nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2020‒04‒13
twenty-one papers chosen by
Joseph Marchand
University of Alberta

  1. Lasting Effects of an Import Shock: Channels of Adjustment By Knutsson, Polina
  2. Buy Flexible, Pay More: The Role of Temporary Contracts on Wage Inequality By Albanese, Andrea; Gallo, Giovanni
  3. Employment Effects of Payroll Tax Subsidies By Collischon, Matthias; Cygan-Rehm, Kamila; Riphahn, Regina T.
  4. Bundling Time and Goods: Implications for Hours Dispersion By Lei Fang; Anne Hannusch; Pedro Silos
  5. Effects of Recent Minimum Wage Policies in California and Nationwide: Initial Results from a Pre-specified Analysis Plan By Neumark, David; Yen, Maysen
  6. Benefits Cliffs and the Financial Incentives for Career Advancement: A Case Study of the Health Care Services Career Pathway By David E. Altig; Elias Ilin; Alexander Ruder; Ellyn Terry
  7. Does Working at a Start-Up Pay Off? By Fackler, Daniel; Hölscher, Lisa; Schnabel, Claus; Weyh, Antje
  8. Higher-Order Income Risk over the Business Cycle By Christopher Busch; Alexander Ludwig
  9. Do Workers Discriminate against Their Out-group Employers? Evidence from the Gig Economy By Asad, Sher Afghan; Banerjee, Ritwik; Bhattacharya, Joydeep
  10. Estimating the Green Potential of Occupations: A New Approach Applied to the U.S. Labor Market By Rutzer, Christian; Niggli, Matthias; Weder, Rolf
  11. Is Compassion a Good Career Move?: Nonprofit Earnings Differentials from Job Changes By Johnston, Andrew C.; Johnston, Carla
  12. Occupational Skill Premia around the World By David Kunst; Richard B. Freeman; Remco Oostendorp
  13. Wage Gains from Foreign Ownership: Evidence from Linked Employer-Employee Data By Köllő, János; Boza, István; Balázsi, László
  14. Jumping the Queue: Nepotism and Public-Sector Pay By Chassamboulli, Andri; Gomes, Pedro Maia
  15. South Australia’s Employment Relief Program for Assisted Immigrants: Promises and Reality, 1838-1843 By Edwyna Harris; Sumner La Croix
  16. Coping with the consequences of short-term illness shocks: The Role of intra-household labour substitution By Abhishek Dureja; Digvijay S. Negi
  17. Hours Worked and the U.S. Distribution of Real Annual Earnings 1976–2016 By Fernández-Val, Iván; Peracchi, Franco; van Vuuren, Aico; Vella, Francis
  18. Cash Transfer Programs and Household Labor Supply By Daniela Del Boca; Chiara Pronzato; Giuseppe Sorrenti
  19. Public-Sector Compensation over the Life Cycle By Gomes, Pedro Maia; Wellschmied, Felix
  20. Financing Constraints and Employers' Investment in Training By Brunello, Giorgio; Gereben, Áron; Weiss, Christoph T.; Wruuck, Patricia
  21. How the reification of merit breeds inequality: theory and experimental evidence By Accominotti, Fabien; Tadmon, Daniel

  1. By: Knutsson, Polina (Department of Economics, Lund University)
    Abstract: This paper exploits a quasi-natural experiment to study the channels of labor market adjustment to an import shock. Using matched employer-employee data from Sweden, I study workers' adjustment after the removal of quotas set out by the Multi-Fiber Arrangement for Chinese producers upon China's entry into the WTO. I find evidence of substantial losses in terms of earnings and employment. Sectoral mobility mitigates a portion of these losses, but gives rise to substantial adjustment frictions. The largest losses accrue to workers with skills specific to the exposed industry. Some losses are recovered through mobility across labor markets, but only workers in high-skill occupations benefit from this channel. I also show that skill specificity of the local labor market is an important determinant of adjustment and provide evidence of skill upgrading in response to the import shock.
    Keywords: Import competition; worker mobility; human capital
    JEL: F14 F16 J24 J31
    Date: 2020–03–24
  2. By: Albanese, Andrea (LISER); Gallo, Giovanni (INAPP – Institute for Public Policy Analysis)
    Abstract: We investigate the role of temporary contracts in shaping wage inequality in a dual labour market. Based on Italian individual-level administrative data, our analysis focuses on new hires in temporary and open-ended contracts for the period of 2005–2015. To estimate the presence of differentials over the daily wage distribution, we follow Firpo (2007) and implement an inverse probability estimator, which allows us to control for labour market history, including lagged outcomes, over the last 16 years. Our results show the existence of a premium for temporary contracts over the full distribution of daily remuneration at entry, confirming the economic theory of equalizing differences. The wage premium is greater when permanent contracts are more valuable, such as for 'marginalised' categories like female, young, and low-paid temporary workers, and during the years of the economic crisis. The gap remains substantial after taking into account differences in working hours between workers.
    Keywords: temporary work, wage inequality, unconditional quantile treatment effect, inverse probability weighting
    JEL: J31 J41 C31 J21
    Date: 2020–02
  3. By: Collischon, Matthias (University of Erlangen-Nuremberg); Cygan-Rehm, Kamila (University of Erlangen-Nuremberg); Riphahn, Regina T. (University of Erlangen-Nuremberg)
    Abstract: This paper exploits several reforms of wage subsidies in the framework of the German Minijob program to investigate substitution and complementarity relationships between subsidized and non-subsidized labor demand. We apply an instrumental variables approach and use administrative data on German establishments for the period 1999-2014. Particularly in small establishments (0-9 employees), subsidized Minijob employment comprises large shares of the work force, on average over 40 percent. For these establishments, robust evidence shows that increasing the subsidization of Minijob employment crowds out non-subsidized employment. Our results imply that Minijob employment in 2014 may have eliminated more than 0.5 million unsubsidized employment relationships just in small establishments. This represents an unintended and harmful consequence of the Minijob subsidy.
    Keywords: wage subsidy, Minijob, labor demand, substitution effect, crowding out effect, displacement effect, employment, payroll tax
    JEL: J21 J23 J38 C26
    Date: 2020–03
  4. By: Lei Fang; Anne Hannusch; Pedro Silos
    Abstract: We document the large dispersion in hours worked in the cross-section. We account for this fact using a model in which households combine market inputs and time to produce a set of nonmarket activities. To estimate the model, we create a novel data set that pairs market expenditures and time use at the activity level using data from the Consumer Expenditure Survey and the American Time Use Survey, respectively. The estimated model can account for a large fraction of the dispersion of hours worked in the data. The substitutability between market inputs and time within an activity and across a sizable number of activities is key to our results. We show that models that lack these features can only generate one third of the observed hours dispersion.
    Keywords: consumption expenditures; hours of labor; time allocation; diversity; elasticity of substitution; hours dispersion; consumption (Economics) - United States; college graduates; labor supply
    JEL: E21 D11 J22
    Date: 2020–01–01
  5. By: Neumark, David (University of California, Irvine); Yen, Maysen (University of California, Irvine)
    Abstract: Many U.S. cities have recently increased their minimum wages, especially in California. We report results from carrying out analyses of the impacts of these city minimum wages, as specified in a pre-analysis plan (PAP) that was registered on Open Science Framework prior to the release of data covering two years of minimum wage increases. In this working paper, we report results updating the data through 2018; our final paper will add another year of evidence on minimum wages. For employment effects, in our analysis of California cities we find a hint of negative employment effects, but the estimates are neither robust nor statistically strong. The analysis of local minimum wages nationally also provides some evidence of disemployment effects, although it is not statistically significant. For distributional effects, our city-specific analyses do not provide clear evidence one way or the other, except for evidence of increases in the shares poor or low-income in Santa Clara. In our panel data analyses of all California or national local minimum wages, there is evidence pointing to declines in the shares poor or low-income, although at least for California the data indicate that the shares poor or low-income were declining before local minimum wages took effect (or were increased). More definitive results await our next update.
    Keywords: minimum wage, employment, poverty, low-income
    JEL: J23 J38
    Date: 2020–03
  6. By: David E. Altig; Elias Ilin; Alexander Ruder; Ellyn Terry
    Abstract: Benefits cliffs, which occur when earnings gains are offset by the loss of public benefits, have long been recognized to create financial disincentives for low-income individuals to earn more income. In this paper, the authors develop a new methodology to study benefits cliffs in the context of career advancement. The authors illustrate the change in net financial resources for an individual pursuing the health care services career pathway from certified nursing assistant (CNA) to licensed practical nurse (LPN) to registered nurse (RN). Accounting for increases in taxes and the loss of public benefits, the authors show that a single mother with two children receiving maximum available public benefits can be financially worse off in the short and medium term when advancing from the entry-level CNA position. Over a lifetime, career advancement leads to large financial gains. The authors also calculate a large lifetime net public savings if the mother advances to the RN position. Finally, the authors illustrate two policy interventions: a childcare subsidy phaseout that is gradual rather than sudden, and an application of transitional public benefits with asset mapping of financial resources. The authors show how each of these interventions benefits a low-income parent seeking to advance up the economic ladder.
    Keywords: provision and effects of welfare programs; skills; human capital; effective marginal tax rates; benefits cliffs; workforce development
    JEL: I38 J08 J24
    Date: 2020–01–03
  7. By: Fackler, Daniel (IWH Halle); Hölscher, Lisa (Halle Institute for Economic Research); Schnabel, Claus (University of Erlangen-Nuremberg); Weyh, Antje (Institute for Employment Research (IAB), Nuremberg)
    Abstract: Using representative linked employer-employee data for Germany, this paper analyzes short- and long-run differences in labor market performance of workers joining startups instead of incumbent firms. Applying entropy balancing and following individuals over ten years, we find huge and long-lasting drawbacks from entering a start-up in terms of wages, yearly income, and (un)employment. These disadvantages hold for all groups of workers and types of start-ups analyzed. Although our analysis of different subsequent career paths highlights important heterogeneities, it does not reveal any strategy through which workers joining start-ups can catch up with the income of similar workers entering incumbent firms.
    Keywords: startups, young firms, wages, linked employer-employee data
    JEL: J31 J63 L26 M51
    Date: 2020–03
  8. By: Christopher Busch (Universitat Autonoma de Barcelona); Alexander Ludwig (SAFE, University of Mannheim)
    Abstract: We extend the canonical income process with persistent and transitory risk to shock distributions with left-skewness and excess kurtosis, to which we refer as higher-order risk. We estimate our extended income process by GMM for household data from the United States. We find countercyclical variance and procyclical skewness of persistent shocks. All shock distributions are highly leptokurtic. The existing tax and transfer system reduces dispersion and left-skewness of shocks. We then show that in a standard incomplete-markets life-cycle model, first, higher-order risk has sizable welfare implications, which depend crucially on risk attitudes of households; second, higher-order risk matters quantitatively for the welfare costs of cyclical idiosyncratic risk; third, higher-order risk has non-trivial implications for the degree of self-insurance against both transitory and persistent shocks.
    Keywords: labor income risk, business cycle, GMM estimation, skewness, persistent and transitory income shocks, risk attitudes, life-cycle model
    JEL: D31 E24 E32 H31 J31
    Date: 2020–03
  9. By: Asad, Sher Afghan (Iowa State University); Banerjee, Ritwik (Indian Institute of Management); Bhattacharya, Joydeep (Iowa State University)
    Abstract: We study possible worker-to-employer discrimination manifested via social preferences in an online labor market. Specifically, we ask, do workers exhibit positive social preferences for an out-race employer relative to an otherwise-identical, own-race one? We run a well-powered, model-based experiment wherein we recruit 6,000 workers from Amazon's M-Turk platform for a real-effort task and randomly (and unobtrusively) reveal to them the racial identity of their non-fictitious employer. Strikingly, we find strong evidence of race-based altruism – white workers, even when they do not benefit personally, work relatively harder to generate more income for black employers. Self-declared white Republicans and Independents exhibit significantly more altruism relative to Democrats. Notably, the altruism does not seem to be driven by race-specific beliefs about the income status of the employers. Our results suggest the possibility that pro-social behavior of whites toward blacks, atypical in traditional labor markets, may emerge in the gig economy where associative (dis)taste is naturally muted due to limited social contact.
    Keywords: discrimination, worker-to-employer, social preferences, taste-based discrimination, Gig Economy, mechanical turk, Structural Behavioral Economics
    JEL: J71 D91 C93
    Date: 2020–02
  10. By: Rutzer, Christian (University of Basel); Niggli, Matthias (University of Basel); Weder, Rolf (University of Basel)
    Abstract: This paper presents a new approach to estimate the green potential of occupations. Using data from O*NET on the skills that workers possess and the tasks they carry out, we train several machine learning algorithms to predict the green potential of U.S. occupations classified according to the 6-digit Standard Occupational Classication. Our methodology allows existing discrete classications of occupations to be extended to a continuum of classes. This improves the analysis of heterogeneous occupations in terms of their green potential. Our approach makes two contributions to the literature. First, as it more accurately ranks occupations in terms of their green potential, it leads to a better understanding of the extent to which a given workforce is prepared to cope with a transition to a green economy. Second, it allows for a more accurate analysis of differences between workforces across regions. We use U.S. occupational employment data to highlight both aspects.
    Keywords: green skills, green tasks, green potential, supervised learning, labor market
    JEL: C53 J21 J24 Q52
    Date: 2020–03–01
  11. By: Johnston, Andrew C. (University of California, Merced); Johnston, Carla (University of California, Berkeley)
    Abstract: We explore the nonprofit earnings penalty. To separate the influence of demand and supply, we leverage workers who change employers in administrative tax data. The average nonprofit worker earns 5.5 percent less than the average for-profit worker. Supply-side factors (worker selection) contribute 80 percent of the nonprofit differential. The remaining 20 percent is from demand (a nonprofit penalty). Within-worker nonprofit variation generates several insights about the influence of nonprofits on the labor market. Nonprofits compress the wage distribution and reduce inequality among earners. Nonprofit penalties are much more pronounced in classic charities than in "commercial" nonprofits, which sometimes exhibit nonprofit premia.
    Keywords: nonprofits, for-profits, employment, earnings, labor demand
    JEL: J4 J31 L3
    Date: 2020–03
  12. By: David Kunst; Richard B. Freeman; Remco Oostendorp
    Abstract: Firms hire workers to undertake tasks and activities associated with particular occupations, which makes occupations a fundamental unit in economic analyses of the labor market. Using a unique set of data on pay in identically defined occupations in developing and advanced countries, we find that occupational pay differentials narrowed substantially from the 1950s to the 1980s, then widened through the 2000s in most countries, creating a U-shaped pattern of change. The narrowing was due in part to the huge worldwide increase in the supply of educated workers. The subsequent widening was due in part to the weakening of trade unions and a shift in demand to more skilled workers associated with rising trade. The data indicate that supply, demand, and institutional forces are all drivers of occupational differentials, ruling out simple single factor explanations of change. The paper concludes with a call for improving the collection of occupational wage data to understand future changes in the world of work.
    JEL: F1 I2 J2 J3 J5 O3
    Date: 2020–03
  13. By: Köllő, János (Institute of Economics, Budapest); Boza, István (Central European University, Budapest); Balázsi, László (Central European University, Budapest)
    Abstract: We compare wages in multinational enterprises (MNEs) versus domestic firms, the earnings of domestic firm workers with past, future and no MNE experience, and estimate how the presence of ex-MNE peers affects the earnings of domestic firm employees. The analysis relies on monthly panel data covering half of the Hungarian population and their employers in 2003-2011. We identify the returns to MNE experience from changes of ownership, wages paid by new firms of different ownership, and the movement of workers between enterprises. We find high contemporaneous and lagged returns to MNE experience and significant spillover effects. Foreign acquisition has a moderate wage impact but there is a wide gap between new MNEs and domestic firms. The findings suggest that MNE experience is valued in the high-wage segment of the local economy, connected with the MNEs via worker turnover.
    Keywords: wage differentials, foreign direct investment, Hungary, multinational enterprises, wage spillover
    JEL: F23 J31 J62
    Date: 2020–03
  14. By: Chassamboulli, Andri (University of Cyprus); Gomes, Pedro Maia (Birkbeck, University of London)
    Abstract: We set up a model with search and matching frictions to understand the effects of employment and wage policies, as well as nepotism in hiring in the public sector, on unemployment and rent seeking. Conditional on inefficiently high public-sector wages, more nepotism in public-sector hiring lowers the unemployment rate because it limits the size of queues for public-sector jobs. Wage and employment policies impose an endogenous constraint on the number of workers the government can hire through connections.
    Keywords: public-sector employment, nepotism, public-sector wages, unemployment, queues
    JEL: E24 J31 J45 J64
    Date: 2020–03
  15. By: Edwyna Harris (Monash University); Sumner La Croix (University of Hawaii)
    Abstract: Great Britain established the new colony of South Australia (SA) in 1834. The immigration contract signed by assisted migrants required the SA government to provide those who could not find private sector work with employment on public works. We use new data on the compensation of unemployed and private-sector workers to examine how the SA unemployment system functioned before and after the onset of a major economic crisis in August 1840. We conclude that the unemployment system provided highly compensated relief employment to a small number of migrants prior to the crisis but as migrant numbers claiming relief employment soared between August 1840 and October 1841, the government drastically cut compensation for relief employment. The cuts occurred in tandem with the government’s release of newly surveyed rural lands, which together provided incentives and opportunities for workers to move to rural areas to seek work on newly opened farms. A comparison of the SA employment relief program with the 1843 temporary employment relief program established in the neighboring colony of New South Wales (NSW) shows that the NSW program neither established guarantees of jobs for assisted migrants unable to find work nor provided jobs for all assisted migrants without work during the 1843-1845 period.
    Keywords: relief, unemployed, South Australia, migrants, public works
    JEL: J65 N37 J38
    Date: 2020–03
  16. By: Abhishek Dureja (Indira Gandhi Institute of Development Research); Digvijay S. Negi (Indira Gandhi Institute of Development Research)
    Abstract: In developing countries where medical infrastructure and service delivery system, and the market for health insurance are underdeveloped, one important mechanism to cope with the consequences of health shocks is the intra-household substitution of labour. Most of the available studies have evaluated intra-household labour substitution in response to a health shock using low frequency data. This paper, using a panel of high frequency monthly data from the rural households in the semi-arid tropics of India, investigates the impacts of short-term illness shocks on individuals labour supply and wage earnings. It also evaluates compensating intra-household labour supply responses to short-term illness shocks of other non-ill members of the household. We find that an illness shock reduces an individuals monthly wage earnings by 4.3 via the decline in the individuals days of employment in the labour market. Further, an illness shock to the household-head causes a compensating increase in the spouses labour supply in wage labour market and livestock activities. Similarly, an illness shock to the spouse induces the household-head to devote more time to domestic and livestock activities.
    Keywords: Illness shocks, Labour supply, Intra-household allocation, India
    JEL: I15 J22 J43 O12
    Date: 2020–03
  17. By: Fernández-Val, Iván (Boston University); Peracchi, Franco (University of Rome Tor Vergata); van Vuuren, Aico (University of Gothenburg); Vella, Francis (Georgetown University)
    Abstract: We examine the impact of annual hours worked on annual earnings by decomposing changes in the real annual earnings distribution into composition, structural and hours effects. We do so via a nonseparable simultaneous model of hours, wages and earnings. We provide identification results and estimators of the objects required for the decompositions. Using the Current Population Survey for the survey years 1976–2016, we find that changes in the level of annual hours of work are important in explaining movements in inequality in female annual earnings. This captures the substantial changes in their employment behavior over this period. The impact of hours on males' earnings inequality operates only through the lower part of the earnings distribution and reflects the sensitivity of these workers' annual hours of work to cyclical factors.
    Keywords: earnings inequality, sample selection, decompositions, nonseparable model
    JEL: C14 I24 J00
    Date: 2020–02
  18. By: Daniela Del Boca (University of Turin and Collegio Carlo Alberto); Chiara Pronzato (University of Turin); Giuseppe Sorrenti (University of Amsterdam)
    Abstract: Employment helps reduce the risk of poverty. Through a randomized controlled trial, we evaluate the impact of a conditional cash transfer (CCT) program to low-income families with dependent children on household members' labor supply. Recipients are required to attend labor-market-oriented mentoring courses as a condition of the transfer. One year after admission to the program, fathers assigned to the CCT program are more likely to work (+14 percent) than fathers assigned to an unconditional cash transfer program or to a pure control group. No effect arises for mothers. Results seem to be explained by improved family networks and increased parental investments in activities that enhance labor market opportunities.
    Keywords: conditional cash transfers, poverty, household labor supply, mentoring courses
    JEL: I10 I20 J24 I31
    Date: 2020–04
  19. By: Gomes, Pedro Maia (Birkbeck, University of London); Wellschmied, Felix (Universidad Carlos III de Madrid)
    Abstract: The size of the public sector in terms of employment and compensation has a strong life-cycle dimension. We establish a quantitative partial-equilibrium life-cycle model with incomplete markets, private and public sectors, and risk-averse workers, and use it to (i) calculate three dimensions of public-sector compensation: wage, pension, and job-security premia, and (ii) quantify the effects of harmonizing the compensation in the two sectors. We find that the job-security and pension's premia are important forms of compensation to public-sector workers. Harmonizing the characteristics of public employment with those of the private sector would lower the unemployment rate and reduce government costs.
    Keywords: public-sector employment, public-sector wages, life cycle, unemployment, retirement, pensions, job security
    JEL: J45 E24 H30 H55
    Date: 2020–03
  20. By: Brunello, Giorgio (University of Padova); Gereben, Áron (European Investment Bank); Weiss, Christoph T. (European Investment Bank); Wruuck, Patricia (European Investment Bank)
    Abstract: Using a representative sample of European firms, we study whether and to what extent financing constraints affect employers' decision to invest in employee training. We combine survey data on investment activities with administrative data on financial statements to develop an index of financing constraints. We estimate that a 10 percent increase in this index reduces investment in training as a share of fixed assets by 2.9 to 4.5 percent and investment in training per employee by 1.8 to 2.5 percent. We document that lower investment in training reduces productivity, and show that firms facing tighter financing constraints cut back the investment in training and tangible assets less than the investment in R&D and software and data.
    Keywords: training, financing constraints, Europe
    JEL: J24
    Date: 2020–03
  21. By: Accominotti, Fabien; Tadmon, Daniel
    Abstract: In a variety of social contexts, measuring merit or performance is a crucial step toward enforcing meritocratic ideals. At the same time, workable measures – such as ratings – are bound to obfuscate the intricacy inherent to any empirical occurrence of merit, thus reifying it into an artificially crisp and clear-cut thing. This article explores how the reification of merit breeds inequality in the rewards received by the winners and losers of the meritocratic race. It reports the findings of a large experiment (n = 2,844) asking participants to divide a year- end bonus among a set of employees based on the reading of their annual performance reviews. In the experiment’s non-reified condition, reviews are narrative evaluations. In the reified condition, the same narrative evaluations are accompanied by a crisp rating of the employees’ performance. We show that participants reward employees more unequally when performance is reified, even though employees’ levels of performance do not vary across conditions: most notably, the bonus gap between top- and bottom-performing employees increases by 20% between our non-reified and reified conditions, and it rises by another 10% when performance is presented as a quantified score. Further analyses suggest that reification fuels inequality both by reinforcing the authoritativeness of evaluation and by making observers more accepting of the idea that individuals can be meaningfully sorted into a merit hierarchy. This has direct implications for understanding the rise of legitimate inequality in societies characterized by the proliferation of reifying forms of evaluation.
    Keywords: Evaluation; inequality; reification; quantification; performance; meritocracy
    JEL: J30 M10 M50 Z10
    Date: 2020–03

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