Do organizational and political–legal arrangements explain financial wrongdoing?

The 2008 financial crisis was a systemic problem with deep‐rooted structural causes that created opportunities to engage in financial malfeasance, a form of corporate wrongdoing. However, few quantitative studies exist on the effects of organizational and political–legal arrangements on financial malfeasance. In this paper, we examine the effects of organizational and political–legal arrangements that emerged in the 1990s in the FIRE sector (i.e., financial, insurance, and real estate) on financial malfeasance. Our historical contextualization demonstrates how changes in the political–legal arrangements facilitate the emergence of new corporate structures and opportunities for financial malfeasance. Our longitudinal quantitative analysis demonstrates that US FIRE sector corporations with a more complex organizational structure, larger size, lower dividend payment, and higher executive compensation are more prone to commit financial malfeasance.     

Why Do Migrant Workers Intend to Extend Their Stay in Host Countries? The Case of Bangladeshi Workers in Malaysia's Manufacturing Sector

This article explores various factors resulting in temporary migrant workers' decisions to extend their stay in host countries by means of a case study of Bangladeshi factory workers in Malaysia. The employment mediation and passage fees paid to brokers and agents by Bangladeshi workers are very large compared with general living standards in Bangladesh. These large sums are increasing steadily as the number of persons desiring to work overseas increases. Malpractice by brokers and agents causes Bangladeshi workers to overestimate the amount of remittances they can send home, and hence they pay higher mediation and passage fees to brokers or agents. From a humanitarian point of view, the Government should strictly regulate the activities of agents and brokers and provide accurate information to those who plan to work in Malaysia. Statistical analysis suggests that the lower real remittances fall below the expected amounts, and the lower real wages are, compared with passage and mediation fees, the more will Bangladeshi workers wish to extend their stay. These facts imply that if future Bangladeshi migrant workers to Malaysia have the correct information about income levels and living expenses in Malaysia, and hence mediation and passage fees become cheaper, the likelihood of their intending to extend their stays will be much lower.     

TEACHING TOOLS: WHY WORKERS SHOULD WANT MANDATED BENEFITS TO LOWER THEIR WAGES

Mandating that employers provide job-related benefits is not a free lunch for employees. Despite the claims of some advocates of mandated benofts, economists have long recognized that much of the cost of those benefifs is passed on to employees in lower wages. What has gone unrecognized is that the more employees pay fir a mandated bentefit relative to its cost the more they gain from having the benefit provided.     

Entry charges on immigrants

The author analyzes "the various arguments that can be advanced for imposing fees on immigrants to optimize...resident gains.... This article discusses cost recovery and emphasizes the costs of multiculturalism as a possible basis for fees. It then analyzes the effects of inelastic immigrant supplies in providing an optimal tariff motivation for monopsonistically restricting labor flows and deals with the second-best problem of devising an optimal fee policy to accompany a possibly suboptimal immigration quota. Next, attention turns to the role of priceable externalities. Externalities which are expensive to price because of transactions costs are analyzed. Finally, along with summarization of major conclusions, the author considers if, even in the economic interests of existing residents, entry rights should be sold."     

ENTRY COORDINATION AND AUCTION DESIGN WITH PRIVATE COSTS OF INFORMATION ACQUISITION

Auction design with endogenous entry is complicated by entry coordination among bidders due to multiple entry equilibria issue. This article studies auction design when information acquisition costs are private information of bidders. We show that this problem can be resolved by sufficient dispersion in these costs. First, we find that a simple second‐price auction with no entry fee and a reserve price equal to the seller's valuation is ex ante efficient, while a revenue‐maximizing auction involves personalized entry fees, which are determined by the hazard rates of their information acquisition cost distribution. Second, we show that sufficient dispersion in the information acquisition costs (more dispersion than a particular uniform distribution by the Bickel‐Lehman dispersive order) can coordinate bidders and implement uniquely the desirable entry. The dispersion in information acquisition costs is also necessary for this “unique implementation” result. (JEL D44, D82)     

Health insurance portability: COBRA expansions and job mobility

This Issue Brief discusses continuation-of-coverage mandates under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). It provides background information on health insurance portability and job mobility, data on the cost to employers of providing continuation of coverage to former employees, and a summary of empirical research on COBRA's effect on employee benefits and job mobility. COBRA coverage can be considered advantageous for most workers, as it allows continuation of the health insurance policy they had in place at work when they lose or leave a job. Although employees can be required to pay 102 percent of the premium for COBRA coverage, they can usually realize significant savings compared with the cost of purchasing the equivalent insurance policy in the private market. Many employers consider COBRA to be a costly mandate for three reasons. First, premiums collected from COBRA beneficiaries typically do not cover the costs of the health care services rendered. Second, COBRA imposes an additional administrative cost on employers. Third, many employers view the penalties for noncompliance as excessively large. According to a survey conducted by Charles D. Spencer & Associates, of the 10.2 percent of employees and dependents who were eligible for COBRA coverage in 1996, over 28 percent elected it. In addition, average employer claims costs for COBRA beneficiaries amounted to $5,591, compared with $3,332 for active employees in surveyed plans. According to Employee Benefit Research Institute estimates of the Survey of Income and Program Participation (SIPP), the COBRA population is much older than the general insured population. COBRA beneficiaries also have higher personal income than the general insured population, with this difference being almost entirely due to differences in retirement income. Any attempt to expand COBRA coverage, either through subsidies or by allowing workers to choose from plans with lower premiums, would likely result in increased employer health care costs. As a result, employers may consider various alternatives to reduce, shift, or eliminate the impact of this increased cost. One alternative would be to continue requiring active employees to share in the increased costs through higher employee contributions. A second alternative would be to reduce or eliminate health care benefits for active employees and/or future retirees and their families. A third alternative would be to reduce the size of the work force eligible for health insurance benefits. Finally, employers may pass additional costs on to workers or consumers.     

Sustaining Low Pay in Aged Care Work

This article examines the ways in which employers in the Australian aged care sector justify and sustain low pay for work that is both highly skilled and in high demand. We build on a large body of feminist research that analyses why care work is devalued by showing how such devaluing is produced at the level of the organization. To do so we examine some of the specific discursive mechanisms that sustain low pay. We show that aged care employers actively reproduce a familial logic of care that represents paid aged care work as unskilled and natural for women and therefore not deserving of higher pay. We argue that in order to achieve their goals employers must develop and sustain an opposition between care as love‐centred and work as money‐centred, while upholding the notion that they provide quality care for care recipients.     

Regulation on Migrant Workers’ Employment in the Israeli Construction Sector

This article deals with a reform in the regulation on employment of migrant workers which was implemented in the Israeli construction industry from 2005. This corporations‐based arrangement replaced a restrictive employment arrangement which tied the employee to a specific employer. The new regulation of work conditions and wages, coupled with a significant reduction in the number of work permits issued to construction, has improved work conditions and wages paid to migrant workers, and made their employment less attractive to employers. The reform also included elements designed to reduce the illegal employment phenomenon and to encourage migrant workers to leave the country at the end of their contracts. However, the new arrangement still restricted the mobility of migrant workers to some extent and had negative consequences such as a significant rise in the broker fees demanded of workers.     

The Older Americans Act: should participants share in the cost of services?

Since its inception in 1965, the Older Americans Act has provided social services free of charge to older people, regardless of income. In recent years, the scarcity of resources has sparked a debate as to whether participants who can afford to pay for services should be required to do so. Of concern is whether charging fees will change the fundamental nature of these popular programs by imparting a "welfare" stigma. Other programs that require fees vary enormously by state, and there has been little documentation of their impact on participation, equity of service delivery, or public attitudes. In order to evaluate current proposals, it is necessary to analyze the distributional effects of the cost-sharing system, how the program will be administered, what impact it will have on service use, which services would be subject to cost sharing and at what income levels, and what constitutes a "reasonable" fee for service.     

The Older Americans Act

Since its inception in 1965, the Older Americans Act has provided social services free of charge to older people, regardless of income. In recent years, the scarcity of resources has sparked a debate as to whether participants who can afford to pay for services should be required to do so. Of concern is whether charging fees will change the fundamental nature of these popular programs by imparting a "welfare" stigma Other programs that require fees vary enormously by state, and there has been little documentation of their impact on participation, equity of service delivery, or public attitudes. In order to evaluate current proposals, it is necessary to analyze the distributional effects of the cost-sharing system, how the program will be administered, what impact it will have on service use, which services would be subject to cost sharing and at what income levels, and what constitutes a "reasonable" fee for service.     

Advertising unreasonable expectations: Nanny ads on Craigslist

ABSTRACT

Research has shown that while some domestic workers in the United States work in situations that are fair and decent, many others face conditions of abuse, degradation, and/or exploitation. These conditions are commonly seen as a “hidden” aspect of domestic work. This article asks if these conditions are really as hidden as is commonly assumed. Through a content analysis of nanny ads on Craigslist, we explore whether employers are willing to advertise their expectation that nannies will work under one of three unreasonable conditions: i.e., for low pay, long daily hours, and/or long weekly hours. Overall, we find that of the ads that specify how much pay a nanny is expected to work for as well as how long she is expected to work, many contain unreasonable expectations. By looking at how these expectations are expressed in these ads, we can see that these unreasonable expectations are generally presented in a matter-of-fact manner. This suggests that these employers do not find these expectations to be that remarkable, notwithstanding how unreasonable they are.     

Lessons from the evolution of 401(k) retirement plans for increased consumerism in health care: an application of behavioral research

Employment-based health and retirement benefit programs have followed a similar path of evolution. The relative decision-making roles of the employer and the worker have shifted from the employer to the worker, and workers are more responsible than perhaps they ever have been for their well being--both in terms of their health in general and their financial security during retirement. This shift has been supported, in part, by legislation--namely ERISA, the HMO Act of 1973, the Revenue Act of 1978, and most recently, the Pension Protection Act. This Issue Brief does not pass judgment on this development or address who should bear the responsibilities of preparing workers for retirement or of rationing health care services. The current trend in health care design is toward increased "consumerism." Consumer-driven health is based on the assumption that the combination of greater cost sharing (by workers) and better information about the cost and quality of health care will engage workers to become better health care decision makers. It is hoped that workers will seek important, necessary, high-quality, cost-effective care and services, and become less likely to engage providers and services that are unnecessary and ineffective from either a quality or cost perspective. As employers look ahead toward continually improved plan design, there may be benefits in considering the lessons learned from studying worker behaviors. Specifically, there is evidence about the effects of choice, financial incentives, and information on worker decision making. As a result of research in this area, many retirement plan sponsors have moved toward plan designs and programs that recognize the benefits of well-designed defaults, simplified choices, required active decision making, framing, and commitment to future improvements. With respect to choice, it is now known that more is not always better and may even be worse in some cases. Just as fewer shoppers actually bought a jar of jelly when it was one of 24 as opposed to one of six, evidence has shown that people tend to be less likely to join a company-sponsored retirement plan when more investment options are offered. More choice can also lead to lower satisfaction. It is also known that workers may not be able to appropriately sort through many complex alternatives and that education is not always as effective as employers would hope. Decision complexity often forces people to find a way to simplify, and one of the easiest rules of thumb is to pick the option with the lowest short-term cost, even when that alternative is more costly in the longer run. It is also known that, for good or for bad, choices are constructed on the fly; preferences are dynamic, and logic does not always apply. Financial incentives are helpful in motivating behavior, but they do not affect everyone's decisions. Despite significant financial incentives to participate in 401(k) plans, many workers choose not to. Similarly, despite many of the financial incentives embedded in health care plan design, it can be expected that these incentives will not effectively motivate and engage all workers. One seemingly rational approach to improve workers' decision making is to provide education and guidance to help them sort through complex alternatives and to demonstrate the value of financial incentives. Certainly, providing education and guidance in the form of decision support tools may be an employer's responsibility. However, some studies have shown that, even when "educated" workers have the intent to make improved decisions, they often lack follow-through and fail to take action. In short, education and guidance may not be enough to foster improved health care consumerism. Some employers have begun to design benefit programs with a view toward overcoming behavioral tendencies that negatively affect workers' well-being. Newer retirement plan designs involve careful consideration of default choices. These defaults apply unless workers actively choose a different alternative. Typically, the default attempts to "nudge" workers toward optimal behavior. In the case of 401(k) retirement plan design, more employers are moving toward a default of automatic enrollment in the plan, with automatic investment in a diversified portfolio. Still, additional empirical research and experimentation may be needed to further understand the effects of new retirement plan design features. Future work may also precisely illuminate how the lessons discussed in this Issue Brief may apply to health care plan design that results in improved health-related behaviors. Given the impressive preliminary results in improving retirement planning behaviors, such research and experimentation are likely to be worthwhile.     

Disadvantaged through discrimination? The role of employers in social stratification1

Sociologists have consistently demonstrated that a rather strong association exists between an individual's social class origin and their social class destination, even after controlling for educational attainment. One explanation for this persisting association which is rarely addressed in research in social stratification and mobility is the extent to which class inequalities in access to advantaged class positions are due to discrimination by employers. I set up a field experiment to test whether employers discriminate on the basis of class origin characteristics. I sent letters of job application for professional and managerial occupations to 2560 large UK companies, so as to compare the prospects of equally matched potential employees differing on a range of characteristics, some related to class of origin. The six treatment conditions in the experiment were: the name of the candidate, the type of school attended, the candidate's interests outside work, their sex, the university that they attended and their achieved degree class. Results suggest that employers do pay attention to the class origin characteristics tested here, and that candidates with a name, school type and interests associated with the social elite are more likely to receive a reply to their application than candidates with the equivalent non‐elite characteristics. However, the treatment conditions do not, on the whole, have significant effects on the employers' responses in and of themselves. Instead, employers appear to favour particular combinations of characteristics while penalising others.     

Does consensus bargaining control labor costs in Japan? Evidence from the “bubble economy” and its aftermath

Japan’s system of labor negotiations provides an opportunity to see whether consensus bargaining restrains labor costs. The recent volatility of the Japanese economy affords a unique chance to observe how consensus-based labor settlements adjusted to sudden, sharp changes in market conditions. It is also possible to evaluate the role of bonus payments in amending labor settlements. With observations for 1986–1995,1 use measures of productivity gains to calculate the capacity for increasing worker pay and then analyze whether pay increases exceeded that capacity. I report the extent to which changes in labor earnings were scheduled or resulted from adjustments in bonus pay. During the boom years of the late 1980s, employers inflated bonuses so that workers’ pay increased more than had been scheduled, but not enough to exceed the capacity for growth. But during the sluggish years of the early 1990s, pay agreements were excessive. Employers cut workers’ bonuses to keep earnings growth in check. Thus, bonus pay provided a “degree of freedom” allowing employers to adjust labor costs following sudden upswings and downturns in the economy. I am grateful to Professor Hideo Kawada and Mr. Kenichi Matsuki, both of Senshu University, for their assistance in gathering the earnings data for this study. Thanks are also due to Craig MacPhee, Roger Riefler, and Hendrik Van den Berg for thoughtful comments and suggestions. I am responsible for any remaining shortcomings.     

A dynamic model of public sector employer response to unionization

We model the response of public sector employers to unionization using the response of public school boards to teacher unionization as an example. While it is generally believed that public sector employers pay unionized workers more than nonunion workers, there is less consensus about where the money comes from. We model two cases which are possible employer reactions to unionization: re-allocating resources among types of expenditures and modifying the way in which services are provided. The model contains a political equilibrium that determines the union’s preferences and an economic equilibrium that reflects labor market conditions. We compare the predictions of the two cases regarding the effect of unionization on wages, turnover, allocation of expenditures, and productivity. We interpret existing empirical research on public sector unionization in light of these predictions and make recommenda-tions for future empirical work.     

RESERVE PRICE VERSUS ENTRY FEE IN STANDARD AUCTIONS

Analysis of standard auction rules when bidders are risk averse is usually carried out under the assumption that the seller is able to set an optimal reserve. The role of entry fees has been generally overlooked in that analysis. We consider bidders with constant absolute risk aversion and show that reserve price is an essential tool in the second price auction while entry fee is essential in the first price auction. Furthermore, setting a reserve price and entry fee combination optimally may change some of the rankings of the standard auctions that hold under optimal reserves. (JEL D44)     

A Hierarchical Process of Applicant Screening by Korean Employers

Korean employers screen job applicants’ detailed personal backgrounds with the intent to discriminate among them. This study develops a statistical model of employers’ problem in recruiting, and identifies a hierarchical process whereby employers screen applicants’ personal characteristics in the diminishing order of their incremental predictive power or increasing order of their cost. Recognizing that benefit of marginal screening depends on information obtained through inframarginal screening, this study evaluates different elements of screening jointly using conditional count-variable and probability models, in a sample of job application forms of 365 firms. Firms are found to screen applicants systematically, according to the information content versus intrusiveness of marginal factors screened—from applicants’ appearance, through lifestyle and background, to detailed health and financial status. Companies’ working conditions, labor costs and labor-organization rate help explain the extent of companies’ screening. Working hours and mandatory compensation in the relevant market are associated positively, and bonuses and discretionary benefits negatively with the extent of screening, agreeing with theoretical predictions. Worker unionization is associated positively with screening, suggesting that unions may be protecting their membership at the cost of harming non-members and propping up firms’ traditional practices. Results for the occurrence of individual screening questions are also reported.     

Unintended? The effects of adoption of the Sarbanes‐Oxley Act on nonprofit organizations

This article investigates the benefits and costs to nonprofit organizations emanating from the adoption of the Sarbanes‐Oxley Act (2002). The act was intended to stem financial malfeasance in the for‐profit sector; nevertheless the article finds that about half the surveyed nonprofits adopted provisions of the act and experienced effects in proportion to the level of adoption. About one in four of the nonprofits attributed benefits of better financial controls and reduced risk of accounting fraud to the adoption of the Sarbanes‐Oxley Act. More than one‐third of the nonprofit organizations reported increased fees for external audit, and about 15 percent cited “reallocation of resources from program to administrative expenses.” This article discusses the unintended positive and negative effects of public policy on nonprofit organizations.     

Implications of Collection of Excessive Brokerage Fees for Migrant Workers in the Domestic Care Sector in Israel

This research examines the implications of excessive brokerage fees collection for migrant workers in the domestic care sector in Israel. The findings reveal that migrant workers are forced to pay much higher brokerage fees than is permitted by Israeli law. These fees are are mainly financed by loans. Thus, workers are forced to devote a significant portion of their monthly income in Israel to repaying these loans. The research also examines the possibility of reducing the collection of excessive brokerage fees by signing bilateral agreements, with the countries of origin, which allow the state to supervise the recruitment process. Such agreements have already been implemented in the construction and agriculture sectors in Israel. The first agreement in the domestic care sector, signed in September 2018 with the Philippines, will apparently be implemented in the near future, and might solve some of the problematic issues addressed in this research.     

OPTIMAL PRICES AND ANIMAL CONSUMERS IN CONGESTED MARKETS

We argue that congestion, when it affects the consumption of a commodity, ought to be measured by the product of the number of trips made to a seller and consumption per visit. When intensity of consumption is measured this way, uniform entry fees, the most common way of pricing congested goods, become nonoptimal. A strict user charge can be Pareto efficient. If a uniform entry fee is practiced, we present a model along with experimental data from diverse species subject groups that show consumers reduce visits and consume more per visit; this behavior may intensify the congestion problem.