Lost Generations: Long-Term Effects of the COVID-19 Crisis on Job Losers and Labour Market Entrants,and Options for Policy*

This paper discusses the potential long-run effects of large-scale unemployment during the COVID-19 crisis in the labour market on vulnerable job losers and labour market entrants in the United States. The paper begins by contrasting measures of the scale of job loss during the crisis. These measures are paired with estimates from past recessions indicating that the costs of job loss and unemployment can reduce workers’ earnings and raise their mortality for several decades. Focusing only on a subset of vulnerable job losers, the potential lifetime earnings losses from job loss related to the COVID-19 pandemic are predicted to be up to $2 trillion. Related losses in employment could imply a lasting reduction in the overall employment–population ratio. For these workers, losses in potential life years could be up to 24 million. Even at the low range, the resulting estimates are substantially larger than losses in potential life years from deaths directly due to COVID-19. New labour market entrants are at risk to suffer long-term losses in earnings and mortality as well. Based partly on experiences in other countries, the paper discusses potential reforms to short-time compensation programmes and unemployment insurance, which could help limit the short- and long-term harm from layoffs going forward.     

Are labour markets in the new member states sufficiently flexible for EMU?

New Member States (NMS) coming from central planning are often advised against early Euro adoption because of their rigid labour markets. But are labour markets so rigid in these countries? We argue in this paper that this is not the case. Labour market institutions are no more “rigid” than among current EMU Members whilst wage bargaining institutions are actually better equipped for microeconomic wage flexibility than in the EU-15. NMS also achieved substantial reallocation of jobs and workers in the transition to markets, display relatively large job turnover rates and are reducing their regional mismatch. The view that NMS have rigid labour markets is fuelled by the low job content of growth in the region. But there is evidence that the latter is related to productivity enhancing job destruction in the aftermath of prolonged labour hoarding. Reduced-form employment equations estimated in this paper also suggest that tight fiscal policies, rather than being harmful to job creation, may actually improve the employment performance of the region. Our interpretation of this result is that loose fiscal policies weaken the confidence of investors and crowd-out private employment growth through generous pay rises to civil servants.     

Did the National Minimum Wage Affect UK Prices?*

One potential channel through which the effects of the minimum wage could be directed is that firms that employ minimum‐wage workers could have passed on any higher labour costs resulting from the minimum wage in the form of higher prices. This study looks at the effects of the minimum wage on the prices of UK goods and services by comparing prices of goods and services produced by industries in which UK minimum‐wage workers make up a substantial share of total costs with prices of goods and services that make less use of minimum‐wage labour. Using sectoral‐level price data matched to Labour Force Survey data on the share of minimum‐wage workers in each sector, it is hard to find much evidence of significant price changes in the months that correspond immediately to the uprating of the national minimum wage. However, over the longer term, prices in several minimum‐wage sectors – notably, take‐away food, canteen meals, hotel services and domestic services – do appear to have risen significantly faster than prices in non‐minimum‐wage sectors. These effects were particularly significant in the four years immediately after the introduction of the minimum wage.     

The Impact of Firing Costs on Turnover and Unemployment: Evidence from the Colombian Labour Market Reform

Reductions in firing costs are often advocated as a way of increasing the dynamism of labour markets in both developed and less developed countries. Evidence from Europe and the U.S. on the impact of firing costs has, however, been mixed. Moreover, legislative changes both in Europe and the U.S. have been limited. This paper, instead, examines the impact of the Colombian Labour Market Reform of 1990, which substantially reduced dismissal costs. I estimate the incidence of a reduction in firing costs on worker turnover by exploiting the temporal change in the Colombian labour legislation as well as the variability in coverage between formal and informal sector workers. Using a grouping estimator to control for common aggregate shocks and selection, I find that the exit hazard rates into and out of unemployment increased after the reform by over 1\% for formal workers (covered by the legislation) relative to informal workers (uncovered). The increase of the hazards implies a net decrease in unemployment of a third of a percentage point, which accounts for about one quarter of the fall in unemployment during the period of study.     

Choosing a System of Unemployment Income Support: Guidelines for Developing and Transition Countries

Mounting evidence suggests that excessive job protection reducesemployment and labor market flows, hinders technological innovations,pushes workers into the informal sector, and hurts vulnerablegroups by depriving them of job opportunities. Flexible labormarkets stimulate job creation, investment, and growth, butthey create job insecurity and displace some workers. How canthe costs of such insecurity and displacements be minimizedwhile ensuring that the labor market remains flexible? Eachof the main unemployment income support systems (unemploymentinsurance, unemployment assistance, unemployment insurance savingsaccounts, severance pay, and public works) has strengths andweaknesses. Country-specific conditions—chief among themlabor market and other institutions, the capacity to administereach type of system, and the size of the informal sector—determinewhich system is best suited to developing and transition countries.      

The rise of robots and the fall of cost stickiness: Evidence from Chinese manufacturers

Industrial robots are increasingly used to perform tasks traditionally assigned to humans. Using a sample of Chinese manufacturers, we examine the impact of robot adoption on firm cost stickiness. We find that robot adoption is associated with less sticky costs. The negative impact of robot adoption on cost stickiness is particularly meaningful for state-owned enterprises and firms with higher labour costs, and becomes significantly stronger after the enactment of China's Labour Contract Law, which significantly increases labour adjustment costs. These findings are consistent with the conjecture that the adoption of robots allows firms to reduce their overall labour adjustment costs.     

Employment Quota System and Labour Market Outcomes of Individuals with Disabilities: Empirical Evidence from South Korea

To date, only a few studies have attempted to evaluate the effectiveness of disability employment quota systems using structural changes in policies. This study exploits the structural changes in South Korea's disability employment quota system that took place in 2004 and 2006 to expand the current disability policy evaluation literature. We separate the effect of these changes in the quota system into their effect on the probability of labour force participation and their effect on the probability of employment (after controlling for selection into the labour market). We also study the extent to which the changes – which included increasing the number of employers covered by the quota system, the number of jobs available to individuals with disabilities and the financial incentives for employing individuals with disabilities – have affected job satisfaction among individuals with disabilities. Our results suggest that the changes in the quota system may have increased labour force participation but have had a limited positive impact on the probability of employment among people with disabilities in South Korea. Further, compulsory hiring and expanded opportunities have not substantially affected the level of job satisfaction observed among employees with disabilities relative to their non‐disabled counterparts.     

Welfare to Work,Wages and Wage Growth*

This paper attempts to uncover the effects of a UK welfare‐to‐work programme on individual wage growth by exploiting an expansion to this welfare programme. The conventional wisdom is that such programmes trap recipients into low‐wage, low‐quality work – this comes from the simple argument that the ‘poverty trap’, which a wage subsidy for low‐income workers induces, reduces the benefits to investments, such as on‐the‐job training, and so reduces wage growth. In fact, a wage subsidy will also reduce the costs of, at least, general training because we would normally expect workers to pay for their own general training in the form of lower gross wages. So a wage subsidy is a way of sharing these costs with the taxpayer. Thus, the net effect on wage progression depends on whether it reduces costs by more or less than it reduces the benefits.     

Household Level Economic Incentives, Unemployment Trap and Job Finding Probability

This paper considers the sensitivity of the household's disposable income with respect to the labour market states and the labour market transitions of unemployed workers. The paper analyses the following questions: (i) which are the determinants of starting wages? (ii) how many unemployed are in the unemployment trap? (iii) how do household level economic incentives affect the conditional probability of finding a job? The empirical analysis is based on individual panel data covering the years 1987–1993 in Finland, when the unemployment rate rose from about 4% to 18%. We have estimated the starting wage equation to calculate the effects of hypothetical re-employment on the household's disposable income and to evaluate the frequency of the unemployment trap. To analyse factors affecting the transition out of unemployment to employment in open labour market, we estimate unemployment duration using a semi-parametric proportional risk model. The paper shows that the impact of the economic incentives, measured by the hypothetical change in household disposable income, on employment is more important in the recession than in the boom.     

ACCOUNTING FOR INSECURITY

This paper argues that modern systems of budgetary control are implicated in the exploitation and production of insecure forms of employment. The flexibility of direct labour is assumed at a very basic level in some of the core techniques of costing and budgetary control. Previous historical studies of the development of these forms of control, moreover, have shown that they were used to shift the costs of economic fluctuation from capital to labour as well as to encourage the efficient utilisation of human effort. In the light of these observations, it is to be expected that the use of budgetary targets which incorporate direct labour costs will: (1) be more prevalent where the workers are least able to resist the various forms of “flexibility”; and (2) encourage recourse to redundancies where the performance of business units within a company falls below expectation. The paper then tests these hypotheses against data from a recent survey of industrial relations practice in large UK companies. The results show, firstly, that there is a strong and positive association between the proportions of females and part-timers within the workforce and the use of unit labour costs and the direct labour cost/sales ratio as performance targets. Secondly, the use of return-on-investment (R.O.I.) targets is associated with the declaration of redundancies in business units which have failed to perform satisfactorily. For those to whom insecurity of employment constitutes a social problem rather than a managerial convenience to be celebrated as “flexibility”, these findings indicate that the accounting control systems typical of the modern company constitute part of the problem. The achievement of the long-standing trade union aim of security of income and employment will depend, in part, on changing these systems of control.     

The Challenges for Labour Market Policy during the COVID-19 Pandemic*

The COVID-19 pandemic is having a dramatic economic impact in most countries. In the UK, it has led to sharp falls in labour demand in many sectors of the economy and to initial acute labour shortages in other sectors. Much more than in a typical downturn, the current crisis is not simply a general slowdown in economic activity but also a radical short-term shift in the mix of economic activities – of which an unknown, but possibly significant, amount will be persistent. The initial policy response has focused on cushioning the blow to families’ finances and allowing the majority of workers and firms to resume their original activities once the crisis subsides. These are crucial priorities. But there should also be a focus on reallocating some workers, either temporarily if working in shut-down sectors or permanently by facilitating transitions to sectors and jobs offering better prospects and facing labour shortages. The phasing-out of the furlough subsidies, which is projected to happen in Autumn 2020, brings this into even sharper focus since the alternative for many workers will be unemployment. Active labour market policy will need to be front and centre.     

Labour taxation,job creation and job destruction—Focusing on the role of wage setting

We study the effects of labour taxation in a search equilibrium model with endogenous job destruction, embedding three alternative models of wage setting: Nash bargain, monopoly union and efficiency wages. Tax policy implications vary considerably depending on the wage setting model and indexation of unemployment benefits. If wage setting is based on bargaining, a pure increase in the tax progression reduces unemployment, improves the relative position of low-income workers and facilitates the emergence of low-productivity jobs. However, this comes at the cost of reduced efficiency partly owing to lower average productivity. JEL Code J30, J51, J64, H24     

The Impact of a Minimum‐Wage Increase on Temporary‐Contract Workers

We study the impact of the 2016 increase in the Irish minimum wage on the hours worked and the probability of job loss of minimum‐wage workers. We pay particular attention to temporary‐contract workers, who may be more susceptible to changes to their working conditions than permanent employees. The results indicate that the increase in the minimum wage had a negative and statistically significant effect on the hours worked of minimum‐wage workers, with an average reduction of approximately 0.6 hours per week. For temporary workers, the effect was greater, with a decline of approximately 3 hours per week. We find no evidence that the increase in the minimum wage led to an increased probability of becoming jobless in the six‐month period following the rate change, nor did it affect employment shares in sectors employing large numbers of minimum‐wage workers.     

Managing demographic risk

In developed nations, the workforce is aging rapidly. That trend has serious implications. Companies could face severe labor shortages in a few years as workers retire, taking critical knowledge with them. Businesses may also see productivity decline among older employees, especially in physically demanding jobs. The authors, partners at Boston Consulting Group, offer managers a systematic way to assess these dual threats--capacity risk and productivity risk--at their companies. It involves studying the age distribution of their employees to see if large percentages fall within high age brackets and then projecting--by location, unit, and job category--how the distribution will change over the next 15 years. Managers must also factor in both the impact of strategic moves on personnel needs and the future supply of workers in the market. When RWE Power analyzed its trends, the company learned that in 2018 almost 80% of its workers would be over 50. What's more, in certain critical areas its labor surplus was about to become a sizable shortfall. For instance, a shortage of specialized engineers would develop in the company just as their ranks in the job market thinned and competition to hire them intensified. Reversing its downsizing course, RWE Power took steps to increase its supply of workers in those key positions. The authors show how companies that face talent gaps, as RWE Power did, can close them through training, transfers, recruitment, retention, productivity improvements, and outsourcing. They also describe measures that companies can take to keep older workers productive, including workplace accommodations, revised compensation structures, performance incentives, and targeted health care management. The key is to identify and address potential problems early. Firms that do so will gain an edge on rivals that are still relentlessly focused on reducing head count.     

剖析制度性农民工工资福利待遇的正负效应

农民工是我国经济社会转型时期的特殊范畴。农民工与城镇职工相比,既不能同工同酬,又不能享受同等福利待遇。农民工所具有的廉价劳动力特性,在有效推进我国工业化和城镇化的同时,其负面效应正愈来愈尖锐地暴露出来,值得我们进一步反思。     

The European economy at the cross roads: Structural reforms, fiscal constraints, and the Lisbon Agenda

This paper studies the incentives to sustain and extend a monetary union under alternative assumptions about the extent of market reform within the union and accession countries. Lack of labour mobility, or wage/price flexibility, or fiscal reform, brings costs for both new entrants and in the existing union. Countries will therefore want a union where there has been sufficient reform, and also one where markets are more flexible than their own. But existing members will want the same properties of their partners. Fiscal restrictions may exaggerate this incentive mismatch and could therefore delay the necessary reforms. Similarly, too large costs up front may also delay those reforms.     

Perceived risk and value of workplace safety in a developing country

We examine the relationship between wages and perceived occupational health risks for petrochemical workers in Taiwan. We estimate hedonic wage functions to compare workers' wages to their perceived risks of fatal and disabling accidents. The results indicate that workers in risky jobs receive a compensating wage differential, after controlling for education, job tenure, and occupational classification. The values of mitigating health risks are estimated using models that control for both fatal and nonfatal accident risks, and so do not suffer the omitted-variable bias characteristic of most earlier studies. The estimated values of statistical life and disabling injury are US$624 000 and US$44 000 in 1995 dollars. We also find a positive relationship between quitting intentions and perceived job risk, which supports the hypothesis that workers' risk perceptions evolve with on-the-job experience.     

Education, redistribution and the threat of brain drain

We analyze how the threat of brain drain affects redistributive government policies and net incomes of skilled and unskilled workers. Our analysis is based on a model that captures human capital formation, credit market constraints and tax avoidance activities. We characterize how decreasing migration costs for skilled workers shape the time-consistent policies of a government that wants to shift resources from skilled to unskilled workers. Starting from a closed economy, declining migration costs first increase net incomes of both skilled and unskilled workers, and then decrease net incomes of all households. There is a conflict of interest only for very low migration costs. In this case, skilled workers start to benefit from a further rise in their mobility, but now at the expense of the unskilled labor force.      

Empirical analysis of the relationship between labour cost stickiness and labour reforms in Spain

This study performs an empirical analysis on the relationship between labour cost stickiness and the decrease in employment protection in the Spanish labour reforms in 2010 and 2012. Following these reforms, the sticky behaviour of labour costs substantially decreased with respect to the pre-reform period. All constituents of total labour costs followed a similar pattern: wages, social security contributions and number of employees. Results are robust to different models, estimation methods, periods of time, and industries, as well as with respect to endogeneity concerns.