Labor Market Setting Research Articles

ON THE RELEVANCE AND COMPOSITION OF GIFTS WITHIN THE FIRM: EVIDENCE FROM FIELD EXPERIMENTS*

We investigate the economic relevance and the composition of gifts within a firm where output is contractible. We develop a structural behavioral model that identifies workers’ optimal reaction to monetary gifts received from their employer. We estimate the model using data from two separate field experiments conducted within a tree-planting firm. We use the estimated structural parameters to generalize beyond the experiment, simulating how workers would react to different gifts on the part of the firm, within different labor market settings. We find that gifts have a role to play within this firm, increasing in importance when the workers’ outside alternatives deteriorate. Profit-maximizing gifts would increase profits within slack labor markets by up to 10% on average and by up to 17% for certain types of workers.

The Intergenerational Transmission of Economic Disadvantages and Social Exclusion – Constraints on Social Mobility

Abstract Based on longitudinal data from the Cross-National Equivalent File 1980 – 2008 (CNEF 1980 – 2008) the paper analyzes the extent and structure of the intergenerational transmission of economic (dis)advantages in Germany, the United States, and Great Britain – countries with different family role models, institutional labor market settings, and welfare state regimes. The empirical results show a high intergenerational income immobility in the United States: the contribution of individual and family background characteristics, and social exclusion features to the intergenerational income elasticity is more pronounced than in Germany, and in Great Britain. The results do not validate the hypothesis of a higher influence of individual and family background characteristics in Germany due to traditional family role patterns. The significant impact of educational attainment on the intergenerational transmission of economic chances emphasizes the importance of a human capital oriented economic and social ...

Labor Market Regulation and its Characteristics: Comparison Between Czech Republic and Austria

Labor Market Regulation and its Characteristics: Comparison Between Czech Republic and Austria In this paper, we are trying to compare the labor market regulation in the Czech Republic and Austria and its structural parameters that characterize the given labor markets. In order to do that, we estimate the New-Keynesian model with matching frictions and nominal wage rigidities. Labor market regulation is proxied by worker's bargaining power over the wage. This main parameter is moving inside the interval and express a share of the total surplus that arises from filling the vacancy. In fact it expresses the state of who gains more from the added value that the vacancy is filled (worker or employer). Results indicate that workers in Austria and the Czech Republic have almost the same bargaining power that arises from the labor market settings.

Parenthood and welfare outcomes in late-twentieth-century Sweden

This article explores the impact of family formation and in particular the impact of parenthood on Swedish men's and women's welfare outcomes during the last decades of the twentieth century. A description of changes to family forms since the 1970s, with an emphasis on marriages, divorces, and childbirth is followed by a description of Swedish family policy and labour market settings. After this, the article focuses on the effects of parenthood on welfare outcomes, namely income and well-being. Negative effects of parenthood, specifically lowered income and self-reported feelings of tiredness are more frequently observed in mothers, something which is argued to influence future childbirth patterns. Furthermore, the article points to the need to examine the potential influence that fathers' changing roles within families will have on future family formation and fertility patterns.

Labor Supply Decisions, Occupational Segregation, and Intergenerational Income Mobility – Germany and the United States Compared

The article directs attention to the structuring effects of humancapital variables and family-background characteristics on labor supply decisions, occupational segregation, and intergenerational income mobility in the United States and Germany - two countries with different institutional labor market settings and family role patterns. The article tests the hypothesis that the impact of family-background characteristics on labor supply decisions, sex or gender segregation, and intergenerational transmission of social and economic status is more expressed in societies with traditional role patterns. Using data from the international version of the Cross-National Equivalent File (PSIDGSOEP), the results of the static labor supply model show that gender and education significantly determine the individual labor market participation in both the countries. Occupational gender segregation is more pronounced in Germany than in the United States. The contribution of the occupational groups to total gender segregation differs by country but not by marital status. We find stronger evidence for the impact of individual- and family-background characteristics on the intergenerational heritage of social status in the United States than in Germany.

Statistical Discrimination in Labor Markets: An Experimental Analysis

This article reports results from controlled laboratory experiments designed to study second‐moment (that is, risk‐based) statistical discrimination in a labor market setting. Since decision makers may not view risk in the same way as economists or statisticians (that is, risk 5 variance of distribution), we also examine alternative measures of risk: the support of the distribution and the probability of earning less than the expected (maximum) profits for the employer. Our results indicate that employers made statistically discriminatory wage offers consistent with loss aversion in our full sample (though the result is driven by the male employer subsample). If one can transfer these results outside of the laboratory, they indicate that discrimination estimates based only on first‐moment (mean‐based) discrimination are biased. The public policy implication is that efforts and legislation aimed at reducing discrimination of various sorts face an additional challenge in trying to identify and limit relatively hidden, but significant, forms of statistical discrimination.

The Wages of Pay Cuts: Evidence from a Field Experiment

We conduct a field experiment to understand why firms rarely cut nominal wages, a central tenet of macroeconomics, and poorly understood due to the difficulty of observing plausibly exogenous wage reductions in actual labor market settings. We hired workers for a data entry task, paid them a high wage and then offered some of the workers the opportunity to keep working, albeit for a lower wage. Offers were framed differently across groups. Workers were more likely to reject lower offers, but 'reasonable' justifications eliminated this effect. Yet not all justifications were effective - suggesting the cut would improve our profits increased quits. We also measured whether the treatments affected quality, trust and cooperation. The 'profits' treatment reduced cooperation and possibly reduced quality; the other treatments had generally weak effects. Our auxiliary results are more consistent with theories of negative reciprocity, where firms are reluctant to reduce wages for fear of worker retaliation, than with theories of gift exchange or adverse selection. In a follow-up experiment, we measure the value of different framings for wage cuts.

On the Relevance and Composition of Gifts within the Firm: Evidence from Field Experiments

We investigate the economic relevance and the composition of gifts within a firm where output is contractible. We develop a structural econometric model that identifies workers' optimal reaction to monetary gifts received from their employer. We estimate the model using data from two separate field experiments, both conducted within a tree-planting firm. We use the estimated structural parameters to generalize beyond the experiment, simulating how workers would react to different gifts on the part of the firm, within different labour-market settings. We find that gifts have a role to play within this firm, increasing in importance when the workers' outside alternatives deteriorate. Profit-maximizing gifts would increase profits within slack labour markets by up to 10% on average and by up to 17% for certain types of workers. These gifts represent significant increases in worker earnings; the average gift paid to workers attains 22% of average expected earnings in the absence of gifts. We find that gifts should be given by setting piece-rates above the market-clearing level rather than through fixed wages.

On the Relevance and Composition of Gifts within the Firm: Evidence from Field Experiments

We investigate the economic relevance and the composition of gifts within a firm where output is contractible. We develop a structural econometric model that identifies workers' optimal reaction to monetary gifts received from their employer. We estimate the model using data from two separate field experiments, both conducted within a tree-planting firm. We use the estimated structural parameters to generalize beyond the experiment, simulating how workers would react to different gifts on the part of the firm, within different labour-market settings. We find that gifts have a role to play within this firm, increasing in importance when the workers' outside alternatives deteriorate. Profit-maximizing gifts would increase profits within slack labour markets by up to 10% on average and by up to 17% for certain types of workers. These gifts represent significant increases in worker earnings; the average gift paid to workers attains 22% of average expected earnings in the absence of gifts. We find that gifts should be given by setting piece-rates above the market-clearing level rather than through fixed wages.

A theory of employment guarantees: Contestability, credibility and distributional concerns

Both raw intuition and past experience suggest that the success of an employment guarantee scheme (EGS) in safeguarding the welfare of the poor depends both on the wage it promises, and the ease with which any worker can gain access. An EGS is thus at once a wage guarantee and a rationing device. We chart the positive and normative limits of such an EGS as an efficiency improving and poverty alleviating policy reform in a canonical labor market setting. At its core, an EGS provides an aggregate, not just EGS, employment target. Given the target, the EGS wage and access can be fine-tuned to deliver outcomes ranging from a contestable labor market to a simple universal unemployment benefit. The credibility of any such target, however, is shown to be triggered endogenously by a host of factors: the distributional concerns of the planner, private sector productivity, the prevalence of market power and the need for public works. Paradoxically, the outcome with a planner who cares only about efficiency can be less efficient than the outcome with a planner whose social welfare function also gives weight to poverty!

Institucionální aspekty fungování trhu práce

The main objective of this article is to analyse the institutional framework of labour market function. Theoretical literature has created a set of institutional aspects such as employment protection legislation, structure of wage bargaining, taxation of labour, active labour market policies, the system of unemployment benefits. On the basis of these institutional aspects and their setting we can judge general labour market setting or we can determine the dimension of labour market flexibility. Attention is also paid to influence of these institutional aspects on employment or unemployment.

Wages and Contracting Out: Does the Law of One Price Hold?

AbstractWe find that, conditioning on industry of assignment, cleaners and security guards who participate in activities organized by contract companies earn 15 and 17 per cent less, respectively, than workers in those activities organized in‐house. These estimates are hardly affected by the inclusion of a set of jointly statistically significant exogenous variables. We can expect that most of the productive traits that characterize a task are transferred to the contractor in the process of contracting out a cleaning or security task. Thus, our findings are hard to rationalize by a simple competitive labour market setting where the law of one price holds.

Statistical Discrimination in Labor Markets: An Experimental Analysis

Statistical discrimination occurs when distinctions between demographic groups are made on the basis of real or imagined statistical distinctions between the groups. While such discrimination is legal in some cases (e.g., insurance markets), it is illegal and/or controversial in others (e.g., racial profiling and gender-based labor market discrimination). First-moment statistical discrimination occurs when, for example, female workers are offered lower wages because females are perceived to be less productive, on average, than male workers. Second-moment discrimination would occur when risk-averse employers offer female workers lower wages based not on lower average productivity but on a higher variance in their productivity. This paper reports results from controlled laboratory experiments designed to study second-moment statistical discrimination in a labor market setting. Since decision-makers may not view risk in the same way as economists or statisticians (i.e., risk-variance of distribution), we also examine two possible alternative measures of risk: the support of the distribution, and the probability of earning less than the expected (maximum) profits for the employer. Our results indicate that individuals do respond to these alternative measures of risk, and employers made statistically discriminatory wage offers consistent with loss-aversion.

YOUTH LABOUR MARKET OUTCOMES IN ESTONIA: WHAT KIND OF JOBS DO RECENT SCHOOL LEAVERS HOLD?

1. Introduction Transition from education to working life is a significant event from the viewpoint of both the individual and society. Entering the labour market is conceived as a rite of passage decisive of a person's entire labour market career. Transition can also be seen as a complex social phenomenon, which can be the origin of several social problems. High incidence of unemployment among young people and the inability of many school leavers to find suitable employment point to the necessity of studying the labour market transition in post-socialist Estonia. Although the issue of the entry process in the Estonian context has to a certain extent already been addressed by some authors (such as Berde et al. 1999), the recently available new data-set makes it possible to explore this subject matter from a new perspective. The aim of this paper is to analyse the entry process in post-socialist Estonia, to asses the impact of various micro-level characteristics on the success of labour market integration and to describe its developments at the backdrop of the changing social context. Additionally, the results are compared with the outcomes of similar studies from other European countries. The empirical part of the study is based on the Estonian Labour Force Survey 2002 ad-hoc module on school-to-work transition. The rest of the paper proceeds as follows. In the first section an overview of the basic theoretical approaches to labour market transition and the summary of most relevant empirical results are given, also the context of the transition is analysed and hypotheses are formed. The description of the data-set and research methods follows. The results of the empirical analysis are presented in the third part, followed by the final section, which sums up the results and draws the conclusions. 2. Theoretical background 2.1. The nature of labour market transition The sociological concept of school-to-work transition is of recent origin (Ryan 2001:34). For earlier generations integration to working life was characterised as swift and uneventful, while for today's youth labour market entry is marked with growing complexity and diversity. For many school leavers it is a period of remarkable uncertainty and change, which can affect their entire labour market career (Shavit et al. 1990:53). While the conceptualisation of school-to-work transition as a period starting with leaving the educational system and ending with obtaining employment is, due to its relatively unambiguous nature, a commonplace in many studies concentrating on labour market entry (e.g. Sanders and Becker 1994), it is by no means theoretically unproblematic. Some young people begin their labour market careers before officially leaving the educational system, whereas others return to full-time education after a shorter or longer spell of full-time employment. Even when the departure from the educational system is permanent, it is not always followed by smooth integration to working life. Young people are characterised by a greater propensity to change jobs and are found in temporal and part-time employment more than the rest of the employed population. School-to-work transition can thus be called a process of labour market accommodation, without sharp beginning and end markers (Wolbers 2001:2). The success of labour market integration is most commonly measured by the school leavers' propensity to avoid unemployment and mismatching jobs, but also by the duration and the relative social ranking of the first job. Factors affecting the results of labour market transition can be divided into a period effect (time- varying aspects of the social and economic environment), institutional factors (nation- specific aspects of educational system and labour market settings) and individual characteristics. The latter can further be subdivided to ascribed characteristics (e.g. gender and ethnicity) and achievement effects (e. …

The comparative attractiveness of international business locations: the role of labor law

At a time of intensifying uncertainty, managerial flexibility to adapt to changes in the economic environment is increasingly important. Different business locations, it is frequently argued, offer this flexibility to differing degrees, labor law being one essential factor in determining the resulting attractiveness of a country as a business location. This paper takes an options perspective in order to grasp the potential effect of labor law on location decisions. The option value of an investment, it is argued, is influenced, among other factors, by labor law provisions. Depending on their preference for a certain set of options, different investors will prefer different labor market settings. The ability of the options perspective to assess the role of labor law for the attractiveness of international business locations is exemplified in a British‐German comparison and confronted with data on the composition of foreign direct investment in the two countries.

Transferable Training as a Collective Good

The potential significance of employers' collective action for economic performance is widely acknowledged, but has not been complemented with corresponding theory-guided research on the probability of collective action and the conditions for effective action. This article examines the nature of, the conditions for, and the consequences of employers' collective action on further training, a crucial component of a successful high-skill strategy for industries and nations. The collective action perspective shares the core assumptions of human-capital theory, but integrates the possibility of collective action as a solution to some of the market failures associated with investment in transferable human capital. This alternative view also predicts in what labour-market settings such action is likely to occur, building on Olson's work and theories of employers' collective action. We suggest that employers' collective action is more likely to succeed in ensuring transferability and encouraging employee investment than is the use of sanctions against employers to promote employer-financed transferable training

Frictional Assignment. I. Efficiency

This paper examines the two-sided matching problem where the agents on each side of the market are heterogeneous and the matching process is time consuming. This is cast in a labor market setting where workers of different skills match with different machine qualities. I characterize the efficient allocation and then show that it can be decentralized by a market mechanism. The efficient assignment is not always positively assortative, despite the fact that machine qualities and skills are complementary in production. To decentralize the efficient allocation, the market mechanism requires the firms to post wages and commit each machine quality to a particular skill. Implications on wage inequality are briefly examined. Journal of Economic Literature Classification Numbers: J31, E24, J64.

Labor Market Institutions and the Second‐Best Tariff

Labor market distortions provide a second‐best case for protection. However, the implications are less obvious when the product market is imperfectly competitive too, as suggested by several partial equilibrium studies. This paper adopts a general equilibrium approach, combining unionization in labor markets with monopolistic competition in product markets. Two labor market settings are considered: fully centralized wage bargaining (“Scandinavia”, for short) and negotiation at the firm level (“Latin America”). The competitive labor market case is used as a benchmark. It is shown that in Latin America the second‐best tariff is higher, and the welfare level lower, than in the benchmark case. Scandinavia reaches the first best under free trade.

Pensions and retirement : Rational decision rules for early retirement inducements contained in corporate pension plans, by Jihad S. Nader (Concordia University, Montreal)


 
 
 This article presents a net present value (NPV) model of early pension subsi- dies. The model’s theoretical basis is the compensating differentials-lifetime contracts framework of the labor market setting which gives rise to pension plans. The NPV model effectively integrates early pension subsidies into the shareholder wealth maximization framework of corporate finance. Within this framework, the article develops rational decision rules for early pension subsidies, and employs these rules to provide a corporate finance perspective on the pension-wage tradeoff of the firm’s labor force. 77zeJournaE of Risk and Insurance, Vol. LVIII, No. 1 (March 1991), pp. 101-108. (Reprinted with permission of The Journal of Risk and Insurance.)
 
 

The Economics of Comparable Worth.

Killingsworth provides a clear statement of the definitional and conceptual issues surrounding comparable worth as well as an examination of its actual and potential effects. He also shows how comparable worth might work in alternative labor market settings and provides evidence of the effects of the comparable worth measures implemented in San Jose, Calif., the State of Minnesota, and Australia.