Impact of cultural diversity on wages,evidence from panel data

This paper combines individual data from the British Household Panel Survey and yearly population estimates for England to analyse the impact that cultural diversity has on individual wages. Do people living in more diverse areas earn higher wages after controlling for other observable and unobservable characteristics? The results show that cultural diversity is positively associated with wages, but only when cross-section data are used, while panel data estimations show no impact of diversity. Since natives with comparatively higher skills – and wages – tend to self-select into more diverse areas, cross-section analyses may produce upwardly biassed results.     

Is there Complete,Partial, or No Recovery from Childhood Malnutrition? – Empirical Evidence from Indonesia*

This article uses a dynamic panel data model to identify the impact of early nutritional deficiencies on individuals’ health status in later ages. We find that poor nutrition at young ages causes some, but not severe retardation in the growth of future height indicating partial recovery from chronic malnourishment. The results also indicate that – younger children, stunted children, and children who live in communities with six or more health posts exhibit larger recovery. The estimation strategy used here is especially attractive as it relies on weaker stochastic assumptions compared to earlier work in the literature.     

The Causal Effect of Education on Wages Revisited*

This study estimates the return to education in Britain using two instrumental variable (IV) estimators: one exploits variation in schooling associated with early smoking, the other uses the raising of the school leaving age; both affect a sizeable proportion of the sample. Early smoking is found to be a strong and valid IV and unlike previous IV strategies uses variations in education at numerous points across the distributions of (i) education, and (ii) ability. Thus whilst still a ‘local average treatment effect’ the estimate is closer to the average effect of additional education, akin to least squares but corrected for endogeneity.     

State minimum wages and business location: Evidence from a refined border approach

This study examines the effect of state minimum wage changes on new and existing business establishments. It employs a refined border approach in conjunction with other differencing methods to control for unobserved heterogeneous area characteristics. The findings suggest that state minimum wage increases deter new establishments from locating in an area, particularly in industries that rely on low-education workforces, such as the retail and manufacturing industries. However, existing establishments, regardless of industry type, are not found to be adversely affected by minimum wage policy.     

Efficiency and Seasonality in the UK Housing Market, 1991–2001*

This paper considers the informational efficiency of the UK owner‐occupied housing market over the period 1991–2001. Original small‐area, monthly, quality‐adjusted house price index series are developed from raw housing transaction observations for a number of UK counties and cities. These series are then tested in an autoregressive setting for characteristics indicative of weak market efficiency and seasonality. The major conclusion drawn is that there exists little evidence to support notions of inefficiency in these markets over the period considered.     

Seniority wages and establishment characteristics

A representative linked employer-employee panel and an innovative two-step estimation strategy are used to show that large and profitable establishments as well as establishments with a highly qualified workforce pay high seniority wages. Also collective bargaining coverage, works councils and reduced working time for older employees are positively correlated with seniority wages, the share of foreigners, females as well as initial wage levels for job entrants are negatively correlated. These results support an agency based motivation for seniority wages with older employees' wages set higher than their productivity.     

Great expectations: Past wages and unemployment durations

Decomposing wages into worker and firm wage components, we find that firm-fixed components are sizeable parts of workers' wages. If workers can only imperfectly observe the extent of firm-fixed components in their wages, they might be misled about the overall wage distribution. Such misperceptions may lead to unjustified high reservation wages, resulting in overly long unemployment durations. We examine the influence of previous wages on unemployment durations for workers after exogenous lay-offs and, using Austrian administrative data, we find that younger workers are, in fact, unemployed longer if they profited from high firm-fixed components in the past. We interpret our findings as evidence for overconfidence generated by imperfectly observed productivity.     

Noncognitive skills, occupational attainment, and relative wages

This paper examines whether men's and women's noncognitive skills influence their occupational attainment and, if so, whether this contributes to the disparity in their relative wages. We find that noncognitive skills have a substantial effect on the probability of employment in many, though not all, occupations in ways that differ by gender. Consequently, men and women with similar noncognitive skills enter occupations at very different rates. Women, however, have lower wages on average not because they work in different occupations than men do, but rather because they earn less than their male colleagues employed in the same occupation. On balance, women's noncognitive skills give them a slight wage advantage. Finally, we find that accounting for the endogeneity of occupational attainment more than halves the proportion of the overall gender wage gap that is unexplained.     

Agglomeration economies with consistent productivity estimates

This paper investigates the relative impact of microeconomic agglomeration mechanisms on plant's total factor productivity (TFP) using German establishment and employment-level data. Contrasting different strategies for estimating TFP from plant-level production functions reveals that unobserved output prices bias true productivity and lead to underestimated agglomeration economies. With the corrected TFP measure, the largest impact is found for labor market pooling, which is captured by the correlation of the occupational composition between one county-industry and the rest of the county. This main result is robust, even when the spatial units are resized from counties to larger labor market regions. Input linkages appear to be relevant only at this larger regional scale. Overall, agglomeration economies differ substantially across industries. Only for a subset of industries, some positive evidence is detected for knowledge spillovers.     

The family gap in wages: What wombmates reveal

We shed new light on the effects of having children on hourly wages by exploiting access to data on the entire population of employed same-sex twins in Denmark. Our second contribution is the use of administrative data on absenteeism; the amount of hours off due to holidays and sickness. Our results suggest that childbearing reduces female hourly wages but the principal explanation is in fact mothers’ higher levels of absence. We find a positive wage premium for fathers.     

The ambiguous effect of minimum wages on hours

In a competitive model we ease the assumption that efficiency units of labour are the product of hours and workers. We show that a minimum wage may either increase or decrease hours per worker and the change will have the opposite sign to the slope of the equilibrium hours hourly wage locus. Similarly, total hours worked may rise or fall. We illustrate the results throughout with a Cobb-Douglas example.     

Agricultural productivity,shadow wages and off-farm labor decisions in Nicaragua

The objective of this study is to analyze the decision to work off-farm by male and female farmers in Nicaragua using a three-year unbalanced panel dataset. Shadow income and shadow wages are also estimated. Moreover, to mitigate biases from unobserved individual and farm time-invariant characteristics as well as from sample selection, we apply a semiparametric approach for panel data. Our main findings suggest that shadow wages play a major role in off-farm labor decisions for both males and females. This implies that less labor is allocated to off-farm activities as the opportunity cost for agricultural work goes up. In addition, as the on-farm marginal productivity of households (i.e., shadow income) rises, both males and females reduce the hours they allocate to off-farm activities.     

Testing the Stochastic Implications of the Permanent Income Hypothesis Using Canadian Provincial Data*

This paper utilizes relatively unexplored Canadian provincial‐level data to investigate an old but still relevant question in macroeconomics as to whether consumption responds to income innovations in a manner consistent with the stochastic implications of the permanent income hypothesis (PIH). The empirical results obtained do not appear to be in accord with the PIH. Instead, consumption's response to income innovations is found to be much weaker than that predicted by PIH; in particular, the response displays an asymmetric pattern in the sense that it is much stronger for negative than positive income innovations. We interpret this evidence of asymmetry as indicative of the presence of liquidity constraints in provincial households.     

Chief Executive Pay and Remuneration Committee Independence*

This article tests the impact of remuneration committee independence on Chief Executive (CEO) pay. FTSE350 companies between 1996 and 2008 are used to assess whether remuneration committees facilitate optimal contracting or whether CEOs capture the pay‐setting process and inflate their own remuneration. This panel has a number of advantages over prior samples and, in particular, contains a more comprehensive assessment of non‐executive directors’ independence. No evidence of a relationship between CEO pay and director independence is found, challenging the theory of managerial power and the received wisdom of institutional guidance.     

Sprawl and blight

The objective of this paper is to show how the same market failures that contribute to urban sprawl also contribute to urban blight. The paper develops a simple dynamic model in which new suburban and older central-city properties compete for mobile residents. The level of housing services generated by older properties depends on current maintenance or reinvestment expenditures. In this setting, market failures that reduce the cost of occupying suburban locations, thus leading to excessive suburban development, also depress central-city housing prices and undermine maintenance incentives, leading to deficient levels of central-city reinvestment. Corrective policies that shift population from the suburbs to the center result in higher levels of reinvestment in central-city housing, therefore reducing blight.     

The stability and efficiency of directed communication networks

Abstract. This paper analyzes the formation of directed networks where self-interested individuals choose with whom they communicate. The focus of the paper is on whether the incentives of individuals to add or sever links will lead them to form networks that are efficient from a societal viewpoint. It is shown that for some contexts, to reconcile efficiency with individual incentives, benefits must either be redistributed in ways depending on “outsiders” who do not contribute to the productive value of the network, or in ways that violate equity (i.e., anonymity). It is also shown that there are interesting contexts for which it is possible to ensure that efficient networks are individually stable via (re)distributions that are balanced across components of the network, anonymous, and independent of the connections of non-contributing outsiders.     

Estimation of collective household models with Engel curves

The structural consumer demand methods used to estimate the parameters of collective household models are typically either very restrictive and easy to implement or very general and difficult to estimate. In this paper, we provide a middle ground. We adapt the very general framework of [Browning, M., Chiappori, P.A., Lewbel, A., 2004. Estimating Consumption Economies of Scale, Adult Equivalence Scales, and Household Bargaining Power, Boston College Working Papers in Economics 588] by adding a simple restriction that recasts the empirical model from a highly nonlinear demand system with price variation to a slightly nonlinear Engel curve system. Our restriction has an interpretation in terms of the behaviour of household scale economies and is testable. Our method identifies the levels of (not just changes in) household resource shares, and a variant of equivalence scales called indifference scales. We apply our methodology to Canadian expenditure data.     

Tornado activity,house prices,and stock returns

In this paper we investigate the effects of tornado activity on house prices and stock returns in the US. First, using geo-referenced and metropolitan statistical area (MSA)-level data, we find tornado activity to be responsible for a significant drop in house prices. Spillover tornado effects between adjacent MSAs are also detected. Furthermore, our granular analysis provides evidence of tornadoes having a negative impact on stock returns. However, only two sectors seem to contribute to such a negative effect (i.e., consumer discretionary and telecommunications). In a macro-analysis, which relies on aggregate data for the South, West, Midwest and Northeast US regions, we then show that tornado activity generates a significant drop in house prices only in the South and Midwest. In these regions, tornadoes are also responsible for a drop in income. Tornado activity is finally found to positively (negatively) affect stock returns in the Midwest (South). If different sectors are examined, a more heterogeneous picture emerges.     

The cyclicality of effective wages within employer-employee matches in a rigid labor market

This study analyzes real wage cyclicality for male full-time workers within employer-employee matches in Germany over the period 1984-2004. Five different wage measures are compared: the standard hourly wage rate; hourly wage earnings including overtime and bonus pay; the effective wage, which takes into account unpaid overtime; and monthly earnings, with and without additional pay. None of the hourly wage measures exhibits cyclicality except for the group of salaried workers with unpaid overtime. Their effective wages show a strongly procyclical reaction to changes in unemployment. Despite acyclical wage rates, salaried workers without unpaid overtime experienced procyclical earnings movements if they had income from extra pay. Monthly earnings were also procyclical for hourly paid workers with overtime pay. These findings suggest that cyclical earnings movements are generated by variable pay components, such as bonuses and overtime pay, and by flexible working hours. The degree of earnings procyclicality revealed for the German labor market is comparable to the United States.