Does it Pay to Work for Free? Negative Selection and the Wage Returns to Volunteer Experience

This paper offers the first instrumental variables estimates of the wage returns to volunteer experience. The returns are substantial and differ considerably by gender. The results imply that the unequal valuation of volunteer experience by gender is more important in explaining the gender earnings gap than is the unequal valuation of part‐time paid work experience. The results also indicate negative selection into unpaid work. In a simple model of optimal volunteering, negative selection implies that a lower cost of volunteering would produce both an expanded and higher‐skilled pool of volunteers, and greater societal benefits from volunteer work.     

Effects of Industry‐ and Region‐Specific Acquisition Experience on Value Creation in Cross‐Border Acquisitions: The Moderating Role of Cultural Similarity

Based on a sample of 222 cross‐border acquisitions by US firms in the service sector, our study examines the effects of acquiring firms' prior cross‐border acquisition experience in the same industry and geographic region as the acquired firm on shareholder value creation. Using the BHAR (buy‐and‐hold abnormal returns) methodology, we find that higher levels of industry‐specific and region‐specific acquisition experience translate into greater shareholder value creation for acquiring firms in subsequent acquisitions. In addition, our results indicate that the effects of industry‐specific acquisition experience on acquisition performance are contingent on the level of cultural similarity between the acquiring and acquired firm countries, with the benefits of prior experience being greater in acquisitions undertaken in culturally similar countries. We also find that the moderating effects of cultural similarity on the relationship between industry‐specific acquisition experience and value creation are contingent on the level of prior region‐specific acquisition experience possessed by the acquiring firm.     

Returns to Skills and the Distribution of Wages: Spain 1995–2010

In contrast to the pattern observed in other developed countries, the Spanish wage distribution compressed between 1995 and 2006 and became more disperse afterwards, so that in 2010 wage inequality was roughly similar to 1995. In this paper, we analyze the role of supply and demand factors when accounting for these facts. We start by decomposing observed wage changes into changes in the composition of the labour force and changes in the returns of workers' and jobs' characteristics. The results indicate that the compression of the wage distribution between 1995 and 2006 is largely explained by changes in returns, and particularly, by a decrease in the returns to education. We show that both the increase in the supply of high‐skilled workers and the increasing weight of low‐skilled occupations are related to the decreasing trend in the skill premium over this period. In contrast, the widening of the wage distribution after 2006 is largely explained by an increase in the relative demand for high‐skilled workers generating an increase in the school premium.     

RETURN TO EXPERIENCE AND INITIAL WAGE LEVEL: DO LOW WAGE WORKERS CATCH UP?

This paper estimates the relationship between initial wage and return to experience. We use a Mincer‐like wage model to non‐parametrically estimate this relationship allowing for an unobservable individual permanent effect in wages and unobservable individual return to experience. The relationship between return to experience and unobservable individual ability is negative when conditioning on educational attainment, while the relationship between return to experience and educational attainment is positive. We link our findings to three main theories of wage growth, namely search, unobserved productivity and learning, and human capital. We devise several empirical tests in order to separate the theories. We find evidence in favor of the unobserved productivity and learning model and mixed evidence regarding the search model. We find no evidence in support of the human capital model. Copyright © 2013 John Wiley & Sons, Ltd.     

The impact of the disposition effect on asset prices: insight from the NBA

In this paper we examine the price movements of contracts that represent bets on NBA games and find that the disposition effect causes significant deviations between contract prices and values. The contracts under examination are listed on Tradesports, a prediction market which provides an ideal venue for testing this and other behavioral theories because of its asset properties, market structure, and the absence of the joint hypothesis problem. In our analysis, we forecast the projected final combined scores of both teams in a contest based on observed within-game scores and game time remaining. At all points in time throughout each game, mean future returns (measured as Ticks to Expiry) should be no different than zero. However, we find that contracts which have fallen off pace to exceed the stated contract total become overpriced and experience negative future returns. Likewise, we provide evidence that contracts on games in which teams are on pace to exceed the stated total become underpriced and experience significantly positive future returns. These findings are consistent with the disposition effect in which traders tend to hold losing positions to avoid realizing losses yet prematurely unwind winning positions to realize gains.     

Lose weight for a raise only if overweight: Marginal integration for semi‐linear panel models

Some studies have shown that body mass index (BMI), weight (kg)/height (m)², has a negative (or no) effect on wage. But BMI representing obesity is a tightly specified function of weight and height, and there is a room for weight given height (i.e. obesity given height) to better explain wage when the tight specification gets relaxed. In this paper, we address the question of weight effect on wage given height, employing two‐wave panel data for white females and adopting a semi‐linear model consisting of a nonparametric function of weight and height and a linear function of the other regressors. We find that there is no weight effect on wage up to the average weight, beyond which a large negative effect kicks in. Linear BMI models give the incorrect impression of the presence of a ‘wage gain’ by becoming slimmer than the average and of a ‘wage loss’ that is less than what it actually is when going above the average. Copyright © 2010 John Wiley & Sons, Ltd.     

Technology,Labour Characteristics and Wage‐productivity Gaps*

We use plant‐level employer–employee data in production functions and wage equations to examine whether wages are based on productivity. We use a stepwise procedure to find out how the results are influenced by the kind of data that is available. The models include shares of employee groups based on age, level and field of education, and sex. The gap between the age‐related wage and productivity effects increases with age. Education increases productivity, but wage under‐compensates productivity especially for those with the highest level of non‐technical education. For women the results depend greatly on the specification and method used.     

Over-investment in corporate R&D,risk, and stock returns

Large-size firms which significantly increase their R&D expenditures experience subsequently three-year-long negative abnormal stock returns on the magnitude of 56 basis-points per month. We find no robust evidence of significant event-induced abnormal returns for small-size sample firms or any systematic risk changes for the small- and large- size firms. We also find that the large-size sample firms generate relatively much larger cash flows (i.e., have significantly greater over-investment discretion) and have significantly larger (over-) valuation multiples than the small-size firms. Moreover, some of their operating performance measures show signs of deterioration instead of improvement following these R&D programs. These findings are consistent with the view that investors initially underestimate the over-investment in R&D by some large-size firms that appear to be overvalued and have high cash flows at the time of the investment, only to be disappointed later.     

Effort reduction of employer‐to‐employer changers: Empirical evidence from football

We investigate changes in effort investment of employees who still fulfill a contract with their current employer but already signed a follow‐up contract with a new employer (employer‐to‐employer change). Because effort and outside contract assignments are hard to measure in firms, we use running data from professional football (n = 26,577) to proxy effort decisions. Fixed effect regressions reveal a statistically significant but weak reduction in a player's effort after signing a follow‐up contract with a new club. Because we find a statistically significant effort reduction in public sports, this effect might be even larger in less transparent labor markets.     

After, before and during: returns to education in Hungary (1986–1998)

How valuable are the skills acquired under socialism in a market economy? This paper throws light on this question using unique data covering the years before and during transition (1986–1998) for about 3 million Hungarian wage earners. We find that returns to a year of schooling increased by 75% from 6.4% in 1986 to 11.2% in 1998. We also find that the private sector rewards formal education more than the public and, in terms of gender, although in 1986 women had greater returns to schooling than men, by 1998 this difference had been eliminated.     

HOW DO RATING AGENCIES’ DECISIONS IMPACT STOCK MARKETS? A META‐ANALYSIS

The purpose of this study is to examine how credit rating agencies’ decisions impact the stock market using a systematic and quantitative review of existing empirical studies. Specifically, we employ a meta‐regression analysis (MRA) to investigate the extent and nature of the effect of rating agencies’ decisions on the stock market. We survey 62 studies published between 1978 and 2015. Our first finding is that the cumulative average abnormal returns calculated from this empirical literature are affected by publication bias. After controlling for publication bias, the main findings of our meta‐analysis indicate that negative rating decisions cause statistically significant negative abnormal returns. This evidence suggests an informational effect. Our results also indicate that positive rating decisions do not have a significant effect. Finally, the MRA results reveal the importance of several factors related to primary study design, as well as to the nature of the data.     

There is no ‘I’ in team: Career concerns,risk‐taking incentives,and team outcomes

The National Basketball Association contracting rules provide plausibly exogenous variation in career concerns near contract end. We use this setting to study how individual career concerns affect risk‐taking behavior and can sabotage team performance. Using the frequency and duration of player injuries from 1991 to 2013 we measure individual risk‐taking behavior. We find that the average player's likelihood of missing a game due to injury falls by 0.06 percentage points (or over 100% relative to the mean injury rate) in the final 3 months of his contract, and when missing games due to injury is unavoidable, his recovery time drops by 22 days. However, “elite” players with virtually no career concerns actually miss more games due to injury. Finally, we find that elite players missing too many games and “average” players playing before healthy, combine to hurt team performance. For each additional player in the last 3 months on contract, the win probability for that team falls by over 2.6%.     

Firm-specific Human Capital Accumulation: Evidence from Brazil*

We introduce firm-specific returns to experience and tenure into a standard two-way fixed effects model, show that they are separately identified under the standard exogenous mobility assumption and with sufficient between firm mobility, and provide a new evidence on heterogeneity of returns to experience and tenure across firms using the administrative data from Brazil over the years 1999–2014. We document that (1) returns to tenure are not strongly related to firm wage premia, (2) returns to experience are strongly negatively correlated with firm wage premia, (3) the relationship between firm wage premium and return to experience is stronger for ‘blue collar’ firms.     

The Roles of Employer and Employee Characteristics for Plant Productivity

The relationships of worker characteristics and productivity are examined using a matched worker-plant data set from Finnish manufacturing. The panel data are used for estimating productivity and wage profiles according to average age, seniority, and education. We measure productivity using the multilateral total factor productivity index. We find that the wage returns to plant-specific seniority exceed productivity returns when seniority is high. This result supports the hypothesis that human capital is not firm specific, and seniority related wages are used for incentive reasons, but may also be a symptom of sorting or insider influences on wage formation. Plant average age improves productivity more than it increases wage when average age is low, but for higher ages the productivity and wage returns to age are fairly similar. The returns to education in terms of wage and productivity are fairly close to each other for higher levels of education, but mid-level education is underpaid.     

Employment,Inequality and the UK National Minimum Wage over the Medium‐Term*

We assess the impact of the national minimum wage (NMW) on employment and inequality in the UK over the decade since its introduction. We evaluate its effects in each year, using an incremental differences‐in‐differences (IDiD) estimator. Identification is based on variation in the bite of the NMW across local labour markets and the different sized year on year up‐ratings. We find that an increased bite of the NMW is associated with falls in lower tail wage inequality. While the average employment effect over the entire period is broadly neutral, there are small but significant positive NMW effects from 2003 onwards.     

The rate of learning‐by‐doing: estimates from a search‐matching model

We construct and estimate by maximum likelihood a job search model where wages are set by Nash bargaining and idiosyncratic productivity follows a geometric Brownian motion. The proposed framework enables us to endogenize job destruction and to estimate the rate of learning‐by‐doing. Although the range of the observations is not independent of the parameters, we establish that the estimators satisfy asymptotic normality. The structural model is estimated using Current Population Survey data on accepted wages and employment durations. We show that it accurately captures the joint distribution of wages and job spells. We find that the rate of learning‐by‐doing has an important positive effect on aggregate output and a small impact on employment. Copyright © 2009 John Wiley & Sons, Ltd.     

Continuous‐time models,realized volatilities,and testable distributional implications for daily stock returns

We provide an empirical framework for assessing the distributional properties of daily speculative returns within the context of the continuous‐time jump diffusion models traditionally used in asset pricing finance. Our approach builds directly on recently developed realized variation measures and non‐parametric jump detection statistics constructed from high‐frequency intra‐day data. A sequence of simple‐to‐implement moment‐based tests involving various transformations of the daily returns speak directly to the importance of different distributional features, and may serve as useful diagnostic tools in the specification of empirically more realistic continuous‐time asset pricing models. On applying the tests to the 30 individual stocks in the Dow Jones Industrial Average index, we find that it is important to allow for both time‐varying diffusive volatility, jumps, and leverage effects to satisfactorily describe the daily stock price dynamics. Copyright © 2009 John Wiley & Sons, Ltd.     

Immigrant wage profiles within and between establishments

Life cycle wages of immigrants from developing countries fall short of catching up with wages of natives. Using linked employer–employee data, we show that 40% of the native–immigrant wage gap is explained by differential sorting across establishments. We find that returns to experience and seniority are similar for immigrant and native workers, but that differences in job mobility and intermittent spells of unemployment are major sources of disparity in lifetime wage growth. The inferior wage growth of immigrants primarily results from failure to advance to higher paying establishments over time. These empirical patterns are consistent with signaling disadvantages of immigrant job seekers, but not with the explanation that low wage growth follows from inferior information about employers and job opportunities.     

Counterfactual decomposition of changes in wage distributions using quantile regression

We propose a method to decompose the changes in the wage distribution over a period of time in several factors contributing to those changes. The method is based on the estimation of marginal wage distributions consistent with a conditional distribution estimated by quantile regression as well as with any hypothesized distribution for the covariates. Comparing the marginal distributions implied by different distributions for the covariates, one is then able to perform counterfactual exercises. The proposed methodology enables the identification of the sources of the increased wage inequality observed in most countries. Specifically, it decomposes the changes in the wage distribution over a period of time into several factors contributing to those changes, namely by discriminating between changes in the characteristics of the working population and changes in the returns to these characteristics. We apply this methodology to Portuguese data for the period 1986–1995, and find that the observed increase in educational levels contributed decisively towards greater wage inequality. Copyright © 2005 John Wiley & Sons, Ltd.     

The part-time pay penalty in a segmented labor market

This paper is the first to examine the implications of switching to PT work for women's subsequent earnings trajectories, distinguishing by their type of contract: permanent or fixed-term. Using a rich longitudinal Spanish data set from Social Security records of over 76,000 prime-aged women strongly attached to the Spanish labor market, we find that the PT/FT hourly wage differential is larger and more persistent among fixed-term contract workers, strengthening the existent evidence that these workers can be classified as secondary. The paper discusses problems arising in empirical estimation (including a problem not discussed in the literature up to now: the differential measurement error of the LHS variable by PT status), and how to address them. It concludes with policy implications relevant for Continental Europe and its dual structure of employment protection.