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on Labor Markets - Supply, Demand, and Wages |
| By: | Portugal, Pedro (Banco de Portugal); Reis, Hugo (Banco de Portugal); Guimaraes, Paulo (Banco de Portugal); Cardoso, Ana Rute (IAE Barcelona (CSIC)) |
| Abstract: | We employ a regression model with spillover effects to show that the impact of peer quality on wages is quite large. We estimate that a 10 percent increase in peer quality implies a 2.1 percent increase in an individual's wage. In addition, we estimate the external returns to education using a novel identification strategy, which is strictly based on the peer effect channel, netting out the role of homophily and labor market sorting. We show that a one-year increase in the co-workers' education leads to a 0.58 percent increase in wages. We also show that both effects fade smoothly over time. |
| Keywords: | wage distribution, human capital spillovers, external returns to education, peer effects, linked employer-employee data, high-dimensional fixed effects, workplace, job and occupation |
| JEL: | J31 J24 I26 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17690 |
| By: | Muffert, Johanna (FAU Erlangen Nuremberg); Winkler, Erwin (University of Erlangen-Nuremberg) |
| Abstract: | We study how the effects of exports on earnings vary across individual workers, depending on a wide range of worker, firm, and job characteristics. To this end, we combine a generalized random forest with an instrumental variable strategy. Analyzing Germany's exports to China and Eastern Europe, we document sharp disparities: workers in the bottom quartile (ranked by the size of the effect) experience little to no earnings gains due to exports, while those in the top quartile see considerable earnings increases. As expected, the workers who benefit the most on average are employed in larger firms and have higher skill levels. Importantly, however, we also find that workers with the largest earnings gains tend to be male, younger, and more specialized in their industry. These factors have received little attention in the previous literature. Finally, we provide evidence that the contribution to overall earnings inequality is smaller than expected. |
| Keywords: | machine learning, earnings, inequality, exports, skills, labor market |
| JEL: | C52 F14 J23 J24 J32 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17667 |
| By: | Diem, Andrea (Swiss Coordination Centre for Research in Education); Gschwendt, Christian (University of Bern); Wolter, Stefan C. (University of Bern) |
| Abstract: | A university degree is a risky investment because of the non-negligible risk of having to drop out of university without graduating. However, the costs of this risk are controversial, as it is often argued that even an uncertified year of study has a value in the labor market. To determine this value causally, however, alternatives to studying must also be considered, which is done here with the help of a discrete choice experiment with a representative sample of over 2, 500 HR recruiters. The result is that dropping out of university with a major closely related to an advertised job leads to similar labor market outcomes as if someone had not studied at all. Without a direct link to a job, however, dropping out of university significantly reduces lifetime earnings. Furthermore, HR recruiters clearly prefer applicants who have used the years without studying for human capital accumulation in an alternative way, for example in the form of a traineeship. |
| Keywords: | dropouts, hiring decisions, discrete choice experiment, sheepskin effect, willingness to pay, tertiary education |
| JEL: | I26 J23 J24 J31 M51 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17693 |
| By: | Eibich, Peter (PSL Université Paris Dauphine); Kanabar, Ricky (University of Bath); Plum, Alexander T. (Auckland University of Technology) |
| Abstract: | We study how population variation in testosterone levels impacts male labour market earnings using data from the UK Household Longitudinal Study between 2011 and 2013. We exploit genetic variation between individuals as instrumental variables following a Mendelian Randomization approach to address the endogeneity of testosterone levels. Our findings show that higher testosterone levels have a strong positive impact on earnings. Importantly, these findings are limited to men belonging to the lower quartile of the testosterone distribution and working in higher-paid jobs. We show that differences within rather than between occupations drive these findings, whereas we find limited support for selection into occupation or mechanisms involving individual characteristics, including personality traits and education. |
| Keywords: | earnings, IV, testosterone, Mendelian Randomisation |
| JEL: | J31 C26 I10 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17699 |
| By: | Okuyama, Yoko (Uppsala University); Murooka, Takeshi (Osaka University); Yamaguchi, Shintaro (University of Tokyo) |
| Abstract: | We estimate the child penalty using detailed personnel records that enable decomposition into distinct pay components. Our analysis reveals that the penalty is initially driven by reductions in time-based pay following childbirth. However, job-rank-based pay becomes increasingly significant over time, emerging as the dominant factor by the 15-year mark. These effects are interconnected: reduced working hours lead to lower performance evaluations, which subsequently limit promotion opportunities. Our theoretical model demonstrates that current promotion practices, which reward extended hours at entry-level positions, can generate production ineffciency. This finding suggests that addressing promotion practices could simultaneously reduce gender inequality and improve talent allocation, making a compelling business case for organizational reform. |
| Keywords: | child penalty, promotion, management practice, personnel economics, internal labor markets, gender pay gap, career progression |
| JEL: | J13 J16 J24 J31 M51 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17673 |
| By: | Bertheau, Antoine (Norwegian School of Economics); Kudlyak, Marianna (Federal Reserve Bank of San Francisco); Larsen, Birthe (Copenhagen Business School); Bennedsen, Morten (University of Copenhagen) |
| Abstract: | We use a novel large-scale survey of firms, implemented in Denmark in 2021 and linked to administrative data, to study why firms lay off workers instead of cutting wages. Our questions on layoffs, wage cuts, and the link between them provide new insights into firms' strategies for adjusting labor in response to adverse shocks. We find that layoffs are more prevalent than wage cuts, but wage cuts are not rare in firms experiencing revenue reduction and were used by 15% of such firms. Employers are hesitant to cut wages in many instances because they see wage cuts as a poor substitute for layoffs. First, firms report that lowering wages triggers costs through the impact on morale and quits. Comparing these costs with potential savings from wage cuts, most employers in the survey agree that a wage reduction would not have saved jobs. Second, firms report that a crisis is an opportune time for layoffs because of lower opportunity costs of restructuring and because layoffs during a crisis are perceived by workers as more fair. We find that firms that report such opportunistic layoffs are less likely to implement wage cuts. |
| Keywords: | wage rigidity, layoffs |
| JEL: | D22 J30 J63 J23 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17704 |
| By: | Forth, John (City St George's, University of London); Jones, Melanie K. (Cardiff University) |
| Abstract: | We assess the extent to which the UK disability pay gap is a consequence of the distribution of workers across firms and within-firm disability pay gaps. We do so by applying decomposition methods to newly-linked data which matches high quality information from employer payroll records to Census data on disability. Our findings indicate that the distribution of disabled and non-disabled employees across firms acts to reinforce within-firm disability-related pay inequality in England and Wales. However, both the disability pay gap and unexplained disability pay gap predominately exist within rather than between firms, supporting the introduction of employer disability pay gap reporting in the UK. |
| Keywords: | disability pay gap, wage discrimination, linked employer-employee data |
| JEL: | J31 J71 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17679 |
| By: | Lucifora, Claudio (Università Cattolica del Sacro Cuore); Origo, Federica (University of Bergamo) |
| Abstract: | We investigate how firms adjust to demand shocks when wages and employment determination are regulated. Using firm-level data for the Italian metal engineering industry from 2009 to 2021, we estimate the elasticity of the wage bill to changes in firm's real sales. We disentangle the effect on wage components (base wage and wage cushion) and labour inputs (permanent or temporary employment and working hours). Results show that the elasticity of the wage bill to demand shocks mainly works through adjustment of working hours (especially via short-time work) and partly employment, while wages are less sensitive. Unions at the workplace reduce employment adjustment through a more intensive use of short-time work schemes. The lower employment adjustment to changes in sales in unionized firms does not depend on past investments or innovation, and it is associated to higher responsiveness of profits to declining sales only in weakly unionized firms. |
| Keywords: | labour adjustment, product demand shock, short-time work, unions, collective bargaining |
| JEL: | J30 J58 C81 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17670 |
| By: | Mogstad, Magne (University of Chicago); Salvanes, Kjell G. (Norwegian School of Economics); Torsvik, Gaute (University of Oslo) |
| Abstract: | Policymakers, public commentators, and researchers often cite the Nordic countries as examples of a social and economic model that successfully combines low income inequality with prosperity and growth. This article aims to critically assess this claim by integrating theoretical perspectives and empirical evidence to illustrate how the Nordic model functions and why these countries experience low inequality. Our analysis suggests that income equality in the Nordics is primarily driven by a significant compression of hourly wages, reducing the returns to labor market skills and education. This appears to be achieved through a wage bargaining system characterized by strong coordination both within and across industries. This finding contrasts with other commonly cited explanations for Nordic income equality, such as redistribution through the taxtransfer system, public spending on goods that complement employment, and public policies aimed at equalizing skills and human capital distribution. We consider the potential lessons for other economies that seek to reduce income equality. We conclude by discussing several underexplored or unresolved questions and issues. |
| Keywords: | facts and myths, Nordic Model |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17677 |
| By: | Buser, Thomas (University of Amsterdam); Sangi, Sahar (University of Amsterdam) |
| Abstract: | Competitive environments often leave room for "dirty" practices such as sabotage, retaliation, or dishonesty. We use an online experiment to document aggregate levels and individual differences in the willingness to engage in dirty competition and in the willingness to enter competitions where the opponent may play dirty. We then use the experimental data to validate a set of survey questions that capture willingness to engage in dirty competition above general willingness to compete. We elicit these questions in a representative survey panel and show that willingness to engage in dirty competition is a strong predictor of holding a management or supervisory position and of working in the private – versus the public – sector, but also of worse self-esteem, worse social relationships, and increased feelings of guilt and shame. Men, younger people, and lower-educated people are on average more willing to engage in dirty competition. |
| Keywords: | preferences, personaility, career choice |
| JEL: | D91 J24 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17676 |
| By: | Kodama, Naomi (Meiji Gakuin University); Kambayashi, Ryo (Musashi University); Izumi, Atsuko (University of Tokyo) |
| Abstract: | Non-Compete Agreements (NCAs) restrict workers from joining or forming rival companies, which impacts labor market dynamics. Theoretical perspectives on NCAs are varied: they can lead to increased employer investment and higher wages by reducing labor turnover, or they might simply raise wages to compensate for the restriction on workers' post-employment choices. Alternatively, NCAs could reduce workers' outside options, leading to unfavorable terms and lower wages. This paper empirically examines the relationship between NCAs and factors such as firm profit, average wages, and training provisions using a firm-level survey in Japan. Estimation results indicate that firms that use NCAs are more likely to invest in their workers, particularly in off-the-job training. In addition, NCAs are positively associated with firm sales, average wages, and labor productivity. These results support the theory that NCAs encourage firms to invest more in their human capital, leading to higher wages and productivity. Our results also align with previous studies on the Japanese labor markets, highlighting the role of employers in investing in human capital. In general, the study adds evidence to the debate on the fairness and economic impact of NCAs. |
| Keywords: | Non-Compete Agreement, wages, human capital investment |
| JEL: | J24 J41 K31 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17685 |
| By: | Kambayashi, Ryo (Musashi University); Ohyama, Atsushi (Hitotsubashi University) |
| Abstract: | We empirically examine whether and how management facilitates Work From Home (WFH) arrangements using data from the 2020 Management and Organizational Practices Survey conducted in Japan (2020 JP MOPS). In this study, we view WFH arrangements as choices made by establishments/firms and analyze the variation in these arrangements across establishments/firms through the lens of managerial heterogeneity. Our empirical investigation reveals the multi-faceted roles management plays in WFH arrangements. First, well-managed establishments tend to adopt advanced digital technologies that support WFH arrangements, positioning management as a mediator in this context. Second, well-managed establishments are more likely than their poorly managed counterparts to implement WFH arrangements independent of technological factors. Performance-based systems with appropriate rewards appear to effectively incentivize remote workers. Finally, WFH arrangements are positively correlated with labor productivity when management scores are high but show no correlation when management scores are low. Thus, management plays a moderating role in the relationship between WFH arrangements and labor productivity. The overall findings from this study suggest that heterogeneity in management among establishments contributes to the variation in WFH arrangements. |
| Keywords: | WFH, structured management, advanced technology |
| JEL: | M54 L25 O33 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17668 |
| By: | Battaglia, Emily (University of Delaware); Brown, Jessica H. (University of South Carolina) |
| Abstract: | Pregnancy accommodation laws require "reasonable accommodations" for pregnant workers, i.e., sitting down, lifting restrictions, and additional bathroom breaks. Although these laws may make it easier for women to remain employed during pregnancy, as a mandated benefit, they may also discourage employers from hiring employees who may become pregnant. We estimate the effect of pregnancy accommodation laws on labor market outcomes for women of childbearing age in order to determine whether these laws lead employers to discriminate against young women in hiring. Using a triple differences design comparing women's and men's labor market outcomes throughout the staggered roll-out of thirteen pregnancy accommodation laws from 2013 to 2016, we find no overall impact on female employment and wages. Under some specifications, we find women are more likely to choose occupations where physical abilities are important, suggesting possible increased accessibility. For subgroups more likely to be impacted - those with less education, in more physically-intense occupations, and married without children - we do find modest declines in earnings and employment. That the burden falls on both suggests women value the benefit but at less than it costs to provide. |
| Keywords: | pregnancy accommodations, mandated benefits |
| JEL: | K31 J32 I18 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17688 |
| By: | Fang, Lei (Federal Reserve Bank of Atlanta); Hannusch, Anne (University of Bonn); Silos, Pedro (Temple University) |
| Abstract: | We study consumption and welfare inequality by analyzing how households allocate resources—market expenditures and the value of time—to the production of activities. The share of resources allocated to an activity rises or falls with wages, classifying them into luxuries or necessities, respectively. An estimated model with non-homothetic preferences shows that the rise in consumption inequality between 2004 and 2019 was mostly due to an increase in wage dispersion, while rising prices, especially of leisure luxuries, had a significant negative effect on inequality. The distinction between luxuries and necessities amplifies the counteracting effects of wage and price on inequality. |
| Keywords: | time allocation, consumption expenditures, luxuries, necessities, activity production, inequality |
| JEL: | J22 E21 D11 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17664 |
| By: | Asahi Sato |
| Abstract: | Traditionally, the impact of minimum wages on employment has been studied, and it is generally believed to have a negative effect. Yet, some recent studies have shown that the impact of minimum wages on employment can sometimes be positive. In addition, certain recent proposals set a higher minimum wage than the wage earned by some high-productivity workers. However, the impact of minimum wages on employment has been primarily studied on low-skilled workers, whereas there is limited research on high-skilled workers. To address this gap and examine the effects of minimum wages on high-productivity workers' employment, I construct a macroeconomic model incorporating productivity fluctuations, incomplete markets, directed search, and on-the-job search and compare the steady-state distributions between the baseline model and the model with a minimum wage. As a result, binding minimum wages increase the unemployment rate of both low and high-productivity workers. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.18261 |
| By: | Pencavel, John H. (Stanford University) |
| Abstract: | The operation of American labor markets during the two World Wars is described and the well-being of civilian workers during those years is assessed. These were periods when decentralized capitalism was replaced with a system of centralized direction and control that some would call socialism. The state's activities were those of a monopsonist - the dominant or, even, single buyer - in the markets for many goods and services. Why was decentralized capitalism discarded as a mechanism to allocate resources during these critical periods? How well did civilian workers fare during these years? |
| Keywords: | World War, employment, wages, unionism, laissez faire, socialism |
| JEL: | J20 N32 P23 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17680 |
| By: | Saint-Paul, Gilles (Paris School of Economics) |
| Abstract: | This paper examines the potential for automation and artificial intelligence (AI) to induce a broader economic decline, impacting not only labor but also the owners of capital and advanced technology. While automation has traditionally favored skilled over unskilled workers, recent advancements in AI suggest that it could replace skilled labor as well, raising concerns over a diminishing middle class and the viability of mass consumption society. This study proposes a model with non-homothetic preferences and increasing returns technology, positing that in a world where AI eliminates skilled labor, demand for mass-produced goods may fall, destabilizing the very capitalist class reliant on consumer society. Within this framework, political power lies with the "oligarchs, " or owners of proprietary technology, who may adopt policies such as Universal Basic Income (UBI) or Post-Fordism to sustain consumer demand and profitability. The analysis explores how oligarchs might use different policy mechanisms, including decisive control or lobbying-based menu auctions, to influence economic outcomes. Findings suggest that policy preferences vary among oligarchs based on their market focus, with luxury producers favoring policies that sustain a middle class and necessity producers inclined to support AI-driven automation under minimal redistribution. The paper provides insights into the complex interactions between technology, income distribution, and political economy under advanced automation. |
| Keywords: | automation, Artificial Intelligence, income inequality, capitalism, middle class, Universal Basic Income (UBI), Post-Fordism, political economy, consumer society, oligarchs |
| JEL: | O33 D63 J24 E25 D72 L16 P16 H23 D31 D42 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17682 |