Unemployment Insurance and Entrepreneurship

Based on administrative registers from Norway, we examine how unemployment insurance (UI) and active labor market programs (ALMP) affect the transition rates from unemployment to regular employment and entrepreneurship, as well as subsequent earnings levels. We find that both the employment and entrepreneurship hazards rise sharply in response to UI sanctions and UI exhaustion. On average, transitions to entrepreneurship are more profitable than transitions to regular employment. While employment transitions are highly pro‐cyclical, entrepreneurship transitions are weakly counter‐cyclical. ALMPs targeted at entrepreneurship are rare in Norway, but the few start‐up subsidies that are provided are successful in terms of generating paid work.     

Unemployment Insurance and Underemployment

Should unemployment insurance (UI) systems provide coverage for underemployed job seekers? Based on a statistical analysis of Norwegian unemployment spells, we conclude that the answer to this question is yes. Allowing insured job seekers to retain partial UI benefits during periods of insufficient part‐time work not only reduces UI expenditures during the part‐time work period, but it also unambiguously reduces the time until a regular self‐supporting job is found. Probable explanations are that even small temporary part‐time jobs provide access to useful vacancy information and that such jobs are used by employers as a screening device when hiring from the unemployment pool.     

Active Labour Market Programmes,Job Search and Job Finding in Denmark

This paper investigates whether the probability to search for a job and search intensity increase as the start of an Active Labour Market Programme (ALMP) approaches. Further, it investigates whether job search is correlated with job finding. Although previous studies have shown that the chance of job finding increases as the start of an ALMP approaches, it remains an open question what causes this ‘threat effect’. Results show that job search increases as programme start approaches and that there is a positive correlation between job search and job finding. The threat effect can therefore at least partly be attributed to increased job search.     

Analysis of Job Satisfaction: The Case of Japanese Private Companies

The scope of economic theory expands if we consider that working provides people with both pecuniary compensation for its disutility and job satisfaction. This study empirically analyzes the job satisfaction of employees in Japanese private companies using a multivariate ordered probit model. In particular, we examine the effects of a big economic shock, such as the Lehman shock, on job satisfaction, as well as the effects of differences in gender and employment status. We estimate the model using a Bayesian analysis and a multivariate ordered probit model using the Markov chain Monte Carlo method. We show that non‐pecuniary aspects of jobs play an important role in job satisfaction.     

Vacancy Referrals,Job Search,and the Duration of Unemployment: A Randomized Experiment

One goal of the Public Employment Service is to facilitate matching between unemployed job‐seekers and job vacancies; another goal is to monitor job search so as to bring search efforts among the unemployed in line with search requirements. The referral of job‐seekers to vacancies is one instrument used for these purposes. We report results from a randomized Swedish experiment where the outcome of referrals is examined. To what extent do unemployed individuals actually apply for the jobs they are referred to? Does information to job‐seekers about increased monitoring affect the probability of applying and the probability of leaving unemployment? The experiment indicates that a relatively large fraction (one‐third) of the referrals do not result in job applications. Information about intensified monitoring causes an increase in the probability of job application, especially among young people. However, we find no significant impact on the duration of unemployment.     

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.     

Low‐wage Jobs — Springboard to High‐paid Ones?

We examine whether low‐paid jobs have an effect on the probability that unemployed persons obtain better‐paid jobs in the future (springboard effect). We make use of data from the German Socio‐Economic Panel (SOEP) and apply a dynamic random effects bivariate probit model. Our results suggest that low‐wage jobs can act as springboards to better‐paid work. The improvement of the chance to obtain a high‐wage job by accepting low‐paid work is particularly large for less‐skilled persons and for individuals who experienced longer periods of unemployment. Low‐paid work is less beneficial if the job is associated with a low social status.     

DO FINANCIAL INCENTIVES AFFECT FIRMS’ DEMAND FOR DISABLED WORKERS?

A number of OECD countries aim to encourage work integration of disabled persons using quota policies. For instance, Austrian firms must provide at least one job to a disabled worker per 25 nondisabled workers and are subject to a tax if they do not. This “threshold design” provides causal estimates of the noncompliance tax on disabled employment if firms do not manipulate nondisabled employment; a lower and upper bound on the causal effect can be constructed if they do. Results indicate that firms with 25 nondisabled workers employ about 0.04 (or 12%) more disabled workers than without the tax; firms do manipulate employment of nondisabled workers but the lower bound on the employment effect of the quota remains positive; employment effects are stronger in low‐wage firms than in high‐wage firms; and firms subject to the quota of two disabled workers or more hire 0.08 more disabled workers per additional quota job. Moreover, increasing the noncompliance tax increases excess disabled employment, whereas paying a bonus to overcomplying firms slightly dampens the employment effects of the tax.     

Employer Changes and Wage Changes: Estimation with Measurement Error in a Binary Variable

Self‐reported tenure is often used to determine job changes. We show there are substantial inconsistencies in these responses; consequently, we risk misclassifying job changes as stays and vice versa. An estimator from Hausman et al. is applied to a job change model for Ireland, and we find that ignoring misclassification may substantially underestimate the true number of changes and lead to diminished covariate effects. The main contribution of the paper is to control for misclassification when estimating the wage effects of job mobility. A two‐step approach is adopted. We find ignoring misclassification leads to a significant downwards bias in the wage impact, and we provide an estimate that corrects for measurement error.     

Workplace Job Satisfaction in Britain: Evidence from Linked Employer–Employee Data

The paper examines the nature of workplace job satisfaction in Britain using an ‘overall’ and domain‐specific job satisfaction outcomes from linked employer–employee data. A measure of aggregate job satisfaction alone might mask domain‐specific differences in satisfaction, something the combined approach in this paper addresses. As well as controlling for a rich set of correlates on employees and their workplaces, the paper deploys alternative empirical models that account for employee‐ and workplace‐level unobserved heterogeneity. The paper reports interesting results on the link between job satisfaction and observed as well as unobserved characteristics of employees and their workplaces.     

UNDER PRESSURE: GENDER DIFFERENCES IN OUTPUT QUALITY AND QUANTITY UNDER COMPETITION AND TIME CONSTRAINTS

Gender gaps in the workplace are widespread. One explanation for gender inequality stems from the effects of the interaction between competition and two pressure sources, namely, task stereotypes and time constraints. This study uses a laboratory experiment to find that the gender gap in performance under competition and preferences for competition can be partly explained by the differential responses of men and women to the above pressures. In particular, while women underperform the men in a high‐pressure math‐based tournament, women greatly increase their performance levels and their willingness to compete in a low‐pressure verbal environment, such that they actually surpass the men. This effect appears largely due to the fact that extra time in a verbal competition improves the quality of women’s work, reducing their mistake share. On the other hand, men use this extra time to increase only the quantity of work, which results in a greater relative number of mistakes. A labor market study suggests that the nature of the job and the stress level are correlated with the gender gap in the labor market in a manner consistent with the results of my experiment.     

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.     

SORTING AND THE OUTPUT LOSS DUE TO SEARCH FRICTIONS

We analyze a general search model with on‐the‐job search (OJS) and sorting of heterogeneous workers into heterogeneous jobs. For given values of nonmarket time, the relative efficiency of OJS, and the amount of search frictions, we derive a simple relationship between the unemployment rate, mismatch, and wage dispersion. We estimate the latter two from standard micro data. Our methodology accounts for measurement error, which is crucial to distinguish true from spurious mismatch and wage dispersion. We find that without frictions, output would be about 9.5% higher if firms can commit to pay wages as a function of match quality and 15.5% higher if they cannot. Noncommitment leads to a business‐stealing externality which causes a 5.5% drop in output.     

Job Stability Trends,Lay‐offs,and Transitions to Unemployment in West Germany

This paper examines the evolution of different aspects of job stability, notably the termination reasons and the transition states. We estimate Semi‐Parametric Cox Hazard Models with competing risks for West Germany and find an increasing hazard of job ending that is driven by an increasing hazard of being laid off, primarily. One explanation found is that men with fixed‐term contracts face increasing risks of being displaced. In accordance with the technological change hypothesis we also find that men with a high degree of non‐routine interactive tasks face a declining risk of displacement.     

Effects of Changes in the Unemployment Insurance Eligibility Requirements on Job Duration — Swedish Evidence

This paper investigates the impact of the unemployment insurance (UI) entrance requirement on employment duration among earlier unemployed in Sweden. I exploit changes in the rules taking place in 1994 and 1997 to study behavioural adjustments in the timing of job separation in 1992, 1996, and 1998, respectively. Performing across‐year analyses with years involving different working requirements, I find some evidence of clustering of job exits at the time of UI qualification. By using predicted hazard rates for each week, I calculate an approximate 2.3‐week extension in average employment duration between 1996 and 1998, due to the 5‐week prolonging of the entrance requirement.     

ESTIMATING THE STOCK‐FLOW MATCHING MODEL USING MICRO DATA

We estimate the stock‐flow matching model using micro‐level data from a well‐defined labor market. Using a dataset of complete labor‐market histories for both sides of the market, we estimate hazard functions for job‐seekers and vacancies. We find that the stock of new vacancies has a significant positive impact on the job‐seeker hazard, over and above that of the total stock of vacancies. There is an even stronger robust result for vacancy hazards. Thus we find evidence in favor of stock‐flow matching, even when controlling for unobserved search heterogeneity and stratifying into submarkets defined by location and occupation.     

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.     

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.     

Skill Acquisition in the Informal Economy and Schooling Decisions: Evidence from Emerging Economies

Informal jobs offer skill acquisition opportunities that may facilitate a future switch to formal employment for young workers. In this sense, informal training on the job may be a viable alternative to formal schooling in an economy with a large and diverse informal sector. In this paper, I investigate if these considerations are relevant for the schooling decisions of young individuals using panel data for 17 Latin American countries and micro‐level data for Turkey. Specifically, I ask if the prevalence of informal jobs distorts schooling attainment. I concentrate on three measures of schooling outcomes: (1) secondary education enrollment rate; (2) out‐of‐school rate for lower secondary school; and (3) tertiary education graduation rate. I find that the secondary education enrollment rate is negatively correlated with the size of the informal economy, whereas the out‐of‐school rate is positively correlated. Moreover, the tertiary education graduation rates tend to fall as the informal employment opportunities increase. This means that informal training on the job may be crowding out school education in developing countries. Policies that can potentially affect the size of the informal sector should take into consideration these second‐round effects on aggregate schooling outcomes.     

Shocks,Stocks, and Socks: Smoothing Consumption Over a Temporary Income Loss

We investigate how households in temporarily straitened circumstances due to an unemployment spell cut back on expenditures and how they spend marginal dollars of unemployment insurance (UI) benefit. Our theoretical and empirical analyses emphasize the importance of allowing for the fact that households buy durable as well as non‐durable goods. The theoretical analysis shows that in the short run households can cut back significantly on total expenditures without a significant fall in welfare if they concentrate their budget reductions on durables. We then present an empirical analysis based on a Canadian survey of workers who experienced a job separation. Exploiting changes in the unemployment insurance system over our sample period we show that cuts in UI benefits lead to reductions in total expenditure with a stronger impact on clothing than on food expenditures. Our empirical strategy allows that these expenditures may be non‐separable from employment status. The effects we find are particularly strong for households with no liquid assets before the spell started. These qualitative findings are in precise agreement with the theoretical predictions. (JEL: D11, D12, D91, J65)