The value of life: Real risks and safety-related productivity in the Himalaya

This paper estimates the value of a statistical life from commercial Himalayan expeditions. Because deaths occur with a fair amount of regularity, fatality rates are calculated for each mountain trail and are, hence, disaggregated measures of risk. Also, since the marginal product of labor in the industry is (in part) the marginal product of safety, our revenue measures may account for unobserved safety-related productivity of guides. Guide safety is explicitly observed by market participants, and is reflected in higher wages for safer guides. Our VSL estimates are about $5 M.     

Measuring labor cost for productivity comparison

This paper presents measures of labor cost applicable when the wage and marginal product are not equal by period. The user cost of labor, an alternative to the wage, is the price of hiring the services of the worker per unit time. This user cost is dependent on the sequence of wages earned by a worker over a career, interest rates, and career length or eventual tenure. For the United States, 1963–1978, labor compensation shares based on the wage exceed those for the user cost. After 1978, the reverse obtains. The contribution of labor, and measured productivity performance is sensitive to the price of labor services.This paper was processed by M. Brown.     

On revenue recycling and the welfare effects of second-best congestion pricing in a monocentric city

This paper examines congestion taxes in a monocentric city with pre-existing labor taxation. When road toll revenue is used to finance labor tax cuts, 35% of the optimal road tax in our numerical model does not reflect marginal external congestion costs, but rather functions as a Ramsey–Mirrlees tax, i.e. an efficiency enhancing mechanism allowing for an indirect spatial differentiation of the labor tax. This adds a quite different motivation to road pricing, since welfare gains can be produced even in absence of congestion. We find that the optimal road tax is non-monotonic across space, reflecting the different impacts of labor supply elasticity and marginal utility of income, which both vary over space. The relative efficiencies of some archetype second-best pricing schemes (cordon toll, flat kilometer tax) are high (84% and 70% respectively). When road toll revenue is recycled lump-sum, the optimal toll lies below its Pigouvian level. Extensions in a bimodal framework show that the optimality of using road toll revenue to subsidize public transport depends on the initial inefficiency in public transport pricing.     

ANSWERING THE QUESTIONS ON LVT

This article rebuts the arguments against land value taxation expressed by Oliver Marc Hartwich in the December 2006 'Economic Viewpoints'. This rebuttal argues that taxing land as a surplus is both feasible and consistent with modern economic concepts such as marginal productivity. Entrepreneurship is enhanced rather than hampered by eliminating taxes on wages and enterprise and shifting public revenue to the economic rent of land.     

The welfare economics of city bigness

Money wages will vary among cities in an economy with perfect labor mobility, due to differences in costs of producing nontraded goods. Commuting costs contribute to making money wages higher in large cities. Increasing negative technological externalities, such as pollution and congestion, also make money wages higher in larger cities. Such externalities tend to make big cities too big, because marginal is greater than average externality. Internalizing the externalities would be likely to make a city larger if the externalities emanate from production of nontraded goods, but might make the city smaller if the externalities emanate from export production.     

Agricultural productivity,shadow wages and off-farm labor decisions in Nicaragua

The objective of this study is to analyze the decision to work off-farm by male and female farmers in Nicaragua using a three-year unbalanced panel dataset. Shadow income and shadow wages are also estimated. Moreover, to mitigate biases from unobserved individual and farm time-invariant characteristics as well as from sample selection, we apply a semiparametric approach for panel data. Our main findings suggest that shadow wages play a major role in off-farm labor decisions for both males and females. This implies that less labor is allocated to off-farm activities as the opportunity cost for agricultural work goes up. In addition, as the on-farm marginal productivity of households (i.e., shadow income) rises, both males and females reduce the hours they allocate to off-farm activities.     

Labor market institutions and inflation volatility in the euro area

Despite having had the same currency for many years, EMU countries still have quite different inflation dynamics. In this paper we explore one possible reason: country specific labor market institutions, giving rise to different inflation volatilities. When unemployment insurance schemes differ, as they do in EMU, reservation wages react differently in each country to area-wide shocks. This implies that real marginal costs and inflation also react differently. We report evidence for EMU countries supporting the existence of a cross-country link over the cycle between labor market structures on the one side and real wages and inflation on the other. We then build a DSGE model that replicates the data evidence. The inflation volatility differentials produced by asymmetric labor markets generate welfare losses at the currency area level of approximately 0.3% of steady state consumption.     

Are baseball players paid their marginal products?

Previous researchers found that baseball players under the reserve clause had been paid considerably less than their contributions to club revenues. We ask, has the new contractual system of free agency and final-offer arbitration brought baseball salaries into line with marginal revenue products? Using public data for the 1986 and 1987 seasons, our basic answer is yes, major league salaries generally coincide with estimated marginal revenue products, though significant deviations exist. Experienced players are paid in accord with their productivity; young players, however, are paid less than their marginal revenue product, on average. This result is closely related to the market structure within baseball.     

Informality in developing economies: Regulation and fiscal policies

This paper proposes a unified theoretical framework where formal and informal firms coexist and face the same type of product and labor market imperfections: they have monopoly power in the goods market, they are subject to matching frictions in the labor market, and wages are determined by bargaining between large firms and their workers, through either individual or collective bargaining. Our model matches the main stylized facts on informality for developing countries and appears to be a good candidate for policy analysis. In this framework, we study the impact on informality, wages and unemployment of policies that may be used to reduce informality. We consider changes in product market regulation (PMR) and in two types of fiscal policies, labor taxes and formality enforcement. We find that lessening PMR decreases informality and unemployment simultaneously, indicating that there is not necessarily a tradeoff between informality and unemployment. The tradeoff appears when fiscal policies are used, though. Moreover, the impacts of PMR on unemployment and on wages are larger under collective than individual bargaining. With respect to wage inequality, lessening PMR reduces it, while lower taxes tend to increase the formal sector wage premium.     

Conditional distributions of earnings,wages and hours for blacks and whites

This paper provides new evidence on the conditional distributions of earnings, wages and hours for white and black males in the University of Michigan's Panel Study of Income Dynamics. Conditional hours and ln wages are approximately normal for both races. Conditional earnings are approximately normal for blacks while earnings are well approximated for whites by the product of normal hours and log-normal wages. The distribution of this product is derived here for the first time. Treating the marginal earnings distribution as the average of the conditional distributions, we use these results to predict poverty and affluence rates in our sample.     

Multi-region Development and Fiscal Equity

A bstract . If a region has a fixed resource base (say land) then adding labor eventually results in a declining marginal product per worker. If there is a pure Samuelsonian public good in the region, more people permit the spreading of the tax burden for producing the public good at no cost in terms of crowding the good. Thus we have an essential trade-off between the declining marginal productivity of an immigrant to a region and his positive fiscal "value." This trade-off was highlighted by Flatters, Henderson and Mieszkowski¹ and an optimal population was arrived at for a single region economy. We extend this optimal population argument to a multi-region economy and observe two phenomena.     

Labour market oligopsonistic competition: The effect of worker immobility on wages

We suggest that firms in a local labour market may be able to exploit worker mobility costs and offer immobile workers wages that are lower than their marginal product. If so, the ability of employers to exploit worker immobility in setting wages would decline in the competitiveness of the local labour market. We test this intuition using a measure of individual mobility costs and measures of local labour market competition. Our findings suggest that worker immobility causes substantial wage variation across workers in small, weakly competitive markets, and in occupations where wages are individually bargained.     

The effect of search frictions on wages

We aim to test whether the degree of informational search frictions in the labor market has a negative effect on wages. In a range of equilibrium search models of the labor market, this effect is predicted to be negative. Nevertheless, this has never been tested. We perform tests with matched worker–firm data. The worker data are informative on individual wages and labor market transitions, and this allows for estimation of the degree of search frictions. The firm data are informative on labor productivity. This allows us to investigate how the mean difference between labor productivity and wages in a market depends on the degree of frictions and other determinants, and to assess the quantitative relevance of frictions for wages.     

Heterogeneity and long-run changes in aggregate hours and the labor wedge

From 1961 to 2007, U.S. aggregate hours worked increased and the labor wedge—measured as the discrepancy between a representative household׳s marginal rate of substitution and the marginal product of labor—declined substantially. The labor wedge is negatively related to hours and is often attributed to labor income taxes. However, U.S. labor income taxes increased since 1961. We examine a model with gender and marital status heterogeneity which accounts for the trends in the U.S. hours and the labor wedge. Apart from taxes, the model׳s labor wedge reflects non-distortionary cross-sectional differences in households׳ hours worked and productivity. We provide evidence that household heterogeneity is important for long-run changes in labor wedges and hours in other OECD economies.     

Dismissals and match-specific rents

Labor contracts that result in dismissals are quite common in the real world. The question that arises is why employers do not just offer reduced wages instead of asking workers with low realized productivity to leave. This paper argues that such behavior can be explained by workers' understandable unwillingness to agree to contracts that an employer will not have an incentive to honor in the future. Specifically, we construct a matching model in which the employer and the worker are both uncertain about the value the other places on the match. Because the worker's match-specific productivity is the employer's private information, a commitment to pay a wage equal to the worker's value of marginal product is not enforceable. In the absence of a wage guarantee, the employer will offer retained workers wages below their value of marginal product, which causes quits to be inefficiently high. The employer can reduce quits by contractually promising a guaranteed wage to retained workers. Although this will lead to some involuntary dismissals, the loss from dismissals will be less than the gain from lower quits if the wage guarantee is not too high.     

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.     

Exploring reallocation’s apparent weak contribution to growth

Two recent meta-analyses use variants of the Baily et al. (Brookings Papers Econ Act Microecon 1:187–267, 1992) (BHC) decompositions to ask whether recent robust growth in aggregate labor productivity (ALP) across 25 countries is due to lower barriers to input reallocation. They find weak gains from measured reallocation and strong within-plant productivity gains. We show these findings may be because BHC indices decompose ALP growth using plant-level output-per-labor (OL) as a proxy for the marginal product of labor and changes in OL as a proxy for changes in plant-level productivity. We provide simple examples to show that (1) reallocation growth from labor should track marginal changes in labor weighted by the marginal product of labor, (2) BHC reallocation growth can be positively correlated, negatively correlated, or uncorrelated with actual growth arising from the reallocation of inputs, and that (3) BHC indices can mistake growth from reallocation as growth from productivity, principally because OL is neither a perfect index of marginal products nor plant-level productivity. We then turn to micro-level data from Chile, Colombia, and Slovenia, and we find for the first two that BHC indices report weak or negative growth from labor reallocation. Using the reallocation definition based on marginal products we find a positive and robust role for labor reallocation in all three countries and a reduced role of plant-level technical efficiency in growth. We close by exploring potential corrections to the BHC decompositions but here we have limited success.     

Wage Bargaining in Industries with Market Power

We develop a game-theoretic version of the right-to-manage model of firm-level bargaining where strategic interactions among firms are explicitly recognized. Our main aim is to investigate how equilibrium wages and employment react to changes in various labor and product market variables. We show that our comparative statics results hinge crucially on the strategic nature of the game, which in turn is determined by the relative bargaining power of unions and managers.     

Seniority,experience, and wages in the UK

This paper uses BHPS data to investigate the relative importance of seniority and experience in determining male wages in the UK labor market. Using both the Altonji and Shakotko instrumental variable and the Topel two-step estimation approaches, I find that for all male workers, tenure plays a modest role, increasing wages by about 1% each year over the first 10 years on the job. General labor market experience has a larger role, so that after 30 years wages have increased by about 60%. Individual and job match heterogeneity are important, and should be carefully modeled when estimating wage equations for the British labor market. These results are remarkably similar to the most recent evidence about these relationships in the US labor market. After extending the standard model to include industry and occupation experience, the estimated impact of job seniority becomes negligible for nonunion workers. Instead, the wages of nonunion workers rise because of the accumulation of general and sector-specific experience. The wages of union workers are still found to increase with job seniority over the first ten years with their employer, suggesting that if seniority matters for wages it is only for union workers.     

Expected income and labor market choices of US married couples: A locally weighted regression approach

This paper applies a locally weighted scatterplot smoothing (loess) method to estimate the spatially heterogeneous wages of demographic groups of workers across precisely defined US labor markets. We estimate a location choice model using data from the National Longitudinal Survey of Youth (NLSY79) using these estimates of labor market specific wages for men and women as determinants of their place of residence. We compare estimates of this model to a model using more aggregated measures of wages and locations from CPS. We show that potential wages based on these more refined definitions of labor markets and demographic groups provide more explanatory power in a simple migration model than do those based upon less detailed definitions of labor markets and demographic groups.