nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2023‒05‒01
sixteen papers chosen by
Joseph Marchand
University of Alberta

  1. Longer careers: A barrier to hiring and coworker advancement? By Irene Ferrari; Jan Kabátek; Todd Morris
  2. The Health Wedge and Labor Market Inequality By Amy Finkelstein; Casey C. McQuillan; Owen M. Zidar; Eric Zwick
  3. On the Black-White Gaps in Labor Supply and Earnings over the Lifecycle in the US By Rauh, C.; Valladares-Esteban, A.
  4. Pension Reforms and Couples' Labour Supply Decisions By Moghadam, Hamed Markazi; Puhani, Patrick A.; Tyrowicz, Joanna
  5. Air Quality, High-Skilled Worker Productivity and Adaptation: Evidence from GitHub By Felix Holub; Beate Thies
  6. The Limitations of Overtime Limits to Reduce Long Working Hours: Evidence from the 2018-2021 Working Time Reform in Korea By Carcillo, Stéphane; Hijzen, Alexander; Thewissen, Stefan
  7. Demographic Origins of the Decline in Labor’s Share By Andrew Glover; Jacob Short
  8. Returns to ICT Skills Use and Labour Market Institutions By Giorgio Cutuli; Alessio Tomelleri
  9. The motherhood wage and income traps By Cremer, Helmuth; Barigozzi, Francesca; Thibault, Emmanuel
  10. Non-compete Agreements in a Rigid Labour Market: The Case of Italy By Boeri, Tito; Garnero, Andrea; Luisetto, Lorenzo Giovanni
  11. Tournament Incentives Affect Perceived Stress and Hormonal Stress Responses By Dohmen, Thomas; Rohde, Ingrid M.T.; Stolp, Tom
  12. Increasing skill premium and education decisions: Higher intra-skilled inequality and lower inter-skill mobility. By Joel HELLIER
  13. Wage Returns to Human Capital Resulting from an Extra Year of Primary School: Evidence from Egypt By Assaad, Ragui; Aydemir, Abdurrahman; Dayioglu-Tayfur, Meltem; Kirdar, Murat G.
  14. Unleashing the productive potential of digitalisation in Lithuania By Vassiliki Koutsogeorgopoulou
  15. Breaking the marriage trap: unilateral divorce and its effects on labor supply of married women By Alonso-Borrego, César; Pomares Varo, Gema
  16. The Effects of Comprehensive Educator Evaluation and Pay Reform on Achievement By Eric A. Hanushek; Jin Luo; Andrew J. Morgan; Minh Nguyen; Ben Ost; Steven G. Rivkin; Ayman Shakeel

  1. By: Irene Ferrari (Department of Economics, University Of Venice CÃ Foscari; Netspar); Jan Kabátek (University of Melbourne, Life Course Centre, IZA; Netspar); Todd Morris (HEC Montreal, Life Course Centre, CEPAR; Netspar)
    Abstract: Government policies are encouraging older workers to delay retirement, which may curb younger workers' career advancement. We study a Dutch reform that raised the retirement age by 13 months and nearly tripled employment at age 66. Using monthly linked employer-employee data, we show that affected firms delay and decrease replacement hiring, and coworkers' earnings fall via reductions in hours worked, wages, and promotions. Combined, the hiring and coworker spillovers offset most of the additional hours worked by older workers, disproportionately affect career advancement for younger workers and women, and considerably increase the policy's ratio of welfare costs to fiscal savings.
    Keywords: retirement reform, labor demand, internal labor markets, firms, coworker spillovers
    JEL: H55 J23 J26 J63
    Date: 2023
  2. By: Amy Finkelstein; Casey C. McQuillan; Owen M. Zidar; Eric Zwick
    Abstract: Over half of the U.S. population receives health insurance through an employer, with employer premium contributions creating a flat "head tax" per worker, independent of their earnings. This paper develops and calibrates a stylized model of the labor market to explore how this uniquely American approach to financing health insurance contributes to labor market inequality. We consider a partial-equilibrium counterfactual in which employer-provided health insurance is instead financed by a statutory payroll tax on firms. We find that, under this counterfactual financing, in 2019 the college wage premium would have been 11 percent lower, non-college annual earnings would have been $1, 700 (3 percent) higher, and non-college employment would have been nearly 500, 000 higher. These calibrated labor market effects of switching from head-tax to payroll-tax financing are in the same ballpark as estimates of the impact of other leading drivers of labor market inequality, including changes in outsourcing, robot adoption, rising trade, unionization, and the real minimum wage. We also consider a separate partial-equilibrium counterfactual in which the current head-tax financing is maintained, but 2019 U.S. health care spending as a share of GDP is reduced to the Canadian share; here, we estimate that the 2019 college wage premium would have been 5 percent lower and non-college annual earnings would have been 5 percent higher. These findings suggest that health care costs and the financing of health insurance warrant greater attention in both public policy and research on U.S. labor market inequality.
    JEL: H22 H24 I13 I14 J20 J31 J32 J38
    Date: 2023–03
  3. By: Rauh, C.; Valladares-Esteban, A.
    Abstract: In the US economy, Black men, on average, receive lower wages than White men, and the difference increases over the working life. The employment rate and the number of hours worked are also lower for Blacks, but the gap is nearly constant. Together these facts suggest that on-the-job human capital accumulation might explain the diverging wages. However, the wage gap and its evolution over the lifecycle cannot be explained by differences in accumulated experience or educational attainment for the cohort we analyze. Instead, the combination of experience and test scores measured at ages 17-22 accounts for the wage gap and its growth. We propose an on-the-job human capital accumulation model with heterogeneity in the initial human capital endowment and the lifelong ability to accumulate human capital, and endogenous labor supply at the extensive and intensive margins to explain the evolution of the Black-White wage gap over the lifecycle. We discipline the distribution of the ability to accumulate human capital using the power of test scores to predict earnings growth in the data. We find that if the pre-market distributions were the same for Blacks and Whites, the racial gap in hourly earnings would be closed by 84%, with the remaining gap opening throughout life due to higher labor supply amongst White men. That is, the unequal conditions with which men in the two groups enter the labor market are likely to be the key determinant of the differences over the lifecycle.
    Keywords: Employment gap, Inequality, Labor supply decision, Lifecycle, Racial gap, Wage gap
    JEL: J15 J24 J31 J64
    Date: 2023–04–17
  4. By: Moghadam, Hamed Markazi (Leibniz Univeristät Hannover); Puhani, Patrick A. (Leibniz University of Hannover); Tyrowicz, Joanna (University of Warsaw)
    Abstract: To determine how wives' and husbands' retirement options affect their spouses' (and their own) labour supply decisions, we exploit (early) retirement cutoffs by way of a regression discontinuity design. Several German pension reforms since the early 1990s have gradually raised women's retirement age from 60 to 65, but also increased ages for several early retirement pathways affecting both sexes. We use German Socio-Economic Panel data for a sample of couples aged 50 to 69 whose retirement eligibility occurred (i) prior to the reforms, (ii) during the transition years, and (iii) after the major set of reforms. We find that, prior to the reforms, when several retirement options were available to both husbands and wives, both react almost symmetrically to their spouse reaching an early retirement age, that is both husband and wife decrease their labour supply by about 5 percentage points when the spouse reaches age 60). This speaks in favour of leisure complementarities. However, after the set of reforms, when retiring early was much more difficult, we find no more significant labour supply reaction to the spouse reaching a retirement age, whereas reaching one's own retirement age still triggers a significant reaction in labour supply. Our results may explain some of the diverse findings in the literature on asymmetric reactions between husbands and wives to their spouse reaching a retirement age: such reactions may in large parts depend on how flexibly workers are able to retire.
    Keywords: retirement coordination, labour market participation, household decisions, regression discontinuity design
    JEL: J22 J26
    Date: 2023–03
  5. By: Felix Holub; Beate Thies
    Abstract: Highly skilled knowledge workers are important drivers of innovation and long-run growth. We study how air quality affects productivity and work patterns among these workers, using data from GitHub, the world’s largest coding platform. We combine panel data on daily output, working hours, and task choices for a sample of 25, 000 software developers across four continents during the period 2014-2019 with information on concentrations of fine particulate matter (PM2.5). An increase in air pollution reduces output, measured by the number of total actions performed on GitHub per day, and induces developers to adapt by working on easier tasks and by ending work activity earlier. To compensate, they work more on weekends following high-pollution days, which suggests adverse impacts on their work-life-balance. The decline in output arises even at concentrations in line with current regulatory standards in the EU and US and is driven by a reduction in individual coding activity, while interactive activities are unaffected. Exposure to PM2.5 levels above the city-specific 75th percentile reduces daily output quantity by 4%, which translates into a loss in output value by approximately $11 per developer.
    Keywords: Air pollution, Productivity, High-skilled work, Adaptation, GitHub
    JEL: D24 J22 J24 L86 Q52 Q53
    Date: 2023–03
  6. By: Carcillo, Stéphane (OECD); Hijzen, Alexander (OECD); Thewissen, Stefan (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: This paper provides a first assessment of the causal impact of the 2018-2021 reform in Korea meant to combat its long working-hour culture. The reform consists of lowering the statutory limit on total weekly working hours from 68 to 52. We apply a difference-in-difference approach in which we take advantage of the stepwise implementation of the reform by firm size using individual-level data. We present three main findings. First, the introduction of the 52-hour limit reduced but far from eliminated the incidence of working more than 52 hours. Second, there is some evidence that the introduction led to a reallocation of working hours, with more employees shifting from working fulltime to working overtime within the new limit (41-52 hours). Third, and more tentatively, this reallocation more likely took place within firms to account for fewer overtime hours worked by their employees, rather than within households to compensate for any income effects. Overall, our results show that a lower statutory limit can help to lessen a long working-hour culture, but is an insufficient measure by itself to fully eradicate it.
    Keywords: working time regulation, working hours, time use, labour legislation, overtime, reallocation
    JEL: J16 J22 K31
    Date: 2023–03
  7. By: Andrew Glover; Jacob Short
    Abstract: Since 1980, the earnings share of older workers has risen in the United States. At the same time, labor’s share of income has declined significantly. We hypothesize that an aging workforce has contributed to the decline in labor’s share of income. We formalize this hypothesis in an on-the-job search model in which employers of older workers may have substantial monopsony power due to the decline in labor market dynamism that accompanies aging. The greater monopsony power manifests as a growing wedge between a worker’s earnings and their marginal product over the life cycle. We estimate the profile of these wedges using cross-industry variation in labor’s share and the age distribution of earnings. We find that a 60-year-old worker receives half the marginal product relative to when they were 20. Together with recent demographic trends, this can account for 59% of the recent decline in labor’s share of earnings in the United States.
    Keywords: Labour markets; Productivity
    JEL: D33 E25 J1 J3 J62
    Date: 2023–04
  8. By: Giorgio Cutuli; Alessio Tomelleri
    Abstract: This paper analyses the moderating role of institutional factors on returns to ICT skill usage among different groups of workers in eight European labour markets. Using PIAAC data, it leverages the ‘institutional salience’ of contractual status to analyse the returns on the use of ICT-related skills in the workplace, allowing for heterogeneous wage effects at the micro level among workers holding permanent and temporary contracts. It extends the analysis by considering how gaps in ICT wage premiums mirror the compositional differences in national-specific trade union densities among contractual groups. Wage premiums associated with ICT usage are not defined univocally by task content or demand-supply dynamics for specific occupations. Net of occupation and industry, the results show different returns between labour market segments and according to national-specific trade union densities of temporary and permanent workers, providing a test of how the consequence of technological change are shaped by institutional and regulative cleavages.
    Keywords: ICT skills, Wage premiums, European labour markets, Temporary contracts, Trade unions
    JEL: J2 E24 O30 J50
    Date: 2023–04
  9. By: Cremer, Helmuth; Barigozzi, Francesca; Thibault, Emmanuel
    Abstract: We present a simple dynamic model based on on-the-job human capital accumu- lation affecting the dynamic of wage rates and labor earnings. We show how these dynamics are determined by the interplay between the supply and demand sides of the labor market. The model can generate and explain the different dynamics of women's earnings after childbirth documented in the empirical literature on child penalties. We show that the temporary negative shock in labor supply due to childbearing may cre- ate a wage trap and a permanent divergence of labor earnings between genders. Even when the wage trap is avoided, and working mothers are on a path toward a high-wage equilibrium, slow convergence can permanently lose earnings. We use this model to study the impact of different policies on the gender wage gap and child penalties. We show that mandatory maternal leave exacerbates the shock which pleads against long leaves. Similarly, cash transfers to mothers via the income effect on labor supply ag- gravate gender wage di_erences. By contrast, temporary subsidies to mothers' wages (possibly in the form of Income Tax Credits) are not only useful to exit the wage trap, but also to speed up recovery and reduce the child penalty when the shock in labor supply is small enough to avoid the wage trap. Other family policies, like formal child- care subsidies and in-kind provision of formal childcare, are potentially useful because they reduce the mothers' cost of labor supply, but they a_ect mothers' choices only indirectly.
    Keywords: child penalty, mothers' earnings dynamics, multiple equilibria, wage; and income traps
    JEL: J31 H24
    Date: 2023–04–13
  10. By: Boeri, Tito (Bocconi University); Garnero, Andrea (OECD); Luisetto, Lorenzo Giovanni (University of Michigan)
    Abstract: Non-compete clauses (NCCs) limiting the mobility of workers have been found to be rather widespread in the US, a flexible labour market with large turnover rates and a limited coverage of collective bargaining. This paper explores the presence of such arrangements in a rigid labour market, with strict employment protection regulations by OECD standards and where all employees are, at least on paper, subject to collective bargaining. Based on a representative survey of employees in the private sector, an exam of collective agreements and case law, we find that in Italy i) collective agreements play no role in regulating the use of NCCs while the law specifies only the formal requirements, ii) about 16% of private sector employees are currently bound by a NCC, iii) NCCs are relatively frequent among low educated employees in manual and elementary low paid occupations having no access to any type of confidential information, and iv) in addition to NCCs, a number of other arrangements limit the post-employment activity of workers. Many of the NCCs do not comply with the minimum requirements established by law and yet workers do not consider them as unenforceable and appear to behave as they were effective. Even when NCCs are unenforceable they appear to negatively affect wages when they are introduced without changing the tasks of the workers involved. Normative implications are discussed in the last section of the paper.
    Keywords: non-compete clauses, monopsony, labour market concentration
    JEL: J31 J41 J42 L40
    Date: 2023–03
  11. By: Dohmen, Thomas (University of Bonn and IZA); Rohde, Ingrid M.T. (Istanbul Bilgi University); Stolp, Tom (SEO Amsterdam)
    Abstract: We conduct a laboratory experiment among male participants to investigate whether rewarding schemes that depend on work performance – in particular, tournament incentives – induce more stress than schemes that are independent of performance - fixed payment scheme. Stress is measured over the entire course of the experiment at both the hormonal and psychological level. Hormonal stress responses are captured by measuring salivary cortisol levels. Psychological stress responses are measured by self-reported feelings of stress and primary appraisals. We find that tournament incentives induce a stress response whereas a fixed payment does not induce stress. This stress response does not differ significantly across situations in which winners and losers of the tournament are publically announced and situations in which this information remains private. Biological and psychological stress measures are positively correlated, i.e. increased levels of cortisol are associated with stronger feelings of stress. Nevertheless, neither perceived psychological stress nor elevated cortisol levels in a previous tournament predict a subsequent choice between tournaments and fixed payment schemes, indicating that stress induced by incentives schemes is not a relevant criterion for sorting decisions in our experiment. Finally, we find that cortisol levels are severely elevated at the beginning of the experiment, suggesting that participants experience stress in anticipation of the experiment per se, potentially due to uncertainties associated with the unknown lab situation. We call this the novelty effect.
    Keywords: incentives, stress, cortisol, sorting, laboratory experiment
    JEL: D23 D87 D91 M52
    Date: 2023–03
  12. By: Joel HELLIER (LEM-CNRS, Univ. of Lille, and LEMNA, Univ. of Nantes)
    Abstract: This paper analyses the effects of an increase in earnings inequality between skilled and unskilled workers on education decisions and intergenerational mobility, depending on the way higher education is funded. The rise in inequality typically encourages higher education attending, but it also (i) improves the relative position of children from skilled families by reducing inter-skill intergenerational mobility and (ii) fosters inequality across skilled workers (‘intra-skilled inequality’) when higher education is costly. The impact depends on education financing and the only situation in which skilled families are not favoured is when higher education is freely provided. Those results are in line with the developments observed in advanced economies which have experienced a constant increase in their skill premia in the last four decades.
    Keywords: Education, Inequality, Intergenerational mobility, Skill.
    JEL: I21 J24 J31 J62
    Date: 2023–04
  13. By: Assaad, Ragui (University of Minnesota); Aydemir, Abdurrahman (Sabanci University); Dayioglu-Tayfur, Meltem (Middle East Technical University); Kirdar, Murat G. (Bogazici University)
    Abstract: In this paper, we examine the wage returns to an extra year of primary school using a policy reform in Egypt, which reduced compulsory primary schooling from 6 to 5 years. Since this policy changed the duration of primary school while providing the same diploma, we can estimate the human capital effects holding the sheepskin effects constant. We find that the wage returns to an extra year of primary school for Egyptian men aged 24–44 is a statistically insignificant 2–4 percent. Despite the low returns for the overall population, the returns are much higher for men born in rural areas and men whose fathers have low levels of education—indicating important human capital effects for underprivileged boys. Consistent with this result, we find that the policy effects of a one-year reduction in primary schooling on schooling attainment at various levels are more adverse for underprivileged boys. Our findings, therefore, suggest that such a policy could be particularly detrimental for students from lower socioeconomic groups—contributing to increased inequality.
    Keywords: returns to schooling, early human capital investment, instrumental variables, compulsory education duration, Egypt
    JEL: J18 J31 I21 I28
    Date: 2023–03
  14. By: Vassiliki Koutsogeorgopoulou
    Abstract: Lithuania is digitalising its economy with visible success, but much scope remains for the integration of advanced technologies. The COVID-19 crisis confirmed the importance of digitalisation to sustain activity. Increased private investment in innovation is essential to speed up digitalisation. The take-up of R&D tax incentives is low, however, despite relatively generous provisions, and many smaller firms have not been inclined to innovate. More effective public support for business R&D and stronger research-business collaboration on innovation are important. There is also a need to promote digital uptake, especially among smaller firms that lag behind. Improving access to equity finance for young innovative firms, reducing remaining gaps in digital infrastructure, along with better information on digital tools and how to use them, can help smaller firms digitalise. The public sector too has to become more digitalised. Addressing weaknesses in foundational skills through education reforms and responding more effectively to labour market needs for digital skills would enable a wider adoption of advanced technologies and higher productivity growth, while ensuring that the digitalisation dividends are distributed fairly. Increased participation in adult learning, especially among the less educated, is the way forward to adapt to increased job automation in the digital era.
    Keywords: Collaboration, connectivity, digital, innovation, productivity, R&D, skills, technologies
    JEL: J24 O3 O32 I23
    Date: 2023–04–20
  15. By: Alonso-Borrego, César; Pomares Varo, Gema
    Abstract: We assess the impact of the 2005 divorce law reform in Spain, which reduced the time length and the costs of marriage termination, on the labor market outcomes of married women. We use independent cross sections of the Spanish Labor Force Survey between 2001 and 2009. As the reform affected married couples but not unmarried couples, we undertake a differences-in-differences approach to estimate the causal effect. Our results show that the reform substantially increased the participation and the occupation rates of married women by 4 and 3 percentage points, respectively, but reduced their average working hours by 5 percent. This latter result comes along with a large increase in part time employment due to the reform. The effects weremore pronounced for women without young children, with low education levels, and living in provinces where separate property was the default marital regime.
    JEL: J22 J12 J16 K36 C21 D19
    Date: 2023–04–20
  16. By: Eric A. Hanushek; Jin Luo; Andrew J. Morgan; Minh Nguyen; Ben Ost; Steven G. Rivkin; Ayman Shakeel
    Abstract: A fundamental question for education policy is whether outcomes-based accountability including comprehensive educator evaluations and a closer relationship between effectiveness and compensation improves the quality of instruction and raises achievement. We use synthetic control methods to study the comprehensive teacher and principal evaluation and compensation systems introduced in the Dallas Independent School District (Dallas ISD) in 2013 for principals and 2015 for teachers. Under this far-reaching reform, educator evaluations that are used to support teacher growth and determine salary depend on a combination of supervisor evaluations, student achievement, and student or family survey responses. The reform replaced salary scales based on experience and educational attainment with those based on evaluation scores, a radical departure from decades of rigid salary schedules. The synthetic control estimates reveal positive and significant effects of the reforms on math and reading achievement that increase over time. From 2015 through 2019, the average achievement for the synthetic control district fluctuates narrowly between -0.27 s.d. and -0.3 s.d., while the Dallas ISD average increases steadily from -0.28 s.d. in 2015 to -0.08 s.d. in 2019, the final year of the sample. Though the increase for reading is roughly half as large, it is also highly significant.
    JEL: H75 I20 I21 J30 J45
    Date: 2023–03

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