Earnings Penalty Research Articles

Can a work-readiness program mitigate unemployment scarring: the case of a co-operative education job market

ABSTRACT Using a two-year-long longitudinal dataset that follows co-operative education (co-op) students’ employment situations, this paper examines how unemployment in the first scheduled co-op work term is associated with un(der)employment in subsequent work terms. Drawing from unemployment scarring theory, the paper also investigates the role of a work-readiness intervention in reversing the potentially negative consequences of unemployment in the first scheduled co-op work term. The results suggest that unemployment in the first co-op work term is associated with underemployment in a subsequent work term. Compared to those who were employed in their first scheduled work term, students who were initially unemployed were just as likely to be employed in their second work term, but they got jobs later, were in jobs with lower seniority, and were paid less than expected. By the third scheduled work term, employment and underemployment were similar between all groups, except that initially employed students continued to earn more, suggesting an earnings penalty for initial unemployment that is consistent with unemployment scarring theory. Critically, participation in a work-readiness intervention reversed this narrative. Intervention participants did better than their unemployed peers in subsequent work terms, and their employment situation was more like that of the initially employed students.

Horizontal educational mismatch among Indonesian graduates: is there any earnings penalty?

ABSTRACT This study examines the determinants and earnings effects of horizontal educational mismatch (HEM) among Indonesian graduates. We found that almost half of Indonesian workers mismatched their field of study. The earnings effect of this mismatch varies in each field of study group. We found an earnings premium for ISCED Code 01, 02, 05, 08, and 09 HEM workers. In contrast, HEM workers in ISCED Code 04, 06, 07, and 10 fields of study suffered an earnings penalty. Mere HEM workers in the ISCED Code 06 and 10 groups earn more than workers with undereducated or overeducated horizontal mismatch.

The Impact of Peacekeeping on Post-Deployment Earnings for Swedish Veterans

ABSTRACT We study the effect of peacekeeping on post-deployment earnings for military veterans. Using Swedish administrative data, we follow a sample of more than 11,000 veterans who were deployed for the first time during the period 1993-2010 for up to nine years after returning home. To deal with selection bias, we use difference-in-differences propensity score matching based on a rich set of covariates, including measures of individual ability, health and pre-deployment labour market attachment. We find that, overall, veterans’ long run post-deployment earnings are largely unaffected by their service. As such, our findings challenge the notion that Swedish veterans struggle on the labour market. At the same time, we find indications that the zero effect for the full sample hides interesting patterns in the effects from deployment, across sub-groups of veterans. Veterans deployed to Bosnia in the 1990s appear to have suffered a transitory earnings penalty, whereas veterans deployed to Afghanistan in the 2000s, as well as veterans with below average cognitive ability, and veterans with low-educated parents, appear to have earned a long run earnings premium.

Self-Employment Among the Poor: Does It Pay Off?

ABSTRACT We find that in a typical year, between 2010 and 2019, there were an estimated 887,778 self-employed poor people in the U.S. The self-employed poor (vs. poor wage/salary workers) are less likely to belong to racial/ethnic minority groups, more educated, and more likely to be homeowners. Self-employment does not appear to pay off for America’s poor. The poor experience an entrepreneurial earnings penalty (the loss in earnings being self-employed vs. working for wages) ranging between 12% and 43%. Future research is needed to understand why poor people choose self-employment, despite lower earnings on average than in wage work.

Welfare effects of unemployment benefits when informality is high

We investigate the welfare effects of unemployment benefits (UBs) in the context of high informality, analyzing matched administrative and survey data with detailed information on consumption, transfers and informal and formal employment of UB recipients. Difference-in-differences analysis reveals a comparatively large consumption drop after the loss of a formal job, resulting from shifts towards lower-quality informal employment and an associated earnings penalty. Exploiting a UB kink, we then show that higher UBs delay program exit through a substitution of formal with informal employment. Even when conservatively estimated, however, welfare effects are positive for coefficients of risk aversion exceeding two.

Closure and matching payoffs from college majors

Abstract This article examines the undergraduate major as a closure mechanism in occupations among college graduates, using the American Community Surveys. We measure the college major density of occupations, termed “major specialization”, finding that greater major specialization of an occupation is associated with higher earnings, over and above previously identified closure devices (licensure, unionization, and vertical educational credentialing), and college selectivity. We conclude that major specialization operates as a powerful earnings-boosting closure device within higher-educated labor markets. Additional analyses regarding premiums from individuals matching their own college major with their occupation’s typical major indicate comparatively small earnings payoffs. Hence, deviating from one’s occupation’s usual credential does not generate a substantial earnings penalty. Furthermore, payoffs from major-occupation matching have a ceiling: there is no further payoff above the average match level. These findings demonstrate how occupational closure theory helps explain the substantial earnings advantages of certain college majors in the labor force.

Exploring Brain Gain Potential: Overseas Work Experience and Return Migrant Income in Indonesia

This study aims to analyze the effect of overseas work experience and education level on the income of return Indonesian Migrant Workers (purna PMI) compared to non-PMI. The unit of analysis used is workers aged 20-40 years who are relatively young and have long career paths. The data used is Sakernas of August 2021, and the analytical method used is the Two Step Heckman Method to overcome selectivity bias problems. The results show that the achievement of human capital purna PMI is not better than non-PMI, where most purna PMI have low education, and only a few are highly educated. The results of the inferential analysis show that only highly educated purna PMI earn a higher income of 19.5% compared to non-PMI (earnings premium), reflecting the brain gain effect. In contrast, purna PMI with low education has a lower income of 9.01% (earnings penalty) compared to non-PMI with the same level of education.

Restoring culture and capital to cultural capital: origin–destination cultural distance and immigrant earnings in the United States

ABSTRACT An extensive sociological literature maintains that cultural capital is pivotal in perpetuating social inequalities. However, empirical tests of cultural capital theory focus on how culture influences educational outcomes, not earnings, and they mainly look for cultural differences across social classes within societies. We propose a direct test of economic returns to cultural capital based instead on differences in national cultures across countries. Using the American Community Survey and the National Survey of College Graduates, we analyze the relationship between immigrants’ lack of U.S.-specific cultural capital, proxied by cultural distance between the origin country and the U.S., and their earnings. Findings consistently indicate that origin – U.S. cultural distance is linked to immigrants’ lower earnings after controlling for numerous other factors, supporting cultural capital theory. Cultural distance earnings penalties are more pronounced for immigrants with at least a bachelor’s degree, those arriving in adulthood, and those with foreign degrees. Moreover, county-level analysis reveals more sizable cultural distance penalties in more competitive and unequal labour markets, highlighting how subnational receiving contexts shape origin-country disparities in immigrants’ economic incorporation at their destinations.

Employment Mismatches Drive Expectational Earnings Errors among Mozambican Graduates

Abstract Biased beliefs about future labor-market earnings are commonplace. Based on a longitudinal survey of graduate work transitions in Mozambique, this study assesses the contribution of employment mismatches to a large positive gap between expected (ex ante) and realized (ex post) earnings. Accounting for the simultaneous determination of pecuniary and non-pecuniary work characteristics, employment mismatches are found to be material and associated with large earnings penalties. A decomposition of these expectational errors shows that around two-thirds are attributable to employment mismatches, suggesting job seekers systematically overestimate the ease of securing “good jobs.”

Assessing the Role of Sexual Orientation in the U.S. Labor Market for Artists and Arts Majors

Using American Community Survey data, we describe the labor market experiences of sexual minority artists and arts majors and explore the differences in their earnings and employment. We identify workers in cohabiting relationships as being either in same-sex or opposite-sex relationships. We find that artists are more than twice as likely to be in same-sex relationships when compared to the overall workforce, largely driven by higher shares of males in same-sex relationships. A similar pattern is observed for arts majors when compared to all college graduates. We find significant heterogeneity in the share of workers in same-sex relationships across individual artist occupations and individual arts majors. In testing for differences in earnings and employment, we use regression analysis, finding an increased likelihood of unemployment for male and female artists in same-sex relationships, earnings penalties for males in same-sex relationships, and earnings premiums for females in same-sex relationships. However, like other studies using coupled data, we hesitate in using causal language in interpreting the earnings regression results due to data limitations.

Gender gaps in South Korea’s labour market: children explain most of the gender employment gap, but little of the gender wage gap

ABSTRACT South Korea’s gender wage and employment gaps are among the largest in the OECD. Using labour force survey data over 2010–19, we estimate gender wage and employment gaps, and child earnings penalties, for women aged 25–54. We show (i) that the large gender gaps in South Korea’s labour market are mostly not a function of differential sorting by gender along education, occupation, or industry lines, (ii) that caring for children (and, perhaps increasingly, for the elderly) is the major factor inhibiting women’s labour force participation, and (iii) that large gender wage gaps exist even for women without care responsibilities. These findings suggest that improving opportunities for work–family balance is crucial to helping increase women’s labour force participation, but may do little to close gender wage gaps: other major obstacles also appear to stand in the way of Korean women’s full inclusion in the labour force.

Marriage, Children, and Sex-Based Differences in Physician Hours and Income

A better understanding of the association between family structure and sex gaps in physician earnings and hours worked over the life cycle is needed to advance policies addressing persistent sex disparities. To investigate differences in earnings and hours worked for male and female physicians at various ages and family status. This retrospective, cross-sectional study used data on physicians aged 25 to 64 years responding to the American Community Survey between 2005 and 2019. Earned income and work hours. Outcomes included annual earned income, usual hours worked per week, and earnings per hour worked. Gaps in earnings and hours by sex were calculated by family status and physician age and, in some analyses, adjusted for demographic characteristics and year of survey. Data analyses were conducted between 2019 and 2022. The sample included 95 435 physicians (35.8% female, 64.2% male, 19.8% Asian, 4.8% Black, 5.9% Hispanic, 67.3% White, and 2.2% other race or ethnicity) with a mean (SD) age of 44.4 (10.4) years. Relative to male physicians, female physicians were more likely to be single (18.8% vs 11.2%) and less likely to have children (53.3% vs 58.2%). Male-female earnings gaps grew with age and, when accumulated from age 25 to 64 years, were approximately $1.6 million for single physicians, $2.5 million for married physicians without children, and $3.1 million for physicians with children. Gaps in earnings per hour did not vary by family structure, with male physicians earning between 21.4% and 23.9% more per hour than female physicians. The male-female gap in hours worked was 0.6% for single physicians, 7.0% for married physicians without children, and 17.5% for physicians with children. In this cross-sectional study of US physicians, marriage and children were associated with a greater earnings penalty for female physicians, primarily due to fewer hours worked relative to men. Addressing the barriers that lead to women working fewer hours could contribute to a reduction in the male-female earnings gap while helping to expand the effective physician workforce.

Earnings and Occupational Attainment: Immigrants and the Native Born

This paper examines the determinants of occupational attainment and the impact of occupation on earnings. Results for both the native born and foreign born are presented, and these provide insights as to the earnings penalties associated with the less-than-perfect international transferability of human capital skills. It shows that around 50 percent of the earnings gains associated with years of schooling derives from inter-occupational mobility. When occupation is held constant, there is a large increase in the effect on earnings of pre-immigration labor market experience for the foreign born, but little change in either the payoff to labor market experience for the native born, or in the premium for post-arrival labor market experience for the foreign born. The estimates of the models of occupational attainment show that years of schooling, and, among the foreign born, proficiency in English, are the key factors determining access to high-paying occupations. Labor market experience has little effect on occupational outcomes among the native born. However, evaluated at 10 years, foreign labor market experience has a modest negative impact on current occupational status. Examination of this negative effect using quantile regression shows that it is concentrated among those in high status jobs.

Earnings Penalty of Educational Mismatch: A Comparison of Alternative Methods of Assessing Over-Education

Earnings Penalty of Educational Mismatch: A Comparison of Alternative Methods of Assessing Over-Education

Contract Employment: Measurement and Implications for Employer–Employee Relationships

This article utilizes a new nationally representative survey, executed in January 2020, that measures non-standard work. The author estimates the incidence of contract company employment and freelancing and describes who goes into non-standard employment. He then studies earnings and access to employer-provided training among contract company employees—the largest and most mis-measured group of non-standard workers. Training is important because it affects wage growth and career trajectories and also gives insight into the evolving character of employment relationships. Findings indicate that contract company employees face an earnings penalty but that considerable heterogeneity occurs within this category. The analysis of multiple forms of formal training finds that contract company employees receive less training than do standard employees even after multiple controls. Informal training is more textured due to the nature of social interactions inherent in its availability. Throughout the analysis, racial and ethnic disparities are apparent.

Household specialization and the child penalty in the Netherlands

Women in the Netherlands face an earnings penalty of 47% after the birth of their first child, which is in line with previous studies. We construct several measures of relative within-household earnings potential to assess the importance of household specialization based on comparative advantage. The Netherlands offers a particularly interesting setting for studying household specialization since employees basically face no restrictions if they want to reduce their working hours. We find that women with a higher earnings capacity than their partner face lower earnings losses after childbirth and reduce their labor supply less than women with a low relative earnings potential. Yet, men’s labor market trajectories are largely unaffected by parenthood irrespective of their relative earnings potential in the household. There is thus no evidence that households divide market work and child care based on comparative advantage or bargaining power. We provide some evidence that women with high earnings potential rely more on formal child care.

Does education matter for the earnings of former entrepreneurs? Longitudinal evidence using entry and exit dynamics

Wage employment is the most commonly observed type of employment after a spell of entrepreneurship. The purpose of this paper is to investigate the effects of having been an entrepreneur on earnings after individuals exit. The question is how the entrepreneurship spell influences their value in the labor market? Based on a theoretical framework and earlier literature, our specific interest lies in how these outcomes interact with education level and the nature of the entrepreneurial venture. To investigate this question, we use longitudinal register data on firms and individuals in Sweden. The empirical strategy builds on matching techniques and estimations of earnings equations in a difference-in-differences framework with heterogenous treatment years. We provide evidence that there exists an earnings penalty when highly educated entrepreneurs return to wage employment. This effect is persistent throughout the time period that we observe. For individuals with lower educational attainment, we find no or weak evidence of a wage penalty. Our results suggest that the wage penalty for highly educated individuals operates through the depreciation of specific specialized skills valuable in wage employment.

Child penalty in Russia: evidence from an event study

In this paper, we investigate the child penalty in Russia using data from the Russian Longitudinal Monitoring Survey (RLMS) and the methodological framework of event studies. We find that five years after childbirth, women suffer an earnings penalty, while no effect is observed for men. The mothers’ penalty stems exclusively from lower employment after childbirth. Contrary to similar studies on Western Europe and the US, we do not find penalties in terms of working hours or hourly wage rates for women who remain in the labour force. We further find that mothers’ employment penalty is strongly driven by household characteristics and by their spouses’ beliefs. Finally, we find that parenthood decreases the probability of working in supervisory positions for mothers and in the public sector for fathers.

Earnings penalty of educational mismatch: a comparison of alternative methods of assessing over-education

In this paper we systematically evaluate the impact of using the alternative methods conventionally used in the international literature on the measured incidence of educational mismatch and its earnings effects. We use a rich Australian longitudinal data set for a controlled group of full-time employed workers. Using panel data estimation, we address individual heterogeneity and measurement error, which are important in educational mismatch analysis. We show that alternative methods of measurement result in a range of estimates, with the Mode measure providing the most stable results across instrumental variables (IV) selections in panel fixed effects instrumental variables (FEIV) estimations. Based on the Mode measure, the incidence rate of over-education is 32.3%. The earnings penalty for each year of over-education is 2.5%, which is larger than 0.6% in fixed effect estimation and also larger than 1.9% in OLS estimations.

New Evidence on Teacher Pay

Prior research has shown that teachers receive lower pay compared to people with the same educational level who work in other occupations. This article challenges that literature and shows that by applying novel statistical approaches, the pay differentials are reduced, and even become pay premiums. In particular, these approaches provide unifying estimates that turn an earnings penalty between female teachers and non-teachers of approximately 10%—based on a standard approach in the literature—into an earnings premium of 5 to 10%. Likewise, estimates based on these approaches erase up to two-thirds of the earnings gap between male teachers and non-teachers. Moreover, going beyond the traditional focus on the mean, the author decomposes the pay gap across the entire earnings distribution. Estimates show that although teachers have a substantial earnings premium at the bottom of the distribution, they have a large earnings penalty at the top.