Designing employment subsidies

The paper examines the relative effectiveness of two policy proposals in reducing unemployment and working poverty: hiring subsidies and wage subsidies. The hiring subsidies are targeted exclusively at the unemployed and are provided only for a limited period of time. The wage subsidies, on the other hand, are granted to all low-wage earners regardless of their employment history and are of limitless duration. Our analysis indicates that the relative effectiveness of the two policies depends on workers' prospective wage growth. The more upwardly mobile workers are (i.e. the more their wages rise with employment duration), the more effective will unemployment vouchers be relative to low-wage subsidies. Conversely, the greater the danger that workers come to be trapped in dead-end jobs with flat wage profiles, the more effective will low-wage subsidies be relative to unemployment vouchers.     

The impact of minimum wages on wages,work and poverty in Nicaragua

In this paper we use an individual- and household-level panel data set to study the impact of changes in legal minimum wages on a host of labor market outcomes including: a) wages and employment, b) transitions of workers across jobs (in the covered and uncovered sectors) and employment status (unemployment and out of the labor force), and c) transitions into and out of poverty. We find that changes in the legal minimum wage affect only those workers whose initial wage (before the change in minimum wages) is close to the minimum. For example, increases in the legal minimum wage lead to significant increases in the wages and decreases in employment of private covered sector workers who have wages within 20% of the minimum wage before the change, but have no significant impact on wages in other parts of the distribution. The estimates from the employment transition equations suggest that the decrease in covered private sector employment is due to a combination of layoffs and reductions in hiring. Most workers who lose their jobs in the covered private sector as a result of higher legal minimum wages leave the labor force or go into unpaid family work; a smaller proportion find work in the public sector. We find no evidence that these workers become unemployed.Our analysis of the relationship between the minimum wage and household income finds: a) increases in legal minimum wages increase the probability that a poor worker's family will move out of poverty, and b) increases in legal minimum wages are more likely to reduce the incidence of poverty and improve the transition from poor to non-poor if they impact the head of the household rather than the non-head; this is because the head of the household is less likely than a non-head to lose his/her covered sector employment due to a minimum wage increase and because those heads that do lose covered sector employment are more likely to go to another paying job than are non-heads (who are more likely to go into unpaid family work or leave the labor force).     

The efficiency of training and hiring with intrafirm bargaining

This paper demonstrates that firms hire and train workers efficiently in a matching and intrafirm bargaining economy when the Hosios condition holds and returns to scale are constant. This conclusion stands in contrast to the prevailing view that training costs are a source of inefficiency in imperfect labor markets. The efficiency of the competitive economy relies on the ability of large firms to take into account the negative impact of the training rate on the wages negotiated inside the firm through intrafirm bargaining: untrained workers accept a wage reduction in compensation for potential training that is accessible only following employment. This intrafirm bargaining process solves efficiency problems associated with training costs that would otherwise lead to inefficient hiring and training decisions. This conclusion holds true for both specific and general human capital.     

Ranking of job applicants,on-the-job search,and persistent unemployment

We formulate an efficiency wage model with on-the-job search where wages depend on turnover and employers may use information on whether the searching worker is employed or unemployed as a hiring criterion. We show theoretically that such ranking of job applicants by employment status raises both the level and the persistence of unemployment and numerically that the effects may be substantial. More prevalent ranking in Europe compared to the US (because of more rigid wage structures, etc.) could potentially help to explain the high and persistent unemployment in Europe.     

Part‐Time Work,Fixed‐Term Contracts,and the Returns to Experience

Using data from Spanish Social Security records, we investigate the returns to experience for female workers in different flexible work arrangements. Our model consists of four random‐effects equations simultaneously estimated using Markov Chain Monte Carlo techniques. We find a large negative wage effect of working part‐time (PT), which differs by motherhood status and contract type. We also find that working PT involves lower returns to experience than standard full‐time employment and thus a substantial negative wage effect accumulates over time for those employed PT. Finally, our simulations reveal that working PT also raises the probability of working under a fixed‐term contract.     

Minimum wages,wages and employment in various sectors in Honduras

This paper contributes to our understanding of the impact of minimum wages on labor markets of developing countries, where there are often multiple minimum wages and compliance is weak. We examine how changes in more than 22 minimum wages over 1990–2004 affect employment, unemployment and average wages of workers in different sectors, defined by coverage under the legislation. The evidence suggests that minimum wages are effectively enforced only in medium and large-scale firms, where a 1% increase in the minimum wage leads to an increase of 0.29% in the average wage and a relatively large reduction in employment of ? 0.46%. We find that public sector wages emulate minimum wage trends but the higher cost of labor does not reduce employment there. There are no discernable effects of minimum wages on the wages of workers in small-firms or the self-employed; yet, higher minimum wages may create more unemployment. We conclude that (even under our upper bound estimate of the effect on the wages of workers) the total earnings of workers in the large-firm covered sector fall with higher minimum wages in Honduras, which warrants a policy dialogue on the structure and level of minimum wages.     

Wage Growth Implications of Fixed-Term Employment: An Analysis by Contract Duration and Job Mobility

Focusing on Spain, where fixed-term workers account for a third of the wage and salary workforce, we examine the wage growth implications of fixed-term employment of varying duration while distinguishing between wage growth occurring on-the-job versus via job mobility. Wage growth among employees with indefinite work contracts largely occurs via job mobility, whereas fixed-term workers gain via job mobility as well as on-the-job. Consequently, job stayers with fixed-term contracts a year ago narrow their wage gap with respect to similar counterparts with indefinite-term contracts. Yet, this effect is solely driven by the 10.5 percentage points higher wage growth experienced by fixed-term workers with 6-months contracts able to keep their jobs beyond their initial contract period. Given the limited number of short-term temporary workers in those circumstances, the overall wage gap between past fixed-term and indefinite-term workers is unlikely to vanish in the near future.     

Employers' hiring practices,employment protection,and costly search: A vacancy-level analysis

An employer with a vacancy may respond to high search costs by lowering hiring requirements. While such an adjustment increases the employer's chances of filling the vacancy, it also more likely results in a match that terminates when the match is hit by match-specific productivity shocks. Drawing on a novel Slovenian vacancy dataset, we find that employers who are searching to fill temporary positions are more likely to hire underqualified workers when search costs are high. We find that search costs are taken into consideration when employers are searching to fill permanent positions in some specifications but not all. These findings suggest that for employers who are searching to fill a permanent position, the benefits of lowering hiring requirements when search costs are high are likely outweighed by: a) high firing costs if an under-qualified worker is hired on a permanent contract or b) the costs of undertaking a new search later if an under-qualified worker is hired on a temporary contract. These are novel findings about the employers' hiring practices in the presence of employment protection laws and costly search.     

Does the market provide sufficient employment protection?

We ask whether there is an efficiency rationale for public intervention in the form of an employment protection policy. Unlike most of the literature supporting current employment protection legislation we allow employers and workers to include severance payments in their private contracts. We focus attention on a model where firms learn over time about the value of the match. If future wage bargaining cannot be prevented, and even though severance payments may be part of the equilibrium contract, separations are too frequent (private employment protection is insufficient). Mandatory severance payments are not a remedy for this inefficiency. Instead, a Pigouvian tax/subsidy scheme will correct the inefficiency by enhancing employment protection.     

Equal-treatment policy in a random search model with taste discrimination

We consider a search model of the labor market with two types of equally productive workers and two types of firms, discriminators and non-discriminators. Without policy intervention, there is wage dispersion between and within the two worker groups, but all wage differences become negligible when the taste for discrimination is small. We analyze the effect of an equal-pay policy, both in combination with affirmative action and without. When equal opportunity of hiring cannot be enforced, wage dispersion increases and wages for minority workers fall substantially relative to laissez faire. Sometimes also the wage gap between worker groups widens in response to the policy.     

The impact of Greek labour market regulation on temporary employment – evidence from a survey in Thessaly,Greece

This paper uses an original data-set for 186 workplaces in Thessaly (central Greece), to study consequences of Greece's strict employment protection law (EPL) and national minimum wage for temporary employment. We find higher temporary work contract rates among workplaces that pay low wages close to the minimum. We also find that EPL ‘matters’, in particular, managers who prefer temporary contracts because temporary workers are less protected definitely employ more. Our findings thus support the view that a firm's HRM decisions regarding internal versus external allocation of tasks are influenced by labour regulation.     

Wage drift and minimum contractual wage: Theoretical interrelationship and empirical evidence for Italy

A two-stage wage setting process whose outcomes are identified in the wage drift, at the local level, and in the tariff wage, at the central level, is analyzed. The impact of insider and outsider factors in each stage of the bargaining process is investigated both theoretically and empirically for Italy. In the light of its extreme policy relevance, particular attention is devoted to the analysis of the interrelationships between the wage drift and the tariff wage. Panel data estimation carried out on a sample of 105 Italian three-digit industries and 41 contract groups, reveals that: (1) Insider factors (productivity, inventories and the insider workers power) are important determinants of the wage drift while outsider factors (aggregate wage and unemployment) have a prominent role in determining the tariff wage. (2) Wage drift and tariff wage are closely interrelated.     

The distribution of changes in manufacturing employment and the impact of the minimum wage

That employment for workers in durable goods industries is more sensitive to the pace of economic activity than for non-durable goods employees is not a surprising result. What is noteworthy about the conclusions of this study, however, is the manner in which increases in the minimum wage have altered the distribution of employment and sensitivity to short-run changes in employment of production workers in manufacturing industries. By focusing on the distribution of employment and how that distribution changes over the cycle, estimates of some aspects of the impact of the minimum wage that have not previously been analyzed have been developed.The evidence indicates that increases in the minimum wage over the period 1947–1975 have had a significant impact on employment patterns. Minimum wage legislation has had the effect of decreasing the share of projected employment and increasing vulnerability to cyclical changes in employment for the group of workers most ‘marginal’ to the work force low-wage industry employees. Hence, as a result of increased minimum wages, low-wage industry employees are able to obtain fewer jobs during periods of normal employment growth and their jobs are less secure in the face of short-run employment variations.Minimum wage legislation has undoubtedly resulted in higher wages for some of the relatively-low-productivity workers who were able to obtain employment than these workers would have received in its absence. The cost in terms of lost employment opportunities and cyclical vulnerability of jobs, however, has apparently been borne most heavily by low-wage industry employees. The primary beneficiaries of the shifts in the pattern of employment shares occasioned by minimum wage increases were high-wage industry workers, particularly in the ordnance, food, tobacco, and petroleum industries.     

Employers' Flexibility and Employment Volatility

A bstract .   Previous analyses of the strong secular growth in personnel supply employment have focused primarily on the relative impacts of demand and supply factors. This industry's dramatic growth has tended to mask its high degree of volatility, which may be more useful in understanding employers' motivations for hiring temporary employees. This article examines alternative explanations for the volatility of employment in the temporary supply industry from 1972 to 2000. Using a seemingly unrelated time-series estimator, we compare the volatility of temporary employment to that of regular full-time employment. We find that quarterly changes in temporary employment are more sensitive to the business cycle than regular full-time employment are and argue that temporary employment is likely to have a number of disadvantages as a reemployment strategy during a recession, since temporary employment typically declines during that time. Additionally, employment growth during this period is better explained by employers' efforts to achieve numerical rather than wage flexibility.     

Examining policy configurations as conditions for long-term unemployment and non-standard employment in OECD countries using fuzzy-set analysis

This paper investigates how particular configurations of institutional conditions cause high rate of long-term unemployment and non-standard employment rate for 18 OECD countries during the period of 2001–2008. The paper aims to investigate how employment protection legislation (EPL), unemployment benefit and statutory minimum wages are associated with long-term unemployment and non-standard employment. Using the fuzzy-set analysis, the paper examines how the combination of policies matters in causing long-term unemployment and/or non-standard employment. The result suggests that a low level of statutory minimum wage can lead to high levels of non-standard employment in combination with either strict EPL for permanent workers or weak EPLs for temporary workers. The long-term unemployment rate is suggested to be high when there is strict EPL for temporary workers in combination with high levels of statutory minimum wage. This paper highlights the importance of examining multiple policies as configuration.     

Pensions, non-discrimination policies, and the employment of older workers

This paper analyzes firms' decisions to hire older workers. We model, the role of pensions in back-loading pay for specifically trained workers. We then evaluate the effects, of imposing age discrimination rules and non-discriminatory fringe benefit rules, and analyze the consequences for the firm's decision to hire older versus younger individuals. The model predicts that defined benefit pension plans deter the hiring of older workers, but only if hired for entry level position. The reason is f hat the wages of this group cannot be lowered enough to pay for the benefits. Data from a new survey of employers are used to test this hypothesis. The findings show that a more generous defined benefit pension plan reduces employment prospects for older, entry level workers. Employers offering defined benefit pension, plans employ older workers, but tend not to hire them into entry level jobs.     

The effects of multiple minimum wages throughout the labor market: The case of Costa Rica

This paper investigates the effects of legal minimum wages on employment and hours worked among workers covered by minimum wage legislation as well as those for whom it does not apply (the uncovered sector) in Costa Rica. This country's large uncovered sector and complex minimum wage policy, which has for decades set numerous wages throughout the wage distribution, provide a stimulating counterpoint to the U.S. framework for the analysis of the impact of minimum wages. Using 1988–2000 micro data, we find that a 10% increase in minimum wages lowers employment in the covered sector by 1.09% and decreases the average number of hours worked of those who remain in the covered sector by about 0.6%. We do not find a significant impact on hours worked in the uncovered sector. Finally, we show that despite the wide range of minimum wages, the largest impact on the employment of covered sector workers is in the lower half of the skill distribution.     

Labour market recruiting with intermediaries

We consider a Rothschild–Stiglitz–Spence labour market model and employ a centralised mechanism to coordinate the efficient matching of workers to firms. This mechanism can be thought of as operated by a recruitment agency, an employment office or head hunter. In a centralised descending-bid, multi-item procurement auction, workers submit wage-bids for each job and are assigned stable jobs as equilibrium outcome. We compare this outcome to independent, sequential hiring by firms and conclude that, in general, a stable assignment can only be implemented if firms coordinate to some extent.      

Wage-setting institutions as industrial policy

Centralized wage-setting arrangements compress wage differentials along many dimensions, but how do they affect employment structure? To address this issue, we relate the evolution of US–Swedish differences in the industry distribution of employment to relative wages between and within industries. We find that centralized wage setting shifted Swedish employment away from industries with high wage dispersion among workers, a high mean wage and, especially, a low mean wage. The dissolution of Sweden's centralized wage-setting beginning in 1983 led to widening wage differentials and a reversal in the evolution of US–Swedish differences in industry structure.     

Spatial changes in labour market inequality

We study spatial changes in labour market inequality for US states and MSAs using Census and American Community Survey data between 1980 and 2010. We report evidence of significant spatial variations in education employment shares and in the college wage premium for US states and MSAs, and show that the pattern of shifts through time has resulted in increased spatial inequality. Because relative supply of college versus high school educated workers has risen faster at the spatial level in places with higher initial supply levels, we also report a strong persistence and increased inequality of spatial relative demand. Bigger relative demand increases are observed in more technologically advanced states that have experienced faster increases in R&D and computer usage, and in states where union decline has been fastest. Finally, we show the increased concentration of more educated workers into particular spatial locations and rising spatial wage inequality are important features of labour market polarization, as they have resulted in faster employment growth in high skill occupations, but also in a higher demand for low wage workers in low skill occupations. Overall, our spatial analysis complements research findings from labour economics on wage inequality trends and from urban economics on agglomeration effects connected to education and technology.