Training and worker effort: a signalling perspective

Abstract This paper analyzes the interaction between firms’ investment in general skills training and workers’ incentives. It shows that when a firm has an informational advantage over its workers, its provision of free general skills training can serve as a signal that there will be a long‐term relationship between the firm and its workers. This signal induces the workers to exert more effort in learning firm‐specific skills, which enhances the firm's profits. In contrast with most of the existing literature, the model implies that firms may provide free general skills training even if there is no labour market friction.     

Is ethnic discrimination due to distaste or statistics?

Employing a vignette experiment, we test the empirical importance of key attitudes underlying the models of taste-based and statistical discrimination in explaining ethnic hiring discrimination. We find that employer concern that co-workers and customers prefer collaborating with natives drives discrimination.     

Loafing or learning?—the demand for informal education

Using detailed time use data for Germany a positive correlation is found between the level of schooling and time investments in informal education. Two hypotheses explain this observation: (1) highly educated people have higher opportunity costs of their leisure time and thus prefer leisure activities which add to their market productivity (wage effect) and (2) highly educated people have a preference for ‘high quality’ leisure (taste effect). The demand for informal education is derived in a household production model accounting for both explanations. An empirical investigation finds evidence for both effects with the taste effect being more important.     

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.     

Do bad risks know it? Experimental evidence on optimism and adverse selection

Subjects who overestimate their performance in experimental tasks unrelated to travel are less willing to insure against failing in the task and also less inclined to buy travel insurance. This suggests intrinsic optimism influences insurance demand and diminishes adverse selection.     

Convergence in West German Regional Unemployment Rates

Abstract. Differences in regional unemployment rates are often used to describe regional economic inequality. This paper asks whether changes in regional unemployment differences in West Germany are persistent over time. Understanding the persistency of regional unemployment differences helps us to assess how effective regional policy can be. While univariate tests suggest that changes in regional unemployment differences are persistent in West Germany, more powerful panel tests lend some support to the hypothesis that regional unemployment rates converge. However, these tests reveal a moderate speed of convergence at best. Because there is a structural break following the second oil crisis, we also use tests that allow for such a break. This provides evidence for both convergence and quick adjustment to an equilibrium distribution of regional unemployment rates that is, however, subject to a structural break.     

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.     

Caste discrimination and transaction costs in the labor market: Evidence from rural North India

This paper is an empirical attempt to quantify caste-based discrimination in the labor market using household data taken from rural North India. In the regression analysis, transaction costs associated with entry into the labor market and reservation wages are estimated simultaneously along with market wages. The estimation results provide evidence of the existence of transaction costs in the labor market and discrimination against backward classes with regard to access to regular employment. In line with previous studies, the results suggest that the achievements of India's reservation policy so far have at best been limited. In addition, a comparison between the estimates from the model employed in this paper and conventional (reduced-form) approaches shows that discrimination in labor market entry is likely to be underestimated in the conventional reduced-form approaches.     

Wage–productivity differentials and Indian economic efficiency

A frontier-general equilibrium analysis with skill transformation evaluates the productivities of skilled and unskilled labor and potential of the Indian economy. We compare the wages of skilled and unskilled labor between 1994 and 2002 with their respective productivities over this period. Education is considered to be responsible for the skill formation over this period: the change in skilled labor supply is endogenous in the model. Compared to its productivity, skilled labor is underpaid in the initial period and overpaid in the second period. Unskilled labor is underpaid in both periods. A decomposition exercise shows that skilled labor gains from free trade, and stands to lose due to education and domestic competition in the second period. The annualized rate of return to education is between 7 and 10%. The economy operates below its potential in both periods, particularly in the second—due to trade limitations and the failure to capture the return to education. Service sectors are found to have potential to grow significantly.     

THE DYNAMICS OF LABOUR'S INCOME SHARES AND THE WAGE CURVE–PHILLIPS CURVE CONTROVERSY

Based on a re-parameterised Blanchflower–Oswald model this paper uses long macro-data from the OECD countries to discriminate between the Philips curve and the wage curve and examines whether there are any differences in wage dynamics between Europe and the United States. The evidence gives support for the Phillips curve and shows that wage dynamics are no different between the United States and Europe.     

Sources of TFP growth: occupational choice and financial deepening

This paper explains and measures the sources of total factor productivity (TFP) by developing a method of growth accounting based on an integrated use of transitional growth models and micro data. We decompose TFP growth into the occupational-shift effect, financial-deepening effect, capital-heterogeneity effect, and sectoral-Solow-residuals. Applying this method to Thailand, which experienced rapid growth with enormous structural changes between 1976 and 1996, we find that 73% of TFP growth is explained by occupational shifts and financial deepening, without presuming exogenous technical progress. Expansion of credit is a major part. We also show the role of endogenous interaction between factor price dynamics and the wealth distribution for TFP. We thank Richard Rogerson for his clarifying and helpful discussion. The comments from the participants of the Minnesota Workshop in Macroeconomic Theory 2004, Stanford Institute for Theoretical Economics (SITE) Summer Workshop 2004, European Meeting and North American Summer Meeting of the Econometric Society 2004, NEUDC 2004, Iowa Conference of Economic Development, and seminars at USC Marshall School, Penn State University, UCLA, and UCSD are also appreciated. Financial support from NSF (SES-0318340) and NICHD (R01 HD27638) is gratefully acknowledged.     

Outsourcing, productivity, and input composition at the plant level

Abstract .  We evaluate the productivity and input composition effects of outsourcing (or subcontracting) for Turkish textile and apparel manufacturing plants. We analyze differences in performance indicators for plants that subcontract inputs or outputs, and find that plants that outsource internationally perform better than those that outsource domestically. We evaluate labour productivity gaps and find that more productive plants both initiate outsourcing and subsequently increase their productivity. We then estimate a flexible production function, controlling for simultaneity and selection bias, and find that higher productivity from input subcontracting involves greater skilled labour intensity but the reverse is true for output subcontracting.     

Unequal opportunities and human capital formation

This paper develops a tractable, heterogeneous agents general equilibrium model where individuals have different endowments of the factors that complement the schooling process. The paper explores the relationship between inequality of opportunities, inequality of outcomes, and aggregate efficiency in human capital formation. Using numerical solutions we study how the endogenous variables of the model respond to two different interventions in the distribution of opportunities: a mean-preserving spread and a change in the support. The results suggest that a higher degree of inequality of opportunities is associated with lower average level of human capital, a lower fraction of individuals investing in human capital, higher inequality in the distribution of human capital, and higher wage inequality. In particular, the model does not predict a trade-off between aggregate efficiency in human capital formation (as measured by the average level of human capital in the economy) and equality of opportunity.     

Social Affiliation and the Demand for Health Services: Caste and Child Health in South India

This paper assesses the role of social affiliation, measured by caste, in shaping investments in child health. The special setting that we have chosen for the analysis - tea estates in the South Indian High Range - allows us to control nonparametrically for differences in income, access to health services, and patterns of morbidity across low caste and high caste households. In this controlled setting, low caste households spend more on their children's health than high caste households, reversing the pattern we would expect to find elsewhere in India. Moreover, health expenditures do not vary by gender within either caste group, in contrast once again with the male preference documented throughout the country. A simple explanation, based on differences in the returns to human capital across castes in the tea estates is proposed to explain these striking results.     

Women as agents of change: Female income and mobility in India

Economic globalization will give many women in developing countries access to steady and relatively remunerative employment for the first time, potentially shifting bargaining power within their households and changing the choices that are made for their children. This paper exploits a unique setting — a group of tea plantations in South India where women are employed in permanent wage labor and where incomes do not vary by caste — to anticipate the impact of globalization on mobility across social groups in the future. The main result of the paper is that a relative increase in female income weakens the family's ties to the ancestral community and the traditional economy, but these mobility enhancing effects are obtained for certain historically disadvantaged castes alone. Although the paper provides a context-specific explanation for why the women from these castes emerge as agents of change, the first general implication of the analysis is that the incentive and the ability of women to use their earnings to influence household decisions depends importantly on their social background. The second implication is that historically disadvantaged groups may, in fact, be especially responsive to new opportunities precisely because they have fewer ties to the traditional economy to hold them back.