Optimal unemployment policy in a matching equilibrium

This paper considers optimal unemployment policy in a matching equilibrium with risk averse workers and unobserved job search effort. The Planner chooses unemployment benefits, taxes and job creation subsidies to maximise a Utilitarian welfare function. Optimal policy involves a trade-off between higher employment taxes (which finance more generous unemployment benefits) and greater market tightness (which reduces the average unemployment spell). Optimal UI implies the initial UI payment equals the wage, thus ensuring consumption is smooth across the job destruction shock, and UI payments then fall with duration.     

On the extent of re-entitlement effects in unemployment compensation

We analyze the implications of two-tier unemployment compensation systems with non-automatic eligibility in an equilibrium matching model with Nash bargaining. As eligibility for UI does not automatically follow from employment, the two types of unemployed workers have different threat points, which delivers equilibrium wage dispersion. The parameters of the model are estimated for France, and the model is also calibrated for Denmark and the U.S. Re-entitlement effects are shown to be sizeable for all three countries. For France, re-entitlement effects lower by 15% the rise in the wage and by 25% the rise in unemployment following a 10% increase in the benefit level. Finally, we show that in all three countries the optimal compensation system is characterized by time-decreasing unemployment benefits and non-automatic eligibility for UI, with higher levels of both UI and UA benefits, a smaller decrease in benefits over time, and a longer employment duration required for UI eligibility than in the current system.     

The interrelated dynamics of unemployment and low‐wage employment

This paper examines the extent of state dependence in unemployment and the role played in this by intervening low‐wage employment. A range of dynamic random and fixed‐effects estimators are compared. Low‐wage employment is found to have almost as large an adverse effect as unemployment on future prospects and the difference in their effects is found to be insignificant. Evidence is presented that low‐wage jobs act as the main conduit for repeat unemployment and considerably increases its probability. Obtaining a higher‐wage job reduces the increased risk of repeat unemployment to insignificance. Copyright © 2007 John Wiley & Sons, Ltd.     

Semi-Nonparametric Estimation of an Equilibrium Search Model

We specify and estimate an equilibrium job search model with productivity differences across labour market segments. The model allows for two types of unemployment: frictional unemployment due to search frictions and structural unemployment due to wage floors. Wage floors exist because of high unemployment benefits or binding minimum wages. The productivity distribution is estimated semi-nonparametrically along the lines of Gallant-Nychka, using Hermite series approximation. We decompose the total unemployment rate and we examine the effects of changes in the minimum wage.     

Gross job flows and institutions in Europe

We examine job flows in the 1990s for a sample of 13 European countries. By using a dataset of continuing firms that covers all sectors, we find firm characteristics to be important determinants of job flows, with smaller and younger firms within services typically having a larger degree of job turnover. Once controlled for firm and sectoral effects, the role of institutions in the dynamics of job creation and destruction is examined. As expected, employment protection is found to reduce job flows. Similarly, countries with higher unemployment benefits and more co-ordinated wage bargaining systems are characterised by lower job flows.     

Do Low‐Wage Workers React Less to Longer Unemployment Benefits? Quasi‐Experimental Evidence*

The fact that unemployed workers have different abilities to smooth consumption entails heterogeneous responses to extended unemployment benefits. Our empirical exercise explores a quasi‐experimental setting generated by an increase in the benefits entitlement period. The results suggest a hump‐shape response of unemployment duration over the one‐year pre‐unemployment wage distribution; individuals at the bottom and top of the wage distribution reacted less than those in the interquartile range. This behaviour of job searchers is consistent with labour supply models with unemployment insurance and savings. It questions the optimality of very long entitlement periods to target the unemployment experiences of low‐wage workers.     

Analysis of the practice of job evaluation in the metal industry in Turkey

Job evaluation's main aim is to establish a fair wage structure. Its main principle is ‘equal pay for equal work’. ‘Metal Industry Job Grouping System’ (MIDS) has been in the metal industry in Turkey for more than 20 years. The results of the practice of the system were measured by the Gini coefficient. By the findings, the average wages of the job groups are different enough from each other by their job groups in the way the wage of the bigger number job group is higher than the smaller except the job group two in the industry. However, the wages are far from the principle ‘equal wage for equal job’ within the same job itself. In addition, the workers make use of bonuses and social benefits. The effect of social benefits of them on the wage structure is positive within the same job group and negative between different job groups within the same company. Nevertheless, the effect of both bonuses and social benefits on the wage structure is negative between the companies because, between them they are different from each other. Job group and seniority affect the wage structure. Seniority has a socio-psychological self-producing dynamic. The distribution of seniorities within the same job group has negative effects on the wage structure. However, this fact for each worker disappears for the long term since the worker of today who has short-term seniority will be the one of tomorrow who has long-term seniority. Therefore, for each worker, the wage structure gets closer to the principle ‘equal wage for equal job’ within the same job group itself over time.     

Immigrant wage profiles within and between establishments

Life cycle wages of immigrants from developing countries fall short of catching up with wages of natives. Using linked employer–employee data, we show that 40% of the native–immigrant wage gap is explained by differential sorting across establishments. We find that returns to experience and seniority are similar for immigrant and native workers, but that differences in job mobility and intermittent spells of unemployment are major sources of disparity in lifetime wage growth. The inferior wage growth of immigrants primarily results from failure to advance to higher paying establishments over time. These empirical patterns are consistent with signaling disadvantages of immigrant job seekers, but not with the explanation that low wage growth follows from inferior information about employers and job opportunities.     

How low can U go?

• ? Although there is growing evidence that wage growth is building in response to low and falling unemployment in the advanced economies, there is scope for unemployment rates to fall further without triggering a pay surge.
• ? For a start, current unemployment rates in comparison to past cyclical troughs overstate the tightness of labour markets. Demographic trends associated with the ageing ‘baby boomer’ bulge have pushed down the headline unemployment rate – unemployment rates among older workers are lower than those of younger cohorts. And in a historical context, Europe still has a large pool of involuntary part‐timers.
• ? In addition, rising participation rates mean that demographics are less of a constraint on employment growth than widely assumed. In both 2017 and 2018, had it not been for increased activity rates (mainly for older cohorts), unemployment would have had to fall more sharply to accommodate the same employment increase. We expect rising participation rates to continue to act as a pressure valve for the labour market.
• ? Finally, unemployment rates were generally far lower during the 1950s and 1960s than now. If wages stay low relative to productivity, as was the case during that prior era, employment growth may remain strong, with unemployment falling further. In the post‐war era, low wages were partly a function of a grand bargain in which policy‐makers provided full employment in return for low wage growth.
• ? There is evidence to suggest that many post‐crisis workers have opted for the security of their existing full‐time job and its associated benefits despite lower wage growth, rather than change job and potentially earn more; the rise of the ‘gig economy’ has led some workers to value what they already have more. Put another way, the non‐accelerating inflation rate of unemployment (NAIRU) has fallen. So, the role of labour market tightness in pushing wage growth higher may continue to surprise to the downside.

     

On the structure of unemployment benefits in shirking models

An increase in unemployment compensation is commonly argued to raise unemployment in a shirking model of efficiency wages. This prediction is based on the assumption of a uniform benefit level. However, 32+13if differential benefits for shirkers and non-shirkers exist, higher unemployment compensation for non-shirkers will reduce unemployment. In the long-run, this effect is amplified. Therefore, not only the level of benefits influences unemployment in an efficiency wage economy but also eligibility conditions, the effectiveness with which benefits are administered and, more generally, the institutional design of the unemployment insurance system.     

Transitions From School to Work and the Early Labour Market Experience

We consider transitions from school to work and the early market experience. The duration of post-school unemployment, wages, and job duration are estimated simultaneously. We find that individuals with higher levels ofschooling get jobs more quickly and have longer employment durations. Apprentices have shorter unemployment periods and stay longer in their jobs than others at the same educational level. Females have shorter unemployment periods and lower wages, and also stay in the first job longer. The unemployment duration and the accepted wage affect job duration positively, but the estimated covariance terms suggest unobserved factors working in the opposite direction.     

Unions and the economic basis of attitudes

Unions make differences to employee satisfaction that correspond to their effects on individual economic advantage. Panel data reveal how changes in economic circumstance and changes in job satisfaction are linked to changes in union coverage. When individuals move into a union covered job they receive a wage mark‐up and express enhanced pay satisfaction. Conversely, those moving from a union covered job on average lose any mark‐up and have significantly reduced satisfaction. Similar findings emerge for working hours. On average individuals prefer shorter hours, something they tend (not) to achieve on moving (out of) into a unionised job, resulting in higher (lower) satisfaction. Switching into union coverage lowers satisfaction with job security, even though coverage has no effect on the risk of unemployment. This is because covered employees suffer greater costs of re‐employment for a given level of unemployment risk, partly because of loss of the union mark‐up.     

Ranking of job applicants,on-the-job search,and persistent unemployment

We formulate an efficiency wage model with on-the-job search where wages depend on turnover and employers may use information on whether the searching worker is employed or unemployed as a hiring criterion. We show theoretically that such ranking of job applicants by employment status raises both the level and the persistence of unemployment and numerically that the effects may be substantial. More prevalent ranking in Europe compared to the US (because of more rigid wage structures, etc.) could potentially help to explain the high and persistent unemployment in Europe.     

Wage curve, unemployment duration and compensating differentials

In this study unemployment effects on individual pay are investigated following the study on ‘wage curves’ by Blanchflower and Oswald (1990). In bargaining models, higher unemployment should lower wage pressure; due to compensating wage differential arguments, on the other hand, workers who take jobs with higher layoff risks should be rewarded. In a cross-sectional study on Austrian data, a negative wage curve is confirmed. Contrary to the results by Blanchflower and Oswald no U-shape is found, also long-term unemployment seems to be important. No conclusive evidence of compensating differentials has been determined.     

Wage changes through job mobility in Europe: A multinomial endogenous switching approach

This paper presents evidence on the relationship between job mobility and wage mobility for various European countries using the European Community Household Panel (1994–2001). While much of the earlier research uses least-squares regression to predict wages for individuals with different labour market experience, we have found that it is important to take into account the possible non-random selection between job movers and stayers and between voluntary and involuntary movers. In this paper we focus on the effects of an unemployment spell on subsequent wages by estimating a multinomial endogenous switching model composed of two selection equations and three wage equations. Our results indicate that job mobility through unemployment has negative returns in all the analysed economies. As regards stayers, these losses range from 8% in Portugal to 21% in Germany while losses with respect to voluntary movers vary from 14% in Spain to 31% in Portugal.     

New Insights into Unemployment Duration and Post Unemployment Earnings in Germany*

Building on non‐stationary search theory ( Mortensen, 1977 ; Van den Berg, 1990 ), this article estimates the effects of UB on unemployment durations and future earnings using unique administrative data in Germany. We apply censored Box–Cox quantile regression. Our results imply that the length of entitlement shows only a weak effect on unemployment duration for entitlement lengths up to 12 months and no effect on post unemployment earnings. There are noticeable effects on exits from unemployment for entitlement lengths above 12 months. A high wage replacement rate for low‐wage earners is associated with a longer duration of unemployment and higher post unemployment earnings.     

Jobs in the 1980's and beyond

Research by the Bureau of Labor Statistics does not support the view that present trends in the workplace will have negative effects on future productivity, wages, and job creation. The shift towards a service-producing economy will not necessarily result in generally lower productivity levels, slower rates of growth, and lower wage levels, as commonly believed. Further demographic changes may bode well for productivity; the future work force will have a higher proportion in the most stable and productive years. Although there will continue to be serious problems of high unemployment for some groups and job loss due to new technologies, gloomy predictions of a huge labor surplus and a trend towards low-paying jobs are unwarranted.     

Search frictions,real wage rigidities and the optimal design of unemployment insurance

In this paper, we study the optimal unemployment benefits financing scheme when the economy is subject to labor market imperfections characterized by real wage rigidities and search frictions. The US unemployment insurance financing is such that firms are taxed proportionately to their layoffs to finance unemployment benefits. Using DSGE methodology, we investigate how policy instruments should interact with labor market imperfections. It is shown that wage rigidities in a search and matching environment cause welfare costs, especially in the absence of an incentive-based unemployment insurance. This cost is mainly due to the distorting effect of wage rigidities which generate inefficient separations. We show that the optimal unemployment benefits financing scheme – corresponding to the Ramsey policy – offsets labor market imperfections and allows implementation of the Pareto allocation. The second-best allocation brings the economy close to the Ramsey allocation. The implementation of the optimal policies clearly highlights the role of labor market institutions for short-run stabilization.     

Wage equations,wage curves and all that

This paper is concerned with the relationship between wages and unemployment. Using UK regions and individuals as the basis for our analysis, the following questions are investigated. First, is the wage equation a relationship between unemployment and wages or wage changes? Second, can we identify the relationship completely by looking at regional wages and regional unemployment or do regional wages depend on aggregate unemployment as well? Third, can we identify an upward sloping cross-section relationship between wages and unemployment corresponding to a zero migration condition? Finally, are wages influenced only by the current state of the labour market or do contracts lead to wages depending on labour market conditions in the last boom or upon entry into the job?     

Benefit Transfers in Italy: An Empirical Study of Mobility Lists in the Milan Area

This paper uses administrative data on mobility lists in the largest economic region of Italy, Lombardia, to test whether the more favourable treatment of older workers, who can draw benefits longer and transfer a larger sum to potential employers, affects in a positive way their hazard from unemployment into a permanent job. Our reduced form estimates show that older workers who draw benefits longer have a significantly lower hazard than their younger colleagues. The reduction in the hazard from unemployment is particularly pronounced for older women in the sample. Apparently, the negative effect of the treatment on the supply side, due to a higher reservation wage, prevails in our data over the positive effect, stimulated by the larger potential benefit transfers. We conclude that, if the aim of the policy is to increase the hazard from the list into a permanent job, the treatment should be modified either by reducing passive income support or by increasing the potential for benefit transfers, or, finally, by reducing the entitlement period.