nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2021‒08‒30
fifteen papers chosen by
Joseph Marchand
University of Alberta

  1. Does Education Enhance Entrepreneurship? By Ahn, Kunwon; Winters, John V.
  2. Labor Market Returns and the Evolution of Cognitive Skills: Theory and Evidence By Hermo, Santiago; Päällysaho, Miika; Seim, David; Shapiro, Jesse
  3. What Can We Learn from Idiosyncratic Wage Changes? By Cynthia L. Doniger
  4. Does relative age at the onset of compulsory education affects the speed and quality of one’s transition from school to work? By Luca Fumarco; Alessandro Vandromme; Levi Halewyck; Eline Moens; Stijn Baert
  5. Wage Setting Under Targeted Search By Anton A. Cheremukhin; Paulina Restrepo-Echavarria
  6. Does Money Still Matter? Attainment and Earnings Effects of Post-1990 School Finance Reforms By Jesse Rothstein; Diane Whitmore Schanzenbach
  7. Train drain? Access to skilled foreign workers and firms' provision of training By Maria Esther Oswald-Egg; Michael Siegenthaler
  8. The Benefits of Alternatives to Conventional College: Comparing the Labor-Market Returns to for-Profit Schools and Community Colleges By Christopher Jepsen; Peter Mueser; Kenneth Troske; Kyung-Seong Jeon
  9. Import Competition and Informal Employment: Empirical Evidence from China By Wang, Feicheng; Liang, Zhe; Lehmann, Hartmut
  10. Skilling India from the Ground up: Project Case Studies By Bornali Bhandari; Tulika Bhattacharya; Saurabh Bandyopadhyay; Ajaya K Sahu; Praveen Rawat; Pallavi Choudhuri; Mousumi Das; Jahnavi Prabhakar
  11. Saving behaviour in Malta: Insights from the Household Budgetary Survey By Roberta Montebello; Jude Darmanin
  12. The Long Shadow of an Infection: COVID-19 and Performance at Work By Kai Fischer; J. James Reade; W. Benedikt Schmal
  13. An Exploratory State-wise EducationEmployability-Employment Index for India By Bornali Bhandari; Saurabh Bandyopadhyay; Ajaya K Sahu; Praveen Rawat
  14. How do Technical Education and Vocational Training Affect Labour Productivity in India? By Seema Sangita
  15. The Role of Pedagogy in Developing Life Skills By Renu Gupta

  1. By: Ahn, Kunwon (Iowa State University); Winters, John V. (Iowa State University)
    Abstract: Formal education is correlated with entrepreneurial activity and success, but correlation does not indicate causation. Education and entrepreneurship are both influenced by other related factors. The current study estimates causal effects of formal education on entrepreneurship outcomes by instrumenting for an individual's years of schooling using cohort mean years of maternal schooling observed decades prior. We differentiate self-employment by industry employment growth and firm incorporation status. We have multiple important results. Formal schooling significantly increases the probability of self-employment in high-growth industries for both women and men. Education reduces the probability of male self-employment in shrinking industries. Education also increases incorporated self-employment for women and men and reduces unincorporated self-employment among men but not women. The overall probability of self-employment increases with education for women but is unaffected by education for men. The results suggest that formal education enhances entrepreneurship.
    Keywords: entrepreneurship, self-employment, education, human capital
    JEL: I20 J24 L26
    Date: 2021–08
  2. By: Hermo, Santiago (Brown University); Päällysaho, Miika (Dept. of Economics, Stockholm University); Seim, David (Dept. of Economics, Stockholm University); Shapiro, Jesse (Brown University)
    Abstract: A large literature in cognitive science studies the puzzling “Flynn effect” of rising fluid intelligence (reasoning skill) in rich countries. We develop an economic model in which a cohort’s mix of skills is determined by different skills’ relative returns in the labor market and by the technology for producing skills. We estimate the model using administrative data from Sweden. Combining data from exams taken at military enlistment with earnings records from the tax register, we document an increase in the relative labor market return to logical reasoning skill as compared to vocabulary knowledge. The estimated model implies that changes in labor market returns explain 36 percent of the measured increase in reasoning skill, and can also explain the decline in knowledge. An original survey of parents, an analysis of trends in school curricula, and an analysis of occupational characteristics show evidence of increasing emphasis on reasoning as compared to knowledge.
    Keywords: Flynn effect; IQ; skill investment; human capital; administrative data
    JEL: J24 J31 O52
    Date: 2021–08–23
  3. By: Cynthia L. Doniger
    Abstract: I document six facts about wage changes. First, most pay revisions occur at yearly frequency, but a small proportion occur at idiosyncratic times. Second, idiosyncratic pay changes are larger and more dispersed than year-end pay changes and resemble more pay changes occurring at job-to-job transitions. Third, idiosyncratic pay changes are more common for workers with less experience and, forth, in firms higher on the job-ladder. Fifth, industries in which the incidence of idiosyncratic raises have risen have experienced greater declines in labor share. Sixth, industries in which more firms report willingness to negotiate wages have greater concentrations of idiosyncratic revisions. An on-the-job search model with heterogeneous wage contracts can rationalize these facts.
    Keywords: Labor contracts; Idiosyncratic wage changes; Labor share; Job ladder
    JEL: E24 E25 J31 J33 M55 M52
    Date: 2021–08–12
  4. By: Luca Fumarco (Tulane University); Alessandro Vandromme (Ghent University); Levi Halewyck (Ghent University); Eline Moens (Ghent University); Stijn Baert (Ghent University)
    Abstract: We are the first to estimate the impact of relative age (i.e., the difference in classmates’ ages) on both speed and quality of individuals’ transition from education to the labour market. Moreover, we are the first to explore whether and how this impact passes through characteristics of students’ educational career. We use rich data pertaining to schooling and to labour market outcomes one year after graduation to conduct instrumental variables analyses. We find that a one-year increase in relative age decreases the likelihood of having a school delay at sixteen and attending vocational high-school, while it increases the likelihood of having a student job. Furthermore, we find that a one-year increase in relative age increases the likelihood of (i) being employed by 3.5 percentage points, (ii) having a permanent contract by 5.1 percentage points, and (iii) having full-time employment by 6.5 percentage points. We find no effect on the likelihood of obtaining a job that matches one’s educational level. Finally, we find that only 8 percent to 14 percent of relative age effects on the likelihood of being employed and on full-time employment pass through educational attainments. Moreover, the mediator role of having a student job is as important as that of standard educational outcomes. The impact of relative age on student’s job and, in turn, its impact on the labour market was previously neglected.
    Keywords: relative age, school starting age, labour market transition
    JEL: I21 J23 J24 J6
    Date: 2021–08
  5. By: Anton A. Cheremukhin; Paulina Restrepo-Echavarria
    Abstract: When setting initial compensation, some firms set a fixed, non-negotiable wage while others bargain. In this paper we propose a parsimonious search and matching model with two-sided heterogeneity, where the choice of wage-setting protocol, wages, search intensity and degree of randomness in matching are endogenous. We find that posting and bargaining coexist as wage-setting protocols if there is sufficient heterogeneity in match quality, search costs or market tightness and that labor market tightness and relative costs of search play a key role in the optimal choice of the wage-setting mechanism. Finally, we show that bargaining prevalence is positively correlated with wages, residual wage dispersion and labor market tightness, both in the model and in the data.
    Keywords: wage posting; bargaining; search and matching; information
    JEL: J64 E24 J31
    Date: 2021–08–12
  6. By: Jesse Rothstein; Diane Whitmore Schanzenbach
    Abstract: Card and Krueger (1992a,b) used labor market outcomes to study the productivity of school spending. Following their lead, we examine effects of post-1990 school finance reforms on students’ educational attainment and labor market outcomes. Lafortune et al. (2018) show that these reforms increased school spending and narrowed spending and achievement gaps between high- and low-income districts. Using a state-by-cohort panel design, we find that reforms increased high school completion and college-going, concentrated among Black students and women, and raised annual earnings. They also increased the return to education, particularly for Black students and men and driven by the return to high school.
    JEL: I21 I24 J24
    Date: 2021–08
  7. By: Maria Esther Oswald-Egg; Michael Siegenthaler
    Abstract: Does better access to skilled workers reduce firms' willingness to provide general skills training to unskilled workers? We analyze how the gradual opening of the Swiss labor market to workers from the European Union affected the number of apprenticeship positions that firms provide. We exploit that the availability of skilled workers increased more in firms close to the border because they gained unrestricted access to cross-border workers from neighboring countries. Our Difference-in-Differences estimates suggest that firm-provided training and access to skilled workers are not necessarily substitutes: opening the borders did not have a statistically significant effect on apprenticeship provision. We show theoretically and empirically that the small impact was the consequence of two opposing effects: the greater availability of skilled workers reduced firms' incentive to train because the cost of hiring external labor fell. Positive impacts on firm growth worked in the opposite direction.
    Keywords: labor demand, skilled immigration, firm-provided training, apprenticeships, vocational education and training, free movement of workers, cross-border workers, recruitment, immigration policy, labor mobility, hiring costs
    JEL: J24 J63 M53
    Date: 2021–08
  8. By: Christopher Jepsen; Peter Mueser; Kenneth Troske; Kyung-Seong Jeon
    Abstract: This paper provides novel evidence on the labor-market returns to for-profit postsecondary school and community college attendance using a two-step model to avoid recent concerns with singlestage fixed effects methods. Specifically, we link administrative records on for-profit school and community college attendance with quarterly earnings data for over 400,000 students in one state. Five years after enrollment, quarterly earnings conditional on employment exceed earnings in the absence of schooling by 20-29 percent for students attending for-profit schools and 16-27 percent for students attending community colleges. Despite differences in costs, in aggregate the benefits of attendance generally exceed the costs in both for-profit schools and community colleges. Finally, we present evidence showing that students in for-profit schools and community colleges pursue different degrees and focus on different areas of study.
    Keywords: postsecondary education, labor-market returns, for-profit schools
    JEL: J24 I26
    Date: 2021
  9. By: Wang, Feicheng (University of Göttingen); Liang, Zhe (University of Nottingham); Lehmann, Hartmut (Leibniz Institute for East and Southeast European Studies (IOS))
    Abstract: This paper investigates the effects of trade liberalisation induced labour demand shocks on informal employment in China. We employ a local labour market approach to construct a regional measure of exposure to import tariffs by exploiting initial differences in industrial composition across prefectural cities and then link it with the employment status of individuals. Using three waves of household survey data between 1995 and 2007, our results show that workers from regions that experienced a larger tariff cut were more likely to be employed informally. Further results based on firm-level data reveal a consistent pattern; tariff reductions increased the share of informal workers within firms. Such effects are more salient among smaller and less productive firms. Our findings suggest an important margin of labour market adjustment in response to trade shocks in developing countries, i.e. employment adjustment along the formal-informal dimension.
    Keywords: trade liberalisation, import competition, informal employment, firms, China
    JEL: F14 F16 F66 J46
    Date: 2021–08
  10. By: Bornali Bhandari; Tulika Bhattacharya; Saurabh Bandyopadhyay; Ajaya K Sahu; Praveen Rawat; Pallavi Choudhuri; Mousumi Das; Jahnavi Prabhakar (National Council of Applied Economic Research)
    Abstract: The Economic Surveys (2014–15 and 2015–16) have, over the years, stressed on the need to create jobs to meet the needs of a burgeoning population. However, the question as to which sector has the most potential to create jobs and at what level have often been left unanswered. The objective of this paper is to identify the sectors of the Indian economy that are able to generate different types of skilled employment, both directly as well indirectly, by estimating their employment linkage effects with varying levels of skills using the Input– Output technique. The contribution of this paper is that it re-defines skills by combining three types of education, including general, vocational and technical education, and thus defines four types of skilled employment categories—low skilled, low-medium skilled, medium-high skilled, and high skilled employment. The paper incorporates these four types of skilled employment within the Input–Output framework, using the World Input–Output Database (WIOD), and estimates the forward and backward linkage effects related to employment with respect to four different skill types for India. The estimation of these employment linkage effects is critical to identify the key employment-generating sectors in the Indian economy with varying levels of skill. The study also urges policymakers to boost some select sectors in order to enhance different types of employment, thus proposing a way to take forward the ‘Skill India Mission’.
    Keywords: Education, Vocational Education, Skills, Vocational Skills, Entrepreneurship, Skilling, Creation of Occupations, Labour Mobility, India
    JEL: J24
    Date: 2021–06
  11. By: Roberta Montebello; Jude Darmanin (Central Bank of Malta)
    Abstract: This paper computes sectoral contributions to real labour productivity growth in Malta during the two decades since 2000. The aim is to give an account of the sectoral developments affecting Malta’s productivity growth in the twenty years since 2000, in the context of significant structural change. To this end, this study employs the exactly additive GEAD technique developed by Tang and Wang (2004), which allows for the decomposition of sectoral productivity growth into efficiency gains and resource reallocation. Real labour productivity growth in Malta averaged 1.2% between 2000 and 2019, double that registered in the euro area. This divergence in growth rates was driven by a consistently positive reallocation level effect in each of the sample subperiods, as a result of the large structural shifts and reforms that have occurred since 2000. On the other hand, the contribution of within-sector efficiency gains in Malta was below that observed in the euro area on average and was the main driver of cyclical fluctuations in Malta’s productivity growth since 2000. Distortions such as government assistance and labour hoarding during recessions magnified these fluctuations. Across sectors, the results suggest that productivity developments were quite heterogenous, with services industries generally recording positive contributions to productivity growth. On the other hand, the manufacturing sector mainly registered negative contributions, as efficiency gains were offset by an outflow of resources towards other sectors.
    JEL: E24 J24 J21 O52
    Date: 2021
  12. By: Kai Fischer (Dusseldorf Institute for Competition Economics (DICE), Heinrich Heine University, Germany); J. James Reade (Department of Economics, University of Reading); W. Benedikt Schmal (Dusseldorf Institute for Competition Economics (DICE), Heinrich Heine University, Germany)
    Abstract: The COVID-19 pandemic has caused economic shock waves across the globe. Much research addresses direct health implications of an infection, but to date little is known about how this shapes lasting economic effects. This paper estimates the workplace productivity effects of COVID-19 by studying performance of soccer players after an infection. We construct a dataset that encompasses all traceable infections in the elite leagues of Germany and Italy. Relying on a staggered difference-in-differences design, we identify negative short- and longer-run performance effects. Relative to their pre-infection outcomes, infected players’ performance temporarily drops by more than 6%. Over half a year later, it is still around 5% lower. The negative effects appear to have notable spillovers on team performance. We argue that our results could have important implications for labor markets and public health in general. Countries and firms with more infections might face economic disadvantages that exceed the temporary pandemic shock due to potentially long-lasting reductions in productivity.
    Keywords: Labor Performance, Economic Costs of COVID-19, Public Health
    JEL: I18 J24 J44
    Date: 2021–08–19
  13. By: Bornali Bhandari; Saurabh Bandyopadhyay; Ajaya K Sahu; Praveen Rawat (National Council of Applied Economic Research)
    Abstract: Indian states are divergent in terms of pursuing their own economic policies linked to education, employability and employment. States significantly differ in terms of resource endowments, especially on endowments related to skill. This is reflected in the unequal distribution of educational capabilities, employability and skill intensity in workforce, employment and other key indicators. In effect, skills go much beyond formal certifications, especially in a culturally and geographically diverse nation like India. It is in this context, the 3E (Education, Employability and Employment) Index is planned and reconnoitred. The dimensions of the 3-E index are education, employability and employment in a comprehensive framework as an indication to Indian policymakers to highlight gaps between the three dimensions across states and within states. The focus of 3E index is from the labour market perspective and linking up supply and demand of labour. While traditionally one just links up education, we have included the added dimension of employability to gain insight on the supply side strength of each of the states in the labour market. The present attempt is an indicative assessment with the available data from NSS (61st and 68th Round) to have a holistic viewpoint on skills from a 3E perspective.
    Keywords: Education, Employability, Employment, Skilling, Spatial, Gender, India
    JEL: I29 J21 J24 J46 O53
    Date: 2021–06
  14. By: Seema Sangita (TERI School of Advanced Studies)
    Abstract: Educationists have had long debates on the efficacy of traditional forms of education versus vocational training. Even as India grapples with the challenges of improving the quality of primary and secondary education, there appears to be a policy shift in India, favouring vocational trainings that target the skill development of workers. This paper tries to analyse the impact of two types of technical education—one leading to an engineering degree or diploma and the other, to vocational training in selected fields such as Information and Communications Technology (ICT)— on firms operating in the manufacturing sector in India. A Cobb Douglas production function has been enhanced to incorporate education and training in order to understand the implications of the latter on firm performance. The results show that when a larger number of workers acquire technical education that leads to a degree or diploma in engineering, there is a positive impact on the performance of firms. In contrast, participation in vocational training programmes pertaining to similar disciplines has an insignificant effect on firms.
    Keywords: Technical Education, Vocational Education, Skills, Employability, Productivity, Digital Skills, ICT Skills
    JEL: J4 J24 O1
    Date: 2021–06
  15. By: Renu Gupta (Sardar Patel Vidyalaya)
    Abstract: In response to recent concerns expressed by Indian industry about the ‘employability’ of school and university graduates, this paper examines the role of pedagogy in developing life skills (or 21st century skills) and how these can be incorporated in the school/university curriculum. In recent curricular frameworks, life skills have been incorporated within the school curriculum by stressing the importance of inquiry and collaborative work through all subjects taught in school. The paper finds a similar emphasis in the National Curriculum Framework (NCF) in India. Using classroom observations and textbook analyses, it shows that learning objectives in schools are frequently incorrect or misaligned with the NCF vision. The paper briefly touches on how the beliefs of teachers affect their classroom practices and recommends that attention should be paid to the professionalisation of teachers, as only then can students acquire skills that are relevant for the 21st century, which is what employers want.
    Keywords: Education, Non-cognitive Skills, Employability, Skill, Socio-emotional, Pedagogy, India
    JEL: I29 J24
    Date: 2021–06

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