Does revamping Japan's dual labor market matter?

This paper argues that Japan's excessive labor market duality can reduce Total Factor Productivity (TFP) due to a negative impact on non-regular workers’ effort and on firms’ incentives to train them. The paper then empirically studies the determinants of labor market duality. The main result of the paper is that the level of employment protection affects duality. In particular, a higher level of employment protection of regular workers increases duality, while a higher level of protection of temporary workers reduces it. On the basis of this result, the paper also discusses some reform options to address Japan's labor market duality.     

Household debt and labor market fluctuations

The co-movements of labor productivity with output, total hours, vacancies and unemployment have changed since the mid 1980s. This paper offers an explanation for the sharp break in the fluctuations of labor market variables based on endogenous labor supply decisions following the mortgage market deregulation. We set up a search model with efficient bargaining and financial frictions, in which impatient borrowers can take an amount of credit that cannot exceed a proportion of the expected value of their real estate holdings. When borrowers' equity requirements are low, the impact of a positive technology shock on the marginal utility of consumption is strengthened, which in turn results in lower hours per worker and higher wages in the bargaining process. This shift in labor supply discourages firms from opening vacancies, reducing the impact of the shock on employment. We simulate the effects of an increase in both the loan-to-value ratio and the share of borrowers in total population. Our exercise shows that the response of labor market variables might have been substantially affected by the increase in household leverage in the US in the last twenty years.     

Market conditions and worker training: How does it affect and whom?

This paper analyses the impact of labor market conditions on a firm's incentive to train its workers. In an equilibrium model of the labor market in which firms use both untrained and in-house-trained workers, we show that the incidence of training increases with the tightness of the labor market. In a multi-sector framework, the usual threat of hold-up by a trained worker is more severe for workers who change their sector of work; during downturns, this serves to bias firms' incentives in imparting training away from such workers and towards workers already in the firm and those new workers coming from the same sector. Evidence from the NLSY confirms both predictions—the incidence and duration of company-sponsored training is adversely affected by higher unemployment rates; furthermore, this negative effect is much stronger for workers who change industries as compared to those who do not.     

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.     

Job hopping, earnings dynamics, and industrial agglomeration in the software publishing industry

This paper investigates the implications of industrial clustering for labor mobility and earnings dynamics in one large and increasingly important high-technology sector. Taking advantage of longitudinal employee-employer matched data, I exploit establishment-level variation in agglomeration to explore how clustering in the software publishing industry affects labor market outcomes. The results show that clustering makes it easier for workers to job hop within the sector. Higher earnings levels in more agglomerated areas are partly attributable to sorting across locations among workers and firms in the industry on the basis of observable and unobservable characteristics. Controlling for this heterogeneity, workers in clusters have relatively steep earnings-tenure profiles, accepting lower wages early in their careers in exchange for stronger earnings growth and higher wages later. These findings are consistent with theoretical models in which agglomeration improves labor market coordination and facilitates greater learning and human capital formation.     

Age-specific dynamic labor demand and human capital investment

To study the optimal age-specific labor demand and human capital investment at the firm level we extend the standard dynamic labor demand model by introducing ‘age’ as a second dynamic variable and distinguish between two types of workers: ‘low skilled’ and ‘high skilled’. Applying an age-structured optimal control model we derive qualitative features of the optimal age-specific hiring and training effort. For the case of a linear revenue and production function we prove that firms do not anticipate changes in adjustment costs in their optimal decisions. This result no longer holds if a nonlinear revenue or production function is considered.     

Does air pollution change a firm's business strategy for employing capital and labor?

We examine the impact of air pollution on a firm's capital-labor ratio. We propose the hypothesis that, in dealing with air pollution, a firm responds strategically by using relatively more capital and less labor to contain labor costs and remain competitive in the market. Using a sample of Chinese firms and a satellite-based air pollution metric, we test this hypothesis, and our results confirm it. In addition, we document that the impact of air pollution on the capital-labor ratio is more salient for firms with high economic incentives and close monitoring. Further, we report that to respond to worsening air pollution, a firm uses more capital and substitutes lower-quality labor with more high-quality labor. Finally, after increasing the capital-labor ratio, a firm's value increases, in terms of Tobin's Q, suggesting that the adoption of a higher capital-labor ratio, due to air pollution, is a sound business strategy.     

Outsourcing with labor management

A vertically integrated Labor Managed (LM) monopoly is compared to a decentralized market arrangement where production is segmented among an upward LM firm producing an input and a downstream LM manufacturer of the final good. Unlike what usually occurs among profit maximizing firms, the vertical arrangement with outsourcing is socially superior to the vertically integrated one. However, the upstream section has an incentive to outsource, while the downstream section would rather oppose it.     

Institutional barriers in labor markets: Examples, impacts, and policies

This paper examines the institutional biases that impede the competitive functioning of labor markets. Two contexts are considered. The first relates to Moroccan labor migrants in The Netherlands, where institutional bias distorts the competitive functioning of the labor market by downgrading the educational returns to migrant workers and acting as a disincentive for further investment in human capital. The second relates to labor markets in Indonesia and Pakistan. Institutional bias in these two countries leads to an exaggeration of labor returns to certified education, and to over-investment in university education. We argue that such biases are fed by misinformed beliefs and group interests, and stand in the way of achieving higher growth and equity.     

Instability in the labor market for researchers

R&D is both an activity which involves team effort, and with many of the features of a zero-sum game. This paper shows that these characteristics make the labor market for researchers unstable in the sense that firms have incentives to continuously change the composition of their research teams. Related results concerning the core of several cooperative games in characteristic form are also proved.     

Turnover and Knowledge Loss: An Examination of the Differential Impact of Production Manager and Worker Turnover in Service and Manufacturing Firms

This research examines the comparative effects of production manager and worker turnover in service and manufacturing settings. We suggest that, due to the centrality of human action in services and the ability of manufacturers to insulate the technical core, service and manufacturing companies are differentially dependent on and impacted by the loss of production manager and worker knowledge. The results from a survey of 150 service and manufacturing firms provide partial support for this notion and show that turnover impacts these organizations differently. More specifically, we find that: (1) the negative impact of production worker turnover on firm performance is greater in service settings than in manufacturing settings; and (2) the negative impact of production worker turnover on firm performance is greater than the impact of production manager turnover in service firms. In addition, our findings show that organizational capital moderates the turnover–performance relationship for production workers in service firms.     

Organizational dynamics and aggregate fluctuations: The role of financial relationships

This paper constructs an estimated dynamic stochastic general equilibrium model to study the role of labor reallocation between production and organizational tasks within a firm in movements in measured TFP in Japan. Allocating more labor to organizational tasks strengthens the financial relationship with financial intermediaries and helps firms to mitigate a widening in credit spread during financial difficulties. However, doing so reduces the labor allocated to production tasks and hence the measured TFP. Our quantitative analysis indicates that labor reallocation contributes to the observed procyclicality in measured TFP. We also find that this mechanism amplifies and propagates the effects of exogenous shocks on aggregate activity.     

Towards a theory of the labor market with a public sector

The object is to specify and analyze equilibrium in a labor market with frictions when there is a significant public sector. In the vast majority of equilibrium studies on labor markets, a public sector has been ruled out by assumption. This seems a strange oversight as about 17% of workers in the US are public sector workers, whereas in western Europe, approximately 22% of workers work in the public sector. The goal in this study is to provide answers to such questions as: what happens to private sector wages if the public sector is increased? If the Government increases the number of public sector jobs, does this crowd out private sector jobs? When will private sector wages be greater (less) than the public sector wage? Reasonably complete answers to these questions (and others) are provided within the context of the model developed.     

Acquisition of skills, labor subsidies, and agglomeration of firms

The paper develops an analytically solvable model of new economic geography in which agglomeration of firms is caused by workers' investment in the acquisition of skills. Skilled workers earn high wages and have a large demand for goods. Since firms are attracted towards the demand, they locate at proximity of skilled workers. More workers invest in the acquisition of skills when more firms ask for these skills. Consequently, partial or full agglomeration of firms may be the location equilibrium. We also show that a reduction in transport costs increases the regional governments' incentives to subsidize the acquisition of skills.     

THE IMPACT OF IMMIGRATION ON THE LABOR MARKET

The literature on the impact of immigration on the labor market is highly controversial. The aim of this paper is to review the existing literature and draw some general conclusions on how wages and employment respond to immigration. Economic studies indicate that the impact of immigration on the average wage and employment of native workers is null or slightly positive. However, because adjustments take time, the immediate labor market effects of unexpected (as opposed to expected) migration episodes can be detrimental. Immigration also can have distributional consequences. In particular, the skill composition of immigrants matters in determining their impact on native labor market outcomes. An inflow of immigrants will tend to reduce the wages of competing native workers (with skills similar to those of the migrants), and increase those of complementary workers (with skills that complement those of immigrants). By affecting the skill composition of the workforce, immigration can create winners and losers among native workers via changes in the wage structure.     

THE IMPACT OF LABOR MARKET REGULATION ON EMPLOYMENT IN LOW‐INCOME COUNTRIES: A META‐ANALYSIS

Controversy over labor market policy often centers on achieving a balance between preventing worker exploitation, and avoiding loss of productivity or employment through excessive regulation. Although the literature documenting the impact of labor market regulation on employment is extensive, there is a dearth of evidence on the impact of such policies in low‐income countries (LICs). Since it is easier for workers, especially women, to slip into the informal sector in LICs, regulations are likely to have stronger impacts on formal employment in these countries (but lower impacts on unemployment). We systematically reviewed available research from countries that are, or were until recently, LICs. Most studies document that more stringent labor regulations are associated with lower formal sector employment and higher informal sector employment. We also conducted a metaregression analysis of the impact of minimum wages on formal and informal employment. After controlling for publication bias, higher minimum wages are associated with lower formal employment and a higher share of informal workers.     

Use of employees and alternative work arrangements in the United States: a law,economics, and organizations perspective

This paper considers the incidence of employees versus other forms of work in the United States, including temporary agency workers, contract company workers, independent contractors, and self-employment. It does so within a single, unifying framework. The approach takes an economics of organizations focus to consider when it is optimal for the firm to control the work routine instead of the worker. This is critical in defining and determining employment versus other forms of work. The cost of measuring output and monitoring effort and of worker versus firm expertise are important in determining the organization of work. This approach proves fruitful, but it also is important to account for the impact of certain legal restrictions in the U.S. labor market. The empirical findings show that independent contractors are in jobs that require worker expertise and training and for which monitoring of worker effort is difficult. Contract company workers' characteristics are a hybrid between independent contractors' and employees'. Temporary agency workers occur where the firm wishes to legally outsource its low-wage workers yet still maintain a degree of control over their work routine.     

Marshallian labour market pooling: Evidence from Italy

This paper employs a unique Italian data source to take a comprehensive approach to labour market pooling. It jointly considers many different aspects of the agglomeration — labour market relationship, including turnover, learning, matching, and hold up. It also considers labour market pooling from the perspective of both workers and firms and across a range of industries. Overall, the paper finds some support for theories of labour market pooling, but the support is weak. Specifically, there is a general positive relationship of turnover to local population density, which is consistent with theories of agglomeration and uncertainty. There is also evidence of on-the-job learning that is consistent with theories of labour pooling, labour poaching, and hold up. In addition, the paper provides evidence consistent with agglomeration improving job matches. However, the labour market pooling gains that we measure are small in magnitude and seem unlikely to account for a substantial share of the agglomeration benefits accruing to Italian workers and firms.     

Endogenous qualifications and firms'' agglomeration

This paper analyzes firms' location when workers endogenously choose to qualify for professional skills but when they remain uncertain about the potential match between their personal abilities and/or affinities and the firms' specific production tasks. By qualifying in a region where firms agglomerate, workers benefit from higher prospects of good match. At the equilibrium, we show that firms may locate in a single cluster, symmetric clusters or even asymmetric clusters. Comparative statics with respect to product market demand and labor supply parameters are provided.