Local Labor Market Conditions Research Articles

Global Managers, Local Workers: Wage Setting inside a Multinational Firm

How are wages set within a multinational firm? Combining cross-country data on wages and labor regulations with personnel records of a large multinational firm, I find that wage setting depends on the rank of the employee in the firm hierarchy. For managers, wages are set by the headquarters regardless of local labor market conditions. For factory workers, wages are adjusted according to country-specific wages and labor regulations. These results suggest that the multinational's internal labor market shields managers from changes in external market conditions, while the firm adapts to local labor markets for factory workers.

The effects of gender-specific local labor demand on birth and later outcomes

We study the effects of local labor market conditions during early pregnancy on birth and later outcomes. Using a longitudinal survey of newborns in Japan, we find that improvements in employment opportunities increase the probability of low birth weight and premature birth. We also examine the effects of gender-specific labor market conditions. An increase in labor demand for women has a large negative effect on gestational age, especially for mothers who gave birth at relatively young ages. However, we find little evidence of a lasting negative effect of an increase in labor demand during early pregnancy on serious health conditions or developmental delays in early childhood. Using prefecture-level panel data, we confirm that the negative effect on infant birth weight is not driven by selective fertility and mortality.

The effects of precipitation shocks on rural labour markets and migration

ABSTRACT The welfare of workers in rural areas is highly affected by agricultural output volatility, caused in part by weather shocks. A volatile source of income is an important factor in inducing migration. While the impact of rainfall shocks on migration is well studied, the channels through which these shocks affect migration are underexplored. In this paper we study the hypothesis that the labour market is an avenue that carries the effect of precipitation shocks on migration. This paper first establishes the effect of precipitation shocks on the labour market. We use individual-level data combined with station-based precipitation data of Iran at the rural-agglomeration level in a fixed-effects panel-data model to find that workers in agriculture and industry sectors decrease their hours of work in response to negative shocks. We then use a linear probability model to show that negative shocks almost double the probability of migration and labour-migration for young men in Iran. Estimations of this paper indicate that as unemployment rate in rural areas increases, migration out of those regions rises as well. Additionally, controlling for the local labour market conditions at origin captures the impact of shocks on migration, implying the labour market is a channel through which precipitation shocks affect migratory decisions.

Preference for young workers in mid-career recruiting using online ads for sales jobs: Evidence from Japan

This study uses an original dataset of online mid-career job ads for full-time sales jobs collected from July 2018 to December 2019 to examine the use of explicit and implied age limits on job applicants and the characteristics of firms that set them. Although Japanese law prohibits age discrimination in employment, several exemptions, such as hiring young workers without prior work experience on regular contracts, are allowed. Firms can set an age limit, require job-related experience, or search broadly; however, they can also express their age preference in other ways. In the sample, 24 % of ads included explicit age limits generally capped at 35 years, 26 % set experience requirements, and nearly all contained some form of implied age preference. Consistent with theoretical predictions, the results show that firms with higher capital, those with fewer employees, older firms and those located in urban centers tended to set requirements on applicants. Further, domestic firms, firms with fewer employees, in urban centers and firms using probation periods for new hires were more likely to set age limits. Moreover, firms setting either requirement did not seem to be sensitive to local labor market conditions. Firms searching broadly responded to population age-related increased wage expectations while reducing labor costs by increasing the number of working hours covered by a baseline wage.

Getting a foot in the door: local labour markets and the school-to-work transition

ABSTRACT Despite persistent sub-national variation in youth unemployment rates, the relationship between local labour market conditions and youth labour market outcomes is not well understood. This article explores the consequences of variation in the level and type of demand for labour for the amount of time it takes young people in the United Kingdom to find employment, following departure from full-time education. Survival analysis of British Household Panel Study (BHPS) data covering the period 1998–2008 shows that variation in the level (but not the type) of demand for labour is associated with considerable heterogeneity in job search time among less qualified young people, but not their better qualified peers. On average, it takes young people with lower secondary qualifications 1 month longer to find employment of any sort and 7 months longer to find secure, full-time employment if they are located in a place of low rather than high labour demand. These findings, which highlight the contextual nature of the risk associated with low educational attainment, point to the need for greater policy focus on bridging spatial mismatch between the location of low qualified young people and the location of secure employment opportunities.

Do College Applicants Respond to Changes in Sticker Prices Even When They Don't Matter?

Abstract Do students respond to sticker prices or actual prices when applying to college? These costs differ for students eligible for financial aid. Students who do not understand this may not apply to some colleges because of the perceived high cost. We test for this form of “sticker shock” using College Board data on SAT scores sent, as a proxy for applications, to leading public institutions for students entering college in 2006–13. Some of these institutions guarantee financial aid will meet full financial need. Sticker price increases at those schools would not affect the actual cost after factoring in financial aid and should not affect decisions for those eligible for aid. We exploit the large and variable increases in sticker prices during the Great Recession of 2008. We also control for local labor market conditions to abstract from the recession's impact on individual educational decisions. We find evidence of sticker shock—students unaffected by virtue of institutional aid policies still apply less often. Using data from the National Student Clearinghouse, we also find that price increases at public flagship institutions reduce enrollment of high-achieving students, regardless of financial aid status, who often choose private colleges instead.

Business dynamism, educational attainment, and residential location choice

AbstractUsing individual‐level, geocode data from the National Longitudinal Survey of Youth's 1997 cohort, I ask whether business dynamism in local labor markets, defined as the rates of job creation and establishment entry, affects the location decisions of labor force participants, and I examine how effects differ for highly and less educated labor force participants. I find that a one standard deviation increase in business dynamism is associated with a 2%–4% increase in the probability a college graduate chooses a metropolitan statistical area and an 8%–15% decrease for high school graduates with no college experience. These results support recent findings documenting a decrease in responsiveness to local labor market conditions and suggest that incentivizing job creation in local labor markets may not be enough to offset the trend of declining internal migration in the United States.

COVID‐19 and employment relief programs: A tale of spatially blind policies for a spatially driven pandemic

AbstractWe use the case of Chile to analyze the effectiveness of a spatially blind employment relief program (hereafter referred to as the LPE program) established by the Chilean government and implemented during the COVID‐19 pandemic. Chile is an interesting case because on the one hand its nonpharmaceutical interventions were spatially driven by health indicators based on small geographical areas; hence, producing sizeable regional and temporal variation of the local conditions induced by the COVID‐19 pandemic. On the other hand, the LPE program was designed and implemented nationally without distinction of local labor market or pandemic conditions, and each firm could decide whether to enroll in the program. By exploiting the spatial‐temporal variation of exogenously imposed lockdowns and using a difference‐in‐differences panel data framework, we find that the LPE program was only effective for a group of regions in the country but, more importantly, that the LPE program was less effective during lockdowns. Moreover, the requirements of the LPE program were vague and did not target specific populations or entities. Consequently, our results suggest that women, informal and small firm workers, and most economic sectors throughout the country were less able to take advantage of the benefits of this program.

Macroeconomic fluctuations and individual use of psychotropic medications: evidence from Swedish administrative data.

A growing literature finds that adult mental health worsens during economic downturns. Current insights on the relationship between macroeconomic fluctuations and psychotropic medication are based on self-reported information or aggregate measures on prescriptions. This study assesses the relationship between local macroeconomic conditions and individual use of psychotropic medication as reported in administrative registers. We use local information on unemployment linked to individual-level longitudinal data on detailed psychotropic drug consumption from administrative registers, for individuals in working age (20-65) in Sweden 2006-13. Any psychotropic medication uptake and the related number of redeemed prescriptions are the primary outcomes. Mortality is considered a secondary outcome. Among young men (aged 20-44) and older women (aged 45-65), we find reduced use of psychotropic medication (2-4% compared to the mean) when the local labor market conditions deteriorate. The relationship is driven by reduced use of antidepressants. The same age-gender groups experience a significantly higher risk of mortality in bad times. This study shows that economic downturns may not only put strain on individuals' mental health but also on their access to psychopharmaceutic treatments.

Predictors of Becoming not in Education, Employment or Training: A Dynamic Comparison of the Direct and Indirect Determinants

Abstract This paper uses a dynamic latent factor model to investigate the determinants of not in education, employment or training (NEET) status among adolescents in the United Kingdom. We bring together within one framework various determinants of NEET status, such as educational achievements, non-cognitive skills, family socio-economic factors, aspirations, mental health and local labour market conditions. We model the educational progress over multiple periods through the life of the young person, up to the completion of compulsory schooling. By taking into account this progression, we can determine the direct and indirect impacts of different determinants of NEET status, and the stage in the life of the young person at which each determinant is important. Our findings suggest that cognitive ability (as measured by educational achievements) remains the key predictor of NEET status. Further, while a range of individual and family factors determines NEET status, the impact of most of these factors is largely indirect, through ability formation and not necessarily direct. To gauge the relative contributions of various determinants, we conduct simulations to predict the probability of the young person being NEET under different scenarios and assumptions. The exercise indicates that the effects of aspirations of the young person, their school engagement, and the local youth unemployment rate on the likelihood of the young person being NEET are as large as boosting their cognitive skills.

When Does Higher Firm Leverage Lead to Higher Employee Pay?

We show that newly hired workers earn higher wages in response to higher firm leverage. Consistent with compensating differential models, these higher wages appear to reflect compensation for the risk of earnings losses in the event of financial distress. For tenured workers, increases in leverage are not associated with higher wages. Our findings suggest that the wage costs of debt and optimal capital structure for a firm depend on expected employee turnover, as well as on the firm's future growth and hiring plans. Variation in local labor market conditions also significantly affects the relationship between firm leverage and employee pay. (JEL G32, G33, J21, J31, J61) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Where DESO Disappears: Spatial Inequality and Social Stratification at Labour Market Entry

Abstract At country-level, a host of evidence suggests there is a sizeable direct effect of social origin (DESO) on initial labour market outcomes, net of educational attainment. What is true at country-level is not always true below country-level, however. Using data from the UK Household Longitudinal Survey and the German Socio-Economic Panel, we show that variable spatial opportunity structures moderate the size of DESO at labour market entry, such that there are places where DESO disappears. Social origins assume greater importance as local labour market conditions deteriorate: in weak local labour markets, non-graduates are approximately 16 percentage points less likely to find employment if their parents are care workers rather than secondary school teachers, while graduates typically obtain first jobs that are 7–9 ISEI points lower in status. These findings highlight the distinctive geography of social stratification processes at labour market entry and potentially beyond.

Do active labor market policies for welfare recipients in Germany raise their regional outflow into work?

While many studies estimate the effects of active labor market programs (ALMPs) on the participants’ labor market outcomes, far fewer studies are concerned with the effects of these policies on the regional job-matching process. We analyze which ALMPs are particularly effective at the regional level, as well as the role local labor market conditions play for their effectiveness. We find positive effects for a number of ALMPs, but for some of these the effects differ considerably between regions with high and low unemployment. This has important policy implications.

Unemployment Insurance and Opioid Overdose Mortality in the United States.

Over the past two decades, opioid overdose deaths contributed to the dramatic rise in all-cause mortality among non-Hispanic Whites. To date, efforts among scholars to understand the role of local area labor market conditions on opioid overdose mortality have led to mixed results. We argue the reason for these disparate findings is scholars have not considered the moderating effects of income support policies such as unemployment insurance. The present study leverages two sources of variation-county mass layoffs and changes in the generosity of state unemployment insurance benefits-to investigate if unemployment benefits moderate the relationship between job loss and county opioid overdose death rates. Our difference-in-differences estimation strategy reveals that the harmful effects of job loss on opioid overdose mortality decline with increasing state unemployment insurance benefit levels. These findings suggest that social policy in the form of income transfers played a crucial role in disrupting the link between job loss and opioid overdose mortality.

Employment Outcomes for Men and Women Following an Economic Downturn: Labour Underutilisation in Australia

In Australia, as elsewhere, there has been continuing interest in understanding questions regarding unequal employment opportunities. While aggregate patterns provide a useful overview, it is insightful to consider employment outcomes across segmented markets. One such segmented market is between men and women, where it is widely understood that labour market engagement opportunities will differ. This paper provides an investigation of these uneven labour market outcomes. It presents an analysis of labour underutilisation for men and women using panel data, taking account of both individual-level supply-side factors together with the strength of the local labour market (demand side) and the performance of the broader macroeconomic environment. The result is an analysis that accounts for the impact of changing macroeconomy, local labour market conditions and men and women's employability assets.

Labour market conditions and adult health in Mexico

AbstractThis paper examines the role of local labour market conditions on self‐reported adult physical and mental health and health behaviours in Mexico. We construct measures of overall and gender‐specific predicted employment growth rates using a shift‐share approach that exploits exogenous variation in national industry‐specific growth rates and baseline industry employment shares across municipalities. Using detailed household‐level panel data and individual fixed effects, we find that increases in overall formal labour demand improve physical health of men but have no effect on the health of women. However, increases in gender‐specific formal labour demand improve the physical health of both men and women, with larger effects among men. We also find significant but small effects of male labour demand on the mental health of men. All effects are more pronounced for less educated people. Finally, we explore a range of potential mechanisms, finding that the effects might operate through changes in labour market outcomes, but we do not find evidence that the effects operate through changes in health behaviours.

The Price and Employment Response of Firms to the Introduction of Minimum Wages

This paper studies the price and employment response of firms to the introduction of a nation-wide minimum wage in Germany. In line with previous studies, the estimated employment effect is only modestly negative and statistically insignificant. In contrast, affected firms increased prices much more frequently. The price effect is prevalent across different sectors of the economy including manufacturing and is thus not limited to low wage industries. I document that speed and degree of price pass-through were high and firms rolled over the lion’s share of the costs generated by the minimum wage to their customers. Consistent with the role of price pass-through, I find considerable heterogeneity in firms’ responses to the minimum wage depending on their own business expectations, product market competition, and local labor market conditions.

Is the grass really greener? Migrants' improvements in local labor market conditions and financial health

Is the grass really greener? Migrants' improvements in local labor market conditions and financial health

Regional borders, local unemployment, and life satisfaction

AbstractIn this paper, we provide novel evidence on the effect of local unemployment rate on life satisfaction. With this, we contribute to the expanding literature that aims to understand the role of the local labor market's conditions for individual well‐being. This information can be used to only analyze the impact of regional economic policies, as well as to understand individuals' behavior and reactions to policy changes. In concrete, we investigate how changes in local unemployment rate affect subjective well‐being in Germany, allowing for the presence of spatial spillovers and considering the role played by regional borders. The results indicate that higher unemployment in the own local area of residence has a negative effect on satisfaction. Similarly, individuals' happiness negatively correlates with the unemployment rate in contiguous local areas, but only if these areas are located in the same Federal State as the one where the individual lives. Heterogeneity analysis reveals that these negative effects of local unemployment rate are larger for individuals with stronger ties to the job market and less secure jobs.

Who takes the hit? Gender differences in employment outcomes after disasters

AbstractWe estimate the individual labor market outcomes in Indonesia using historical data to isolate the plausibly exogenous variation in local labor market conditions due to unexpected natural hazards. We find that men substitute labor away when there are more unanticipated disasters while women work more. These gender differences in employment elasticities are heterogeneous by land ownership and education. Results imply that policies targeting women, including more flexible workplace arrangements and incentives to finishing secondary school, may be necessary to allow women to substitute away from work when the gains from participation are low.