Worker turnover at the firm level and crowding out of lower educated workers

This paper investigates whether employers exploit cyclical downturns to improve the average skill level of their work force. We use a unique dataset that contains information on workers, jobs as well as firm characteristics. Our findings are that at each job level mainly lower educated workers leave during downturns. Furthermore, at each level of job complexity, workers with a higher education are not more productive than lower educated workers. We find no evidence that higher educated workers crowd out lower educated workers during recessions.     

Wage Assimilation of Foreigners: Which Factors Close the Gap? Evidence From Germany

This study analyzes the development of the wages of male foreign workers from all important sending countries across time using longitudinal employment register data. A cohort analysis of the individuals entering the German labor market in the years 1999 to 2001 indicates that the raw wage gap of migrants compared to native Germans decreases by 14 log percentage points in the first eight years. The results of a decomposition method based on fixed effects regression models give evidence that this wage adjustment is mostly due to time‐varying observable characteristics. Selective return migration, and the trend effects play no role for the aggregate. We find that wage assimilation happens mainly through three channels: first, through the accumulation of firm‐specific human capital, which explains approximately 40 percent; second, search gains are approximately the same order of magnitude; and third, the accumulation of general human capital explains one‐fifth of the assimilation. We further demonstrate that the importance of these channels differs substantially by the origin groups.     

Intergenerational Mobility in the United States and Great Britain: A Comparative Study of Parent–Child Pathways

We build on cross‐national research to examine the relationships underlying estimates of relative intergenerational mobility in the United States and Great Britain using harmonized longitudinal data and focusing on men. We examine several pathways by which parental status is related to offspring status, including education, labor market attachment, occupation, marital status, and health, and perform several sensitivity analyses to test the robustness of our results. We decompose differences between the two nations into that part attributable to the strength of the relationship between parental income and the child's characteristics and the labor market return to those child characteristics. We find that the relationships underlying these intergenerational linkages differ in systematic ways between the two nations. In the United States, primarily because of the higher returns to education and skills, the pathway through offspring education is relatively more important than it is in Great Britain; by contrast, in Great Britain the occupation pathway forms the primary channel of intergenerational persistence.     

Information Policy in Tournaments with Sabotage

Sabotage is one of the main problems of tournament‐like reward schemes. Workers who are leading in a tournament are more dangerous rivals, and are therefore sabotaged more heavily. This implies that there is an extra cost to becoming a leader and, hence, to choosing high productive effort in the early stages of a tournament. The incentives to exert productive effort are thereby reduced. We show that this problem can be solved by concealing intermediate information on the performances of workers (i.e., by clever information management). Moreover, we offer experimental evidence indicating that such information management does increase productive efforts.     

Establishment size and task-specific wages: Evidence from historical contract data

This study examines whether task-specific jobs are rewarded differently across establishments of different sizes and whether these rewards vary across distinct technologies. We found that the aggregate premium estimates on the impact of size on wages conceal significant differences between tasks and technologies and that these differences reflect unobserved individual heterogeneity. The role of self-selection of more productive workers into larger establishments is particularly substantial in the case of abstract tasks.     

Wage/tenure contracts with heterogeneous firms

This paper investigates equilibria where firms post wage/tenure contracts and risk averse workers search for new job opportunities whether employed or unemployed. We generalize previous work by assuming firms have different productivities. Equilibrium implies more productive firms always offer more desirable contracts. Thus workers never quit from more productive firms for less productive firms. Nevertheless turnover is inefficient as employees with long tenures at low productivity firms may reject outside job offers from more productive firms. A worker who quits to a more productive firm may accept a wage cut. Such wage cuts are compensated by faster “promotion” rates to higher wage levels in the future. We also generalize previous arguments by showing equilibria exist where the distribution of offers contains interior mass points and find equilibrium wage/tenure contracts need not be smooth.     

Economic Retirement Age and Lifelong Learning: A Theoretical Model With Heterogeneous Labor,Biased Technical Change and International Sourcing

The employability of an aging population in a world of continuous and biased technical change is top of the political agenda. Due to endogenous human capital depreciation the effective retirement age is often below statutory retirement age resulting in permanent non‐employability of older workers. We analyze this phenomenon in a putty‐putty human capital vintage model and focus on education and the speed of human capital depreciation. Introducing a two‐stage education system with initial schooling and lifelong learning, not even lifelong learning turns out to be capable of aligning economic and statutory retirement. However, well‐designed education programs will keep more workers in highly productive activities at the end of their working life, and hence will substitute for simple social transfers, or for an early switch towards very low paid jobs.     

A COMPARATIVE STUDY OF TRAINING IN THE PRIVATE AND PUBLIC SECTORS: EVIDENCE FROM THE UNITED KINGDOM AND THE UNITED STATES

Formal training programs are one of the main channels through which workers become more productive and experience wage growth. So far, however, most of the results on the effects of employer‐provided training come from studying the training received by private sector workers only. We extend the literature by identifying and comparing the effects of private‐employer‐provided and public‐employer‐provided training in the United States and the United Kingdom. We address this question using two independent data sets from the British Household Panels Surveys and the American National Longitudinal Survey of Youth of 1979. (JEL J24, J31, J40)     

LABOUR‐MARKET ATTACHMENT AND TRAINING PARTICIPATION*

This paper examines how expected attachment to the labour market and expected tenure at a specific firm affect training participation. The results, based on cross‐sectional data from Japan, indicate that expected attachment to the labour market affects participation in both employer‐ and worker‐initiated training, while expected tenure at a specific firm mainly explains participation in employer‐initiated training. These two attachment indices explain more than two‐thirds of the sex gap in training participation. Employers in less‐competitive labour markets are more likely to offer employer‐initiated training to their workers.     

Lost in transition?

Using data for Germany and 23 other economies in Eastern and Western Europe, this paper estimates the monetary returns to education acquired under communism more than 10 years after the fall of the Berlin Wall. We show that, in the 2000s, Eastern European workers who completed their education under communism earned in the 2000s similar returns to their education as did workers belonging to the same age cohorts who studied in Western Europe. This might suggest that education under communism is still as valuable as education attained in Western Europe. However, individuals educated under communism are more likely than their Western counterparts to be unemployed, retired or disabled, and therefore to earn lower or zero returns to their education. Moreover, when we allow the returns to pre‐ and post‐secondary education to differ, we find that senior males who have attained only primary or secondary education under communism are penalized in the post‐transition Eastern European labour markets, and that those who have completed post‐secondary education under communism enjoy in these markets higher payoffs to their education than similarly educated Western European individuals who are employed in the West.     

Performance Pay and Adverse Selection*

It is well known in personnel economics that firms may improve the quality of their workforce by offering performance pay. We analyze an equilibrium model where worker productivity is private information and show that the firms’ gain from worker self‐selection may not be matched by a corresponding social gain. In particular, the equilibrium incentive contracts are excessively high‐powered, thereby inducing the more productive workers to exert too much effort and increasing agency costs stemming from the misallocation of effort.     

Population ageing,time allocation and human capital: A general equilibrium analysis for Canada

This study explores the long-term impact of population ageing on labour supply and human capital investment in Canada, as well as the induced effects on productive capacity. The analysis is conducted with a dynamic computable overlapping generations model where in the spirit of Becker [Becker, Gary (1965), A theory of the allocation of time, The Economic Journal, Vol. 75, pp. 493–517.] and Heckman [Heckman, James (1976), A life-cycle model of earnings, learning and consumption, The Quarterly Journal of Economics, Vol. 84, pp. 511–544], leisure has a quality-time feature and labour supply and human capital investment decisions are endogenous. The role of human capital in the growth process is based on the framework used by Mankiw et al. [Mankiw, N. Gregory, Romer, David and Weil, David N. (1992), A contribution to the empirics of economic growth, Quarterly Journal of Economics, Vol. 107, no. 2, pp. 407–437]. The paper indicates that population ageing creates more opportunities for young individuals to invest in human capital and supply more skilled labour at middle age. Consequently, the reduction in labour supply of young adults initially lowers productive capacity and exacerbates the economic costs of population ageing. However, current and future middle-age cohorts are more skilled and work more, which eventually raises productive capacity and significantly lowers the cost of population ageing. Finally, these results suggest that the recent increase in the participation rate of older workers might be the beginning of a new trend that will amplify over the next decades.     

The Impact Of New Technologies On Wages: Lessons From Matching Panels On Employees And On Their Firms †

We study the impact on New Technologies (NT) on wages using a panel that matches data on individuals and on their firms. In his article on the same topic, Krueger (1993) did not give a definitive answer to the following question: if workers who use NT are better paid, is it because they are abler or because NT increases their productivity. We try to provide an answer to this question. Comparing cross-section estimates and individual fixed-effect estimates, we show that computer-based new technologies are used by abler workers. These workers learn and become more productive when they get more experienced with these NT. In terns of wage differentials, the introduction of computer-based NT contributes to a small increase. The use of firm-level data does not modify these conclusions.     

Economic transition, higher education and worker productivity in China

We investigate the role of education on worker productivity and firms' total factor productivity using a panel of firm-level data from China. We estimate the returns to education by calculating the marginal productivity of workers of different education levels based on estimates of the firm-level production function. We also estimate how the education level of workers and CEO contributes to firms' total factor productivity. Estimated marginal products are much higher than wages, and the gap is larger for highly educated workers. Our estimate shows that an additional year of schooling raises marginal product by 30.1%, and that CEO's education increases TFP for foreign-invested firms. Estimates vary substantially across ownership classes, the effect of schooling on productivity being highest in foreign-invested firms. We infer that market mechanisms contribute to a more efficient use of human capital within firms.     

On-the-job search and strategic bargaining

This paper studies wage bargaining in a simple economy in which both employed and unemployed workers search for better jobs. The axiomatic Nash bargaining solution and standard strategic bargaining solutions are inapplicable because the set of feasible payoffs is nonconvex. I instead develop a strategic model of wage bargaining between a single worker and firm that is applicable to such an environment. I show that if workers and firms are homogeneous, there are market equilibria with a continuous wage distribution in which identical firms bargain to different wages, each of which is a subgame perfect equilibrium of the bargaining game. If firms are heterogeneous, I characterize market equilibria in which more productive firms pay higher wages. I compare the quantitative predictions of this model with Burdett and Mortensen's [1998. Wage differentials, employer size and unemployment. International Economic Review 39, 257-273.] wage posting model and argue that the bargaining model is theoretically more appealing along important dimensions.     

MID‐DAY MEAL PROGRAM AND INCIDENCE OF CHILD LABOUR IN A DEVELOPING ECONOMY

The present paper purports to examine the consequence of a mid‐day meal program and/or cash stipend scheme on the incidence of child labour in a developing economy using a three‐sector general equilibrium model. It has been found that the policy may be counterproductive as it lowers both the initial incomes of the working families and the return on education. Direct cash payments to the working families instead of a mid‐day meal program are likely to be effective in eradicating the problem of child labour.     

Does formality improve micro-firm performance? Evidence from the Brazilian SIMPLES program

This paper exploits an extensive Brazilian micro-enterprise survey and the 1996 introduction of a business tax reduction and simplification scheme (SIMPLES) to examine three questions. First, do high tax rates and complex tax regulations really constitute a barrier to the formalization of micro-firms? Second, does formalization improve firm performance measured along several dimensions, including revenues, employment and capital stock? Third, what are the channels through which this occurs? We find that SIMPLES led to a significant increase in formality in several dimensions. Moreover, newly created firms that opt for operating formally show higher levels of revenue and profits, employ more workers and are more capital intensive (only for those firms that have employees). The channel through which this occurs is not access to credit or contracts with larger firms. Rather, it appears that the lower cost of contracting labor leads to adopting production techniques that involve a permanent location and a larger paid labor force.     

Challenging the Human Capital Orthodoxy: The Education-Productivity Link Re-examined*

The human capital orthodoxy has it that education is an investment, not only for the individual undertaking it but also for society when it devotes scarce resources to it The return to society on that investment is seen mainly in terms of the enhanced productive contribution made by more-educated workers. The measure of that greater contribution most often used by economists is the extra earnings the more-educated on average receive This paper re-examines the available evidence of links between education and productivity (and between earnings and productivity) and finds it to be inconclusive.     

Optimal policy and the role of social contacts in a search model with heterogeneous workers

This paper develops a search model with heterogeneous workers and social networks. High‐ability workers are more productive and have a larger number of professional contacts. Firms can choose between a vacancy in the regular market and a job opening in the referral market. The model predicts that a larger number of social contacts is associated with a larger wage gap between high‐ and low‐ability workers and a larger difference in the unemployment rates. The net welfare gain of referrals is estimated at 1.2%. There are three reasons for the inefficiency of the decentralized equilibrium. First is the traditional search externality described by Hosios. Second, firms share their profits with workers, whereas the social optimum implies that full surplus should be given to firms in the referral market. This inefficiency can be internalized by means of referral subsidies. Third, there is the “pooling inefficiency” in the regular market. If high‐ability workers are sufficiently more productive they impose a positive externality on low‐ability workers and should be rewarded by positive transfers. On the contrary, if productivity differences are small, high‐ability workers achieve unreasonably high wages by referring each other and reduce employment chances of low‐ability workers. In this latter case, high‐ability workers should be penalized. If optimal policy is implemented the net welfare gain of referrals rises up to 1.8%.     

The heterogeneity of beauty premium in China: Evidence from CFPS

Using a nationwide representative sample of the Chinese population, we examine the effect of physical appearance on the hourly wage. Our theoretical framework that connects physical appearance and the hourly wage has two predictions. First, the beauty premium is larger for high-skilled workers than for low-skilled workers. Second, this statistical-based discrimination arises from the hiring manager’s belief that beauty contributes to productivity through non-cognitive skills. Empirical results confirm both predictions. Good-looking individuals earn roughly 5.4% more than the rest, and bad-looking individuals earn roughly 3.3% less than the rest. Moreover, quantile estimates show that the effect of physical appearance at the 0.75 quantile is more than twice as the one at the 0.25 quantile. Finally, social skills, communication skills, and self-confidence are three transmission channels through which physical appearance can positively affect one’s hourly wage in our sample. Our findings imply that the beauty premium is widespread in the labor market and relevant anti-discrimination regulations are needed.