Wage Prospects Research Articles

Catching-up or falling behind? Wage prospects and labor market performance in Germany *

Catching-up or falling behind? Wage prospects and labor market performance in Germany *

Why Do Migrants Stay Unexpectedly? Misperceptions and Implications for Integration

Empirical evidence suggests that a large proportion of immigrants who initially intended to stay temporarily in the destination country end up staying permanently, which may lead to suboptimal integration. We study systematic causes of unexpected staying that originate in migrant misperceptions. Our framework contains uncertainty about long-term wages, endogenous integration and savings in the short term, and return migration in the long term. We identify necessary and sufficient conditions on misperceptions that lead migrants to overestimate their probability of return migration, independently of their characteristics. We show that these conditions involve pessimism about the destination country, either in terms of short-term utility, of long-term utility, or of wage prospects. We then highlight specific behavioural biases that give rise to such forms of pessimism. Using the German Socio-Economic Panel, we find that relatively higher pessimism at arrival about future utility and wages is associated with migrants staying unexpectedly ex post.

Why Do Migrants Stay Unexpectedly? Misperceptions and Implications for Integration

Empirical evidence suggests that a large proportion of immigrants who initially intended to stay temporarily in the destination country end up staying permanently, which may lead to suboptimal integration. We study systematic causes of unexpected staying that originate in migrant misperceptions. Our framework contains uncertainty about long-term wages, endogenous integration and savings in the short term, and return migration in the long term. We identify necessary and sufficient conditions on misperceptions that lead migrants to overestimate their probability of return migration, independently of their characteristics. We show that these conditions involve pessimism about the destination country, either in terms of short-term utility, of long-term utility, or of wage prospects. We then highlight specific behavioural biases that give rise to such forms of pessimism. Using the German Socio-Economic Panel, we find that relatively higher pessimism at arrival about future utility and wages is associated with migrants staying unexpectedly ex post.

Do Parental Leaves Make the Motherhood Wage Penalty Worse?

Abstract We assess if and how motherhood wage penalties change in response to the design of parental leave regulations. Focusing on Germany, we compare sweeps of reforms inspired by opposite principles. One allowed for longer periods out of paid work in the 1990s, the other prompted quicker re-entry in the labour market in the late 2000s. These reforms may have first exacerbated and later mitigated wage losses for new mothers, albeit each component of leave schemes may trigger separate, and at times zero-sum, mechanisms. We rely on Socio-Economic Panel (SOEP) data and a difference-in-differences design. Focusing on first-time mothers, we find that motherhood wage penalties were substantial (around 20–30 per cent of pre-birth wages) and also changed little during the 1990s. As parental leave reform triggered longer time spent on leave coupled with better tenure accumulation, wage losses for mothers remained stable in this first period. Following parental leave reform in the late 2000s, instead, the wage prospects of first-time mothers improved, thanks in part to shorter work interruptions and increased work hours. We suggest that the nuts and bolts of leave schemes can be fine-tuned to reduce child penalties and, thus, gender wage disparities.

Wages, Wellbeing and Location: Slaving Away in Sydney or Cruising on the Gold Coast

We analyse the relationships between subjective wellbeing (SWB), wages and internal migration. Our study addresses whether people make (revealed preference) location decisions based on SWB and/or wage prospects. We present both a theoretical intertemporal location choice model and empirical analyses using the Australian longitudinal HILDA dataset. Our theory predicts considerable heterogeneity in location choices for individuals at different life stages depending on their individual characteristics, including their rate of time preference. We find a significant and sustained uplift in SWB for migrants, which holds across a range of sub-samples. By contrast, wage responses are muted albeit with heterogeneity across groups. Our theory and results show that migration decisions are considered within a life-cycle context. The estimated pronounced upturn in SWB for migrants substantiates the usefulness of SWB both as a concept for policy-makers to target and for researchers to incorporate in their studies.

Massification of Higher Education in Taiwan: Shifting Pressure from Admission to Employment

Educational authorities in Taiwan have been expanding the higher education sector since the 1990s to meet the demands of economic transformation and to meet cultural expectations. Consequently, the higher education system of Taiwan has evolved from an elite system to a universal one. The rapid expansion of higher education is also characterized by salient features such as the increase of higher degrees, an enlarged private sector, and diminishing numbers of junior college institutions and students. This study explores whether these changes at the national level have brought challenges to the labour market. Our findings reveal that intensified competition for employment caused by the increased number of college graduates has incurred extra monetary cost and uncertain wage prospects at the individual level. Disadvantaged students might suffer the most from the massification in light of increased financial investments and low(er) rates of return to higher education.

Low-wage employment versus unemployment: Which one provides better prospects for women?

Using German SOEP data, 1999 – 2009, this study analyzes state dependence in low-wage employment of western German women, where we distinguish between full-time and part-time working. We estimate a dynamic multinomial logit model with random effects and find that having a low-wage job – compared to having a high-wage job – ceteris paribus decreases the probability of being high-paid in the future. This negative effect is significantly larger for part-time jobs than for full-time jobs. We find mixed evidence for a low-pay-no-pay cycle: compared to being high-paid, having a low-paid job increases the risk of being unemployed in the next period only for part-time workers. However, concerning future wage prospects low-paid women are clearly better off than unemployed or inactive women. We argue that for women low-wage jobs can serve as stepping stones out of unemployment and are to be preferred to staying unemployed and waiting for a better job. J30; J60; C35

Teaching in vocational education as a second career

This study investigates the determinants of career change for individuals who change their job to become a teacher in vocational education and training (VET) as a second career. The question of what motivates individuals to forfeit their original occupation to become a teacher is important for policy making not only in times of teacher shortages but also in light of the quality of individuals that can be motivated to change their career mid-life to become a teacher. First, the empirical analysis uses pairs with the same observable characteristics of teachers and non-teachers in Switzerland to compare the relative wage position in their former occupation of those who have chosen to change career into teaching. We indicate the quality of these career changers primarily by their pay in the former occupation. Second, we investigate the wage prospects of career changers by exploring the counterfactual situation to the decision to become a teacher (teacher’s expectations for a career in the former occupation or as a teacher) and therefore we apply multivariate regression techniques to account for observable differences between individuals. The results show that individuals who change their careers to teaching in VET earned, on average, more in their first career than comparable workers in the same occupation. The findings also demonstrate that the average career changer still expects to earn significantly more as a teacher than in their former career. However, the study shows that one-third of the career changers expect a wage loss. Although the average teacher tends to rank among the better earners in his or her original occupation, the majority of career changers expect to earn more as a teacher than in their original occupation. This finding shows that the average wage level at vocational schools can compete with average wage levels in the rest of the economy. However, substantial heterogeneity exists given that about one-third of career changers are prepared to accept a cut in wage after changing to teaching. One probable explanation is the very high relevance of non-monetary factors that make teaching a more attractive option, at least for some individuals. C21, I20, J24, J45, J62

Do Scarring Effects of Low‐Wage Employment and Non‐Employment Differ BETWEEN Levels of Qualification?

AbstractThis study investigates how the effects of low‐wage employment and non‐employment on wage prospects vary depending on qualification. Based on theories on signalling effects, human capital and job search, we discuss why there may be heterogeneity in state dependence in both labour market states. We find that episodes of low‐wage employment incur a significantly lower risk of future non‐employment than episodes of non‐employment for low‐qualified workers. In contrast, for workers with a middle or high level of qualification the risk of non‐employment is not significantly different when being low‐paid instead of not employed.

Low-Wage Employment Versus Unemployment: Which One Provides Better Prospects for Women?

This study analyzes state dependence in low-wage employment of western German women using GSOEP data, 2000-2006. We estimate dynamic multinomial logit models with random effects and find that having a low-wage job increases the probability of being low-paid and decreases the chances of being high-paid in the future, in particular for low-paid women working part-time. However, concerning future wage prospects low-paid women are clearly better off than unemployed or inactive women. We argue that for women low-wage jobs can serve as stepping stones out of unemployment and are to be preferred to staying unemployed and waiting for a better job.

Changes in the Relative Economic Performance of Immigrants to Great Britain and the United States, 1980–2000

AbstractWe compare the relative labour market performance of immigrants in the USA and in Britain over the period 1980–2000, when the stocks of immigrants were rising in both countries alongside differential shifts in demand and changes to labour market institutions. We find that the average relative employment prospects of immigrants are generally better in the USA than in Britain, particularly for non‐white immigrants, while the average relative wage prospects for immigrants are generally better in Britain, particularly for men. Over time, relative wage and employment prospects for immigrants to the USA appear to have deteriorated, particularly among women, in a way that is not as apparent in Britain.

The Distribution of Earnings in an Equilibrium Search Model with State‐Dependent Offers and Counteroffers*

We construct an equilibrium job search model with on‐the‐job search in which firms implement optimal‐wage strategies under full information in the sense that they leave no rent to their employees and counter the offers received by their employees from competing firms. Productivity dispersion across firms results in wage mobility both within and across firms. Workers may accept wage cuts to move to firms offering higher future wage prospects. Equilibrium productivity dispersion across ex ante homogeneous firms can be endogenously generated. Productivity dispersion then generates a nontrivial wage distribution which is generically thin‐tailed, as typically observed in the data.

Firm-size wage differentials in the Netherlands

An unsolved problem in modern labor economics is the positive relation between the size of the firm in which a worker is employed and his wage. One line of research that has been developed quite recently in this field is the application of endogenous switching regression models. In this paper we utilize such a model to investigate firm-size wage differentials in the Netherlands. The principal findings are that larger firms pay higher returns on schooling whereas smaller firms tend to reward IQ. Combined with the finding that high IQ-workers are sorted into the largest firms, the results are consistent with a model of job screening. Furthermore, we find that employed sons of self-employed fathers are more likely to work in small firms and that wage prospects for all types of workers are indeed most favorable in larger firms.

Wages, Nonwage Job Characteristics and the Search Behavior of Employees

This paper analyzes the search decision of employees empirically. A maximum likelihood model consisting of a wage equation and a search equation, in which the difference between the present and the nonobserved alternative (market) wage is included, is estimated to investigate the importance of nonwage job characteristics and future wage prospects relative to the present wage. The estimation results indicate that both present and future wages and nonwage job characteristics have a significant impact on the search decisions of employees. Copyright 1991 by MIT Press.

Wage prospects and the existence of job queues when the wage is a sorting device

We consider a labor market where information is asymmetric. Previous research suggests that excess supply may result in this situation. We find no excess supply if labor suppliers respond to wage prospects – the wage times the probability of employment.