nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2020‒04‒20
twenty papers chosen by
Joseph Marchand
University of Alberta

  1. Health Risk and the Welfare Effects of Social Security By Shantanu Bagchi; Juergen Jung
  2. Higher-order income risk over the business cycle By Busch, Christopher; Ludwig, Alexander
  3. The Impact of COVID-19 on Gender Equality By Titan M. Alon; Matthias Doepke; Jane Olmstead-Rumsey; Michèle Tertilt
  4. Flexible work arrangements and precautionary behaviour: Theory and experimental evidence By Orland, Andreas; Rostam-Afschar, Davud
  5. The Economic Impact of a High National Minimum Wage: Evidence from the 1966 Fair Labor Standards Act By Martha J. Bailey; John DiNardo; Bryan A. Stuart
  6. Trends in aggregate employment, hours worked per worker, and the long-run labor wedge By Epstein, Brendan; Mukherjee, Rahul; Finkelstein Shapiro, Alan; Ramnath, Shanthi
  7. The Rise of American Minimum Wages, 1912-1968 By Price V. Fishback; Andrew Seltzer
  8. Identifying Leadership Skills Required in the Digital Age By Milan Frederik Klus; Julia Müller
  9. Productivity Dispersion and Persistence Among the World's Most Numerous Firms By Casey C. Maue; Marshall Burke; Kyle J. Emerick
  10. The Incubator of Human Capital: The NBER and the Rise of the Human Capital Paradigm By Claudia Goldin; Lawrence F. Katz
  11. Discrimination, Migration, and Economic Outcomes: Evidence from World War I By Andreas Ferrara; Price V. Fishback
  12. Robotisation, Employment and Industrial Growth Intertwined Across Global Value Chains By Mahdi Ghodsi; Oliver Reiter; Robert Stehrer; Roman Stöllinger
  13. The retirement migration puzzle in China By Chen, Simiao; Jin, Zhangfeng; Prettner, Klaus
  14. Wage Developments in the Western Balkans, Moldova and Ukraine By Vasily Astrov; Sebastian Leitner; Isilda Mara; Leon Podkaminer; Hermine Vidovic
  15. Diff-in-Diff in Death: Estimating and Explaining Artist-Specific Death Effects By Heinrich Ursprung; Katarina Zigova
  16. The Determinants of French Municipal Labor Demand By Sophie Larribeau; Matthieu Leprince; Touria Jaaidane
  17. Household Behavioral Preferences and the Child Labor-Education Trade-off: Framed Field Experimental Evidence from Ethiopia By Basu, Arnab K.; Dimova, Ralitza
  19. Macro and microeconomic evidence on investment, factor shares, firm and labor dynamics in Italy and in Trentino By Mondolo, Jasmine

  1. By: Shantanu Bagchi (Department of Economics, Towson University); Juergen Jung (Department of Economics, Towson University)
    Abstract: We examine the welfare effects of Social Security in a general equilibrium environment with realistic labor income, mortality, and health risks. We construct an overlapping generations model with rational-expectations households facing idiosyncratic health risk, profit maximizing firms, incomplete insurance markets, and a government that provides pensions and health insurance. We calibrate this model to the U.S. economy and perform two sets of computational experiments: (i) modifying the progressivity of the Social Security's benefit-earnings rule, and (ii) cutting Social Security's payroll tax. We find that both experiments have a larger effect on overall welfare in the presence of health risk, because health risk increases the importance of short-term consumption smoothing, both within work-life and retirement. Increased progressivity allows households to better smooth old-age consumption risk, and the payroll tax cut increases disposable income and allows better self-insurance against early-life health risk. We also find that labor supply is an important self-insurance tool in the presence of health risk, as increasing Social Security's progressivity has a smaller effect on overall welfare and cutting the payroll tax has a larger effect on overall welfare when labor supply is fixed. Finally, low-income households experience larger welfare gains both from increasing Social Security's progressivity and cutting the payroll tax, because of their relatively low ability to self-insure against health risk in general.
    Keywords: Health risk, Social Security, benefit-earnings rule, consumption smoothing, general equilibrium.
    JEL: E62 E21 H31 H55 I14
    Date: 2020–04
  2. By: Busch, Christopher; Ludwig, Alexander
    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 higherorder 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
  3. By: Titan M. Alon; Matthias Doepke; Jane Olmstead-Rumsey; Michèle Tertilt
    Abstract: The economic downturn caused by the current COVID-19 outbreak has substantial implications for gender equality, both during the downturn and the subsequent recovery. Compared to “regular” recessions, which affect men’s employment more severely than women’s employment, the employment drop related to social distancing measures has a large impact on sectors with high female employment shares. In addition, closures of schools and daycare centers have massively increased child care needs, which has a particularly large impact on working mothers. The effects of the crisis on working mothers are likely to be persistent, due to high returns to experience in the labor market. Beyond the immediate crisis, there are opposing forces which may ultimately promote gender equality in the labor market. First, businesses are rapidly adopting flexible work arrangements, which are likely to persist. Second, there are also many fathers who now have to take primary responsibility for child care, which may erode social norms that currently lead to a lopsided distribution of the division of labor in house work and child care.
    JEL: D10 E24 J16 J22
    Date: 2020–04
  4. By: Orland, Andreas; Rostam-Afschar, Davud
    Abstract: In the past years, work time in many industries has become increasingly flexible opening up a new channel for intertemporal substitution. To study this, we set up a two-period model with wage uncertainty. This extends the standard saving model by allowing a worker to allocate a fixed time budget between two work-shifts or to save. To test the existence of these channels, we conduct laboratory consumption/saving experiments. A novel feature of our experiments is that we tie them to a real-effort style task. In four treatments, we turn on and off the two channels for consumption smoothing: saving and time allocation. Our four main findings are: (i) subjects exercise more effort under certainty than under risk; (ii) savings are strictly positive for at least 85 percent of subjects (iii) a majority of subjects uses time allocation to smooth consumption; (iv) saving and time shifting are substitutes, though not perfect substitutes.
    Keywords: precautionary saving,labor supply,intertemporal substitution,experiment
    JEL: D14 E21 J22 C91 D81
    Date: 2020
  5. By: Martha J. Bailey; John DiNardo; Bryan A. Stuart
    Abstract: This paper examines the short and longer-term economic effects of the 1966 Fair Labor Standards Act (FLSA) which increased the national minimum wage to its highest level of the 20th Century and extended coverage to an additional 9.1 million workers. Exploiting differences in the “bite” of the minimum wage due to regional variation in the standard of living and industry composition, this paper finds that the 1966 FLSA increased wages dramatically but reduced aggregate employment only modestly. However, the disemployment effects were significantly larger among African-American men, forty percent of whom earned below the new minimum wage in 1966.
    JEL: J23 J38 J88
    Date: 2020–04
  6. By: Epstein, Brendan; Mukherjee, Rahul; Finkelstein Shapiro, Alan; Ramnath, Shanthi
    Abstract: Hours worked are fundamentally important for aggregate economic activity, yet canonical macroeconomic models fail dramatically at tracking its long-run trends. We develop an intuitive and tractable extension of the canonical model that decomposes trend hours into extensive and intensive margins via household-side employment-attainment costs and firm-side employment adjustment costs. Its predictions track very well the trend behavior of hours, and its two underlying margins, in the United States and a host of OECD countries. Our framework is relevant for analyzing the long run labor-market effects of a number of factors such as productivity growth, and tax or labor-market reforms.
    Keywords: CLM model; DLM model; Europe; hours worked per population; labor-market policy; long-run labor wedge; OECD countries; taxes; United States; U.S. tax puzzle.
    JEL: E60 H20 J20
    Date: 2020–03
  7. By: Price V. Fishback; Andrew Seltzer
    Abstract: We describe the economic history of the rise of the American minimum wage between 1910 and 1968. Each new FLSA amendment led to a new peak in the real purchasing power of the national minimum. Exemptions to the FLSA were progressively closed and the share of workers covered finally increased from about 50 percent of the private sector workforce in 1937, to 77 percent of the private sector and 40 percent of the public sector workforce in 1966. By the late 1970s coverage was nearly complete, with only the smallest employers exempted. We describe the political economic history of the minimum wage laws, as well as the debates among economists. Another key feature is a renewed emphasis on the roles played by the states in passing the original minimum wage laws for women. The states filled some of the gaps in coverage left by the FLSA after 1938 and set higher minimum rates for women in some sectors in the 1940s and 1950s than the FLSA set for men and women in interstate commerce. Since 1981 a rising number of states have set general minimum wages that substantially exceed the national minimum.
    JEL: B21 J31 J38 N32
    Date: 2020–04
  8. By: Milan Frederik Klus; Julia Müller
    Abstract: How should executives lead organisations and their employees in an increasingly digitalized business environment and what skills are needed to succeed? Although the evolution of digital technologies considerably changes working environments in organisations and creates new challenges for executives, only little research has been conducted on how these challenges and technology-driven changes are associated with requirements for the skill set needed by executives. In this paper, we bridge that gap by applying a three-stage research design. First, we develop a conceptual framework in which we categorise leadership skills included in the existing literature and associate them with tasks, management level, and leadership experience. To identify skills that are particularly relevant in the context of digitalisation, we conduct semi-structured interviews with executives and systematically investigate job advertisements for management positions. By triangulating the findings, we contribute new insights to the leadership literature and derive practical implications.
    Keywords: conceptual framework, digitalization, explorative study, leadership skills
    JEL: M12 M15 M51 M54 O32 O33
    Date: 2020
  9. By: Casey C. Maue; Marshall Burke; Kyle J. Emerick
    Abstract: A vast firm productivity literature finds that otherwise similar firms differ widely in their productivity and that these differences persist through time, with important implications for the broader macroeconomy. These stylized facts derive largely from studies of manufacturing firms in wealthy countries, and thus have unknown relevance for the world's most common firm type, the smallholder farm. We use detailed micro data from over 12,000 smallholder farms and nearly 100,000 agricultural plots across four countries in Africa to study the size, source, and persistence of productivity dispersion among smallholder farmers. Applying standard regression-based approaches to measuring productivity residuals, we find much larger dispersion but less persistence than benchmark estimates from manufacturing. We then show, using a novel framework that combines physical output measurement, estimates from satellites, and machine learning, that about half of this discrepancy can be accounted for by measurement error in output. After correcting for measurement error, productivity differences across firms and over time in our smallholder agricultural setting closely match benchmark estimates for non-agricultural firms. These results question some common implications of observed dispersion, such as the importance of misallocation of factors of production.
    JEL: O12 Q12
    Date: 2020–04
  10. By: Claudia Goldin; Lawrence F. Katz
    Abstract: The human capital construct is deep in the bones of economics and finds reference by many classical economists, even if they did not use the phrase. The term “human capital,” seldom mentioned in economics before the 1950s, increased starting in the 1960s and blossomed in the 1990s. The upsurge in NBER publications was even greater. Using EconLit codes from 1990 to 2019, the use of human capital among NBER books increased from 5% to 25%, whereas all economics books changed from 3% to 6%. For NBER working papers, 3% referenced human capital around 1990, but 10% have more recently. The figures for all economics articles are 4% and 6%. The NBER played an outsized role in the rise of the concept of human capital mainly because of the emphasis on empiricism at the NBER. We explore how the NBER was an incubator of human capital research and the ways human capital theory brought the NBER into the modern era of economics.
    JEL: B0 J24
    Date: 2020–03
  11. By: Andreas Ferrara; Price V. Fishback
    Abstract: Are the costs of discrimination mainly borne by the targeted group or by society? This paper examines both individual and aggregate costs of ethnic discrimination. Studying Germans living in the U.S. during World War I, an event that abruptly downgraded their previously high social standing, we propose a novel measure of local anti-German sentiment based on war casualties. We show that Germans disproportionally fled counties with high casualty rates and that those counties saw more anti-German slurs reported in newspapers. German movers had worse occupational outcomes after the war but also the discriminating communities paid a substantial cost. Counties with larger outflows of Germans, who pre-war tended to be well-trained manufacturing workers, saw a drop in average annual manufacturing wages of 1-7% which persisted until 1940. Thus, for discriminating communities, a few years of intense anti-German sentiment were reflected in worse economic outcomes that lasted for more than a decade.
    JEL: J15 J61 J71 N32 N42
    Date: 2020–04
  12. By: Mahdi Ghodsi (The Vienna Institute for International Economic Studies, wiiw); Oliver Reiter (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Roman Stöllinger (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The global economy is currently experiencing a new wave of technological change involving new technologies, especially in the realm of artificial intelligence and robotics, but not limited to it. One key concern in this context is the consequences of these new technologies on the labour market. This paper provides a comprehensive analysis of the direct and indirect effects of the rise of industrial robots and productivity via international value chains on various industrial indicators, including employment and real value added. The paper thereby adds to the existing empirical work on the relationship between technological change, employment and industrial growth by adding data on industrial robots while controlling for other technological advancements measured by total factor productivity (TFP). The results indicate that the overall impact of the installation of new robots did not statistically affect the growth of industrial employment during the period 2000–2014 significantly, while the overall impact on the real value added growth of industries in the world was positive and significant. The methodology also allows for a differentiation between the impact of robots across various industries and countries based on two different perspectives of source and destination industries across global value chains. Disclaimer This is a background paper for the UNIDO Industrial Development Report 2020. Industrializing in the digital age.
    Keywords: Robotisation, digitalisation, global value chains, total factor productivity, industrial growth, employment, value added
    JEL: D57 J21 L16 O14
    Date: 2020–04
  13. 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
  14. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: In recent years, the general economic recovery has finally fed through to a significant increase in real wages in the Western Balkan countries, Moldova and Ukraine. Nevertheless, wage shares have barely picked up, and have even declined slightly in several places. Only in Kosovo has significant convergence with the Austrian wage level been registered. The improvement in labour market conditions in the countries covered has had only a moderately positive effect on wage developments. Despite recent declines, many countries continue to record double-digit unemployment rates, meaning that the bargaining power of employees has improved only slightly. The gradual decentralisation of wage-setting mechanisms has also slowed wage growth. In general, collective-bargaining mechanisms are much less developed than, for example, in Austria. Their scope is limited by the low share of employees in total (formal) employment. High unemployment and large wage gaps, especially in comparison with Western Europe, have led to considerable outward migration and population decline in many of these countries. This trend is expected to continue in the future. In the long run, this will result in the loss of an important share of the human capital of these countries, which might affect their prospects for convergence with Western European levels, including in terms of wages. Disclaimer The study was commissioned by the Arbeiterkammer Wien. This is a translation of the German version that was published as wiiw Research Report in German language No. 15 in September 2019.
    Keywords: Wages, wage share, demographic trends, migration, Phillips curve, wage-setting mechanisms
    JEL: J11 J31 J4 J50
    Date: 2020–04
  15. By: Heinrich Ursprung; Katarina Zigova
    Abstract: We investigate how an artist’s death impacts on the price of her artwork by estimating individual death effects of a sample of famous visual artists who died between 1985 and 2010. Using data from art auctions that took place in a narrow window around the artists’ death, we apply various econometric methods, including regression discontinuity and differences-in-differences strategies. The heterogeneity in death effects across artists turns out to be substantial and can, in large part, be explained by age and reputation at death. This result is robust to various specifications and measures of reputation. We present as an exacting test the case of Keith Haring, whose terminal illness was communicated by him well in advance.
    Keywords: art auction prices, death effect, reputation, differences in differences, regression discontinuity
    JEL: I20 J24 J31
    Date: 2020
  16. By: Sophie Larribeau (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Matthieu Leprince (Universite de Bretagne Occidentale, AMURE); Touria Jaaidane (Universite de Lille, LEM (UMR 9221) and CRED, Universite Paris 2)
    Abstract: In many countries, municipalities are central employers in their local labor market. Studies of the determinants of municipal labor demand are however scarce. Exploiting an original panel dataset of municipalities of more than 1,000 inhabitants in France over the 2002- 2008 period, we first show that usual factors such as wages, grants, median income and tax capacity explain the labor demand. Second, we show that inter-municipal cooperation (hereafter IMC) is also a key factor: we find a positive impact of inter-municipal employment level on municipal employment (IMC direct effect). Third we find that IMC leads mayors to increase municipal employment when unemployment is higher (IMC indirect effect). Moreover, Right-wing mayors tend to reduce municipal employment when unemployment is higher (partisan effect). Finally, controlling for the magnitude of the inter-municipal employment, it turns out that the IMC indirect effect holds only for municipalities in large employment cooperation bodies and that the partisan effect dominates the IMC indirect effect for Right-wing municipalities.
    Keywords: Municipal labor demand ; Inter-municipal cooperation ; Median voter model ; Instrumental variables ; Panel data
    JEL: H70 J45 C23
    Date: 2020–03
  17. By: Basu, Arnab K. (Cornell University); Dimova, Ralitza (University of Manchester)
    Abstract: Using data from the Rural Ethiopian Household Survey, which contains a behavioral module, we explore the link between adult risk and time preferences and the incidence and the intensity of child labor. While as expected child labor at both the extensive and the intensive margin is a result of high time discount rates, the narrative behind the positive relationship between adult risk aversion and child labor is more complex. While child labor is clearly the result of risk aversion, more risk averse parents react to their uncertain environments by combining child labor and work as opposed to substituting schooling for child labor.
    Keywords: risk and time preferences, education, child labor, Ethiopia
    JEL: C93 J43 O55
    Date: 2020–02
  18. By: CHIVU, LUMINITA (National Institute of Economic Research - Romanian Academy); GEORGESCU , GEORGE (National Institute of Economic Research - Romanian Academy); BRATILOVEANU, ALINA ("Valahia" University of Targoviste); BÄ‚NCESCU, IRINA (National Institute of Economic Research - Romanian Academy)
    Abstract: In recent years, the labour market in Romania became more and more tense, with growing labour shortages affecting the development of many important sectors. This paper is focusing on the labour market imbalances, specifying the main landmarks of labour shortages and highlighting their conditions of emergence and the generating factors for each type of their manifestation. Even if some imbalances has been reported long before, the existence and persistence of quantitative and qualitative labour shortages in Romania became obvious only recently, also under the circumstances of the warning signals of academia and business environment. Among the causes of this growing labour shortages and mismatches are the unfavourable demographic trends, the massive external migration of the skilled and high skilled labour force, the low level of the participation rate, the high inactivity rate, the quantitative and qualitative discrepancies between the supply of the education system and the real needs of the labour market, the size of undeclared work that continues to distort the labour market, the lack of cooperation between employers and institutions with responsibilities in the field employment and professional training of adults. The case study conducted on the IT&C sector, a growing sector in Romania, led to the conclusion that, despite its was claimed by the decision makers as strategic priority, the labour shortages in the sector remains high, being likely to maintain in the near future in the absence of promoting adequate support measures. Under the circumstances of Coronavirus global outbreak early 2020, the effects on the labour market in Romania are difficult to predict, the quantitative and qualitative shortages alleviation depending on the ability of the authorities to manage the crisis and to find the right responses, including by redirecting the returned migrant workers towards the domestic labour market.
    Keywords: demographic demographic trends, population aging, emigration, demographic and economic dependency ratio, labour market demand and supply, labour market tensions, internal mobility, labour shortages
    JEL: E60 F22 F66 I20 J08 J10 J21 J23 J61
    Date: 2020–03
  19. By: Mondolo, Jasmine
    Abstract: In recent years, a number of papers have attempted to shed light on some macroeconomic dynamics in a few countries, especially in the US, which raise some concerns and which may be influenced by variations in corporate market power. This study mainly aims to understand how and to what extent Italy differs from other economies in terms of these trends, and whether there are relevant within-country differences. Specifically, we first look at the trends, based on aggregate data, of domestic investment rate, labor share and capital share, labor force participation, wage dispersion and economic dynamism, observed in Italy since the mid-nighties, and make some comparisons with the US and the EU. Then, since national data may hide relevant within-country heterogeneity, when possible, we split Italy in four macro-areas. Further, we focus on a specific Italian region, namely Trentino, for which we also recover the trends in private investment rate, factor shares and profit share, for the years 2009-2015, using a firm-level dataset compiled by Ispat. The main results of this study are as follows: the macroeconomic trends under scrutiny observed in Italy since the second half of the nineties partly diverge from those emerged in the US. In particular, labor share presents a mixed trend during the selected time period, domestic investment has been recovering after the contraction occurred in the aftermath of the economic recession, and labor force participation exhibits a clear average positive trend. In addition, the overall picture hides considerable within-country heterogeneity (more in terms of levels than in terms of trends). For instance, labor force participation is still sensibly lower in the Mezzogiorno than in the rest of the country. As for Trentino, this region exhibits a relatively high level of investment rate, a relatively small wage dispersion (proxied by the Gini coefficient) in recent years and, in most of the years since 2002, a net turnover rate of firms which is higher than the average national one.
    Keywords: market power, markup, labor share, capital share, investment, wage dispersion, economic dynamism
    JEL: D2 E2 J3 L1
    Date: 2020–03
  20. By: CHIVU, LUMINIÈšA (National Institute of Economic Research - Romanian Academy); GEORGESCU , GEORGE (National Institute of Economic Research - Romanian Academy)
    Abstract: The labour market in Romania is under the pressure of divergent factors, at the intersection of the labour demand and supply determinants. This paper is focusing on quantitative and qualitative analysis of the labour market in Romania, trying to identify its imbalances and to find ways for their mitigation considering the main trends, including the European labour market developments. From the perspective of the labour supply, despite massive emigration, is found that Romania still has an important human potential including an unused workforce reserve, but the performances of the education and training should improve for increasing the quality of competences and skills needed on the labour market. Looking at the demand for labour force, although under the circumstances of the lack of information for an accurate assessment, starting with 2012, as a general trend, the number of jobs created exceeded the number of job vacancies, the new created companies, with a higher degree of technology and more competitive, having significantly contributed to the increase in the employment rate. However, imbalances between the labour demand and supply have emerged and are growing, likely to become a severe obstacle hindering the development of Romania in the medium and long term.
    Keywords: demographic trends, population aging, emigration, demographic and economic dependency ratio, labour market, demand and supply, labour market tensions, internal mobility, labour shortages
    JEL: E60 F22 F66 I20 J08 J10 J21 J23 J61
    Date: 2020–03

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