nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2022‒02‒07
eighteen papers chosen by
Joseph Marchand
University of Alberta

  1. Flexible Wages and the Costs of Job Displacement By Fernandes, Sofia; Tojerow, Ilan
  2. Lucky Women in Unlucky Cohorts: Gender Differences in the Effects of Initial Labor Market Conditions in Latin America By Inés Berniell; Leonardo Gasparini; Mariana Marchionni; Mariana Viollaz
  3. The Effect of Alimony Reform on Married Women's Labor Supply: Evidence from the American Time Use Survey By Fernández-Kranz, Daniel; Roff, Jennifer Louise
  4. Reconciling Trends in U.S. Male Earnings Volatility: Results from Survey and Administrative Data By Moffitt, Robert A.; Abowd, John; Bollinger, Christopher; Carr, Michael; Hokayem, Charles; McKinney, Kevin; Wiemers, Emily; Ziliak, James
  5. How Does the Position in Business Group Hierarchies Affect Workers' Wages? By Egger, Hartmut; Jahn, Elke; Kornitzky, Stefan
  6. The Marginal Labor Supply Disincentives of Welfare: Evidence from Administrative Barriers to Participation By Moffitt, Robert A.; Zahn, Matthew V.
  7. Time, Income and Subjective Well-Being – 20 Years of Interdependent Multidimensional Polarization in Germany By Joachim Merz; Bettina Scherg
  8. Once Upon a Time in Anatolia: The Long Run Development Effects of American Missions in Anatolia By Yasar Ersan; Ilhan Can Ozen
  9. How Causal Is Separation? Lessons Learnt from Endogenous Switching Regression Models for Single Mothers’ Economic Strain in Germany By Antonia Birkeneder; Christina Boll
  10. A Tale of Two Cities: Communication, Innovation, and Divergence By Stefano Magrini; Alessandro Spiganti
  11. Robust Inference for the Frisch Labor Supply Elasticity By Michael Keane; Timothy Neal
  12. Lock-In Effects in Online Labor Markets By Ciotti, Fabrizio; Hornuf, Lars; Stenzhorn, Eliza
  13. Consumption taxation to finance pension payments By Ruppert, Kilian; Schön, Matthias; Stähler, Nikolai
  14. Social Security and Retirement Around the World: Lessons from a Long-Term Collaboration By Courtney Coile; et al.
  15. Weather information for smallholders: Evidence from a pilot field experiment in Benin By Yegbemey, Rosaine Nérice; Bensch, Gunther; Vance, Colin
  16. AI Patenting and Employment: Evidence from the Worlds' Top R&D Investors By Alessandro Sterlacchini
  17. Shifting the Tax Burden away from Labour towards Inheritances and Gifts – Simulation results for Germany By Andreas THIEMANN; Diana OGNYANOVA; Edlira NARAZANI; Balazs PALVOLGYI; Athena Kalyva; Alexander LEODOLTER
  18. 'Don't play if you can't win': exploring household disengagement with the pension system through financial diaries data By Antonia Settle

  1. By: Fernandes, Sofia (Notre Europe); Tojerow, Ilan (Free University of Brussels)
    Abstract: This paper investigates whether flexible pay increases the wage costs of job displacement. We use quasi-exogenous variation in the timing of job loss due to mass layoffs spanning over an institutional reform that restricted single-employer bargaining, the Belgian Wage Norm in 1996. We find that average earnings losses over a ten-year period after displacement are 10 percentage points larger under flexible pay. Workers displaced from jobs with higher employer-specific wage premiums—service sector and white-collar—benefit the most from restricted single-employer bargaining as their earnings fully converge to non-displaced workers' earnings within three years. We show that the differences in earnings losses across wage-setting systems are not driven by fluctuations in the business cycle. Finally, the wage-setting reform had similar effects on female workers, though it did not narrow the gender gap in pre-layoff wages. Our results suggest that reduced pay flexibility may help displaced workers catch up faster to non-displaced workers' pay premium ladder conditional on re-employment.
    Keywords: job displacement, wage flexibility, bargaining
    JEL: J31 J51 J63
    Date: 2021–12
  2. By: Inés Berniell (CEDLAS-IIE-FCE-UNLP); Leonardo Gasparini (CEDLAS-IIE-FCE-UNLP and CONICET); Mariana Marchionni (CEDLAS-IIE-FCE-UNLP and CONICET); Mariana Viollaz (CEDLAS-IIE-FCE-UNLP and IZA)
    Abstract: This paper assesses gender differences in the effects of adverse conditions at labormarket entry in a developing region. Using harmonized microdata from national household surveys for 15 Latin American countries, we build a synthetic panel of cohorts that potentially transition from school to work and observe their labor market outcomes 10 years later. We find that men who faced higher unemployment rates at ages 18-20 suffer a negative effect on employment at ages 27-30. In contrast, women from those same unlucky cohorts have higher employment rates and earnings. Our results are consistent with women acting as secondary workers in downturns. We also find that women from unlucky cohorts control a larger share of family income and are more likely to be the head of household 10 years after labor market entry, and that adverse initial labor market conditions are correlated to more egalitarian perceptions about gender roles later in life.
    JEL: J16 J21 J22 J31
    Date: 2022–02
  3. By: Fernández-Kranz, Daniel (IE Business School, Madrid); Roff, Jennifer Louise (Queens College, CUNY)
    Abstract: Reforms that reduce alimony can affect married couples in two different ways. First, reduced alimony lowers the bargaining power of the payee, usually the wife. Second, reduced alimony lowers the incentives of wives to engage in the traditional male breadwinner model of household specialization. Using the American Time Use Survey and exploiting a series of recent reforms in several US states that reduced the entitlements of eligible spouses, we find that wives surprised by the reforms reacted by moving away from the traditional male breadwinner model of household specialization. We also find that highly educated women substituted work for time devoted to housework and childcare, while less educated wives substituted work for leisure and personal time. We find no effects for men. The fact that the reforms reduced fertility only among women with higher education suggests that the difference between them and less educated wives in the response to reduced alimony is due, at least in part, to differences in their preferences and costs for children. The estimated effects are larger among couples with a large difference in the earnings potential of spouses and are robust to several sensitivity tests.
    Keywords: alimony, marriage, time use, labor supply
    JEL: J12 J22 K36
    Date: 2021–12
  4. By: Moffitt, Robert A.; Abowd, John; Bollinger, Christopher; Carr, Michael; Hokayem, Charles; McKinney, Kevin; Wiemers, Emily; Ziliak, James
    Abstract: There is a large literature on earnings and income volatility in labor economics, household finance, and macroeconomics. One strand of that literature has studied whether individual earnings volatility has risen or fallen in the U.S. over the last several decades. There are strong disagreements in the empirical literature on this important question, with some studies showing upward trends, some showing downward trends, and some showing no trends. Some studies have suggested that the differences are the result of using flawed survey data instead of more accurate administrative data. This paper summarizes the results of a project attempting to reconcile these findings with four different data sets and six different data series--three survey and three administrative data series, including two which match survey respondent data to their administrative data. Using common specifications, measures of volatility, and other treatments of the data, four of the six data series show a lack of any significant long-term trend in male earnings volatility over the last 20-to-30+ years when differences across the data sets are properly accounted for. A fifth data series (the PSID) shows a positive net trend but small in magnitude. A sixth, administrative, data set, available only since 1998, shows no net trend 1998-2011 and only a small decline thereafter. Many of the remaining differences across data series can be explained by differences in their cross-sectional distribution of earnings, particularly differences in the size of the lower tail. We conclude that the data sets we have analyzed, which include many of the most important available, show little evidence of any significant trend in male earnings volatility since the mid-1980s.
    Keywords: Keywords, Earnings, Volatility
    JEL: C23 J31
    Date: 2022–01–31
  5. By: Egger, Hartmut (University of Bayreuth); Jahn, Elke (Institute for Employment Research (IAB), Nuremberg); Kornitzky, Stefan (University of Bayreuth)
    Abstract: We merge firm-level data on ownership linkages with administrative data on German workers to analyze how the position in a business group hierarchy affects workers' wages. To acknowledge that ownership linkages are not onedirectional, we propose an index of hierarchical distance to the ultimate owner that accounts for the complex network structure of business groups. After controlling for unobserved heterogeneity, we find a positive effect of larger hierarchical distance to the ultimate owner of a business group on workers' wages. To explain this finding, we develop a monitoring-based theory of business groups. Our model predicts higher wages to prevent shirking by workers if a larger hierarchical distance to the ultimate owner is associated with lower monitoring efficiency.
    Keywords: business groups, ownership networks, workers wages, difference-in-difference, hierarchical distance
    JEL: C23 J31 L23
    Date: 2021–12
  6. By: Moffitt, Robert A.; Zahn, Matthew V.
    Abstract: Existing research on the static effects of the manipulation of welfare program benefit parameters on labor supply has allowed only restrictive forms of heterogeneity in preferences. Yet preference heterogeneity implies that the marginal effects on labor supply of welfare expansions and contractions may differ in different time periods with different populations and which sweep out different portions of the distribution of preferences. A new examination of the heavily studied AFDC program uses variation in state-level administrative barriers to entering the program in the late 1980s and early 1990s to estimate the marginal labor supply effects of changes in program participation induced by that variation. The estimates are obtained from a theory-consistent reduced form model which allows for a nonparametric specification of how changes in welfare program participation affect labor supply on the margin. Estimates using a form of local instrumental variables show that the marginal treatment effects are quadratic, rising and then falling as participation rates rise (i.e., becoming more negative then less negative on hours of work). The average work disincentive is not large but that masks some margins where effects are close to zero and some which are sizable. Traditional IV which estimates a weighted average of marginal effects gives a misleading picture of marginal responses. A counterfactual exercise which applies the estimates to three historical reform periods in 1967, 1981, and 1996 when the program tax rate was significantly altered shows that marginal labor supply responses differed in each period because of differences in the level of participation in the period and the composition of who was on the program.
    Keywords: Keywords, Marginal Treatment Effects, Welfare, Labor Supply
    JEL: I38 J22
    Date: 2022–01–19
  7. By: Joachim Merz; Bettina Scherg
    Abstract: Society drifts apart in many dimensions. Economists focus on income of the poor and rich and the distribution of income but a broader spectrum of dimensions is required to draw the picture of multiple facets of individual life. In our study of multidimensional polarization we extend the income dimension by time, a pre-requisite and fundamental resource of any individual activity. In particular, we consider genuine personal time as a pronounced source of social participation in the sense of social inclusion/exclusion and Amartya Sen’s capability approach. With an interdependence approach to multidimensional polarization we allow compensation between time and income, parameters of a CES-type subjective well-being function, where a possible substitution is evaluated empirically by the German population instead of arbitrarily chosen. Beyond subjective well-being indices we propose and apply a new intensity/gap measure to multidimensional polarization, the mean minimum polarization gap 2DGAP. This polarization intensity measure provides transparency with regard to each single attribute, which is important for targeted policies, while at the same time their interdependent relations is respected. The empirical investigation of interdependent multidimensional polarization incidence and intensity uses the German Socio-Economic Panel (SOEP) and detailed time use diary data from the three German Time Use Surveys (GTUS) 1991/92, 2001/02 and the actual 2012/13. We focus on the working individuals where the working poor requires increasing interest in the economic and social political discussion. The microeconometric two-stage selectivity corrected estimation of interdependent multidimensional risk (incidence) and intensity quantifies socio-economic factors behind. Four striking results appear: First, genuine personal leisure time additional to income is a significant subjective well-being and polarization dimension. Second, its interdependence, its compensation/substitution, evaluated by the German Society, is of economic and statistical significance. Remarkably, besides compensation regimes, there are interdependent multidimensional polarization regimes where even higher income cannot compensate time deficits. Third, interdependent multidimensional polarization incidence (headcount ratio) decreased over those 20 years in Germany, however and in particular, as shown by the new minimum 2DGAP approach, interdependent multidimensional polarization intensity increased over those 20 years in Germany. Fourth, there are different multidimensional polarization results and developments for the poverty and affluence poles and regimes, for fulltime self-employed, employees and subsequently for further socio-economic groups. And, polarization also appears with respect to social participation.
    Keywords: Interdependent multidimensional polarization, time and income poverty and affluence, subjective well-being, life satisfaction, minimum multidimensional polarization intensity gap (2DGAP), extended economic well-being, satisfaction/happiness, social participation, working poor and affluent, middle class, selfemployment and employees, CES well-being function, two-stage Heckman estimates of polarization incidence and intensity
    JEL: I32 D31 J22
    Date: 2021
  8. By: Yasar Ersan (University of Michigan); Ilhan Can Ozen (Department of Economics, Middle East Technical University, Ankara, Turkey)
    Abstract: The American Board of Commissioners for Foreign Missions (ABCFM) had a significant foothold in the Anatolian geography for the majority of the early 19th century, through their sizeable human capital intervention. Through an extensive archival work, we study the impact of human capital intervention on development outcomes. Using the spatial variation in the built and functional mission stations, we find areas closer to ABCFM missions have presently higher income by 5%-17%, and higher general development index by 0.07-0.12 standard deviation in 10 km proximity. We identify the mission impact by exploiting a placebo set from the group that was conceived but not carried out, and also an exogenous re-partition of the working region as an instrumental variable strategy. The underlying mechanisms are labor productivity in the agriculture sector, which allows for greater skill differentiation and structural transformation. Gender roles in education are also significantly transformed.
    Keywords: Middle East, American missionaries, economic development, human capital, persistence
    JEL: I25 L16 N35 N55 O10 O43 Z12
    Date: 2022–01
  9. By: Antonia Birkeneder; Christina Boll
    Abstract: Single mothers often experience precarious financial conditions. However, it is not fully understood to what extent separation is the cause of these conditions versus being their consequence. Estimating an endogenous switching regression model based on a sample of 626 separated and 5,525 non-separated mothers drawn from the German Socio-Economic Panel (SOEP) 1984-2018, we disentangle the roles of causation and selection for separated mothers’ individual earnings as a measure of economic well-being. Our results indicate that separated mothers increase their working hours and sometimes adjust industry in anticipation of the separation event and afterwards. Adjusting for these processes that can be considered caused by the upcoming event, the positive selection into separation turns negative, while the non-separated are clearly positively selected. Thus, comparing average women with mean characteristics, the actually (non-)separated earn lower (higher) wages than women who are randomly assigned to a (non-)separation scenario. Additionally, the separated are more negatively selected into employment. Robustness checks largely confirm our results against changes in sample composition, eliminated group differences in period distribution, and model specification. Thus, our data support the notion that both chronic strain and crisis-caused factors diminish single mothers’ economic well-being. Unobserved traits associated with lower labor market investments and productivity explain part of separated mothers’ economic strain after separation.
    Keywords: single mothers, earnings, selection, causation, endogenous switching regression model, Socio-economic Panel
    JEL: J12 J22
    Date: 2021
  10. By: Stefano Magrini (Department of Economics, University Of Venice CÃ Foscari); Alessandro Spiganti (Department of Economics, University Of Venice CÃ Foscari)
    Abstract: We present a two-area endogenous growth model where abstract knowledge flows at no cost across space but tacit knowledge arises from the interaction among researchers and is hampered by distance. Digital communication reduces this "cost of distance" and reinforces productive specialization, leading to an increase in the system-wide growth rate but at the cost of more inequality within and across areas. These results are consistent with evidences on the rise in the concentration of innovative activities, income inequality, and skills and income divergence across US urban areas.
    Keywords: Agglomeration, specialization, digital communication, inequality, patents
    JEL: J24 O31 O41 R12
  11. By: Michael Keane (School of Economics); Timothy Neal (UNSW School of Economics)
    Abstract: There is a long standing controversy over the magnitude of the Frisch labor supply elasticity. Macro economists using DSGE models often calibrate it to be large, while many micro data studies find it is small. Several papers attempt to reconcile the micro and macro results. We offer a new and simple explanation: Most micro studies estimate the Frisch using a 2SLS regression of hours changes on wage changes. However, due to a little appreciated power asymmetry property of 2SLS that we clarify, estimates of the Frisch will (spuriously) appear more precise when they are more shifted in the direction of the OLS bias, which is negative. As a result, Frisch elasticity estimates near zero appear (spuriously) precise, while large positive estimates appear (spuriously) imprecise. This pattern makes it difficult for a 2SLS t-test to detect a true positive Frisch elasticity. Fortunately, the Anderson-Rubin (AR) test does not suffer from this power asymmetry problem. The AR test leads us to conclude the Frisch elasticity is large and significant in the NLSY97 data. In contrast, a conventional 2SLS t-test would lead us to conclude it is not significantly different from zero. Our application illustrates a fundamental problem with 2SLS t-tests that arises quite generally. This problem is severe when instruments are weak, but persists even if they are strong. Thus, we argue the AR test should be widely adopted in lieu of the t-test.
    Keywords: Frisch elasticity, labor supply, weak instruments, 2SLS, Anderson-Rubin test
    JEL: J22 D15 C12 C26
    Date: 2022–01
  12. By: Ciotti, Fabrizio (Université catholique de Louvain, LIDAM/CORE, Belgium); Hornuf, Lars; Stenzhorn, Eliza
    Abstract: This article reports on an investigation of the role of lock-in exploitation and the impact of reputation portability on workers’ switching behaviors in online labor markets. Online platforms using reputation mechanisms typically prevent users from transferring their ratings to other platforms, inducing lock-in effects and high switching costs and leaving users vulnerable to platform exploitation. With a theoretical model, in which workers in online labor markets are locked-in by their reputational data, we test the effects using an online lab-in-the-field decision experiment. In addition to comparing a policy regime with and without reputation portability, we vary lock-in exploitation using platform fees to consider how switching behavior might differ according to monetary motives and fairness preferences. Theoretically, this study reveals how reputational investments can produce switching costs that platforms can exploit. Experimentally, the results suggest that reputation portability mitigates lock-in effects, making users less susceptible to lock-in exploitation. The data further show that switching is driven primarily by monetary motives, but perceiving the fee as unfair also has a significant role.
    Keywords: Crowdsourcing, online markets, online labor, reputation portability, switch- ing costs
    JEL: J24 D91 L51
    Date: 2021–10–18
  13. By: Ruppert, Kilian; Schön, Matthias; Stähler, Nikolai
    Abstract: This paper assesses how a permanent shift from financing a public pay-as-you-go pension by direct (labour income) taxation towards financing it by indirect(consumption) taxation affects the economy and welfare. To this end, we use anoverlapping-generations-augmented two-region general equilibrium framework withsearch frictions on the labour market. The analysed tax reform partially shifts thetax burden from domestic to foreign producers and lowers marginal costs of domes-tic production and generates positive domestic macroeconomic effects. In addition,the partial postponement of a household's tax burden to retirement leads to highersavings and increases domestic assets. However, for some time after implementationof the tax reform, the policy-induced increase in consumption costs makes retireesand households close to retirement worse off. Moreover, the increase in domesticnet foreign assets implies that consumption of foreign households eventually falls,which stands in contrast to what is commonly found in models without an endoge-nous savings motive.
    Keywords: Fiscal devaluation,OLG models,Pension system,Optimal taxation
    JEL: E24 E62 H21 H55 J26
    Date: 2021
  14. By: Courtney Coile; et al.
    Abstract: The decline in the labor force participation of older men throughout the 20th century, as well as the substantial increases in participation among older men and women over the past two decades, have generated substantial interest in understanding the effect of public pension programs on retirement decisions. This paper details the work of the National Bureau of Economic Research’s International Social Security (ISS) Project, a long-term collaboration among researchers in a dozen developed countries, to explore this and related questions. The ISS project employs a harmonized approach to conduct within-country analyses that can be combined for meaningful cross-country comparisons. The key lesson learned from this project is that the choices of policy makers affect the incentive to work at older ages and that these incentives have important effects on retirement behavior.
    Date: 2022–01
  15. By: Yegbemey, Rosaine Nérice; Bensch, Gunther; Vance, Colin
    Abstract: Weather conditions are an important determinant of agricultural factor input, particularly labor allocation. The availability of weather forecasts can therefore lead to efficiency gains in the form of cost decreases and productivity increases. We test the practical feasibility, the uptake, and the effect of providing basic weather forecasts in the rainy season on the labor productivity of smallholder farmers. For this purpose, we conducted a Randomized Controlled Trial as a pilot with monthly data collections involving 331 farmers across six villages in north Benin. We find that most farmers subscribe to the intervention and report satisfaction with the service. The impact estimates indicate positive and economically significant intention-to-treat and local average treatment effects on labor productivity for maize and cotton cultivation. These findings suggest that weather-related information and mobile phone outreach help smallholder farmers to better adapt to changing weather.
    Keywords: Pilot field experiment,climate and weather information,labor productivity,smallholder farming,information technology,impact evaluation
    JEL: D13 O12 Q12
    Date: 2021
  16. By: Alessandro Sterlacchini (Dipartimento di Scienze Economiche e Sociali - Universita' Politecnica delle Marche)
    Abstract: This paper considers 35 corporations which are among the biggest world's R&D investors and account for more than two thirds of AI patents worldwide. Their post-patenting performance is examined by focusing on employment changes and by comparing them with the outcomes of similar companies, operating in the same sectors and recording high levels of R&D expenditures as well, but not involved in AI patenting to a significant extent. The main finding is that substantial employment benefits for investing in AI inventions arise for the companies belonging to IT services, while in Computers & electronics and Automobiles the same investment is associated with employment reduction.
    Keywords: Artificial intelligence, Patents, Employment changes, Large corporations.
    JEL: O31 O33 J23
    Date: 2022–02
  17. By: Andreas THIEMANN (European Commission – JRC); Diana OGNYANOVA (European Commission – DG ECFIN); Edlira NARAZANI (European Commission – JRC); Balazs PALVOLGYI (European Commission - DG ECFIN); Athena Kalyva (Greek Ministry of Finance); Alexander LEODOLTER (European Commission – DG ECFIN)
    Abstract: Germany’s tax system places a relatively strong emphasis on direct taxes, particularly on labour. At the same time, revenues from the inheritance and gift tax are relatively low. This points towards a large-scale transfer of wealth from one generation to the next that is largely untaxed and thereby maintaining the high degree of wealth inequality observed in Germany. This is due mainly to the wide-ranging tax exemptions for business assets, which make the system complex, inefficient and regressive. This paper presents three hypothetical budget-neutral scenarios of broadening the inheritance and gift tax base while reducing the tax burden on labour income. Keeping the current progressive rates but abolishing tax exemptions would lead to about EUR 9-12 billion additional annual inheritance and gift tax revenue. Replacing the current tax regime by a flat rate of 10% or 15% could yield about EUR 0.5-2.3 billion or EUR 4-6.5 billion. Using EUROMOD, the microsimulation model of the EU, we show that these additional revenues could be used to reduce the tax burden on labour, which would improve income equality. Furthermore, estimations of labour supply responses to these reforms, based on the EUROLAB labour supply model, indicate that lowering the tax burden on labour may also lead to a slight increase in labour supply in particular for low-income earners.
    Keywords: tax shift, inheritance and gift tax, tax wedge on labour, wealth inequality.
    JEL: D31 H2 J2
    Date: 2021–12
  18. By: Antonia Settle (Melbourne Institute: Applied Economic & Social Research, the University of Melbourne)
    Abstract: Household disengagement in retirement planning is an important policy issue across the OECD. In contrast to conventional behavioural economics framing, this paper draws on the literature on political alienation and insider/outsider theory to explore links between distributional outcomes and household engagement with Australia’s defined contribution pension system. The paper argues that support for the system is much weaker than assumed in the empirical literature, which tends to ignore concerns about equity even as they arise in empirical research, because distributional issues don’t sit comfortably in the prevailing behavioural framework. Supported by preliminary data on the government’s COVID related early withdrawal scheme, the paper uses primary survey data collected in a financial diaries study to construct objective and subjective measures of attitudes, engagement and distributional outcomes for individual households in the pension system. The analysis finds widely held concerns about fairness and a positive correlation between disengagement and poor distributional outcomes within the pension system.
    Keywords: superannuation, households, inequality, financial diaries
    JEL: J32 G41 D31
    Date: 2021–12

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