Black–white wage differentials: duration and probability unemployment effects in a multiple of sample selection bias model

The extent to which probability and duration of unemployment affect the black–white wage differentials is examined in this paper. The paper simultaneously incorporates in the wage equation the multiple sample selection bias that occurs as a result of individuals’ propensity to be in the labor force, and the firm’s hiring decisions. The results reveal a substantial contribution of the duration of unemployment variable to the black–white wage differential, but a small portion of the differential is explained by the probability of unemployment. The results also indicate a sizeable difference between the contribution of the duration of unemployment variable to the male’s wage differentials (26%) and to the female’s (35%). The study finds that an individual’s labor force decision as well as a firm’s hiring decision are important in the wage determination process and that failure to account for the sample selectivity bias due to these two decisions will result in either underestimating or overestimating the wage differentials between black and white workers. At the macro level, the results seem to suggest that promotion of racial wage equality should be associated with policies that will minimize blacks’ incidence of unemployment and duration of unemployment spells.     

Improving estimates of job matching efficiency with different measures of unemployment

Traditional measures of unemployment can mask important changes in the labor market across time. We therefore use broader definitions of unemployment to estimate time-varying job-matching efficiency rates that are consistent with vacancies and hiring activity data for the U.S. Our efficiency rates are then modelled along with employment data to study their dynamic, non-linear relationship. We find that including marginally attached workers and part-time workers for economic reasons helps explain the changes in employment patterns observed after the global financial crisis. This finding emphasizes the importance of accounting for labor underutilization, particularly during the latest economic recovery.     

The Effectiveness of Employment Vouchers: A Simple Approach

This paper explores the optimal design of subsidies for hiring unemployed workers ('employment vouchers' for short) in the context of a simple dynamic model of the labour market. Focusing on the short-term and long-term effects of the vouchers on employment and unemployment, the analysis shows how the optimal policy depends on the rates of hiring and firing, and on the problems of displacement and deadweight. It also examines the roles of the government budget constraint and of the level of unemployment benefits in optimal policy design. We calibrate the model and evaluate the effectiveness of employment vouchers in reducing unemployment for a wide range of feasible parameters.     

Unemployment and interindustry labour mobility in Canada in the 1980s

The determinants of interindustry mobility of labour, and its relationship to the unemployment rate is examined, using micro-data on Canadian workers from 1980/81, 1982/83 and 1985/86. It contrasts the implications of the ‘dynamic reallocation’ model (Lilien, 1982) in which rising aggregate unemployment is due to in creased dispersion in the net hiring rates of firms (implying positive covariance of interindustry mobility and unemployment rates) with the older ‘Keynesian’ perspective that high unemployment ‘chills’ labour market mobility, implying a neative relationship. Qualified support is obtained for the ‘chilling’ model, as well as standard results on the role of job tenure, hours worked, etc. The general moral is the cyclical sensitivity of labour market behaviour, i.e. individuals appear to react to the aggregate unemployment rate.     

Wage bargaining and turnover costs with heterogenous labor and perfect history screening

We study effects of mobility costs in a model of (Nash) wage bargaining between workers and firms, with instantaneous matching, heterogeneous workers, identical firms and free firm entry, and where firms can screen workers perfectly according to their previous work history but not their actual productivity. We derive the employment level and the minimum worker quality standard, in the market solution, and in the efficient solution established by a social planner. When workers have positive bargaining power, there is always some inefficient unemployment among desired workers in the market solution. The lowest hiring standard chosen by firms is higher than the planner's standard when firing costs are high relative to hiring costs, but may be lower in the opposite case. We show that any higher established hiring standard corresponds to a market equilibrium. The model explains a tendency for a high initial unemployment rate to remain high, particularly for low-skilled workers.     

The business cycle,labor market transitions by age,and the great recession

Using matched monthly CPS data, this article studies differences in labour force transitions across age groups focusing on periods prior to and after the start of the Great Recession. Monthly transitions between employment, unemployment, and nonparticipation of 25–55-year-old males are examined from 1996 through 2013. Prior to the Great Recession (1996–2007), younger groups of workers are more likely to move from employment to unemployment and face an increased risk beyond that of other workers of making this transition as the economy worsens; however, this differential responsiveness no longer appears after the start of the Great Recession. Before and after the start of the Great Recession, younger groups of workers are more likely to move from unemployment to employment; however, there is no extra responsiveness among younger workers to the business cycle. Transitions into and out of the labour force nuance these findings; however, there is no evidence of differential responsiveness among younger workers since the start of the Great Recession. These findings challenge interpretation of the movements of unemployment rates by age group over the business cycle as being driven by differential hiring and firing particularly since the start of the Great Recession.     

Regional and gender differentials in the persistence of unemployment in Europe

The persistence of unemployment increased during the recent great recession in many European countries, although with diversified impacts. We therefore analyse such impacts in four European countries – Italy, Spain, France and the UK – which represent different institutional frameworks and may reflect the so-called continental European and Anglo-Saxon frameworks. We analyse the determinants of unemployment persistence using individual-level data from the European Union Statistics on Income and Living Conditions (EU-SILC) panel for the period 2007–2013. These data enable us to take into account initial conditions and state dependence in addition to individual and household characteristics. We focus on gender and regional effects, which have a strong impact on the persistence in the state of unemployment. We find that gender gap is significant in Italy and the UK, implying that male workers show a higher probability of remaining unemployed. In Italy, such a pattern is due to the worsening of male workers’ conditions during the crisis, whereas in the UK, male workers show higher unemployment rates than women. Regional effects are significant in all countries analysed and underline a relevant structural factor that should be addressed on policy grounds in Europe. Such effects are greater in Spain and Italy.     

The consequences of labor market flexibility: Panel evidence based on survey data

We introduce a new data set on hiring and firing restrictions for 21 OECD countries for the period 1984-1990. The data are based on surveys of business people in the countries covered, so the indices we use are subjective in nature. Controlling for country and time fixed effects, and using dynamic panel data techniques, we find evidence that increasing the flexibility of the labor market increases both the employment rate and the rate of participation in the labor force. A conservative estimate suggests that if France were to make its labor markets as flexible as those in the US, its employment rate would increase 1.6 percentage points, or 14% of the employment gap between the two countries. The estimated effects are larger in the female than in the male labor market, although both groups seem to have similar long-run coefficients. There is also some evidence that more flexibility leads to lower unemployment rates and to lower rates of long-term unemployment. We also find evidence consistent with the hypothesis that inflexible labor markets produce “jobless recoveries” and introduce more unemployment persistence.     

The costs of hiring skilled workers

This paper analyzes the structure of hiring costs for skilled workers. We use novel Swiss administrative firm-level survey data that provide direct and detailed measures of hiring costs, including recruitment and adaptation. Results show that average hiring costs range, depending on firm size, from 10 to 17 weeks of wage payments. The structure of hiring costs is convex. Marginal hiring costs increase with the number of hires and reach up to 24 weeks of wage payments. We find no evidence for a fixed cost component. Hiring costs also increase with the hiring rate (the ratio of hires and skilled workers), confirming convexity. Hiring costs generally increase with skill requirements for job applicants, and depend on macroeconomic conditions: a 1% point increase in the unemployment rate reduces average hiring costs by more than 5%.     

Indirect Re–employment Wage Discrimination

This paper looks at unemployed individuals and investigates wage differences generated by re–employment selection. It shows that discriminatory re–employment selection can result, indirectly, in discriminatory re–employment pay. A Heckman two–stage selection model is combined with an extension of Gomulka–Stern non–linear decompositions to explain how re–employment selection generates indirect discrimination. The paper uses data from pre–unification Germany in the late 1980s and finds that female human capital suffers more from unemployment and that the market is harsher to males for becoming unemployed. New policies should encourage a regime where the hiring process is more transparent and hiring decisions are monitored on a regular basis.     

Fixing the Leak: Unemployment Incidence before and after a Major Reform of Unemployment Benefits in Germany

We present first empirical results on the effects of a large scale reduction in unemployment benefit entitlement lengths on unemployment inflows in Germany. We show that this highly disputed element of the Hartz‐Reforms in 2006 induced a rush of workers and firms to take advantage of the previous legislation in its last days. Furthermore, we find a considerable decline in transitions to unemployment and an increase in employment rates among older workers after the reform. Our results provide new evidence for the importance of changes in unemployment inflows for the analysis of changes in unemployment outflows.     

Minimum wages and youth unemployment

This paper constructs a labor search model to explore the effects of minimum wages on youth unemployment. To capture the gradual decline in unemployment for young workers as they age, the standard search model is extended so that workers gain experience when employed. Experienced workers have higher average productivity and lower job finding and separation rates that match wage and worker flow data. In this environment, minimum wages can have large effects on unemployment because they interact with a worker's ability to gain job experience. The increase in minimum wages between 2007 and 2009 can account for a 0.8 percentage point increase in the steady state unemployment rate and a 2.8 percentage point increase in unemployment for 15–24 year old workers in the model parameterized to simulate outcomes of high school educated workers. Minimum wages can also help explain the high rates of youth unemployment in France compared to the United States.     

Trade, Wages and Unemployment in the Presence of Hiring and Firing Costs

This paper offers a new explanation of the recent Australian wage inequality and unemployment experience. Building on a standard international trade model, it is argued that trade affects wage inequality and unemployment through changes in the bargaining power of different groups of workers in the presence of hiring and firing costs. This allows previously puzzling aspects of the trends to be explained, including the inconsistency of the existing Stolper-Samuelson trade explanation with rising relative skilled wages at the same time as rising skilled labour intensity of production. Considering differences in labour market institutions, in particular hiring and firing costs and minimum wages, allows differences between the experiences of Australia, the USA and Europe to be explained.     

Evidence of the added-worker and discouraged-worker effects in Australia

Gross flow data for workers moving between the states of employment, unemployment and non-participation in Australia can be used to analyse the likelihood of workers transitioning between the three states in different phases of the business cycle. We use correlation analysis and a SVAR model to determine the cyclicality of state transition rates and use these results to characterise labour force inflows and outflows as being consistent in aggregate with either the discouraged-worker effect (DWE) or the added-worker effect (AWE). We find evidence that the AWE is dominant in transitions in both directions between unemployment and non-participation which contributes to a rise in unemployment during economic contractions. We also find that the DWE is dominant in transitions from non-participation to employment and that this drives the overall result that non-participation rises during a contraction. This means that the overall participation rate is procyclical. It is important to understand the cyclical influences on labour force participation and its interaction with unemployment before framing policy responses which seek to reduce labour market slack.     

Crime and labour market turnover

We go beyond unemployment to investigate how its determinants, specifically hires, lay-offs and quits, affect crime. As expected, we find less crime in localities with higher hiring and quit rates and lower lay-off rates. The size of relationships is on the order of studies analysing the link between unemployment and crime.     

Tax Reform,Structural Unemployment and the Environment

The effects of environmental tax reform, i.e., using the proceeds of a higher energy tax rate to lower the labour tax rate, on wage formation, employment and environmental quality are analysed in the context of a small open economy with structural unemployment caused by hiring costs. We find that such a reform may boost employment if it shifts the tax burden away from workers towards those without employment in the formal sector. Environmental tax reform succeeds in shifting the tax burden away from workers in the formal sector if higher energy taxes reduce earnings in the informal sector by reducing labour productivity.     

The (un)importance of geographical mobility in the Great Recession

Unemployment during and after the Great Recession has been persistently high. One concern is that the housing bust reduced geographical mobility and prevented workers from moving for jobs. We characterize flows out of unemployment that are related to geographical mobility to construct an upper bound on the effect of mobility on unemployment between 2007 and 2012. The effect of geographical mobility is always small: Using pre-recession mobility rates, decreased mobility can account for only an 11 basis points increase in the unemployment rate over the period. Using dynamics of renter geographical mobility in this period to calculate homeowner counterfactual mobility, delivers similar results. Using the highest mobility rate observed in the data, reduced mobility accounts for only a 33 basis points increase in the unemployment rate.     

The Brazilian wage curve: new evidence from the National Household Survey

This paper reconsiders the Brazilian wage curve using individual data from the National Household Survey at 27 Federative Units over the period 2002–2009. We find evidence in favor of the Brazilian wage curve with an unemployment elasticity of ?0.08. We also find that males in Brazil are significantly more responsive to local unemployment rates (?0.13) than their female counterparts. In fact, we find that the unemployment elasticity for women is statistically insignificant. Applying gender-specific unemployment rates, the elasticity for men decreases to ?0.09, while the elasticity for women remains statistically insignificant. This paper also finds that the estimates for Brazilian wage curve are completely different for the case of formal and informal workers.     

BIASED TECHNOLOGICAL SHOCKS, RELATIVE WAGE RIGIDITIES AND LOW-SKILLED UNEMPLOYMENT

The contrast between the evolution over the last decades of the European Union (EU) and the US unemployment rates, especially for the low-skilled, is well known. A consensus view is that these different outcomes can be explained by the interactions between common shocks and specific institutional setups. In this paper, we emphasize the interactions between technological changes and wages rigidities. We construct a fully calibrated general equilibrium model with two types of jobs and two types of workers, and with search unemployment. Our simulations show that with wage rigidities, technological changes suffice to generate a continuous rise in the low-skilled unemployment rate and an almost unchanged high-skilled unemployment rate. Without wage rigidities, the unemployment rates remain unchanged but the wage dispersion widens.     

HOW TO VALUE THE POORER PROSPECTS OF YOUTH IN THE EARLY 1990s?

Young workers in the 1990s can expect greater economic insecurity, as well as lower average earnings, compared to older workers, or compared to the youth of previous decades. The cost of greater insecurity depends upon an individual's probability of unemployment, marginal utility of income gains/losses and the extent to which individuals can smooth consumption over time by borrowing and drawing down assets. Since unemployment insurance cutbacks and higher unemployment have increased the risk exposure of youth, changes in the expected value of their income may understate utility losses as measured by the change in certainty equivalent income.
This paper uses a behavioural microsimulation model to compare the impacts of 1971 and 1994 unemployment insurance legislation and unemployment rates in Canada. It calculates both the expected value of income changes and, using a Stone-Geary utility function, the change in inequality of well-being (as measured by certainty equivalent income) for youth and for prime age workers. Both calculations reveal that youth were disproportionately affected by Canada's changing labour market environment. Very few youth have enough assets to finance consumption during spells of unemployment.