nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2020‒02‒03
eighteen papers chosen by
Joseph Marchand
University of Alberta

  1. Career paths of PhD graduates in eastern and western Germany: Same qualification, same labor market outcomes? By Rehs, Andreas; Fuchs, Michaela
  2. Hours risk and wage risk: Repercussions over the life-cycle By Jessen, Robin; König, Johannes
  3. Reducing the income tax burden for households with children: An assessment of the child tax credit reform in Austria By Michael Christl; Silvia De Poli; Janos Vargas
  4. The Labor Market Value of Experience from Temporary Self-employment By Lougui, Monia; Broström, Anders
  5. Using Payroll Tax Variation to Unpack the Black Box of Firm-Level Production By Youssef Benzarti; Jarkko Harju
  6. The Emergence of Procyclical Fertility: The Role of Gender Differences in Employment Risk By Sena Coskun; Husnu Dalgic
  7. Heterogeneous Effects of Temporary Employment on Productivity and Wages in the Italian Business Firms By Andrea Ricci
  8. Demand for Older Workers: What Do Economists Think? What Are Firms Doing? By Steven G. Allen
  9. How Do Employers Use Compensation History?: Evidence From a Field Experiment By Moshe A. Barach; John J. Horton
  10. Do Firm Effects Drift? Evidence from Washington Administrative Data By Marta Lachowska; Alexandre Mas; Raffaele D. Saggio; Stephen A. Woodbury
  11. Sick of my parents? Consequences of parental ill health on adult children By Norén, Anna
  12. Do informational nudges alter firms' hiring behavior of older workers? By Homrighausen, Pia; Lang, Julia
  13. Imputing Missing Values in the US Census Bureau's County Business Patterns By Fabian Eckert; Teresa C. Fort; Peter K. Schott; Natalie J. Yang
  14. Effects of subsidizing the firstemployee - Empirical evidencefrom Finland By Annika Nivala
  15. How Are Employers Responding to an Aging Workforce? By Robert L. Clark; Beth M. Ritter
  16. Consumer Protection in an Online World: An Analysis of Occupational Licensing By Chiara Farronato; Andrey Fradkin; Bradley Larsen; Erik Brynjolfsson
  17. Trade Costs in Services: Firm Survival, Firm Growth and Implied Changes in Employment By Elisabeth Christen; Michael Pfaffermayr; Yvonne Wolfmayr
  18. Thorstein Veblen, Joan Robinson, and George Stigler (probably) never met: Social Preferences, Monopsony, and Government Intervention By Laszlo Goerke; Michael Neugart

  1. By: Rehs, Andreas; Fuchs, Michaela (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "This paper investigates the extent to which the returns to gaining a PhD degree depend upon the region of birth, the region where the degree was earned, and the place of work. Eastern Germany serves as an interesting showcase in light of the ongoing debate surrounding the underrepresentation of eastern Germans in top positions in Germany. We examine the career paths of eastern and western German PhD graduates who completed their dissertations between 1995 and 2010. We estimate the returns with regard to obtaining a job suited to their skill level and with high wages. Our data set combines information on PhD graduates and their place of birth collected from data on PhD dissertations in Germany with data from administrative social security records. This record linkage approach provides a unique source of individual employment and wage biographies of eastern and western German PhD graduates. Our findings show that labor market success is affected neither by being born in eastern Germany nor by earning a PhD at an eastern German university. However, the place of work does matter, suggesting that the stark differences between the two parts of Germany with regard to labor market conditions is the main reason for the differences in the labor market prospects of PhD graduates from eastern and western Germany." (Author's abstract, IAB-Doku) ((en))
    Keywords: Bildungsertrag, regionale Herkunft, Promotion, Lohnhöhe, adäquate Beschäftigung, regionale Disparität, Ostdeutschland, Westdeutschland, Bundesrepublik Deutschland
    JEL: I23 I26 J24 J31 P20
  2. By: Jessen, Robin; König, Johannes
    Abstract: We decompose permanent earnings risk into contributions from hours and wage shocks. To distinguish between hours shocks, modeled as innovations to the marginal disutility of work, and labor supply reactions to wage shocks we formulate a life-cycle model of consumption and labor supply. Both permanent wage and hours shocks are important to explain earnings risk, but wage shocks have greater relevance. Progressive taxation strongly attenuates cross-sectional earnings risk, its life-cycle insurance impact is much smaller. At the mean, a positive hours shock of one standard deviation raises life-time income by 10%, while a similar wage shock raises it by 12%.
    Keywords: Earnings Risk,Wage Risk,Labor Supply,Progressive Taxation,Consumption Insurance
    JEL: D31 J22 J31
    Date: 2020
  3. By: Michael Christl (European Commission - JRC); Silvia De Poli (European Commission - JRC); Janos Vargas (European Commission – DG ECFIN)
    Abstract: This paper analyses the impact of the implementation of a child tax credit in Austria in 2019, not only on micro, but also on macro level by using a dynamic scoring methodology. First, we assess the fiscal and distributional impact of this reform using the microsimulation model EUROMOD. Second, we estimate labour supply impacts of the reform based on a structural discrete choice framework. Third, we evaluate the macroeconomic impacts of the reform, by calibrating and shocking QUEST, the DSGE model of the European Commission, with the micro-based results for the implicit tax rate, the non-participation and the labour supply elasticities. We show that the child tax credit reform in Austria reduces inequality, lowers the poverty rate in general, but by definition only for households with children. Overall the reform has a positive impact on labour supply, both on the extensive and on the intensive margin, especially for women. On the macro-level (and in the long-run), our model suggests a positive impact on employment. Additionally, we find that parts of the tax decrease can be potentially captured by the employer, meaning that gross wages would fall slightly. However, we find small but positive effects on GDP, investment and consumption, although the long-run macroeconomic effects depend crucially on how the government compensates the missing tax revenues after the reform. Accounting for these effects at the micro level, we show that the second round effects are important to take into account, because they provide insights into the medium-term distributional impact of the reform.
    Keywords: EUROMOD, tax credit, reform, DSGE, labour supply, microsimulation, discrete choice
    JEL: H24 H31 I38
    Date: 2019–12
  4. By: Lougui, Monia (Ratio & Centre of Excellence for Science and Innovation Studies (CESIS)); Broström, Anders (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper explores the evaluation of experience from self-employment on the Swedish labor market. Specifically, we analyze the wage remuneration of individuals moving from a spell in self-employment to regular employment as compared to a control group of individuals without such experience. To tackle the challenge of estimating the average effect of treatment, we seek to reduce unobserved heterogeneity across groups by only considering individuals moving into self-employment after being displaced in the context of employer exit, and setting up the control group to consist of individuals moving from the same exiting firms into new employment. To further ensure similarity on key observables with the treated group, we select the control group through coarsened exact matching. Our results demonstrate that the average treatment effect is positive. In further exploration, we find evidence suggesting that this effect is at least partially driven by self-employment experiences being positively evaluated for jobs requiring general and managerial skills rather than industry-specific expertise.
    Keywords: Entrepreneurship valuation; Labor market mobility; Entry wage; Firm closure; Necessity entrepreneurship
    JEL: E24 J30 J60 L26 M13
    Date: 2020–01–28
  5. By: Youssef Benzarti; Jarkko Harju
    Abstract: This paper uses quasi-experimental variation in payroll taxes to estimate their incidence and investigate how firms use their input factors. We find that higher payroll tax rates lead to large employment responses and have no effects on employee earnings. As payroll taxes increase, firms substitute away from low-skilled, routine and manual workers towards more productive workers and also reduce investments. Our results imply that, contrary to the canonical tax incidence model, firm-level production and input factor choices are affected by payroll taxes.
    JEL: H20 H22 H23
    Date: 2020–01
  6. By: Sena Coskun; Husnu Dalgic
    Abstract: Fertility in the US exhibits a procyclical pattern since 80s. We argue that gender differences in employment risk leads to procyclical fertility; men mostly work in volatile and procyclical industries whereas women are likely to work in relatively stable and countercyclical industries. Our quantitative framework features a general equlibrium OLG model with endogeneous fertility and human capital choice and it shows that current gender industry composition in the US data accounts for all of this procyclicality. Moreover, we argue that gender income ratio (female to male) is higher in bad times which tilts the quality-quantity trade-off towards quality.
    Keywords: fertility, industry cyclicality, industry gender segregation, gender income gap, quality-quantity trade-off
    JEL: E24 E32 J11 J13 J16 J21 J24
    Date: 2020–01
  7. By: Andrea Ricci
    Abstract: What is the link between flexible employment, labour productivity and wages? Taking advantage of an original firm level database combining information from Rilevazione Imprese e Lavoro (RIL) conducted by INAPP on a representative sample of Italian firms with the AIDA archive, we explore the nexus between temporary employment, labour productivity and wages along the distributions of labour productivity and wages. By applying conditional quantile technique with additive fixed effects, we detect a strong negative relationship between the use of fixed-term contracts and both labour productivity and wages. The effect of temporary employment on firms’ labour productivity and wages is heterogeneous along the distributions. Low-productive firms - recurring more to temporary contracts - are also more affected by an incremental use of short-term work arrangements risking to be trapped in a vicious cycle of low-productivity and low-wages.
    Keywords: Labour productivity, Wages, Temporary employment, Firm-level analysis
    JEL: J2 J24 J31 L25
    Date: 2020–01
  8. By: Steven G. Allen
    Abstract: The employment rate for workers 55 and over has been increasing across the world for the last decade. This creates opportunities for employers to diversify their workforce and retain valuable knowledge and skills, while at the same time posing the challenge of rising labor costs and blocked opportunities for younger workers. This study summarizes in layperson’s terms the economic tradeoffs facing organizations as they design the optimal age structure of employees, as well as surveying recent research on how older workers fit into organizations. Empirical studies show that whereas wage and benefit costs increase with age, there is no conclusive evidence that productivity increases as well. Studies using macroeconomic data find no evidence that older workers block opportunities for the young, but two recent papers using a more disaggregated approach show that firms treat older and younger workers as substitutes. A key challenge facing older workers is the decline over the last 20 years in the odds of becoming a new hire. Although the turnover rate for older workers is much lower than for other age groups, employers have concerns about accommodating their work environment and work schedule preferences. Resume studies show age discrimination also plays a factor, especially for women. The paper concludes with suggestions for future research, including interindustry and international comparisons of microeconomic data on employment by age group and studies that take a close look within organizations that have engaged in innovative activities to hire or retain more older workers.
    JEL: J14 J2 J71
    Date: 2019–12
  9. By: Moshe A. Barach; John J. Horton
    Abstract: We report the results of a field experiment in which treated employers could not observe the compensation history of their job applicants. Treated employers responded by evaluating more applicants, and evaluating those applicants more intensively. They also responded by changing what kind of workers they evaluated: treated employers evaluated workers with 5% lower past average wages and hired workers with 13% lower past average wages. Conditional upon bargaining, workers hired by treated employers struck better wage bargains for themselves.
    JEL: J0 J23 J48 J7
    Date: 2020–01
  10. By: Marta Lachowska; Alexandre Mas; Raffaele D. Saggio; Stephen A. Woodbury
    Abstract: We study the time-series properties of firm effects in the two-way fixed effects models popularized by Abowd, Kramarz, and Margolis (1999) (AKM) using two approaches. The first—the rolling AKM approach (R-AKM)—estimates AKM models separately for successive two-year intervals. The second—the time-varying AKM approach (TV-AKM)—is an extension of the original AKM model that allows for unrestricted interactions of year and firm indicators. We apply to both approaches the leave-one-out methodology of Kline, Saggio and Sølvsten (2019) to correct for biases in the resulting variance components. Using administrative wage records from Washington State, we find, first, that firm effects for hourly wage rates and earnings are highly persistent. Specifically, the autocorrelation coefficient between firm effects in 2002 and 2014 is 0.74 for wages and 0.82 for earnings. Second, the R-AKM approach uncovers cyclicality in firm effects and worker-firm sorting. During the Great Recession the variability in firm effects increased, while the degree of worker-firm sorting decreased. Third, we document an increase in wage dispersion between 2002–2003 and 2013–2014. This increase in wage dispersion is driven by increases in the variance of worker effects and sorting, with an accompanying decrease in the variance of firm wage effects. Auxiliary analyses suggest that the misspecification of standard AKM models resulting from restricting firm effects to be fixed over time is a second-order concern.
    JEL: J0 J3
    Date: 2020–01
  11. By: Norén, Anna (Uppsala University)
    Abstract: I study the consequences for labor market outcomes and sick leave of having an elderly parent in need of care. Using Swedish register data I compare the labor market outcome trajectories of adult children before and after their parent suffers a health shock. I find that employment and income of adult children are slightly reduced in the years leading up to the demise of their parent, but that the size of the impact is largest in the year, and the year after, parental demise. I also find that daughter’s sick leave absence increases in the year that the parent dies. No effects on labor market outcomes are found from having a parent suffering stroke. Furthermore, I find no clear gender differences between sons and daugh-ters in the impact of having a parent with increased care demand. Taken together, the results suggest that the opportunity costs of parental care need in the form of adverse labor market impacts are small.
    Keywords: Formal and Informal care; Elderly; Labor supply
    JEL: J14 J22
    Date: 2020–01–24
  12. By: Homrighausen, Pia (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Lang, Julia (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "This paper analyses a local marketing campaign in Germany that provided information about unproven agerelated stereotypes and the value of older workers. The campaign was designed to increase the hiring rate of older workers. Using comprehensive register data, we find that the information provided by the campaign (via banners, interviews, job fairs and information brochures) did change firms' employment behavior. The cheap and mild intervention increased the employment rate of older workers on average by 3 percentage points. This increase, however, is attributable to an increase in job stability rather than to an increase in the hiring of older workers." (Author's abstract, IAB-Doku) ((en))
    Keywords: Informationsangebot - Auswirkungen, Personaleinstellung, ältere Arbeitnehmer, Arbeitslose, Beschäftigerverhalten, Beschäftigungseffekte, Stereotyp, Arbeitsagenturen, Integrierte Erwerbsbiografien, Potsdam, Brandenburg, Bundesrepublik Deutschland
    JEL: D83 J21 J23 J64 J78
  13. By: Fabian Eckert; Teresa C. Fort; Peter K. Schott; Natalie J. Yang
    Abstract: The County Business Patterns data published by the US Census Bureau track employment by county and industry from 1946 to the present. Two features of the data limit their usefulness to researchers in practice: (1) employment for the majority of county-industry cells is suppressed to protect confidentiality, and (2) industry classifications change over time. We address both issues. First, we develop a linear programming method that exploits the large set of adding-up constraints implicit in the hierarchical arrangement of the data to impute missing employment. Second, we provide concordances to map all data to a consistent set of industry codes.
    JEL: E24 F16 J21 L6
    Date: 2020–01
  14. By: Annika Nivala (University of Turku)
    Abstract: This paper studies the effects of a first employee wage subsidy imple-mented in parts of Finland in 2007–2011 using the universe of Finnishfirms. The subsidy, amounting to 30% of the wage costs of the firstemployee in the first year and 15% in the second, was targeted to en-trepreneurs without hired employees. The target group accounts forover half of the firm population. Comparing the firms in the eligiblearea to firms in the neighboring ineligible area, I find precisely esti-mated zero effect on the probability of becoming an employer and otherfirm outcomes. The zero average effect seems to be due to low take-upof the subsidy highlighting the role of take-up in effectiveness of busi-ness subsidies. Sole proprietor, large and new firms were more likelyto use the subsidy and the subsidized firms seemed to grow more incomparison to eligible firms that did not use the subsidy.
    Keywords: Business subsidies, Wage subsidies, Firm behavior, Labor demand, Entrepreneurship, Small Business
    JEL: H25 H32 J23 J38 M51
    Date: 2019–12
  15. By: Robert L. Clark; Beth M. Ritter
    Abstract: The American population is aging and changes in the population’s age structure are leading to an aging of the nation’s workforce. In addition, changes to age specific participation rates are exacerbating the aging of the national labor force. An important challenge for firms and organizations is how does workforce aging affect labor costs, productivity and the sustainability of the organization. This paper examines employer responses to workforce aging including changes retirement policies, modification in working conditions, the adoption of phased retirement plans, and reforming other employee benefits.
    JEL: J11 J14 J21 J26 J33
    Date: 2020–01
  16. By: Chiara Farronato; Andrey Fradkin; Bradley Larsen; Erik Brynjolfsson
    Abstract: We study the effects of occupational licensing on consumer choices and market outcomes in a large online platform for residential home services. We exploit exogenous variation in the time at which licenses are displayed on the platform to identify the causal effects of licensing information on consumer choices. We find that the platform-verified licensing status of a professional is unimportant for consumer decisions relative to review ratings and prices. We confirm this result in an independent consumer survey. We also use variation in regulation stringency across states and occupations to measure the effects of licensing on aggregate market outcomes on the platform. Our results show that more stringent licensing regulations are associated with less competition and higher prices but not with any improvement in customer satisfaction as measured by review ratings or the propensity to use the platform again.
    JEL: J2 J44 K2 L15 L51 L88
    Date: 2020–01
  17. By: Elisabeth Christen; Michael Pfaffermayr; Yvonne Wolfmayr
    Abstract: This paper provides new insight into the firm-level employment impacts of trade cost changes at the industry level in the Austrian services sector. We apply a two-part model of firm survival (exit) and firm growth. Separate regressions for firm entry rates at the industry-region level complete the picture of total trade-induced net job creation. We implement the trade cost measure introduced by Chen and Novy (2011) and base it on own estimates of industry specific substitution elasticities. Falling trade costs in the Austrian services sector over the period 2000 to 2014 resulted in net job creation of about 19,000 jobs accounting for 9.5 percent of overall job flows in the sector. The smallest and least productive firms contract while large and productive firms expand as predicted by theory. Most adjustments occur at the extensive margin due to changes in the probability of firm survival.
    Keywords: services trade, trade costs, elasticity of substitution, firm-level evidence, heterogenous firms, gravity model, job flows, trade and employment
    JEL: C15 C21 C25 C23 C26 F14 F16 F66 J21 D21 L20 L80
    Date: 2019
  18. By: Laszlo Goerke (Universität Trier, IAAEU (Institut für Arbeitsrecht und Arbeitsbeziehungen in der Europäischen Union)); Michael Neugart (Technische Universität Darmstadt, Department of Law and Economics)
    Abstract: Wages and employment are too low in a monopsony. Furthermore, a minimum wage or a subsidy may raise employment up to its first-best level. First, we analyze whether these important predictions still hold if workers compare their income to that of a reference group. Second, we show that the undistorted, competitive outcome may no longer constitute the benchmark for welfare comparisons. Third, we derive a condition which guarantees that the monopsony distortion is exactly balanced by the impact of social comparisons. Finally, we show how wage restrictions and subsidies or taxes can be used to ensure this condition both for a welfarist and a paternalistic welfare objective.
    Keywords: social preferences, government intervention, minimum wage, monopsony, taxation, wage regulation
    JEL: D10 H21 J30 J42
    Date: 2020–01

This nep-lma issue is ©2020 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.