nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2006‒09‒30
four papers chosen by
Maximo Rossi
Universidad de la Republica

  1. The Effects of Labor Market Policies in an Economy with an Informal Sector By James Albrecht; Lucas Navarro; Susan Vroman
  2. Does Atypical Work Help the Jobless? Evidence from a CAEAS/CPS Cohort Analysis By John T. Addison; Christopher J. Surfield
  3. Minimum Wages and Firm Training By Wolfgang Lechthaler; Dennis J. Snower
  4. Modes of Spousal Interaction and the Labor Market Environment By Daniela Del Boca; Christopher J. Flinn

  1. By: James Albrecht; Lucas Navarro; Susan Vroman (Department of Economics, Georgetown University)
    Abstract: In many economies, there is substantial economic activity in the informal labor market, beyond the reach of government policy. Labor market policies, which by definition apply only to the formal-sector can have important spillover effects on the informal sector. The relative sizes of the informal and formal sectors adjust, the skill composition of the workforce in the two sectors changes, etc. In this paper, we build an equilibrium search and matching model to analyze the effects of labor market policies in an economy with an informal sector. Our model extends Mortensen and Pissarides (1994) by allowing for ex ante worker heterogeneity with respect to formal-sector productivity. We analyze the effects of labor market policy on informal- and formal-sector output, on the division of the workforce into unemployment, informal-sector employment and formal-sector employment, and on wages. Finally, our model allows us to examine the distributional implications of labor market policy; specifically, we analyze how labor market policy affects the distributions of wages and productivities across formal-sector matches. Classification-JEL Codes: E26, J64, J65, O17
    Keywords: search, matching, informal sector
  2. By: John T. Addison (University of South Carolina, Queen’s University Belfast, Universidade de Coimbra/GEMF and IZA Bonn); Christopher J. Surfield (Saginaw Valley State University)
    Abstract: Atypical employment, such as temporary, on-call, and contract work, has been found disproportionately to attract the jobless. But there is no consensus in the literature as to the labour market consequences of such job choice by unemployed individuals. Using data from the Current Population Survey, we investigate the implications of the initial job-finding strategies pursued by the jobless for their short- and medium-term employment stability. At first sight, it appears that taking an offer of regular employment provides the greatest degree of employment continuity for the jobless. However, closer inspection indicates that the jobless who take up atypical employment are not only more likely to be employed one month and one year later than those who continue to search, but also to enjoy employment continuity that is no less favorable than that offered by regular, open-ended employment.
    Keywords: atypical/contingent work, open-ended employment, employment continuity, unemployment, inactivity
    JEL: J40 J64 J20
    Date: 2006–09
  3. By: Wolfgang Lechthaler; Dennis J. Snower
    Abstract: The paper analyzes the influence of minimum wages on firms’ incentive to train their employees. We show that this influence rests on two countervailing effects: minimum wages (i) augment wage compression and thereby raise firms’ incentives to train and (ii) reduce the profitability of employees, raise the firing rate and thereby reduce training. Our analysis shows that the relative strength of these two effects depends on the employees’ ability levels. Our striking result is that minimum wages give rise to skills inequality: a rise in the minimum wage leads to less training for low-ability workers and more training for those of higher ability. In short, minimum wages create a "low-skill trap."
    Keywords: Minimum Wage, Firm Training, Skills Inequality
    JEL: J24 J31
    Date: 2006–09
  4. By: Daniela Del Boca; Christopher J. Flinn
    Abstract: We formulate a model of household behavior in which cooperation is costly and in which these costs vary across households. Some households rationally decide to behave noncooperatively, which in our context is an efficient outcome. An intriguing feature of the model is that, while the welfare of the spouses is continuous in the state variables, labor supply decisions are not. Small changes in state variables may result in large changes in labor supplies when the household switches its mode of behavior. We estimate the model using a nationally representative sample of Italian households and find that the costly cooperation model signfificantly outperforms a noncooperative model. This suggests the possibility of attaining large gains in aggregate labor supply by adopting policies which promote cooperative household behavior.
    Keywords: Household Time Allocation, Nash Bargaining, Nash Equilibrium; Maximum Likelihood.
    JEL: C79 D19 J22
    Date: 2006

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