nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2022‒07‒25
fifteen papers chosen by
Joseph Marchand
University of Alberta

  1. On the Role of Learning, Human Capital, and Performance Incentives for Wages By Braz Camargo; Fabian Lange; Elena Pastorino
  2. Can the Labor Demand Curve Explain Job Polarization? By Andreas Peichl; Martin Popp
  3. Hybrid (Solo)Self-Employment and Upskilling: Is Online Platform Work a Path Towards Entrepreneurship? By Pouliakas, Konstantinos; Ranieri, Antonio
  4. Politics At Work By Emanuele Colonnelli; Valdemar Pinho Neto; Edoardo Teso
  5. Firm-Level Effects of Reductions in Working Hours By Marta C.Lopes; Alessandro Tondini
  6. Failing Just Fine: Assessing Careers of Venture Capital-backed Entrepreneurs Via a Non-Wage Measure By Natee Amornsiripanitch; Paul Gompers; George Hu; Will Levinson; Vladimir Mukharlyamov
  7. Labor Market Effects of Short-Cycle Higher Education Programs: Lessons from Colombia By Maria Marta Ferreyra; Camila Galindo; Sergio S. Urzúa
  8. Does Information Affect Homophily? By Yana Gallen; Melanie Wasserman
  9. Income Inequality and Job Creation By Sebastian Doerr; Thomas Drechsel; Donggyu Lee
  10. The ‘German job miracle’ and its impact on income inequality: a decomposition study By Mühlhan, Jannek
  11. Preparing for the (Non-Existent?) Future of Work By Anton Korinek; Megan Juelfs
  12. Do Firms Gain from Managerial Overconfidence? The Role of Severance Pay By Clara Graziano; Annalisa Luporini
  13. Inefficient Automation By Martin Beraja; Nathan Zorzi
  14. Designing Cash Transfers in the Presence of Children's Human Capital Formation By Joseph Mullins
  15. Caring for Carers? The Effect of Public Subsidies on the Wellbeing of Unpaid Carers By Joan Costa-i-Font; Francesco D'Amico; Cristina Vilaplana-Prieto

  1. By: Braz Camargo; Fabian Lange; Elena Pastorino
    Abstract: Performance pay in general amounts to only a small fraction of total pay. In this paper, we show that performance pay is nevertheless important for the level and dynamics of wages over the life cycle because of the incentives it indirectly provides for human capital acquisition and because of its impact on the variability of total pay. We articulate this argument in the context of a model that combines three key mechanisms for wage growth and dispersion: employer learning about workers’ ability, human capital acquisition, and performance incentives. We use this model to account for the experience profile of wages, their dispersion, and their composition in terms of fixed and variable (performance) pay. The model admits an analytical decomposition of performance pay into four terms that capture (i) the trade-off between risk and incentives characteristic of settings of moral hazard; (ii) the insurance that firms provide against the wage risk due to the uncertainty about ability; (iii) incentives for effort arising from this uncertainty (career concerns); and (iv) incentives for effort generated by the prospect of human capital acquisition. We prove the model is identified under standard assumptions. Despite its parsimony, the model fits the data very well, including the empirical finding that performance pay as a share of total pay first increases and then decreases with experience. This feature of performance pay, which we are the first to document, runs contrary to the prediction of standard models of performance incentives that the ratio of performance pay to total pay increases with experience, especially at the end of the life cycle. Our estimates imply that effort to produce output augments human capital. Also, human capital acquisition and insurance against uncertainty about ability are quantitatively the main determinants of performance pay. Career-concerns incentives, on which the theoretical literature has focused, and the strength of the contemporaneous trade-off between risk and incentives—the primary determinant of variable pay in static moral-hazard models—are instead much less relevant. Importantly, we find that through the cumulative impact of effort on the job on human capital acquisition and the contribution of variable pay to the variance of total pay, performance incentives are a crucial source of wage growth and dispersion over the life cycle.
    JEL: D8 D86 J24 J3 J31 J33 J41 J44
    Date: 2022–06
  2. By: Andreas Peichl; Martin Popp
    Abstract: In recent decades, many industrialized economies have witnessed a pattern of job polarization. While shifts in labor demand, namely routinization or offshoring, constitute conventional explanations for job polarization, there is little research on whether shifts in labor supply along the labor demand curve may equally result in job polarization. In this study, we assess the impact of labor supply shifts on job polarization. To this end, we determine unconditional wage elasticities of labor demand from a unique estimation of a profit-maximization model on linked employer-employee data from Germany. Unlike standard practice, we explicitly allow for variations in output and find that negative scale effects matter. Both for a skill- and a novel task-based division of the workforce, our elasticity estimates show that supply shifts from immigration and a decline in collective bargaining successfully explain occupational employment patterns during the 1990s.
    Keywords: labor demand, job polarization, skills, tasks
    JEL: J23 J31 D22 L60
    Date: 2022
  3. By: Pouliakas, Konstantinos (European Centre for the Development of Vocational Training (Cedefop)); Ranieri, Antonio (European Centre for the Development of Vocational Training (Cedefop))
    Abstract: The increasing use of online labour platforms as intermediaries for finding work – known as crowdwork or gig work – is a new form of 'hybrid' (solo)self-employment that hinges on the borders of dependent and self-employment. In this study we use a novel international dataset of online platform workers, the Cedefop Crowdlearn dataset, to analyse if engagement in hybrid digital self-employment could augment individuals' skills and hence potentially act as a stepping stone towards fuller entrepreneurship. We also examine if a digital proto-entrepreneurial experience is sustainable over time by analysing crowdworkers' satisfaction from their work. The paper's findings provide some support to the hypothesis that hybrid work experiences, especially when platform work is carried out alongside another dependent job, can facilitate additional and varied skill development done via one's secondary platform activity and potentially spur fuller entrepreneurial commitment. However, such skill formation dividends are deficient for part-time hybrids who are mostly driven towards solo self-employment out of necessity, making their journey from proto- to full entrepreneurship less feasible. Our paper provides additional evidence to the marked diversity and hybridity of different forms of (solo)self-employment in modern labour markets.
    Keywords: hybrid self-employment, platform/gig economy, crowdworkers, skills, learning, entrepreneurship, digitalisation
    JEL: J22 J24 J62 J28 L26 J49
    Date: 2022–06
  4. By: Emanuele Colonnelli; Valdemar Pinho Neto; Edoardo Teso
    Abstract: We study how individual political views shape firm behavior and labor market outcomes. Using new micro-data on the political affiliation of business owners and private-sector workers in Brazil over the 2002–2019 period, we first document the presence of political assortative matching: business owners are significantly more likely to employ copartisan workers. Political assortative matching is larger in magnitude than assortative matching along gender and racial lines. We then provide three sets of results consistent with the presence of employers’ political discrimination. First, several patterns in the micro-data and an event study are consistent with a discrimination channel. Second, we conduct an incentivized resume rating field experiment showing that owners have a direct preference for copartisan workers opposed to workers from a different party. Third, we conduct representative large- scale surveys of owners and workers revealing that labor market participants view employers’ discrimination as the leading explanation behind our findings. We conclude by presenting evidence suggesting that political discrimination in the workplace has additional real consequences: copartisan workers are paid more and are promoted faster within the firm, despite being less qualified; firms displaying stronger degrees of political assortative matching grow less than comparable firms.
    JEL: D22 D72 D73 G0 G3 G4 J0 J15 J2 J3 J7 O0 O1
    Date: 2022–06
  5. By: Marta C.Lopes; Alessandro Tondini
    Abstract: How do legislative reductions in hours impact firms? In this paper, we use matched employer-employee data to evaluate a policy reform in Portugal that unexpectedly reduced the usual weekly working hours from 44 to 40 hours. Using a difference-in-differences approach that exploits initial heterogeneity across collective agreements covering workers, we show that the reform led to a significant drop in working hours in treated firms, while salaries did not adjust, resulting in higher wages per hour. We observe only a small and insignificant negative effect on employment, as treated firms are able to maintain or even increase sales despite the fall in labor input (total hours worked within a firm). We show that this partly reflects higher prices rather than higher (or constant) volumes, whereby firms are able to shift the higher labor costs onto consumers.
    Keywords: working time, hours, wages, labor demand, labor cost
    JEL: J22 J23 J31
    Date: 2022–07
  6. By: Natee Amornsiripanitch; Paul Gompers; George Hu; Will Levinson; Vladimir Mukharlyamov
    Abstract: This paper proposes a non-pecuniary measure of career achievement, Seniority. Based on a database of over 5 million resumes, this metric exploits the variation in job titles and how long they take to attain. When non-monetary factors influence career choice, inference benefits from the use of non-wage measures, such as seniority. We apply it to study labor market outcomes of VC-backed entrepreneurs. Would-be founders experience accelerated career trajectories prior to founding, significantly outperforming graduates of same-tier colleges with similar first jobs. After exiting their start-ups, they obtain jobs about three years more senior than their right-before-founding peers. Even failed founders land jobs with higher seniority than those attained by their peers in the meantime.
    JEL: J0 J3 J30 J31 J44 J6 J63
    Date: 2022–06
  7. By: Maria Marta Ferreyra; Camila Galindo; Sergio S. Urzúa
    Abstract: This paper estimates the heterogeneous labor market effects of enrolling in higher education short-cycle (SC) programs. Expanding access to these programs might affect the behavior of some students (compliers) in two margins: the expansion margin (students who would not have enrolled in higher education otherwise) and the diversion margin (students who would have enrolled in bachelor's programs otherwise). To quantify these responses, we exploit local exogenous variation in the supply of higher education institutions (HEIs) facing Colombian high school graduates in an empirical multinomial choice model with several instruments. According to our findings, the presence of at least one HEI specialized in SC programs in the vicinity of the student's high school municipality increases SC enrollment by 3.7-4.5 percentage points (40-50% of the SC enrollment rate). The diversion margin largely drives this effect. For female compliers, enrollment in SC programs increases formal employment relative to the next-best alternative. For male compliers, in contrast, it lowers formal employment and wages. These results should alert policymakers of the unexpected consequences of higher education expansionary policies.
    JEL: I24 I26 I28 J24
    Date: 2022–06
  8. By: Yana Gallen; Melanie Wasserman
    Abstract: It is common for mentorship programs to use race, gender, and nationality to match mentors and mentees. Despite the popularity of these programs, there is little evidence on whether mentees value mentors with shared traits. Using novel administrative data from an online college mentoring platform connecting students and alumni, we document that female students indeed disproportionately reach out to female mentors. We investigate whether female students make costly trade-offs in order to access a female mentor. By eliciting students’ preferences over mentor attributes, we find that female students are willing to trade off occupational match in order to access a female mentor. This willingness to pay for female mentors declines to zero when information on mentor quality is provided. The evidence suggests that female students use mentor gender to alleviate information problems, but do not derive direct utility from it. We discuss the implications of these results for the design of initiatives that match on shared traits.
    Keywords: homophily, mentorship, preference elicitation, gender
    JEL: J16 J24 J71
    Date: 2022
  9. By: Sebastian Doerr; Thomas Drechsel; Donggyu Lee
    Abstract: This paper shows that changes in top income shares affect job creation at firms of different sizes. High-income households save relatively more in stocks and bonds, and relatively less in bank deposits. We propose that a higher share of income accruing to top earners therefore channels funds to large firms, but tightens financing conditions for small, bank-dependent firms. In turn, small firms create fewer jobs than large firms. Exploiting variation in top incomes across U.S. states and an instrumental variable strategy, we estimate that a 10 percentage point (p.p.) increase in the income share of the top 10 percent reduces the net job creation rate of small firms by 2.5 p.p. relative to large firms. Very small firms and those in bank-dependent industries are most affected. Experiments in a quantitative macro model show that growing top incomes account for 16 percent of the overall decline in the employment share of small firms since 1980. The model also reveals that not taking into account the link between inequality and job creation understates the welfare effects of income redistribution.
    Keywords: income inequality; job creation; small businesses; bank lending; household heterogeneity; financial frictions
    JEL: D22 D31 E44 L25
    Date: 2022–06–01
  10. By: Mühlhan, Jannek (Destatis)
    Abstract: "In the last 15 years before the COVID-19 crisis, Germany has experienced a strong and continuous increase in employment - the ‘German job miracle’. During this period, income inequality, which had previously increased sharply, remained relatively stable. This paper analyzes the impact of employment changes on disposable income inequality between 2004 and 2015 and gives an answer to the question why inequality remained constant despite the dramatic increase in employment. It is the first study to examine the effect of changing labor supply patterns due to changes in policies, wages and preferences, as well as the role that labor market constraints have played for inequality of disposable income. It finds that inequality would have increased further due to a transforming population structure, but increasing employment and policy changes almost completely offset this development. The results show that employment growth due to the reduction of labor market constraints has been more important in slowing down the increase in inequality than changes in labor supply." (Author's abstract, IAB-Doku) ((en))
    Keywords: IAB-Open-Access-Publikation
    JEL: C15 H31 I38 J22
    Date: 2022–06–29
  11. By: Anton Korinek; Megan Juelfs
    Abstract: This paper considers the labor market and distributional implications of a scenario of ever-more-intelligent autonomous machines that substitute for human labor and drive down wages. We lay out three concerns arising from such a scenario and evaluate recent predictions and objections to these concerns. Then we analyze how a utilitarian social planner would allocate work and income if these concerns start to materialize. As the income produced by autonomous machines rises and the value of labor declines, a utilitarian planner finds it optimal to phase out work, beginning with workers who have low labor productivity and job satisfaction, since they have comparative advantage in enjoying leisure. This is in stark contrast to welfare systems that force individuals with low labor productivity to work. If there are significant wage declines, avoiding mass misery will require other ways of distributing income than labor markets, whether via sufficiently well-distributed capital ownership or via benefits. Recipients could still engage in work for its own sake if they enjoy work amenities such as structure, purpose and meaning. If work gives rise to positive externalities such as social connections or political stability, or if individuals undervalue the benefits of work because of internalities, then a social planner would incentivize work. However, in the long run, the planner might be able to achieve a higher level of social welfare by adopting alternative ways of providing these benefits.
    JEL: E6 J2 O3
    Date: 2022–06
  12. By: Clara Graziano; Annalisa Luporini
    Abstract: We analyze the effects of optimism and overconfidence when the manager’s compensation package includes severance pay and the CEO has bargaining power. We find that optimism does not affect incentive pay but increases severance pay with a negative effect on profit. Overconfidence, on the contrary, reduces incentive pay as shown by the previous literature, while its effect on severance pay depends on the intensity of the bias. High values of overconfidence yield an inefficient level of investment which in turn increases severance pay with a negative impact on firm profit. Thus, the attempt to exploit managerial overconfidence to reduce incentive pay may if the manager is replaced and severance agreements come into effect. Our model explains the large severance payments documented by empirical literature by showing that discretionary pay in excess of contractual severance pay may represent a form of efficient contracting when the manager is overconfident and optimist.
    Keywords: overconfidence, optimism, managerial compensation, severance pay, entrenchment
    JEL: J33 D86 D90 L21
    Date: 2022
  13. By: Martin Beraja; Nathan Zorzi
    Abstract: How should the government respond to automation? We study this question in a heterogeneous agent model that takes worker displacement seriously. We recognize that displaced workers face two frictions in practice: reallocation is slow and borrowing is limited. We first show that these frictions result in inefficient automation. Firms fail to internalize that displaced workers have a limited ability to smooth consumption while they reallocate. We then analyze a second best problem where the government can tax automation but lacks redistributive tools to fully overcome borrowing frictions. The equilibrium is (constrained) inefficient. The government finds it optimal to slow down automation on efficiency grounds, even when it has no preference for redistribution. Using a quantitative version of our model, we find that the optimal speed of automation is considerably lower than at the laissez-faire. The optimal policy improves aggregate efficiency and achieves welfare gains of 4%. Slowing down automation achieves important gains even when the government implements generous social insurance policies.
    JEL: E2 H21 J08 J23 O33 O38
    Date: 2022–06
  14. By: Joseph Mullins (University of Western Ontario)
    Abstract: This paper finds that accounting for the human capital development of children has a quantitatively large effect on the true costs and benefits of providing cash assistance to single mothers in the United States. A dynamic model of work, welfare participation, and parental investment in children introduces a formal apparatus for calculating costs and benefits when individuals respond to incentives. The model provides a tractable outcome equation in which a policy's effect on child skills can be understood through its impact on two economic resources in the household--time and money--and the share of each resource as factors in the production of skills. These key causal parameters are cleanly identified by policy variation through the 1990s. The model also admits simple and interpretable formulae for optimal nonlinear transfers in the style of Mirrlees (1971), with novel features arising when child skill formation is accounted for. Using a broadly conservative empirical strategy, estimates imply that optimal transfers are about 20% more generous than the US benchmark, and shaped very differently. In contrast to current policies, the optimal policy discourages labor supply at the bottom of the income distribution due to the costly estimated impacts of work on child development. The finding underscores the importance of reconciling results in the literature on the developmental effects of maternal employment. Finally, a counterfactual model exercise suggests that changes to the welfare and tax environment after 1996 had negative average effects both on maternal welfare and child skill outcomes, with a significant degree of redistribution across latent dimensions.
    Keywords: welfare participation, parental investments, cost-benefit analysis
    JEL: J24 J13 E24
    Date: 2022–07
  15. By: Joan Costa-i-Font; Francesco D'Amico; Cristina Vilaplana-Prieto
    Abstract: We study the effect of long-term care (LTC) subsidies and supports on the wellbeing of unpaid caregivers. We draw on evidence from a policy intervention, that universalized previously means-tested caregiving supports in Scotland, known as free personal care (FPC). We document causal evidence of an increase in the well-being (happiness) of unpaid carers after the introduction of FPC. Our estimates suggest economically relevant improvements in the happiness (12pp increase in subjective wellbeing) among caregivers exposed to FPC and that provide at least 35 hours of care per week. Consistently, these results are larger among women and non-actively employed caregivers (17pp increase in happiness). Estimates are not driven by selection into caregiving (we find similar wellbeing effects among caregivers at baseline and caregivers throughout the sample), and are driven by income effects of FPC among caregivers.
    Keywords: caregiving, long-term care subsidies, subjective wellbeing, caregiver’s wellbeing, Scotland
    JEL: I18 J22
    Date: 2022

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