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.     

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.     

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.     

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.     

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.     

Bargaining, binding contracts, and competitive wages

In a model where many workers bargain with one firm and sign binding contracts, we show existence of a stationary subgame perfect equilibrium. If the production function satisfies decreasing returns, each worker receives a share of his marginal product (treating all other workers as employed) in equilibrium. Thus, wages are competitive. This is in contrast to Stole and Zweibel (1996, Rev. Econ. Stud. 63, 375–410), who assume that contracts are non-binding and find that the payoff of a worker is a weighted average of the inframarginal contributions. Hence, binding contracts imply lower wages than non-binding contracts.     

Reservation wages, market wages and unemployment: Analysis of individual level panel data

Using individual level panel data, we analyse the divergence between the reservation wages of individuals who are out of work and their predicted market wages, focusing upon identifying the factors that influence the potential divergence. In addition, using propensity score matching techniques, we explore the implications of such divergences for future employment and wages. Our findings suggest that having reservation wages that are high relative to the predicted market wage influence both future employment and future wages.     

Ageing,cognitive abilities and retirement

We investigate the relationship between ageing, cognitive abilities and retirement using the Survey on Health, Ageing and Retirement in Europe (SHARE), a household panel that offers the possibility of comparing several European countries using nationally representative samples of the population aged 50+. The human capital framework suggests that retirement may cause an increase in cognitive decline, since after retirement individuals lose the market incentive to invest in cognitive repair activities. Our empirical results, based on an instrumental variable strategy to deal with the potential endogeneity of retirement, confirm this key prediction. They also indicate that education plays a fundamental role in explaining heterogeneity in the level of cognitive abilities.     

In-school labour supply,parental transfers,and wages

In many industrialised countries, teenagers have a significant spending power, and they are important customers for specialised industries. The income of teenagers still in full time education comes from two major sources: parental pocket money and earnings from part-time jobs. Little is known about the way these sources interact, and how they depend on parental, school and family characteristics. In this paper, we analyse labour supply of 16 year old British teenagers together with the cash transfers made to them by their parents. We first develop a theoretical model, where labour supply and transfers are jointly determined. We then estimate labour supply and transfers jointly, using unique data on labour supply of teenagers, the wages they receive, and the transfers from their parents. We show how these two processes depend on each other, and how transfers and labour supply react to changes in wages. We are grateful to the Leverhulme Trust for financial support for this research, which has also benefited from support to the IFS as a Designated Research Centre of the ESRC. We thank Murali Agastya, Richard Blundell, Ian Preston, Frank Windmeijer, and two anonymous referees and the editor Bernd Fitzenberger for useful comments.     

Relative wages, labor specialization and bargaining patterns

The goal of this paper is to study the effects of centralized and decentralized bargaining patterns on wage inequality when there are two different types of labor, skilled and unskilled. We present two models where labor is specialized between firms, that is, there are two types of firms, each one employing one type of labor. We show that the revenue shares of the production factors in each type of firm and the union power are crucial determinants of the relative wage. In contrast, the relative expected wage is the same across models and bargaining patterns.     

Ageing,government budgets,retirement, and growth

We analyze the short and long-run effects of demographic ageing – increased longevity and reduced fertility – on per-capita growth. The OLG model captures direct effects, working through adjustments in the savings rate, labor supply, and capital deepening, and indirect effects, working through changes of taxes, government spending components and the retirement age in politico-economic equilibrium. Growth is driven by capital accumulation and productivity increases fueled by public investment. The closed-form solutions of the model predict taxation and the retirement age in OECD economies to increase in response to demographic ageing and per-capita growth to accelerate. If the retirement age was held constant, the growth rate in politico-economic equilibrium would essentially remain unchanged, due to a surge of social-security transfers and crowding out of public investment.     

Farm income,market wages,and off-farm labour supply

In most developed countries we observe an increasing share of part-time farming at the expense of full-time farmers. In the present paper, we develop a theoretical labour supply model which accounts for the specific decision problem of a farmer. The empirical analysis uses the ordered probit and a Tobit model to explain labour supply behaviour for a sample of farm households in Upper Austria. Farm size, household characteristics, as well as education significantly influences off-farm labour supply behaviour. The obtained wage elasticities for male farmers are comparable in magnitude to those obtained in labour supply studies for adult females or elderly people.

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Zusammenfassung Nebenerwerbslandwirtschaft entwickelt sich immer mehr zur vorherrschenden Form der Erwerbstätigkeit von Landwirten. Die Erwerbsentscheidung zwischen Voll-, Zu- und Nebenerwerb wird im Rahmen eines statischen Arbeitsangebotsmodells untersucht und mit Hilfe eines Ordered-probit-bzw. eines Tobit-Ansatzes für 1.842 landwirtschaftliche Haushalte in Oberösterreich getestet. Das Arbeitsmarktverhalten von Landwirten ist gekennzeichnet durch eine hohe Lohnelastizität vergleichbar den Ergebnissen für das Erwerbsverhalten von Personen auf dem sekundären Arbeitsmarkt. Darüber hinaus läßt sich ein signifikanter Einfluß der Betriebsgröße, der Struktur des landwirtschaftlichen Haushaltes sowie der Art und des Umfangs der Ausbildung des Betriebsleiterehepaares erkennen.

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We are grateful to the Agrar- und Forstrechtsabteilung der oberösterreichischen Landesregierung for giving us access to the data set, and E. Fürst for helpful assistance in data preparation. We are indebted to the participants of the first annual conference of the Austrian Association of Agricultural Economists (ÖGA) held in Vienna in October 1991 and especially to R. Winter-Ebmer, M. Hofreither, and three anonymous referees for valuable comments.