Contingent wage subsidy

This paper proposes a policy aimed at tackling unemployment that arises from macroeconomic coordination failure. The policy offers firms wage subsidies payable only if the total number of new hires made across the economy is below a prespecified threshold. Subsidies provide incentives for firms to create jobs but the policy's goal is to generate a sufficiently large amount of employment spillovers to set off hiring complementarities taking employment beyond the threshold. Thus, subsidies are not distributed but the policy achieves a Pareto improvement. The market structure is important for policy design. Aggregative game techniques prove useful for the oligopsonistic case.     

A utility-based analysis of the wage subsidy program

Because the poverty line is usually defined in terms of income, two families may be classified as having poverty-level incomes even though their hours of work and, therefore, their utilities may be very different. This paper compares a government income support program that defines the poverty line in terms of utility with several other support programs that define the poverty line in terms of income. Through the use of the wage solution of the indirect utility function, we find the amount of wage subsidy required to raise a subpoverty-line family to the poverty line as defined by the utility function. This subsidy is compared with wage subsidies based on directly observable quantities such as income.     

Assessing the impact of a wage subsidy for single parents on social assistance

Abstract This paper studies the impact of a wage subsidy program aimed at long‐term social assistance recipients in Quebec. The program closely mimics the Self‐Sufficiency Project and was implemented for a trial period of one year in 2002.We focus on the labour market transitions of the targeted population starting one year before the implementation of the program and until the end of 2005. Our results show that the duration of spells off social assistance increased, while the duration of social assistance spells decreased slightly. The response to the program varies considerably with both observed and unobserved characteristics.     

Heterogeneous treatment effects and mechanisms in information-based environmental policies: Evidence from a large-scale field experiment

Policymakers often rely on non-pecuniary, information-based programs to achieve social objectives. Using data from a water conservation information campaign implemented as a randomized controlled trial, we estimate heterogeneous household responses. Understanding such heterogeneity is important for improving the cost-effectiveness of non-pecuniary programs, extending them to other populations and probing the mechanisms through which the treatment effects arise. We find little evidence of heterogeneous responses to purely technical information or to traditional conservation messages that combine technical information and moral suasion. In contrast, norm-based messages that combine technical information, moral suasion and social comparisons exhibit strong heterogeneity: households that are wealthier, owner-occupied and use more water are more responsive. These subgroups tend to be least responsive to pecuniary incentives. We find no evidence that any subgroup increases their water use in response to the messages. By targeting the messages to subgroups known to be most responsive, program costs could be reduced by over 50% with only a 20% reduction in the treatment effect. Combining theory and data, we also shed light on the mechanisms through which the treatment effects arise, which has implications for program design and future research on the program's welfare effects.     

Assortative marriage and the effects of government homecare subsidy programs on gender wage and participation inequality

We develop a model of the labor market where firms incur an adjustment cost when one of their workers quits, and males and females form households assortatively by skill. We show how this environment can lead to an economy where females earn less and drop out more frequently than equally skilled males in equilibrium, even when males and females constitute ex-ante identical populations. We then examine how different government homecare subsidy schemes may affect such gender inequality in the labor market. We show that the effect of government homecare subsidy schemes on gender inequality depends crucially on the form in which the subsidy is given and to whom it is allocated.     

Risk attitudes, randomization to treatment, and self-selection into experiments

Randomization to treatment is fundamental to statistical control in the design of experiments. However randomization implies some uncertainty about treatment condition, and individuals differ in their preferences towards taking on risk. Since human subjects often volunteer for experiments or are allowed to drop out of the experiment at any time if they want to, it is possible that the sample observed in an experiment might be biased because of the risk of randomization. On the other hand, the widespread use of a guaranteed show-up fee that is non-stochastic may generate sample selection biases of the opposite direction, encouraging more risk averse samples into experiments. We directly test these hypotheses that risk attitudes play a role in sample selection. Our results suggest that randomization bias does affect the overall level of risk aversion in the sample we observe, but that it does not affect the demographic mix of risk attitudes in the sample. We show that the common use of non-stochastic show-up fees can generate samples that are more risk averse than would otherwise have been observed.     

R&D subsidy and output subsidy in a duopoly: The role of technology spillover and R&D budget

Technology spillover and research and development (R&D) budget are relevant on government subsidies that aim at improving social welfare through enhancing R&D incentives of firms. However, there has not been related literature considering these two factors. To fill this gap, this paper examines the effect of technology spillover and R&D budget on R&D competition of duopolistic firms and government subsidies by constructing a game-theoretic model. We find that while each firm's profit sometimes increases with R&D budget for low coefficient of technology spillover, this profit may decrease with R&D budget for high coefficient of technology spillover due to the intensified R&D competition. We show that when both R&D budget and the coefficient of technology spillover remain high, R&D subsidy leads to higher social welfare than output subsidy and otherwise R&D subsidy results in lower social welfare.     

Occupational self-selection in a labor market with moral hazard

This paper studies the determinants and implications of self-selection when firms imperfectly observe worker effort. The effects of the resulting moral hazard problem on the self-selection mechanism are analyzed in a model in which workers simultaneously choose an employment sector and an effort level. The implications of the model reveal that in the presence of moral hazard, workers’ effort decisions become an additional mechanism determining the pattern of selection into sectors. Workers’ sector-specific endowments impact sectoral allocation through their effect on workers’ comparative advantage as well as their effect on workers’ shirking propensity. The model is then used in an empirical application that analyzes workers’ self-selection into white collar and blue collar occupations. The estimation results, based on data from the National Longitudinal Survey of Youth, suggest that workers’ occupational self-selection leads to higher wages and lower dismissal rates in both occupations, compared to an economy in which workers are randomly assigned to each occupation. The difference in dismissal rates between the two occupations is driven by the higher expected productivity in the white collar sector. The positive effects of occupational sorting diminish as the labor market becomes increasingly characterized by moral hazard. Results also suggest that human capital investments in skills that are most relevant to blue collar jobs may generate higher wages and lower dismissal rates in both white collar and blue collar occupations.     

Random parameters and self-selection models

Most empirical work employs models with fixed parameters. In contrast, I discuss the specification of self-selection models with random parameters. I demonstrate that in a self-selection model, mis-specification of the parameter structure as constant causes biased estimates, especially of the selectivity effect. I estimate a self-selection model of moonlighting with random parameters and find that the selectivity effect, which was almost absent in the constant parameter version of the model, is indeed significant.     

Disutility and constrained quality choice in self-selection problems

This paper analyzes the self-selection problem in a monopoly market where (i) consumer types are characterized by both utility of service and disutility of interrupted service and (ii) qualities (reliabilities) are interdependent. We derive behavior of a profit-maximizing monopolist in offering self-selection menu of price and reliability and in choosing capacity investment. We further analyze welfare distortions of the monopolistic behavior. The major findings are: (i) depending on the magnitude of utility and disutility, either consumer type may end up with zero surplus, (ii) the possibility of inefficient production may lead to idle capacity, and (iii) depending on the consumer preference structure, the monopolist's investment is lower than, equal to, or higher than the socially optimal level.     

Growth and unemployment in a shirking efficiency wage model

Abstract.  The relationship between growth and unemployment in a general equilibrium shirking efficiency wage model is explored. In contrast to past work on this subject, detected shirkers are not dismissed but instead incur a monetary punishment. As a result of this modification, the model can account for a stable rate of unemployment when there is positive population growth and/or technological growth in the economy. Moreover, I show that institutions and policies that limit the ability of firms to punish detected shirkers or restrict their use of discretionary bonuses can increase unemployment and reduce the economy's long run growth rate. JEL Classification: E0, J41     

Migration,self-selection and earnings in Philippine rural communities

"Estimated returns to schooling investments can be misleading if migration causes significant shifts in population distribution across time. Data gathered in rural Philippine communities show that the more educated and experienced individuals are more likely to outmigrate, causing a sample selection bias in the estimation of wage equations. The observed wages were then lower than the conditional population mean of an entire cohort residing originally in the area. Controlling for self-selection, the wage returns to schooling and experience were higher, Finally, the sample selectivity variable accounts substantially for the difference in the wages of men and women."     

Spikes and spill-overs: The impact of the national minimum wage on the wage distribution in a low-wage sector

The UK National Minimum Wage (NMW) has had a minimal impact on UK wage inequality because it has been set at a modest level and because aggregate evidence suggests very small spill-over effects. But the small spill-over effects might be because of the small numbers of workers affected and widespread anticipation of the introduction of the NMW might make the impact effect appear very small. This paper investigates these issues using data collected from care homes where the NMW affected 40% of workers. But we still find no evidence of large spill-over effects and very small amounts of anticipation of the NMW.     

Determinants of wage stickiness in a developing economy

We explore wage flexibility in a developing country and compare our results to what has been found in similar studies using European data. In particular, we conduct a survey of 1189 firms in Pakistan to analyze the determinants of wage rigidity. We find that the existence of competitive wages and an interaction with the informal economy are statistically significant determinants of wage stickiness. While the role of competitive wages is similar to what has been found in studies of European firms, the latter find a much larger role for turnover, collective bargaining and employment protection. In contrast, in Pakistan we find that firms hiring from the informal sector are significantly more flexible in changing their wages. This suggests that the informal sector adds to the wage flexibility of the formal sector.     

Wage and employment effects of a wage norm

Most transition countries used tax‐supported wage norms in the early 1990s, as a part of their market liberalization programmes. This article analyses how a firm‐level tax (or subsidy) on deviations from a pre‐set wage norm may promote employment by rotating the labour demand curve perceived by the workers’ union around the value of the norm. We derive the conditions under which it yields a positive employment effect. We test the effect of the norm on the wages on a sample of Polish firms in 1990 and 1991. The data support the role of the wage norm on the position of the perceived labour demand curve and the role of the tax rate on its slope.     

Downsizing, wage inequality and welfare in a developing economy

This paper focuses on the cost cutting effects of firm downsizing in a developing economy. Using a dualistic production structure to depict a developing economy, the impacts of downsizing on wage inequality and social welfare are examined. Downsizing is revealed to not only narrow the wage gap between skilled and unskilled labor but also to raise the level of manufactured output and reduce the unemployment ratio in the urban sector. These effects improve the social welfare of the economy.     

Canadian wage controls in an eclectic model of wage determination

Using a model of wage determination that allows for wage inertia, price expectational and price catch-up influences and quarterly data on annual wage change in new major Canadian settlements for 1967–1987, this paper shows that the Anti-Inflation Board (AIB) wage control programme has a much larger wage restraining influence than is estimated in previous studies. In contrast, the Six and Five wage control programme exerts only a modest restraining influence. Both results are of special interest because the wage determination model used here allows for not only the direct effect of wage controls, but also the indirect wage restraining effect of controls operating through lagged wage changes. We would like to thank two anonymous referees and the editor of this Journal for helpful comments on the work reported in this paper. We also want to acknowledge with thanks the very able research assistance provided by James Chu, Ann Holmes, and Graham Voss and the financial assistance provided by Career Access and Challenge grants from Employment and Immigration Canada and University of Victoria Faculty Research Grants.     

Determinants of farmers’ willingness to participate in subsidy schemes for pesticide-free buffer zones—A choice experiment study

Danish farmers have been far less interested in agri-environmental subsidy schemes (AES) than anticipated. In order to examine how to improve the appeal of such schemes, a choice experiment was conducted concerning 444 Danish farmers’ preferences for subsidy schemes for pesticide-free buffer zones. A random parameter logit framework was used to capture heterogeneity among farmers. Our results indicate that 1) the vast majority of farmers are willing to trade off the size of the subsidy for less restrictive scheme requirements and that 2) the amount of the subsidy they are willing to trade off varies with specific scheme requirements, suggesting which features are most important for successful policy design. Our results suggest that farmers value flexible contract terms higher than reduced administrative burdens. Finally, we suggest a practical approach to estimating a monetary value of farmers’ reluctance to participate in AES. While the trade off's that farmers are willing to make between subsidy size and individual scheme requirements are case specific, our results concerning increased use of farm advisors, farmers ability of valuing different types of flexibility, and our attempt to place a monetary value on farmers’ reluctance to engage in regulatory subsidy schemes have a potentially broader application platform.