High-skilled Individuals Research Articles

Optimal disability insurance with unobservable skill heterogeneity

This paper studies the U.S. income tax and disability insurance systems in a unified framework with relevant private information and a general social welfare function. To that end, I develop a dynamic model in which agents differ in labor productivity and disability status, which are both private information. The optimal allocation can exhibit negative marginal labor income tax rates for high-skilled individuals but zero for low-skilled individuals, which is contrary to standard results. Also, I find that a reform to the optimal system in the calibrated model would significantly improve the U.S. system. The welfare gains amount to a 3.48 percent increase in consumption with a utilitarian social welfare function, which might be larger with a non-utilitarian function. Better insurance for people in bad states and reduced intratemporal distortions account for almost all the welfare gains. However, intertemporal distortions do not appear to play a major role.

The Welfare Costs of Skill-Mismatch Employment

Skill-mismatch employment occurs when high-skilled individuals accept employment in jobs for which they are over-qualified. These employment relationships can be beneficial because they allow high-skilled individuals to more rapidly transition out of unemployment. They come at the cost, however, in the form of lower wage compensation. Moreover, an externality arises as high-skilled individuals do not take into account the effect that their search activity in the market for low-tech jobs has on low-skilled individuals. This paper presents a tractable general equilibrium model featuring mismatch employment and on-the-job search to articulate these tradeoffs. We derive a set of efficiency conditions that describe the labor market distortions associated with these two model features and illustrate how they alter the standard notion of the labor wedges inherent in general equilibrium search models. Finally, we calibrate the model to U.S. data and show that the distortions associated with mismatch employment are largely distributional and can be quantitatively large.

Ever closer or ever wider? Public attitudes towards further enlargement and integration in the European Union

ABSTRACTProponents of the European project often portray further enlargement of the European Union as a complement to the process of building an ever closer union. The eurozone crisis, however, has highlighted the risks associated with pursuing deeper integration in a diverse union and reignited the debate on differentiated integration. This contribution examines how public attitudes towards the processes of deepening and broadening are related and asks whether European citizens see them as complementary or conflicting. Using multilevel analysis of Eurobarometer data, the contribution examines the factors – individual and contextual – that shape attitudes towards enlargement and deeper political integration across the 27 member states. The findings suggest that the ‘winners’ of integration – high-skilled individuals in core eurozone countries – are most likely to support deepening, but oppose further enlargement out of fear that an ever wider union might be costly.

The Welfare Costs of Skill-Mismatch Employment

Skill-mismatch employment occurs when high-skilled individuals accept employment in jobs for which they are over-qualified. These employment relationships can be beneficial because they allow high-skilled individuals to more rapidly transition out of unemployment. They come at the cost, however, in the form of lower wage compensation. Moreover, an externality arises as high-skilled individuals do not take into account the effect that their search activity in the market for low-tech jobs has on low-skilled individuals. This paper presents a tractable general equilibrium model featuring mismatch employment and on-the-job search to articulate these tradeoffs. We derive a set of efficiency conditions that describe the labor market distortions associated with these two model features and illustrate how they alter the standard notion of the labor wedges inherent in general equilibrium search models. Finally, we calibrate the model to U.S. data and show that the distortions associated with mismatch employment are largely distributional and can be quantitatively large.

The Pareto-Frontier in a Simple Mirrleesian Model of Income Taxation

We characterize the Pareto-frontier in a simple Mirrleesian model of income taxation. We show how the second-best frontier, which incorporates incentive constraints due to private information on productive abilities, relates to the first-best frontier, which takes only resource constraints into account. In particular, we argue that the second-best frontier can be interpreted as a Laffer-curve. We also use this second-best frontier for a comparative statics analysis of how optimal income tax rates vary with the degree of inequity aversion, and for a characterization of optimal public-good provision. We show that a more inequity-averse policy maker chooses tax schedules that are more redistributive and involve higher marginal tax rates, while simultaneously providing less public goods.* I. Introduction In this paper we characterize the set of Pareto-efficient allocations in a simple version of the MIRRLEES [1971] model of optimal nonlinear income taxation. We consider an economy where there are two types of individuals who differ in their productive abilities. Individuals have a linear effort cost, so that an individual’s marginal cost of contributing to the economy’s output is low if the individual is high-skilled and high if the individual is low-skilled. 1 We obtain the following results. First, we show how the second-best Pareto-frontier compares to the first-best Pareto-frontier in a model in which information about productive abilities is publicly observed. The first-best frontier is linear and there is neither a maximal, nor a minimal utility level for high-skilled or low-skilled individuals. With the second-best Pareto-frontier, by contrast, such maxima and minima exist. Moreover, we show that each point on the second-best Pareto-frontier is associated with a marginal income tax rate for low-skilled individuals, and a marginal income tax rate for high-skilled individuals. Both marginal tax rates are shown to be non-decreasing functions of the utility of the low-skilled individuals. The fact that there is a minimum of utility for the high-skilled individuals implies that the second-best frontier is similar to a Laffer-curve: 2 if the high-skilled individuals’ utility level fell below the minimal level, then an increase in their utility level would also make the low-skilled individuals better off. Moreover, the minimal utility level of the high-skilled individuals is

OPTIMAL DYNAMIC NONLINEAR INCOME TAXATION UNDER LOOSE COMMITMENT

This paper examines an infinite-horizon model of nonlinear income taxation in which the probability that the government can commit is high, but not certain. In this “loose commitment” environment, we find that even a little uncertainty over whether the government can commit yields substantial effects on the optimal dynamic nonlinear income tax system. This result holds even though separating taxation remains optimal, as in the case of full commitment. Under an empirically plausible parameterization, our numerical simulations show that high-skilled individuals must be subsidized in the short run, despite the government's redistributive objective, unless the probability of commitment is higher than 98%. Loose commitment also reverses the short-run welfare effects of changes in most of the model's parameters, and yields some counterintuitive outcomes. For example, all individuals are worse off, rather than better off, in the short run when the proportion of high-skilled individuals in the economy increases.

Bounds analysis of competing risks: a non-parametric evaluation of the effect of unemployment benefits on migration

In this paper we derive nonparametric bounds for the cumulative incidence curve within a competing risks model with partly identified interval data. As an advantage over earlier attempts our approach also gives valid results in case of dependent competing risks. We apply our framework to empirically evaluate the effect of unemployment benefits on observed migration of unemployed workers in Germany. Our findings weakly indicate that reducing the entitlement length for unemployment benefits increases migration among high-skilled individuals.

Individual Attitudes Towards Trade: Stolper-Samuelson Revisited

Using the 2007 wave of the Pew Global Attitudes Project, this paper finds statistically significant and economically large Stolper-Samuelson effects in individuals’ preference formation towards trade policy. High-skilled individuals are substantially more pro-trade than low-skilled individuals in high-skilled labor abundant countries, and vice versa in a considerable share of low-skilled labor abundant countries. Our novel international survey data combine a number of desirable features which allow us to paint a more distinct and thus more convincing picture of the role of the Heckscher-Ohlin model in shaping free trade attitudes, relative to existing literature.

Inter-regional wage differentials with individual heterogeneity: evidence from Brazil

This paper uses administrative data to follow Brazilian workers over time and examine what happens to the inter-regional wage differentials after controlling for unmeasured workers’ characteristics that are fixed over time. Since the data allow us to track the same workers over the years, we are in the unusual position of obtaining the individual wages before and after the migration process. As a significant share of workers changed States in the sample period, it is possible to examine to what extent the wage differentials reflect the concentration of high-skilled individuals in some States. The results show that the overall wage variability across States drops to almost one third of its original value and the ranking of the State effects is significantly altered after we take into account the workers’ fixed effects. A great deal of the inter-regional differentials, therefore, reflects differences in the average ability of workers across States.

Two-Way Migration between Similar Countries

We develop a model to explain two-way migration of high-skilled individuals between countries that are similar in their economic characteristics. High-skilled migration is explained by a combination of two features: In both countries workers’ abilities are private knowledge and the production technology gives incentives to firms for hiring workers of similar ability. In the presence on migration cost, high-skilled workers self-select into the group of migrants, thereby ensuring they are hired together with other high-skilled migrants. The laissez-faire equilibrium features too much migration, explained by a negative migration externality, and as a result all individuals are worse off than in autarky. We also show that for sufficiently low levels of migration cost the optimal level of migration is strictly positive. In extensions to our basic model, we consider the presence of an internationally immobile factor and find that in this case the possibility of aggregate gains from migration in the laissez-faire equilibrium emerges. We also show that our basic results are robust with respect to small differences in countries’ technologies.

At Whose Service? Subsidizing Services and the Skill Premium

In this paper we investigate the effects of subsidizing low-skilled, labourintensive services hired by high-skilled individuals in the presence of labour income taxation. Whether such a subsidy can be Paretoimproving depends crucially on the degree of substitutability of both types of labour in the non-service sector. In case of some substitutability, a service subsidy can benefit all and decrease inequality, but in case of complementarity, low-skilled individuals benefit and high-skilled individuals are worse off.

Mental subtraction in high- and lower skilled arithmetic problem solvers: Verbal report versus operand-recognition paradigms.

The authors used the operand-recognition paradigm (C. Thevenot, M. Fanget, & M. Fayol, 2007) in order to study the strategies used by adults to solve subtraction problems. This paradigm capitalizes on the fact that algorithmic procedures degrade the memory traces of the operands. Therefore, greater difficulty in recognizing them is expected when calculations have been solved by reconstructive strategies rather than by retrieval of number facts from long-term memory. The present results suggest that low- and high-skilled individuals differ in their strategy when they solve problems involving minuends from 11 to 18. Whereas high-skilled individuals retrieve the results of such subtractions from long-term memory, lower skilled individuals have to resort to reconstructive strategies. Moreover, the authors directly confront the results obtained with the operand-recognition paradigm and those obtained with the more classical method of verbal report collection and show clearly that this second method of investigation fails to reveal this differential pattern. The rationale behind the operand-recognition paradigm is then discussed.

Temporary Migration and Skill Upgrading: Evidence from Mexican Migrants

This paper explores the extent to which temporary Mexican migrants upgrade their skills while working in the United States. The vast majority of the migration that we observe is undertaken without documents. In contrast to Lacuesta (2006), we find that labor market performance in Mexico is positively related to one's accumulated migration experience in the United States. Self-selection of high-skilled individuals into migration does not drive this result. We also investigate the possible mechanisms by which migration experience might improve earnings in Mexico. We find support for the notion that migration experience improves labor market outcomes by improving occupation specific skills rather than by inducing higher rates of occupational mobility or entrepreneurship.

Brain drain, remittances, and fertility

Résumé Cet article analyse les effets, au niveau du pays d’origine, de la migration de main-d’œuvre qualifiée et des transferts de fonds sur les décisions de fertilité. Nous développons un modèle à générations imbriquées où la fécondation et l’éducation sont endogènes. Les parents choisissent le nombre d’enfants qu’ils souhaitent élever et décident combien d’enfants accèdent à une éducation supérieure. Seuls les individus pourvus d’une qualification élevée ont une certaine probabilité de migrer et de transférer des fonds à leurs parents. Nous montrons qu’une hausse de la probabilité d’émigrer amène les parents, qualifiés ou non, à fournir une éducation supérieure à un nombre plus élevé d’enfants. Mais cet effet sur le nombre d’enfants est ambigü. Pour approfondir l’analyse, nous calibrons le modèle de manière à intégrer différents aspects d’une économie en développement. Quand le pays d’accueil assouplit les restrictions à l’immigration, un plus grand nombre d’individus hautement qualifiés quittent le pays d’origine. Il en résulte, à la source, qu’une émigration croissante de personnes hautement qualifiées diminue la fertilité et favorise l’accumulation de capital humain. Classification JEL : F22; F24; J13; J24.

Search equilibrium and social and private returns to education

Social and private returns to education are computed using the structural estimates of an extended Burdett–Mortensen search equilibrium model. The extension includes different skill groups linked via a production function with variable degree of homogeneity, allowing thereby for a unimodal earnings density with a decreasing right tail. We find that the decreasing unemployment risk for higher skill groups and the absence of tuition fees in Germany increase private returns and lead to a too large share of high skilled individuals in the workforce, which is suboptimal from the social point of view.

What Attracts Human Capital? Understanding the Skill Composition of Interregional Job Matches in Germany

Arntz M. What attracts human capital? Understanding the skill composition of interregional job matches in Germany, Regional Studies. By examining pecuniary and non-pecuniary factors in the destination choices of heterogeneous job movers, this paper tries to explain the skill composition of interregional job matches in Germany. It thus provides insights on how policy can affect the spatial allocation of human capital to promote convergence between regions such as eastern and western Germany. Estimates from a nested logit model suggest that the spatial pattern of job moves by high-skilled individuals are mainly driven by interregional income differentials, while interregional job matches by less-skilled individuals are mainly determined by interregional differentials in job opportunities. The role of regional amenities in attracting high-skilled labour turns out to be less clear. Arntz M. Qu'est-ce qui séduit le capital humain?: comprendre l'ensemble des compétences des emplois correspondants interrégionaux en Allemagne, Regional Studies. En examinant des facteurs pécuniaires et non-pécuniaires quant à la destination des individus à la recherche d'emploi hétérogènes, cet article essaye d'expliquer l'ensembles des compétences des emplois correspondants en Allemagne. Il fournit donc des aperçus sur la façon dont la politique peut influer sur la distribution géographique du capital humain dans le but de promouvoir la convergence des régions, telles l'est et l'ouest de l'Allemagne. Des estimations provenant d'un modèle du type logit emboîté laissent supposer que les écarts du revenu régional sont le principal moteur de la distribution géographique des déplacements à la recherche d'emploi par des individus hautement qualifiés, alors que les emplois correspondants inter-régionaux des individus moins qualifiés sont déterminés dans une large mesure par les écarts inter-régionaux des possibilités d'emploi. Il s'avère que le rôle des équipements régionaux dans l'attraction de la main-d'oeuvre hautement qualifiée est moins évident. Choix de destination Distribution géographique du capital humain Convergence Arntz M. Was zieht Humankapital an? Ein Beitrag zu einem besseren Verständnis der qualifikatorischen Zusammensetzung von interregionalen Arbeitsplatzwechseln in Deutschland, Regional Studies. Durch eine Untersuchung von pekuniären und nicht pekuniären Faktoren bei der Standortwahl heterogener Arbeitsplatzwechsler wird in diesem Beitrag versucht, die Zusammensetzung von Qualifikationen bei der interregionalen Angebots- und Nachfragesituation auf dem deutschen Arbeitsmarkt zu erklären. Auf diese Weise werden Einblicke geliefert, wie die Politik auf die räumliche Zuweisung von Humankapital einwirken kann, um die Konvergenz von Regionen wie Ost- und Westdeutschland zu fördern. Die Schätzungen eines Nested-Logit-Modells lassen darauf schließen, dass das räumliche Muster des Arbeitsplatzwechsels von hochqualifizierten Personen in erster Linie von interregionalen Einkommensdifferentialen abhängt, während die interregionale Arbeitsplatzsuche weniger qualifizierter Personen vor allem von interregionalen Differentialen hinsichtlich des Arbeitsplatzangebots beeinflusst wird. Die Bedeutung weicher Standortfaktoren für die Zuwanderung Hochqualifizierter erweist sich als weniger klar. Standortwahl Räumliche Zuweisung von Humankapital Konvergenz Arntz M. ¿Qué atrae el capital humano? Entender la composición de habilidades de adaptación laboral interregional en Alemania, Regional Studies. Al examinar los factores pecuniarios y no pecuniarios en la elección de destinos por parte de las personas heterogéneas que cambian de domicilio por motivos laborales, en este artículo intento explicar la composición de habilidades de la demanda y oferta laboral a nivel interregional en Alemania. De este modo, expongo una perspectiva de cómo puede afectar la política a la asignación espacial del capital humano para fomentar la convergencia entre las regiones, tales como el este y el oeste de Alemania. Las estimaciones de un modelo logit anidado indican que el modelo espacial de movimientos laborales de individuos altamente cualificados está impulsado principalmente por diferenciales de ingresos interregionales, mientras que la demanda interregional de empleo por personas menos cualificadas está determinada sobre todo por diferenciales interregionales en las oportunidades laborales. Lo que está menos claro es el papel de las prestaciones regionales a la hora de atraer mano de obra altamente cualificada. Elección del destino Asignación espacial del capital humano Convergencia

Bounds Analysis of Competing Risks: A Nonparametric Evaluation of the Effect of Unemployment Benefits on Migration in Germany

In this paper we derive nonparametric bounds for the cumulative incidence curve within a competing risks model with partly identified interval data. As an advantage over earlier attempts our approach also gives valid results in case of dependent competing risks. We apply our framework to empirically evaluate the effect of unemployment benefits on observed migration of unemployed workers in Germany. Our findings weakly indicate that reducing the entitlement length for unemployment benefits increases migration among high-skilled individuals.

Retrieval or nonretrieval strategies in mental arithmetic? An operand recognition paradigm

According to LeFevre, Sadesky, and Bisanz, averaging solution latencies in order to study individuals' arithmetic strategies can result in misleading conclusions. Therefore, in addition to classical chronometric data, they collected verbal reports and challenged the assumption that adults rely systematically on retrieval of arithmetic facts from memory to solve simple addition problems. However, Kirk and Ashcraft questioned the validity of such a methodology and concluded that a more appropriate method has to be found. Thus, we developed an operand recognition paradigm that does not rely on verbal reports or on solution latencies. In accordance with LeFevre et al., we show in a first experiment that adults resort to nonretrieval strategies to solve addition problems involving medium numbers. However, in a second experiment, we show that high-skilled individuals can solve the same problems using a retrieval strategy. The benefits of our paradigm to the study of arithmetic strategies are discussed.

Migration and Foreign Direct Investment in the Globalization Context: The Case of a Small Open Economy

The main objective of the paper is to establish the link between the exogenous migration shocks and endogenous foreign direct investment flows in a small open economy setting with international capital mobility, immobile labour and a non-traded good. I find that the immigration of the high-skilled individuals and FDI flows are always complements in the quantity sense. The immigration of the low-skilled individuals will cause an outflow (inflow) of capital, if domestic non-traded and imported goods are relatively weak (strong) substitutes in consumption. Besides, I explain the attitudes of native individuals towards high-skilled and low-skilled immigrants.

What Attracts Human Capital? Understanding the Skill Composition of Interregional Job Matches in Germany

By examining the destination choice patterns of heterogenous labor, this paper tries to explain the skill composition of internal job matching flows in Germany. Estimates from a nested logit model of destination choice suggest that spatial job matching patterns by high-skilled individuals are mainly driven by interregional income differentials, while interregional job matches by less-skilled individuals are much more affected by regional differentials in job opportunities. Regional differentials in non-pecuniary assets slightly contribute to spatial sorting processes in Germany. Such differences in destination choices by skill level are partly modified by different spatial patterns of job-to-job matches and job matches after unemployment. Simulating job matching patterns in a scenario of economic convergence between eastern and western Germany demonstrates that wage convergence is the most effective means of attracting human capital to eastern Germany.