The labour market consequences of self-employment spells: European evidence

We examine how those re-entering paid-employment after a brief self-employment spell fare upon return using data from the European Community Household Panel. Unconditionally, those re-entering paid-employment appear to have considerably lower wages than those staying in the wage sector. This difference appears to be larger in Europe than in the US. Conditional analysis suggests, however, that the difference is more apparent than real: It seems that Europeans select negatively into (and possibly out-of) self-employment, i.e., the likelihood of entering (and exiting) entrepreneurship correlates negatively with unobserved ability and/or in-paid-employment productivity. Our analysis of non-wage outcomes indicates that the selection is mostly involuntary, and that for highly educated men, the brief self-employment spells are unemployment in disguise.     

The long-term labor market consequences of graduating from college in a bad economy

This paper studies the labor market experiences of white-male college graduates as a function of economic conditions at time of college graduation. I use the National Longitudinal Survey of Youth whose respondents graduated from college between 1979 and 1989. I estimate the effects of both national and state economic conditions at time of college graduation on labor market outcomes for the first two decades of a career. Because timing and location of college graduation could potentially be affected by economic conditions, I also instrument for the college unemployment rate using year of birth (state of residence at an early age for the state analysis). I find large, negative wage effects of graduating in a worse economy which persist for the entire period studied. I also find that cohorts who graduate in worse national economies are in lower-level occupations, have slightly higher tenure and higher educational attainment, while labor supply is unaffected. Taken as a whole, the results suggest that the labor market consequences of graduating from college in a bad economy are large, negative and persistent.     

The national internal labor market encounters the local labor market: Effects on employee retention

Formal salary systems are commonplace among medium to large-sized firms and within the United States government. However, there is little evidence regarding the costs, if any, of such systems. This study analyzes the effects on retention within the United States Air Force from an inflexible wage system failing to adequately compensate personnel for local compensating wage differentials. Using location-specific Air Force personnel records, I compare the differences between military and civilian wages, by occupation, across locations to determine if local labor markets play a significant role in the stay or leave decisions for personnel. Results show that rigid wage constraints do in fact impose costs on the firm through increased turnover in locations that fail to adequately adjust wages for the cost of living and amenities.     

The labor market effects of non-wage compensations

Contrary to the argument that non-wage compensation is a tax on labor reducing employment, we find that employment may increase in response to an increased demand for benefits (a decreased cost of providing benefits or increased government-mandated benefit levels), under the assumption of strong cross-economies of scale. When there are strong cross-diseconomies of scale, employment and hours both decrease. The secular increase in employer-provided insurance and the growth in U.S. employment may well reflect the role of cross-economies of scale, which seems to exist in larger firms with lower marginal non-wage benefit costs.     

The early inception of labor market gender differences

This paper analyzes gender differences in jobs while in school using school-class-based samples, a setting in which education differences, “glass ceilings”, and career interruptions due to parenthood are irrelevant. I find that in this early stage of life boys already earn substantially more than girls. The earnings gap cannot be explained by differences in participation rates and hours of work, nor by gender wage gaps within job types. It is entirely due to the fact that girls work more in job types with relatively low wages, in particular babysitting. During the period considered, 1984–2001, the gender patterns of jobs while in school largely remained unchanged.     

The effectiveness of European active labor market programs

Active Labor Market Programs are widely used in European countries, but despite many econometric evaluation studies analyzing particular programs no conclusive cross-country evidence exists regarding “what program works for what target group under what (economic and institutional) circumstances?”. This paper aims at answering this question using a meta-analysis based on a data set that comprises 137 program evaluations from 19 countries. The empirical results of the meta-analysis are surprisingly clear-cut: Rather than contextual factors such as labor market institutions or the business cycle, it is almost exclusively the program type that seems to matter for program effectiveness. While direct employment programs in the public sector frequently appear detrimental, wage subsidies and “Services and Sanctions” can be effective in increasing participants' employment probability. Training programs – the most commonly used type of active policy – show modestly positive effects.     

The part-time pay penalty in a segmented labor market

This paper is the first to examine the implications of switching to PT work for women's subsequent earnings trajectories, distinguishing by their type of contract: permanent or fixed-term. Using a rich longitudinal Spanish data set from Social Security records of over 76,000 prime-aged women strongly attached to the Spanish labor market, we find that the PT/FT hourly wage differential is larger and more persistent among fixed-term contract workers, strengthening the existent evidence that these workers can be classified as secondary. The paper discusses problems arising in empirical estimation (including a problem not discussed in the literature up to now: the differential measurement error of the LHS variable by PT status), and how to address them. It concludes with policy implications relevant for Continental Europe and its dual structure of employment protection.     

Uncertainty-driven labor market fluctuations

This paper explores uncertainty shocks as a driving force in a search and matching model of the labor market. Uncertainty takes the form of a noisy component in a firm׳s initial signal about job productivity. Greater uncertainty dampens job creation by increasing the risk of making the costly mistake of investing in jobs that will turn out to be unprofitable. Thus, uncertainty shocks can cause labor market downturns: lower vacancy rates, lower job-finding rates, and higher unemployment. Numerical simulations examine the level of volatility and the cross-correlations and autocorrelations of key U.S. labor market indicators that result from fluctuations driven by changes in uncertainty.     

Credit market constraints and labor market decisions

In this paper, we examine whether imperfections in credit markets spill over to other markets, particularly the labor market. We take the case of Italy, a country that experienced changes in the mortgage market brought about by the 1992 European unification and other institutional shifts. These events make Italy a good laboratory to study the effects of financial markets on the labor market. Using household data from the Bank of Italy between 1989 and 1993, we estimate the relationship between female participation and mortgage use. We find a significant impact of mortgages on women's participation in the labor market.     

Women of color in the labor market

While the labor force participation rates of women have increased, and women work in a wider range of occupations than they did two decades ago, there remain gaps between the status of women and men, as well as between white women and women of color. Additionally, as the female labor force becomes more diverse, there are also differences among women of color in labor force participation, unemployment, and occupational status. Based on projections regarding the future structure of the labor force, it is likely that even as the status of some women of color improves, many will remain stuck in low-wage service and clerical jobs.     

Outsourcing, labor market pooling, and labor contracts

This paper considers the interaction between input sharing and labor market pooling in urban areas. In particular, it examines the impact of the size of a city and business risks on the organizational structures of firms located in urban agglomerations, and it also discusses the impact of organizational structure on incentives to insure workers against income risks. It is shown that manufacturing firms suffer from a coordination game in their decision to outsource production. The existence of idiosyncratic risks causes manufacturers to refrain from outsourcing. The incentives to offer wage and employment protection to workers are more pronounced when manufacturers outsource the production of their inputs to a local market, which mitigates the impact of labor market pooling.     

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.     

The financing of apprenticeship training in the light of labor market regulations

In this paper we analyze the training behavior of firms in Germany and Switzerland — two countries with a comparable apprenticeship system but strong differences in the regulation of their respective labor markets. We make use of two representative firm-level surveys on the provision of apprenticeship training to analyze differences in the costs and benefits of training and the firm's training decision. Our results suggest that firms are more likely to make a substantial (short-term) net investment in apprenticeship training in the presence of strong employment protection laws.     

Some labor market effects of labor supply responses to transfer programs

This paper utilizes a large-scale micro-simulation computer model to examine whether adverse effects on work effort initially resulting from implementation of a new income transfer plan might be partially offset through “second-round” responses by employers and by unemployed transfer recipients. The findings suggest that employer responses to shifts in labor supply curves that follow introduction of a transfer program have little potential for offsetting reductions in hours worked. Under certain circumstances, however, responses by the unemployed do offer a potential offset, particularly if in the absence of the program there would have been considerable excess supply of labor within the economy.     

Social networks and labor market transitions

We study the influence of social networks on labor market transitions. We develop the first model where social ties and job status coevolve through time. Our key assumption is that the probability of formation of a new tie is greater between two employed individuals than between an employed and an unemployed individual. We show that this assumption generally generates negative duration dependence of exit rates from unemployment. Our model has a number of novel testable implications. For instance, we show that a higher connectivity among unemployed individuals reduces duration dependence and that exit rates depend positively on the duration of the last job held by the unemployed worker.     

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.     

Informal care and labor market participation

Understanding the effect of informal care for an elderly or disabled person on labor market outcomes is important for developing policies targeted towards caregivers. However, because of omitted variables bias, simple cross-sectional relationships may provide a misleading picture of the causal impact of informal care provision on labor force status. To address this, I use panel data for the period 2001–2007, which make it possible to track the same individuals over time, and observe how their outcomes alter as their care arrangements change. While caregiving does appear to have a modest negative impact on labor force participation, this impact is only one-quarter to one-sixth as large in the panel as in the cross-section. Taking account of individual heterogeneity, the impact of caregiving on other labor force outcomes (and on life satisfaction) seems to be small or non-existent. Large estimated effects from cross-sectional regressions are most likely driven by individual heterogeneity. One possible interpretation of this result is that the impact of caregiving on labor market outcomes and life satisfaction takes several years to manifest itself. Another is that the causal effect of caregiving on labor force outcomes and life satisfaction is quite small.     

The entry to self-employment of redundant steelworkers

The British Steel Corporation's ‘slimline’ plan of 1980 halved the workforce at the Port Talbot plant in South Wales. This article reports the findings of a three stage sample survey from 1981 to 1982 of the work experiences of those who became self-employed following redundancy.     

Subsidizing low-skilled jobs in a dual labor market

We introduce a matching model that allows for classical and frictional unemployment. The labor market is dual featuring low-skilled and high-skilled workers and simple and complex jobs. Simple jobs pay a minimum wage, while wages in the complex jobs are determined by Nash bargaining. Opportunities for low-skilled workers are limited to simple jobs; while high-skilled unemployed can apply for both types of jobs, and thereby can accept to be downgraded. We analyze the outcomes of simple job subsidy policies assuming that government budget is balanced through taxes on occupied workers. We first give conditions for the existence and uniqueness of a steady-state equilibrium and we then analyze the effects of different fiscal instruments. We show that in this set-up, increasing simple job subsidies does not necessarily reduce low-skilled unemployment or unemployment spells. By introducing heterogeneous skills and possible downgrading of the high-skilled workers, we show that the effectiveness of such policies in reducing the classical unemployment is decreasing. In fact, any additional classical unemployed re-entering the job market is accompanied by an increasing number of high-skilled workers downgrading to low-skilled jobs. We calibrate the model on French labor market data. It is found that for five low-skilled workers leaving classical unemployment, two high-skilled workers are downgraded.