LABOR MARKET DYNAMICS WITH SEARCH FRICTIONS AND FAIR WAGE CONSIDERATIONS

Fairness considerations in wage setting can improve the ability of the Diamond‐Mortensen‐Pissarides search and matching model to account for U.S. labor market dynamics. Firms' production is influenced by workers' effort input, which depends on whether workers consider the employment relation as fair. A typical worker's effort is determined in a comparison of individual current wage with wage norms, including the outside option, the individual past wage, and the wage level in the steady state. The fairness considerations in the search framework give rise to endogenous real wage rigidity, and realistic volatilities of unemployment, vacancies, and labor market tightness. (JEL E24, E32, J64)     

International competition and the labor market prospects of union and nonunion workers

We investigate the relationship between international competition and the labor mar-ket prospects of a representative sample of British workers. Our analysis, which sets out the first explicit test of both the wage and employment implications of increased international competition, highlights an interesting asymmetry with competition neg-atively affecting the wage, but not the employment, prospects of unionized workers and the employment, but not the wage, prospects of nonunion workers. We have benefited from discussions with Monojit Chatterji, Michael Devereux, Lisa Grobar, Alan Man-ning, Chris Milner, and Ian Walker. Helpful comments were also received from seminar participants at the Universities of Aberdeen, City, Keele, and Loughborough. We are grateful to Daniel Kwok for excellent research assistance. The normal disclaimer applies.     

QUIT BEHAVIOR UNDER IMPERFECT INFORMATION: SEARCHING, MOVING, LEARNING

The paper provides a search ––– theoretic interpretation of a well-known empirical regularity ––– the inverse relationship between quit rates and job tenure. We consider a setting where the employed job searcher has incomplete information about non-wage job attributes at the time acceptance decisions are made; hence jobs will be accepted (or refused) without full knowledge of the value of the offers. The model implies that workers with long tenure will be less likely to quit, holding wage rates constant. We also show that a risk-neutral worker is willing to accept a wage offer that falls below his current "full" wage (in the absence of moving costs).     

Workers’ participation in wage setting: A gift-exchange experiment

This study analyzes the consequences of workers’ participation in the wage setting process on effort exertion. The experimental design is based on a modified gift-exchange game with firms specifying contract alternatives and workers deciding about the finally implemented alternative. The experimental data reveals that workers with participation rights are more sensitive to differences in wage offers: Low wage offers trigger negative reciprocity which dominates the positive incentive effects from high wage offers. On average, participation in the wage setting process leads to a decline in effort exertion.     

Domestic Work and the Wage Penalty for Motherhood in West Germany

Previous research suggests that household tasks prohibit women from unfolding their full earning potential by depleting their work effort and limiting their time flexibility. The present study investigated whether this relationship can explain the wage gap between mothers and nonmothers in West Germany. The empirical analysis applied fixed‐effects models and used self‐reported information on time use and earnings as well as monthly family and work histories from the German Socio‐Economic Panel (1985–2007, N = 1,810; Wagner, Frick, & Schupp, 2007 ). The findings revealed that variation in reported time spent on child care and housework on a typical weekday explains part of the motherhood wage penalty, in particular for mothers of very young children. Furthermore, housework time incurred a significant wage penalty, but only for mothers. The authors concluded that policies designed to lighten women's domestic workload may aid mothers in following rewarding careers.     

REDUCING PUBLIC‐PRIVATE SECTOR PAY DIFFERENTIALS: THE SINGLE SPINE PAY POLICY AS A NATURAL EXPERIMENT IN GHANA

Empirical studies have documented the existence of the public‐private pay differentials in both developed and developing countries. The implementation of policies aiming to reduce this gap has however been mitigated or inconclusive. This paper exploits the Single Spine Pay Policy (SSPP) in Ghana as a natural experiment to examine the effectiveness of wage policies in developing countries. The SSPP was implemented in 2010 by the Government of Ghana to address the public‐private sector wage gap and improve productivity in the public sector. Using a quantile treatment effect approach based on a difference‐in‐difference estimation, we show that the SSPP has yet to reduce the wage gap between the public and private sectors across the entire distribution of earnings in Ghana. The improvement observed is only at the lower tail of the distribution of earnings. However, the SSPP has a larger effect on the earnings of female workers than that of males in the education and health services sectors while male workers have benefited more in the administration sector, suggesting that the policy was successful in reducing the gender wage gap in the education and health services sectors but has widened this gap in the administration sector. Moreover, the SSPP has decreased the productivity of workers across the distribution of earnings, mainly due to a decrease in the effort of female public sector workers in the education and health sectors and male workers in the administration sector. (JEL C31, G15, J24, J31, J45)     

Wage Inequality and Performance in Nonprofit and For‐Profit Organizations

This article examines the effects of several forms of wage inequality on service quality and employee effort. We suggest that two popular theories, tournament and fair wage/equity, are not necessarily competing. Each theory accurately describes aspects of employee behavior, but because of sectoral differences in organizational objectives and employee attitudes, tournament theory's predictions are relatively stronger in the for‐profit sector, while fair wage/equity theory's predictions are relatively stronger in the nonprofit sector. Using an employer–employee matched data set of nursing homes linked to a federal regulatory database and a resident survey, we found that ownership moderates the relationship between wage inequality and service quality. Although wage inequality positively affects service quality in the for‐profit sector, the reverse is true among nonprofit organizations. We also found that overall wage inequality in the workplace has a more pronounced influence on employee discretionary effort than does the employee's place in the distribution of wages.     

FINANCIAL DEVELOPMENT AND WAGE INEQUALITY: THEORY AND EVIDENCE

We argue that financial market development contributed to the rise in the skill premium and residual wage inequality in the United States since the 1980s. We present an endogenous growth model with imperfect credit markets and establish how improving the efficiency of these markets affects modes of production, innovation, and wage dispersion between skilled and unskilled workers. The experience of U.S. states following banking deregulation provides empirical support for our hypothesis. We find that wages of skilled workers increased by between 0.5% and 6.3% following deregulation while those of unskilled workers fell by between 3.5% and 8.7%. Similarly, residual (or within‐group) inequality increased; the 90–50 percentile ratio of residuals from a Mincerian wage regression and their standard deviation increased by 4.2% and 1.7%, respectively. (JEL E25, J31, G24)     

PAYING MORE TO HIRE THE BEST? FOREIGN FIRMS,WAGES, AND WORKER MOBILITY

In the context of the debate on the labor‐market consequences of globalization, we adopt an original approach toward the identification of the wage differences between foreign and domestic firms: worker mobility. Using matched employer‐employee panel data for Portugal, we consider virtually all spells of interfirm mobility over a period of 10 yr. We find that foreign firms offer significantly more generous wage policies, although there is also a (smaller) selection effect. The results are robust to the consideration of displaced workers, wage growth differences in the new firms, and different subsets of workers. (JEL J31, J63, F23)     

ANTI‐POACHING AGREEMENTS IN LABOR MARKETS

We analyze competition for experienced workers among wage‐setting firms. The firms can design poaching offers with higher wages to workers who switch from rivals relative to wages paid to their own existing employees. We evaluate the profit and welfare effects of anti‐poaching agreements that eliminate poaching offers as a recruiting method. Anti‐poaching agreements increase industry profits, whereas workers are made worse off. We show that the effects of anti‐poaching agreements on total welfare are determined by the magnitude of workers' switching costs and the productivity change associated with switching employers. (JEL L41, L40, J42)     

DO MINIMUM WAGE INCREASES INFLUENCE WORKER HEALTH?

This study investigates whether minimum wage increases impact worker health in the United States. We consider self‐reported measures of general, mental, and physical health. We use data on lesser‐skilled workers from the 1993 to 2014 Behavioral Risk Factor Surveillance Survey. Among men, we find no evidence that minimum wage increases improve health; instead, we find that such increases lead to worse health outcomes, particularly among unemployed men. We find both worsening general health and improved mental health following minimum wage increases among women. These findings broaden our understanding of the full impacts of minimum wage increases on lesser‐skill workers. (JEL I1, I11, I18)     

ON IMPERFECT EVALUATION AND EARNING DIFFERENTIALS

This paper investigates the relationship between the technology for evaluating performance and optimal contract choice. Specifically, the paper examines the different compensation packages that arise when occupations differ in evaluation technology, workers are risk averse, work effort is endogenous, and there exists asymmetric information. In occupations in which it is less difficult to measure output, it is shown that compensation is more closely tied to output; the implications for work effort, the sorting of workers by ability, and average compensation are developed. Analysis of a new data set confirms our predictions concerning earning differentials and wage growth.
The powerful 1.6 million-member National Education Association and other teacher organizations have traditionally fought the notion of rewarding better teachers with more money, arguing that there is no objective way to measure a teacher's competence and that it would lead to favoritism, and bad morale [ Time , June 20, 1983].     

The effects of prevailing wage laws: A comparison of individual workers’ wages earned on and off prevailing wage construction projects

I evaluate the effects of prevailing wage laws using a unique data set that shows the wages paid to workers on prevailing wage projects and the wages paid to the same workers during the same time period for work on projects not covered by prevailing wage regulations. The wage comparison shows that workers are generally paid more for work on prevailing wage projects than they are for work on nonprevailing wage projects. Thus, prevailing wage laws likely do increase the cost of public construction. In addition, to the extent that the quality of construction is improved, prevailing wage laws appear to be an inefficient mechanism by which to achieve additional quality, as the regulations often result in workers being paid more than they earn in the private market. This research was done originally for the Program Review and Investigations Committee of the Kentucky State Legislature. I thank the staff of the Program Review and Investigations Committee and the Legisla-tive Research Commission for assistance with data collection and Mark Berger for helpful comments. Due to confidentiality requirements, the data cannot be made available.     

LABOR IMMOBILITY AND THE FORMATION OF GENDER WAGE GAPS IN LOCAL MARKETS

Family ties have an important effect on the wage gap between male and female workers because wives are often more geographically tied to their husband's location, which may not be the best market for the wife's skills. Theory implies a testable inverse relationship between urban size—reflecting labor market size—and male-female wage differentials. Our results indicate that the wage gap between married men and women narrows with urban size. About 17 percent of the wage gap between married men and women can be accounted for by urban size—or, more fundamentally, by geographic immobility due to the family tie constraint.     

The Global Welfare Economics of Immigration

We study the effect of immigration on global welfare. The world is modeled as consisting of two regions, South and North, the former populated by low-skill workers, and the latter by both low- and high-skill workers. Production in the North uses both labor inputs in a complementary way. A trade union in the North keeps the wage of low-skill workers above the Walrasian wage, generating unemployment of low-skill workers. Northern citizens fund unemployment benefits for workers through taxation. Immigration from South to North has two effects in the North: a mixed native-foreign working-class lowers union power, because of reduced solidarity among low-skill workers, and hence it lowers the mark-up on the Walrasian wage that the union is able to negotiate. It also lowers the solidarity between employed citizens and the unemployed (as the latter, now, consist in part of non-natives) and thus the unemployment benefit, set by a democratic process, falls. We calculate the optimal levels of immigration, from the viewpoint of an observer who maximizes global welfare, according to an egalitarian and a utilitarian social welfare function. We compare these levels to the open-borders-equilibrium level. We find that the optimal level of immigration for the cosmopolitan egalitarian is significantly less than the open-borders equilibrium level, while the optimal level for a global utilitiarian is significantly greater than the open-borders level.     

Job security and unemployment in an efficiency-wage model

Job security and its effects on unemployment are controversial issues. I investigate the effects of job security in an efficiency-wage model of unemployment. Though efficiency-wage ideas have wide appeal and provide strong foundations of involuntary unemployment, not much has been written about the ramifications of job security in these scenarios. I show that job security creates wage and unemployment effects when efficiency-wage aspects are relevant, because employment guarantees shift the burden of workers' effort attraction to the wage mechanism. These effects are further enhanced when workers have some bargaining power. My results, therefore, suggest a trade-off between employment stability and employment: High employment security leads to smaller employment (or larger involuntary unemployment). I thank Ron Oaxaca and participants at the W.E. Upjohn Conference on Unemployment Insurance for useful comments.     

Work hours,social value of leisure and globalisation

We examine how openness interacts with the coordination of consumption–leisure decisions in determining the equilibrium working hours and wage rate when there are leisure externalities (e.g., due to social interactions). The latter are modelled by allowing a worker's marginal utility of leisure to be increasing in the leisure time taken by other workers. Coordination takes the form of internalising the leisure externality and other relevant constraints (e.g., labour demand). The extent of openness is measured by the degree of capital mobility. We find that: coordination lowers equilibrium work hours and raises the wage rate; there is a U-shaped (inverse-U-shaped) relationship between work hours (wages) and the degree of coordination; coordination is welfare improving; and, the gap between the coordinated and uncoordinated work hours (and the corresponding wage rates) is affected by the extent and nature of openness.     

SELF‐EMPLOYMENT,EFFICIENCY WAGE,AND PUBLIC POLICIES

Empirical evidence suggests that unemployed workers are much more likely to become self‐employed than wage‐employed workers. Also, higher unemployment benefits significantly reduce the rate of self‐employment. This article develops a model of self‐employment which incorporates transitions between unemployment and self‐employment. It integrates two strands of theoretical literature—models of occupational choice and the efficiency wage models. In this model, a higher unemployment benefit reduces the self‐employment rate and the transition rate of unemployed workers to self‐employment, which is consistent with empirical evidence. (JEL J23, J58, J64)     

Is there a wage cost for employees in family‐friendly workplaces? The effect of different employer policies

This article assesses the wage impact of different family‐friendly employer policies: in‐kind or in‐cash child‐related benefits and flexible work schedule arrangements. We use French matched employee–employer data with a rich set of indicators of family‐friendly benefits, and we pay attention to the possible endogeneity of worker–employer matching. Our results show that the provision of in‐cash or in‐kind benefits is associated with higher wages for women, while flexible work schedules have no significant effect on wages. Our results lead us to reject the hypothesis of compensating wage differentials: women do not appear to face a trade‐off between wages and a better work–life balance. Our findings are more in line with the enhancing productivity theory: in‐kind benefits reduce the time devoted to household activities and alleviate conflict between professional life and family life, thereby improving women's work effort and productivity. This is not the case for flexible work arrangements, which may be perceived as negatively related to workers’ commitment to their job.     

Intangibles and the Gender Wage Gap: An Analysis of Gender Wage Gaps Across Occupations in the Finnish Private Sector

The paper compares the gender wage differentials of two occupation groups—innovation and non-innovation workers—separately for manufacturing and services using Finnish private-sector data. We apply a decomposition method based on unconditional quantile regression techniques to identify key factors underlying the gender wage gaps observed along the whole wage distribution, as well as changes in these wage gaps between 2002 and 2009. This more nuanced approach provides important new insights. We find conspicuous differences in average gender wage gaps, in gender wage-gap profiles across the wage distribution and also in the evolution of gender wage differentials over time between sectors and occupation groups. Our results imply that sector-specific factors are a more important driving force behind these differences in patterns and trends of gender wage gaps, although occupation-specific factors cannot be totally dismissed. Hence, comparisons of gender wage gaps, including their underlying sources, of innovation and non-innovation workers for too broadly defined segments of the labour market may result in misleading conclusions concerning the factual role of intangible capital.