nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2021‒11‒22
seventeen papers chosen by
Joseph Marchand
University of Alberta

  1. The impact of age-specific minimum wages on youth employment and education: A regression discontinuity analysis By Dayioglu, Meltem; Kucukbayrak, Muserref; Tumen, Semih
  2. Spillover Effects from Voluntary Employer Minimum Wages By Ellora Derenoncourt; Clemens Noelke; David Weil; Bledi Taska
  3. Wage Effects of Educational Mismatch According to Workers’ Origin: The Role of Demographics and Firm Characteristics By Valentine Jacobs; François Rycx; Mélanie Volral
  4. Learning the Right Skill: The Returns to Social, Technical and Basic Skills for Middle-Educated Graduates By Cnossen, Femke; Piracha, Matloob; Tchuente, Guy
  5. Formalized Employee Search and Labor Demand By Hensel, Lukas; Tekleselassie, Tsegay; Witte, Marc
  6. Reference Points and the Tradeoff between Risk and Incentives By Dohmen, Thomas; Non, Arjan; Stolp, Tom
  7. Exploring the labor market consequences of psychiatric disorders: An event study approach By Henri Salokangas
  8. Tracking the rise of robots: A survey of the IFR database and its applications By Klump, Rainer; Jurkat, Anne; Schneider, Florian
  9. The Geography of Retirement By Courtney Coile
  10. "Are you in the right job?" Human Capital Mismatch in the UK By Galanakis, Yannis
  11. "Potential Capital”, Working From Home, and Economic Resilience By Janice C. Eberly; Jonathan Haskel; Paul Mizen
  12. The International Price of Remote Work By Agostina Brinatti; Alberto Cavallo; Javier Cravino; Andres Drenik
  13. Functional Income Distribution and Inequality in the Asia-Pacific Countries By Raihan, Selim
  14. Heterogeneous labour market response to monetary policy: small versus large firms By Singh, Aarti; Suda, Jacek; Zervou, Anastasia
  15. The roles of diversity, complexity, and relatedness in regional development – What does the occupational perspective add? By Tom Broekel; Rune Dahl Fitjar; Silje Haus-Reve
  16. Gathering Support for Green Tax Reform: Evidence from German Household Surveys By Rick van der Ploeg; Armon Rezai; Miguel Tovar
  17. Assessing Labour Market Slack for Monetary Policy By Erik Ens; Laurence Savoie-Chabot; Kurt See; Shu Lin Wee

  1. By: Dayioglu, Meltem; Kucukbayrak, Muserref; Tumen, Semih
    Abstract: We exploit an age-specific minimum wage rule - which sets a lower minimum wage for workers of age 15 than the adult minimum wage paid to workers of age 16 and above - and its abolition to estimate the causal effect of a minimum wage increase on youth employment and education in Turkey. Using a regression discontinuity design in tandem with a difference-in-discontinuities analysis, we find that increasing the minimum wage reduces the employment probability of young males by 2.5-3.1 percentage points. We also document that, initially, the minimum wage increase does not lead to a major change in high school enrollment, while the likelihood of transitioning into "neither in employment nor in education and training" (NEET) category notably increases. However, in the medium term, the NEET effect is transitory; school enrollment increases over time and absorbs the negative employment effect. We argue that policy effects have mostly been driven by demand-side forces rather than supply side.
    Keywords: Age-specific minimum wages,youth employment,education,regression discontinuity design
    JEL: J21 J24 J31 J38
    Date: 2021
  2. By: Ellora Derenoncourt; Clemens Noelke; David Weil; Bledi Taska
    Abstract: Low unionization rates, a falling real federal minimum wage, and outsourcing have hampered wage growth in the low-wage sector in the US. In recent years, a number of private employers have opted to institute or raise company-wide minimum wages for their employees, sometimes in response to public pressure. To what extent do wage-setting changes at major employers spill over to other employers, and what are the broader labor market effects of these policies? In this paper, we study recent minimum wages by Amazon, Walmart, Target, CVS, and Costco using data from millions of online job ads and employee surveys. We document that these policies induced wage increases at low-wage jobs at other employers, where the modal response was to match the wage announced by the large retailer. In the case of Amazon’s $15 minimum wage in October 2018, our estimates imply that a 10% increase in Amazon’s advertised hourly wages led to an average increase of 2.3% among other employers in the same commuting zone. Using the CPS, we estimate wage increases in exposed jobs in line with our magnitudes from employee surveys and find that large employer minimum wage policies led to small but precisely estimated declines in employment, with employment elasticities ranging from -0.04 to -0.13. Large employer minimum wage announcements influenced wages more broadly. The magnitude of these wage spillovers cannot easily be explained by standard competitive pressures, suggesting a role for both market power and norms in wage determination.
    JEL: J31 J42
    Date: 2021–10
  3. By: Valentine Jacobs (Université de Mons (humanOrg) and Université libre de Bruxelles (CEBRIG and DULBEA)); François Rycx (Université libre de Bruxelles (CEBRIG and DULBEA), GLO, humanOrg, IRES and IZA); Mélanie Volral (Université de Mons (humanOrg) and DULBEA)
    Abstract: This paper examines the influence of educational mismatch on wages according to workers’ region of birth, taking advantage of our access to rich matched employer-employee data for the Belgian private sector for the period 1999-2010. Using a fine-grained approach to measuring educational mismatch and controlling for a large set of covariates, we first find that workers born in developed countries benefit from positive wage returns to their years of attained-, required and over-education, and that these returns are significantly higher for them than for their peers born in developing countries. Second, our results show that the wage return to a year of over-education is positive but lower than that to a year of required education. This suggests that over-educated workers suffer a wage penalty compared to their well-matched former classmates (i.e. workers with the same level of education in jobs that match their education). However, the magnitude of this wage penalty is found to vary considerably depending on the origin of the workers. Indeed, all else being equal, our estimates show that it is much greater for workers from developing countries – especially for those born in Africa and the Middle and Near East – than for those from developed countries. Regardless of workers’ origin, our estimates further indicate that the wage penalty associated with over-education is higher for workers who: i) have attained tertiary education, ii) are male, iii) have more seniority in employment, iv) are employed in smaller firms, and v) are covered by a collective agreement at the firm level. Yet, whatever the moderating variable under consideration, the estimates also show that the wage penalty associated with over-education remains higher for workers born in developing countries.
    Keywords: Immigrants, educational mismatch, wage gap, linked employer-employee data
    JEL: I24 I26 J15 J24 J31
    Date: 2021–10–27
  4. By: Cnossen, Femke; Piracha, Matloob; Tchuente, Guy
    Abstract: Technological change and globalization have sparked debates on the changing demand for skills in western labour markets, especially for middle skilled workers who have seen their tasks replaced. This paper provides a new data set, which is based on text data from curricula of the entire Dutch vocational education system. We extract verbs and nouns to measure social, technical and basic skills in a novel way. This method allows us to uncover the skills middle-skilled students learn in school. Using this data, we show that skill returns vary across students specialized in STEM, economics or health, as well as across sectors of employment.
    Keywords: Curriculum skills,vocational education and training,skill returns
    JEL: J24 I26 I21
    Date: 2021
  5. By: Hensel, Lukas (Peking University); Tekleselassie, Tsegay (Policy Studies Institute); Witte, Marc (IZA)
    Abstract: Firms often use social networks to find workers, limiting the pool of potential applicants. We conduct a field experiment subsidizing firms' formal vacancy posting. The subsidies increase non-network employee search and shift vacancies towards high-skilled positions. Post-treatment, firms continue searching for high-skilled workers despite reverting to network-based search. This change in skill requirements does not increase vacancy posting or hiring, suggesting substitutability between workers of different skill levels. Finally, we experimentally show that information asymmetries about applicants' skills do not limit firms' formal search. Our results highlight that exposure to different labor market segments can permanently change firms' labor demand.
    Keywords: firms, hiring, social networks, formalization, field experiments
    JEL: D22 J23 J46 C93
    Date: 2021–11
  6. By: Dohmen, Thomas (University of Bonn and IZA); Non, Arjan (Erasmus University Rotterdam); Stolp, Tom (SEO Amsterdam)
    Abstract: We conduct laboratory experiments to investigate basic predictions of principal-agent theory about the choice of piece rate contracts in the presence of output risk, and provide novel insights that reference dependent preferences affect the tradeoff between risk and incentives. Subjects in our experiments choose their compensation for performing a real-effort task from a menu of linear piece rate and fixed payment combinations. As classical principal-agent models predict, more risk averse individuals choose lower piece rates. However, in contrast to those predictions, we find that low-productivity risk averse workers choose higher piece rates when the riskiness of the environment increases. We hypothesize that reference points affect piece rate choice in risky environments, such that individuals whose expected earnings would exceed (fall below) the reference point in a risk-free environment behave risk averse (seeking) in risky environments. In a second experiment, we exogenously manipulate reference points and confirm this hypothesis.
    Keywords: incentive, piece-rate, risk, reference point, laboratory experiment
    JEL: D81 D91 M52
    Date: 2021–11
  7. By: Henri Salokangas (Turku School of Economics, University of Turku FI-20014, Finland)
    Abstract: Vast literature documents a negative association between mental disorders and labor market performance but it is challenging to find a research design that could provide an reliable estimate for an effect. This paper provides new evidence on the immediate labor market consequences following the first psychiatric admission using the event study framework. To reduce selection bias, I exploit variation in the timing of the first psychiatric admission to estimate the effect of the first psychiatric treatment on labor market performance. Using Finnish administrative data, I find that the first psychiatric admission leads to loss in earned income of about €1700 (10%). However, but to a large extent the empirical analyses demonstrate decreasing pre-trends in labor market outcomes before the event year, thus signaling problems related to endogeneity. Anxiety disorders provide a notable exception by exhibiting pre-event labor market trajectories for which parallel trends assumption cannot be ruled out. This study provides evidence that research designs that use timing variation in the first health may produce very modest pre-trends also in relationships typically considered endogenous.
    Keywords: Mental disorders, Employment, Wage differentials
    JEL: I10 J21 J31
    Date: 2021–11
  8. By: Klump, Rainer; Jurkat, Anne; Schneider, Florian
    Abstract: Robots are continuously transforming industrial production worldwide and thereby also inducing changes in a variety of production-related economic and social relations. While some observers call this transformation an unprecedented "revolution", others regard it as a common pattern of capitalist development. This paper contributes to the literature on the effects of the rise of industrial robots in three ways. Firstly, we describe the historic evolution and organizational structure of the International Federation of Robotics (IFR), which collects data on the international distribution of industrial robots by country, industry, and application from industrial robot suppliers worldwide since 1993. Secondly, we extensively analyze this IFR dataset on industrial robots and point out its specificities and limitations. We develop a correspondence table between the IFR industry classification and the International Standard Industrial Classification (ISIC) Revision 4 and shed some light on the price development of industrial robots by compiling data on robot price indices. We further compute implicit depreciation rates inherent to the operational stocks of robots in the IFR dataset and find an average depreciation rate of aggregate robot stocks between 4% and 7% per year between 1993 and 2019. Moreover, tracking the share of industrial robots that are not classified to any industry or application we find that their share in total robot stocks has sharply declined after 2005. We also compare IFR data with other data sources such as UN Comtrade data on net imports and unit prices of industrial robots or data on robot adoption from firm-level surveys in selected countries. Thirdly, we provide a comprehensive overview of the empirical research on industrial robots that is based on the IFR dataset. We identify four important strands of research on the rise of robots: (i) patterns of robot adoption and industrial organization, (ii) productivity and growth effect of robot adoption, (iii) its impact on employment and wages, and (iv) its influence on demographics, health, and politics.
    Keywords: Robots, productivity, growth, employment, industry classification, depreciation rates, IFR
    JEL: C23 E1 J2 J24 O3 O33 O4 O47
    Date: 2021
  9. By: Courtney Coile
    Abstract: As Americans work longer in response to a changing retirement landscape, it is important to ask whether there are groups being left out of this trend. Geography is a natural lens through which to examine this question, given regional disparities in the employment of prime-age individuals. In this study, we explore the geography of retirement using data from the U.S. Census/American Community Survey and other sources. We find large differences across U.S. commuting zones in employment rates at older ages, with a gap of about 20 percentage points between areas at the 90th and 10th percentiles of employment. Low-employment areas are systematically different, with a less educated and more diverse population, more low-wage jobs and import competition from China, poorer health outcomes and health care access, lower government spending, and more income inequality. Although these correlations are not necessarily causal, these factors collectively can explain about four-fifths of the geographic variation in employment at older ages.
    JEL: J22 J26 R23
    Date: 2021–10
  10. By: Galanakis, Yannis
    Abstract: This paper examines a problem of worker misallocation into jobs. A theoretical model, allowing for heterogeneous workers and firms, shows that job search frictions generate mismatch between employees and employers. In the empirical analysis, the British Household Panel Survey (BHPS), the UK household Longitudinal Study (UKHLS) and British Cohort Study 1970 (BCS70) data are used to measure the incidence of mismatch, how it changes over time and whether it can be explained by unobserved ability. Results show that (i) the incidence of mismatch increases after the Great Recession. (ii) Individual transitions to/from matching take place due to workers' occupational mobility and over-time skills development. (iii) Employees can find better jobs or their mobility occurs earlier than the aggregate change of skills. (iv) Controlling for individual heterogeneity, measured by cognitive and non-cognitive skill test scores throughout childhood, does not decrease the incidence of mismatch. This suggests that unobserved productivity does not generate mismatch in the labour market.
    Keywords: Human Capital Mismatch,frictions,individual heterogeneity
    JEL: I26 J24 J31 J64
    Date: 2021
  11. By: Janice C. Eberly; Jonathan Haskel; Paul Mizen
    Abstract: The impact of an economic shock depends both on its severity and the resilience of the economic response. Resilience can include the ability to relocate factors, for example, even when new technologies or skills are not yet at the ready. This resilience per se buffers production and has an economic value, which we estimate. The COVID-19 pandemic caused a widespread decline in recorded GDP. Yet, as catastrophic as the collapse was, it was buffered by an unprecedented and spontaneous deployment of what we call “Potential Capital,” the dwelling/residential capital and connective technologies used alongside working from home. Together potential capital and labor working from home provided additional output margins and capacity. We estimate the contribution of this capital, and the remote work that it facilitated, to have roughly halved the decline in GDP in the US reducing the fall in GDP to 9.4 log points in 2020Q2 at the trough of the recession. Similar effects are seen in the 6 OECD countries for which data are available, output fell by 14 log points, but would have fallen by 26 log points had only workplace inputs been available. Accounting for the contribution of “Potential Capital” also revises downwards estimated total productivity gains in the business sector during the pandemic from 8 log points to 5 log points in 2020Q2. We also find an output elasticity of domestic non-dwellings capital to be similar to that of workplace ICT capital, reflecting its role as productive capital. Turning to the future, changes in working from home depend upon relative costs, relative technologies and, crucially, the elasticity of substitution between home and work tasks. We estimate that that elasticity to be more than unity, meaning that the growth of ICT will raise the share of work done remotely.
    JEL: E01 E22 O47
    Date: 2021–10
  12. By: Agostina Brinatti; Alberto Cavallo; Javier Cravino; Andres Drenik
    Abstract: We use data from a large web-based job platform to study how the price of remote work is determined in a globalized labor market. In the platform, workers from around the world compete for jobs that can be done remotely. We document that, despite the global nature of the marketplace, the location of the worker accounts for over a third of the variance in wages. The observed wage differences are strongly correlated to the GDP per-capita of the worker’s country. This correlation is not accounted for by differences in workers’ characteristics, occupations, nor for differences in the employers’ locations. We also document that remote wages in local currency move almost one-for-one with the dollar exchange rate of the worker’s country, and are highly sensitive to changes in the wages of foreign competitors. Finally, we provide a new measure on which jobs are easier to offshore that is based on the prevalence of cross-border contracts rather than on subjective job characteristics, and show that there is substantial heterogeneity in the offshorability of remote occupations.
    JEL: F1 F2 F4 F6
    Date: 2021–10
  13. By: Raihan, Selim
    Abstract: In recent decades there has been a growing interest around functional income distribution. The functional income distribution determines how output is distributed among the factors of production, such as capital and labor. Labor remuneration, expressed as a share of value added or GDP, is known as the labor share and the residual is, therefore, the capital share. The interest on functional income distribution has grown into concern with the upsurge of the recent global economic crisis, and many countries experiencing millions of jobs losses, raising unemployment rates to all-time highs. The labor income share has also captured attention, including outside the academic debate, particularly as an inequality measure. The measure is included as an indicator to assess progress towards the United Nations Sustainable Development Goals. Studies have focused on the channels related to international trade and technological progress influencing employment, wages, and the labor share. Studies have also indicated other factors such as the economic growth, foreign direct investment, and social polices. Against this backdrop, the main objective of this paper is to present an analysis of the trend and patterns of the share of labor in GDP in countries of Asia and the Pacific region, identify policy-relevant stylized facts, analyze the reasons behind observed trends, identify possible drivers and expected future changes in the labor share and in inequality, and assess the relationship between labor’s share in GDP and inequality. This paper applies statistical analysis and relevant econometric models to generate evidence in an analytically systematic manner.
    Keywords: Functional Income Distribution, Inequality, Asia-Pacific
    JEL: F1 J31 J38 O1 O3 O4
    Date: 2021–09–15
  14. By: Singh, Aarti; Suda, Jacek; Zervou, Anastasia
    Abstract: We study the effects of monetary policy shocks on the growth rates of hiring, employment and earnings of new hires across firms of different sizes. We find that contractionary and expansionary monetary policy shocks have different effects on hiring and employment growth for small and large firms. Relative to large firms, small firms are less responsive to contractionary monetary policy shocks while they are more responsive to expansionary shocks. We also find that, as a consequence of monetary policy shocks, the earnings of new hires changes, and this wage effect depends on the sign of the shock and the size of the firms. We use a heterogeneous firm model with a working capital constraint, an upward sloping marginal cost curve and a financial accelerator effect, and augment it with the wage effect. We find that our empirical results are consistent with the model as long as the combined effect due to varying steepness of the marginal cost curve and the wage effect is stronger than the financial accelerator channel.
    Keywords: Heterogeneous firms, financing constraints, labour market, monetary policy
    Date: 2021–10
  15. By: Tom Broekel; Rune Dahl Fitjar; Silje Haus-Reve
    Abstract: Contemporary research highlights the importance of relatedness, diversity, and complexity for regional economic development. However, few empirical studies simultaneously test the relevance of all these dimensions or examine how their importance varies across distinct spatial contexts. The literature also concentrates on explaining regional diversification, whereas we know less about how they affect economic and employment growth. In addition, most studies have examined industrial relatedness at the expense of the at least similarly crucial occupational dimension when studying knowledge-based regional development. The chapter discusses these issues and presents a study on how occupational diversity, complexity and relatedness shape employment growth in Norway to illustrate how an occupational perspective on regional industries can add to the understanding of evolutionary economic development.
    Keywords: relatedness, diversity, complexity, occupation, region, Norway
    JEL: R11 O31 O33 J24
    Date: 2021–11
  16. By: Rick van der Ploeg; Armon Rezai; Miguel Tovar
    Abstract: Green tax reform is unpopular because, typically, the poor are hurt most by the higher prices of carbon-intensive commodities. If revenues from a carbon tax are recycled, it may be feasible to gain popular support for green tax reform. To investigate this, we estimate an EASI demand system from German household data and a labour supply schedule, using wage data, and the German income tax schedule and let emission intensities decline in the carbon tax. If the revenue from a carbon tax is recycled via a lump-sum transfer to all households, this gives more equitable albeit less efficient outcomes, yet 70% of households are worse off. If the revenue is recycled via lower income taxes, there is more efficiency at the expense of more inequality, and about half of households benefit. With a recycling mix of lump-sum transfers and lower income taxes, popular support can be mustered without hurting equity too much. We also investigate the effects of Germany meeting its legal target for curbing emissions by 55% in 2030 relative to 1990 levels. We find that most of emission reductions are due to producers responding by lowering emission intensities rather than by consumers to less carbon-intensive consumption categories.
    Keywords: popular support, carbon tax, revenue recycling, equity, EASI demand system, labour supply
    JEL: D12 D31 D62 D63 H23 J22 Q50
    Date: 2021
  17. By: Erik Ens; Laurence Savoie-Chabot; Kurt See; Shu Lin Wee
    Abstract: We assess how rising exports of US liquefied natural gas (LNG) affect the convergence of natural gas prices worldwide. Using standard principal component analysis and cointegrating techniques, we show that the degree of co-movement between global benchmark prices for natural gas has strengthened since the United States began the large-scale export of LNG in 2016. At the same time, we find that global natural gas prices do not yet adhere to the relative law of one price. Our results also suggest that issues related to storage access in Alberta between 2017 and 2019 have limited price co-movements between major benchmarks for natural gas in the United States and Canada. In addition, we use vector error correction models to show that natural gas prices in Europe and Asia respond negatively to increased exports of US LNG. These results may have implications for the development of future LNG export capacity in Canada.
    Keywords: Business fluctuations and cycles; Coronavirus disease (COVID-19); Econometric and statistical methods; Labour markets, Monetary policy
    JEL: E24 J21 J6
    Date: 2021–10

This nep-lma issue is ©2021 by Joseph Marchand. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.