Future Wages Research Articles

Job Search with Subjective Wage Expectations

This paper analyzes how subjective expectations about wage opportunities influence the job search decision. We match data on subjective wage expectations with administrative employment records. The data reveal that unemployed individuals over-estimate their future net re-employment wage by 10% on average. In particular, the average individual does not anticipate that wage offers decline in value with their elapsed time out of employment. How does this optimism affect job finding? We analyze this question using a structural job search framework in which subjective expectations about future wage offers are not constrained to be consistent with reality. Results show that wage optimism has highly dynamic effects: upon unemployment entry, optimism decreases job finding by about 8%. This effect weakens over the unemployment spell and eventually switches sign after about 8 months of unemployment. From then onward, optimism prevents unemployed individuals from becoming discouraged and thus increases search. On average, optimism increases the duration of unemployment by about 6.5%.

Education choices, longevity and optimal policy in a Ben-Porath economy

We develop a 3-period overlapping generations (OLG) model where individuals borrow at the young age in order to finance their education. Education does not only increase future wages, but also raises the duration of life, which, in turn, can affect education, in line with Ben-Porath (1967). We examine the conditions under which the Ben-Porath effect prevails. Although the existence of a positive Ben-Porath effect requires, under exogenous longevity, a change in lifetime hours of work, we find, under endogenous longevity, that a positive Ben-Porath effect arises even when old-age labor is fixed. It is also shown that the Ben-Porath effect may not be robust to allowing for adjustments in production factor prices. On the policy side, we show that the social optimum can be decentralized provided the capital stock is set to the Modified Golden Rule level. Finally, we introduce intracohort heterogeneity in learning ability, and we show that, under asymmetric information, the second-best optimal non-linear tax scheme involves a downward distortion in the education of less able types, which reinforces the longevity gap in comparison with the first-best.

Pension Reform Disabled

Old-age pension reform is on the agenda across the OECD, and a key target is to delay retirement. Most of these countries also have a disability insurance (DI) program accounting for a large share of labor force exits. This paper builds a quantitative life-cycle model with endogenous retirement to study how DI and old-age pension (OA-pension) systems interact with health and wages to determine retirement age, with particular focus on the macroeconomic effects of OA-pension reforms. Individuals face uncertain future health status and wages, and if in bad health they are eligible for DI if they choose to retire before reaching the statutory retirement age. I calibrate the model to the Norwegian economy and explore the effects of raising the statutory retirement age and cutting OA-pension on labor supply and public finances. The main contribution of the paper is that I, in contrast to standard macro pension models, include DI as another endogenous margin of retirement. I show that failure to account for this margin might severely bias the analysis of OA-pension reforms.

Les dynamiques individuelles de revenu salarial en France pendant la crise

The uncertain nature of future income limits the ability of agents to smooth their consumption over time. Variation in this uncertainty can thus bring about variation in well-being. We study the evolutions of the uncertainty on wage income in France before and over the course of the crisis of 2008 drawing on longitudinal administrative data. Using a non-parametric method, we estimate the magnitude and form of this uncertainty and show that they depend on past wage income. This uncertainty is broken down into wage and working time, and according to the mobility of the wage earners. During the crisis, the magnitude of this uncertainty on future wage income increases slightly, and its downward asymmetry is stronger at both ends of the wage income scale : with this uncertainty, unfavourable evolutions have a bigger impact during the crisis than in the preceding period. This is explained by a heightened probability of unfavourable individual evolutions in terms of working time for the lowest-paid workers, and in terms of wage for the highest-paid. Mobility is more frequent during the crisis but the uncertainty associated with it is lower than over the preceding years.

Involuntary Unemployment and the Labor Market Returns to Interim Jobs

I investigate the wage and employment effects of taking up interim jobs after displacement. Proposing a novel approach, I decompose the wage losses along the distribution into a channel due to the take up of interim employment and a channel which accounts for all other factors. I find that being employed in an interim job has negative effects on future wages over the whole distribution. I provide evidence that this is due to a trade-off between the probability of finding stable employment and higher wages. Assessing the sensitivity of my results, I show that they are robust to specific failures of my identifying assumptions.

Information and choice of A-level subjects: A cluster randomised controlled trial with linked administrative data

We estimated the effects of an intervention which provided information about graduate wages to 5593 students in England, using a blinded cluster randomised controlled trial in 50 schools (registration: AEARCTR-0000468). Our primary outcome was students’ choice of A-level subjects at age 16. We also recorded the students’ expectations of future wages and the A-level subjects they intended to take before and after the intervention, and linked their data into national administrative school examination records. We found that an hour-long lesson on information about graduate wages affected students’ beliefs about and choice of subject. They were more likely to take mathematics and less likely to take biology and computing. We found strong evidence that mediating factors such as their beliefs about average graduate salaries and their own likely salary in each subject were affected by the intervention. This suggests that providing accessible and credible information on labour market consequences of school choices may influence students’ decisions. In the light of concerns about the quality of careers guidance for school students and expectations that educational choices should be well-informed, the study has clear implications for policy and practice.

The impact of academic achievement on starting wages of russian university graduates

This paper analyzes the impact of student academic achievements on future wages of Russian university graduates by looking at GPA-earnings relationship for graduates of one Russian selective university, based on cross-sectional graduate survey data. The issue of how student academic achievement, measured by GPA (Grade Point Average) impact future labor market rewards is analyzed with reference to the set of academic, demographic, and labor market factors. Our results indicate that there is no significant impact of GPA on future earnings for male graduates and significant negative impact for female graduates. The effect of GPA on earnings is insignificant for both gender groups if we control for sectoral segregation. The existence of work experience before graduation is the most significant factor that positively affects future wages. Moreover, we observed high returns to current job tenure. We found no evidence that combining study and work negatively affects student academic achievements.

The career prospects of overeducated Americans

In this paper we analyze career dynamics for US workers who have more schooling than their peers in the same occupation. We use data from the NLSY79 combined with the CPS to analyze transitions into and out of overeducated employment, together with the corresponding effects on wages. Overeducation is a fairly persistent phenomenon at the aggregate and individual levels, with 66% of workers remaining overeducated after 1 year. Overeducation is not just more common but also more persistent among blacks and low-AFQT individuals. Further, the hazard rate out of overeducation drops by about 60% during the first 5 years spent overeducated. However, the estimation of a mixed proportional hazard model suggests that this is attributable to selection on unobservables rather than true duration dependence. Lastly, overeducation is associated with lower current as well as future wages, consistent with scarring effects.

Fixed-Term Jobs after Vocational Education and Training in Switzerland: Stepping Stone or Impediment?

AbstractCompeting assumptions about whether entering the labour market via fixed-term jobs is a good or bad start into work life persist in the literature. Based on the longitudinal survey TREE, this article sheds light on (1) who enters the Swiss labour market via fixed-term jobs after graduating from initial vocational education and on (2) the consequences regarding their future returns. Results indicate that vocational education graduates entering the work force via fixed-term jobs of low occupational status must expect lower future wages.

Gender, Career and Technical Education (CTE) Nontraditional Coursetaking, and Wage Gap

The two main objectives of this study were to examine the relationship between high school student (9th – 12th) gender and nontraditional career and technical education (CTE) course taking, and the combined effects of gender and program area on estimated future wage earnings for male and female CTE completers. A Midwestern state CTE database (143,510 male and 125,562 female students) designed to fulfill the data collection requirements mandated by the Perkins IV legislation was utilized to answer the two research questions. Findings from logistic regression showed that gender was a statistically significant predictor of nontraditional course taking pattern, with males taking more nontraditional courses than females. Findings from factorial analysis of variance indicated that the effect of gender on estimated future wage earnings measured by the Bureau of Labor Statistics was largely dependent on program area. These findings collectively suggest that although gender pattern in CTE course taking still exists, gender wage gap may be decreasing. Implications of these findings as they relate to educational policy and occupational gender segregation perspective are discussed.

A THEORY OF TURNOVER AND WAGE DYNAMICS

We develop a model of turnover and wage dynamics with insurance, match‐specific productivity, and long‐term contracting. The model predicts that wages are downward rigid within firms but can decrease when workers are fired. We apply the model to study the impact of business cycles on subsequent wages and job mobility. Workers hired during a boom have persistent higher future wages if staying with the same firm. However, these boom hires are more likely to be terminated and have shorter employment spells. (JEL C73, D23, D82, J33)

‘Girls Don’t Become Craftsmen’: Determinants and Experiences of Children’s Work in Gemstone Polishing in Jaipur

This paper explores the determinants and valuations of children’s work and schooling choices drawing on primary mixed-methods research in the gemstone polishing industry of Jaipur, India. In addition to economic and demographic factors, the gendered expectations of children’s futures shapes their work and schooling outcomes. For boys, work is additionally driven by the need to acquire training for future employment and wages, and simultaneously complements, and competes with formal schooling. They can work at workshops, acquire higher skills, and can aspire to become skilled craftsmen whereas girls work at home on low-skill activities mainly to supplement household income.

Schooling and wage income losses due to early-childhood growth faltering in developing countries: national, regional, and global estimates

The growth of >300 million children <5 y old was mildly, moderately, or severely stunted worldwide in 2010. However, national estimates of the human capital and financial losses due to growth faltering in early childhood are not available. We quantified the economic cost of growth faltering in developing countries. We combined the most recent country-level estimates of linear growth delays from the Nutrition Impact Model Study with estimates of returns to education in developing countries to estimate the impact of early-life growth faltering on educational attainment and future incomes. Primary outcomes were total years of educational attainment lost as well as the net present value of future wage earnings lost per child and birth cohort due to growth faltering in 137 developing countries. Bootstrapped standard errors were computed to account for uncertainty in modeling inputs. Our estimates suggest that early-life growth faltering in developing countries caused a total loss of 69.4 million y of educational attainment (95% CI: 41.7 million, 92.6 million y) per birth cohort. Educational attainment losses were largest in South Asia (27.6 million y; 95% CI: 20.0 million, 35.8 million y) as well as in Eastern (10.3 million y; 95% CI: 7.2 million, 12.9 million y) and Western sub-Saharan Africa (8.8 million y; 95% CI: 6.4 million, 11.5 million y). Globally, growth faltering in developing countries caused a total economic cost of $176.8 billion (95% CI: $100.9 billion, $262.6 billion)/birth cohort at nominal exchange rates, and $616.5 billion (95% CI: $365.3 billion, $898.9 billion) at purchasing power parity-adjusted exchange rates. At the regional level, economic costs were largest in South Asia ($46.6 billion; 95% CI: $33.3 billion, $61.1 billion), followed by Latin America ($44.7 billion; 95% CI: $19.2 billion, $74.6 billion) and sub-Saharan Africa ($34.2 billion; 95% CI: $24.4 billion, $45.3 billion). Our results indicate that the annual cost of early-childhood growth faltering is substantial. Further investment in scaling up effective interventions in this area is urgently needed and likely to yield long run benefits of $3 for every $1 invested.

Minimum Wage and Real Wage Inequality: Evidence from Pass-Through to Retail Prices

Minimum wage policies are frequently cited by advocates as an anti-poverty tool. Essential to assessing this claim is to find out who benefits and who bears the costs of minimum wage changes. While a longstanding debate over the employment effects of the minimum wage has yet to reach a consensus, a smaller literature on its effect on prices has generally found small but positive effects. This paper adds to the existing literature by jointly considering the impact of the minimum wage on both labor and product markets, using detailed scanner data on purchase transactions of retail goods at the store level to overcome data problems in the previous literature. I provide empirical evidence that the minimum wage pass-through to retail prices in grocery stores is larger than expected because the minimum wage not only raised labor costs but also increased product demand, especially in poorer regions. This points to novel channels of heterogeneity in pass-through that have distributional consequences, with key implications for real wage inequality, residential segregation, and future minimum wage increases.

Unions in a frictional labor market

A labor market with search and matching frictions, where wage setting is controlled by a monopoly union that follows a norm of wage solidarity, is found vulnerable to substantial distortions associated with holdup. With full commitment to future wages, the union achieves efficient hiring in the long run, but hikes up wages in the short run to appropriate rents from firms. Without commitment, in a Markov-perfect equilibrium, hiring is too low both in the short and the long run. The quantitative impact is demonstrated in an extended model with partial union coverage and multiperiod union contracting.

Is There a Causal Effect of Working Part‐Time on Current and Future Wages?

AbstractIn this paper, I study the causal effects of part‐time work on current and future wages. To estimate these effects, I use a random effects model with a wage equation capturing the employment history and a dynamic multinomial probit component for the choice of employment status. Exclusion restrictions from the institutional context are exploited to support identification. The results suggest that working part‐time with few hours has a large causal effect on current wages, but more extensive part‐time work does not reduce current wages. However, both types of part‐time work lead to negative long‐term wage effects.

Adjustment and Income Distribution Impacts of the Trans-Pacific Partnership

This paper estimates the adjustment costs of the Trans-Pacific Partnership (TPP) on workers and compares these costs with the agreement's benefits. It also estimates the TPP's impact on the distribution of income across US households. Between 2017 and 2026, when most of the adjustment to the TPP occurs, the costs to workers who will be displaced, both from unemployment and lower future wages, will amount to about 6 percent of the agreement's benefits. For the full adjustment period (2017-30) that Peter Petri and Michael Plummer (2016) consider, the benefits are more than 100 times the costs. The benefits from the agreement will be widely shared. The percentage gains for labor income from the TPP will be slightly greater than the gains to capital income. Households in all quintiles will benefit by similar percentages, but once differences in spending shares are taken into account, the percentage gains to poor and middle-class households will be slightly larger than the gains to households at the top. Thus the agreement will confer net benefits to households at all levels of income and will certainly not worsen income inequality. While the United States as a whole would benefit from the TPP, there is a case for an assistance program that would compensate those who lose.

Volunteerism to Incentivisation: Changing Priorities of Mitanins Work in Chhattisgarh

There is increasing informalisation in the public sector workforce, especially at the lower levels. Women form a huge part of the informal labour force. The health sector is also witnessing similar trends where another concept of ‘volunteerism’ is also emerging, as seen in the Mitanins of Chhattisgarh. The Mitanin programme, considered to be a precursor to the accredited social health activist (ASHA), had started on a different note. It had hoped that the community will pay for the loss of wages in future, instead of the government, so that the Mitanin remains a community representative. In the initial couple of years, the Mitanins were not compensated and later, activity-oriented payment was started, thus leading to incentivisation of their activities. Post-National Rural Health Mission (NRHM), this mode of compensation got cemented. This article will explore how one of the most important agendas during the conceptualisation of the programme, of the Mitanin being able to raise the community’s concerns and demands, being a community representative and organiser, was not met and she became a very lowly paid, honorary worker of the government health service system. This article is based on extensive fieldwork conducted intermittently between 2004 and 2008.

Does an extra year of primary schooling yeild higher earnings?: Evidence from Kenya

In 1985 significant school reforms prolonged the duration of primary schooling in Kenya from 7 to 8 years. The goal of the reforms, amongst other changes, was to increase skills and consequently increase earnings for workers with primary school education. This paper explores whether the extra year of primary schooling may have enhanced skills and consequently increased relative wages for workers with the additional eighth year of primary schooling. Such an analysis is important for two reasons. First, we are the first to gauge the impact of the reforms on relative wage changes for workers with primary school education in a developing country setting particularly in sub-Saharan Africa. Second, and more importantly, such an inquiry is warranted because by focusing solely on relative wage changes for primary school educated workers, we consider whether the reforms did actually increase relative wages for workers with more i.e. 8 years of primary schooling without the confounding effects of post primary school education (i.e. secondary, tertiary, middle-level and university education) on earnings. Our empirical technique takes advantage of exogenous variation induced by the new policy and employs a data-driven pseudo regression discontinuity design to consider whether the new school reforms did indeed create a wage discontinuity for workers with 7 and 8 years of primary school education at the cutoff point in 1985. Utilizing data from the 2004/2005 Kenya Integrated Household Budget Survey, our findings shed new light. We find that although the relative wage for workers with 7 years of primary schooling is marginally higher, the trajectory of the age-earnings profile is relatively steeper for workers with the 8th year of primary schooling. This finding, consistent with human capital theory, suggests that workers with the extra year of primary schooling would earn a higher future relative wage. As such, from a policy standpoint, increasing the duration of primary school education may be a necessary but not a sufficient condition for increasing relative wages for workers with the added year of primary schooling at least in the short run. Short run underlying factors, such as differences in age, years of labor market experience, compounded by transition bottlenecks (not considered in this paper but widely discussed in the literature) may inhibit an instantaneous wage increase for workers with the added year of primary schooling.

How do adult returns to schooling affect children’s enrollment?

Universal completion of secondary education by 2030 is among the targets set by the United Nations’ Sustainable Development Goals. Higher expected adult wages traced to schooling may play a major role in reaching this target as they are predicted to induce increased school enrollment for children whose families wish to optimally invest in their children’s future. However, low incomes and the obligation to meet immediate needs may forestall such investment. Studies suggest that school enrollment in developing countries is positively correlated with higher expected future wages, but poor families continue to under-enroll their children.