The labour market effects of financial crises

This paper examines how the 2008–2009 financial crisis affected labour markets in Europe, and how this impact depended on employment protection laws. Using a difference‐in‐differences approach, our estimates isolate the effect of the lack of credit on the labour market from that of the general decline in aggregate economic activity. We find large and negative impacts of the credit shock on total employment, particularly on temporary, unskilled and young workers. These impacts were significantly larger in countries with stronger legal protection of permanent workers from dismissal. This suggests that the differential impact of the crisis across countries was not entirely driven by the heterogeneity of the credit shock, but also by labour regulations. Given regulatory inflexibility in adjusting the permanent workforce, firms responded to tightening financial constraints by disproportionately laying off temporary workers (who tend to be younger and less skilled than permanent workers).     

Labour market transitions and unemployment duration: Evidence from Bulgarian and Polish micro-data1

The segmentation of the labour market is one of the most striking characteristics of the transition process in Central and Eastern European countries. Not only do the young, unskilled workers and women face a high risk of unemployment, but joblessness also varies significantly geographically. This paper sheds some light on labour market segmentation in transition countries by analysing individual records of individuals registered at the labour offices of two Polish regions (Warsaw and Ciechanov and two Bulgarian regions (Sofia and Botevgrad) over the initial three to four years of the transition to a market economy. The empirical results confirm the existence of highly selective firing and hiring processes in the Polish and Bulgarian labour markets. Overall, unskilled or poorly educated workers have the highest probability of becoming unemployed and remaining without a job for a long period of time. We also analysed the determinants of unemployment duration across regions and over time using a piece-wise constant hazard model with multiple destinations, i.e. employment and exit from the labour force. The results suggest that the unemployed with a high education and previous experience in the private sector have a higher probability of getting a new job, especially in the more dynamic labour markets, while those without previous work experience tend to stay unemployed for a longer period of time and often leave the labour market. The econometric results also suggest that the reforms of the unemployment benefit systems have produced important effects on unemployment flows.     

The impact of public employment on labour market performance: evidence from African countries

Using census data for Ghana, Mali and Mozambique, we study the long-term impact of public sector employment on local labour markets. We find that the public sector crowds out private employment and induces skilled workers to queue for a public job, thus increasing their unemployment rate. In addition, a growing public sector fosters employment in the tradable and nontradable sectors, remarkably for the unskilled, and the reallocation of unskilled workers away from agriculture.     

Industry estimates of the elasticity of substitution and the rate of biased technological change between skilled and unskilled labour

We estimate the elasticity of substitution between skilled and unskilled labour and the pace of skill-biased technological change at the industry level. The data is compiled from the March extract of the Current Population Survey (CPS) from 1968 to 2006. Industry information provided by the survey is used to group workers into 13 industry categories and education levels are used to dichotomize workers as skilled or unskilled. We construct measures of the ratio of skilled to unskilled employment and the ratio of skilled to unskilled wages in each industry. Using a relationship implied by profit maximizing behaviour on the part of representative firms, this data generates estimates of structural parameters. We find considerable differences across industries in the elasticity of substitution between skilled and unskilled labour. Furthermore, while most industries have experienced skill-biased technological change, the pace of this change has varied widely across industries.     

Computer adoption and returns in transition

Across nine transition economies, it is the young, educated, English‐speaking workers with the best access to local telecommunications infrastructures who work with computers. These workers earn about 25 percent more than do workers of comparable observable skills who do not use computers. Controlling for likely simultaneity between computer use at work and labour market earnings makes the apparent returns to computer use disappear. These results are corroborated using Russian longitudinal data on earnings and computer use on the job. High costs of computer use in transition economies suppress wages that firms can pay to their workers who use computers.     

Stick,Carrot and Skill Acquisition*

We evaluate the impact of specially designed youth unemployment programmes (YUPs), intended to provide young unemployed unskilled workers with skills. If unemployment among skilled workers is lower than among unskilled workers, YUPs imply that unemployment falls. However, YUPs potentially crowd out ordinary training. We set up an equilibrium matching model with endogenous skill choice and examine the impact of an increase in programme participation. We derive a condition for crowding out of ordinary training, as well as a condition for an increase in the skilled labour force and thereby reduced unemployment. The impact of YUPs on welfare and wage dispersion is also considered.     

'Young In,Old Out' Revisited: New Patterns of Employment Replacement in the Italian Economy

This paper, based largely on data from the Italian social security (INPS) records, shows that recent employment trends in Italy have been marked by large job and worker turnover and a new and strong process of renewal and substitution of labour in industry. Entries of young workers have shown a remarkable increase, mainly through the application of work and training contracts ('contratti di formazione e lavoro') that provide firms with a means to cut labour costs. Meanwhile many workers in their 40s with considerable seniority, but still perfectly fit to go on working, found themselves squeezed out. The exit of this generation of mature workers was eased through subsidised early retirement, golden handshakes and a wide application of the 'cassa integrazione guadagni' (wage supplementation fund). This pattern of labour force replacement in industrial production, described as 'young in, old out', is at odds with the frequent ranking of Italy among the industrial countries hampered by rigid labour markets and questions theories of unemployment based on 'insider-outsider' hypotheses.     

The impact of material and service outsourcing on employment in Thailand's manufacturing industries

With increasing emphasis on the importance of outsourcing, the ‘fear of job losses’ has been of significant interest, not only in the developed countries, but also in the developing countries. In this article, we empirically investigate the impacts of intermediate inputs (material) and services outsourcing on the relative demands for skilled and unskilled labour in Thailand's manufacturing sectors from 1999 to 2003. Based on the aggregation of establishment-level data at 4-digit industrial classification, we find that both intermediate inputs and service outsourcing are relatively skill-biased. Further, our results show that intermediate inputs outsourcing has negative impacts on the relative demands for skilled and unskilled workers, whereas service outsourcing shifts the demand towards skilled workers at the expense of unskilled workers.     

Sex and the City

Throughout the industrialized world, young women outnumber young men in urban areas. This paper proposes that such a pattern may be linked to higher male incomes in urban areas. The argument is that urban areas offer skilled workers better labor markets. Assuming that there are more skilled males than females, this alone would predict a surplus of males. However, the presence of males with high incomes may attract not only skilled females but also unskilled females. Thus, a surplus of women in urban areas may result from a combination of better labor and marriage markets. Swedish municipality data support the results.     

Permanent and temporary workers in a matching framework

This paper investigates on a theoretical level the underlying causes of recent trends in decision of firms to hire temporary and permanent labour when workers and firms meet through a frictional directed search technology. Temporary workers differ from permanent workers in that they have a lower bargaining weight but look for a permanent job while on the temporary job. The findings are that permanent arrangements are more prevalent the more productive the aggregate production function is, i.e. also in the less productive phases. More efficient matching has an inverse U shaped impact, it first increases the prevalence of temporary arrangements and then decreases it. Bargaining weights have an ambiguous impact.     

Labour market segmentation and union wage gaps

Abstract

There has been a great deal of research regard the effects of unions on union – non-union wage gap. Most of the studies regarding the impact of unions on wages have assumed that apart from the division between union and non-union workers, the labour market is relatively homogeneous. A number of economists, however, have argued that the labour market is segmented, implying that there are distinct labour markets and that some workers employment opportunities are concentrated in “bad jobs” while other workers employment opportunities are concentrated in “good jobs” which are rationed.

This paper will explore whether the relative wage differential between union and non-union workers differs between the independent primary, subordinate primary and secondary labour markets. Labour market segments are defined using “job zones”. “Job zones” are distinct groups defined by the level of specific vocational preparation necessary for a particular occupation, allowing for the comparison of skill levels and training for each occupation. The data on “job zones” comes from the Occupational Information Network database (O?Net). We estimate separate equations for union and non-union workers in each segment using data from the Current Population Survey and calculate union non-union differentials for each labour market segment. The findings of this paper suggest that the greatest differentials are in secondary labour markets followed by differentials in the subordinate primary labour market and that the smallest wage differentials are in the independent primary labour market.     

Agglomeration and fair wages

Abstract.  This paper implements a fair wage constraint into an analytically tractable core-periphery agglomeration model. This enables us to study the role of imperfect labour markets for the pattern of agglomeration. In the short run, a marginal increase in fair wage preferences leads to an unambiguous compression of the national factor price differential between skilled and unskilled labour, involving an increase in the unemployment rate of unskilled workers. In the long run, this mechanism renders full dispersion of an unstable equilibrium already at higher trade costs than in perfect labour markets. There is a tendency for fair wage preferences to enforce agglomeration.     

Exporting firms and the demand for skilled tasks

This paper explores the link between exports and the demand for skilled tasks. Using the Chilean Encuesta Nacional Industrial Anual (ENIA), an annual census of manufacturing firms, we first show that Chilean exporters utilize more skills than Chilean non‐exporters. More importantly, we establish a distinct pattern of task differentiation among exporters both within skilled and unskilled tasks. Exporting firms demand the services of skilled specialized workers (engineers) as opposed to skilled administrative workers and managers. In addition, exporters demand less unskilled labour, especially blue‐collar operatives. This suggests that exporters substitute skilled engineers for unskilled blue‐collar workers to perform export‐related tasks.     

Youth labor market expectations and job matching in sub-Saharan Africa: evidence from school-to-work transition surveys

In this paper, we investigate the factors that influence youth labour market expectations and outcomes. We also perform a job matching exercise to understand youth labour market dynamics in Sub-Saharan Africa. Our results show that youth education is an influential factor of youth employment expectations and employment, ceteris paribus. Higher educational attainments have a great impact on expecting and securing better jobs, particularly in the technical and professional fields. Youth with low educational attainments, particularly primary education and lower, have a higher tendency to expect to be employed in occupations with low job complexity. Our results indicate a severe job-skill mismatch in all occupational categories, both before and after the youth’s transition into the labour market. Using education as the only selection criterion, we found that less than 10 per cent of employment expectations match with skills required while 55 per cent and 34 per cent are under or over-educated for the jobs expected, respectively. Over and under education is a notable feature in youth labour markets in Sub-Saharan Africa. About 47 per cent of employed youth in the sample are overqualified for their respective jobs while 28 per cent are under qualified.     

Job creation,job destruction,labour mobility and wages in Poland, 1988–19981

Longitudinal data from interviews with Poles of working age conducted in 1988, 1993 and 1998 combined with longitudinal firm‐level data present a detailed view of the transition from a state‐dominated to a market economy. Job losses in state firms and job creation in new private firms are the dominant employment changes, other than retirements from the labour force. In the Polish case, a significant proportion of this movement over the 1988–1998 period involves a spell of unemployment or exit from the labour force before obtaining a private sector job. This results in considerable job competition between workers leaving the state sector and those who are out of the labour force or unemployed. Income differences between the state sector and the de novo sector appear to have little association with mobility. These results suggest that movement to the new private sector is more likely to be the result of job loss than the result of people looking for better, higher paying jobs. Self‐employment plays an important role in the development of the private sector. People working on their own account have higher incomes than wageworkers and are likely to become owners employing additional workers. Incomes are higher in regions with high rates of job creation and depressed in regions with job destruction.     

Non‐wage benefits,costs of turnover and labour attachment

Like firms in established market economies, many Russian firms provide non‐wage benefits to their workers, such as housing, medical care or day care. This article explains the provision of benefits as a strategic choice for firms in the presence of labour and service market imperfections. Analysing unique survey data for 404 industrial establishments from 40 Russian regions, the authors provide strong evidence that non‐wage benefits are used by firms to attach workers and thereby reduce the costs of labour turnover in the face of tight labour markets. It is also shown that this attachment strategy works due to imperfections in the regional markets for social services.     

Monetary regimes and money supply endogeneity

Quasi-longitudinal Canadian microdata was used to compare the movement of individuals between employers with job changes taking place within firms. Internal mobility is found to be much less common than job changing between firms. Workers changing jobs within a firm are more likely to be older and have higher wages and longer tenures in the jobs they leave than individuals employers. This provides some support for the job-matching hypothesis underlying recent research on the causes of individual mobility, although it is also clear that workers in large or unionized firms are more likely to have the opportunity for internal promotion. While wage gains obtained through internal mobility are smaller than those achieved through external mobility, wage levels are higher for individuals moving within the firm. It is argued that this observation is consistent with a dual labour markets interpretation of mobility patterns.     

Worker flows, job flows and firm wage policies

Like many transition economies, Slovenia is undergoing profound changes in the workings of the labour market with potentially greater flexibility in terms of both wage and employment adjustment. To investigate the impact of these changes, we use unique longitudinal matched employer‐employee data that permits measurement of employment transitions and wages for workers and enables links of the workers to the firms in which they are employed. We can thus measure worker flows and job flows in a comprehensive and integrated manner. We find a high pace of job flows in Slovenia especially for young, small, private and foreign‐owned firms and for young, less educated workers. While job flows have approached the rates observed in developed market economies, the excess of worker flows above job flows is lower than that observed in market economies. A key factor in the patterns of the worker and job flows is the determination of wages in Slovenia. A base wage schedule provides strict guidelines for minimum wages for different skill categories. However, firms are permitted to offer higher wages to an individual based upon the success of the worker and/or the firm. Our analysis shows that firms deviate from the base wage schedule significantly and that the idiosyncratic wage policies of firms are closely related to the observed pattern of worker and job flows at the firm. Firms with more flexible wages (measured as less compression of wages within the firm) have less employment instability and are also able to improve the match quality of their workers. JEL Classifications: J23, J31, J41, J61, P23, P31.     

How Segmented are Skilled and Unskilled Labour Markets: the Case of Beveridge Curves

This paper tests whether there is evidence that two distinct Beveridge curves for the skilled and unskilled aggregate markets exist. The results support the hypothesis and specifically find that the unskilled labour segment is less efficient at matching workers with jobs, primarily due to higher labour turnover rates. Higher turnover rates can be indicative of a poor match between employers' and jobseekers' expectations. The results also indicate that other shift variables, such as the replacement rate, the incidence of long-term unemployment, the immigration rate and the market circumstances in the skilled segment were only important for the unskilled segment.     

Financial markets,the structure of long-term investments and labour income risks

The paper develops a model to analyse the feedback between financial markets, long-term capital investments and the risk of labour incomes. We study a situation where firms are owned by entrepreneurs, who are able to share and diversify their income risk by trading on financial markets. Workers, in contrast, cannot short-sell the flows from future labour endowments and thus do not have the same opportunities. We derive two central results. Firstly, even if financial markets offer perfect risk-sharing opportunities for entrepreneurs, the participation restriction for labour incomes leads to a constrained inefficient market allocation. The constrained inefficiency arises because the effect of long-term investments on the risk of wages is not internalized by state prices. Secondly, we show that in general it is not true that workers indirectly benefit when we go from a situation with no financial markets to a situation with perfect financial markets for entrepreneurs but restricted participation for workers. The results suggest that a policy solution might require either to close some financial markets or to create new ones. We argue why there is a strong case for the creation of new markets rather than for closing existing ones.