WAGES,EMPLOYMENT, AND STATISTICAL DISCRIMINATION: EVIDENCE FROM THE LABORATORY

We report results from laboratory experiments designed to examine statistical discrimination. Our design expands upon existing research by generating data both on wage contracts and unemployment rates of directly competing worker groups. We find some evidence for statistical wage discrimination against workers having an identical expected productivity but a higher productivity variance. However, those same subjects are less likely to be unemployed, suggesting that our employer‐subjects view hiring choice and wage contracts as substitutable. A clear implication is that field data discrimination estimates based on wages alone may overestimate the true impact of such discrimination. (JEL C90, J71)     

EMPLOYMENT DYNAMICS OF IMMIGRANTS VERSUS NATIVES: EVIDENCE FROM THE BOOM‐BUST PERIOD IN SPAIN, 2000–2011

This article studies whether the durations in unemployment and employment for immigrants and natives respond differently to changes in economic conditions and to the receipt of unemployment benefits. Using Spanish administrative data for the period 2000–2011, we estimate multi‐spell duration models that disentangle unobserved heterogeneity from true duration dependence. Our findings suggest that immigrants are more sensitive to changes in economic conditions both in terms of unemployment and employment hazards. The effect of the business cycle is not constant but decreases with duration at a higher rate among immigrants. We provide evidence that the higher job separation rates and lower capital‐labor complementarity of immigrants are mechanisms that are possibly compatible with these results. We also find evidence of a disincentive effect of unemployment benefits on unemployment duration, which is stronger for immigrants, but only at the beginning of the unemployment spell, especially under good economic conditions. Finally, unemployment benefits increase job match quality only for native workers with temporary contracts. (JEL J64, J61, C23, C41, J65)     

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)     

Minimum wages and poverty with income-sharing

Textbook analysis tells us that in a competitive labor market, the introduction of a minimum wage above the competitive equilibrium wage will cause unemployment. This paper makes three contributions to the basic theory of the minimum wage. First, we analyze the effects of a higher minimum wage in terms of poverty rather than in terms of unemployment. Second, we extend the standard textbook model to allow for income-sharing between employed and unemployed persons in society. Third, we extend the basic model to deal with income sharing within families. We find that there are situations in which a higher minimum wage raises poverty, others where it reduces poverty, and yet others in which poverty is unchanged. We characterize precisely how the poverty effect depends on four parameters: the degree of poverty aversion, the elasticity of labor demand, the ratio of the minimum wage to the poverty line, and the extent of income-sharing. Thus, shifting the perspective from unemployment to poverty leads to a considerable enrichment of the theory of the minimum wage.      

A multidimensional employment quality index for Brazil, 2002–11

In countries where informal, insecure jobs are widespread, traditional labour market indicators – such as the unemployment rate, labour force participation rate and wages – are not necessarily the most meaningful. The authors use a multidimensional employment quality index to analyse the Brazilian labour market over the period 2002–11, across three dimensions: earnings, formality (measured by the existence of an employment contract and social security contributions) and job tenure. The results show a significant increase in employment quality overall, especially in the years 2009–11, but with considerable differences between wage employees and self‐employed workers, and between industries.     

NEW MEASURES OF THE COSTS OF UNEMPLOYMENT: EVIDENCE FROM THE SUBJECTIVE WELL‐BEING OF 3.3 MILLION AMERICANS

Using two large U.S. surveys, we estimate the effects of unemployment on the subjective well‐being (SWB) of the unemployed and the rest of the population. For the unemployed, the nonpecuniary costs of unemployment are several times as large as those resulting from lower incomes, while the indirect effect at the population level is 15 times as large. For those who are still employed, a one percentage point increase in local unemployment has an impact on well‐being roughly equivalent to a 4% decline in household income. We also find evidence indicating that job security is an important channel for the indirect effects of unemployment. (JEL E24, H23, J64, J68)     

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)     

THE EMPLOYMENT EFFECT OF DEREGULATING SHOPPING HOURS: EVIDENCE FROM GERMAN FOOD RETAILING

We study the effect of deregulating weekday shop opening hours on employment in retailing. Using administrative data on all German food shops, a difference‐in‐differences analysis shows that relaxing restrictions on opening hours raised employment by 0.4 workers per shop corresponding to an increase by 4%. This effect is driven by part‐time employment and employment in large shops, and it implies an increase by 0.1 workers per additional actual weekly opening hour. While the wage bill increased by less than employment, the deregulation seems not to have reduced earnings of workers already employed in retailing before the deregulation. (JEL J23, L51, L81)     

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.     

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.     

Career Sidestep,Wage Setback? The Impact of Different Types of Employment Interruptions on Wages

We examined the wage implications of different types of wage employment interruptions in a sample of 44,384 Belgian employees. The employment interruption types included are family leave, unemployment, self‐employment, educational leave and a category other interruptions (for example, travel, voluntary work). We conduct separate analyses for men and women. Results indicate that unemployment spells and family breaks are penalized by lower subsequent wages, while the wage impact of self‐employment spells and educational leave is insignificant. Family breaks and unemployment spells were found to be more harmful for men than for women. Implications of the results and directions for future research are discussed.     

OPTIMAL WAGE TAXATION WHEN HUMAN CAPITAL AND EMPLOYMENT ARE ENDOGENOUS

This paper studies how optimal wage tax conclusions from the classic two‐period life cycle model of human capital accumulation are affected by endogenizing the number of taxpaying workers. In the absence of a corrective policy, young individuals underinvest in human capital from a social perspective because tax premiums for transfers to nonworkers are not actuarially adjusted downward for human capital attainment. A combination of wage taxes and wage subsidies can restore proper price signals. Numerical simulations suggest that even modest employment elasticities can be sufficient to substantially impact the magnitudes and even the signs of optimal wage tax rates. (JEL H21, H3, J24)     

SKILLED‐UNSKILLED WAGE INEQUALITY AND URBAN UNEMPLOYMENT

The impact of trade liberalization on the labor market in the North has drawn tremendous attention in the face of the growing skilled‐unskilled wage gap but in the South it has been somewhat neglected. One of the key structural differences between the North and the South is that the South experiences a pronounced rural‐urban migration in the presence of urban unemployment. We introduce this feature in the structure of a simple general equilibrium model to analyze the effects of trade liberalization and fragmentation on employment and the skilled‐unskilled wage differential in the South. In particular, we show that while fragmentation necessarily improves the unskilled wage and the skilled wage, more lucrative global opportunities for the skilled final product, in the absence of fragmentation, can reduce the rural wage and increase urban unemployment. The effect of fragmentation, ceteris paribus, on the skilled‐unskilled wage gap is sensitive to the degree of substitutability between land and unskilled labor. As such, fragmentation can magnify the increase in the skilled‐unskilled wage gap resulting from an improvement in the terms of trade. It is also shown that a technological progress in the intermediate goods sector increases the skilled‐unskilled wage gap and raises urban unemployment. (JEL F1, O1, F11, F12)     

The impacts of welfare reform on federal assistance to persistently poor children

During the late twentieth century, the US social safety net was transformed to incentivize work by providing generous wage subsidies for low-income workers and reducing federal assistance to able-bodied unemployed adults. Following the transformation and during the economic boom of the 1990s, welfare rolls and annual poverty rates plummeted, especially for children. Despite the economic boom, there were still many persistently poor children living with parents who did not work, and little is known about how the reforms impacted these children's finances. In this paper we compare rates of persistent child poverty before and after the welfare reforms and examine how federal assistance received by persistently poor children changed as a result of the reforms. We find that federal assistance to persistently poor children declined following the reforms, but with divergent results depending on parental employment. While persistently poor children with employed parents benefited from increased income via the Earned Income Tax Credit, those with chronically unemployed parents did not and also experienced substantial reductions in cash welfare and food stamps. These findings demonstrate how persistently poor children fared financially in the years following the reforms and suggest possible implications for the current period of high unemployment.     

A THEORY OF TURNOVER AND WAGE DYNAMICS

We develop a model of turnover and wage dynamics with insurance, match‐specific productivity, and long‐term contracting. The model predicts that wages are downward rigid within firms but can decrease when workers are fired. We apply the model to study the impact of business cycles on subsequent wages and job mobility. Workers hired during a boom have persistent higher future wages if staying with the same firm. However, these boom hires are more likely to be terminated and have shorter employment spells. (JEL C73, D23, D82, J33)     

WHO WINS IN AN ENERGY BOOM? EVIDENCE FROM WAGE RATES AND HOUSING

This article presents evidence on the distributional effects of energy extraction by examining the effect of the recent U.S. energy boom on wage rates and housing. The boom increased local wage rates in almost every major occupational category. The increase occurred regardless of whether the occupation experienced a corresponding change in employment, suggesting a tighter labor market that benefited local workers. Wage rates also increased substantially across the entire wage rate distribution, although the percentage increase was slightly higher at the bottom of the distribution than at the top. Local housing values and rental prices both increased, thereby benefiting landowners. For renters, the increase in prices was completely offset by a contemporaneous increase in income. The results suggest that bans on drilling have negative monetary consequences for a large share of local residents. (JEL J23, Q33, R31)     

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)     

MALE MARITAL WAGE DIFFERENTIALS: TRAINING,PERSONAL CHARACTERISTICS,AND FIXED EFFECTS

Using the National Longitudinal Survey of Youth 1979, we replicate previous estimates of the marital wage differential for white men, extend the analysis to African American men, then explain the within and between race differentials. We first control for formal job training, then for cognitive skills, parental background, and self‐esteem with little effect. By contrast, the white differential but not the black differential disappears in fixed‐effects estimation. We reconcile the cross‐section/panel differentials by focusing on the distinct identification conditions employed by each technique. Men who never change marital status play a significant role in white cross‐sectional estimates. (JEL J31, J12)     

THE EFFECT OF MINIMUM WAGES ON EMPLOYMENT: A FACTOR MODEL APPROACH

This paper uses factor model methods to resolve issues in the minimum wage‐employment debate. Factor model methods provide a more flexible way of addressing concerns related to unobserved heterogeneity that are robust to critiques from either side of the debate. The factor model estimators produce minimum wage‐employment elasticity estimates that are much smaller than the traditional ordinary least squares (OLS) results and are not statistically different from zero. These results hold for many specifications and datasets from the minimum wage‐employment literature. A simulation shows that unobserved common factors can explain the different estimates seen across methodologies in the literature. (JEL C23, J21, K31)