ON‐THE‐JOB SEARCH AND MORAL HAZARD

We analyze the interaction between intertemporal incentive contracts and search frictions associated with on‐the‐job search. In our model, agency problems call for wage contracts with deferred compensation. At the same time workers do on‐the‐job search. Deferred compensation improves workers' incentives to exert effort but distorts their on‐the‐job search decisions. We show that deferred compensation is less attractive when the value to the worker–firm pair of on‐the‐job search is high. Moreover, the interplay between search frictions and wage contracts creates feedback effects. If firms in equilibrium use contracts with deferred compensation, fewer firms with vacancies enter the on‐the‐job search market, and this in turn reduces the distortions created by deferred compensation. These feedback effects between the incentive contracts used and the activity level in the search markets can lead to multiple equilibria: a low‐turnover equilibrium where firms use deferred compensation, and a high‐turnover equilibrium where they do not. Furthermore, the model predicts that firms are more likely to use deferred compensation when search frictions are high and when the gains from on‐the‐job search are small.     

Employer Wage Differentials in Germany: A Comparative Note

The paper contributes to the growing empirical literature on employer wage differentials, presenting first estimates for West Germany and comparing them with recent findings from other studies for the USA, France and Denmark. The empirical results show that the variation of global employer wage differentials is comparatively low in West Germany and has remained stable during the first half of the 1990s. This low dispersion results from wage setting for blue‐collar workers, while cross‐country differences are negligible for white‐collar workers. Employer wage differentials have, however, become more important for the remuneration of West German blue‐collar workers during the period investigated.     

Up in the Skies? The Relationship between Body Height and Earnings in Germany

Abstract. This paper analyses whether taller workers earn more than their shorter counterparts. Using GSOEP data from 1991 to 2002, earnings functions are estimated for male and female workers for both West and East Germany. The Hausman–Taylor IV estimator is applied to account for unobservable heterogeneity including also time‐invariant indicators. The results do not imply wage differentials based on height for female workers and male East German workers. For the height range up to 195 cm there is, however, a wage premium associated with stature for male workers from West Germany of about 4 per cent for each additional standard deviation increment in height.     

Residential Location,Job Location,and Wages: Theory and Empirics

I develop a stylized partial on‐the‐job equilibrium search model that incorporates a spatial dimension. Workers reside on a circle and can move at a cost. Each point on the circle has a wage distribution. Implications about wages and job mobility are drawn from the model and tested on Danish matched employer–employee data. The model predictions hold true. I find that workers working farther away from their residence earn higher wages. When a worker is making a job‐to‐job transition where he/she changes workplace location he/she experiences a higher wage change than a worker making a job‐to‐job transition without changing workplace location. However, workers making a job‐to‐job transition that makes the workplace location closer to the residence experience a wage drop. Furthermore, low‐wage workers and workers with high transportation costs are more likely to make job‐to‐job transitions, but also residential moves.     

The Male–Female Wage Gap and the Firm Effect: The Case of Young Italian Workers

Abstract. The idea that wages are determined by firm and individual characteristics suggests that there is a firm effect that influences wage differentials. This paper presents the results of an empirical analysis of gender wage differentials — based on INPS data for people between the ages of 20 and 25 employed in the private sector in 1996 — which takes into account the characteristics of workers and firms using a two‐level random‐effects model. Firm variables proved to be significant, and the proportion of females in the firm showed a negative effect on the wages of both men and women.     

Unionization and Labour‐market Discrimination: A Closer Look at Non‐unionized Workers

This paper introduces a model that examines the effects of unions on pay and hiring gaps between non‐unionized men and women in the context of imperfect competition. Although the model does not question the advantages unions obtain for their members, it does show that (1) unions increase wage and occupational discrimination for non‐unionized workers; (2) the non‐unionized sector does not constitute a good comparison group for use in analysing the impact of unions on gender discrimination; and (3) public policies targeting gender differences in occupational sorting can also have a positive impact on gender wage differentials.     

Wage Bargaining with On‐the‐Job Search: Theory and Evidence

Most applications of Nash bargaining over wages ignore between‐employer competition for labor services and attribute all of the workers' rent to their bargaining power. In this paper, we write and estimate an equilibrium model with strategic wage bargaining and on‐the‐job search and use it to take another look at the determinants of wages in France. There are three essential determinants of wages in our model: productivity, competition between employers resulting from on‐the‐job search, and the workers' bargaining power. We find that between‐firm competition matters a lot in the determination of wages, because it is quantitatively more important than wage bargaining à la Nash in raising wages above the workers' “reservation wages,” defined as out‐of‐work income. In particular, we detect no significant bargaining power for intermediate‐ and low‐skilled workers, and a modestly positive bargaining power for high‐skilled workers.     

Contract Length as Risk Management When Labor is not Homogeneous

This paper examines the choice of contract length for workers who possess unique skills. Uncertainty, facing both the worker and the firm, creates an incentive to reallocate risk. The uncertainty arises from two sources: variation in the market value of the worker's human capital and fluctuation in the worker's physical production. Long‐term contracts are typically modeled as compensating wage differentials, or as a solution to the problem of asymmetric information. This paper develops a model proposing more complex behavior in the reallocation of risk between the contracting parties. The model shows that long‐term labor contracts are most likely to be observed when price uncertainty in the labor market exceeds the worker's productive uncertainty.     

Permanent Disadvantage or Gradual Integration: Explaining the Immigrant–Native Earnings Gap in Sweden

Theoretical explanations suggest that wage differentials between immigrant and native workers are generated either by differences in the acquisition of human capital or by various forms of exclusion of immigrants from fair labour market rewards. We evaluate the labour quality and labour market discrimination hypotheses by using a large sample of Swedish employees in 1995. Our findings show that labour market integration is relatively unproblematic for immigrants from Western countries, whereas immigrants from other countries, especially from Africa, Asia and Latin America, face substantial obstacles to earnings progress when entering the Swedish labour market. For the latter group of countries, extensive controls for general and country‐specific human capital reduce the earnings differentials. However, the remaining gap is of a non‐trivial magnitude. Thus, the labour quality hypothesis accounts for a part of the observed native–immigrant wage gap, but the remaining differentials can be interpreted in terms of labour market discrimination.     

COMPETITIVE MARKETS WITH ENDOGENOUS HEALTH RISKS

We study an economy where agents' productivity and labor endowment depend on their health status, and indivisible occupational choices affect individual health distributions. We show that Pareto efficiency requires cross‐transfers across occupations. Moreover, workers with relatively less safe jobs must get positive transfers whenever labor supply is not very reactive to wages, a condition in line with the findings of a large empirical literature. In these instances, compensating wage differentials equalizing the utilities of ex‐ante identical workers in different jobs undermine ex‐ante efficiency. Moreover, competitive equilibria where only assets with deterministic payoffs are traded are not first‐best. Finally, we show that simple transfer schemes, implemented through linear subsidies to health insurance, enhance efficiency.     

Informal Referrals,Employment, and Wages: Seeking Causal Relationships

Employers and job seekers rely extensively on informal referrals to fill vacancies or to find a job. The widespread use of job contacts has been largely associated with labor outcomes, such as finding a job or even affecting wages. This paper explores whether the use of informal referrals on the job search process affects labor market outcomes of Colombian urban workers. Results indicate that informal referrals are slightly more successful than other job search strategies in term of job seeker's placement. However, referred workers earn in average less than their non‐referred counterparts. Yet, this is only true in formal‐sector positions.     

SEARCH INTENSITY,DIRECTED SEARCH,AND THE WAGE DISTRIBUTION

We propose a search equilibrium model in which homogeneous firms post wages along with a vacancy to attract job seekers while homogeneous unemployed workers invest in costly job seeking. The key innovation relies on the organization of the search market and the search behavior of the job seekers. The search market is continuously segmented by wage level, individuals can spread their search investment over the different submarkets, and search intensity has marginal decreasing returns in each submarket. We demonstrate the existence of a nondegenerate equilibrium wage distribution. The density of this wage distribution is increasing at low wages and decreasing at high wages. The distribution can be right‐tailed, and, under additional restrictions, is hump‐shaped. Our results are illustrated by an example generating a Beta wage distribution.     

Temporary/Permanent Workers' Wage Gap: A Brand‐new Form of Wage Inequality?

By easing restrictions on the use of short‐term contracts, the 30/2003 act represents contemporaneously the more extensive and the more radical policy aimed at introducing flexibility in the Italian labour market. By virtue of a difference‐in‐differences estimator, the paper provides an estimate of the impact of the 30/2003 reform on the wage gap across fixed‐term and long‐term employees. It will be given evidence that the policy has widened the wage differentials and the effect is particularly stronger to skilled workers compared with unskilled workers. These findings would suggest the existence of a possible brand‐new form of wage inequality.     

Performance of Cellular Bucket Brigades with Hand‐Off Times

A cellular bucket brigade is a way to coordinate workers along an aisle with work content on both sides. Each worker in a cellular bucket brigade works on one side of the aisle when he proceeds in one direction, and he works on the other side when he proceeds in the reverse direction. Although the cellular bucket brigade eliminates the unproductive walk‐back, it requires more hand‐offs to assemble a product than a traditional (serial) bucket brigade. These hand‐offs may waste significant production capacity as each of them requires an exchange of work, which can be complicated and time‐consuming in practice. This motivates us to investigate the impact of hand‐off times on the cellular bucket brigade's performance. We identify sufficient conditions to ensure no workers are idle in the long run and for the system to self‐balance in a model with hand‐off times. Our results suggest that even with significant hand‐off times, the cellular bucket brigade can remain substantially (about 50%) more productive than the traditional bucket brigade especially if the team size is small and the workers’ work velocities are close to their walk velocity.     

Wage Differentials between Ethnic Groups in Switzerland

This paper analyses the average wage differentials between various groups of immigrants and the Swiss workers. Classical Oaxaca‐Blinder decompositions are applied to a sample of 7,494 males (whose 1,070 immigrants) interviewed for the 1995 Swiss Labour Force Survey. Education and experience before and after migration are separately considered in two different ways. We control for sample selection in the wage and salary sector. We also investigate earnings differentials between natives and immigrants who arrived in the country before the age of 6. Our main results are that the part of differentials due to difference in coefficient varies strongly with different ethnic groups considered, that education is a strong determinant of the difference in observed characteristics and that second generation immigrants are fairly well assimilated in the Swiss labour market.     

Education,Mobility and Employers’ Monopsony Power: A Search‐theoretic Analysis

Abstract. We analyse the efficiency of schooling choices in a wage‐posting search equilibrium model with on‐the‐job search. The workers have multidimensional skills and the search market is segmented by technology. Education determines the scope — or adaptability— of individual skills. Individuals obtain schooling to leave unemployment more quickly and to climb the wage ladder rapidly through job‐to‐job mobility — that is, to speed up job shopping. Education reduces firms’ monopsony power in the wage determination by improving workers’ mobility. As a result, the wage distribution shifts rightward with aggregate schooling. However, the ratio of vacant jobs to job seekers also falls in each sector. Either one or the other externality may dominate, implying, respectively, under‐ or over‐education. A combination of minimum wage and schooling fee can decentralize the efficient allocation.     

Search and Rest Unemployment

This paper develops a tractable version of the Lucas and Prescott (1974) search model. Each of a continuum of industries produces a heterogeneous good using a production technology that is continually hit by idiosyncratic shocks. In response to adverse shocks, some workers search for new industries while others are rest unemployed, waiting for their industry's condition to improve. We obtain closed‐form expressions for key aggregate variables and use them to evaluate the model's quantitative predictions for unemployment and wages. Both search and rest unemployment are important for understanding the behavior of wages at the industry level.     

Occupational Attainment and Earnings: The Case of the Disabled

Abstract. This paper offers, for the first time, an investigation of wage differentials between disabled and non‐disabled workers in Sweden. It extends the traditional wage decomposition by incorporating explained and unexplained differences in occupational attainment. Data from the Swedish Level of Living Survey for 1981 and for 1991 have been used. The results show that in both years the disabled worked in low‐level occupations to a greater extent relative to the non‐disabled. This is due to the fact that disabled workers have lower qualifications. The unexplained component due to differences in returns on wage determinants is insignificant in the 1981 case but is highly significant in 1991, constituting around 50–60 per cent of the average log wage differential.     

Inept or Badly Matched? — Effects of Educational Mismatch in the Labor Market

Negative wage effects of educational mismatch have become a stylized fact. Whether these are explained by differences in unobserved productivity or poor matching is still to be answered conclusively. In an empirical analysis based on data from the German Socio‐Economic Panel and the International Adult Literacy Survey, a broad econometric strategy is applied to solve the problem of unobserved heterogeneity and reveal the mechanism underlying wage differences between matched and mismatched workers. Results show that wage differentials can be explained by a poor matching in the labor market, rejecting the hypothesis that mismatched workers compensate for unobserved productivity differences.     

Efficiency Wage,Fixed Employment Costs,and Dual Labour Markets

The standard efficiency wage‐based explanation of labour market dualism hinges on the existence of differences in monitoring across sectors. The paper proposes fixed employment costs as an alternative source of wage differentials for homogeneous workers. It shows that firms with larger fixed costs pay higher wages in order to elicit more effort from their workers, and tend to have higher capital/labour ratio and labour productivity. The model generates both involuntary unemployment and involuntary confinement in the secondary sector: high effort–high wage jobs are preferred to low effort–low wage jobs and either are preferred to unemployment. The proposed framework can also account for the various types of treatment of marginal jobs in primary sector firms envisaged by Doeringer and Piore (Internal Labour Markets and Manpower Analysis, 1971). In particular, an increase in fixed costs beyond a certain level may induce primary sector firms to restructure, segment production, and enter the secondary sector, thus converting their jobs into secondary jobs. From a welfare point of view, we cannot state in general the desirability of subsidizing fixed employment costs; however, we show that an employment subsidy financed by a wage tax is able to increase employment with no loss in terms of production.