Active labour market programmes and reservation wages: it is a hazard

This article uses a randomized controlled trial to show that positive earnings effects of a labour market programme can be caused by either a faster return to employment together with a lowering of reservation wages or a more moderate return to employment together with an increase in reservation wages. I model wages and unemployment duration simultaneously in a hazard framework allowing for unobserved heterogeneity.     

Increasing urban wage inequality in China

Two strictly comparable cross‐section household datasets, relating to 1988 and 1995, are used to analyse the increase in wage inequality from an initially low level in urban China over this period of labour market reform. The institutional background and the evolution of policy are described. The rapid growth of wage inequality and the sharp widening of wage structure are quantified. Earnings functions are compared, and the increase in both the level and the inequality of wages are decomposed into their constituent elements. Quantile regression analysis is conducted to throw light on the relationships between the observed and the unobserved determinants of wages. Distinctions are made between the variables likely to represent human capital, discrimination, and segmentation. The evidence suggests that productive characteristics were increasingly rewarded as marketization occurred, but that discrimination and segmentation also grew. The move towards a fully‐fledged labour market was by no means complete.     

Weight discrimination in the German labour market

We explore the effects of higher body mass index (BMI) or obesity on different labour market outcomes. We extend the present literature by investigating the effect of obesity on (i) promotion likelihood and (ii) unemployment duration, in addition to the effect on (iii) wages and (iv) probability of being employed. We find an obesity penalty on wages, employment likelihood, promotion likelihood and unemployment duration among females in Germany taking into account of endogeneity of BMI and sample selection. We are also able to identify an unexplained effect of obesity on wages, employment and promotion likelihood for females using decomposition techniques that can be attributed to weight discrimination.     

Search, Nash bargaining and rule-of-thumb consumers

This paper analyses the effects of introducing two typical Keynesian features, namely rule-of-thumb (RoT) consumers and consumption habits, into a standard labour market search model. RoT consumers use the margin that hours and wage negotiation provides them to improve their lifetime utility, by narrowing the gap in utility with respect to Ricardian consumers. This margin for intertemporal optimisation has not been studied yet, because this class of restricted agents has been mainly used in models with no equilibrium unemployment. Our approach allows for a deeper study of the effects of shocks on vacancies, unemployment, hours, wages and how they interact. As habits increase, RoT consumers find it optimal, after a positive technology shock, to negotiate lower hours and higher wages, and this mechanism reduces the simulated correlation between the real wage (or productivity) and total hours to values closer to those obtained empirically. Thus, with the interaction of RoT consumers and consumption habits, the labour market search model improves significantly in reproducing some of the stylised facts characterising the US labour market.     

Financial Markets and Wages

We study a labour market equilibrium model in which firms sign optimal long-term contracts with workers. Firms that are financially constrained offer an increasing wage profile: they pay lower wages today in exchange for higher future wages once they become unconstrained. Because constrained firms grow faster, the model predicts a positive correlation between the growth of wages and the growth of the firm. Under some conditions, the model also generates a positive relation between firm size and wages. Using matched employer–employee data from Finland and the National Longitudinal Survey of Youth for the U.S., we show that the key dynamic properties of the model are supported by the data.     

THE HOUSING STOCK,HOUSING PRICES,AND USER COSTS: THE ROLES OF LOCATION,STRUCTURE, AND UNOBSERVED QUALITY

Which housing characteristics are important for understanding homeownership rates? How are housing characteristics priced in rental and owner-occupied markets? What can answers to these questions tell us about economic theories of homeownership? Using the English Housing Survey, we estimate a selection model of property allocations to the owner-occupied and rental sectors. Structural characteristics and unobserved quality are important for selection. Location is not. Accounting for selection is important for rent-to-price ratio estimates and explains some puzzling correlations between rent-to-price ratios and homeownership rates. These patterns are consistent with, among others, hypotheses of rental market contracting frictions related to housing maintenance.     

The productivity-wage and productivity-employment nexus: a panel data analysis of Indian manufacturing

This article investigates the long-run relationship between labour productivity and employment, and between labour productivity and real wages in the case of the Indian manufacturing sector. The panel data set consists of 17 two-digit manufacturing industries for the period 1973–1974 to 1999–2001. We find that productivity-wages and productivity-employment are panel cointegrated for all industries. We find that both employment and real wages exert a positive effect on labour productivity. We argue that flexible labour market has a significant influence on manufacturing productivity, employment and real wages in the case of Indian manufacturing.     

The Beveridge curve and labour market dynamics in Turkey

This article investigates the dynamics of unemployment and vacancy rates in Turkey during the period 1951 to 2008 by means of a Beveridge Curve (BC). The time-series analysis of unemployment and vacancies as well as two other relevant labour market variables, real wages and real labour productivity, strongly suggests inefficiency in the Turkish labour market. A stable long-run relationship between unemployment rate and vacancy rate is found for Turkey, that is, the existence of a negatively sloped BC is verified. The estimated Turkish BC reflects the structural problems and lack of flexibility in the labour market. The modified BC with real wages and labour productivity reveals that labour productivity has no significant effect on unemployment rate whereas wages have positive and significant effects on the same variable.     

The minimum wage and the Lithuanian labour market

This paper presents a comprehensive and non‐standard labour market analysis based on univariate and multivariate models for wages. The novelty of this paper lies in the use of non‐normalized cointegrating vectors for labour market analysis. Wages are the basis of labour market models, as well as the key factor for employees and employers; therefore, the central analytical axis is a classical wage bargaining process, where one side requires and the other side proposes a certain level of wages. Analysis is divided into two parts: foremost, a careful analysis of Lithuanian wages is conducted and a univariate model for the investigation of interactions between the minimum wage and the rest of the wages is proposed; only after the minimum wage model is drafted can the multivarate model for the whole economy be built up. Briefly, the methodology used in this article can be annotated as a synthesis of sequential theoretical and empirical considerations that combine the results of theoretical macroeconomics with data‐generating patterns and stylized facts. The model is considered as the final one only if macro‐theory preconditions, statistical prerequisites, and stylized real‐world requirements are met and fulfilled. In addition, this article gives an example and a quantitatively, as well as qualitatively, motivated suggestion as to how to incorporate minimum wages into econometric models and puts forward an explanation for why it is necessary to include minimum wage dynamics into labour market analysis. The article is nothing but an empirical case study that demonstrates how many minor details have to be taken into account until a realistic labour market model is built up. Although the paper deals with the labour market, the suitable application of time series methods is the main subject of the analysis.     

Value added,wages and labour market flows at the establishment level

In this article, we analyse the connection between value added, wages and labour market flows at the establishment level. We develop a simple model to illustrate the expected comovement of these variables. For the empirical analysis, we link the new German Administrative Wage and Labor Market Flow Panel data set to the IAB Establishment Panel. We show that establishments’ hires rates have a positive and separations rates a negative comovement with establishment-specific value added, whereby hires react by more than separations. In addition, we provide evidence that establishments’ partial equilibrium reaction is an important driver for aggregate labour market dynamics.     

Marriage and employment participation with wage bargaining in search equilibrium

We build an equilibrium search model where married couples make joint decisions on home production and labour market participation and analyse the implications of our results for a frictional marriage market. A worker's bargaining position reflects their productivity, and the productivity and employment status of their spouse. People sometimes accept transitory jobs only to raise the spouse's long-term wages. Firms sometimes reduce turnover by unilaterally increasing a worker's wage, ensuring that the spouse stays at home.     

Sibling gender and wage differences

Family influences on economic performance are investigated. In particular, sibship sex composition is related to hourly wages using data from the National Longitudinal Survey of Youth 1979. The wages of men are increasing in the proportion of siblings who are brothers, but the wages of women are insensitive to sibling gender. Nonwage outcomes are generally unaffected. Contrasts by age structure and demographic group are also presented. The analysis addresses econometric challenges like the endogeneity of fertility and selection into the workforce. In addition, mechanisms such as labour market interactions, human capital investment and role model effects are documented. A questionnaire on job search indicates a same-gender bias in the use of brothers and sisters in obtaining employment. Developmental and psychological assessments suggest that brothers may be associated with worse childhood home environments and more traditional family attitudes among women. The findings are policy relevant and contribute to an understanding of gender differences and earnings inequality.     

Task-Based Segmentation of Rural Labour Contracts: Theory and Evidence

The paper examines the theoretical and empirical validity of task-based segmentation of rural labour contracts in seasonal agriculture. Regular labour is hired to perform tasks that are difficult to supervise for which casual labour is not incentive-compatible, and a regular wage above the reservation wage ensures no shirking in these tasks. It is argued that there is a hoarding cost of regular labour which is the cost when productivity is low during the slack season. This implies that minimization of supervision costs necessitates the employment of regular labour in certain tasks, but enhances hoarding cost. Results from the ICRISAT villages in India suggests that daily regular wages are lower than daily casual wages, adjusted by the probability of unemployment. Estimates of a tobit selection model suggest that (a) task characteristics are not significant even among the farms hiring regular labour, (b) larger employment-intensive farms tend to hire more regular labour irrespective of the choice of crop, and (c) there is a significant substitutability between regular and family labour. These results seem to question the very basis of task-based segmentation and strengthen the hoarding cost argument: farms hiring regular labour use it indiscriminately in both non-monitorable and monitorable tasks and, if possible, they may substitute family labour for regular labour with a view to minimizing hoarding cost.     

A trivariate model of participation,fertility and wages: the Italian case

Italy has unusually low fertility by OECD standards, accompaniedby unusually low female participation in paid work. This paperaddresses the issue of the empirical relationship between fertility,female participation in the labour market and wages with theseItalian 'peculiarities' as a backcloth. A trivariate model ofparticipation, fertility and wages has been constructed andestimated using three pooled cross-sections of Italian microdata, allowing for the identification of cohort effects. Thismodel follows a 'purist' approach: the participation and fertilitydecisions, as well as the wage equation, are modelled as completelyjoint. The cohort effects turn out to be significant: the pointestimates do not appear to confirm actual trends, which arenegative for fertility and positive for participation. The femalewage is the most important variable influencing the propensityto have children and the propensity to participate in the labourmarket, casting doubt on suggestions that observed trends arethe products of shifts in women's 'tastes'.     

The market for labour in Israel

Using annual observations for 1960–89, a complete economic model of the Israel labour market is estimated in which the demand for labour varies inversely with real wages, participation varies directly with the real wages and real wages are explained by a phillips curve in which the natural rate of unemployment is a variable. The model suggests that while wages are far from flexible, unemployment shocks die away fairly rapidly. we were unable to model the behaviour of public sector pay and employment.     

Language training,language proficiency and earnings of immigrants in Norway

This paper uses a simple probit model to determine the impact of language training on the language proficiency of Third World immigrant men in Norway. It also estimates the labour market returns to Norwegian language proficiency. The results show that immigrants who participate in language training programme are more likely to acquire speaking and reading proficiencies in Norwegian language than those who do not. Contrary to expectation, language proficiency has no significant effect on immigrants' earnings. A probable explanation may be that immigrants need Norwegian language proficiency to get into jobs in the Norwegian labour market. Once they are in employment, their wages are not necessarily determined by their proficiency in Norwegian. Consistent with the assimilation hypothesis, earlier waves of immigrants have higher earnings than do more recent waves, and part of the initial earnings deficit experienced by more recent immigrants can be attributed to language deficiency. There was no evidence of sample selection bias in the earnings equation.     

A discriminant analysis of factors affecting the employment of urban youth

While the issue of youth unemployment has received a great deal of attention by policy makers, there has been little empirical research on factors which affect the demand for young workers at the micro level of actual labour market settings. This paper offers some evidence on entry level wages, unskilled job characteristics, and recruitment practices as factors affecting the employment of urban youth. A bivariate discriminant analysis is applied to survey data on employers located in five, centralized urban labour markets and shown that firm size, turnover, number of unskilled job slots, school referrals and employee–friend referrals are significant, differentiating factors between firms who have young workers on their payroll and firms who do not employ youth. These differentiating factors are related to the structure of youth labour markets.     

The Labor Contract Law,Macro Conditions,Self‐Selection,and Labor Market Outcomes for Migrants in China

China introduced a new Labor Contract Law (LCL, 2008) to protect employees’ working conditions and welfare. Early evaluations of labour market outcomes suggest positive effects for workers. In the same period, however, China faced labor market tightening, which facilitated the LCL's introduction and enforcement. Existing evaluations of the LCL treat the introduction of the LCL as being exogenous. We show that labor market tightening and individuals’ self‐selection into jobs whichcomply with the Law have affected migrant labor market outcomes. Taking these factors separately into account suggests that, the LCL has had varying effects on labor market outcomes: a negative effect on wages and hours; an unclear effect on having a written contract, and a positive effect on social insurance participation. Data inadequacies prevent us from considering these factors simultaneously.     

Evaluating innovation and labour market relationships: the case of Italy

In this paper the link between labour market flexibility andinnovation is analysed paying particular attention to the differenttechnological regimes of economic activities and the differentgeographical areas of the Italian economy. A dynamic panel dataspecification is used to assess the endogenous relationshipbetween patents, included as a proxy for innovation, and jobturnover and wages, which represent labour market indicators.Our results show that higher job turnover only has a significantand negative impact on patent activities in regional sectorsof Northern Italy, while blue and white collar wages have beengenerally found to have a positive and significant impact oninnovation.     

Technological Progress, Downsizing and Unemployment

This paper presents a model where the form of innovations is endogenous. It is shown that with labour market imperfections, which raise the wage above the shadow price of labour, firms over-invest in innovations cutting labour costs and under-invest in increasing quality. As a result, the market outcome features lower long run growth, higher unemployment and lower welfare than the social optimum. It is further shown that a firm's incentives to cut labour costs are increased as wages rise and as the firm declines. Finally, a rise in competition increases incentives to downsize for firms with below average quality performance.