nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2024‒02‒05
sixteen papers chosen by
Joseph Marchand, University of Alberta

  1. Income Taxation and Hours Worked in Different Types of Entrepreneurship By Can, Ege; Fossen, Frank M.
  2. Employers’ Demand for Personality Traits and Provision of Incentives By Brencic, Vera; McGee, Andrew
  3. Outsourcing Policy and Worker Outcomes: Causal Evidence from a Mexican Ban By Alejandro Estefan; Roberto Gerhard; Joseph P. Kaboski; Illenin O. Kondo; Wei Qian
  4. When protection becomes exploitation: The impact of firing costs on present-biased employees By Florian Englmaier; Matthias Fahn; Ulrich Glogowsky; Marco A. Schwarz
  5. Education Expansion, College Choice and Labour Market Success By Federica Braccioli; Paolo Ghinetti; Simone Moriconi; Constanza Naguib; Michelle Pellizzari
  6. Infection Risk at Work, Automatability, and Employment By Ana L. Abeliansky; Klaus Prettner; Roman Stoellinger
  7. A Delegation Approach to Regulating Hiring Discrimination By Paolo Martellini; Guido Menzio
  8. The Asymmetric Effect of Wage Floors: A Natural Experiment with a Rising and Falling Minimum Wage By Huet-Vaughn, Emiliano; Piqueras, Jon
  9. Non-Wage Job Values and Implications for Inequality By Lehmann, Tobias
  10. Pronoun Disclosure and Hiring Discrimination: A Resume Audit Study By Taryn Eames
  11. The Mismeasurement of Work Time: Implications for Wage Discrimination and Inequality By George J. Borjas; Daniel S. Hamermesh
  12. How Do Firms Respond to Unions? By Dodini, Samuel; Stansbury, Anna; Willén, Alexander
  13. Disentangling Various Explanations for the Declining Labor Share: Evidence from Millions of Firm Records By Ann Harrison
  14. Immigration and vocational training: Evidence from England By Alan Manning; Sandra McNally; Guglielmo Ventura
  15. Local Variation in Onsite Work during the Pandemic and its Aftermath By Katharine G. Abraham; Mohammad Ashoori; Aref Darzi; Nathalie Gonzalez-Prieto; John C. Haltiwanger; Aliakbar Kabiri; Erkut Y. Ozbay
  16. The Granular Origins of Agglomeration By KIKUCHI Shinnosuke; Daniel G. O'CONNOR

  1. By: Can, Ege (University of Nevada, Reno); Fossen, Frank M. (University of Nevada, Reno)
    Abstract: We investigate the effect of personal income tax (PIT) rates on the number of hours entrepreneurs work weekly. Using the rotating panel data from the Annual Social and Economic Supplement of the Current Population Survey from 2003 to 2019, we estimate instrumental variable regressions in first differences to exploit changes in the tax code for identification. We distinguish between self-employed owners of incorporated versus unincorporated businesses and examine their differential responses. The findings reveal that higher individual-specific marginal PIT rates increase the hours worked among entrepreneurs with incorporated businesses, which could be explained by the availability of tax avoidance strategies. Among unincorporated entrepreneurs, we find a significant response to PIT rates in hours worked only for those who work 50 or more hours per week.
    Keywords: income taxes, entrepreneurship, self-employment, labor supply, incorporated, unincorporated
    JEL: H24 H25 J22 J23 L26
    Date: 2023–12
  2. By: Brencic, Vera (University of Alberta, Department of Economics); McGee, Andrew (University of Alberta, Department of Economics)
    Abstract: We measure firms’ demands for personality traits from job ads and assess how these demands relate to the incentives firms offer. The demand measures produce intuitive rankings of occupations in terms of personality requirements and, at the occupation-level, are positively correlated with the traits of workers in those occupations for all traits except emotional stability. Employers primarily demand workers who are extroverted, conscientious, and open-to-experience. Firms seeking conscientious workers are less likely to offer incentive pay and promotion opportunities, which suggests that personality demands interact with the optimal design of pay if conscientious workers require fewer incentives to elicit effort.
    Keywords: personality; job ads; incentive pay; promotions; recruitment
    JEL: D22 J23 J24 J33 M51
    Date: 2023–12–29
  3. By: Alejandro Estefan; Roberto Gerhard; Joseph P. Kaboski; Illenin O. Kondo; Wei Qian
    Abstract: A weakening of labor protection policies is often invoked as one cause of observed monopsony power and the decline in labor's share of income, but little evidence exists on the causal impact of labor policies on wage markdowns. Using confidential Mexican economic census data from 1994 to 2019, we document a rising trend over this period in on-site outsourcing. Then, leveraging data from a manufacturing panel survey from 2013 to 2023 and a natural experiment featuring a ban on domestic outsourcing in 2021, we show that the ban drastically reduced outsourcing, increased wages, and reduced measured markdowns without lowering output or employment. Consistent with the presence of monopsony power, we observe large markdowns for the largest firms, with the decline in markdowns in response to the ban concentrated among high-markdown firms. However, we also find that the reform reduced capital investment and increased the probability of market exit.
    JEL: J38 J42 J8 J81 O15
    Date: 2024–01
  4. By: Florian Englmaier; Matthias Fahn; Ulrich Glogowsky; Marco A. Schwarz
    Abstract: Employment protection harms early-career employees without benefitting them in later career stages (Leonardi and Pica, 2013). We demonstrate that this pattern can result from employers exploiting naive present-biased employees. Employers offer a dynamic contract with low early-career wages, an unattractive intermediate qualification stage, and high end-of-career wages. Upon reaching the qualification stage, present-biased employees exchange future wages for immediate rewards on an alternative career path - a choice unanticipated by their previous, naive, self. Thus, employers never pay high future wages. Firing costs help employers indicate that they will not oust employees instead of making promised payments, enabling early-career wage cuts.
    Keywords: Employment protection laws, present bias, dynamic contracting
    JEL: D21 D90 J33 K31 M52
    Date: 2023–12
  5. By: Federica Braccioli; Paolo Ghinetti; Simone Moriconi; Constanza Naguib; Michelle Pellizzari
    Abstract: We study the choice of acquiring STEM college education using variation induced by the proximity to universities offering different types of programs. We adopt the methodology by Heckman and Pinto (2018) allowing the identification of the distribution of response types and treatment effects with multiple unordered choices. We combine survey data for Italy with historical information about the founding dates of all universities and faculties. We find that most compliers are women at the margin of choosing STEM education versus not going to college. Expanding the supply of STEM education could reduce the gender gap in STEM by 20%.
    Keywords: monotonicity, returns to education, STEM, Instrumental Variables
    JEL: I23 I26 I28 J31
    Date: 2024–01
  6. By: Ana L. Abeliansky (Department of Economics, Vienna University of Economics and Business); Klaus Prettner (Department of Economics, Vienna University of Economics and Business); Roman Stoellinger (Department of Economics, Vienna University of Economics and Business)
    Abstract: We propose a model of production featuring the trade-off between employing workers versus employing robots and analyze the extent to which this trade-off is altered by the emergence of a highly transmissible infectious disease. Since workers are - in contrast to robots - susceptible to pathogens and also spread them at the workplace, the emergence of a new infectious disease should reduce demand for human labor. According to the model, the reduction in labor demand concerns automatable occupations and increases with the viral transmission risk. We test the model's predictions using Austrian employment data over the period 2015-2021, during which the COVID-19 pandemic increased the infection risk at the workplace substantially. We find a negative effect on occupation-level employment emanating from the higher viral transmission risk in the COVID years. As predicted by the model, a reduction in employment is detectable for automatable occupations but not for non-automatable occupations.
    Keywords: Automation, robots, pandemics, viral transmission risk, occupational employment, shadow cost of human labor
    JEL: I14 J21 J23 J32 O33
    Date: 2023–12
  7. By: Paolo Martellini; Guido Menzio
    Abstract: We approach the design of anti-discriminatory labor market regulation as a delegation problem. A private firm (the agent) is repeatedly faced with the opportunity of hiring one among several applicants to fill its vacancies. The firm is biased against applicants from some demographic group, and it is neutral towards applicants from some other group. Applicants differ not only with respect to their demographic characteristics, but also with respect to the idiosyncratic quality of their match with firm. A benevolent and unbiased labor market authority (the principal) enacts a hiring regulation (a direct-revelation mechanism without transfers) in order to reduce the impact of the firm's bias on its hiring behavior. The hiring regulation is constrained by the fact that the quality of the match between any particular applicant and the firm is privately observed by the firm. We characterize the optimal mechanism.
    JEL: D82 J71
    Date: 2024–01
  8. By: Huet-Vaughn, Emiliano (Pomona College); Piqueras, Jon (University College London)
    Abstract: Exploiting a unique natural experiment, we showthe asymmetric effects of a large increase and an equivalent subsequent decrease to a binding minimum wage. Wages in a leading low-wage industry increase as the minimumwage rises, but do not fall when it is lowered. This boost for low-wage workers' earnings is apparently permanent five years after the policy is revoked, providing novel evidence of hysteresis in wage setting from temporary labor policy. In the first year post repeal this is consistent with downward nominal wage rigidity. But, the elevated earnings persist even in high inflation times, contrary to the prediction from existing work that real wage reductions under high inflation should erode the nominal wage gap relative to unaffected firms. Our findings thus challenge the conventional view that inflation "greases the wheels" of the labor market in the face of downward nominal wage rigidity, and, demonstrate the value of even transitory labor market policy in achieving permanent gains for workers (play it while you got it).
    Keywords: hysteresis, minimum wage, downward nominal wage rigidity
    JEL: J3 J8 E24 E31
    Date: 2023–12
  9. By: Lehmann, Tobias (USI Università della Svizzera Italiana)
    Abstract: I study inequality in job values, both in terms of wages and non-wage values, in Austria over the period 1996 to 2011. I show that differences in non-wage job value between firms are non-parametrically identified from data on worker flows and wage differentials. Intuitively, firms with high non-wage value attract workers without paying a wage premium. I study the distribution of job value among workers and find a positive correlation between wage and non-wage value. Inequality in job value is thus considerably greater than wage inequality, reflected in the standard deviation of job value being more than twice as large as the standard deviation of wage. Job value inequality increases between 1996 and 2011, although wage inequality remains constant. An important reason is that, over time, dispersion of rents offered by firms increases, while compensating differentials lose importance.
    Keywords: inequality, amenities, worker heterogeneity, firm heterogeneity, on-the-job search, wage dispersion, matched employer-employee data
    JEL: E24 J31 J32
    Date: 2023–12
  10. By: Taryn Eames
    Abstract: This paper presents the results of the first large-scale correspondence study estimating hiring discrimination against applicants who disclose pronouns. A resume audit design is leveraged, where two fictitious resumes are sent in response to each job posting: in each pair, the treatment resume contains pronouns listed below the name and the control resume does not list any pronouns. Two treatments are considered: nonbinary "they/them" pronouns and binary "he/him" or "she/her" pronouns congruent with the sex implied by the applicant's name. Strong evidence is found that disclosing "they/them" pronouns reduces positive employer response: discrimination estimates are robust to the Heckman-Siegelman critique and magnitude is statistically larger compared to those disclosing "he/him" or "she/her" pronouns. Further, there is suggestive evidence that discrimination is higher in Republican than Democratic geographies. By comparison, there is limited evidence that disclosing "he/him" or "she/her" pronouns results in discrimination.
    Keywords: field experiment; correspondence study; resume audit study; discrimination; pronouns; nonbinary people; labour market
    JEL: C93 J15 J16 J23 J71
    Date: 2024–01–15
  11. By: George J. Borjas; Daniel S. Hamermesh
    Abstract: Comparing measures of work time in the recall CPS-ASEC data with contemporaneous measures reveals many logical inconsistencies and probable errors. About 8 percent of ASEC respondents report weeks worked last year that contradict their current work histories in the Basic monthly interviews; the error rate is over 50 percent among workers who move in and out of the workforce. Over 20 percent give contradictory information about whether they usually work a full-time weekly schedule. Part of the inconsistency arises because an increasing fraction of ASEC respondents (over 20 percent by 2018) consists of people whose record was fully imputed. The levels and trends of the errors differ by gender and race, and they affect measured wage differentials between 1978 to 2018. Adjusting for the errors and imputations, gender wage gaps among all workers narrowed by 4 log points more than is commonly reported, and residual wage inequality decreased by 6 log points more. In a very carefully defined sample of full-time year-round workers, gender and racial wage differentials narrowed slightly less than previously estimated using ASEC data, but much more than indicated by commonly used estimates from CPS Outgoing Rotation Groups.
    JEL: D63 J22 J71
    Date: 2024–01
  12. By: Dodini, Samuel (Dept. of Economics, Norwegian School of Economics and Business Administration); Stansbury, Anna (Institute for Work and Employment Research, Massachusetts Institute of Technology, Sloan School of Management); Willén, Alexander (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: This paper provides a comprehensive assessment of the margins along which firms in Norway respond to increased union density, using legislative changes in the tax deductibility of union dues as a quasi-exogenous shock to firm-level unionization rates. Despite higher personnel costs driven by a union wage premium, the average manufacturing firm increases employment and scales up production, charges higher prices in the product market, enjoys higher nominal value added per worker, and experiences no decrease in profits. We show that this result is a direct implication of the labor- and product-market power that the average manufacturing firm possesses, in combination with a reallocation of inputs and industry revenue shares from smaller and less unionized firms to larger and more unionized firms. Larger firms are, therefore, increasing employment and output at the same time their ability to mark up prices is growing, thereby preventing negative profit effects. For the broader private sector in which firms do not hold much price- or wage-setting power, we observe the opposite result: the average firm reduces employment and profit falls. We synthesize these findings through a partial-equilibrium model of firm decision-making that incorporates union bargaining, product-market price-setting power, and labor market monopsony power.
    Keywords: Unions; Price pass-through; Firms; Market Power; Labor Costs
    JEL: D22 J30 J42 J51
    Date: 2023–12–22
  13. By: Ann Harrison
    Abstract: This paper uses millions of records from a cross-country and time series database of both publicly listed and private companies to disentangle the role of technological change, market power, and globalization in driving a fall in the labor share. Labor shares are measured at the enterprise level as the share of total remuneration to workers in value-added. Technological change is measured using research and development expenditures or total factor productivity growth. Market power is measured using four firm and twenty firm concentration ratios and globalization is measured as export shares in total revenues. We also supplement the cross-country evidence with a more in depth look at China using its industrial census. The evidence suggests that between 1995 and 2019 the most important driver of falling labor shares was technological change. Greater market power (measured by firm concentration ratios) also contributed to lower labor shares, but the magnitudes are smaller. Finally, the evidence on globalization is mixed: trade shares are at times negatively associated with the labor share but in the case of China there is a strong positive relationship between exporting and labor shares at the enterprise level.
    JEL: F13 F16 J32
    Date: 2024–01
  14. By: Alan Manning; Sandra McNally; Guglielmo Ventura
    Abstract: Firms have two ways to ensure access to a skilled workforce: they can train their employees to the required level of skill or they can hire workers who are already skilled. Training is costly and an increase in the availability of skilled workers may dissuade firms from providing it. In this paper we study the impact of a large increase in net migration to the UK on workers' participation in vocational training. We use administrative information on publicly-funded workplace training capturing provision of training in nationally-recognised sector-wide general skills. We consider variation in migration inflows across local labour markets using a shift-share IV approach to deal with migrants' endogenous sorting across regions or occupations. Our evidence suggests that higher migration intensity led to a reduction in training participation among workers. But effects are concentrated in types of training that are less valuable and among workers who are less likely to benefit from it (in terms of higher earnings).
    Keywords: migration, training
    Date: 2024–01–10
  15. By: Katharine G. Abraham; Mohammad Ashoori; Aref Darzi; Nathalie Gonzalez-Prieto; John C. Haltiwanger; Aliakbar Kabiri; Erkut Y. Ozbay
    Abstract: Using longitudinal data on the location of mobile devices, we provide new evidence on the evolution of onsite work (OSW) over the course of the pandemic and its aftermath. We start with a large sample of individuals who, based on their mobile device activity, had a job at which they worked onsite in February 2020. We track the evolution of these individuals’ onsite work activity over the following thirteen to fourteen months, observing them in May 2020, August 2020, November 2020 and March/April 2021. Consistent with other evidence, we find a dramatic decline in OSW in May 2020 followed by a substantial rebound by the spring of 2021, albeit to a lower level than in February 2020. We document considerable cross-state, cross-city and cross-county variation in OSW. We also find, however, that the tract-level variation in OSW within states, cities and even counties far exceeds the variation across larger geographic areas. Observable characteristics such as industry, occupation, education and income account for much of the variation in OSW across large geographic areas since the pandemic. These same variables account for much of the enormous cross-tract variation in OSW that remains after controlling for state or county, but more than half of the cross-tract variation is accounted for by residual factors. These findings imply considerable heterogeneity in how the pandemic has affected where the resident populations of U.S. neighborhoods spend their days, a finding that has significant implications for businesses, workers, and policymakers.
    JEL: J21 L23 R23 R40
    Date: 2024–01
  16. By: KIKUCHI Shinnosuke; Daniel G. O'CONNOR
    Abstract: A few large firms dominate many local labor markets. This leaves workers vulnerable to firm-specific shocks. If one firm has a bad productivity shock in a small market, workers will be stuck with that unproductive employer, while in a large labor market, workers can move to another firm. Building on that insight, we present a model of local labor markets with a finite number of firms subject to idiosyncratic shocks. We show that there are increasing returns to scale which disappear as the number of firms goes to infinity. We also show that there can be under-entry of firms, especially in small markets. We then test the main mechanism in Japanese administrative data. We first confirm that payroll is less volatile in larger, less concentrated local labor markets. We also show that establishments with larger payroll shares respond less in adjusting employment to a demand shock. Finally, we propose a quantitative, granular model of economic geography with free entry of firms and costly mobility of workers across sectors and commuting zones that could be used to quantify our mechanisms and do counterfactuals.
    Date: 2024–01

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