nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2023‒11‒06
twenty papers chosen by
Joseph Marchand, University of Alberta

  1. The Impact of Restricting Fixed-Term Contracts on Labor and Skill Demand By Grasso, Giuseppe; Tatsiramos, Konstantinos
  2. Automation and Income Inequality in Europe By Doorley, Karina; Gromadzki, Jan; Lewandowski, Piotr; Tuda, Dora; Van Kerm, Philippe
  3. The Role of Global Value Chains for Worker Tasks and Wage Inequality By Lewandowski, Piotr; Madoń, Karol; Winkler, Deborah
  4. Jobseekers' Beliefs about Comparative Advantage and (Mis)Directed Search By Kiss, Andrea; Garlick, Robert; Orkin, Kate; Hensel, Lukas
  5. The impact of high temperatures on performance in work-related activities By Matteo Picchio; Jan van Ours
  6. The Minimum Wage, Turnover, and the Shape of the Wage Distribution By Brochu, Pierre; Green, David A.; Lemieux, Thomas; Townsend, James
  7. Minimum Wages and Unemployment during Economic Shocks By Merfeld, Joshua D.; Sharp, Matthew
  8. The Shift Premium: Evidence from a Discrete Choice Experiment By Desiere, Sam; Walter, Christian
  9. No Revenge for Nerds? Evaluating the Careers of Ivy League Athletes By Natee Amornsiripanitch; Paul Gompers; George Hu; Will Levinson; Vladimir Mukharlyamov
  10. Artificial Intelligence and Employment: A Look into the Crystal Ball By Guarascio, Dario; Reljic, Jelena; Stöllinger, Roman
  11. Audit mandates, audit firms, and auditors By Breuer, Matthias; Le, Anthony; Vetter, Felix
  12. Retirement Decision of Belgian Couples and the Impact of the Social Security System By Cetin, Sefane; Jousten, Alain
  13. The Micro-Foundations of Employment Systems: An Empirical Case Study of Britain and France By Thomas Amosse; Alex Bryson; John Forth; Heloise Petit
  14. Labor Market Power and the Effects of Fiscal Policy By Christian Bredemeier; Babette Jansen; Roland Winkler
  15. Unintended Consequences of Youth Entrepreneurship Programs: Experimental Evidence from Rwanda By Blimpo, Moussa P.; Pugatch, Todd
  16. Insurance, Redistribution, and the Inequality of Lifetime Income By Peter Haan; Daniel Kemptner; Victoria Prowse; Maximilian Schaller
  17. Wage Adjustment in Efficient Long-Term Employment Relationships By Michael Elsby; Axel Gottfries; Pawel Krolikowski; Gary Solon
  18. A machine learning approach for assessing labor supply to the online labor market By Fung, Esabella
  19. One Giant Leap: Emancipation and Aggregate Economic Gains By Richard Hornbeck; Trevon Logan
  20. Demographic Change and Long-Term Economic Growth Path in Asia By Jong-Wha Lee; Eunbi Song

  1. By: Grasso, Giuseppe (University of Luxembourg, LISER); Tatsiramos, Konstantinos (University of Luxembourg, LISER)
    Abstract: This paper examines the impact of increasing the relative cost of fixed-term contracts on labor demand as well as the demand for standard measures of human capital and specific skill requirements. We evaluate a 2018 Italian labor law reform that raised the cost of fixed- term contracts while keeping permanent contract costs unchanged. We employ a difference-in-differences research design, leveraging the variation in firms' exposure to the reform resulting from their diverse reliance on fixed-term contracts due to differing reactions to earlier labor market reforms. Using rich data covering the near universe of online job vacancies in Italy, our findings indicate that the increase in hiring costs for temporary contracts led to a decrease in the relative demand for temporary workers and an increase in the demand for permanent workers. This shift in demand was accompanied by upskilling towards workers with higher levels of human capital and specific skill requirements. When offering jobs under permanent contracts, firms increased their demand for workers with a college degree and social skills. At the same time, they reduced their demand for workers with only a high school degree and no work experience. On the other hand, when offering jobs under fixed-term contracts, firms increased their demand for workers with some work experience and social skills. These findings suggest that while restricting fixed-term contracts encouraged the hiring of permanent workers, such reforms might have unintended consequences by raising the hiring standards for job entry, thereby reducing employment opportunities for less qualified workers.
    Keywords: hiring costs, employment protection, dual labor markets, skills
    JEL: J23 J24 J63 K31
    Date: 2023–10
  2. By: Doorley, Karina (Economic and Social Research Institute, Dublin); Gromadzki, Jan (Vienna University of Economics and Business); Lewandowski, Piotr (Institute for Structural Research (IBS)); Tuda, Dora (Trinity College Dublin); Van Kerm, Philippe (LISER (CEPS/INSTEAD))
    Abstract: We study the effects of robot penetration on household income inequality in 14 European countries between 2006–2018, a period marked by the rapid adoption of industrial robots. Automation reduced relative hourly wages and employment of more exposed demographic groups, similarly to the results for the United States. Using robot-driven wage and employment shocks as input to the EUROMOD microsimulation model, we find that automation had minor effects on income inequality. Household labour income diversification and tax and welfare policies largely absorbed labour market shocks caused by automation. Transfers played a key role in cushioning the transmission of these shocks to household incomes.
    Keywords: robots, automation, tasks, income inequality, wage inequality, microsimulation
    JEL: J24 O33 J23
    Date: 2023–10
  3. By: Lewandowski, Piotr (Institute for Structural Research (IBS)); Madoń, Karol (Institute for Structural Research (IBS)); Winkler, Deborah (World Bank)
    Abstract: This paper studies the relationship between global value chain (GVC) participation, worker-level routine task intensity, and wage inequality within countries. Using unique survey data from 38 countries, we find that higher GVC participation is associated with more routine-intensive work, especially among workers in offshorable occupations. This relationship is particularly strong in industry and in countries at lower development levels. As higher routine task intensity links with to wages, this indirectly widens within-country wage inequality. However, GVC participation directly contributes to reduced wage inequality, except in the richest countries. Overall, GVC participation is negatively associated with wage inequality in most low- and middle-income countries that receive offshored jobs, and positively in high-income countries that offshore jobs.
    Keywords: routine task intensity, global value chains, globalisation, cross-country division of work, wage inequality
    JEL: J21 J24 J31 F66
    Date: 2023–10
  4. By: Kiss, Andrea (Carnegie Mellon University); Garlick, Robert (Duke University); Orkin, Kate (University of Oxford); Hensel, Lukas (Peking University)
    Abstract: Worker sorting into tasks and occupations has long been recognized as an important feature of labor markets. But this sorting may be inefficient if jobseekers have inaccurate beliefs about their skills and therefore apply to jobs that do not match their skills. To test this idea, we measure young South African jobseekers' communication and numeracy skills and their beliefs about their skill levels. Many jobseekers believe they are better at the skill in which they score lower, relative to other jobseekers. These beliefs predict the skill requirements of jobs where they apply. In two field experiments, giving jobseekers their skill assessment results shifts their beliefs toward their assessment results. It also redirects their search toward jobs that value the skill in which they score relatively higher – using measures from administrative, incentivized task, and survey data – but does not increase total search effort. It also raises earnings and job quality, consistent with inefficient sorting due to limited information.
    Keywords: search frictions, information frictions, occupational choice
    JEL: J22 J24 J31 J64 O15
    Date: 2023–10
  5. By: Matteo Picchio (Marche Polytechnic University); Jan van Ours (Erasmus University Rotterdam)
    Abstract: High temperatures can have a negative effect on work-related activities. Labor productivity may go down because mental health or physical health is worse when it is too warm. Workers may experience difficulties concentrating or they have to reduce effort in order to cope with heat. We investigate how temperature affects performance of male professional tennis players. We use data about outdoor singles matches from 2003 until 2021. Our identification strategy relies on the plausible exogeneity of short-term daily temperature variations in a given tournament from the average temperature over the same tournament. We find that performance significantly decreases with ambient temperature. The magnitude of the temperature effect is age-specific and skill specific. Older and less-skilled players suffer more from high temperatures than younger and more skilled players do. The effect of temperature on performance is smaller when there is more at stake. Our findings also suggest that there is adaptation to high temperatures: the effects are smaller if the heat lasts for several days.
    Keywords: Climate change, temperatures, tennis, performance, productivity
    JEL: J24 J81 Q51 Q54
    Date: 2023–10–12
  6. By: Brochu, Pierre (University of Ottawa); Green, David A. (University of British Columbia, Vancouver); Lemieux, Thomas (University of British Columbia, Vancouver); Townsend, James (University of Winnipeg, Manitoba)
    Abstract: This paper proposes an empirical approach to decompose the distributional effects of minimum wages into effects for workers moving out of employment, workers moving into employment, and workers continuing in employment. We estimate the effects of the minimum wage on the hazard rate for wages, which provides a convenient way of re-scaling the wage distribution to control for possible employment effects. We find that minimum wage increases do not result in an abnormal concentration of Job Leavers below the new minimum wage, which is inconsistent with employment effects predicted by a neoclassical model. We also find that, for Job Stayers, the spike and spillover effects of the minimum wage are simply shifted right to the new minimum wage. Our findings are consistent with a model where entry wages are set according to a job ladder, and where firms preserve their internal wage structure due to fairness or internal incentives issues.
    Keywords: minimum wages, wage distribution
    JEL: J32 J38 J42
    Date: 2023–10
  7. By: Merfeld, Joshua D. (KDI School of Public Policy and Management); Sharp, Matthew (University of Oxford)
    Abstract: This paper studies whether a minimum wage changes how labour markets respond to economic shocks. Using data from South Africa, we show that an agricultural minimum wage leads to higher mean wages with no significant impacts on mean employment. However, these positive aggregate outcomes hide important heterogeneity: the imposition of the minimumwage leads to substantial declines in employment - especially overall hours - in the sector in the wake of negative weather-related economic shocks, which typically exert downward pressure on wages. The increased variance of employment across years in the post-law period suggests caution in interpreting the overall welfare impacts of minimum wage laws.
    Keywords: minimum wage, agriculture, shocks, weather, South Africa
    JEL: J38 J43 O12 O13
    Date: 2023–10
  8. By: Desiere, Sam (Ghent University); Walter, Christian (Ghent University)
    Abstract: Shift work is a widespread but understudied phenomenon. This paper examines one specific aspect of shift work: the shift premium. To this end, we included a discrete choice experiment in an online survey targeted at night and shift workers. Respondents chose between a standard 9 am - 5 pm job paying €15 per hour and a job with shift work in which the wage randomly varied between €12 and €20. The results show that respondents demand sizeable shift premiums to prefer shift over daytime work, with higher premiums for more onerous working hours such as night shifts or rotating shifts. We observe substantial heterogeneity in the shift premium across respondents and provide suggestive evidence of labour market sorting.
    Keywords: shift work, shift premium, Willingness to Pay, discrete choice experiment
    JEL: C91 J31 J48
    Date: 2023–09
  9. By: Natee Amornsiripanitch; Paul Gompers; George Hu; Will Levinson; Vladimir Mukharlyamov
    Abstract: This paper compares the careers of Ivy League athletes to those of their non-athlete classmates. Combining team-level information on all Ivy League athletes from 1970 to 2021 with resume data for all Ivy League graduates, we examine both post-graduate education and career choices as well as career outcomes. In terms of industry choice, athletes are far more likely to go into business and Finance related jobs than their non-athlete classmates. In terms of advanced degrees, Ivy League athletes are more likely to get an MBA and to receive it from an elite program, although they are less likely to pursue an M.D., a Ph.D., or an advanced STEM degree. In terms of career outcomes, we find that Ivy League athletes outperform their non-athlete counterparts in the labor market. Athletes attain higher terminal wages and earn cumulatively more than non-athletes over the course of their careers controlling for school, graduation year, major, and first job. In addition, they attain more senior positions in the organizations they join. We also find that athletes from more socioeconomically diverse sports teams and from teams that have lower academic admissions thresholds have higher career outcomes than non-athletes. Collectively, our results suggest that non-academic human capital developed through athletic participation is valued in the labor market and may support the role that prior athletic achievement plays in admissions at elite colleges.
    JEL: J0 J01 J08 J24 J30 J32 J38
    Date: 2023–10
  10. By: Guarascio, Dario; Reljic, Jelena; Stöllinger, Roman
    Abstract: This study provides evidence of the employment impact of AI exposure in European regions, addressing one of the many gaps in the emerging literature on AI's effects on employment in Europe. Building upon the occupation-based AI-exposure indicators proposed by Felten et al. (2018, 2019, 2021), which are mapped to the European occupational classification (ISCO), following Albanesi et al. (2023), we analyse the regional employment dynamics between 2011 and 2018. After controlling for a wide range of supply and demand factors, our findings indicate that, on average, AI exposure has a positive impact on regional employment. Put differently, European regions characterised by a relatively larger share of AI-exposed occupations display, all else being equal and once potential endogeneity concerns are mitigated, a more favourable employment tendency over the period 2011-2018. We also find evidence of a moderating effect of robot density on the AI-employment nexus, which however lacks a causal underpinning.
    Keywords: Artificial intelligence, industrial robots, labour, regional employment, occupations
    JEL: J21 J23 O33 R1
    Date: 2023
  11. By: Breuer, Matthias; Le, Anthony; Vetter, Felix
    Abstract: Audits by private, third-party auditors are frequently mandated to ensure compliance with regulations (e.g., accounting or environmental standards). We examine how such mandates shape the market for audits. In our empirical examination, we focus on one of the oldest and most prominent audit markets, the market for audits of firms' financial accounting. Using novel data on firms, audit firms, and auditors-the key players in the market-, we find that audit mandates increase the number of audits, audit firms, and auditors, but decrease average auditor wages. These findings are consistent with mandates creating demand for low-quality audits, originating from involuntarily audited firms, in a market with differentiated audit qualities. In line with this interpretation, we find that the regulatory audit demand emanates from smaller firms with limited incentives to obtain audits voluntarily; and is served by smaller audit firms and less experienced auditors. Collectively, our findings suggest that the promise of audit mandates as a means to ensure regulatory compliance may be limited by the emergence of low-quality audits.
    Keywords: Auditing, Mandates, Employees, Wages, Quality, Market Structure
    JEL: G18 G38 J23 J24 J31 J42 K22 L10 L51 L84 M42 M48
    Date: 2023
  12. By: Cetin, Sefane (Université catholique de Louvain); Jousten, Alain (University of Liège)
    Abstract: This paper investigates the retirement patterns of married couples in Belgium. To forecast retirement behavior, we use administrative Social Security data from 2003 to 2017 and a discrete choice random utility model. In particular, we concentrate on the spousal bonus of pension payments to comprehend how financial incentives resulting from the social security system's structural design affect both partners' retirement decisions. We simulate the effect of the elimination of the spousal bonus and find that a small portion of women delay their retirement whereas the rest substitute into alternative social security benefits. Our results do not only highlight the significance of cross-program spillovers between various Social Security benefits, but also the heterogeneity in preferences for retirement and asymmetry of retirement behavior between husbands and wives.
    Keywords: old-age labor supply, retirement incentives, spousal bonus, pension reforms
    JEL: D10 H55 J26
    Date: 2023–09
  13. By: Thomas Amosse (Cnam, Lise, CEET); Alex Bryson (University College London); John Forth (City, University of London); Heloise Petit (Cnam, Lirsa, CEET)
    Abstract: Building on existing studies of national employment systems, we take a multi-dimensional approach to comparative employment relations where the national level remains meaningful but which emphasises within-country dynamics and heterogeneity. Analysing nationally representative workplace surveys for France and Great Britain we contrast the British model characterised by variability and heterogeneity with a French model characterised by stability and uniformity. We discuss ways in which these systems are shaped by differences in employer and employee networks, the financial and organisational links between firms, and other macro-institutions.
    Keywords: employment relations; survey; national models; employment regimes
    JEL: J21 J31 M51 P52
    Date: 2023–09–01
  14. By: Christian Bredemeier (University of Wuppertal and IZA); Babette Jansen (University of Antwerp); Roland Winkler (Friedrich Schiller University Jena, and University of Antwerp)
    Abstract: We propose a new fiscal transmission channel based on countercyclical monopsony power in the labor market. We develop a Two-Agent New Keynesian model incorporating a time-varying degree of monopsony power, with workers valuing various job aspects and firms having wage-setting power, inversely related to the elasticity of labor supply to individual firms. As government spending increases, labor supply to individual firms becomes more elastic, creating more competition, larger fiscal multipliers, and stronger distributional consequences. We examine this channel's interactions with other fiscal transmission channels. Finally, we confirm empirically the model's prediction of reduced employer market power following government spending expansions.
    Keywords: fiscal policy, labor-market monopsony, income inequality
    JEL: E62 J42 E25 E32
    Date: 2023–10–18
  15. By: Blimpo, Moussa P.; Pugatch, Todd
    Abstract: The persistently high employment share of the informal sector makes entrepreneurship a necessity for youth in many developing countries. We exploit exogenous variation in the implementation of Rwanda's entrepreneurship education reform in secondary schools to evaluate its effect on student economic outcomes up to three years after graduation. Using a randomized controlled trial, we evaluated a three-year intensive training for entrepreneurship teachers, finding pedagogical changes as intended and increased entrepreneurial activity among students. In this paper, we tracked students following graduation and found that increased entrepreneurship persisted one year later, in 2019. Students from treated schools were six percentage points more likely to be entrepreneurs, an increase of 19 percent over the control mean. However, gains in entrepreneurship faded after three years, in 2021. Employment was six percentage points lower in the treatment group. By some measures, income and profits were lower in the treatment group, with no robust differences in these outcomes overall. Lower incomes and profits were concentrated among marginal students induced into entrepreneurship by the program. Youth entrepreneurship programs may therefore steer some participants away from their comparative advantage. Nonetheless, the program increased university enrollment, suggesting the potential for higher long run returns.
    Keywords: entrepreneurship education, youth employment, secondary school, pedagogy, randomized controlled trials, Rwanda
    JEL: I25 I26 I28 J24 O12 O15
    Date: 2023
  16. By: Peter Haan; Daniel Kemptner; Victoria Prowse; Maximilian Schaller
    Abstract: Individuals vary considerably in how much they earn during their lifetimes. This study examines the role of the tax-and-transfer system in mitigating such inequalities, which could otherwise lead to disparities in living standards. Utilizing a life-cycle model, we determine that taxes and transfers offset 45% of lifetime earnings inequality attributed to dierences in productive abilities and education. Additionally, the system insures against 48% of lifetime earnings risk. Implementing a lifetime tax reform linking annual taxes to previous employment could improve the system’s insurance capabilities, albeit at the cost of a lower employment rate.
    Keywords: Lifetime earnings, lifetime income, tax-and-transfer system, taxation, unemployment insurance, disability benefts, social assistance, inequality, redistribution, insurance, education, productive ability, risk, dynamic life-cycle models.
    JEL: D63 H23 I24 I38 J22 J31
    Date: 2023–10
  17. By: Michael Elsby; Axel Gottfries; Pawel Krolikowski; Gary Solon
    Abstract: We present a model in which efficient long-term employment relationships are sustained by wage adjustments prompted by shocks to idiosyncratic productivity and the arrival of outside job offers. In accordance with casual and formal evidence, these wage adjustments occur only sporadically, due to the presence of renegotiation costs. The model is amenable to analytical solution and yields new insights into a number of labor market phenomena, including: (1) key features of the empirical distributions of changes in pay among job stayers; (2) a property of near-“memorylessness” in wage dynamics that implies that initial hiring wages have only limited influence on later wages and allocation decisions; and (3) a crucial role for nonbase pay—specifically, recruitment and retention bonuses—in sustaining efficient employment relationships.
    Keywords: sticky wages; business cycles
    JEL: E24 E3 J3 J6
    Date: 2023–10–10
  18. By: Fung, Esabella
    Abstract: The online labor market, comprised of companies such as Upwork, Amazon Mechanical Turk, and their freelancer workforce, has expanded worldwide over the past 15 years and has changed the labor market landscape. Although qualitative studies have been done to identify factors related to the global supply to the online labor market, few data modeling studies have been conducted to quantify the importance of these factors in this area. This study applied tree-based supervised learning techniques, decision tree regression, random forest, and gradient boosting, to systematically evaluate the online labor supply with 70 features related to climate, population, economics, education, health, language, and technology adoption. To provide machine learning explainability, SHAP, based on the Shapley values, was introduced to identify features with high marginal contributions. The top 5 contributing features indicate the tight integration of technology adoption, language, and human migration patterns with the online labor market supply.
    Keywords: business, boosting, commerce and trade, digital divide, economics, ensemble learning, globalization, machine learning, random forest, social factors, statistical learning, sharing economy
    JEL: C60 F14 F16 J11 J22 M2
    Date: 2023–10–09
  19. By: Richard Hornbeck; Trevon Logan
    Abstract: We re-characterize American slavery as inefficient, whereby emancipation generated substantial aggregate economic gains. Coercive labor markets were severely distorted, with the social marginal cost of labor substantially above its marginal benefit. Production during enslavement came at immense costs imposed upon enslaved people that reduced aggregate economic surplus, or the total value of output minus total costs incurred. The costs of enslavement are inherently difficult to quantify, which leads to a wide range of quantitative estimates, but we calculate that emancipation generated aggregate economic gains worth the equivalent of a 4% to 35% increase in US aggregate productivity (7 to 60 years of technological innovation). Emancipation decreased output but sparked dramatic aggregate economic gains by decreasing costs substantially more, illustrating the substantial potential for aggregate economic gains in the presence of severe misallocation.
    JEL: J47 N31
    Date: 2023–10
  20. By: Jong-Wha Lee; Eunbi Song
    Abstract: This study analyzes Asia’s economic prospects over the next half-century, focusing on demographic changes. To project the GDP and per capita GDP growth rates for the five major Asian countries and the United States (US) until 2070, an endogenous growth model is used where physical and human capital accumulation, technological progress, and substitution between physical capital and labor are important determinants of the long-term growth rate. The simulation results show that while the declining labor force growth and an aging population have a long-term negative impact on economic growth, they will not predetermine the future of Asian economies. Highlighted is the importance of promoting technological innovation as well as investment in physical and human capital to sustain strong growth in Asian economies. China's average annual GDP growth is expected to decline to between 1.5% and 2.4% during 2051–2070, subject to scenarios. China’s higher growth trajectory could approach about 85% of the US PPP-adjusted per capita GDP by 2070. India is projected to surpass the US in PPP-adjusted GDP by 2050 and China by 2070.
    Keywords: Asia, demographic changes, economic growth, human capital, technological progress
    JEL: J11 J24 O33 O41 O53
    Date: 2023–10

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