited.This paper estimates the tax responsiveness of theÂÂ extensive margin of formality, that is the propensity to be a formal rather than informal worker,ÂÂ for four sub-Saharan African countries. Using repeated cross-sections of household data andÂÂ applying grouping estimator techniques, this paper does not find robust effects of taxes on theÂÂ extent of formal work, although in a pooled sample taxes appear to lower the share of formalÂÂ workers in some specifications.
    Keywords: Labour supply,Sub-Saharan Africa,Taxation,Developing countries,Informality
    Date: 2019
  9. By: Michael Rauscher; Bianca Willert
    Abstract: We develop a model where firms profit from coercing workers into employment under conditions violating national law and international conventions and where bureaucrats benefit from accepting bribes from detected perpetrators. Firms and bureaucrats are heterogeneous. Employers differ in their unscrupulousness regarding the use of slave labour whereas bureaucrats have differing intrinsic motivations to behave honestly. Moreover, there is a socially determined warm-glow effect: honest bureaucrats feel better if their colleagues are honest too. The determination of bribes is modelled via Nash bargaining between the firm and the corrupt civil servant. It is shown that multiple equilibria and hysteresis are possible. Depending on history, an economy may be trapped in a locally stable high-corruption, high-slavery equilibrium and major changes in government policies may be necessary to move the economy out of this equilibrium. Moreover, we show that trade bans that are effective in reducing slavery in the export industry tend to raise slavery in the remainder of the economy. It is possible that this leakage effect dominates the reduction of slavery in the export sector.
    Keywords: coerced labour, modern slavery, corruption, social norms, trade-related process standards
    JEL: D73 F16 J47
    Date: 2019
  10. By: Vanya Horneff; Raimond Maurer; Olivia S. Mitchell
    Abstract: The US has long incentivized retirement saving in 401(k) and similar retirement accounts by permitting workers to defer taxes on contributions, levying them instead when retirees withdraw funds in retirement. This paper develops a dynamic life cycle model to show how and whether ‘Rothification’ – that is, taxing 401(k) contributions rather than payouts – would alter household saving, investment, and Social Security claiming patterns. We show that these changes differ importantly for low- versus higher-paid workers. We conclude that moving to a system that taxes pension contributions instead of withdrawals will lead to later retirement ages, particularly for the better-educated. It also would reduce work hours and lifetime tax payments and increase wealth and consumption inequality. In addition, we show how these behaviors would differ in a persistently low interest rate environment versus a more “normal” historical return world.
    JEL: D14 D91 G11 G22 G23 G28
    Date: 2019–11
  11. By: Andrey Launov
    Abstract: Working time account is an organization tool that allows firms to smooth their demand for hours employed. Descriptive literature suggests that working time accounts are likely to reduce layoffs and inhibit increases in unemployment during recessions. In a model of optimal labour demand I show that working time account does not necessarily guarantee less layoffs at the firm level. These may be reduced or increased depending on whether the firm meets economic downturn with surplus or deficit of hours and on how productive the firm is. In expected terms, however, working time account reduces net job destruction at almost any level of firm’s productivity. Model predictions are consistent with dynamics of aggregate turnover in Germany during the Great Recession.
    Keywords: labour demand, working hours, working time account, turnover, layoff, Great Recession, Germany
    JEL: J23 J63
    Date: 2019
  12. By: John Komlos
    Abstract: U3, the official unemployment rate, is an inadequate gauge of labor-market slack and the extent to which it misinforms varies substantially over the business cycle. The U6 unemployment rate is usually about 4 percentage points above U3. However, during the Great Recession it exceeded U3 by 7 percentage points for three years. Moreover, the U6-U3 gap is magnified among disadvantaged groups such as minorities, youth, and for the less educated. For instance, in January 2011 the U6-U3 gap among African American youth was 17.9 pps as U6 climbed to 47.5% and was similarly large among African Americans without a high-school diploma.
    Keywords: unemployment, U6, unemployment by ethnicity, discouraged workers, labor market slack
    JEL: J40 J49 J69
    Date: 2019
  13. By: Paul Gaggl; Rowena Gray; Ioana Marinescu; Miguel Morin
    Abstract: Electricity is a general purpose technology and the catalyst for the second industrial revolution. Developing countries are currently making huge investments in electrification, with a view to achieving structural change. What does history say about its impact on the structure of employment? We use U.S. Census data from 1910 to 1940 and measure electrification with the length of higher-voltage electricity lines. Instrumenting for electrification using hydroelectric potential, we find that the average expansion of high-voltage transmission lines between 1910 and 1940 increased the share of operatives in a county by 3.3 percentage points and decreased the share of farmers by 2.1 percentage points. Electrification can explain 50.5% of the total increase in operatives, and 18.1% of the total decrease in farmers between 1910 and 1940. At the industry level, electrification drove 15.7% of the decline in the share of agricultural employment and 28.4% of the increase in the share of manufacturing employment between 1910 and 1940. Electrification was thus a key driver of structural transformation in the U.S. economy.
    Keywords: technological change, electrification, structural change
    JEL: E25 E22 J24 J31 N32 N72 O33
    Date: 2019
  14. By: Erkut, Hande; Shalvi, Shaul
    Abstract: Working hard is costly, so people should work wisely. Yet, they do not always work efficiently, spending their effort on tasks that do not bring tangible benefits. One reason that potentially amplifies inefficient working is that people work in social environments where they are observed and where others' earnings also depend on their effort. In this paper, we investigate whether people work and earn more than they need, and if so why? We use laboratory experiments to disentangle two concerns that potentially lead people to work inefficiently hard, namely image concerns and prosocial motives. Our results suggest that people indeed overwork unnecessarily, and that this is mainly due to image concerns.
    Keywords: overworking,image concerns,social preferences
    JEL: C91 D91 J22
    Date: 2019
  15. By: Brixiová, Zuzana; Kangoye, Thierry
    Abstract: In the aftermath of the global financial crisis, policymakers have been increasingly striving to support female entrepreneurship as a possible growth driver. This paper contributes to reconciling mixed findings in the literature on the effectiveness of entrepreneurial training with an analysis that links training and human capital, including tertiary education and non-cognitive skills, with gender gaps in entrepreneurial performance in Africa. We have found that while financial literacy training directly benefits men, it does not raise the sales level of women entrepreneurs. Instead, tertiary education has a direct positive link with the performance of women. Consistent with our theoretical model where different skills are complements, tertiary education can act as a channel that makes training effective. Regarding non-cognitive skills, evidence shows that women entrepreneurs who are tenacious achieve stronger sales performance. Our results underscore the importance of incorporating tertiary education and entrepreneurial training programs focused on a balanced set of skills, including non-cognitive skills, among policies for women entrepreneurs.
    Keywords: Female entrepreneurship,training,non-cognitive skills,tertiary education
    JEL: L53 O12 J4
    Date: 2019
  16. By: Martina Menon (Department of Economics (University of Verona)); Federico Perali (Department of Economics (University of Verona)); Ranjan Ray (Monash University); Nicola Tommasi (CIDE, University of Verona)
    Abstract: This study estimates regional price parities (RPP) in Italy based on household budget data and estimated “pseudo” unit values to compare living standards between Italian regions. The simultaneous consideration of spatial variation in prices and in quality of services between regions is a distinctive feature of this study. The study makes a methodological contribution by proposing a quality adjustment procedure to spatial price calculations whose appeal extends beyond Italy to the international context of cross-country PPP calculations. The average difference in the “true” cost of living between North and South is about 30-40 percent depending on the regions selected for comparison. Such a divide in cost of living and in market efficiency, probably one of the highest differentials in the world, is the traditional incipit of the tale of the two Italies. The estimations of RPP allows us to investigate the policy conundrum of why Italians, and dependent workers in particular, do not migrate towards the South given the much lower cost of living there. The answer, which takes us closer to the end of the tale, lies partly in the superior quality of services in the North and partly in the severe restriction on job opportunities in the South, especially for female earners.
    Keywords: Price Parities, Cost of Living, Quality of Public Services, Unit Values
    JEL: D12 I31 J3
    Date: 2019–11

This nep-lma issue is ©2019 by Joseph Marchand. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.