Human capital,reservation wages and job competition: Heckman's lambda re-interpreted

This study integrates insights from three theories into a single model explaining the simultaneous distribution of employment and wages. Human capital theory is taken as the general framework, whereas search theory and the more recent ‘crowding’ or ‘job competition’ hypothesis are used to explain selectivity in employment and the resulting bias in wage regressions. An empirical test on Belgian data, using a two-stage probit-OLS model, indicates that the crowding theory dominates the search hypothesis for men. For women, it seems to be outweighed by relatively higher reservation wages, probably due to women's different behaviour with respect to family responsibilities.     

Market interconnection and wages

We show that wage behavior as well as the skilled–unskilled wage gap depend on elasticity of import demand. Although, our analysis is in the spirit of the Stolper–Samuelson theorem, factor intensity plays no role in our results.     

Running out of time: Limited unemployment benefits and reservation wages

We study unemployment insurance (UI) in an equilibrium environment in which unemployed workers only receive benefits for a finite length of time. Although all workers have identical productivity and leisure value, the random arrival of job offers creates ex-post differences with respect to their time remaining until benefit expiration. Firms, which are also homogeneous, can exploit these differences, leading to an endogenous wage distribution.This allows us to examine the equilibrium effect of policy changes in both the size and length of UI benefits. Surprisingly, an increase in benefits can actually cause wages to fall, which is contrary to the predictions of on-the-job-search models. Moreover, we explain well-documented patterns of how the hazard rate of exiting unemployment responds to these policy changes. Our theory also explains why this hazard rate jumps at the time of benefit exhaustion.     

Active labour market programmes and reservation wages: it is a hazard

This article uses a randomized controlled trial to show that positive earnings effects of a labour market programme can be caused by either a faster return to employment together with a lowering of reservation wages or a more moderate return to employment together with an increase in reservation wages. I model wages and unemployment duration simultaneously in a hazard framework allowing for unobserved heterogeneity.     

Earnings,social security legislation and retirement decisions: the Austrian experience

This paper analyses the labour supply behaviour of elderly males in Austria and asks how far it is determined by the characteristics of the Austrian Social Security System. This is of particular interest because old age insurance in Austria is dominated by the public pension plan, so that private pension plans are of minor importance. I argue that from a theoretical point of view the actuarial unfairness of the insurance plan creates a strong incentive to withdraw from the labour force at the minimum retirement age. Secondly, the rising earnings replacement ratio might be responsible for the decreasing average retirement age. These hypotheses are tested empirically. A pooled time-series cross-sections labour force participation model is estimated for single birth year cohorts of elderly males. I find strong evidence for the proposition, that the age-participation pattern might be determined by the incentives created by social security and that the decrease in labour force participation rates over time may be due to the rising earnings replacement ratio. Remaining differences in labour force participation of elderly males may be attributable to cohort population size and to a long run trend.     

Risk attitudes and reservation wages of unemployed workers: Evidence from panel data

This paper studies risk attitudes of unemployed job seekers and their relationship to self-reported reservation wages. We find that risk aversion is prevalent, and that reservation wages decrease slightly over time. Furthermore, risk aversion and reservation wages are negatively correlated.     

Old-age benefits and retirement decisions of rural elderly in Brazil

I estimate the impact of social security benefits on retirement decisions of rural workers by studying changes in the rules governing old-age benefits for rural workers in Brazil. I focus on a reform implemented in 1991, which reduced the minimum eligibility age, increased benefits, and extended the program to non-heads of households. Because those benefits come with no strings attached — they are not means or retirement tested — any behavioral response is a pure income effect. The main finding of the paper is that access to old-age benefits is a strong determinant of retirement of rural workers in Brazil: receiving old-age benefits increases the probability of not working by about thirty-eight percentage points and reduces total hours per week by 22½ h.     

The effect of disability income on retirement decisions and wealth

Using the 2008 National Longitudinal Survey of Youth, this study examines the impact of receiving disability income on a respondent’s decision to calculate a retirement income need, use tax-advantaged accounts and accumulate retirement wealth. Respondents who received disability income were 4.4% less likely to report calculating a retirement income need and 4.5% less likely to report using a tax-advantaged account, compared to a reference group of respondents who did not receive disability income. Respondents who received disability income also accumulated 41% less retirement wealth compared to the same reference group.     

Sticky wages,efficiency wages,and market processes

Work on this article was supported by a grant from the Research Committee of the College of Business Administration, University of South Florida.     

The influence of wages and house prices on British interregional migration decisions

The factors affecting choice of destination of U.K. internal migrants are analyzed using Labour Force Survey data. "A logit analysis of destination choice indicates that job movers are attracted to areas with high wages but are not affected by high house prices in such areas. In contrast, active non-job movers are deterred from areas of high house prices. Regional house price differences do not influence the destination choice of homemakers or the terminally sick but they do influence the destination choice of retirees. All groups prefer to travel the least distance when moving."     

Employer pay policies, public transfers and the retirement decisions of men and women in Denmark

The empirical retirement literature measures individual responses to variations in income flows due to public transfers, private individual or employer-provided pensions. We estimate a model accounting for the incentive effects from these sources. A dynamic structural model is extended to allow both individual and employer heterogeneity. This is applied to a Danish matched panel of workers and establishments, spanning a period of reforms to a public early retirement programme. Employer-specific compensation is found to be an important determinant of work and retirement income flows. Employer effects on retirement age are only found among sub-samples where access to public transfers is limited.     

Not so voluntary retirement decisions? Evidence from a pension reform

Firms may encourage their workers to retire early. Experience-rating of early retirement benefits creates incentives for firms to avoid this. We use a pension reform as a natural experiment in order to evaluate the effect of this experience-rating. The key result is that experience-rating of early retirement benefits reduces early exits of older workers.     

Unemployment,wages and pensions

Empirical evidence has shown the existence of a negative relationship between the rates of unemployment and real wages. If pensions are computed according to the wages that workers have contributed, then the unemployment rates during working life may also influence the pensions to which they are entitled. Using data from 2005 to 2012 for the Spanish social security system, we estimate that the unemployment elasticity of real pension is ?0.135. A 1% increase in unemployment rate is associated with a reduction in pension equal to 0.135%. In ‘normal times’, this value could be considered modest, but the Great Recession has increased dramatically the rate of unemployment. In 2012, the rate of unemployment in Spain had increased to 25.7% and in 2015, it had diminished to 20.9%. It is estimated that unemployment rate will not be returned to figures existing before the crisis until middle of the next decade. Moreover, the current reforms in social security systems could interact with the future effects of the current rates of unemployment and cause future pensions to be significantly lower than those estimated by individuals. The economic welfare of the future cohorts of retirees would then be significantly worsened.     

Computers,skills and wages

Computer technology is most prominently used by skilled, high-wage workers. This suggests that computer use requires skills to take full advantage of the possibilities, which are particularly present among relatively skilled workers. This article develops a simple technology adoption model showing that the decision to adopt computer technology depends on (i) the tasks to be performed, (ii) the level of skill or education and (iii) the level of wages. Applying this model to British data, it is shown that the effect of wages and particular tasks on computer adoption is larger than the effect of skills on adoption. The estimates suggest that in Britain computer use is likely to be a matter of cost efficiency and not so much of workers’ skills.     

Coordination, matching, and wages

We analyse the coordination problem in the labour market by endogenizing the matching function and the wage share. Each firm posts a wage to maximize the expected profit, anticipating how the wage affects the expected number of applicants. In equilibrium workers apply to firms with mixed strategies, which generate coordination failure and persistent unemployment. We show how the wage share, unemployment, and the welfare loss from the coordination failure depend on the market tightness and the market size. The welfare loss from the coordination failure is as high as 7.5 per cent of potential output. JEL Classification: C78, J64
Les auteurs analysent le problème de la coordination dans le marché du travail en endogénéisant la fonction 'arrimage et la part des revenus qui va aux salaires. Chaque entreprise définit le niveau de salaire qui maximise ses profits anticipés, en tenant compte de l'effet de ce niveau de salaire sur le nombre des applications qu'elle peut anticiper. De même, les travailleurs font application auprès d'une entreprise à un salaire donné en tenant compte d'une certaine relation d'équivalence entre niveau de salaire et probabilité d'obtenir l'emploi. Voilà qui engendre incoordination et chômage persistant. On montre que la part des revenus qui revient aux salaires, le niveau de chômage, et les pertes de bien-être attribuables au manque de coordination dépendent de la taille du marché et du degré de rareté de la main d'oeuvre. Les pertes de bien-être attribuables au manque de coordination correspondent à quelques 7,5 pour-cent de la production potentielle.     

The impact of local unemployment rates on reservation wages and the duration of search for a job.

Evidence about the relationship of local unemployment rates and individuals' reservation wages and duration of search for a job if unemployed is sparse and mixed. This study uses US data from the Panel Study of Income Dynamics (PSID) to test whether relatively high local unemployment rates reduce the reservation wages of area residents or increase the duration of search. Labour search theory provides the grounding for the sample selection corrected simultaneous equations econometric model. In neither OLS nor 2SLS results is evidence found that local unemployment rates affect either reservation wages or the duration of search. These results suggest that policies targeted at alleviating unemployment should focus on increasing the demand for labour rather than hope that such policies will be beneficial if pursued in high-unemployment areas because of their effects on labour force characteristics.     

How real people make long-term decisions: The case of retirement preparation

Large variations in retirement wealth are common, with some households accumulating hundreds of thousands of dollars and others accumulating next to nothing. We examine to what extent formal planning or simple rules of thumb contribute to these differences in wealth accumulation. In particular, we investigate whether those who follow simple rules of thumb or those who come up with more complete plans accumulate more wealth than those who take an unsystematic approach. We test this empirically using a specifically designed survey about retirement preparation. We find that people who rely on a rule of thumb behave like literal planners. However, people without any systematic approach save substantially less. Our results, taken together with evidence from psychology, suggest that financial planning advice based on simple rules of thumb may be helpful for those who currently take no systematic approach.     

Inflation,technological-knowledge bias,and wages

A detailed examination of wage data points to a wage polarization trend vis-à-vis the distribution of qualifications. Theoretically terms, this points to the need for modeling focused on the relevance of the direction of technological knowledge. To this end, we branched production into routine and non-routine tasks. In this way, the results produced positive relationships between the relative supply of skilled workers and the skill premium and between automation and wage polarization.     

Alcohol consumption,smoking and wages

The good health of an individual is a combination of uncontrollable factors that includes genetics and random events and controllable factors through the regulation of activities such as smoking and drinking. Since the work of Grossman in the 1970s, a significant relationship between health and earnings has been predicted. In this present paper the 1995 Australian National Health Survey is used to examine simultaneously the effects of drinking and smoking on wages. To model the interaction of smoking with alcohol consumption separate models are fitted for smokers and nonsmokers. These models account for potential selectivity bias resulting from the decision to smoke, and endogeneity arising from a potential causal relationship between earnings and alcohol consumption.