nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2021‒08‒09
seventeen papers chosen by
Joseph Marchand
University of Alberta

  1. The Quest for Increased Saudization: Labor Market Outcomes and the Shadow Price of Workforce Nationalization Policies By Michael Lopesciolo; Daniela Muhaj; Carolina Ines Pan
  2. Job Polarization and the Informal Labor Market By Gomez, M
  3. The return on human (STEM) capital in Belgium By Gert Bijnens; Emmanuel Dhyne
  4. TV and Entrepreneurship By Viktor Slavtchev; Michael Wyrwich
  5. Wages, Skills, and Skill-Biased Technical Change: The Canonical Model Revisited By Audra Bowlus; Lance Lochner; Chris Robinson; Eda Suleymanoglu
  6. A ‘She-session’? The Impact of COVID-19 on the Labour Market in Thailand By Sasiwimon Warunsiri Paweenawat; Lusi Liao
  7. The Big Five Personality Traits and Earnings: A Meta-Analysis By Alderotti, Giammarco; Rapallini, Chiara; Traverso, Silvio
  8. Evaluating the 500+ child support program in Poland By Filip Premik
  9. Transition to Democracy, Real Wages and Productivity: The Turkish Experience By Erol Taymaz; Ebru Voyvoda; Kamil Yilmaz
  10. Increased trade with China and Eastern Europe hardly affects Dutch workers By Rob Euwals; Harro van Heuvelen; Gerdien Meijerink; Jan Möhlmann; Simon Rabaté
  11. The Making of Social Democracy: The Economic and Electoral Consequences of Norway’s 1936 Folk School Reform By Daron Acemoglu; Toumas Pekkarinen; Kjell Salvanes; Matti Sarvimäki
  12. Automation, Education, and Population: Dynamic Effects in an OLG Growth and Fertility Model By Catarina Peralta; Pedro Mazeda Gil
  13. COVID-19 and the labour market: Estimating the employment effects of South Africa’s national lockdown. By Tim Köhler; Haroon Bhorat; Robert Hill; Ben Stanwix
  14. Fiscal policy and informality in Colombia By García-Suaza, A; Gómez, M; Jaramillo, F
  15. Trade Policy as an Exogenous Shock: Focusing on the Specifics By Andrew Greenland; John Lopresti
  16. Teacher compensation and structural inequality: Evidence from centralized teacher school choice in Perú By Matteo Bobba; Tim Ederer; Gianmarco León-Ciliotta; Christopher A. Neilson; Marco Nieddu

  1. By: Michael Lopesciolo (Center for International Development at Harvard University); Daniela Muhaj; Carolina Ines Pan (Center for International Development at Harvard University)
    Abstract: Few countries have embraced active labor market policies to the same extent as Saudi Arabia. In the aftermath of the Arab Spring, the imperative of increasing Saudi employment became paramount. The country faced one of the highest youth unemployment rates in the world while over 80 percent of its private sector consisted of foreign labor. Since 2011, a wave of employment nationalization efforts has been mainly implemented through a comprehensive and strictly enforced industry and firm-specific quota system known as Nitaqat. This paper assesses the employment gains as well as the costs and unintended consequences resulting from Nitaqat and related policies between 2011 and 2017. We find that while job nationalization policies generated significant initial gains in Saudi employment and labor force participation, the effects were heterogeneous across workers, firms and sectors. Moreover, our analysis suggests that the resulting unintended consequences far outweighed the benefits over time generating a less cost-effective and productivity inhibiting labor market composition.
    Keywords: labor market, employment quotas, expatriate workers, workforce nationalization, Saudi Arabia, occupation, skills, labor productivity
    JEL: J21 J23 J24 J31 J42
    Date: 2021–07
  2. By: Gomez, M
    Abstract: This paper analyses the incidence of job polarization in developing and emerging countries, where a substantial fraction of the urban labor force works in the informal sector. I build a general equilibrium model with informality and endogenous occupational choice. Workers in the informal sector do not pay taxes, are less productive, and have the same ability to perform manual tasks. The analytical solution of the model shows that job polarization, driven by a Routine-Biased Technological Change (RBTC), could lead to a decrease in the share of employment in the informal sector and a reduction in the wage inequality at the bottom of the skill distribution.
    Keywords: Informality; Job polarization; Technological change; Wage distribution
    JEL: E26 J24 J31 J46
    Date: 2021–05–28
  3. By: Gert Bijnens (Economics and Research Department, NBB); Emmanuel Dhyne (Economics and Research Department, NBB)
    Abstract: Whilst overall productivity growth is stalling, firms at the frontier are still able to capture the benefits of the newest technologies and business practices. This paper uses linked employer-employee data covering all Belgian firms over a period of almost 20 years and investigates the differences in human capital between highly productive firms and less productive firms. We find a clear positive correlation between the share of high-skilled and STEM workers in a firm's workforce and its productivity. We obtain elasticities of 0.20 to 0.70 for a firm's productivity as a function of the share of high-skilled workers. For STEM (science, technology, engineering, mathematics) workers, of all skill levels, we find elasticities of 0.20 to 0.45. More importantly, the elasticity of STEM workers is increasing over time, whereas the elasticity of high-skilled workers is decreasing. This is possibly linked with the increasing number of tertiary education graduates and at the same time increased difficulties in filling STEM-related vacancies. Specifically, for high-skilled STEM workers in the manufacturing sector, the productivity gain can be as much as 4 times higher than the gain from hiring additional high-skilled non-STEM workers. To ensure that government efforts to increase the adoption of the latest technologies and business practices within firms lead to sustainable productivity gains, such actions should be accompanied by measures to increase the supply and mobility of human (STEM) capital. Without a proper supply of skills, firms will not be able to reap the full benefits of the digital revolution.
    Keywords: : human capital, skills, education, productivity, linked employer-employee data
    JEL: E24 I26 J24
    Date: 2021–07
  4. By: Viktor Slavtchev (Halle Institute for Economic Research (IWH)); Michael Wyrwich (University of Groningen, Faculty of Economics and Business)
    Abstract: This paper analyzes empirically whether individuals’ decisions to start an own business can be influenced via television (TV). To identify its effect, we utilize exogenous regional variation in the availability of TV that conveyed images conducive to entrepreneurship and the notion that self-reliance, self-determination and proactive behavior are desirable from individual and social point of view. We use both regional-level as well as geo-referenced individual level data and show that the entrepreneurship incidence is higher among the residents of regions that had TV signal than in regions without TV, indicating a first-order effect on the directly exposed individuals. We find that the effect would fade out if only directly treated individuals are more likely to become entrepreneurs and the last exposed cohort becomes ‘too old’. However, we also find that non-directly exposed successive cohorts and descendants of directly exposed individuals also wish to become entrepreneurs more often. We provide evidence that is consistent with second-order effects due to the intergenerational transmission of entrepreneurial mindset and suggests a formation of a self-sustaining entrepreneurial culture, which can cause long lasting differences between treated and non-treated population groups or regions.
    Keywords: Entrepreneurship, TV, Culture, Occupational choice
    JEL: L26 J24 M13 P20 P30 O30 D02 D03 Z10
    Date: 2021–07–25
  5. By: Audra Bowlus; Lance Lochner; Chris Robinson; Eda Suleymanoglu
    Abstract: The canonical supply-demand model of the wage returns to skill has been extremely influential; however, it has faced several important challenges. Several studies show that the standard approach sometimes produces theoretically wrong-signed elasticities of substitution, yields counterintuitive paths for skill-biased technical change (SBTC), and does not account for the observed deviations in college premia for younger vs. older workers. This paper shows that these failings can be explained by mis-measurement of relative skill prices and supplies (based on standard demographic composition-adjustments) and by inadequate ad hoc functional form assumptions about the path for SBTC. Improved estimates of skill prices and supplies that account for variation in skill across cohorts within narrowly defined groups help explain the observed deviation in the college premium for younger vs. older workers, even with perfect substitutability across age. Re-estimating the model with these prices and supplies produces a good fit with better out-of-sample prediction and robustly yields positive elasticities of substitution between high and low skill workers. The estimates suggest greater substitutability across skill and a more modest role for SBTC. We implement two new approaches to modelling SBTC. First, we study the extent to which recessions induce jumps or trend-adjustments in skill bias and find evidence that both features are important (but differ across recessions). Second, we link SBTC to direct measures of information technology investment expenditures and show that these measures explain the evolution of skill bias quite well. Together, these approaches suggest that the ad hoc assumptions for SBTC previously employed in the literature are too crude to fit the data well, leading to the incorrect conclusion that SBTC slowed during the early-1990s and under-estimates of the elasticity of substitution between high and low skill workers.
    Keywords: skills, human capital, college, skill-biased technical change, wage premium
    JEL: E24 J24 J31 O33
    Date: 2021
  6. By: Sasiwimon Warunsiri Paweenawat; Lusi Liao
    Abstract: This paper studies the impact of COVID-19 on different demographic groups in the Thai labour market using the Labour Force Survey in 2018 and 2019. We construct a new set of COVID-19 impact indicators capturing both the degree of risk in industries and degree of occupational flexibility in the Thai context. Our results show that the impact of the COVID-19 pandemic is highly unequal across demographic groups and it may further worsen the pre-existing inequality in the Thai labour market as a result of the composition of industrial sectors and occupations. The results suggest that education attainments and income levels play a significant role in protecting individuals from the current crisis, indicating the important contribution of human capital. In addition, marriage affects men and women differently in the COVID-19 crisis, with married women suffering more. Finally, our study highlights the need for government supports that target vulnerable groups, including workers with low education, informal workers, private employees, older women, and the young, who are more likely to be affected by COVID-19.
    Keywords: COVID-19, labour market, demographics, Thailand
    JEL: J21 J24 J16 J12
    Date: 2021–06–07
  7. By: Alderotti, Giammarco; Rapallini, Chiara; Traverso, Silvio
    Abstract: The past two decades have witnessed an increasing interest in the relationship between personality and labor market outcomes, as well as the emergence of the Five-Factor Model as the reference framework for the study of personality. In this paper, we provide the first meta-analytical review of the empirical literature on the association between personal earnings and the Big Five personality traits. The analysis combines the results of 65 peer-reviewed articles published between 2001-2020, from which we retrieved 936 partial effect sizes. Overall, the primary literature provides robust support for a positive association between personal earnings and the traits of Openness, Conscientiousness, and Extraversion, while simultaneously revealing a negative and significant association between earnings and the traits of Agreeableness and Neuroticism. We find no evidence of a substantial publication bias. Meta-regression estimates suggest that Openness and Conscientiousness are positively associated with earnings even when primary researchers control for individual cognitive abilities and educational attainments. Similarly, the studies that includes labor market control variables exhibit weaker associations between earnings and Extraversion and Agreeableness. The results of the primary studies seem unaffected by the time at which the Big Five are measured, as well as by the scale and number of inventory items. Meta-regression estimates suggest that the results of the primary literature are not stable across cultures and gender, and that the ranking and academic field of the journal matter.
    Keywords: Big Five personality traits,earnings,meta-analysis
    JEL: J24 D91
    Date: 2021
  8. By: Filip Premik (Group for Research in Applied Economics (GRAPE))
    Abstract: We investigate immediate effects of a large scale child benefit program introduction on labor supply of the household members in Poland. Due to nonrandom eligibility and universal character of the program standard evaluation estimators are likely to be inconsistent. In order to address this issues we propose a novel approach which combines difference-in-difference (DID) propensity score based methods with covariate balancing propensity score (CBPS) by Imai and Ratkovic (2014). The DID part solves potential problems with non-parallel outcome dynamics in treated and non-treated subpopulations resulting from non-experimental character of the data, whereas CBPS is expected to reduce significantly bias from the systematic differences between treated and untreated subpopulations. We account also for potential heterogeneity among households by estimating a range of local average treatment effects which jointly provide a reliable view on the overall impact. We found that the program has a minor impact on the labor supply in periods following its introduction. There is an evidence for a small encouraging effect on hours worked by treated mothers of children at school age, both sole and married. Additionally, the program may influence the intra-household division of duties among parents of the youngest children as suggested by simultaneous slight decline in participating mothers' probability of working and a small increase in treated fathers' hours worked
    Keywords: child benefits, labor supply, program evaluation, difference-in-difference estimation, covariate balancing propensity score
    JEL: C21 C23 I38 J22
    Date: 2021
  9. By: Erol Taymaz (Department of Economics, METU); Ebru Voyvoda (Department of Economics, METU); Kamil Yilmaz (Department of Economics, Koç University)
    Abstract: We analyze the behavior of plant-level real wages and productivity in Turkish manufacturing after the transition to democracy in 1987 and test whether wages under democracy causes productivity. The Turkish experience provides almost an experimental case: real wages in manufacturing increased by 120% in the 1987-93 period due to (exogenous) political changes, together with unprecedented total factor productivity and labor productivity growth. While these observations provide support for the “democracies pay higher wages” hypothesis, they also stimulate further evaluation of the consequences of such politically-motivated ‘exogenous’ wage hikes on economic performance. Our analysis shows that real wage hikes during the democratic transition forced firms to increase productivity to stay competitive. The findings also help explain why countries that undergo an orderly transition from autocracy to democracy may achieve rapid productivity gains.
    Keywords: Democratic transition, Real wages, Total factor productivity, Labor productivity, Labor unions, Efficiency wages, Long-run growth.
    JEL: D24 E24 J24 P16
    Date: 2021–07
  10. By: Rob Euwals (CPB Netherlands Bureau for Economic Policy Analysis); Harro van Heuvelen (CPB Netherlands Bureau for Economic Policy Analysis); Gerdien Meijerink (CPB Netherlands Bureau for Economic Policy Analysis); Jan Möhlmann (CPB Netherlands Bureau for Economic Policy Analysis); Simon Rabaté (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: Contrary to other studies, we find no robust effect of an increase in trade with China and Central European (CEE) countries on local employment, wages and inequality in the Netherlands. If there is an effect, it is small, with positive effects of increased exports counteracting the negative effects of increased imports. One of the reasons why we find different results for the Netherlands is the fact that the Dutch manufacturing industry was already undergoing changes well before the emergence of China and the CEE countries and became less sensitive to import competition from China or the CEE countries. In addition, the Netherlands has collective wage negotiations, which may help to explain that we do not find any effects on wages. While the effect of increased trade with China and the CEE countries on manufacturing jobs is limited, it can create uncertainty for workers. The negative effect of import competition and the positive impact of export opportunities on manufacturing jobs also point to adjustments across industries and regions. Transitioning workers to new types of work can be difficult for these workers, as they are (temporarily) unemployed and may need to move to other regions.
    JEL: F16 J31 R11
    Date: 2021–07
  11. By: Daron Acemoglu (Massachusetts Institute of Technology); Toumas Pekkarinen (Aalto University School of Business); Kjell Salvanes (Norges Handelshøyskole); Matti Sarvimäki (Aalto University School of Business)
    Abstract: Upon assuming power for the first time in 1935, the Norwegian Labour Party delivered on its promise for a major schooling reform. The reform raised minimum instruction time in less developed rural areas and boosted the resources available to rural schools, reducing class size and increasing teacher salaries. We document that cohorts more intensively affected by the reform significantly increased their education and experienced higher labor income. Our main result is that the schooling reform also substantially increased support for the Norwegian Labour Party in subsequent elections. This additional support persisted for several decades and was pivotal in maintaining support for the social democratic coalition in Norway. These results are not driven by the direct impact of education and are not explained by higher turnout, or greater attention or resources from the Labour Party targeted towards the municipalities most affected by the reform. Rather, our evidence suggests that cohorts that benefited from the schooling reform, and their parents, rewarded the party for delivering a major reform that was beneficial to them.
    Keywords: education, human capital, labor, schooling reforms, social democracy, voting
    JEL: P16 I28 J26
    Date: 2021–07
  12. By: Catarina Peralta (Faculty of Economics, University of Porto); Pedro Mazeda Gil (Faculty of Economics, University of Porto and CEF.UP)
    Abstract: We address two main structural changes occurring in developed countries: the rise of automation and population ageing. We use an R&D-based growth model in an OLG framework with endogenous education and fertility, and automation in the production process. Our model is able to combine the growth of real wages over time and either a fall or an increase in birth rates, consistent with recent data regarding the birth rate by skill group. Moreover, our model allows for the study of the interplay between the effects of population ageing and those of automation. The results show a dynamics consistent with the US trends for the period covering 1970 to 2019.
    Keywords: Ageing; Automation; Economic growth; Endogenous fertility
    JEL: J11 J23 J24 O3 O4
    Date: 2021–07
  13. By: Tim Köhler; Haroon Bhorat; Robert Hill; Ben Stanwix (Development Policy Research Unit, University of Cape Town)
    Abstract: Like most around the world, the South African government quickly implemented a relatively stringent national lockdown in response to the COVID-19 pandemic. Although much research documenting the pandemic’s economic effects exists, these studies are largely descriptive in nature and are therefore unable to distinguish changes in employment attributable to lockdown policy versus other pandemic related factors such as foreign policy and consumption-related behavioural responses. In this paper, we seek to specifically isolate and provide causal evidence on the effect of South Africa’s lockdown policy in particular. To do so, we adopt a quasi-experimental econometric technique to exploit variation in legislated industry-level permission to work and the coincidental timing of the lockdown and data collection dates of nationally representative labour force data. We find that the national lockdown decreased the probability of employment for those not permitted to work by 8 percentage points relative to the control group. This significant, negative effect holds across several robustness tests. Using this estimate we can approximate that, of the 2.2 million fewer people employed, South Africa’s lockdown policy directly accounted for just under 600 000 (or 26% of total jobs lost), suggesting the majority of job loss can be attributed to other pandemic-related factors. We further show that the lockdown particularly jeopardized the livelihoods of those in the informal sector, with an estimated effect nearly 3 times larger than the overall effect. The vulnerability of this group to the economic consequences of the pandemic is of concern, given that their informality presents a challenge for government to provide targeted relief. To prevent further widening labour market inequalities, our analysis emphasises the importance of effective policy to support the livelihoods of those in the informal economy.
    Keywords: South Africa, labour market, COVID-19, pandemic, employment, causal inference, quasi-experimental, inequality
    JEL: D04 J08 J20 J48 J88
    Date: 2021–05
  14. By: García-Suaza, A; Gómez, M; Jaramillo, F
    Abstract: This paper studies how informality reacts to fiscal policy instruments. We develop an analytical framework with a dual labor market with frictions, where the formal sector, in contrast to the informal sector, produces with technology using capital and pay taxes. We calibrate the model for the Colombian economy and quantify to what extent a decrease in payroll taxes is effective to create formal jobs in a context where government compensates for the reduction in revenues by using other fiscal instruments, such as reducing expenditure or increasing other taxes, e.g., consumption or capital income taxes.
    Keywords: Informality; occupational choice; payroll taxes; fiscal policy
    JEL: E24 E62 J01 J21 J32
    Date: 2021–06–28
  15. By: Andrew Greenland (Elon University); John Lopresti (William & Mary)
    Abstract: This paper proposes a novel strategy for identifying the effects of import competition on economic outcomes that avoids standard concerns related to the endogeneity of trade policy and provides a consistent measure of exposure to trade over time. Conditioning on the level of import tariffs, our approach exploits cross-industry differences in the relative importance of specific rather than ad valorem tariffs. As they are expressed in per unit terms rather than as a share of value, the effective protection provided by a given specific tariff varies with price levels. Using digitized tariff line data between 1900 and 1940, we relate inflation-driven changes in trade protection to changes in imports and labor market outcomes in the full count U.S. census. We show that our measure predicts import growth at both the industry and county level. Using our measure as an instrument, we show that import competition reduces labor force participation in traded sectors during this period. Labor market effects are widespread but fall most heavily on those with little experience or fewer outside labor market options: the young, seniors, and those in rural areas.
    Keywords: International Trade, Economic History, Trade Policy, Inflation, Labor Markets
    JEL: F1 F6 N1 N7 J2
    Date: 2021–06
  16. By: Matteo Bobba; Tim Ederer; Gianmarco León-Ciliotta; Christopher A. Neilson; Marco Nieddu
    Abstract: This paper studies how increasing teacher compensation at hard-to-staff schools can reduce inequality in access to qualified teachers. Leveraging an unconditional change in the teacher compensation structure in Peru, we first show causal evidence that increasing salaries at less desirable locations attracts better quality applicants and improves student test scores. We then estimate a model of teacher preferences over local amenities, school characteristics, and wages using geocoded job postings and rich application data from the nationwide centralized teacher assignment system. Our estimated model suggests that the current policy is both inefficient and not large enough to effectively undo the inequality of initial conditions that hard-to-staff schools and their communities face. Counterfactual analyses that incorporate equilibrium sorting effects characterize alternative wage schedules and quantify the cost of reducing structural inequality in the allocation of teacher talent across schools.
    Keywords: Inequality, teacher school choice, teacher wages, matching with contracts
    JEL: J31 J45 I21 C93 O15
    Date: 2021–07
  17. By: Matteo Picchio (Dipartimento di Scienze Economiche e Sociali - Universita' Politecnica delle Marche); Mattia Filomena (Dipartimento di Scienze Economiche e Sociali - Universita' Politecnica delle Marche)
    Abstract: This paper presents a meta-analysis on the effects of retirement on health. We select academic papers published between 2000 and 2021 studying the impact of retirement on physical and mental health, self-assessed general health, healthcare utilization and mortality. Among 275 observations from 85 articles, 28% (13%) find positive (negative) effects of retirement on health outcomes. Almost 60% of the observations do not provide statistically significant findings. Using meta-regression analysis, we checked for the presence of publication bias after distinguishing among different journal subject areas and, once correcting for it, we find that the average effect of retirement on health outcomes is small and barely significant. We apply several model averaging techniques to explore possible sources of heterogeneity and our results suggest that the different estimated effects can be explained by the differences in both health measurements and retirement schemes.
    Keywords: Retirement; health; meta-analysis; meta-regression; publication bias.
    JEL: I10 J14 J26
    Date: 2021–07

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