nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2020‒02‒17
eighteen papers chosen by
Joseph Marchand
University of Alberta

  1. Pension Reform and the Efficiency-Equity Trade-Off: Impacts of Removing an Early Retirement Subsidy By Andersen, Asbjørn Goul; Markussen, Simen; Røed, Knut
  2. Firm productivity, wages, and sorting By Lochner, Benjamin; Schulz, Bastian
  3. The Employment Effects of the Social Security Earnings Test By Alexander M. Gelber; Damon Jones; Daniel W. Sacks; Jae Song
  4. Reducing the income tax burden for households with children: An assessment of the child tax credit reform in Austria By Christl, Michael; De Poli, Silvia; Varga, Janos
  5. The Effect of Unfair Chances and Gender Discrimination on Labor Supply By Gagnon, Nickolas; Bosmans, Kristof; Riedl, Arno
  6. Going Back to School Takes Time: Evidence from a Negative Trade Shock By Jean-Denis Garon; Catherine Haeck; Simon Bourassa-Viau
  7. The Impact of a Minimum Wage Change on the Distribution of Wages and Household Income By Redmond, Paul; Doorley, Karina; McGuinness, Seamus
  8. Working Life and Human Capital Investment: Causal Evidence from Pension Reform By Gohl, Niklas; Haan, Peter; Kurz, Elisabeth; Weinhardt, Felix
  9. Child Care Markets, Parental Labor Supply, and Child Development By Berlinski, Samuel; Ferreyra, Maria Marta; Flabbi, Luca; Martin, Juan David
  10. The Aggregate Consequences of Default Risk: Evidence from Firm-level Data By Timothy J. Besley; Isabelle A. Roland; John Van Reenen
  11. Enhancing Employability by Responding to Work Motives: Lessons from a Field Experiment among Israeli Ultra-Religious Women By Goldfarb, Yael; Neuman, Shoshana
  12. The Retirement Migration Puzzle in China By Chen, Simiao; Jin, Zhangfeng; Prettner, Klaus
  13. Firm Growth through New Establishments By Dan Cao; Henry Hyatt; Toshihiko Mukoyama; Erick Sager
  14. Who Benefits from General Knowledge? By Cristina Bellés-Obrero; Emma Duchini
  15. Paid parental leave and maternal reemployment: Do part-time subsidies help or harm? By Zimmert, Franziska; Zimmert, Michael
  16. Demography and Provisions for Retirement: The Pension Composition, a Behavioral Approach By van Praag, Bernard M. S.; Hop, J. Peter
  17. Do Temporary Demand Shocks have Long-Term Effects for Startups? By Hvide, Hans K.; Meling, Tom G.
  18. The effects of migration and pollution on cognitive skills in Caribbean economies: a theoretical analysis By Lesly Cassin

  1. By: Andersen, Asbjørn Goul (Ragnar Frisch Centre for Economic Research); Markussen, Simen (Ragnar Frisch Centre for Economic Research); Røed, Knut (Ragnar Frisch Centre for Economic Research)
    Abstract: We provide empirical evidence that the removal of work disincentives embedded in retirement earnings tests can increase old-age labor supply considerably, but it does so at the cost of more income inequality. Causal effects are identified based on a reform of the Norwegian early retirement program, which entailed that adjacent birth cohorts were exposed to completely different work incentives from age 62. The reform removed a strict retirement earnings test such that pension wealth was redistributed from early to late retirees. Given the pre-existing employment and earnings patterns, this implied a considerable rise in old-age income inequality. In principle, this could have been offset by changes in the labor supply. We estimate that the reform triggered a 42% increase in hours worked during the ages covered by early retirement options. However, as the labor supply responses were of similar magnitudes across the earnings distribution, they did little to offset the rise in inequality. As measured by the Gini coefficient, inequality in overall old-age income rose by approximately 0.03 (17%).
    Keywords: pension reform, inequality, labor supply
    JEL: H55 D31 J22 J26
    Date: 2020–01
  2. By: Lochner, Benjamin (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Schulz, Bastian
    Abstract: "Increasing wage inequality is associated with changes in the degree of labor market sorting, i.e. the allocation of workers to firms. To measure sorting, we propose a new method which disentangles the respective contributions of worker and firm heterogeneity to wage inequality. Inspired by sorting theory, we infer firm productivity from estimating firm-level production functions, taking into account that worker ability and firm productivity may interact at the match level. Using German data, we find that highly productive firms display low labor shares, dominate concentrated markets, and pay lower wages than less productive firms. Sorting is positive, but lower than what wage-based measures suggest. It increases over time, driven by new matches between low-productivity firms and low-ability workers. At the top, sorting decreases, reflected in worker transitions away from high-productivity firms that pay relatively low wages. We discuss implications of our findings for the interpretation of increasing wage inequality." (Author's abstract, IAB-Doku) ((en))
    JEL: J24 J31 J40 J62 J64 L25
  3. By: Alexander M. Gelber (Wharton School, University of Pennsylvania; National Bureau of Economic Research); Damon Jones (University of Chicago - Harris School of Public Policy); Daniel W. Sacks (Indiana University - Kelley School of Business - Department of Business Economics & Public Policy); Jae Song (U.S. Social Security Administration)
    Abstract: We investigate the impact of the Social Security Annual Earnings Test (AET) on the employment decisions of older Americans. The AET reduces Social Security benefits by one dollar for every two dollars earned above the exempt amount. Using a differences-in-differences design, we find that the employment rate of those predicted to become subject to the AET decreases substantially relative to those not predicted to become subject to it. The point estimates suggest that the AET reduces the employment rate of Americans aged 63-64 by at least 1.2 percentage points.
    JEL: H55 J22 J26
    Date: 2020
  4. By: Christl, Michael; De Poli, Silvia; Varga, Janos
    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 longrun macroeconomic effects depend crucially on how the government compensates the missing tax revenues after the reform. Accounting for these feedback effects at the micro level with a new methodology, 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: 2020
  5. By: Gagnon, Nickolas (Maastricht University); Bosmans, Kristof (Maastricht University); Riedl, Arno (Maastricht University)
    Abstract: Labor market opportunities and wages may be unfair for various reasons, and how workers respond to different types of unfairness can have major economic consequences. Using an online labor platform, where workers engage in an individual task for a piece-rate wage, we investigate the causal effect of neutral and gender-discriminatory unfair chances on labor supply. We randomize workers into treatments where we control relative pay and chances to receive a low or a high wage. Chances can be fair, unfair based on an unspecified source, or unfair based on gender discrimination. Unequal pay reduces labor supply of low-wage workers, irrespective of whether the low wage is the result of fair or unfair chances. Importantly, the source of unfair chances matters. When a low wage is the result of gender-discriminatory chances, workers matched with a high-wage worker substantially reduce their labor supply compared to the case of equal low wages (–22%). This decrease is twice as large as those induced by low wages due to fair chances or unfair chances coming from an unspecified source. In addition, exploratory analysis suggests that in response to unequal pay, low-wage male workers reduce labor supply irrespective of the source of inequality, whereas low-wage female workers reduce labor supply only if unequal pay is due to gender-discriminatory chances. Our results concerning gender discrimination indicate a new reason for the lower labor supply of women, which is a prominent explanation for the gender gap in earnings.
    Keywords: labor supply, wage inequality, procedural fairness, gender discrimination
    JEL: D90 E24 J22 J31 J71 M5
    Date: 2020–01
  6. By: Jean-Denis Garon (Department of Economics, University of Quebec in Montreal); Catherine Haeck (Department of Economics, University of Quebec in Montreal); Simon Bourassa-Viau (Statistics Canada)
    Abstract: We estimate the impact of a negative trade shock on labour market outcomes and educational choices of workers. We exploit the Canadian lumber exports crisis beginning in 2007 in a quasi-experimental design. We find that the employment probability of forestry industry workers decreased by 4.1 percentage points following the crisis relative to other workers in comparable industries. While one would expect younger forestry workers to return to school in such circumstances, we find that in the first two years following the crisis, unemployed workers did not go back to school. But going back to school takes time, and after 3 to 4 years, we find that education enrollment increases by 2.5 percentage points (p=0.083). This confirms the idea that adjustments towards an increase in education enrollment are gradual, as it is easier to drop out than to enroll. In time of crisis, facilitating a return to education might be a valuable policy intervention.
    Keywords: education, labor demand shocks, youth, employment, unemployment
    JEL: I26 J23 Q33
    Date: 2020–01
  7. By: Redmond, Paul (ESRI, Dublin); Doorley, Karina (Economic and Social Research Institute, Dublin); McGuinness, Seamus (Economic and Social Research Institute, Dublin)
    Abstract: We use distributional regression analysis to study the impact of a six percent increase in the Irish minimum wage on the distribution of hourly wages and household income. Wage inequality, measured by the ratio of wages in the 90th and 10th percentiles and the 75th and 25th percentiles, decreased by approximately eight percent and four percent respectively. For young workers, aged under 25, the effects were far greater, with a 24 percent reduction in the ratio of wages in the 90th and 10th percentiles. The results point towards wage spillover effects up to the 30th percentile of the wage distribution. We show that minimum wage workers are spread throughout the household income distribution and are often located in high-income households. Therefore, while we observe strong effects on the wage distribution, the impact of a minimum wage increase on the household income distribution is quite limited.
    Keywords: minimum wage, inequality, wage spillovers, distributional regression
    JEL: J31 J38 K31
    Date: 2020–01
  8. By: Gohl, Niklas (DIW Berlin); Haan, Peter (DIW Berlin); Kurz, Elisabeth (Frontier Economics); Weinhardt, Felix (DIW Berlin)
    Abstract: This paper presents a life-cycle model with human capital investment during working life through training and provides a novel empirical test of human capital theory. We exploit a sizable pension reform across adjacent cohorts in a regression discontinuity setting and find that an increase in working life increases training. We discuss and test further predictions regarding the relation between initial schooling, training, and the reform effect, showing that only individuals with a college degree increase human capital investment. Our results speak to a large class of human capital models as well as policies extending or shortening working life.
    Keywords: human capital, retirement policies, RDD
    JEL: J24 J26 H21
    Date: 2020–01
  9. By: Berlinski, Samuel (Inter-American Development Bank); Ferreyra, Maria Marta (World Bank); Flabbi, Luca (University of North Carolina, Chapel Hill); Martin, Juan David (World Bank)
    Abstract: We develop and estimate a model of child care markets that endogenizes both demand and supply. On the demand side, families with a child make consumption, labor supply, and child-care decisions within a static, unitary household model. On the supply side, child care providers make entry, price, and quality decisions under monopolistic competition. Child development is a function of the time spent with each parent and at the child care center; these inputs vary in their impact. We estimate the structural parameters of the model using the 2003 Early Childhood Longitudinal Study, which contains information on parental employment and wages, child care choices, child development, and center quality. We use our estimates to evaluate the impact of several policies, including vouchers, cash transfers, quality regulations, and public provision. Among these, a combination of quality regulation and vouchers for working families leads to the greatest gains in average child development and to a large expansion in child care use and female labor supply, all at a relatively low fiscal cost.
    Keywords: child care markets, child care quality, early childhood development, female labor supply
    JEL: J13 J22 L1
    Date: 2020–01
  10. By: Timothy J. Besley; Isabelle A. Roland; John Van Reenen
    Abstract: This paper studies the implications of perceived default risk for aggregate output and productivity. Using a model of credit contracts with moral hazard, we show that a firm’s probability of default is a sufficient statistic for capital allocation. The theoretical framework suggests an aggregate measure of the impact of credit market frictions based on firm-level probabilities of default which can be applied using data on firm-level employment and default risk. We obtain direct estimates of firm-level default probabilities using Standard and Poor’s PD Model to capture the expectations that lenders were forming based on their historical information sets. We implement the method on the UK, an economy that was strongly exposed to the global financial crisis and where we can match default probabilities to administrative data on the population of 1.5 million firms per year. As expected, we find a strong correlation between default risk and a firm’s future performance. We estimate that credit frictions (i) cause an output loss of around 28% per year on average; (ii) are much larger for firms with under 250 employees and (iii) that losses are overwhelmingly due to a lower overall capital stock rather than a misallocation of credit across firms with heterogeneous productivity. Further, we find that these losses accounted for over half of the productivity fall between 2008 and 2009, and persisted for smaller (although not larger) firms
    JEL: D24 E32 L11 O47
    Date: 2020–01
  11. By: Goldfarb, Yael (University of Haifa); Neuman, Shoshana (Bar-Ilan University)
    Abstract: Low employability among specific populations (e.g., religious/traditional women, the elderly, disabled workers, immigrants) has unfavorable consequences on the: unemployed individual, society, and the state economy. The latter include: poverty, a heavy toll on welfare budgets, diminished growth, and an increase in the "dependency ratio". We suggest a rather novel policy (borrowed from the field of Career Psychology) that could lead to successful integration into the labor market of low-employability populations: the design of tailor-made training programs that respond to work motives; coupled with a working environment that caters to special needs/restrictions; and complemented with counseling and monitoring. The suggested strategy was illustrated and investigated using a case study of Israeli ultra-religious women, who exhibit lower employment rates than other Israeli women. The motives behind their occupational choices were explored based on data collected by a field experiment. Factor Analysis was then employed to sort out the motives behind their occupational choices, and regression analysis was used to associate job satisfaction with work motivation. Policy implications were suggested based on the findings. There is already some evidence on the successful outcomes of the proposed strategy.
    Keywords: low-employability, ultra-Orthodox/religious (Haredi), Israel, occupation, motives, job satisfaction, old-age dependency-ratio
    JEL: D13 D91 I38 J08 J24 Z12
    Date: 2020–01
  12. By: Chen, Simiao; Jin, Zhangfeng; Prettner, Klaus
    Abstract: We examine whether and how retirement affects migration decisions in China. Using a regression discontinuity (RD) design approach combined with a nationally representative sample of 228,855 adults aged between 40 and 75, we find that retirement increases the probability of migration by 12.9 percentage points. Approximately 38% of the total migration effects can be attributed to inter-temporal substitution (delayed migration). Retirement-induced migrants are lower-educated and have restricted access to social security. Household-level migration decisions can reconcile different migration responses across gender. Retirees migrate for risk sharing and family protection mechnisms, reducing market production of their families in the receiving households.
    Keywords: Retirement,Migration decision,Regression discontinuity design
    JEL: J14 J26 J61
    Date: 2020
  13. By: Dan Cao (Department of Economics, Georgetown University); Henry Hyatt (Center for Economic Studies, U.S. Census Bureau); Toshihiko Mukoyama (Department of Economics, Georgetown University); Erick Sager (Division of Research and Statistics, Federal Reserve Board)
    Abstract: This paper analyzes the distribution and growth of firm-level employment along two margins: the extensive margin (the number of establishments in a firm) and the intensive margin (the number of workers per establishment in a firm). We utilize administrative datasets to document the behavior of these two margins in relation to changes in the U.S. firm-size distribution. In the cross section, we find the firm-size distribution, as well as both extensive and intensive margins, exhibits a fat tail. The increase in average firm size between 1990 and 2014 is primarily driven by an expansion along the extensive margin, particularly in very large firms. We develop a tractable general-equilibrium growth model with two types of innovations: external and internal. External innovation leads to the extensive margin of firm growth, and internal innovation leads to intensive-margin growth. The model generates fat-tailed distributions in firm size, establishment size, and the number of establishments per firm. We estimate the model to uncover the fundamental forces that caused the distributional changes from 1995 to 2014. The largest contributors to the increase in the number of establishments per firm are the external innovation cost and the decline in establishment exit rate. Classification-JEL E24, J21, L11, O31
    Keywords: firm growth, firm-size distribution, establishment, innovation
    Date: 2020–01–31
  14. By: Cristina Bellés-Obrero; Emma Duchini
    Abstract: While vocational education is meant to provide occupational-specific skills that are directly employable, their returns may be limited in fast-changing economies. Conversely, general education should provide learning skills, but these may have little value at low levels of education. This paper sheds light on this debate by exploiting a recent Spanish reform that postpones students’ choice between these two educational pathways from age 14 to 16. To identify exogenous changes in its staggered implementation, we instrument this with the pre-reform across-province variation in the share of students in general education. Results indicate that, by shifting educational investment from vocational to general education after age 16, the reform improves occupational outcomes, and results in a significant rise in monthly wages. The effects are larger after the financial crisis, but are concentrated among middle to high-skilled individuals. In contrast, those who acquire only basic general education have worse long-term employment prospects than vocationally-trained individuals.
    Keywords: general versus vocational education; heterogeneous returns; financial crisis
    JEL: I26 I28 J24
    Date: 2020–02
  15. By: Zimmert, Franziska; Zimmert, Michael
    Abstract: Employment subsidies can incentivize mothers to shorten employment interruptions after childbirth. We examine a German parental leave reform promoting an early return to work in part-time. Exploiting the exogenous variation in the benefit entitlement length defined by the child’s birthday, we apply machine-learning augmented semi-parametric difference-indifference estimation using administrative data. The reform yields positive average employment effects mainly driven by part-time employment as our dynamic optimization model for mothers on parental leave suggests. Conditional effects show that the policy creates heterogenous incentives depending on the opportunity costs of working part-time.
    Keywords: Causal machine learning, effect heterogeneity, maternal labor supply, parental leave, Germany
    JEL: J21 J22 C14
    Date: 2020–01
  16. By: van Praag, Bernard M. S. (University of Amsterdam); Hop, J. Peter (University of Amsterdam)
    Abstract: Pensions may be provided for in a modern society by a mix of several methods, namely by voluntary individual savings, mandatory fully-funded occupational pension systems, mandatory social security financed by pay-as-you-go, and old-fashioned hoarding in cash. Here, we call the specific mixture of the four systems the pension composition. We assume that individual workers decide on their own individual savings, that the fully-funded occupational system is decided upon by the age cohort of the median worker (MW), and that the social security is decided upon by the median voter (MV). In this behavioral approach we distinguish between several social groups, where individuals belong to several groups simultaneously and where the interests of the different groups are only partly coinciding. For a given demography and interest rate, the joint result of the decisions of the different age cohorts is a Pareto equilibrium. For ease of exposition we assume that individual and collective pension savings are the only sources of capital supply. When capital supply equals demand from industry there is equilibrium in the capital market with a corresponding equilibrium interest rate. In this paper we assume a demography with one hundred age brackets and we investigate how changes in the birth rates, survival rates, and the retirement age affect the pension composition and the capital market equilibrium. Our conclusion is that the demographic effects are considerable not only for the resulting pension composition but also for macro-economic variables such as the wage rate, the interest rate, and the capital-income ratio. It follows that the pension composition in general and social security in particular is determined by the demography and cannot be modified at will as a long-term political instrument. We find that this is relevant for the present century, where birth and mortality rates in most western countries are steeply declining.
    Keywords: demography, funded pensions, unfunded pensions, social security, interest rate, overlapping generations, individual savings
    JEL: H55 H75 J1 J26
    Date: 2020–01
  17. By: Hvide, Hans K. (University of Bergen, Department of Economics); Meling, Tom G. (University of Bergen, Department of Economics)
    Abstract: Using detailed procurement auctions and register data from Norway, we find that temporary demand shocks have long-term effects on startup outcomes. Startups that win a procurement auction are more than 20% larger in terms of sales and employment than startups that narrowly lose an auction, even several years after the contract work ends. For mature firms, we do not find long-term effects of auction wins. The persistent effects of temporary demand shocks for startups appear driven by learning-by-doing effects and by winning startups undertaking irreversible investments. The results point to the importance of path dependence in shaping the long-term outcomes of startups.
    Keywords: Entrepreneurship; Path-dependency; Productivity; Startups
    JEL: D21 D24 G39 J23 L11 L25
    Date: 2019–12–24
  18. By: Lesly Cassin (Université Paris Nanterre)
    Abstract: This work analyses the interaction between demographic features and environmental constraints in the Caribbean Small Island Developing States. More specifically, it aims to clarify the impact of migration in the presence of pollution. To do so, an Intergenerational model is developed to reproduce the characteristics of these countries, which are highly dependent on migration gains such as brain gain or remittances. Moreover, production emits pollution that hinders the accumulation of human capital. Two cases emerge from the analysis, in the first an environmental policy is sufficient to correct the externality and in this case migration implies the same mechanisms as in the case without pollution. In the second case, if pollution emissions are high relative to the effectiveness of environmental policy, migration leads to an increase in per capita output and human capital. This only happens if the emigration rate is already high, because it leads to a reduction in demographic pressure on the environment.
    Keywords: Pollution, Development, Caribbean Islands, Migration, Remittances
    JEL: Q01 Q56 J24 F24 F22
    Date: 2020–02

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