Labour market institutions and labour market performance

This paper studies the relationship between labour market institutions and policies and labour market performance using a new and unique dataset that covers the countries of Eastern Europe and Central Asia, which in the last two decades experienced radical economic and institutional transformations. We document a clear trend towards liberalization of labour markets, especially in the countries of the former Soviet Union, but also substantial differences across the countries studied. Our econometric analysis implies that institutions matter for labour market outcomes, and that deregulation of labour markets improves their performance. The analysis also suggests several significant interactions between different institutions, which are in line with the idea of beneficial effects of reform complementarity and broad reform packages.     

Unemployment,long-term employment relations and the determination of unit labour cost growth in US manufacturing industries

This paper examines the effect that unemployment and long-term employment relations exert on the determination of unit labour costs. The paper proceeds in three sections. Section one analyses the relationship between labour market conditions and unit labour costs by developping a simple model of a firm that relies upon dismissal threats to elicit work effort. The comparative static properties of this model suggest that a tightening of labour markets may result in an increase in unit labour costs. In addition, it is argued that the labour market disequilibrium that occurs at full employment levels of unemployment will likely result in an increase in the growth rate of unit labour costs. The second section of the paper reviews diverse theories of long-term employment relations (LTERs), each of which suggest that the presence of LTERs ought to reduce the effect that labour market conditions exert on unit labour costs. The third section of the paper presents empirical estimates of the effect unemployment and LTERs exert on unit labour costs. The central empirical findings can be briefly summarized. First, movements towards full employment increase the growth rate of wages, reduce the growth rate of labour productivity and increase the growth rate of unit labour costs. Secondly, where long-term employment relations are prevalent, the effect of unemployment on wage, labour productivity, and unit labour cost growth is diminished. The paper concludes by discussing the implications these findings have for effort regulation models and the macroeconomic foundations of microeconomic labour market structures     

Structural change,the push-pull hypothesis and the Spanish labour market

This paper proposes a small-scale general equilibrium model of structural transformation with a non-agricultural labour market characterized by search frictions. The model is used to investigate the role of sectoral TFPs as main drivers of structural change and a new growth accounting exercise allows a quantitative reassessment of the importance of the labour reallocation bonus in structural transformation in the presence of labour market frictions. The model is calibrated to data for post-war Spain and its transition from dictatorship to democracy. Counterfactual simulations point towards productivity improvements in agriculture as the main driver, while modifications in labour market institutions affect mainly the labour market itself, with only a modest effect on structural change.     

Environmental Policy, Tax Incidence, and the Cost of Public Funds

This paper studies under what conditions a double dividend may occur in the sense that both environmental quality and employment rise. A simple static general equilibrium model is employed in which tax policy faces the dual task of internalising a negative environmental externality and raising revenue to finance public consumption. The model features a clearing labour market with both labour demand and supply and a fixed factor of production (e.g. capital). Hence, we can study tax incidence and its effect on employment, environmental quality, and the marginal cost of public funds. It is shown for the case of an upward sloping labour supply curve and less than full tax shifting by employers that a shift towards greener preferences cannot yield a double dividend, even if the fixed factor is important. However, if labour supply curve bends backwards, more environmental concern confers a double dividend.     

Labour Market Regulations and the Sectoral Reallocation of Workers: The Case of Trade Reforms

In this paper I highlight the importance of incorporating the institutional features of local labour markets into the analysis of trade reforms. A trade reform is often deemed beneficial because the elimination of trade barriers allows labour to reallocate towards those sectors in the economy in which the country has a comparative advantage. The amount and speed of the reallocation, however, and the post-reform behaviour of output, productivity and welfare, will depend on how regulated the labour market is. First, I document that high firing costs slow down the intersectoral reallocation of labour after a trade reform. Second, in order to isolate the effect of firing costs on labour reallocation, output and welfare after a trade reform, I build a dynamic general equilibrium model. I find that if a country does not liberalize its labour market at the outset of its trade reform, the intersectoral reallocation of workers will be 30% slower, and as much as 30% of the gains in real output and labour productivity in the years following the trade reform will be lost. From a policy standpoint, the message is that while trade reforms are desirable, they need to be complemented by labour market reforms in order to be fully successful.     

Contracting Productivity Growth

This paper analyses the interactions between growth and the contracting environment in production. With incompleteness in contracting, viable production relationships between firms and workers, and therefore the profitability of industries, depend on the rates of innovation and growth. The speed at which new innovations arrive in turn depends on the profitability of production, for the usual reasons examined in the endogenous growth literature. We show that these interactions can have important implications which are consistent with observed phenomena in both the micro and macro environments. In particular, we demonstrate that a technological shock (increasing productivity of research) can, through this interaction, lead to a productivity slowdown and a shift in labour market contracts away from firms providing implicit guarantees of lifetime employment and towards shorter-term "contractor" type arrangements. We show the consistency of an increase in the proportion of the labour force under short-term employment, increased relative returns of workers in high-productivity sectors, and increased income inequality, with a productivity slowdown of finite duration.     

Should They Stay or Should They Go? Attitudes Towards Immigration in Europe

This paper examines the main determinants of individual attitudes towards immigration in Europe. Our results suggest that both economic and non‐economic variables shape attitudes towards immigration, but the relative importance of these factors depends crucially on the race/ethnicity of the arriving immigrants. While fears over labour market competition are more likely to shape attitudes towards the arrival of same race immigrants, more exposure to immigrants reduces opposition towards the arrival of different race immigrants. These findings persist after controlling for socioeconomic characteristics, and after exploiting the data to allow for cohort‐specific effects.     

Decomposing growth in the gender wage gap in urban China: 1989–2011

This paper examines trends in the gender wage gap observed in urban China during the post‐reform era. Using China Health and Nutrition Survey data, changes to the gap between 1989 and 2011 are analyzed using the Wellington decomposition method. While women's gains in observed characteristics have narrowed the wage gap, they are more than offset by changes in the returns to these characteristics. Men's returns to potential labour market experience have grown particularly rapidly, relative to women's, and this represents the single largest contributing factor towards the widening of the gender wage gap. Further investigation explores gender wage patterns through the dimensions of occupation, ownership sector and birth cohort. Taken together, my results raise concerns that China's urban labour market may increasingly disincentivize women's long‐term labour force attachments.     

CHINA'S RURAL INDUSTRY AND MONOPSONY: AN EXPLORATION

Abstract. Despite spectacular output growth and significant employment creation, recent findings suggest that China's TVEs are "under-employing"'labour relative to the competitive benchmark. The paper reconfirms these findings on a new data set, discusses the possibility that it is caused by enterprises confronting upward-sloping labour supply curves, and performs a preliminary test for this by regressing the estimated marginal product-wage gaps for our enterprise sample on variables proxying for labour scarcity, labour market infrastructure, and pressure to maximize profits. The results are broadly supportive of the hypothesis.     

The earnings of male immigrants in England: evidence from the quarterly LFS

"In this paper we estimate earnings functions for native born and foreign born white and non-white males in the English labour market, using data from the Quarterly Labour Force Survey.... Our results highlight the importance of distinguishing between native born and foreign born males when investigating the labour market experience of ethnic minorities. Furthermore, the earnings performance amongst white immigrants varies considerably."     

Beyond Eurosclerosis

Europe no longer suffers from Eurosclerosis; unemployment, notably long-term unemployment, had decreased substantially for more than a decade. Mobility across labour market states increased in those countries where unemployment has been falling the most. Institutional reforms -- such as declining employment protection for new entrants in the labour market and less generous unemployment benefits -- account for this increase in mobility. Focusing on these reforms, we rationalize why EU workers, including those with permanent contracts, are increasingly unhappy about labour market conditions in spite of the disappearance of mass unemployment in Europe. Due to these perceptions, policy reversals cannot be ruled out. Governments wishing to minimize the risk of going back to Eurosclerosis should move towards flexicurity configurations, compensating workers for higher risks of job loss, and introduce tenure tracks to the labour market, preventing the development of dual labour market structures. This would avoid dissipating the employment gains of the last decade during this recession.
--- Tito Boeri and Pietro Garibaldi     

The impact of immigration on a depressed labour market: the South Australian experience

"This paper examines the impact of immigration on the relatively depressed labour market in South Australia during the 1976-81 inter-censal period. The findings indicate that recently arrived immigrants have experienced exceedingly high unemployment rates. However, this is consistent with the view that immigration generates additional job opportunities for Australian residents (except in the manufacturing industry and trades occupations), and that immigrants experience high unemployment rates specifically because they have been unable to compete a 'fair share' of jobs away from residents already entrenched in the labour market."     

Optimal Factor Income Taxation in the Presence of Unemployment

According to conventional wisdom internationally mobile capital should not be taxed or should be taxed at a lower rate than labour. An important underlying assumption behind this view is that there are no market imperfections, in particular that labour markets clear competitively. At least for Europe, which has been suffering from high unemployment for a long time, this assumption does not seem appropriate. This paper studies the optimal factor taxation in the presence of unemployment which results from the union-firm wage bargaining both with optimal and restricted profit taxation when capital is internationally mobile and labour immobile. In setting tax rates the government is assumed to behave as a Stackelberg leader towards the private sector playing a Nash game. The main conclusion is that in the presence of unemployment, the conventional wisdom turns on its head; capital should generally be taxed at a higher rate than labour.     

ESTIMATED SMALL OPEN ECONOMY MODEL WITH FRICTIONAL UNEMPLOYMENT

This paper investigates labour market dynamics in New Zealand by estimating a structural small open economy model enriched with standard search and matching frictions in the labour market. We show that the model fits the business cycle features of key macroeconomic variables reasonably well and provides an appealing monetary transmission mechanism. We then extend our analysis to examine the driving forces behind labour market variables. Our findings suggest that the bulk of variation in labour market variables is solely explained by disturbances pertaining to the labour market.     

A Reassessment of Marx's Thought on Labour Exchange

This article reassesses Marx's thought on labour exchange and illuminates its worth. In the Grundrisse and subsequent pre-Capital writings, Marx presented arguments that attached importance to worker subjectivity towards labour performance based on the distinction between labour capacity and labour. This afforded insights into the peculiarities of labour exchange that preclude market determination of wages and other working conditions and necessitate the intervention of class struggle and other socio-political factors in their settlement. The significance of Marx's perspective is further elucidated when compared with the classical tradition and the position of neoclassical economics. Although his emphasis on worker autonomy receded in Capital, his earlier arguments on labour exchange, it is posited, remain highly relevant to understanding industrial relations in today's capitalist economy.     

Can labour market institutions explain high unemployment rates in the new EU member states?

This article studies the question whether labour market institutions can explain the large differences in unemployment rates in the new member states. It investigates several labour market institutions and concludes that they are on average no more rigid in the new member states than in the old ones. However, there is a lot of heterogeneity both in terms of institutions and unemployment rates. The impact of labour market institutions on performance is empirically examined for a panel of European countries. These results are used to assess to what extent labour market institutions are responsible for the diverse unemployment experiences in the new member states. Labour market institutions can explain only a small part of these differences. Other causes of unemployment seem to be more important.

Hysteresis and sluggishness in Portuguese unemployment, 1977–88

The phenomenon of unemployment persistence led to the development of alternative theories of unemployment. Among these the ‘hysteresis’ concept by Blanchard and Summers (1987) received a wide interest. Based on this notion we developed a generalized model that nests Blanchards and Summers' theory. Using this framework we conducted an empirical investigation for the Portuguese labour market (1977–88). The results obtained point towards the existence of labour demand sluggishness, wage inertia and unemployment hysteresis. The model also suggests the existence of a rather inelastic labour demand curve.     

Gender Roles,Occupational Choice and Gender Wage Differential*

This paper addresses the impact of occupational choice and the perception of gender roles on the gender wage differential. We examine the effect of occupational choice upon the level of wages and investigate the determinants of occupational choice. The evidence supports earlier findings that the wage differential is caused by demand discrimination within occupations. We also conclude that if females had a less traditional attitude towards their role in the labour market they would generate an occupational distribution that would produce a higher wage     

Asset bubbles,labour market frictions and R&D‐based growth

Employing an overlapping generations model of R&D‐based growth with labour market frictions, this paper examines how employment changes induced by labour market frictions influence asset bubbles and long‐run economic growth. Asset bubbles can (cannot) exist when the employment rate is high (low), which leads to higher (lower) economic growth through labour market efficiency. We also explore the steady state and transitional dynamics of bubbles, economic growth and employment. Furthermore, we show that policy or parameter changes with a negative influence on the labour market can lead to a bubble burst.