Comparing the effectiveness of employment subsidies

This paper examines the implications of different types of employment subsidies for employment, welfare, and inequality. It investigates how these effects depend on what target groups the subsidies address. Our analysis focuses on policies that are “approximately welfare efficient” (AWE), i.e. policies that (a) improve employment and welfare, (b) do not raise earnings inequality and (c) are self-financing. We construct a microfounded, dynamic model of hiring and separations and calibrate it with German data. The calibration shows that hiring vouchers can be AWE, while low-wage subsidies are not AWE. Furthermore, hiring vouchers targeted at the long-term unemployed are more effective than those targeted at low-ability workers.     

Optimal unemployment policy in a matching equilibrium

This paper considers optimal unemployment policy in a matching equilibrium with risk averse workers and unobserved job search effort. The Planner chooses unemployment benefits, taxes and job creation subsidies to maximise a Utilitarian welfare function. Optimal policy involves a trade-off between higher employment taxes (which finance more generous unemployment benefits) and greater market tightness (which reduces the average unemployment spell). Optimal UI implies the initial UI payment equals the wage, thus ensuring consumption is smooth across the job destruction shock, and UI payments then fall with duration.     

The distribution of changes in manufacturing employment and the impact of the minimum wage

That employment for workers in durable goods industries is more sensitive to the pace of economic activity than for non-durable goods employees is not a surprising result. What is noteworthy about the conclusions of this study, however, is the manner in which increases in the minimum wage have altered the distribution of employment and sensitivity to short-run changes in employment of production workers in manufacturing industries. By focusing on the distribution of employment and how that distribution changes over the cycle, estimates of some aspects of the impact of the minimum wage that have not previously been analyzed have been developed.The evidence indicates that increases in the minimum wage over the period 1947–1975 have had a significant impact on employment patterns. Minimum wage legislation has had the effect of decreasing the share of projected employment and increasing vulnerability to cyclical changes in employment for the group of workers most ‘marginal’ to the work force low-wage industry employees. Hence, as a result of increased minimum wages, low-wage industry employees are able to obtain fewer jobs during periods of normal employment growth and their jobs are less secure in the face of short-run employment variations.Minimum wage legislation has undoubtedly resulted in higher wages for some of the relatively-low-productivity workers who were able to obtain employment than these workers would have received in its absence. The cost in terms of lost employment opportunities and cyclical vulnerability of jobs, however, has apparently been borne most heavily by low-wage industry employees. The primary beneficiaries of the shifts in the pattern of employment shares occasioned by minimum wage increases were high-wage industry workers, particularly in the ordnance, food, tobacco, and petroleum industries.     

The effect of minimum wage hikes on employment: Evidence from regional panel data from Romania

Minimum wage hikes aim to increase the income of low-wage workers and improve their labour market participation. However, there are concerns that large increases may reduce employment, especially in countries where minimum wages increased quickly and whose competitiveness depends, at least partly, on low production costs. This study examines the employment effect of large increases in the minimum wage in Romania between 2008 and 2016. It uses regional (NUTS III) data and dynamic panel methods. The results do not support the hypothesis that minimum wage hikes reduce employment. They are robust to the use of different econometric methods, plausible variations of the specification and definitions of the key variables. Moreover, the results suggest insignificant effects even for low wage, less developed or high unemployment regions.     

On-the-job search equilibrium with endogenous unemployment benefits

This paper develops an on-the-job search model with wage posting where unemployment benefits are proportional to past wages. We emphasize that this contributes to increasing the reservation wages of unemployed workers and introduces a feedback effect of the distribution of wages on the distribution of unemployment benefits. We show that the model predictions are consistent with some stylized French facts and quantify the impact of inefficient rejections of low-wage offers by the unemployed. We find that, by reducing the indexing of unemployment benefits to previous earnings and increasing lump-sum transfers, it is possible to increase both employment and welfare.     

Subsidizing low-skilled jobs in a dual labor market

We introduce a matching model that allows for classical and frictional unemployment. The labor market is dual featuring low-skilled and high-skilled workers and simple and complex jobs. Simple jobs pay a minimum wage, while wages in the complex jobs are determined by Nash bargaining. Opportunities for low-skilled workers are limited to simple jobs; while high-skilled unemployed can apply for both types of jobs, and thereby can accept to be downgraded. We analyze the outcomes of simple job subsidy policies assuming that government budget is balanced through taxes on occupied workers. We first give conditions for the existence and uniqueness of a steady-state equilibrium and we then analyze the effects of different fiscal instruments. We show that in this set-up, increasing simple job subsidies does not necessarily reduce low-skilled unemployment or unemployment spells. By introducing heterogeneous skills and possible downgrading of the high-skilled workers, we show that the effectiveness of such policies in reducing the classical unemployment is decreasing. In fact, any additional classical unemployed re-entering the job market is accompanied by an increasing number of high-skilled workers downgrading to low-skilled jobs. We calibrate the model on French labor market data. It is found that for five low-skilled workers leaving classical unemployment, two high-skilled workers are downgraded.     

The impact of minimum wages on wages,work and poverty in Nicaragua

In this paper we use an individual- and household-level panel data set to study the impact of changes in legal minimum wages on a host of labor market outcomes including: a) wages and employment, b) transitions of workers across jobs (in the covered and uncovered sectors) and employment status (unemployment and out of the labor force), and c) transitions into and out of poverty. We find that changes in the legal minimum wage affect only those workers whose initial wage (before the change in minimum wages) is close to the minimum. For example, increases in the legal minimum wage lead to significant increases in the wages and decreases in employment of private covered sector workers who have wages within 20% of the minimum wage before the change, but have no significant impact on wages in other parts of the distribution. The estimates from the employment transition equations suggest that the decrease in covered private sector employment is due to a combination of layoffs and reductions in hiring. Most workers who lose their jobs in the covered private sector as a result of higher legal minimum wages leave the labor force or go into unpaid family work; a smaller proportion find work in the public sector. We find no evidence that these workers become unemployed.Our analysis of the relationship between the minimum wage and household income finds: a) increases in legal minimum wages increase the probability that a poor worker's family will move out of poverty, and b) increases in legal minimum wages are more likely to reduce the incidence of poverty and improve the transition from poor to non-poor if they impact the head of the household rather than the non-head; this is because the head of the household is less likely than a non-head to lose his/her covered sector employment due to a minimum wage increase and because those heads that do lose covered sector employment are more likely to go to another paying job than are non-heads (who are more likely to go into unpaid family work or leave the labor force).     

The effect of the minimum wage on employment and hours

This study examines the effect of minimum wage increases on teen hours of work and employment using both state- and individual-level panel data in the US. The state-level results indicate that minimum wage increases may lower employment rates but do not adversely affect hours among either working teens or all teens. The individual-level results do not indicate that minimum wage increases have a significant negative effect on hours worked by low-wage teens who are likely to be affected by a minimum wage increase. The results suggest that low-wage teens are less likely to remain employed, relative to high-wage teens, when the minimum wage is raised. However, this adverse effect disappears when these low-wage teens are compared to other low-wage teens during periods when the minimum wage did not increase.     

Relative wage and unemployment changes in Poland: microeconometric evidence

We estimate changes in the Polish wage and unemployment structures between the years 1994 and 1998 in order to identify labour market characteristics associated with increasing and decreasing relative demand, as well as relative wage rigidities. The evidence shows that relative demand for workers with a low level of education decreased. Whereas relative wages for workers with basic vocational education also fell in this situation, relative wages of workers with only primary education did not, pointing to a relative wage rigidity for this group which faced an above-average unemployment risk throughout the observation period.     

Ranking of job applicants,on-the-job search,and persistent unemployment

We formulate an efficiency wage model with on-the-job search where wages depend on turnover and employers may use information on whether the searching worker is employed or unemployed as a hiring criterion. We show theoretically that such ranking of job applicants by employment status raises both the level and the persistence of unemployment and numerically that the effects may be substantial. More prevalent ranking in Europe compared to the US (because of more rigid wage structures, etc.) could potentially help to explain the high and persistent unemployment in Europe.     

Examining policy configurations as conditions for long-term unemployment and non-standard employment in OECD countries using fuzzy-set analysis

This paper investigates how particular configurations of institutional conditions cause high rate of long-term unemployment and non-standard employment rate for 18 OECD countries during the period of 2001–2008. The paper aims to investigate how employment protection legislation (EPL), unemployment benefit and statutory minimum wages are associated with long-term unemployment and non-standard employment. Using the fuzzy-set analysis, the paper examines how the combination of policies matters in causing long-term unemployment and/or non-standard employment. The result suggests that a low level of statutory minimum wage can lead to high levels of non-standard employment in combination with either strict EPL for permanent workers or weak EPLs for temporary workers. The long-term unemployment rate is suggested to be high when there is strict EPL for temporary workers in combination with high levels of statutory minimum wage. This paper highlights the importance of examining multiple policies as configuration.     

How low can U go?

• ? Although there is growing evidence that wage growth is building in response to low and falling unemployment in the advanced economies, there is scope for unemployment rates to fall further without triggering a pay surge.
• ? For a start, current unemployment rates in comparison to past cyclical troughs overstate the tightness of labour markets. Demographic trends associated with the ageing ‘baby boomer’ bulge have pushed down the headline unemployment rate – unemployment rates among older workers are lower than those of younger cohorts. And in a historical context, Europe still has a large pool of involuntary part‐timers.
• ? In addition, rising participation rates mean that demographics are less of a constraint on employment growth than widely assumed. In both 2017 and 2018, had it not been for increased activity rates (mainly for older cohorts), unemployment would have had to fall more sharply to accommodate the same employment increase. We expect rising participation rates to continue to act as a pressure valve for the labour market.
• ? Finally, unemployment rates were generally far lower during the 1950s and 1960s than now. If wages stay low relative to productivity, as was the case during that prior era, employment growth may remain strong, with unemployment falling further. In the post‐war era, low wages were partly a function of a grand bargain in which policy‐makers provided full employment in return for low wage growth.
• ? There is evidence to suggest that many post‐crisis workers have opted for the security of their existing full‐time job and its associated benefits despite lower wage growth, rather than change job and potentially earn more; the rise of the ‘gig economy’ has led some workers to value what they already have more. Put another way, the non‐accelerating inflation rate of unemployment (NAIRU) has fallen. So, the role of labour market tightness in pushing wage growth higher may continue to surprise to the downside.

     

What is the most flexible component of wage bill adjustment? Evidence from Belgium

This paper decomposes wage bill changes at the firm level into components due to wage changes, and components due to flows of employment. It relies on an administrative matched employer–employee dataset of individual earnings merged with firms' annual accounts for Belgium over the period 1997–2001. The results are in line with what one would expect in a downward wage rigidity environment. On average, wage bill contractions result essentially from employment cuts in spite of wage increases. Wage growth of job stayers is moderated but positive; and wages of entrants compared with those of incumbents are no lower. The labour force cuts are achieved through both reduced entries and increased exits, due to more layoffs, especially in smaller firms, and wider use of early retirement, especially in manufacturing. In addition, the paper points out the role of overtime hours, temporary unemployment and interim workers in adapting hours worked to economic circumstances.     

Labor force participation and pair-wise efficient contracts with search and bargaining

A “constant” wage is pair-wise inefficient in a standard search model when workers endogenously separate from employment. We derive a pair-wise efficient employment contract that involves workers paying a hiring fee (or bond) upon the formation of a match. We estimate the constant wage and pair-wise efficient contract assuming the hiring fee is unobservable, and find evidence to reject the pair-wise efficient contract in favor of the constant wage rule. A counterfactual experiment reveals the current level of labor force participation to be 9.6% below the efficient level, and a structural shift to the pair-wise efficient contract improves welfare by roughly 3.5%.     

Minimum wages,wages and employment in various sectors in Honduras

This paper contributes to our understanding of the impact of minimum wages on labor markets of developing countries, where there are often multiple minimum wages and compliance is weak. We examine how changes in more than 22 minimum wages over 1990–2004 affect employment, unemployment and average wages of workers in different sectors, defined by coverage under the legislation. The evidence suggests that minimum wages are effectively enforced only in medium and large-scale firms, where a 1% increase in the minimum wage leads to an increase of 0.29% in the average wage and a relatively large reduction in employment of ? 0.46%. We find that public sector wages emulate minimum wage trends but the higher cost of labor does not reduce employment there. There are no discernable effects of minimum wages on the wages of workers in small-firms or the self-employed; yet, higher minimum wages may create more unemployment. We conclude that (even under our upper bound estimate of the effect on the wages of workers) the total earnings of workers in the large-firm covered sector fall with higher minimum wages in Honduras, which warrants a policy dialogue on the structure and level of minimum wages.     

Skill shortages and labor market outcomes in Central Europe

The new Central European members of the EU have been characterized by low employment rates, especially among unskilled workers, despite the GDP recoveries and large private sector shares in output and employment. Evidence points at skill shortages in Central Europe as a key impediment to faster labor reallocation and convergence to the EU-15 employment structures. In this paper, we develop a simple model of labor reallocation with transaction costs and show how skill shortages can inhibit firm creation and increase income inequality. We use the model to examine the impact of training subsidies and their financing on skill acquisition and start-ups of new private firms, and show that the positive effect of subsidies would be mostly offset by high wage taxes. Shifting financing from wage to consumption taxes would improve incentives for workers’ training and firm start-ups, while relying more on income taxes could reduce the income gap between workers and entrepreneurs.     

最低工资对正规部门、非正规部门工资和就业的影响

本文根据是否遵守最低工资标准,将劳动部门分为正规部门和非正规部门。利用中国健康与营养调查（CHNS）微观数据,运用固定效应模型和Multinomial Logit模型,本文实证研究了2004年以来,最低工资对正规部门和非正规部门工资和就业的影响。研究发现：最低工资每提高1%,正规部门工资会增加0.5%,非正规部门平均工资下降统计不显著,而处于最低工资线附近的非正规部门劳动者工资下降0.77%;最低工资提高使得失业者向非正规部门流动,而非正规部门劳动者向正规部门流动,最终将有利于劳动者在正规部门就业。因此,政府在制定最低工资制度时应全面考虑最低工资标准作用效果的部门差异。     

On the extent of re-entitlement effects in unemployment compensation

We analyze the implications of two-tier unemployment compensation systems with non-automatic eligibility in an equilibrium matching model with Nash bargaining. As eligibility for UI does not automatically follow from employment, the two types of unemployed workers have different threat points, which delivers equilibrium wage dispersion. The parameters of the model are estimated for France, and the model is also calibrated for Denmark and the U.S. Re-entitlement effects are shown to be sizeable for all three countries. For France, re-entitlement effects lower by 15% the rise in the wage and by 25% the rise in unemployment following a 10% increase in the benefit level. Finally, we show that in all three countries the optimal compensation system is characterized by time-decreasing unemployment benefits and non-automatic eligibility for UI, with higher levels of both UI and UA benefits, a smaller decrease in benefits over time, and a longer employment duration required for UI eligibility than in the current system.     

Transitions From School to Work and the Early Labour Market Experience

We consider transitions from school to work and the early market experience. The duration of post-school unemployment, wages, and job duration are estimated simultaneously. We find that individuals with higher levels ofschooling get jobs more quickly and have longer employment durations. Apprentices have shorter unemployment periods and stay longer in their jobs than others at the same educational level. Females have shorter unemployment periods and lower wages, and also stay in the first job longer. The unemployment duration and the accepted wage affect job duration positively, but the estimated covariance terms suggest unobserved factors working in the opposite direction.     

The consequences of minimum wage legislation

A policy which could raise wages in the low-wage labour market without job losses would be remarkable. Employers will respond to a wage floor not only by changing the employment level but by altering the other components of job packages. The'new economics'of the minimum wage largely ignores such effects.