Wages and allocation under imperfect information

Summary This paper fits in with the literature on signaling, and it stresses the role of sequentially improved job-worker allocation. Allocation is initially done on the basis of signals but later, on the basis of true abilities, as revealed from productive performance. The model yields predictions in line with observations: upward sloping average age-earnings profiles, increasing wage dispersion within signal classes (such as schooling), increasing effect of ability on earnings, higher earnings growth for abler individuals. The model thus demonstrates that the gradual sorting-out of individuals into jobs may be very important, and it also indicates how information on individual abilities may gradually emerge.The paper was presented at the Econometric Society World Congres, Aix-en-Provence, France, 1980.The basic ideas were outlined earlier in the second part of my Discussion Paper 508-78, Institute for Research on Poverty, Madison, Wisconsin. I greatly benefitted from seminars given at the Poverty Institute as well as Erasmus University and in particular acknowledge comments and suggestions by John Bishop, Glen Cain, Jo Ritzen, and Burt Weisbrod.     

Supply Chains in Times of Crisis: Evidence from Kenya’s Production Network

Trading relationships between suppliers and buyers play a key role in transmitting both local and international shocks. We use transaction-level data from Kenya to study the relevance of a firm’s domestic network position and links to international supply chains in determining its trajectory during the COVID-19 crisis. We document that firms with high exposure to import and export markets tend to be larger, older, and employ more workers. The specialisation of direct importers, often intermediaries, on international markets made them very vulnerable to the initial COVID-19 shock. Exporters, one-third of whom operate in primary sectors, experienced a less severe decline in sales. We find that both importers and exporters adjust their domestic supply chains in response to international trade shocks — before and during the crisis alike. Sourcing from international markets does not crowd out domestic purchases, while sales abroad and at home can act as substitutes. Diversified domestic supply chains helped firms to mitigate the impact of the COVID-19 crisis and recover more strongly.     

Is Bigger Still Better? The Decline of the Wage Premium at Large Firms

This study shows that the wage premium paid by large firms fell over the past 20 years and that this decline in the size premium is most pronounced among the least educated workers. Empirical evidence supports several explanations for the shrinking size premium. First, there has been a convergence in the returns to worker characteristics at large and small firms over time. Second, small and large firms are hiring more workers with similar characteristics. Particularly important are the declining share of workers at large manufacturing firms and the rising share of workers at large retail firms. Also, the greater decline of unionism at large firms has contributed significantly to the decline in the size premium.     

Job Mismatch and On‐the‐job Search Behavior Among University Graduates in Malaysia

This paper examines the incidence and the effects of job mismatch on workers' job search behavior while working in Malaysia. Using the 2007 Graduate Tracer Study (GTS‐07) dataset, approximately 32 percent of workers were deemed mismatched and 52 percent were actively looking for another job. Using a logit model, the risk of being engaged in on‐the‐job search activity was higher among the mismatched workers and the magnitude of the effects was greater for the severely mismatched than for the moderately mismatched workers. This suggests that the mismatched workers are heterogeneous. This might be due to different traits of workers or there may be unobserved heterogeneity that varies from one mismatched to another mismatched worker.     

Treatment Value of Residual Functional Capacity Improvement among Disabled Workers: Accounting for Hedonic Psychological Biases

We propose to use the theoretical Mincer-Ofek (1982) model of career interruptions for the evaluation of a health producing treatment that improves residual functional capacity of workers with peripheral nerve injuries who developed chronic pain (Reflex Sympathetic Dystrophy). The revalued potential to – partially – continue to accumulate productive human capital is linked to increased lifetime earnings capacity restoring – missed out – accumulated productivity. We assume that a worker's psychological well-being directly influences earnings, but also affects the cognitive mechanism to experience pain. Randomized clinical trial data and individual medical records from impaired workers are compared with a control group of randomly selected healthy workers. The estimate of the treatment's average net present value is 49.500 euros per person (in 1995 Dutch guilders constant terms).     

Life-cycle search,match quality and Japan’s labor market

The Japanese labor market has been experiencing considerable transformations over the recent decades. We analyze the implications of some of these actual and potential transformations, whose impact may not be homogeneous across workers of different ages. We first develop a life-cycle search and matching model which incorporates random match quality as well as elements capturing important institutional features of the Japanese economy. Our model is consistent with the life-cycle properties of Japan’s labor market, namely that the job separation and unemployment rates are U-shaped, whereas the job finding rate declines with age. We then conduct three experiments that are relevant to Japan: a decline in productivity, a removal of the firing costs, and a decline in the population growth. In the first two experiments, we find substantial changes to these three rates, where young workers tend to be the most affected. We observe, however, a very small labor market impact in the third experiment.     

Right-to-work legislation and the economic position of black workers

Recent empirical analysis of state right-to-work legislation indicates that a negative wage effect may result as a consequence of banning union shop contracts. It has been previously shown that industrial unionism tends to improve the relative wage position of black workers. Thus, it is hypothesized that if state right-to-work laws weaken the economic power of unions to raise wages, black workers will experience a disproportionate decline in their relative wage position. Black workers in right-to-work states would therefore experience a reduction in their relative economic position unless a strong positive relative employment effect occurs in response to the decline in wages. Using a cross-sectional regression model this article examines the relative employment effect due to right-to-work legislation. The results indicate that black workers experience a statistically significant decline in their relative employment rate within right-to-work states. When this finding is coupled with the hypothesized negative wage effect, it is concluded that right-to-work legislation results in a worsening of the net economic position of black workers.     

Social Assistance Amidst the COVID-19 Epidemic in South Africa: A Policy Assessment

In an attempt to minimise the negative economic impacts of COVID-19 on vulnerable households the South African government allocated R50 billion in additional social assistance spending. The cash transfer package included a temporary increase in existing grants and introduced a new “Covid grant.” We assess the chosen package and compare it with an initial proposal to increase the Child Support Grant (CSG). Coverage, cost and welfare effects are calculated to measure the relative impacts in each case. We find that while a significant increase in the CSG delivers resources most progressively, the addition of the COVID-19 grant may potentially reach a much larger group of otherwise uncovered, vulnerable individuals. Critically, this extended coverage comes at a cost to the poorest households, via additional transfers to the upper income deciles. However, we identify several categories of vulnerable household groups which suggests that the workers most negatively affected by the pandemic are not necessarily those in the poorest households. The paper emphasises that social assistance to mitigate the consequences of COVID-19 should not be viewed necessarily as a standard poverty reduction exercise, but rather as an attempt to mitigate COVID-19-related income shocks for the vulnerable who were most negatively affected by the pandemic.     

Hope against Hope: Strike Activity in Canada, 1920-1939

The received view is that, across countries and time, strike dimensions trace an empirical regularity. The incidence and duration of contract strikes move in opposite directions over the business cycle: incidence is procyclical and duration countercyclical. The Canadian experience in the interwar years was different. Strike incidence was independent of the business cycle and strike durations fell steadily over the period. A distinct pattern emerged. The 1920s saw a decline in strike activity and steady losses for workers; in the 1930s strike activity gained momentum and there were more worker wins. Our interpretation of this extraordinary episode is based on a new data set collected for the period 1920 to 1939. We evaluate strikes in the context of a war-of-attrition model and estimate the probability of strike outcomes (success, failure, or compromise) and capitulation times (for firms and workers) as functions of firm and striker characteristics. We find that workers capitulated first in the 1920s because firms used replacement workers as part of a larger strategy to break the union movement. In the 1930s, it was firms' turn to capitulate first because they had cut back on resources to fight strikes, even as workers became more belligerent.     

Late-life cognition: Do childhood conditions play any role?

Individual's cognitive ability tends to reduce with ageing. Recently, whether and how to buffer this age-related decline is one of the greatest concerns. One well-established hypothesis argues that early life conditions play a particularly crucial role in developing individual's cognitive skills. People who grew up in good conditions are more likely to obtain a higher level of cognitive stocks and are more efficient producers of cognitive skills. In this paper, we analyze the impact of childhood conditions on the individuals' late life cognitive functioning by addressing the question whether the same change in age will have different consequences on the late life cognition given different levels of childhood conditions based on the China Health and Retirement Longitudinal Study (CHARLS) data. Our empirical evidence supports that more advantageous childhood conditions can shave off the decline of cognition as measured by word recall with ageing after controlling for individual fixed effects.     

Human capital quality and the regional economic growth: Evidence from China

China's economic development has advanced from a high-speed to a high-quality growth stage in recent years. The optimization and upgrading of the economic structure require high-quality human capital to support an innovation-driven economy. In this paper, a general equilibrium model of human capital (Xiang & Yeaple, 2018) is applied to estimate the cognitive and non-cognitive productivities based on Chinese provincial-level macro-data and individual labor's micro-data from 2008 to 2017. The weighted power mean of cognitive and non-cognitive productivities helps calculate the provincial-level human capital quality index (HCQI), which provides a realistic estimate of human capital quality. We find that the improvement of the HCQI leads to convergence in economic growth in China's provinces. HCQI can help explain the differences in economic growth levels in different regions of China. Our study provides a constructive step in understanding cognitive and non-cognitive abilities and HCQI in China, which could help guide education investment policy in China and its provinces.     

How and why do Chinese urban students outperform their rural counterparts?

This paper aims to measure and understand the rural–urban student cognitive ability gap in China. Using the China Education Panel Survey (CEPS) 2013/2014 data, we find that the cognitive ability test scores of urban students are approximately 1.41 points (17%) higher than those of rural students, on average. This difference is equivalent to 37 and 41% of the standard deviation of urban and rural students' test scores, respectively. Instead of the raw test score, when the cognitive ability is estimated with the 3-parameter Logistic item response theory model, the rural–urban gap is somewhat reduced. The regression and Oaxaca–Blinder decomposition analyses show that nearly one-half of the rural–urban gap can be accounted for by differences in observed characteristics, especially number of siblings, parental education, and interaction between parents and teachers. We then discuss the policy implications of these results and propose a few potential ways to reduce the rural–urban gap in students' cognitive abilities.     

What is Behind Increasing Wage Inequality in Mexico?

We evaluate the impact of the educational expansion and changes in labor market institutions on wage inequality among Mexican workers using a simulation technique proposed by Knight and Sabot [The American Economic Review 73(5) (1983) 1132–1136]. We conclude that while increases in the relative rate of return of higher education would have induced an increase in wage inequality, changes in the composition of the educational distribution would have led to a stronger decline in wage inequality. Instead, increased wage inequality is largely explained by changes in Mexican labor market institutions; namely, unionization rate and minimum wages.     

The effect of job displacement on labor market outcomes: Evidence from the Chinese state-owned enterprise reform

We estimate the long-term costs of job displacement for individuals who lost their jobs during the dramatic reform of state-owned enterprises (SOEs) in the late 1990s in China, using data from the China Health and Nutrition Survey. We find that the workers displaced during the SOE reform suffered substantial and persistent earnings losses. In addition, by comparing wage losses and reductions in employment and work hours over time, we find that the majority of long-term earnings losses were driven by declines in post-displacement wages. Moreover, we find that the displaced workers tended to find reemployment in low-skilled occupations, in the private sector, with less profitable employers, and through informal contracts, which may explain the substantial costs of displacement.     

The times they are not changin’: Days and hours of work in Old and New Worlds, 1870–2000

This paper brings a historical perspective to debates on worktime differences across OECD countries, exploiting new data sets on hours of work per week, and days and hours of work per year between 1870 and 2000. We contest the popular view that the divergence in worktimes between Europe and North America and Australia is a recent phenomenon. Since 1870 the decline in weekly and annual hours was consistently greater in the Old World; the New World has had fewer days off for the last 130 years. Labor power and inequality, held to be important determinants of worktime after 1970, had comparable effects in the period before 1913. We find that given their levels of income in 1870 New World workers supplied relatively too many hours of work.     

Unemployment duration and earnings of re-employed workers in urban China

The recent draconian program of labor retrenchment in China caused widespread unemployment. Many of the retrenched workers remained unemployed for a long time. How did the duration of their unemployment affect their re-employment earnings? The possible relationships between unemployment duration and subsequent wages are modelled heuristically, four explanations for a negative relationship being found. This hypothesis is investigated by means of a survey of workers in 13 Chinese cities, conducted in 2000. Re-employment earnings are found to decline as unemployment continues, an effect that is both statistically significant and quantitatively important. China's displaced workers face a tough labor market.     

A Mismatch Made in Heaven: A Hedonic Analysis of Overeducation and Undereducation

In this paper, a hedonic pairing process is modeled in which some workers may be overeducated or undereducated as an equilibrium outcome of a dynamic labor market. Undereducated workers are those whose abilities and training permit them to move into a job with higher qualifications, whereas overeducated workers are highly qualified workers who select into lower-skill, entry-level jobs that provide the training (or signal) necessary for promotion. The empirical model shows that these pairing types cannot be directly identified in a cross section since all workers are exactly educated during a portion of their career. However, pairing types may be imputed by comparing predicted and observed qualifications of the worker and predicted and observed requirements of the firm. Using a rich cross section and a panel of British working-age males to identify the pairing types, we confirm the predicted career development patterns with regard to on-the-job training, promotion, and wages.     

Effects of Educational Mistmatch on Wages in the Korean Labor Market*

Using data on Korean workers from the Programme for the International Assessment of Adult Competencies, the present study empirically investigates the incidence and wage effects of educational mismatch. Among full‐time workers aged 25–54, approximately 27 percent are overeducated and 15 percent are undereducated. Our results reveal that, after controlling for omitted variable bias and measurement errors, return to an additional year of overeducation is significantly less than that to a year of required education, whereas undereducated workers do not appear to suffer wage penalties associated with their deficit schooling. The findings also show that returns to a year of overeducation vary across fields of study. The returns to overeducation for college graduates from health and welfare, engineering and manufacturing, and social sciences, business and law are relatively high compared with those in agriculture, services, and humanities and arts.     

Hiring functions and a new index for measuring mismatch: Some empirical results for european countries

Conclusion This paper investigates the relation between mismatch and sectoral hiring functions. Traditionally, the indices used to measure structural mismatch were constructed by assuming that the hiring functions are identical across sectors. However, both theoretically and empirically, there is no reason to believe that the hiring behavior of the firms or the search methods of the workers are identical across sectors. Evidence for this is provided in the Appendix of this paper where it is shown that theUV curves for the different regions in Great Britain and different sectors in Switzerland are not identical. Brunello [1990] also shows that the hiring functions do not have to be identical. This paper also demonstrates that it may not be possible to eliminate structural unemployment totally when the hiring functions across sectors are non-identical. In other words, total hiring may be maximized even if theV/U ratios are not equalized across sectors. This conclusion is important as it highlights that the indices used in empirical work to measure structural mismatch may be seriously flawed.This paper develops an index for measuring mismatch which is rooted in the theory of hiring functions and utilizes the approach of measuring angle between vectors by the use of cos() functions. The FH index presented in this paper is based on a simple arithmetic mean of regional or sectoral cos() functions. It has been estimated for several European countries, and the empirical results highlight some interesting conclusions concerning regional mismatch in these countries.     

服务业劳动者年龄结构对劳动生产率和工资的影响研究

将年龄结构引入到Cobb-Douglas 生产函数中,采用全国第六次人口普查和全国第七次人口普查的截面数据研究中国服务业劳动者年龄结构对劳动生产率和工资的影响,研究发现不同年龄区间劳动者比重对劳动生产率和工资的影响程度和影响方向存在差异。劳动者数量对劳动生产率影响为负向,16-24 岁、25-34 岁和45-54 岁劳动者比重对劳动生产率产生正向影响,而55-64 岁和65-74 岁对劳动生产率的影响分别由负转正和由正转负。劳动者数量及各年龄段劳动者比重对工资水平产生正向影响。因此,提出对不同行业劳动者教育水平进行合理要求、综合考虑不同年龄段劳动者能力以及给予老年劳动者合适的工作岗位等政策建议。