nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2020‒06‒22
fifteen papers chosen by
Joseph Marchand
University of Alberta

  1. The Rise of US Earnings Inequality: Does the Cycle Drive the Trend? By Jonathan Heathcote; Fabrizio Perri; Giovanni L. Violante
  2. Uncertainty, Wages, and the Business Cycle By Cacciatore, Matteo; Ravenna, Federico
  3. Job Search during the COVID-19 Crisis By Hensvik, Lena; Le Barbanchon, Thomas; Rathelot, Roland
  4. Occupational sorting and wage gaps of refugees By Baum, Christopher; Lööf, Hans; Stephan, Andreas; Zimmermann, Klaus F.
  5. No Line Left Behind: Assortative Matching Inside the Firm By Adhvaryu, Achyuta; Bassi, Vittorio; Nyshadham, Anant; Tamayo, Jorge
  6. Recruitment Policies, Job-Filling Rates and Matching Efficiency By Carrillo-Tudela, Carlos; Hermann, Gartner; Kaas, Leo
  7. Integrating Social Insurance and Social Assistance Programs for the Future World of Labor By Palacios, Robert; Robalino, David A.
  8. The heterogenous regional effects of minimum wages in Poland By Maciej Albinowski; Piotr Lewandowski
  9. How Sticky is Retirement Behavior in the U.S.? Responses to Changes in the Full Retirement Age By Manasi Deshpande; Itzik Fadlon; Colin Gray
  10. Do sticky wages matter? New evidence from matched firm-survey and register data By Anne Kathrin Funk; Daniel Kaufmann
  11. Relational Contracts: Public versus Private Savings By Dilmé, Francesc; Garrett, Daniel F
  12. The Economic Impact of Access to Public Four-Year Colleges By Jonathan Smith; Joshua Goodman; Michael Hurwitz
  13. Allocating Subsidies for Private Investments to Maximize Jobs Impacts By Robalino, David A.; Romero, Jose M.; Walker, Ian
  14. In Sickness and in Health: Job Displacement and Health. Spillovers in Couples By Gathmann, Christina; Huttunen, Kristiina; Jernström, Laura; Sääksvuori, Lauri; Stitzing, Robin
  15. Labour market effects of COVID-19 in sub-Saharan Africa: An informality lens from Burkina Faso, Mali and Senegal By Balde, Racky; Boly, Mohamed; Avenyo, Elvis

  1. By: Jonathan Heathcote; Fabrizio Perri; Giovanni L. Violante
    Abstract: We document that declining hours worked are the primary driver of widening inequality in the bottom half of the male labor earnings distribution in the United States over the past 52 years. This decline in hours is heavily concentrated in recessions: hours and earnings at the bottom fall sharply in recessions and do not fully recover in subsequent expansions. Motivated by this evidence, we build a structural model to explore the possibility that recessions cause persistent increases in inequality; that is, that the cycle drives the trend. The model features skill-biased technical change, which implies a trend decline in low-skill wages relative to the value of non-market activities. With this adverse trend in the background, recessions imply a potential double-whammy for low skilled men. This group is disproportionately likely to experience unemployment, which further reduces skills and potential earnings via a scarring effect. As unemployed low skilled men give up job search, recessions generate surges in non-participation. Because non-participation is highly persistent, earnings inequality remains elevated long after the recession ends.
    Keywords: Earnings losses upon displacement; Inequality; Non-participation; Recession; Skill-biased technical change; Zero earnings
    JEL: E24 E32 J24 J64
    Date: 2020–06–04
  2. By: Cacciatore, Matteo; Ravenna, Federico
    Abstract: We show that occasional deviations from efficient wage setting generate strong and state-dependent amplification of uncertainty shocks and can explain the cyclical behavior of empirical measures of uncertainty. Central to our analysis is the existence of matching frictions in the labor market and an occasionally binding constraint on downward wage adjustment. The wage constraint enhances the concavity of firms' hiring rule, generating an endogenous profit-risk premium. In turn, uncertainty shocks increase the profit-risk premium when the economy operates close to the wage constraint. This implies that higher uncertainty can severely deepen a recession, although its impact is weaker on average. Additionally, the variance of the unforecastable component of future economic outcomes always increases at times of low economic activity. Thus, measured uncertainty rises in a recession even in the absence of uncertainty shocks.
    Keywords: Business cycle; occasionally binding constraints; uncertainty; unemployment
    JEL: E2 E32 E6
    Date: 2020–05
  3. By: Hensvik, Lena; Le Barbanchon, Thomas; Rathelot, Roland
    Abstract: This paper measures the job-search responses to the COVID-19 pandemic using real-time data on vacancy postings and ad views on Sweden's largest online job board. First, the labour demand shock in Sweden is as large as in the US, and affects industries and occupations heterogeneously. Second, the scope and direction of search change. Job seekers respond to the shock by searching less intensively and by redirecting their search towards less severely hit occupations, beyond what changes in labour demand would predict. The redirection of job search changes relative hiring costs, and has the potential to amplify labour demand shifts.
    Keywords: Coronavirus; job vacancies; labour demand shock; online job board; search direction; Search Intensity
    JEL: E24 J21 J22 J23 J62 J63 J64
    Date: 2020–05
  4. By: Baum, Christopher (Boston College, and DIW Berlin); Lööf, Hans (Royal Institute of Technology (KTH), Stockholm); Stephan, Andreas (Jönköping University, and DIW Berlin); Zimmermann, Klaus F. (UNU-MERIT, Maastricht University, and CEPR, GLO)
    Abstract: Refugee workers start low and adjust slowly to the wages of comparable natives. The innovative approach in this study using unique Swedish employeremployee data shows that the observed wage gap between established refugees and comparable natives is mainly caused by occupational sorting into cognitive and manual tasks. Within occupations, it can be largely explained by differences in work experience. The identification strategy relies on a control group of matched natives with the same characteristics as the refugees, using panel data for 2003–2013 to capture unobserved heterogeneity.
    Keywords: refugees, wage earnings gap, Blinder - Oaxaca decomposition, employer - employee data, coarsened exact matching, correlated random effects model
    JEL: C23 F22 J24 J6 O15
    Date: 2020–05–27
  5. By: Adhvaryu, Achyuta; Bassi, Vittorio; Nyshadham, Anant; Tamayo, Jorge
    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.
    Keywords: assortative matching; Global Buyers; India; Management; productivity; Readymade Garments
    JEL: J24 L14 L23 M5
    Date: 2020–04
  6. By: Carrillo-Tudela, Carlos; Hermann, Gartner; Kaas, Leo
    Abstract: Recruitment behavior is important for the matching process in the labor market. Using unique linked survey-administrative data, we explore the relationships between hiring and recruitment policies. Faster hiring goes along with higher search effort, lower hiring standards and more generous wages. To analyze the mechanisms behind these patterns, we develop a directed search model in which firms use different recruitment margins in response to productivity shocks. The calibrated model points to an important role of hiring standards for matching efficiency and for the impact of labor market policy, whereas search effort and wage policies play only a minor role.
    Keywords: Labor market matching; Recruitment; Vacancies
    JEL: E24 J23 J63
    Date: 2020–05
  7. By: Palacios, Robert (World Bank); Robalino, David A. (World Bank)
    Abstract: Given the prevalence of informal labor, most countries have combined contributory social insurance programs (pensions, unemployment benefits, and health insurance), with non-contributory insurance programs and several types of "safety nets." All of these programs involve different types of subsidies and taxes, sometimes implicit. Because of design problems and the lack of coordination/integration between programs, these subsidies/taxes tend to cause four problems: 1) they can reduce incentives to contribute to mandatory insurance programs and to create formal jobs; 2) they can be regressive since redistribution often benefits middle/high income workers more than low income workers 3) they do not provide continuous protection as workers change occupations and constrain rather than facilitate, labor mobility; and 4) coverage tends to exclude many informal sector workers in the middle of the income distribution. As such, existing programs are not well prepared to deal with a world of labor characterized by persistent low productivity jobs, more frequent labor market transitions including across sectors and geographic regions and higher equilibrium unemployment rates for some groups of workers. This paper develops a policy framework to integrate, in a transparent way, the insurance function (actuarially-fair risk pooling or savings) and the redistributive function (transfers) of the social protection system in order to expand coverage, improve equity, and reduce labor market distortions. We illustrate this type of integration with the case of old-age pensions which is typically the most important intervention, at least from a fiscal perspective.
    Keywords: social insurance, social assistance, universal basic income, jobs, pensions, future of work, COVID-19
    JEL: H24 J26 J46 J65 J32 I13 H53 H55
    Date: 2020–05
  8. By: Maciej Albinowski; Piotr Lewandowski
    Abstract: Since 2008, Poland has been among the EU countries that have increased their minimum wage levels the most, following period in the mid-2000s during which the country’s minimum wage was barely raised. We evaluate the impact of these minimum wage hikes on employment and wage growth in Poland between 2004 and 2018. We estimate panel data models utilising the considerable variation in wage levels, and in minimum wage bites, across 73 Polish NUTS 3 regions. We find that minimum wage hikes had a significant positive effect on wage growth and a significant negative effect on employment growth only in regions of Poland that were in the first tercile of the regional wage distribution in 2007. These effects were moderate in size, and appear to be more relevant for wages. Specifically, we show that if the ratio of minimum wage to average wage had remained constant after 2007, by 2018, the average wages in these regions would have been 3.4% lower, while employment would have been 1.2% higher. On the other hand, in the remaining two-thirds of Polish regions, we find no significant effects of minimum wage hikes on average wages or on employment. We also find indicative evidence that the effects on employment growth differ between groups of workers: i.e., that they are negative for men and for workers in industry, but they are positive for women and for workers in services.
    Keywords: minimum wage, spatial heterogeneity, panel data
    JEL: J21 J23 J38
    Date: 2020–06
  9. By: Manasi Deshpande; Itzik Fadlon; Colin Gray
    Abstract: We study how increases in the Social Security full retirement age (FRA) affect benefit claiming and retirement behavior, and specifically the interaction between these two choices. Using Social Security administrative data, we implement complementary research designs of a traditional cohort analysis and a regression-discontinuity design. We find that while increases in the FRA strongly and immediately shift claiming ages, retirement ages exhibit persistent "stickiness" at the old FRA of 65. We use several strategies to explore the likely mechanisms behind the stickiness in retirement, and we find suggestive evidence of a role for employers in individuals' responses to the FRA.
    JEL: H31 H55 J26
    Date: 2020–05
  10. By: Anne Kathrin Funk; Daniel Kaufmann
    Abstract: This paper provides novel evidence on downward nominal wage rigidities and their allocative effects in Switzerland. We match individual wages from a bi-annual firm survey with information on annual income and employment from social security register data. We relevant downward nominal wage rigidities in the base wage, which accounts for more than 90% of employment income. We then identify the allocative effects of downward nominal wage rigidities on income and employment after an unexpected 1% decline of the consumer price level. Base wage rigidities cause a decline of aggregate income (-0.39%) and employment income (-0.97%), as well as an increase of unemployment (2.11%).
    Keywords: Downward nominal wage rigidity, income, unemployment, deflation.
    JEL: E30 E40 E50
    Date: 2020–06
  11. By: Dilmé, Francesc; Garrett, Daniel F
    Abstract: We study relational contracting with an agent who has consumption-smoothing preferences as well as the ability to save to defer consumption (or to borrow). Our focus is the comparison of principal-optimal relational contracts in two settings. The first where the agent's consumption and savings decisions are private, and the second where these decisions are publicly observed. In the first case, the agent smooths his consumption over time, the agent's effort and payments eventually decrease with time, and the balances on his savings account eventually increase. In the second, the agent consumes earlier than he would like, consumption and the balance on savings fall over time, and effort and payments to the agent increase. Our results suggest a possible explanation for low savings rates in certain industries where compensation often comes in the form of discretionary payments.
    Keywords: private savings; Relational Contracts
    JEL: C73 J30
    Date: 2020–05
  12. By: Jonathan Smith; Joshua Goodman; Michael Hurwitz
    Abstract: We provide the first estimated economic impacts of students’ access to an entire sector of public higher education in the U.S. Approximately half of Georgia high school graduates who enroll in college do so in the state’s public four-year sector, which requires minimum SAT scores for admission. Regression discontinuity estimates show enrollment in public four-year institutions boosts students’ household income around age 30 by 20 percent, and has even larger impacts for those from low income high schools. Access to this sector has little clear impact on student loan balances or other measures of financial health. For the marginal student, enrollment in such institutions has large private returns even in the short run and positive returns to state budgets in the long run.
    JEL: I24 I26 J24
    Date: 2020–05
  13. By: Robalino, David A. (World Bank); Romero, Jose M. (World Bank); Walker, Ian (World Bank)
    Abstract: Governments often aim to influence the amount and sectoral allocation of private investments through explicit or implicit subsidies. The rules used to select projects to benefit from subsidies may vary, depending on the policy objective. This paper develops a general framework to allocate subsidies to private investments in the presence of jobs-linked externalities (JLEs). JLEs emerge when wages exceed the opportunity cost of labor (labor externalities), or when there are social gains from creating better jobs for some classes of worker, such as women or youth (social externalities). Like all externalities, JLEs create a gap between private and social rates of return. Investments can be socially profitable (once the corresponding JLEs are internalized) but the private returns may be too low for the firm to go ahead. JLEs help to explain why many developing countries see insufficient investment in projects that would reallocate labor towards better jobs. The concept of JLEs is well established in economic literature, but there is a need for better operational approaches to address them. Like other externalities, JLEs can be corrected using a variety of possible subsidies (such as: grants, subsidized infrastructure, credit, training, technical assistance and tax exemptions). But doing this efficiently and at scale this requires mechanisms to (a) estimate the value of the externality and (b) discover the amount of subsidy needed to trigger the private investment. This paper shows that the optimal way to allocate subsidies to offset JLEs is through a competitive bidding process which selects projects based on the estimated amount of JLEs per dollar of subsidy. The bidding process provides an incentive to investors to reveal the subsidy needed for a project to become privately viable. We show that the proposed approach maximizes the jobs impacts of a given amount of fiscal resources that has been allotted to support better jobs outcomes
    Keywords: job creation, entrepreneurship, cost-benefit analysis, economic rates of return, social rates of return, social externalities, labor externalities, jobs-linked externalities, economic analysis, investment subsidies, investment incentives, competitive bidding
    JEL: J38 D61 D62 L26 O22
    Date: 2020–06
  14. By: Gathmann, Christina; Huttunen, Kristiina; Jernström, Laura; Sääksvuori, Lauri; Stitzing, Robin
    Abstract: We study how a negative labor market shock like job loss generates health spillovers in couples. Using administrative data of all workers and firms matched to mortality and patient records, we document that male job displacement increases the mortality risk for both the man and his partner. For every 10,000 displaced men, there are 27 additional deaths over a 5-year period rising to 115 additional deaths over two decades. Of those, 60% accrue to the displaced worker but 40% are due to excess spousal mortality. Deaths from cardiovascular diseases jump up and hospitalization records show more treatments for alcohol-related disorders and mental health issues. We also find a stunning gender asymmetry: while male job displacement generates large and persistent health effects, no such dire health consequences are observed after a woman loses her job. We explore three explanations for the observed health spillovers: risk sharing through spousal labor supply; earnings losses and the role of public insurance; and the influence of gender roles and family structure.
    Keywords: job displacement, mortality, spillovers, added worker, public insurance, gender roles, Local public finance and provision of public services, I14, J21, J63, J12, D13,
    Date: 2020
  15. By: Balde, Racky (UNU-MERIT, Maastricht University); Boly, Mohamed (Universite Clermont Auvergne, CNRS, IRD, CERDI); Avenyo, Elvis (UNU-MERIT, Maastricht University, and Department of International Development, University of Oxford)
    Abstract: The COVID-19 pandemic is a global crisis that has put a local spotlight on sub-Saharan Africa’s socio-economic challenges. This paper presents real time survey evidence on the labour market effects of COVID-19 in Senegal, Mali, and Burkina Faso. We investigate how informality exacerbates the immediate effects of the COVID-19 pandemic on job loss, decrease in earnings, and difficulties for individuals to support their basic needs. We document a reduction in economic activities and find that workers in the informal economy tend to be more hard-hit by the COVID-19 pandemic. Informal workers are more likely to lose their jobs and tend to experience decrease in earnings. These findings also hold for those who work in high-risk sectors. Informal workers equally appear to be more likely to struggle to meet their basic needs in the midst of the pandemic. We discuss the policy implications of these findings.
    Keywords: COVID-19, Crisis, Labour Market, Informality, Africa
    JEL: J46 J63 O17 O55
    Date: 2020–05–25

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