Skills,Tasks and the Scarcity of Talent in a Global Economy

The scarcity of talent is a tremendous challenge for firms in the globalized world. This paper investigates the role of labor market imperfection in open economies for the usage of talent in the production process of firms. For this purpose, I set up a heterogeneous firms model, where production consists of a continuum of tasks that differ in complexity. Firms hire low‐skilled and high‐skilled workers to perform these tasks. How firms assign workers to tasks depends on factor prices for the two skill types and the productivity advantage of high‐skilled workers in the performance of complex tasks. I study the firms’ assignment problem under two labor market regimes, which capture the polar cases of fully flexible wages and a binding minimum wage for low‐skilled workers. Since the minimum wage lowers the skill premium, it increases the range of tasks performed by high‐skilled workers, which enhances the stock of knowledge within firms to solve complex tasks and reduces the mass of active firms. In a setting with fully flexible wages trade does not affect the firm‐internal assignment of workers to tasks. On the contrary, if low‐skilled wages are fixed by a minimum wage, trade renders high‐skilled workers a scarce resource and reduces the range of tasks performed by this skill type with negative consequences for the human capital stock within firms. In this case, trade leads to higher per‐capita income for both skill types and thus to higher welfare in the open than in the closed economy, whereas – somewhat counter‐intuitive – inequality between the two skill types decreases, as more low‐skilled workers find employment in the production process.     

International Trade and Unemployment—the Worker‐selection Effect

This paper investigates the labor market effects of trade liberalization. We incorporate trade unions and heterogeneous workers into the Melitz framework. Workers differ with respect to their abilities. Our main findings are: (i) trade liberalization harms low‐ability workers, they lose their job and switch to long‐term unemployment (worker‐selection effect); (ii) high‐ability workers are better off in terms of both higher wages and higher employment; (iii) if a country is endowed with a large fraction of low‐ability workers, trade liberalization leads to a rise in aggregate unemployment—in this case, trade liberalization may harm a country's welfare; (iv) the overall employment and welfare effect crucially hinges on the characteristics of the wage bargain.     

DIRECTED SEARCH ON THE JOB AND THE WAGE LADDER*

We model a labor market where employed workers search on the job and firms direct workers' search using wage offers and employment probabilities. Applicants observe all offers and face a trade‐off between wage and employment probability. There is wage dispersion among workers, even though all workers and jobs are homogeneous. Equilibrium wages form a ladder, as workers optimally choose to climb the ladder one rung at a time. This is because low‐wage applicants are relatively more sensitive to employment probability than to wage and thus forgo the opportunity to apply for a high wage, with a lower chance of success.     

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.     

The labour market effects of financial crises

This paper examines how the 2008–2009 financial crisis affected labour markets in Europe, and how this impact depended on employment protection laws. Using a difference‐in‐differences approach, our estimates isolate the effect of the lack of credit on the labour market from that of the general decline in aggregate economic activity. We find large and negative impacts of the credit shock on total employment, particularly on temporary, unskilled and young workers. These impacts were significantly larger in countries with stronger legal protection of permanent workers from dismissal. This suggests that the differential impact of the crisis across countries was not entirely driven by the heterogeneity of the credit shock, but also by labour regulations. Given regulatory inflexibility in adjusting the permanent workforce, firms responded to tightening financial constraints by disproportionately laying off temporary workers (who tend to be younger and less skilled than permanent workers).     

Employment Protection Versus Flexicurity: On Technology Adoption in Unionised Firms*

We analyse how different labour‐market institutions – employment protection versus ‘flexicurity’– affect technology adoption in unionised firms. We consider trade unions’ incentives to oppose or endorse labour‐saving technology and firms’ incentives to invest in such technology. Increased flexicurity – interpreted as less employment protection and a higher reservation wage for workers – unambiguously increases firms’ incentives for technology adoption. If unions have some direct influence on technology, a higher reservation wage also makes unions more willing to accept technological change. Less employment protection has the opposite effect, as this increases the downside (job losses) of labour‐saving technology.     

Does Price Stability Exacerbate Labour Market Rigidities in the EMU?

How will the commitment to price stability affect labour market rigidities in the European Monetary Union? I explore a model where firms choose between fixed wage contracts (where the employer cannot lay off the worker, and the wage can only be changed by mutual consent), or contracts where employment is at will, so that either party may terminate employment (with strong similarities to temporary jobs). A fixed wage contract provides better incentives for investment and training, while employment at will facilitates efficient mobility. Inflation erodes the real value of a fixed contract wage over time, and badly matched workers are more likely to quit for other jobs. Disinflation has opposing effects on labour market rigidity: fixed wage contracts become more rigid in real terms, but fewer firms will choose fixed wage contracts.     

Human capital and the re‐employment of retrenchment labor in urban China

The inefficiency of state‐owned enterprises, followed by the economic reform in urban China, resulted in large‐scale retrenchment during the late1990s. The laid‐off workers were middle‐aged, not well educated and had accumulated a lot of firm‐specific human capital that was unlikely to be of value in the product market. In this study, we investigate how differently human capital affects laid‐off workers’ occupation choices: self‐employment, re‐employment and remaining unemployed. Using 2002 Chinese Household Income Project and 2009 Urban Household Survey datasets, we find that although general human capital measured by education is positively related to the probability of finding a job, it is negatively associated with the probability of self‐employment. Displaced workers with more sector‐specific work experience are more likely to be self‐employed than to be employed by others. Government‐sponsored training significantly increases the likelihood of finding a job. Health is positively associated with re‐employment.     

Migration and Wage‐setting: Reassessing the Labor Market Effects of Migration*

In this paper we employ a wage‐setting approach to analyze the labor market effects of immigration into Germany from 1980 to 2004. This enables us to consider labor market rigidities, which are prevalent in Europe. We find that the elasticity of the wage‐setting curve is particularly high for young workers. Moreover, natives and foreigners are imperfect substitutes. The wage and employment effects of immigration depend on the skill structure of the immigrant workforce. Because the foreign labor supply shift has mainly affected the high‐skilled labor market segment, the 4 percent increase of the workforce through immigration has not increased either aggregate or foreign unemployment.     

Worker flows, job flows and firm wage policies

Like many transition economies, Slovenia is undergoing profound changes in the workings of the labour market with potentially greater flexibility in terms of both wage and employment adjustment. To investigate the impact of these changes, we use unique longitudinal matched employer‐employee data that permits measurement of employment transitions and wages for workers and enables links of the workers to the firms in which they are employed. We can thus measure worker flows and job flows in a comprehensive and integrated manner. We find a high pace of job flows in Slovenia especially for young, small, private and foreign‐owned firms and for young, less educated workers. While job flows have approached the rates observed in developed market economies, the excess of worker flows above job flows is lower than that observed in market economies. A key factor in the patterns of the worker and job flows is the determination of wages in Slovenia. A base wage schedule provides strict guidelines for minimum wages for different skill categories. However, firms are permitted to offer higher wages to an individual based upon the success of the worker and/or the firm. Our analysis shows that firms deviate from the base wage schedule significantly and that the idiosyncratic wage policies of firms are closely related to the observed pattern of worker and job flows at the firm. Firms with more flexible wages (measured as less compression of wages within the firm) have less employment instability and are also able to improve the match quality of their workers. JEL Classifications: J23, J31, J41, J61, P23, P31.     

TRAINING, JOB SECURITY AND INCENTIVE WAGES

This paper considers the optimal level of firm‐specific training by taking into account the positive effect of training on the expected duration of workers' current employment. In the framework of an efficiency wage model, a short expected job tenure represents a disamenity that reduces the penalty from shirking. As this disamenity increases, workers have an incentive to continue providing a positive level of effort only if they are compensated by a higher wage. We endogenize the employment separation rate by introducing firm‐specific training. Firm‐specific training creates a rent that is lost if the worker is separated from the firm. As a result, the firm will be more reluctant to fire its trained workforce in a recession. This implies that firm‐specific training can decrease current wages because it represents a commitment to lower future labour turnover.     

Flexible Labor Regulations and Informality in Egypt

Do more flexible labor market regulations reduce informal employment in formal firms? This paper examines the effects of changes in labor regulations on the incidence of formal employment. Using the case of Egypt, we study the effects of the introduction of more flexible labor regulations in 2003 on the probability that non‐contractual workers will be granted a formal employment contract. To identify the effect of the law and control for potential confounding factors, we use a difference‐in‐difference estimator that measures the difference in the pre‐ and post‐law probability of obtaining a formal contract across a treatment group of non‐contractual workers initially employed in formal firms and a comparison group of non‐contractual workers initially employed in informal firms. The latter serve as a useful comparison group since informal firms are unlikely to formalize as a result of the law, so that the only way their workers can become formal is to move to another firm. Our findings show that the passage of the new labor law did in fact increase the probability of transitioning to formal employment for non‐contractual workers employed in formal firms by about 3–3.5 percentage points, or the equivalent of at least a fifth of informal workers in formal firms.     

Firm heterogeneity and trade-induced layoffs: An empirical investigation

We use a novel data set with verified observations of trade-induced layoffs by U.S. firms to study the interaction between firm productivity and trade liberalization as key determinants of firm-level job destruction due to trade. We find that patterns of trade-induced layoffs are broadly consistent with the predictions for firm-level employment generated by the Melitz (2003) heterogeneous firms theory – the number of trade-induced layoffs increases with firm productivity for non-exporting firms but decreases with firm productivity for exporting firms. The fact that exporting firms incur trade-induced layoffs at all invites a refined interpretation of the theory. Our findings suggest that exporting firms may lay off some workers who work in production for their shrinking domestic segments, while also engaging in some within-firm reallocation of workers. We also find that, even after controlling for productivity and export status, larger firms lay off more workers due to trade competition.     

Multinational Firms and Labor Market Pooling

In the presence of increasing specialization of workers it becomes more and more difficult for firms to find the most suitable workers. In such an environment a multinational enterprise (MNE) has an advantage because it can exchange workers between plants in different countries. Recruiting from the home and foreign plant leads to a larger labor market pool for an MNE, reducing the mismatch of its workforce. This paper analyzes the consequences of this advantage for production, employment, prices and wages. In line with recent empirical results, we find that the additional ability to recruit workers from the home and foreign labor market leads to lower mismatch, higher average productivity of workers, lower prices, higher output, and higher employment of a plant of an MNE as compared with a national firm, while the wage‐effects depend on firm productivity.     

Trade and inequality in a directed search model with firm and worker heterogeneity

This paper integrates the insight that exporting firms are typically more productive and employ higher‐skilled workers into a directed search model of the labour market. The model generates a skill premium as well as residual wage inequality among identical workers. A trade liberalization increases the skill premium and likely increases residual inequality among high‐skilled workers. The calibrated model generates results consistent with the prior literature examining the effect of the Canada‐US Free Trade Agreement on the Canadian labour market: a significant decrease in employment in manufacturing, but only a small change in unemployment and wages.     

AGGREGATE EMPLOYMENT DYNAMICS AND (PARTIAL) LABOUR MARKET REFORMS

European labour markets have undergone several important innovations over the last three decades. Most countries have reformed their labour markets since the mid‐1990s, with the liberalization of fixed‐term contracts and temporary work agencies being the common elements to such reforms. This paper investigates the existence of a change in the dynamic behaviour of the aggregate employment for major European Union countries – France, Germany, Italy and Spain. According to our results, partial labour market reforms have made the response of the aggregate employment to output shocks larger and quite comparable to that found for the UK – the most flexible labour market in Europe since the Thatcher reforms.     

Effort, trade, and unemployment

Abstract.  This paper incorporates equilibrium unemployment caused by efficiency wages into a monopolistic competition model of trade. Worker effort is treated as an endogenous variable that depends on the optimizing behaviour of firms and workers. Opening up trade induces firms to demand greater worker effort and to cut the size of their workforce. This counteracts the positive employment effect due to entry of firms. Circumstances are indicated in which the two effects just balance, leaving aggregate employment unchanged. Trade unambiguously increases worker effort, thereby enhancing within-firm productivity.     

Task Routineness and Trade Policy Preferences

Understanding the formation of individual trade policy preferences is a fundamental input into the modeling of trade policy outcomes. Surprisingly, past studies have found mixed evidence that various labor market and industry attributes of workers affect their trade policy preferences, even though recent studies have found that trade policy can have substantial impacts on workers' incomes. This paper provides the first analysis of the extent to which task routineness affects trade policy preferences using survey data from the American National Election Studies. We find significant evidence that greater task routineness leads workers to be much more supportive of import restrictions, consistent with recent evidence on how trade openness puts downward pressure on employment and wages for workers whose occupations involve routine tasks. In fact, other than education levels, task routineness is the only labor market attribute that displays a robust correlation with individuals' stated trade policy preferences. We also provide evidence that there are some interactions between the economic and non‐economic factors in our study. For example, women's trade policy views are much more invariant to their labor market attributes than men, suggesting that women's views on this issue are driven more by personal and ideological beliefs than men.     

Will Deregulating the Labor Market in Australia Improve the Employment COnditions of Women?

This article traces the development of policies designed to reduce gender workforce inequality in Australia. In contrast to earlier centralized and collective approaches, current strategy is founded on individualism and direct workplace bargaining. The location of reform is now the enterprise, with direct bargaining replacing collective standards. Current policy developments have seen gender subsumed under market imperfections and family responsibilities. These policies will remove many of the safeguards of minimum pay and conditions for women workers, especially those who are most vulnerable. When combined with the growth of "nonstandard" jobs the picture is bleak for many workers, especially the low paid. The onus for corrective action now rests with individual employees and workplace managers, with trade unions being marginalized. The authors suggest that a continuation of the current policy will wind back the clock on the employment conditions of women workers in Australia.     

UNEMPLOYMENT POLICIES IN AN ECONOMY WITH ADVERSE SELECTION

This paper studies the effects of unemployment policies in a simple static general equilibrium model with adverse selection in the labour market. Firms offer a contract that induces the self‐selection of workers. In equilibrium, all unskilled workers are screened out and some skilled workers are rationed out. It is shown that the provision of unemployment insurance raises involuntary unemployment by encouraging adverse selection, while unemployment assistance – or subsidy to unemployment – reduces involuntary unemployment. A simple efficiency wage model is also presented to show that either of the two policies reduces employment by taxing effort and subsidizing shirking. The key is whether the social role of unemployment is a sorting device or a worker discipline device.