nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2020‒05‒04
fifteen papers chosen by
Joseph Marchand
University of Alberta

  1. The Long Run Earnings Effects of a Credit Market Disruption By Effrosyni Adamopoulou; Marta De Philippis; Enrico Sette; Eliana Viviano
  2. The Ability Gradient in Bunching By Waldenström, Daniel; Bastani, Spencer
  3. Assortative labor matching, city size, and the education level of workers By Stefan Leknes; Jørn Rattsø; Hildegunn E. Stokke
  4. The Short-Term Economic Consequences of COVID-19: Exposure to Disease, Remote Work and Government Response By Louis-Philippe Beland; Abel Brodeur; Taylor Wright
  5. Workforce composition, productivity and pay: The role of firms in wage inequality By Chiara Criscuolo; Alexander Hijzen; Cyrille Schwellnus; Erling Barth; Wen-Hao Chen; Richard Fabling; Priscilla Fialho; Katarzyna Grabska; Ryo Kambayashi; Timo Leidecker; Oskar Nordström Skans; Capucine Riom; Duncan Roth; Balazs Stadler; Richard Upward; Wouter Zwysen
  6. No Line Left Behind: Assortative Matching Inside the Firm By Achyuta Adhvaryu; Vittorio Bassi; Anant Nyshadham; Jorge A. Tamayo
  7. Estimating the elasticity of taxable income when earnings responses are sluggish By Trine Engh Vattø
  8. The Financial Accelerator, Wages, and Optimal Monetary Policy By Tobias König
  9. Untying the Knot: How Child Support and Alimony Affect Couples’ Decisions and Welfare By Hanno Foerster
  10. Financing constraints and employers' investment in training By Brunello, Giorgio; Gereben, Áron; Weiss, Christoph; Wruuck, Patricia
  11. Competition in Higher Education: A Survey By Michael Kaganovich; Sinan Sarpca; Xuejuan Su
  12. Cooperation in a Company: A Large-Scale Experiment By Marvin Deversi; Martin G. Kocher; Christiane Schwieren
  13. Income-Driven Repayment Plans for Student Loans: Working Paper 2020-02 By Nadia Karamcheva; Jeffrey Perry; Constantine Yannelis
  14. Trade Policy and the China Syndrome By Lorenzo Trimarchi
  15. Lock-downs, Loneliness and Life Satisfaction By Daniel S. Hamermesh

  1. By: Effrosyni Adamopoulou; Marta De Philippis; Enrico Sette; Eliana Viviano
    Abstract: This paper studies the long term consequences on workers' labour earnings of the credit crunch induced by the 2007-2008 financial crisis. We study the evolution of both employment and wages in a large sample of Italian workers followed for nine years after the start of the crisis. We rely on a unique matched bank-employer-employee administrative dataset to construct a firm-specific shock to credit supply, which identifies firms that, because of the collapse of the interbank market during the financial crisis, were unexpectedly affected by credit restrictions. We find that workers who were employed before the crisis in firms more exposed to the credit crunch experience persistent and sizable earnings losses, mainly due to a permanent drop in days worked. These effects are heterogeneous across workers, with high-type workers being more affected in the long run. Moreover, firms operating in areas with favourable labour market conditions react to the credit shock by hoarding high-type workers and displacing low-type ones. Under unfavourable labour market conditions instead, firms select to displace also high-type (and therefore more expensive) workers, even though wages do react to the slack. All in all, our results document persistent effects on the earnings distribution.
    Keywords: credit crunch, employment, wages, long run effects, administrative data, linked bank-employer-employee panel data
    JEL: E24 E44 G21 J21 J31 J63
    Date: 2020–04
  2. By: Waldenström, Daniel (Research Institute of Industrial Economics (IFN)); Bastani, Spencer (Department of Economics and Statistics)
    Abstract: We analyze the relationship between cognitive ability and bunching in the context of a large and salient kink point of the Swedish income tax schedule. Using population-wide register data from the Swedish military enlistment and administrative tax records, we find that high-ability individuals bunch more than low-ability individuals. This ability gradient is stronger for the self-employed, but is also present among wage earners. We also use high-school GPA and math grades to analyze gender differences, finding a stronger ability gradient among men.
    Keywords: Bunching; Ability; Skills; Complexity; Optimal Taxation
    JEL: H21 H24 J22 J24
    Date: 2020–04–22
  3. By: Stefan Leknes (Statistics Norway); Jørn Rattsø (Department of Economics, Norwegian University of Science and Technology, Norway); Hildegunn E. Stokke (Department of Economics, Norwegian University of Science and Technology, Norway)
    Abstract: Recent research shows that thicker labor markets display better assortative matching. Our contribution addresses identification challenges and heterogeneity of effects, in particular with respect to education. Using a rich administrative worker-firm dataset for Norway, labor market size is shown to be of relevance for assortative matching mainly for the college educated. Among these, the pattern is most pronounced for workers of intermediate ages, with education related to business and administration, men, and service sector workers. Results are robust to instrumentation of population size using historical mines and sample adjustment to mitigate limited mobility bias.
    JEL: J24 J31 R23
    Date: 2020–03–04
  4. By: Louis-Philippe Beland (Department of Economics, Carleton University); Abel Brodeur (Department of Economics, University of Ottawa); Taylor Wright (Department of Economics, University of Ottawa)
    Abstract: In this ongoing project, we examine the short-term consequences of COVID-19 on employment and wages in the United States. Guided by a pre-analysis plan, we document the impact of COVID-19 at the national-level using a simple difference and test whether states with relatively more confirmed cases/deaths were more affected. Our findings suggest that COVID-19 increased the unemployment rate, decreased hours of work and labor force participation and had no significant impacts on wages. The negative impacts on labor market outcomes are larger for men, younger workers, Hispanics and less-educated workers. This suggest that COVID-19 increases labor market inequalities. We also investigate whether the economic consequences of this pandemic were larger for certain occupations. We built three indexes using ACS and O*NET data: workers relatively more exposed to disease, workers that work with proximity to coworkers and workers who can easily work remotely. Our estimates suggest that individuals in occupations working in proximity to others are more affected while occupations able to work remotely are less affected. We also find that occupations classified as more exposed to disease are less affected, possibly dueto the large number of essential workers in these occupations.
    Keywords: CCOVID-19; unemployment; wages; remote work; exposure to disease
    JEL: I15 I18 J21
    Date: 2020–04–16
  5. By: Chiara Criscuolo; Alexander Hijzen; Cyrille Schwellnus; Erling Barth; Wen-Hao Chen; Richard Fabling; Priscilla Fialho; Katarzyna Grabska; Ryo Kambayashi; Timo Leidecker; Oskar Nordström Skans; Capucine Riom; Duncan Roth; Balazs Stadler; Richard Upward; Wouter Zwysen
    Abstract: In many OECD countries, low productivity growth has coincided with rising inequality. Widening wage and productivity gaps between firms may have contributed to both developments. This paper uses a new harmonised cross-country linked employer-employee dataset for 14 OECD countries to analyse the role of firms in wage inequality. The main finding is that, on average across countries, changes in the dispersion of average wages between firms explain about half of the changes in overall wage inequality. Two thirds of these changes in between-firm wage inequality are accounted for by changes in productivity-related premia that firms pay their workers above common market wages. The remaining third can be attributed to changes in workforce composition, including the sorting of high-skilled workers into high-paying firms.
    Keywords: firm wage premium, productivity, wage inequality
    JEL: D2 J31 J38
    Date: 2020–05–01
  6. By: Achyuta Adhvaryu; Vittorio Bassi; Anant Nyshadham; Jorge A. Tamayo
    Abstract: How do firms pair workers with managers, and which constraints affect the allocation of labor within the firm? We characterize the sorting pattern of managers to workers in a large readymade garment manufacturer in India, and then explore potential drivers of the observed allocation. Workers in this firm are organized into production lines, each supervised by a manager. We exploit the high degree of worker mobility across lines, together with worker-level productivity data, to estimate the sorting of workers to managers. We find negative assortative matching (NAM) -that is, better managers tend to match with worse workers, and vice versa. This stands in contrast to our estimates of the production technology, which reveal that if the firm were to positively sort, productivity would increase by 1 to 4 percent across the six factories in our data. Coupling these findings with a survey of managers and with data on multinational brands and the orders they place, we document that NAM arises, at least in part, because the value of buyer relationships imposes minimum productivity constraints on each production line. Our results emphasize that suppliers to the global market, when they are beholden to a small set of powerful buyers, may be driven to allocate managerial skill to service these relationships, even at the expense of productivity.
    JEL: J24 L14 L23 M5
    Date: 2020–04
  7. By: Trine Engh Vattø (Statistics Norway)
    Abstract: Estimates of the elasticity of taxable income (ETI) is conventionally obtained by “stacking” three-year overlapping differences in the estimation. In effect, this means that the ETI estimate is an average of first-, second-, and third-year effects. The present paper draws attention to this implication and suggests that if there is gradual adjustment the analyst should rather estimate the ETI by a dynamic panel data model. When using Norwegian income tax return data for wage earners over a 14-year period (1995−2008) in the estimation, an ETI estimate of 0.15 is obtained from the dynamic specification, compared to 0.11 for the conventional approach. Importantly, the conventional approach fails to render a long-term elasticity estimate by increasing the time span of each difference.
    Keywords: elasticity of taxable income; time frame; tax reform; earnings dynamics
    JEL: H24 H31 J22
    Date: 2020–04
  8. By: Tobias König
    Abstract: This paper studies the effects of labor market outcomes on firms’ loan demand and on credit intermediation. In a first step, I investigate how wages in the production sector affect bank net worth and the process of financial intermediation in partial equilibrium. Second, the role of the identified channels are studied in general equilibrium using a new- Keynesian DSGE-model with financial frictions and an endogenous financial accelerator mechanism. Third, I investigate how perfect and imperfect labor markets, in a setting with interactions between production factor costs and the intermediation of credit, affect the transmission mechanism of monetary policy. The analysis reveals that financial frictions reduce the factor demand elasticity of capital to a change in wages. This finding is relevant for the determination of optimal monetary policy, both for financial shocks and supply shocks inflation stabilization imposes high welfare costs. At the same time, stabilizing nominal wages becomes welfare beneficial by reducing both the volatility of the credit spread and the output gap.
    Keywords: Financial accelerator, monetary policy, nominal rigidities, factor costs
    JEL: E31 E44 E52 E58
    Date: 2020
  9. By: Hanno Foerster
    Abstract: In many countries divorce law mandates post-marital maintenance payments (child support and alimony) to insure the lower earner in married couples against financial losses upon divorce. This paper studies how maintenance payments affect couples’ intertemporal decisions and welfare. I develop a dynamic model of family labor supply, housework, savings and divorce and estimate it using Danish register and survey data. The model captures the policy trade off between providing insurance to the lower earner and enabling couples to specialize efficiently, on the one hand, and maintaining labor supply incentives for divorcees, on the other hand. I use the estimated model to study various counterfactual policy scenarios. I find that alimony payments come with strong labor supply disincentives and as a consequence fail to provide consumption insurance. The welfare maximizing policy involves increasing the lump sum component of child support, increasing the dependence of child support on the payer’s income and reducing alimony payments relative to the Danish status quo. Switching to the welfare maximizing policy makes women better and men worse off, but comparisons to first best allocations show that Pareto improvements are feasible, highlighting a limitation of child support and alimony policies.
    Keywords: marriage and divorce, child support, alimony, household behavior, labor supply, limited commitment
    JEL: D10 D91 J18 J12 J22 K36
    Date: 2020–04
  10. By: Brunello, Giorgio; Gereben, Áron; Weiss, Christoph; Wruuck, Patricia
    Abstract: Using a representative sample of European firms, this paper studies whether and to what extent financing constraints affect employers' decisions to invest in employee training. It combines survey data on investment activities with administrative data on financial statements to develop an index of financing constraints. It estimates 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. The paper documents 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 investment in R&D and software and data.
    Keywords: training,financing constraints,Europe
    JEL: J24
    Date: 2020
  11. By: Michael Kaganovich; Sinan Sarpca; Xuejuan Su
    Abstract: The structure and functioning of the market of higher education in the United States possess distinctive if not puzzling features such as the wide spectrum of institutional arrangements and sources of funding, stark segmentation in levels of selectivity and instructional resources, and high variance in tuition pricing across and within institutions, including price discrimination based on merit and ability to pay. At the same time, many fundamental questions, including what defines the quality of higher education and explains its (growing) cost continue to be debated. The Chapter surveys theoretical analyses addressing this range of issues.
    JEL: I21 I22 I23 D40 J24
    Date: 2020
  12. By: Marvin Deversi; Martin G. Kocher; Christiane Schwieren
    Abstract: We analyze cooperation within a company setting in order to study the relationship between cooperative attitudes and financial as well as non-financial rewards. In total, 910 employees of a large software company participate in an incentivized online experiment. We observe high levels of cooperation and the typical conditional contribution patterns in a modified public goods game. When linking experiment and company record data, we observe that cooperative attitudes of employees do not pay off in terms of financial rewards within the company. Rather, cooperative employees receive non-financial benefits such as recognition or friendship as the main reward medium. In contrast to most studies in the experimental laboratory, sustained levels of cooperation in our company setting relate to non-financial values of cooperation rather than solely to financial incentives.
    Keywords: cooperation, social dilemma, field experiment, company
    JEL: C93 D23 H41 J31 J32 M52
    Date: 2020
  13. By: Nadia Karamcheva; Jeffrey Perry; Constantine Yannelis
    Abstract: In February 2020, CBO released a report on the budgetary effects of student loans repaid through income-driven plans. This paper provides additional information on the analysis the agency conducted on the characteristics of borrowers in those plans and the methods the agency used to project borrowers’ earnings, repayment, and resulting forgiveness. The results show that income-driven repayment plans are heavily used by borrowers with large balances and low earnings. The typical borrower in income-driven repayment is negatively amortizing, and substantial forgiveness is
    JEL: D14 G18 H52 H80 J24
    Date: 2020–04–30
  14. By: Lorenzo Trimarchi
    Abstract: The recent backlash against free trade is partially motivated by the decline in manufacturing employment due to rising import competition from China. Previous studies about the “China syndrome” neglect the role of trade policy. This is surprising, given that politicians in high-income countries have extensively used antidumping (AD) measures to protect their economies from rising Chinese imports. In this paper, I estimate the causal effect of trade protection on imports and employment, by constructing a new instrument for AD measures based on industries’ importance in swing states and experience in filing AD petitions. I show that AD duties have reduced import competition, decreasing the annual growth rate of US imports from China by 0.40 percentage points on average. They have also helped contain the China syndrome, by increasing the annual growth rate of employment in protected industries by 0.07 percentage points. These results show that protectionist instruments allowed under GATT/WTO rules can be used to attenuate the effects of import competition on employment.
    Keywords: Antidumping; Import Competition; Manufacturing Jobs; US-China Trade Relations
    JEL: F13 F14 F16 J20
    Date: 2020–04
  15. By: Daniel S. Hamermesh
    Abstract: Using the 2012-13 American Time Use Survey, I find that both who people spend time with and how they spend it affect their happiness, adjusted for numerous demographic and economic variables. Satisfaction among married individuals increases most with additional time spent with spouse. Among singles, satisfaction decreases most as more time is spent alone. Assuming that lock-downs constrain married people to spend time solely with their spouses, simulations show that their happiness may have been increased compared to before the lock-downs; but sufficiently large losses of work time and income reverse this inference. Simulations demonstrate clearly that, assuming lock-downs impose solitude on singles, their happiness was reduced, reductions that are made more severe by income and work losses.
    JEL: I12 I31 J22
    Date: 2020–04

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