nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2022‒03‒14
fifteen papers chosen by
Joseph Marchand
University of Alberta

  1. “Since You’re So Rich, You Must Be Really Smart”: Talent, Rent Sharing, and the Finance Wage Premium By Michael Böhm; Daniel Metzger; Per Strömberg
  2. Differential Patterns between Private and Public Sector Wages in Spain By de León, Alba Couceiro; Dolado, Juan J.
  3. Do Wages Grow with Experience? Deciphering the Russian Puzzle By Chernina, Eugenia; Gimpelson, Vladimir
  4. Covid-induced Economic Uncertainty, Tasks, and Occupational Demand By Sotiris Blanas; Rigas Oikonomou
  5. Extending pension policy in emerging Asia: An overlapping-generations model analysis for Indonesia By George Kudrna; John Piggott; Phitawat Poonpolkul
  6. Spatial Wage Curves for Formal and Informal Workers in Turkey By Baltagi, Badi H.; Baskaya, Yusuf Soner
  7. Opportunity and Inequality across Generations By Koeniger, Winfried; Zanella, Carlo
  8. Does Over-Education Raise Productivity And Wages Equally ? The Moderating Role Of Workers’ Origin And Immigrants’ Background By Valentine Jacobs; François Rycx; Mélanie Volral
  9. The Transformation of Self Employment By Innessa Colaiacovo; Margaret Dalton; Sari Pekkala Kerr; William R. Kerr
  10. Remote Work, Children's Health and the Racial Gap in Female Wages By Kouki, Amairisa; Sauer, Robert M.
  11. Productive Robots and Industrial Employment: The Role of National Innovation Systems By Kapetaniou, Chrystalla; Pissarides, Christopher A.
  12. To Work or Not to Work? Effects of Temporary Public Employment on Future Employment and Benefits By Mörk, Eva; Ottosson, Lillit; Vikman, Ulrika
  13. Capital Investment and Labor Demand By E. Mark Curtis; Daniel G. Garrett; Eric Ohrn; Kevin A. Roberts; Juan Carlos Suarez Serrato
  14. Pell Grants and Labor Supply: Evidence from a Regression Kink By Kofoed, Michael S.
  15. How sectoral technical progress and factor substitution shaped Japan’s structural transformation? By Manu, Ana-Simona

  1. By: Michael Böhm (University of Bonn, IZA, and Swedish House of Finance); Daniel Metzger (Erasmus University of Rotterdam, SHoF, ECGI, and Financial Markets Group); Per Strömberg (Stockholm School of Economics(SSE), SHoF, ECGI, and CEPR)
    Abstract: Financial sector wages have increased extraordinarily over the last decades. We address two potential explanations for this increase: (1) rising demand for talent and (2) firms sharing rents with their employees. Matching administrative data of Swedish workers, which include unique measures of individual talent, with financial information on their employers, we find no evidence that talent in finance improved, neither on average nor at the top. The increase in relative finance wages is present across talent and education levels, which together can explain at most 20% of it. In contrast, rising financial sector profits that are shared with employees account for up to half of the relative wage increase. The limited labor supply response may partly be explained by the importance of early-career entry and social connections in finance. Our findings alleviate concerns about “brain drain” into finance but suggest that finance workers have captured rising rents over time.
    Keywords: Industry Wage Premia; Talent Allocation; Rent Sharing; Earnings Inequality; Compensation in Financial Sector
    JEL: J24 J31 G20
    Date: 2022–02
  2. By: de León, Alba Couceiro (Universidad Carlos III de Madrid); Dolado, Juan J. (Universidad Carlos III de Madrid)
    Abstract: This paper studies the wage differentials between the public and private sectors in Spain, as well as its distribution across different educational levels and by gender. To do so, the well-known Oaxaca-Blinder decomposition of mincerian wage regressions is applied for both sectors, breaking down the (public-private) wage gap into a component explained by differences in characteristics and another one capturing differences in returns to those characteristics. Data is drawn from the Wage Structure Survey by INE for 2010, 2014 and 2018. The main findings are: (i) strong wage compression by skills for all workers, and (ii) a female wage premium in the private sector. Both empirical results are rationalised by means of a monopoly-union wage model with monopsonistic features and female statistical discrimination.
    Keywords: public-private wage gap, private sector, public sector, monopsony, unions
    JEL: J31 J38 J42 J45
    Date: 2022–02
  3. By: Chernina, Eugenia (NRU HSE, Moscow); Gimpelson, Vladimir (CLMS, Higher School of Economics, Moscow)
    Abstract: The study explores how wages grow with experience in the Russian Federation. In all available cross-sectional data, the trajectory of the observed wage–experience profile is flat, peaks early, and declines sharply afterwards. This shape looks puzzling since it differs starkly from that observed in both developed and developing countries. We show that a proper interpretation of the wage–experience profile is hindered by the APC problem, when the effects of time, cohort, and experience are mixed. Our study uses data from the RLMS-HSE household survey covering the years 2000-2019. Relying on human capital theory, we apply a procedure suggested by Heckman et al. (1998) and advanced in Lagakos et al. (2018) to disentangle the APC effects. With certain assumptions concerning human capital depreciation due to aging, our results show that Russian wages do grow monotonically with experience. However, this growth is partially offset by the cohort effect that that proceeds in the opposite direction, thus reflecting massive depreciation of the human capital of workers from older cohorts. Meanwhile, the time effect mirrors the general GDP path as well as all booms and busts over the period.
    Keywords: the human capital, wages, experience, wage–experience profile, Russia
    JEL: J24 J31
    Date: 2022–02
  4. By: Sotiris Blanas (IMT School for Advanced Studies Lucca, Piazza San Ponziano 6, 55100, Lucca, Italy); Rigas Oikonomou (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: In this paper, we provide novel evidence of the impact of Covid-induced economic uncertainty on the relative demand for different occupations in the US, according to a wide range of occupational characteristics. We conduct the analysis using monthly online job postings data at the occupation-US state level in January 2020 { December 2020 together with data on fixed occupational characteristics and monthly measures of economic uncertainty in the US, which are apportioned to occupation-state pairs based on pre-Covid country-wide occupational employment shares. The analysis reveals that Covid-induced economic uncertainty increased the relative demand for occupations with relatively high non-routine cognitive analytical, non-routine cognitive interactive, and non-routine manual task content { especially when these are also non-essential, as well as occupations that have both relatively high non-routine cognitive analytical and social or interaction task content. This evidence is consistent with the secular phenomenon of routine-biased technological change resulting in job polarisation and the growing complementarity between analytical and social tasks, but also with its episodic aspect implying its acceleration during recessions. Additional evidence, however, shows that Covid-induced economic uncertainty decreased the relative demand for customer-oriented occupations (e.g. food service, personal care and service) and increased the relative demand for essential or contact-intensive occupations with relatively high routine manual or routine cognitive task content, as well as occupations that are both contact-intensive and essential or service-oriented (e.g. healthcare practice and support, protective service, community and social service). This evidence is rationalised by idiosyncratic features of the pandemic shock (e.g. major health crisis, social distancing, lockdown). Further research in this direction could help us to understand whether these effects are temporary or long-lasting.
    Keywords: Occupational demand; Occupational characteristics; Tasks; Online Job Postings; Covid-induced economic uncertainty; Covid-19; Pandemic
    JEL: E32 J23 J24 J63 O33
    Date: 2022–02–14
  5. By: George Kudrna; John Piggott; Phitawat Poonpolkul
    Abstract: This paper examines the economy-wide effects of government policies to extend public pensions in emerging Asia - particularly pertinent given the region’s large informal sector and rapid population ageing. We first document stylized facts about Indonesia’s labour force, drawing on the Indonesian Family Life Survey (IFLS). This household survey is then used to calibrate micro behaviours in a stochastic, overlapping-generations (OLG) model with formal and informal labour. The benchmark model is calibrated to the Indonesian economy (2000- 2019), fitted to Indonesian demographic, household survey, macroeconomic and fiscal data. The model is applied to simulate pension policy extensions targeted to formal labour (contributory pension extensions to all formal workers with formal retirement age increased from 55 to 65), as well as to informal labour (introduction of non-contributory social pensions to informal 65+). First, abstracting from population ageing, we show that: (i) the first set of pension policy extensions (that have already been legislated and are being implemented in Indonesia) have positive effects on consumption, labour supply and welfare (of formal workers) (due largely to the formal retirement age extension); (ii) the introduction of social pensions targeted to informal workers at older age generates large welfare gains for currently living informal elderly; and (iii) the overall pension reform leads to higher welfare across the employment-skill distribution of households. We then extend the model to account for demographic transition, finding that the overall pension reform makes the contributory pension system more sustainable but the fiscal cost of non-contributory social pensions more than triples to 1.7% of GDP in the long run. As an alternative, we examine application of a means-tested social pension system within the overall pension reform. We show that this counterfactual reduces the fiscal cost (of social pensions) and further increases the welfare for both current and future generations.
    Keywords: Informal Labour, Population Ageing, Social Security, Taxation, Redistribution, Stochastic General Equilibrium
    JEL: E26 J1 J21 J26 H55 H24 C68
    Date: 2022–01
  6. By: Baltagi, Badi H. (Syracuse University); Baskaya, Yusuf Soner (University of Glasgow)
    Abstract: This paper estimates spatial wage curves for formal and informal workers in Turkey using individual level data from the Turkish Household Labor Force Survey (THLFS) provided by TURKSTAT for the period 2008-2014. Unlike previous studies on wage curves for formal and informal workers, we extend the analysis to allow for spatial effects. We also consider household characteristics that would affect the selection into formal employment, informal employment, and non-employment. We find that the spatial wage curve relation holds both for formal and informal workers in Turkey for a variety of specifications. In general, the wages of informal workers are more sensitive to the unemployment rates of the same region and other regions than formal workers. We find that accounting for the selection into formal and informal employment affects the magnitudes but not the significance of the spatial wage curves for the formal and informal workers with the latter always being larger in absolute value than that for formal workers.
    Keywords: spatial wage curve, spatial weights, regional labor markets, informal labor markets
    JEL: C21 J30 J60
    Date: 2022–02
  7. By: Koeniger, Winfried (University of St. Gallen); Zanella, Carlo (University of Zurich)
    Abstract: We analyze how intergenerational mobility and inequality would change relative to the status quo if dynasties had access to optimal insurance against low ability of future generations. Based on a dynamic, dynastic Mirrleesian model, we find that insurance against intergenerational ability risk increases in the social optimum relative to the status quo. This implies less intergenerational mobility in terms of welfare but no quantitatively significant change in earnings mobility. Earnings mobility is thus similar across economies with different incentives and welfare, illustrating that changes in earnings mobility cannot be interpreted readily in welfare terms without further analysis.
    Keywords: asymmetric information, intergenerational mobility, inequality, human capital, schooling, bequests
    JEL: E24 H21 I24 J24 J62
    Date: 2022–02
  8. By: Valentine Jacobs (Université de Mons (Soci&ter) and Université libre de Bruxelles (CEBRIG and DULBEA)); François Rycx (Université libre de Bruxelles (CEBRIG and DULBEA), GLO, IRES, IZA, Soci&ter); Mélanie Volral (Université de Mons (Soci&ter) and DULBEA)
    Abstract: We provide first evidence of the impact of over-education, among natives and immigrants, on firmlevel productivity and wages. We use Belgian linked panel data and rely on the methodology from Hellerstein et al. (1999) to estimate ORU (over-, required, and under-education) equations aggregated at the firm level. Our results show that the over-education wage premium is higher for natives than for immigrants. However, since the differential in productivity gains associated with over-education between natives and immigrants outweighs the corresponding wage premium differential, we conclude – based on OLS and dynamic GMM-SYS estimates – that over-educated native workers are in fact underpaid to a greater extent than their over-educated immigrant counterparts. This conclusion is refined by sensitivity analyses, when testing the role of immigrants’ background (e.g. region of birth, immigrant generation, age at arrival in the host country, tenure).
    Keywords: Immigrants, over-education, productivity, wages, linked panel data, Belgium
    JEL: J24 J71
    Date: 2022–02–07
  9. By: Innessa Colaiacovo; Margaret Dalton; Sari Pekkala Kerr; William R. Kerr
    Abstract: Over the past half-century, while self-employment has consistently accounted for around one in ten of the United States workforce, its composition has changed. Since 1970, industries with high startup capital requirements have declined from 53% of self-employment to 23%. This same time period also witnessed declines in “hometown” local entrepreneurship and the probability of the self-employed being among top earners. Using 2016 data, we show that high startup capital requirements are linked with lower profitability at small scales. The transition away from high startup capital industries appears most closely linked to changes in small business production functions and less due to advantageous reallocation to other opportunities, growth in returns-to-scale among large businesses, or a worsening of financing conditions and debt levels.
    Keywords: Self-employment, small business, entrepreneurship, startup investment, occupational choice, financing.
    JEL: L26 D24 G51 J11 J24 J62 M13 R11 R13
    Date: 2022–02
  10. By: Kouki, Amairisa (Nottingham Trent University); Sauer, Robert M. (Royal Holloway, University of London)
    Abstract: This paper studies the racial gap in the female wage penalty to remote work. Using a temporary child health problem as a source of exogenous variation in the propensity to work from home, wage penalties reach 86 percent for black women and 77 percent for white women. Promotion bias, task re-assignment and lack of productive social interaction are the most likely mechanisms for the wage losses. The estimates provide rare evidence on the differential costs of social distancing by race and may be especially applicable when children are temporarily quarantined due to illness.
    Keywords: female labor supply, female earnings, race, remote work, telecommuting, flexible working arrangements, fertility, health
    JEL: C26 J13 J22 I19
    Date: 2022–02
  11. By: Kapetaniou, Chrystalla (University of Southampton); Pissarides, Christopher A. (London School of Economics)
    Abstract: In a model with robots, and automatable and complementary human tasks, we examine robot-labour substitutions and show how it they are influenced by a country's "innovation system". Substitution depends on demand and production elasticities, and other factors influenced by the innovation system. Making use of World Economic Forum data we estimate the relationship for thirteen countries and find that countries with poor innovation capabilities substitute robots for workers much more than countries with richer innovation capabilities, which generally complement them. In transport equipment and non-manufacturing robots and workers are stronger substitutes than in other manufacturing.
    Keywords: robots-employment substitution, automatable tasks, complementary task creation, innovation environment, industrial allocations
    JEL: J23 L60 O33 O52
    Date: 2022–02
  12. By: Mörk, Eva (Uppsala University); Ottosson, Lillit (Uppsala University); Vikman, Ulrika (IFAU)
    Abstract: We evaluate a temporary public sector employment program targeted at individuals with weak labor market attachment, applying dynamic inverse probability weighting to account for dynamic selection. We show that the program is successful in increasing employment and reducing social assistance. However, being at a regular workplace seems crucial: we find negative employment effects for participants employed at a workplace created especially for the purpose. The decrease in social assistance is to some extent countered by an increase in the share receiving unemployment insurance benefits, indicating that municipalities are able to shift costs from the local to the central budget.
    Keywords: public sector employment programs, social assistance, cost-shifting, dynamic inverse probability weighting
    JEL: H75 I38 J45
    Date: 2022–02
  13. By: E. Mark Curtis; Daniel G. Garrett; Eric Ohrn; Kevin A. Roberts; Juan Carlos Suarez Serrato
    Abstract: We study how bonus depreciation, a policy designed to lower the cost of capital, impacted investment and labor demand in the US manufacturing sector. Difference-in-differences estimates using restricted-use US Census Data on manufacturing establishments show that this policy increased both investment and employment, but did not lead to wage or productivity gains. Using a structural model, we show that the primary effect of the policy was to increase the use of all inputs by lowering overall costs of production. The policy further stimulated production employment due to the complementarity of production labor and capital. Supporting this conclusion, we nd that investment is greater in plants with lower labor costs. Our results show that recent policies that incentivize capital investment do not lead manufacturing plants to replace workers with machines.
    Keywords: capital-labor substitution, bonus depreciation, corporate taxation
    JEL: D22 H25 H32 J23
    Date: 2022–02
  14. By: Kofoed, Michael S. (U.S. Military Academy, West Point)
    Abstract: A concern in higher education policy is that students are taking longer to graduate. One possible reason for this observation is an increase in off-campus labor market participation among college students. Financial aid may play a role in the labor/study choice of college students-as college becomes more affordable, students may substitute away from work and toward increased study. I use data from the National Postsecondary Student Aid Study (NPSAS) to exploit nonlinearity in the Pell Grant formula to estimate a regression kink and regression discontinuity designs. I find that conditional on receiving the minimum of $550, students reduce their labor supply by 0.4 hours per week, which translates to a 2.4 percent decrease in hours worked. Students who receive the average Pell Grant of $2,250 are 7.6 percentage points (or around 12 percent) less likely to work and, if working, supply 5.10 less hours per week, or around a 30.67 percent reduction. I find Pell Grants do increase academic achievement, implying that students substitute study time for work.
    Keywords: Pell Grants, financial aid, regression kink, labor supply
    JEL: I22 I23 J20
    Date: 2022–02
  15. By: Manu, Ana-Simona
    Abstract: The paper quantitatively assesses the importance of supply-side drivers in the transition of the Japanese economy from low-skilled to high-skilled sectors and its implication for growth, labor demand and labor income shares. A sectoral supply-side system, estimated over the 1980-2012 period, reveals different rates of technical progress across production factors and sectors, but also heterogeneity in the sectoral elasticity of substitution between capital and labor. The fact that capital and labor are easily substitutable in low-skilled services but not in high-skilled services, coupled with the dominant role of capital-augmenting technical change in services is a key factor behind the relocation of labor towards high-skilled services, as well as behind the declining trend in the labor income share in low-skilled services. JEL Classification: O47, O33, J23
    Keywords: biased technical change, CES production function, labor demand, labor income share
    Date: 2022–02

This nep-lma issue is ©2022 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.