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

  1. Parental Leave Reform and Long-Run Earnings of Mothers By Corinna Frodermann; Katharina Wrohlich; Aline Zucco
  2. The Employment Effects of the Social Security Earnings Test By Alexander M. Gelber; Damon Jones; Daniel W. Sacks; Jae Song
  3. Do Cash Windfalls Affect Wages? Evidence from R&D Grants to Small Firms By Sabrina T. Howell; J. David Brown
  4. Creative Destruction? Local Business Conditions and the Earnings of Employees at Startups. By Mahieu, Jeroen
  5. Changes in income inequality in Lithuania: the role of policy, labour market structure, returns and demographics By Nerijus Cerniauskas; Denisa M. Sologon; Cathal O’Donoghue; Linas Tarasonis
  6. Hours Risk and Wage Risk: Repercussions over the Life-Cycle By Robin Jessen; Johannes König
  7. Markups, Labor Market Inequality and the Nature of Work By Greg Kaplan; Piotr Zoch
  8. Personality Traits, Job Search and the Gender Wage Gap By Christopher Flinn; Petra Todd; Weilong Zhang
  9. Firm Pay Dynamics By Engbom, Niklas; Moser, Christian
  10. Aid for Trade flows and Wage Inequality in the manufacturing sector of recipient-countries By Gnangnon, Sèna Kimm
  11. Markups in a dual labour market: the case of the Netherlands By Harro van Heuvelen; Leon Bettendorf; Gerdien Meijerink
  12. Beyond the direct impact of retirement: coordination by couples in preventive and risky behaviors By Steve Briand
  13. The gender pay gap revisited: Does machine learning offer new insights? By Brieland, Stephanie; Töpfer, Marina
  14. Uncovering Gatsby Curves By Pier-André Bouchard St-Amant; Jean-Denis Garon; Nicolas Marceau
  15. Immigration Lottery Design: Engineered and Coincidental Consequences of H-1B Reforms By Parag A. Pathak; Alex Rees-Jones; Tayfun Sönmez

  1. By: Corinna Frodermann; Katharina Wrohlich; Aline Zucco
    Abstract: Paid parental leave schemes have been shown to increase women's employment rates but decrease their wages in case of extended leave durations. In view of these potential trade-offs, many countries are discussing the optimal design of parental leave policies. We analyze the impact of a major parental leave reform on mothers' long-term earnings. The 2007 German parental leave reform replaced a means-tested benefit with a more generous earnings-related benefit that is granted for a shorter period of time. Additionally, a "daddy quota" of two months was introduced. To identify the causal effect of this policy on long-run earnings of mothers, we use a difference-in-difference approach that compares labor market outcomes of mothers who gave birth just before and right after the reform and nets out seasonal effects by including the year before. Using administrative social security data, we confirm previous findings and show that the average duration of employment interruptions increased for high-income mothers. Nevertheless, we find a positive long-run effect on earnings for mothers in this group. This effect cannot be explained by changes in working hours, observed characteristics, changes in employer stability or fertility patterns. Descriptive evidence suggests that the stronger involvement of fathers, incentivized by the "daddy months", could have facilitated mothers' re-entry into the labor market and thereby increased earnings. For mothers with low prior-to-birth earnings, however, we do not find any beneficial labor market effects of this parental leave reform.
    Keywords: Parental leave, wages, labor supply
    JEL: H31 J13 J22 J24 J31
    Date: 2020
  2. By: Alexander M. Gelber; Damon Jones; Daniel W. Sacks; Jae Song
    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: 2020–01
  3. By: Sabrina T. Howell; J. David Brown
    Abstract: This paper examines how employee earnings at small firms respond to a cash flow shock in the form of a government R&D grant. We use ranking data on applicant firms, which we link to IRS W2 earnings and other U.S. Census Bureau datasets. In a regression discontinuity design, we find that the grant increases average earnings with a rent-sharing elasticity of 0.07 (0.21) at the employee (firm) level. The beneficiaries are incumbent employees who were present at the firm before the award. Among incumbent employees, the effect increases with worker tenure. The grant also leads to higher employment and revenue, but productivity growth cannot fully explain the immediate effect on earnings. Instead, the data and a grantee survey are consistent with a backloaded wage contract channel, in which employees of financially constrained firms initially accept relatively low wages and are paid more when cash is available.
    JEL: G32 G35 J31 J41
    Date: 2020–02
  4. By: Mahieu, Jeroen
    Abstract: What drives job quality in startups? In this paper, I examine how fluctuations in local business conditions affect wages in startups and incumbent firms in the retail sector. I identify shocks to local business conditions using plausibly exogenous variation of hurricane strikes in U.S. coastal counties. I find that, on average, wages of startup employees increase in response to negative shocks to local business conditions. This effect does not appear to be driven by changes in supply or demand for labor. These findings are consistent with a “cleansing” effect of downturns, fostering the creation and retainment of more productive jobs, and driving out unproductive ones.
    Keywords: Startups; Employee Compensation; Local Business Conditions; Entrepreneurship
    JEL: J21 J31 L26
    Date: 2020–02–08
  5. By: Nerijus Cerniauskas (Bank of Lithuania, Vilnius University); Denisa M. Sologon (Luxembourg Institute of Socio-Economic Research (LISER)); Cathal O’Donoghue (The National University of Ireland, Galway); Linas Tarasonis (Vilnius University, Bank of Lithuania)
    Abstract: We model the household disposable income distribution in Lithuania and explore the drivers of the increase in income inequality between 2007 and 2015. We quantify the contributions of four factors to changes in the disposable income distribution: (i) demographics; (ii) labour market structure; (ii) returns and prices; and (iv) tax-benefit system. Results show that the effects of the factors were substantial and reflected heterogeneous developments over two sub-periods: changes in the tax and benefit system successfully accommodated a rapid rise in market income inequality due to the global financial crisis during 2007-2011, but failed to do so during the subsequent years of economic expansion, when rising returns in the labour and capital markets significantly increased disposable income inequality. We also find that declining marriage rates contributed to the increase of income inequality in Lithuania.
    Keywords: income distribution, inequality, decompositions, microsimulation, tax-benefit policies, crisis, austerity, overtime comparison
    JEL: D31 H23 J21 J31 I38
    Date: 2020–01–24
  6. By: Robin Jessen; Johannes König
    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
  7. By: Greg Kaplan (University of Chicago - Department of Economics); Piotr Zoch (University of Chicago - Department of Economics)
    Abstract: We demonstrate the importance of distinguishing between the traditional use of labor for production, versus alternative uses of labor for overhead, marketing and other expansionary activities, for studying the distribution of both factor income and labor income. We use our framework to assess the impact of changes in markups on the overall labor share and on labor income inequality across occupations. We identify the production and expansionary content of different occupations from the co-movement of occupational income shares with markup-induced changes in the labor share. We find that around one-fifth of US labor income compensates expansionary activities, and that occupations with larger expansionary content have experienced the fastest wage and employment growth since 1980. Our framework can rationalize a counter-cyclical labor share in the presence of sticky prices and can be used to study the distributional effects of demand shocks, monetary policy and secular changes in competition.
    Keywords: Markups, inequality, labor share, income distribution, occupations, monetary policy, overhead
    JEL: D2 D3 D4 E3 E5 J2 L1
    Date: 2020
  8. By: Christopher Flinn (New York University); Petra Todd (University of Pennsylvania); Weilong Zhang (University of Cambridge)
    Abstract: This paper introduces the Big Five personality traits along with other covariates in a job search, matching and bargaining model and investigates how education and personality traits affect job search behavior and labor market outcomes. It develops and estimates a partial equilibrium search model in which personality traits can influence worker productivity, job offer arrival rates, job dissolution rates and the division of surplus from an employer-employee match. The estimation is based on the IZA Evaluation Dataset, a panel dataset on newly-unemployed individuals in Germany between 2007 and 2008. Model specification tests provide support for a model that allows job search parameters to be heterogeneous across individuals, varying with levels of education, birth cohort, personality traits and gender. We use the estimated model to decompose the sources of the gender wage gap. The results show that the gap arises largely because women's personality traits are valued differently than men's. Of the Big Five traits, conscientiousness and agreeableness emerge as the most important in explaining the gender wage gap.
    Keywords: Big Five personality traits, personality traits, birth cohort
    JEL: J64 J00 E24 J31
    Date: 2020–02
  9. By: Engbom, Niklas; Moser, Christian
    Abstract: We study the nature of firm pay dynamics using matched employer-employee data from Sweden, including rich, administrative firm financial data. To this end, we propose and estimate a statistical model that extends the seminal framework by Abowd, Kramarz, and Margolis (1999a, henceforth AKM) to flexibly account for time-varying firm pay policies. We validate our approach by showing that firm-year pay variation is systematically related to firm financial performance. Subsequently, we apply our methodology to assess the role of firm pay dynamics in accounting for a rise in earnings inequality in Sweden, to investigate the properties of the distribution of within-firm pay differences over time, to measure the degree of firm pay mobility, and to quantify the relative contribution of ex-ante versus ex-post heterogeneity towards firm pay differences over the firm life cycle. We conclude that no more than two thirds of firm pay heterogeneity are permanent, with persistent and transitory fluctuations in firm pay constituting the remainder.
    Keywords: Wage Determination, Mobility, Worker and Firm Heterogeneity, Two-Way Fixed Effects Model, AKM, Firm Dynamics, Inequality Trends, Income Risk, Insurance within the Firm
    JEL: D22 D31 E24 J31 M13
    Date: 2020–02–03
  10. By: Gnangnon, Sèna Kimm
    Abstract: The present article aims to contribute to the literature on the effectiveness of Aid for Trade (AfT) flows in recipient-countries by investigating the effect of these resource flows on wage inequality in the manufacturing sector of recipient-countries. The analysis has shown that AfT interventions help reduce wage inequality in the manufacturing sector of countries that liberalize their trade policies, enjoy greater trade openness, experience higher exports of labour-intensive, low-skill and high skill manufacturing products. Additionally, AfT interventions contribute to dampening the negative effect of export product concentration (for example on primary products) on wage inequality in the manufacturing sector. Finally, AfT flows reduce wage inequality in the manufacturing sector of countries that import manufacturing products (including machinery and transport equipment goods) or enjoy a greater extent of multilateral trade liberalization.
    Keywords: Aid for Trade,Wage inequality in the manufacturing sector
    JEL: F35 F13 F14 J3
    Date: 2020
  11. By: Harro van Heuvelen (CPB Netherlands Bureau for Economic Policy Analysis); Leon Bettendorf (CPB Netherlands Bureau for Economic Policy Analysis); Gerdien Meijerink (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: We follow the production function approach to assess markups, which requires the estimation of the output elasticity of a free input. In the basic setup we estimate a structural value added production function, using temporary contract hours as free input. We find rather stable markups in the Netherlands in the period 2006-2016. We show that extending the free variable incorrectly with fixed contract hours results in an increasing markup. Findings are robust to an alternative setup, in which a gross output function is specified and materials are used as free input. Implications for applied work and policy are discussed.
    JEL: J30 J31 J41 J62
    Date: 2020–02
  12. By: Steve Briand (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)
    Abstract: This paper investigates changes in health behaviors upon retirement among couples using European SHARE survey data. Contrary to previous analyses studying retirement effect in a purely individual framework, or only measuring spillover effects, the econometric strategy controls for coordination by couples in health behaviors, also dealing with the endogeneity of both spouses' retirements. Using variations in official retirement ages for identification, estimations of simultaneous equations models confirm an always positive and statistically significant correlation between spouses' behaviors. Results show no global impact of retirement on smoking and obesity and limited impact on physical activities. However, retirement strongly reduce binge drinking behaviors. Exploring sources of heterogeneity, additional results show that individuals with low job physical burden have healthier lifestyles while results for other individuals are more mixed. Furthermore, with regard to spillover effects, women are particularly sensitive to men's retirement when they are retired themselves, while the inverse occurs for men. JEL codes: J26, I12, D19, C35.
    Keywords: Retirement,health behaviors,couple's coordination
    Date: 2020–02–05
  13. By: Brieland, Stephanie; Töpfer, Marina
    Abstract: This paper analyses gender differences in pay at the mean as well as along the wage distribution. Using data from the German Socio-Economic Panel, we estimate the adjusted gender pay gap applying a machine learning method (post-double-LASSO procedure). Comparing results from this method to conventional models in the literature, we find that the size of the adjusted pay gap differs substantially depending on the approach used. The main reason is that the machine learning approach selects numerous interactions and second-order polynomials as well as different sets of covariates at various points of the wage distribution. This insight suggests that more exible specifications are needed to estimate gender differences in pay more appropriately. We further show that estimates of all models are robust to remaining selection on unobservables.
    Keywords: Gender pay gap,Machine Learning,Selection on unobservables
    JEL: J7 J16 J31
    Date: 2020
  14. By: Pier-André Bouchard St-Amant; Jean-Denis Garon; Nicolas Marceau
    Abstract: Empirical findings suggest a positive correlation between inequality and social immobility, a phenomenon coined the Gatsby curve. However, complete explanations of the phenomenon have not yet been proposed. This paper answers two questions: What are Gatsby curves? When do they exist? We build a theoretical environment in which parental investment and education improve the economic prospects of children. Gatsbian economies and Gatsby curves are formally defined, and we characterize the conditions under which they will arise. We show that an economy may go from being Gatsbian to non-Gatsbian. Finally, we show that the better network of relations of those with high-paying jobs may also generate a Gatsbian economy.
    Keywords: intergenerational mobility, income inequality, education
    JEL: D31 H52 J31 J62
    Date: 2020
  15. By: Parag A. Pathak; Alex Rees-Jones; Tayfun Sönmez
    Abstract: In response to increasing demand for high-skilled labor, the U.S. Congress legislated in 2005 that the H-1B visa program create 20,000 additional slots for advanced degree applicants on top of 65,000 slots open to all. Since then, the U.S. Customs and Immigration Service (USCIS) has implemented this policy through visa allocation rules that comply with this legislation. Following a directive in the April 2017 Buy American and Hire American Executive Order by President Trump, USCIS tweaked its H-1B visa allocation rule in 2019, in an explicit effort to increase the share of higher-skill beneficiaries, bypassing the need for Congressional approval to increase the number of advanced degree slots. The USCIS estimated that the rule change, engineered solely for this objective, would increase the number of higher-skill beneficiaries by more than 5,000 at the expense of lower-skill beneficiaries. In this paper, we characterize all visa allocation rules that comply with the legislation. Despite specifying rigid caps, we show that the legislation still allows for rules that can change the number of high-skill awards by as many as 14,000 in an average year. Of all rules that comply with the legislation, the 2019 rule adopted by the Trump administration produces the best possible outcome for higher-skill applicants and the worst possible outcome for lower skill applicants. We also discover that each of the two previous and much less known changes to the H-1B visa allocation rule resulted in more substantial changes to the share of higher-skill beneficiaries than the 2019 reform. The distributional effects of these earlier reforms in 2006 and 2008, however, were motivated by logistical considerations, potentially without understanding of their importance for the rate of higher-skill awards.
    JEL: D47 D61 D63 J24 K37
    Date: 2020–02

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.