nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2021‒10‒25
eighteen papers chosen by
Joseph Marchand
University of Alberta

  1. Pay, Productivity and Management By Nicholas Bloom; Scott Ohlmacher; Cristina Tello-Trillo; Melanie Wallskog
  2. Outsourcing, Inequality and Aggregate Output By Adrien Bilal; Hugo Lhuillier
  3. Determinants, Wage Inequality, and Occupational Risk Exposure of Informal Workers: A Comprehensive Analysis With the Case Study of Thailand By Upalat Korwatanasakul
  4. The Anti-Poverty, Targeting, and Labor Supply Effects of the Proposed Child Tax Credit Expansion By Kevin Corinth; Bruce D. Meyer; Matthew Stadnicki; Derek Wu
  5. Why do people stay poor? By Clare A. Balboni; Oriana Bandiera; Robin Burgess; Maitreesh Ghatak; Anton Heil
  6. The Legacy of Covid-19 in Education By Katharina Werner; Ludger Woessmann
  7. The evolution of wages in early modern Normandy (1600–1850) By Cédric Chambru; Paul Maneuvrier-Hervieu
  8. Location, Location, Location By David Card; Jesse Rothstein; Moises Yi
  9. Hiring Discrimination in Labor Markets. An Experimental Study of Mood Regulation By Mourelatos, Evangelos
  10. Juggling Paid Work and Elderly Care Provision in Japan: Does a Flexible Work Environment Help Family Caregivers Cope? By Niimi, Yoko
  11. The Dynamics of Referral Hiring and Racial Inequality: Evidence from Brazil By Conrad Miller; Ian Schmutte
  12. Hysteresis in Unemployment: Evidence from OECD Estimates of the Natural Rate By Laurence M. Ball; Joern Onken
  13. Illuminating the Effects of the US-China Tariff War on China's Economy By Davin Chor; Bingjing Li
  14. The First East Asian Economic Miracle: Wages, Living Standards and Foundations of Modern Economic Growth in Southeast Asia, 1880-1938 By Jean-Pascal Bassino; Pierre van der Eng
  15. The Cognitive Load of Financing Constraints: Evidence from Large-Scale Wage Surveys By Clémence Berson; Raphaël Lardeux; Claire Lelarge
  16. Minimum wages and the China Syndrome: Causal evidence from US local labor markets By Milsom, L.; Roland, I.
  17. Putting an Economic Framework into Thailand’s Pension Reform By Nada Wasi; Chinnawat Devahastin Na Ayudhya; Ponpoje Porapakkarm; Nuarpear Lekfuangfu; Suphanit Piyapromdee
  18. Early Childhood Development, Human Capital and Poverty By Orazio Attanasio; Sarah Cattan; Costas Meghir

  1. By: Nicholas Bloom; Scott Ohlmacher; Cristina Tello-Trillo; Melanie Wallskog
    Abstract: Using confidential Census matched employer-employee earnings data we find that employees at more productive firms, and firms with more structured management practices, have substantially higher pay, both on average and across every percentile of the pay distribution. This pay-performance relationship is particularly strong amongst higher paid employees, with a doubling of firm productivity associated with 11% more pay for the highest-paid employee (likely the CEO) compared to 4.7% for the median worker. This pay-performance link holds in public and private firms, although it is almost twice as strong in public firms for the highest-paid employees. Top pay volatility is also strongly related to productivity and structured management, suggesting this performance-pay relationship arises from more aggressive monitoring and incentive practices for top earners.
    Keywords: inequality, productivity, CEO pay
    JEL: J24 J30 J31
    Date: 2021–09
  2. By: Adrien Bilal; Hugo Lhuillier
    Abstract: Outsourced workers experience large wage declines, yet domestic outsourcing may raise aggregate productivity. To study this equity-efficiency trade-off, we contribute a framework in which firms either hire many imperfectly substitutable worker types in-house by posting wages along a job ladder, or rent labor services from contractors who hire in the same frictional labor markets. Three implications arise. First, more productive firms are more likely to outsource to save on higher wage premia. Second, outsourcing raises output at the firm level. Third, contractors endogenously locate at the bottom of the job ladder, implying that outsourced workers receive lower wages. Using firm-level instruments for outsourcing and revenue productivity, we find empirical support for all three predictions in French administrative data. After structurally estimating the model, we find that the rise in outsourcing in France between 1996 and 2007 raised aggregate output by 3% and reduced the labor share by 0.7 percentage points. A 9% minimum wage increase stabilizes the labor share and maintains two thirds of the output gains.
    JEL: E24 E25 E64 F12 J24 J31 J42 O40
    Date: 2021–10
  3. By: Upalat Korwatanasakul
    Abstract: This study provides a comprehensive analysis of informal workers in Thailand by utilising the 2006-2019 Thai Informal Employment Survey data. The estimated results reveal the adverse effects of informal employment on workers’ economic and social conditions as follows: 1) the wages gap working against informal employment, confirming that informal employment is not a choice but rather an unavoidable constraint (Oaxaca-Blinder decomposition), 2) a negative relationship between informal employment and wages, particularly among workers in the lowest tail of the wage distribution (quantile regression), and 3) a positive association between informal employment and occupational risks, particularly injury with high severity (logit and probit models). Therefore, policies to smooth informal workers’ mobility to the formal sector is crucial. Furthermore, the analyses manifest the importance of schooling in reducing the tendency to work in the informal sector, narrowing the wages gap, and lowering occupational risks and injury severity. However, the estimated results from the pseudo-panel fixed effects regression show no relationship between schooling and informal workers’ wages but a positive relationship between their wages and working experience. Thus, policymakers may adopt schooling-related policies to improve informal workers’ welfares and mobility to the formal sector. On the other hand, to help workers who inevitably remain in the informal sector, the government may resort to policies regarding working experience, e.g. on-the-job training programmes, to help informal workers earn more wages and, in turn, become less vulnerable.
    Keywords: Informal Worker; Occupational Risk; Sectoral Transition; Thailand; Wage Inequality
    JEL: J16 J21 J31 J71 O17
    Date: 2021–09
  4. By: Kevin Corinth; Bruce D. Meyer; Matthew Stadnicki; Derek Wu
    Abstract: The proposed change under the American Families Plan (AFP) to the Tax Cuts and Jobs Act (TCJA) Child Tax Credit (CTC) would increase maximum benefit amounts to $3,000 or $3,600 per child (up from $2,000 per child) and make the full credit available to all low and middle-income families regardless of earnings or income. We estimate the anti-poverty, targeting, and labor supply effects of the expansion by linking survey data with administrative tax and government program data which form part of the Comprehensive Income Dataset (CID). Initially ignoring any behavioral responses, we estimate that the expansion of the CTC would reduce child poverty by 34% and deep child poverty by 39%. The expansion of the CTC would have a larger anti-poverty effect on children than any existing government program, though at a higher cost per child raised above the poverty line than any other means-tested program. Relatedly, the CTC expansion would allocate a smaller share of its total dollars to families at the bottom of the income distribution—as well as families with the lowest levels of long-term income, education, or health—than any existing means-tested program with the exception of housing assistance. We then simulate anti-poverty effects accounting for labor supply responses. By replacing the TCJA CTC (which contained substantial work incentives akin to the Earned Income Tax Credit) with a universal basic income-type benefit, the CTC expansion reduces the return to working at all by at least $2,000 per child for most workers with children. Relying on elasticity estimates consistent with mainstream simulation models and the academic literature, we estimate that this change in policy would lead 1.5 million workers (constituting 2.6% of all working parents) to exit the labor force. The decline in employment and the consequent earnings loss would mean that child poverty would only fall by 22% and deep child poverty would not fall at all with the CTC expansion.
    JEL: C42 C81 H2 I32 I38 J2
    Date: 2021–10
  5. By: Clare A. Balboni; Oriana Bandiera; Robin Burgess; Maitreesh Ghatak; Anton Heil
    Abstract: There are two broad views as to why people stay poor. One emphasizes differences in fundamentals, such as ability, talent or motivation. The other, the poverty traps view, differences in opportunities which stem from access to wealth. To test between these two views, we exploit a large-scale, randomized asset transfer and an 11-year panel on 6000 households who begin in extreme poverty. The setting is rural Bangladesh and the asset is cows. The data supports the poverty traps view - we identify a threshold level of initial assets above which households accumulate assets, take on better occupations (from casual labor in agriculture or domestic services to running small livestock businesses) and grow out of poverty. The reverse happens for those below the threshold. Structural estimation of an occupational choice model reveals that almost all beneficiaries are misallocated in the work they do at baseline and that the gains arising from eliminating misallocation would far exceed the program costs. Our findings imply that large transfers which create better jobs for the poor are an effective means of getting people out of poverty traps and reducing global poverty.
    JEL: I32 J22 J24 O12
    Date: 2021–10
  6. By: Katharina Werner; Ludger Woessmann
    Abstract: If school closures and social-distancing experiences during the Covid-19 pandemic impeded children’s skill development, they may leave a lasting legacy in human capital. To understand the pandemic’s effects on school children, this paper combines a review of the emerging international literature with new evidence from German longitudinal time-use surveys. Based on the conceptual framework of an education production function, we cover evidence on child, parent, and school inputs and students’ cognitive and socio-emotional development. The German panel evidence shows that children’s learning time decreased severely during the first school closures, particularly for low-achieving students, and increased only slightly one year later. In a value-added model, learning time increases with daily online class instruction, but not with other school activities. The review shows substantial losses in cognitive skills on achievement tests, particularly for students from disadvantaged backgrounds. Socio-emotional wellbeing also declined in the short run. Structural models and reduced-form projections suggest that unless remediated, the school closures will persistently reduce skill development, lifetime income, and economic growth and increase inequality.
    Keywords: Covid-19, school closures, education, schools, students, educational inequality
    JEL: I20 H52 J24
    Date: 2021
  7. By: Cédric Chambru; Paul Maneuvrier-Hervieu
    Abstract: This paper presents new estimations of wages for Normandy between 1600 and 1850. We used a vast array of primary and secondary sources to assemble two new databases on wages and commodity prices to establish a new regional consumer price index (CPI) and twelve regional wage series. We posit that the sluggish demographic growth during the 18th century, and the resulting labour shortage, led to a convergence of wages across unskilled occupations and a relative catch-up with urban skilled construction labourers in the years preceding the French Revolution. We also provide tentative evidence suggesting that labourers in stable employment could have earned as much as their English counterparts during this period.
    Keywords: Prices, wages, casual employment, stable employment, Normandy
    JEL: J3 J4 I31 N33
    Date: 2021–10
  8. By: David Card; Jesse Rothstein; Moises Yi
    Abstract: We use longitudinal data from the LEHD to study the causal effect of location on earnings. We specify a model for log earnings that includes worker effects and fixed effects for different commuting zones (CZs) fully interacted with industry, allowing us to capture potential impacts of local specialization. Building on recent work on firm-specific wage setting, we show that a simple additive model provides a good approximation to observed changes in log earnings when people move across CZ’s and/or industries, though it takes a couple of quarters for migrants to fully realize the gains of a move. We also show that the earnings premiums for different CZ-industry pairs are nearly separable in industry and CZ, with statistically significant but very small interaction effects. Consistent with recent research from France, Spain and Germany, we find that two thirds of the variation in observed wage premiums for working in different CZs is attributable to skill-based sorting. Using separately estimated models for high and low education workers, we find that the locational premiums for the two groups are very similar. The degree of assortative matching across CZs is much larger for college-educated workers, however, leading to a positive correlation between measured returns to skill and CZ average wages or CZ size that is almost entirely due to sorting on unobserved skills within the college workforce.
    Date: 2021–10
  9. By: Mourelatos, Evangelos
    Abstract: We explore whether there is a link between mood and hiring decisions. This research examines how positive mood affects the discrimination faced my homosexual job candidates compared to heterosexuals. Our experimental design allows us to track the complete hiring process and monitor employers' behavior within and without our treatment context, in both online and offline labor market settings. Constructing pairs of curriculum vitae, distinguished, in each case, only by the sexual orientation or the gender of the applicants, led to the observation that females and gay men faced a significantly lower chance of getting hired regardless the labor market context. We also find that female employers propose higher levels of discrimination only for the case of female applicants. Our positive mood manipulation led to a depletion of discrimination levels, with the effects being more robust in the online labor context. Thus, there is substantial experimental evidence to suggest that discrimination based on sexual orientation and gender does exist also in online labor markets. Contributions to the hiring discrimination, mood research, and gig-economy literature are discussed.
    Keywords: experiment,hiring discrimination,mood,online labor markets,gender,sexual orientation
    JEL: D91 D87 D53 D23 D01
    Date: 2021
  10. By: Niimi, Yoko
    Abstract: Using unique data from a Japanese survey, this paper examines whether flexible work arrangements targeted specifically at workers with caregiving responsibilities under the Child Care and Family Care Leave Act help family caregivers reconcile paid work with care provision. The regression results suggest that access to caregiver leave, which allows family caregivers to take a continuous leave of up to 93 days, is negatively and significantly associated with the probability of leaving one’s job within one year of the onset of demand for parental care. This alleviating effect of access to caregiver leave remains robust even in the longer term and in a specification where we take into account the possible endogeneity of care provision to the labor supply decision. The findings of this paper thus suggest that the caregiver leave introduced pursuant to the Act in Japan helps meet the need of family caregivers to take a certain period of time off from work to make the necessary arrangements for accommodating the sudden and unexpected demand for elderly care in their daily lives.
    Keywords: elderly care, informal care, flexible work, labor supply, long-term care, Japan, J14, J22
    Date: 2021–10
  11. By: Conrad Miller (University of California-Berkeley and NBER); Ian Schmutte (University of Georgia)
    Abstract: We study how referral hiring contributes to racial inequality in firm-level labor demand over the firm’s life cycle using data from Brazil. We consider a search model where referral networks are segregated, firms are more informed about the match quality of referred candidates, and some referrals are made by nonreferred employees. Consistent with the model, we find that firms are more likely to hire candidates and less likely to dismiss employees of the same race as the founder, but these differences diminish as firms’ cumulative hires increase. Referral hiring helps to explain racial differences in dismissals, seniority, and employer size.
    Keywords: referral hiring, search model, match quality, racial differences, Brazil
    JEL: D83 J15 J23 J42 J63 L25
    Date: 2021–10
  12. By: Laurence M. Ball; Joern Onken
    Abstract: This paper studies the dynamics of unemployment (u) and its natural rate (u*), with u* measured by real-time estimates for 29 countries from the OECD. We find strong evidence of hysteresis: an innovation in u causes u* to change in the same direction, and therefore has permanent effects. For our baseline specification, a one percentage point deviation of u from u* for one year has a long-run effect of 0.16 points on both variables. When we allow asymmetry, we find, perhaps surprisingly, that decreases in u have larger long-run effects than increases in u.
    JEL: E24
    Date: 2021–10
  13. By: Davin Chor; Bingjing Li
    Abstract: How much has the US-China tariff war impacted economic outcomes in China? We address this question using high-frequency night lights data, together with measures of the trade exposure of fine grid locations constructed from Chinese firms' geo-coordinates. Exploiting within-grid variation over time and controlling extensively for grid-specific contemporaneous trends, we find that each 1 percentage point increase in exposure to the US tariffs was associated with a 0.59% reduction in night-time luminosity. We combine these with structural elasticities that relate night lights to economic outcomes, motivated by the statistical framework of Henderson et al. (2012). The negative impact of the tariff war was highly skewed across locations: While grids with negligible direct exposure to the US tariffs accounted for up to 70% of China's population, we infer that the 2.5% of the population in grids with the largest US tariff shocks saw a 2.52% (1.62%) decrease in income per capita (manufacturing employment) relative to unaffected grids. By contrast, we do not find significant effects from China's retaliatory tariffs.
    JEL: E01 F10 F13 F14 F16
    Date: 2021–10
  14. By: Jean-Pascal Bassino; Pierre van der Eng
    Abstract: This paper presents new estimates of the living standards of unskilled and skilled wage earners in Southeast Asia. It estimates welfare ratios in nine Asian cities (Bangkok, Hanoi, Jakarta, Penang, Rangoon, Saigon, Singapore, Surabaya and Tokyo) during 1880-1938 and compares them to those in two European cities (Milan and Paris). It finds that the welfare ratios in most Southeast Asian cities were close to or above the Italian and Japanese levels. By the 1930s those in Bangkok were even close to Paris. It also finds a wage premium for skilled labour that was higher than in Europe and Japan. These findings suggest that there was a sustained strong demand for skilled workers, as well as savings potentials and opportunities for the development of markets beyond basic commodities in these Asian cities. These findings are consistent with recent research into economic growth and living standards in pre-war East Asia. The paper synthesises these findings to argue that some of the foundations of modern economic growth, and therefore the second East Asian Economic Miracle since the mid-1960s, were being established before World War II. But it took most countries in Southeast Asia until the 1960s and after to draw the full benefits from these preconditions when their processes of modern economic growth accelerated.
    Keywords: East Asian Economic Miracle, welfare, wages, Southeast Asia
    JEL: I31 J30 N35
    Date: 2021–10
  15. By: Clémence Berson; Raphaël Lardeux; Claire Lelarge
    Abstract: In this paper, we take advantage of the implicit cognitive exercise available in standard Labor Force Surveys to propose a new indicator of financing constraints which is based on the cognitive load they generate (Mullainathan and Shafir, 2013). Survey respondents are requested to report their monthly wages, which we compare to their administrative, fiscal counterparts. We propose a well-defined index of worker-level uncertainty, which filters out their potential rounding behavior and reporting biases. We estimate it using unsupervised ML/EM techniques and find that workers tend to perceive their own wages with a degree of uncertainty of around 10%. Through the lens of a simple rational signal extraction model, this amounts to estimates of workers' attention ranging from 30% to 84% depending on their wage, education, tenure and gender. Most importantly, we show that the attention of the lowest paid 30% of workers is cyclical and increases steadily by 17 percentage points in the ten days preceding payday, before immediately dropping on that day, which, through the lens of a simple model, is indicative of end-of-month financing liquidity constraints. Furthermore, this pattern reveals that the cognitive cost induced by these financing constraints arises from the not too concave (or convex) costs of achieving high levels of attention, and the convex costs of maintaining it over time.
    Keywords: Behavioral Inattention, Cognitive Costs, Wage Volatility, Poverty and Financing Constraints
    JEL: C83 D14 I32 J31
    Date: 2021
  16. By: Milsom, L.; Roland, I.
    Abstract: Exposure to Chinese import competition led to significant manufacturing job losses in the United States. Local labor markets, however, differ significantly in how they fared with respect to manufacturing employment. An important question is whether labor market institutions have an impact on the dynamic response of manufacturing employment to rising import penetration. We contribute to this debate by showing that minimum wages amplified the negative effect of Chinese import penetration on manufacturing employment in US local labor markets between 2000 and 2007. We develop a rigorous double-edged identification strategy. First, we construct shift-share instrumental variables to address the endogeneity of import penetration. Second, we use a border identification strategy to distinguish the effects of minimum wage policies from the effects of other local labor market characteristics that are unrelated to policy. Specifically, we rely on comparing commuting zones that are contiguous to each other but located in different states with different minimum wage policies. The approach essentially considers what happens to the response of manufacturing employment to import penetration when one crosses a policy border.
    Keywords: Import penetration, labor market institutions, minimum wages, manufacturing employment
    JEL: E24 F14 F16 J23 L60 R12
    Date: 2021–10–07
  17. By: Nada Wasi; Chinnawat Devahastin Na Ayudhya; Ponpoje Porapakkarm; Nuarpear Lekfuangfu; Suphanit Piyapromdee
    Abstract: Thailand has several old-age income support schemes, ranging from contributory schemes for the formal sector, voluntary savings schemes for the informal sector to the universal noncontributory social assistance scheme. Although these schemes together can cover almost all Thai citizens, several challenges remain. This article focuses on the inadequacy of the mandatory Social Security system for the formal workers (known as Article 33). We identify four key reasons leading to low pension benefits: (i) a non-trivial fraction of workers left the formal sector before being eligible for annuity; (ii) those who left Article 33 but voluntarily joined Article 39 would receive unfair reduced pension benefits; (iii) the scheme did not use any indexation, meaning that the specified amount of past earnings, wage ceiling and benefits have lower value over time; and (iv) the scheme has no income redistribution mechanism. The scheme’s financial sustainability is also a concern. We proposed some adjustments to solve the inadequacy problem, as well as a strategy to delay claiming while minimizing the impact to beneficiaries in a hope to alleviate its financing pressure. In addition, broader issues of lack of a unified authority on pension policies, weak incentives of voluntary schemes, and complicacy of adjusting Civil Servants’ pension scheme are briefly discussed.
    Keywords: Old-age income; Social Security; Pension; Thailand
    JEL: H55 J26 D14 D02
    Date: 2021–08
  18. By: Orazio Attanasio; Sarah Cattan; Costas Meghir
    Abstract: Children's experiences during early childhood are critical for their cognitive and socio-emotional development, two key dimensions of human capital. However, children from low income backgrounds often grow up lacking stimulation and basic investments, leading to developmental deficits that are difficult, if not impossible, to reverse later in life without intervention. The existence of these deficits are a key driver of inequality and contribute to the intergenerational transmission of poverty. In this paper, we discuss the framework used in economics to model parental investments and early childhood development and use it as an organizing tool to review some of the empirical evidence on early childhood research. We then present results from various important early childhoods interventions with emphasis on developing countries. Bringing these elements together we draw conclusions on what we have learned and provide some directions for future research.
    JEL: I24 I25 I3 J24 O15
    Date: 2021–10

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