Minimum wages and youth unemployment

This paper constructs a labor search model to explore the effects of minimum wages on youth unemployment. To capture the gradual decline in unemployment for young workers as they age, the standard search model is extended so that workers gain experience when employed. Experienced workers have higher average productivity and lower job finding and separation rates that match wage and worker flow data. In this environment, minimum wages can have large effects on unemployment because they interact with a worker's ability to gain job experience. The increase in minimum wages between 2007 and 2009 can account for a 0.8 percentage point increase in the steady state unemployment rate and a 2.8 percentage point increase in unemployment for 15–24 year old workers in the model parameterized to simulate outcomes of high school educated workers. Minimum wages can also help explain the high rates of youth unemployment in France compared to the United States.     

效率工资理论的新发展：阿克洛夫的观点

阿克洛夫的效率工资理论,通过吸收社会学、人类学的研究成果,将人的劳动行为看成基于公平出发的社会习俗。根据这一习俗,企业支付的工资不少于工人预期的公平工资,而工人根据企业支付的工资决定自己的努力程度,从而决定自己的边际产出。对于追求利润最大化的企业来说,并非支付的工资越高越好,支付工人的工资应等于工人的边际产出。当公平工资高于市场出清工资时,非自愿失业问题出现,工人技术程度与其失业率负相关。二元劳动力市场的现实与人类内生的行为规范,使得非自愿失业问题的解决前景十分悲观。     

Conflict in the labor market: Seniority rules and unemployment

This paper examines the macroeconomic implications of two labor-market institutions that play an important role in worker-management interactions: seniority-based layoffs and majority voting on wage proposals. Together, these make the median worker, rather than the marginal worker, the important decision maker for wage and employment outcomes. Since he is risk-averse, he will trade off higher wages for greater security of employment; therefore, the equilibrium level of unemployment will be much less than 50%, but higher than the conventional natural rate of unemployment. Median-worker behavior helps to explain both the greater frequency of excess supply than excess demand (59.4% versus 40.6% of the time since 1890) and the wage concessions of 1981–1983. A new Phillips curve is derived which incorporates systematic influences of the size of the labor force (to correct for the inappropriate measure of excess supply) and Tobin's “q” variable (to measure the risk of unemployment for the median worker). With U.S. data for 1957–1983, this new Phillips curve has a higher explanatory power than the traditional one. Additional forces that influence wages and employment in this setting are identified: firms have an incentive to bargain actively over wages rather than accept union demands passively and senior workers have a “social contract” with junior workers that reduces the extent to which the former exploit the latter.     

Incidence and Duration of Unemployment Spells: Implications on the Wage Differentials of Part-Time and Full-Time Workers

This article analyzes the extent to which incidence of unemployment and duration of unemployment spells affect the wage differentials between full-time and part-time workers. The estimation results of a sample selectivity bias–adjusted wage equation reveal that high incidences of unemployment are associated with low wages for both full-time and part-time workers. However, the reduction in wages due to incidence of unemployment is larger for full-time workers in high-paid jobs than for their part-time counterparts. Duration of unemployment spells affects full-time and part-time workers differently. In general, longer unemployment spells tend to increase the wages of full-time workers but tend to depress the wages of part-time workers. Although the probability of unemployment is not a factor in explaining the wage differential, the duration of unemployment accounts for a substantial portion (about 66.6% in full sample) of the wage differential that exists between full-time and part-time workers.     

Age-differentiated minimum wages in developing countries

The fact that minimum wages seem especially binding for young workers has led some countries to adopt age-differentiated minimum wages. We develop a dynamic competitive two-sector labor market model where workers with heterogeneous initial skills gain productivity through experience. We compare two equally binding schemes of single and age-differentiated minimum wages, and find that although differentiated minimum wages result in a more equal distribution of income, such a scheme creates a more unequal distribution of wealth by forcing less skilled workers to remain longer in the uncovered sector. We also show that relaxing minimum wage solely for young workers reduces youth unemployment but harms the less skilled ones.     

Age-differentiated minimum wages in developing countries

The fact that minimum wages seem especially binding for young workers has led some countries to adopt age-differentiated minimum wages. We develop a dynamic competitive two-sector labor market model where workers with heterogeneous initial skills gain productivity through experience. We compare two equally binding schemes of single and age-differentiated minimum wages, and find that although differentiated minimum wages result in a more equal distribution of income, such a scheme creates a more unequal distribution of wealth by forcing less skilled workers to remain longer in the uncovered sector. We also show that relaxing minimum wage solely for young workers reduces youth unemployment but harms the less skilled ones.     

Fertility,income and welfare in an OLG model with regulated wages

We analyse the effects of the regulation of wages in a standard one-sector OLG model of neoclassical growth extended to account for endogenous fertility decisions of households and unemployment benefit policies financed at balanced budget. In contrast with the prevailing literature, which has failed to pay due attention to inter-temporal contexts, our conclusion is that minimum wages may be introduced not only for equity reasons, that is, to increase the income of low-paid workers, but under suitable conditions—i.e., if production is sufficiently capital oriented and the unemployment benefits are high enough—minimum wage legislation might be considered as a source of increased economic performance despite unemployment, i.e. a regulated-wage economy performs better than a market-wage economy. As a consequence, since higher minimum wages raise per capita income together with increasing unemployment, our results imply that a positive correlation between unemployment and long-run income per-capita may exist. Further, the lifetime welfare of the representative generation may be increased as well. Finally, the wage rate may also be treated as a policy instrument for the control of population growth.

Macroeconomic Conditions at Entry and Injury Risk in the Workplace

Using a unique dataset from Italy, we show that the local unemployment rate at entry has a persistent positive effect on severe and non‐severe workplace injuries of young workers. Entrants during recessions, despite receiving marginally higher entry wages, also experience slower wage growth. The observed pattern in the differences between severe and non‐severe injuries indicates that entrants during recessions might under‐report non‐severe workplace injuries. Our findings suggest that workers entering during recessions are persistently locked into low‐quality jobs and that the mix of hazardous tasks endogenously adjusts to the business cycle.     

UNEMPLOYMENT,LABOR MARKET TRANSITIONS,AND RESIDUAL WAGE DISPERSION

It is commonplace in the debate on Germany's labor market problems to argue that low wage dispersion is a major reason for the high unemployment rate. This paper analyzes the relationship between unemployment and residual wage dispersion for individuals with comparable attributes. In the conventional neoclassical point of view, wages are determined by the marginal product of the workers. Accordingly, increases in union minimum wages result in a decline of residual wage dispersion and higher unemployment. A competing view regards wage dispersion as the outcome of search frictions and the associated monopsony power of the firms. Accordingly, an increase in search frictions causes both higher unemployment and higher wage dispersion. The empirical analysis attempts to discriminate between the two hypotheses for West Germany analyzing the relationship between wage dispersion and both the level of unemployment as well as the transition rates between different labor market states. The findings are not completely consistent with either theory. However, as predicted by search theory, one robust result is that unemployment by cells is not negatively correlated with the within‐cell wage dispersion.     

Unemployment duration and workers' wage aspirations in Spain

This paper examines unemployed workers' declared willingness to work for wages lower than the one adequate for their qualification. We analyze which personal and economic characteristics determine this willingness and how it changes along the individuals' unemployment spells. The main results are: (i) Young workers, less educated and those living in regions or times of high unemployment are more willing to accept reduced wages while married women with a working husband are much less willing to do so; (ii) Once the individual fixed effect is controlled for, the willingness to work for reduced wages increases with the duration of unemployment; (iii) Not having access to unemployment benefits increases the probability that initially unwilling workers become willing to accept reduced wages.     

Involuntary unemployment,macroeconomic policy,and a behavioral model of the firm: Why high real wages need not cause high unemployment

The perspective of modern macroeconomic theory, be it new classical or old and new Keynesian, is that unemployment can be reduced only if real wages are cut. The modern Keynesians, basing themselves upon the microfoundations of efficiency wage theory, argue that real wages cannot and will not be cut by firms for efficiency wage reasons. This generates involuntary unemployment based on a market coordination problem. A behavioral model that contrasts with efficiency wage theory is presented here which suggests that reducing real wages need not affect the marginal cost of labor and, therefore, the number of individuals employed. In the behavioral model, wherein there exists some linearity in the relationship between real wages and working conditions and labor productivity, a lower real wage rate is not a necessary condition for reducing the unemployment rate nor is a higher real wage an obstacle to reducing it. In this scenario, unemployment, to the extent that it is demand-side induced, is not related to movements in real wages. Therefore, restoring full employment after a negative demand shock becomes a matter for demand management, not demand management that must be coordinated with measures designed to reduce real wages.     

Unemployment,wages and pensions

Empirical evidence has shown the existence of a negative relationship between the rates of unemployment and real wages. If pensions are computed according to the wages that workers have contributed, then the unemployment rates during working life may also influence the pensions to which they are entitled. Using data from 2005 to 2012 for the Spanish social security system, we estimate that the unemployment elasticity of real pension is ?0.135. A 1% increase in unemployment rate is associated with a reduction in pension equal to 0.135%. In ‘normal times’, this value could be considered modest, but the Great Recession has increased dramatically the rate of unemployment. In 2012, the rate of unemployment in Spain had increased to 25.7% and in 2015, it had diminished to 20.9%. It is estimated that unemployment rate will not be returned to figures existing before the crisis until middle of the next decade. Moreover, the current reforms in social security systems could interact with the future effects of the current rates of unemployment and cause future pensions to be significantly lower than those estimated by individuals. The economic welfare of the future cohorts of retirees would then be significantly worsened.     

Youth reservation wages in Romania: are wage expectations realistic?

Romania has been experiencing difficulties in integrating young people into the labour market in recent years. Moreover, the problem of migration is extremely acute, young people being the most eager to leave the country. Considering also the demographics – declining birth-rates and an aging population, the risk of imbalance is extremely high. Thus, it is important to design strategies targeting young people, helping them find quality jobs so they contribute to the sustainable growth and development of the Romanian economy. In this context, the paper aims to identify the determinants of youth reservation wages and to analyse whether youth wage expectations are too high and prevent the acceptance of available jobs. The article contributes to the explanation of youth unemployment by analysing their behaviour, complementing the existing studies that focus mainly on macroeconomic and institutional factors. The results indicated that young unemployed people really have high reservation wages, expecting more than we estimated to earn on the market, considering their personal characteristics. The main factors influencing their reservation wage are: age, gender, education, intention to emigrate, duration of unemployment, and friends’ wages.     

Egalitarian Wage Policies and Long-Term Unemployment

How does a centrally imposed egalitarian wage policy affect unemployment, when workers differ with respect to productivity? The effect on total unemployment is found to be ambiguous. Egalitarian wages encourage job creation because increased profits derived from the most productive workers more than outweigh reduced profits derived from the least productive workers. Short-term unemployment is reduced. On the other hand, firms respond by raising their reservation productivity. Some workers are left almost completely unemployable. Long-term unemployment rises. Less inequality in the wage distribution is obtained at the expense of more inequality in the distribution of unemployment.     

Equilibrium unemployment with outsourcing and wage solidarity under labour market imperfections

We evaluate the effects of outsourcing and wage solidarity on wage formation and equilibrium unemployment in a heterogeneous labour market, where wages are determined by a monopoly labour union. We find that outsourcing promotes the wage dispersion between the high- and low-skilled workers. When the labour union adopts a solidaristic wage policy, it will dampen this tendency. Further, higher outsourcing will increase equilibrium unemployment among the high-skilled workers, whereas it will reduce it among the low-skilled workers. Overall, outsourcing will reduce economy-wide equilibrium unemployment under the reasonable condition that the proportion of high-skilled workers is sufficiently low.     

Unobserved Heterogeneity,Exit Rates,and Re‐Employment Wages

Exit rates from unemployment and re‐employment wages decline over a period of unemployment, after controlling for worker observable characteristics. We study the role of unobserved heterogeneity in an economy with asymmetric information and directed search. We show that the unique equilibrium is separating and that skilled workers have more job opportunities and higher wages. The composition of the unemployed varies with the duration of unemployment, so average exit rates and wages fall with time. The separating equilibrium relies on performance‐related pay schemes and the ability of firms to commit to renting an input that is complementary to worker skills.     

A general equilibrium analysis of production subsidy in a Harris-Todaro developing economy: an application to India

Since 1950s India has advocated import substituting industrialization policies to promote its manufacturing sector. The end result was creation of a dual economy: highly favored manufacturing sector with high and rigid wages and neglected agricultural sector with low wages and poverty. Because of the higher wages in the manufacturing sector, the rural laborers migrate to the urban sector, a typical characteristic of the Harris-Todaro developing economy. Realizing this crisis, the Indian government recently initiated policies to boost agricultural production to curb the labor migration and improve the welfare of the rural population. In this study, we develop a computable general equilibrium (CGE) model for India by incorporating Harris-Todaro economic characteristics of unemployment, labor migration, farm dependant population, and labor-intensive agriculture. We use the model to analyze the effects of agricultural production subsidy policies on employment, factor price, output price, output levels, and welfare in agricultural and manufacturing sectors. Our findings show that agricultural production subsidy increases agricultural production, reduces unemployment, raises the wage rate in the agriculture sector, augments the consumption among the rural and urban households, and increases the rental rate for capital in agricultural sector.     

Social Security and Old Age Unemployment Risk with Efficient Wage Bargaining

I analyze a life‐cycle economy with old age productivity risk where wages, employment, and severance payments are set through efficient bargaining between risk averse unions and risk neutral firms. Allocations with limited union membership are second‐best inefficient as they generate too little labor supply in young age, too much consumption before retirement, too little employment of older workers (early retirement), and too little insurance against old age unemployment. Providing public transfers to early retirees (disability benefits or early pensions) might help to increase the degree of risk sharing at the cost of lower old age employment. Depending on whether absolute risk aversion is increasing or decreasing in consumption, these policies might or might not produce efficiency gains at equilibrium.     

Job Security,Financial Security and Worker Well‐being: New Evidence on the Effects of Flexible Employment

This paper uses panel data drawn from the Household, Income and Labour Dynamics in Australia (HILDA) survey to provide new evidence of the links between unemployment, wages, job security, financial security and workers' well‐being for workers in flexible employment. Our findings indicate that workers in flexible employment encounter more unemployment and experience increased job insecurity; unemployment is associated with wage penalties. Lower wages, job insecurity and financial insecurity affect well‐being. However, these negative outcomes are mitigated by longer job tenure. Our results have implications for moves towards a flexicurity model of employment     

MARKET POWER AND EFFICIENCY IN A SEARCH MODEL*

We build a theoretical model to study the welfare effects and policy implications of firms’ market power in a frictional labor market. The main characteristics of our environment are that wages play a role in allocating labor across firms and the number of agents is finite. The decentralized equilibrium is inefficient and the firms’ market power results in the misallocation of workers from the high to the low productivity firms. A minimum wage exacerbates the inefficiencies by forcing the low‐productivity firms to increase their wage. Moderate unemployment benefits can increase welfare by improving the workers’ outside option.