How Do Policies Affect the Exit Rate out of Unemployment? Disentangling Job Creation from Labour Market Frictions

This paper assesses the effects of labour market policies on the unemployment outflow rate while disentangling two channels, namely labour market tightness and employer–employee matching efficiency. Using a sample of 11 OECD countries over the period 1985–2007, we treat the endogeneity of market tightness with business cycle shocks and the tax wedge as instruments. We find that the replacement rate of unemployment benefits, Active Labour Market Policies as well as the tax wedge in countries with poorly representative unions, have a significant, robust, and large impact on market tightness. Employment protection has a negative but small impact on matching efficiency. Overall, policy effects appear to be mostly channeled through market tightness and job creation.     

Kind of Black: The Musicians' Labour Market in Italy

It is estimated that only 5 per cent of musicians in Italy are regularly employed. In an attempt at understanding such a peculiar situation, we build a theoretical model of the musicians' labour market in which we embed the main institutional features of the Italian system. The presence of taxation encourages the formation of a black labour market for musicians and discourages talented agents from becoming full‐time musicians in all second‐best economies. In Italy both tendencies are particularly strong, and exacerbated by the peculiarities of the pension system for musicians. These inefficiencies might be corrected by a twofold policy: the reform of the pension system, highly desirable but unlikely to be politically feasible in the current Italian institutional setting, and the introduction of a sufficiently large unemployment benefit for musicians, step that has a general interest for any second‐best economy and not only for the case of the musicians' labour market, and that might instead be viable under certain circumstances.     

Quality and Demand of Child Care and Female Labour Supply in Italy

This paper provides a micro‐econometric evaluation of the effects of child care rationing on the household expenditures on child care and on the female participation decision, in Italy. A sample of households is used with at least one pre‐school child, selected from the Bank of Italy Survey of Household Income and Wealth (SHIW); this is complemented with ISTAT statistics on nursery and crèche access rates. It is found that both child care rationing and the availability of alternative forms of non‐market child care (relatives etc.) affect in various ways the household decisions over child care expenditure and labour supply.     

The Role of Profit Sharing in Dual Labour Markets with Flexible Outsourcing

We combine profit sharing for high‐skilled workers and outsourcing of low‐skilled tasks in a partly imperfect dual domestic labour market, which means that only low‐skilled labour is represented by a labour union. In that framework we analyse how the implementation of profit sharing for high‐skilled workers influences the amount of outsourcing and the labour market outcome for low‐skilled worker. By doing this, we use some specific assumptions, e.g. exponentially increasing outsourcing costs or the wage for low‐skilled workers will be determined by a union whereas the wage for high‐skilled workers is given. Assuming that low‐skilled labour and outsourcing are interchangeable we show that profit sharing has a positive effect on the wage for low‐skilled workers and helps to decrease wage dispersion. However, under these circumstances, profit sharing enhances outsourcing. Concerning the employment effects for high‐ and low‐skilled workers, we show that there is an employment reducing effect due to higher wages for low‐skilled work, which can be offset by higher productivity of highly skilled workers, as the domestic labour inputs complement each other.     

The Threat Effect of Mandatory Programmes in Finland

This study focuses on the threat effect of the activation reform of the Finnish labour market support system in 2006. Mandatory programme participation may provide the incentive for some individuals to look for work in order to avoid the training programmes. The study examines whether the reform encouraged individuals in the target group to look for employment. According to the results, mandatory programme participation has no effect on the probability of finding a job or of leaving labour market support for some other reason. Conversely, long‐term recipients' participation in the labour market programmes has increased, owing to the activation reform.     

Is There a Double‐Negative Effect? Gender and Ethnic Wage Differentials in Italy

This paper investigates the gender and ethnic wage differentials for female migrants in Italy by applying the Oaxaca–Blinder decomposition, with and without Heckman correction, to account for self‐selection into the labour market. The gender wage gap is nearly 15 per cent, more than 60 per cent of which is unexplained by observable differences. The ethnic wage gap is much larger (39 per cent), but endowments explain 53 per cent of the gap. We also estimate the double‐negative effect of being both female and a migrant. A female migrant earns 42 per cent less than an Italian male; the unexplained component is estimated to be 53–65 per cent. Results are robust to different specifications.     

Gender Differences in Lifelong Learning: An Empirical Analysis of the Impact of Marriage and Children

We use recent advances in the statistical analysis of Oaxaca–Blinder decompositions for non‐linear models to analyse the contribution of individual variables to total gender differences in training participation and duration. Results suggest that effects stemming from the intra‐household division of labour contribute significantly to gender differences, but that segregation of the labour market as well as differences in the access to training by tenure, age, occupation, profession and sectors are more important.     

The Role of Entrepreneurship in the Context of Career Trajectories: Moving Back into Wage Employment or into Unemployment?

This study investigates patterns of movement from self‐employment to wage employment or to unemployment in Belgium. Non‐parametric techniques and complimentary log–log analyses are used to determine the significance of stable individual traits (e.g. gender) and of time‐dependent characteristics (e.g. family and organizational context, labour market mobility) in moving back to wage employment or to unemployment. Evidence is provided on the possibility of entrepreneurship acting as a ‘steppingstone’ between long‐term unemployment and paid work. Yet, significant relationships also emerge between ex‐ante time spent in unemployment and the possibility of continued unemployment upon self‐employment exit.     

A Stock–Flow Matching Approach to Evaluation of Public Training Programme in a High Unemployment Environment

Abstract. Monthly panel (1998–2003) data from regional labour offices in Latvia are used to analyse the matching process in a high unemployment–low labour demand environment and to evaluate the impact of active labour market policy programmes on outflows from unemployment. Results suggest that the hiring process is driven by a stock–flow rather than by a traditional matching function: the stock of unemployed at the beginning of the month and flow of vacancies arriving during the month are the key determinants of outflows from unemployment to employment, whereas stock of vacancies and inflow of unemployed do not play any significant role. We find positive and significant effect of training programmes on outflows from unemployment to employment, thus providing strong evidence against cuts in training expenditures.     

THE POLITICAL COLOR OF FISCAL RESPONSIBILITY

We propose a dynamic general equilibrium model that yields testable implications about the fiscal policy run by governments of different political color. Successive generations of voters choose taxation, expenditure, and government debt through repeated elections. Voters are heterogeneous by age and by the intensity of their preferences for public good provision. The political equilibrium switches stochastically between left‐ (pro‐public goods) and right‐leaning (pro‐private consumption) governments. A shift to the left (right) is associated with a fall (increase) in government debt, an increase (fall) in taxation, and an increase (fall) in government expenditures. However, left‐leaning governments engage in more debt accumulation during recessions. These predictions are shown to be consistent with the time‐series evidence for the United States in the postwar period, and also with the evidence for a panel of OECD countries. (JEL: D72, E62, H41, H62, H63)     

British Employment Measures: Policy and Evidence

ABSTRACT: This paper examines how British labour market policy has developed over the decade up to mid-1986 and summarises the evidence available on the effects of the so-called 'special employment measures'. Given the wide range of schemes and the variations in rules governing them as they evolved, no attempt is made to give details of the different schemes. The aims are to identify the main shifts in policy and to address the principal methodological and empirical issues which arise in attempting to evaluate policy. The main focus of the paper is on those measures which have been designed to increase employment without threatening the attempts by successive governments first to restrain the growth of public expenditure and then to reduce the level in real terms. The mainstream macroeconomic and labour market strategy continues to stress the need for fiscal and monetary restraint combined with much greater labour market flexibility. Whilst the paper is concerned with employment measures, the Youth Training Scheme is also included. It represents the biggest of all the programmes initiated during the last decade or so of policy intervention and is concerned with providing employment as well as training opportunities.     

Informal Caregiving and Women's Work Choices: Lessons from the Netherlands

This paper focuses on the effects of Dutch long‐term care and labour market policies on women's labour market participation and informal caregiving decisions. Labour market participation and informal caregiving are estimated jointly through a multivariate dynamic binary probit on European Community Household Panel data. Under Dutch policy, informal care decisions appear to be independent of household non‐labour income and no significant impediment seems to hinder the contemporaneous practice of work activities and care. However, past informal care provision still slightly reduces the probability of currently working and vice versa, leaving room for policy improvements to enhance labour market participation.     

Transitions in the Labour Market: Discouragement Effect and Individual Characteristics

The present work analyses the unemployment gender gap in Italy for the period 2004–11. We present a methodology for decomposing the natural rate of unemployment, thus defining it in terms of equilibrium labour market flows between the aggregate states of the labour market (Employment, Unemployment, Inactivity). In addition, we offer estimates of the determinants of the unemployment gender gap to pinpoint the relative role of individual characteristics and structural factors in determining this difference.     

Employment Decisions of Married Women: Evidence and Explanations

Aggregate evidence has revealed a significant increase in women’s labour market participation (especially among married women) and a decline in male participation, both in Italy and in all the other OECD countries. This paper empirically tests the relationship between the education and employment status of husbands and wives using the Bank of Italy Survey (1995). The results of our analysis show that employed women are likely to be married to employed men with a higher level of education and higher income. The estimates of the labour supply decisions of wives show that the effect of the unemployment status of husbands is mediated by other factors associated with the family’s view of wives working outside home. The response to a husband’s unemployment depends significantly on the employment decisions of parents (mothers and mothers‐in‐law), a proxy for the couple’s attitude towards women’s work.     

Price Effects of the Minimum Wage: A Survey Data Analysis for the German Construction Sector

Utilizing the link between employment and price changes as a result of minimum wages, we use firm‐level data to evaluate the effect of minimum wage introduction in the German construction sector. In East Germany we find significant positive price effects that exclude the possibility of rising employment. Rather, the results indicate the existence of a competitive sector‐specific labour market, and thus declining employment. In contrast, we cannot find any significant price reaction for West Germany. This suggests that the implemented minimum wage in West Germany is too low in comparison to the predominantly paid wages and is hence not binding.     

Earning While Learning: When and How Student Employment is Beneficial

Although studies of student employment (‘earning while learning’) mostly find positive wage effects, they do not adequately consider the relation of the employment to the field of study. We investigate how different types of student employment during tertiary education affect short‐ and long‐term labour market returns. Beyond examining differences between non‐working and part‐time working students, we distinguish between student employment related and unrelated to the field of study. Our results show significant positive labour market returns of ‘earning while learning’ only for student employment related to the field of study. These returns consist of a lower unemployment risk, shorter job‐search duration, higher wage effects, and greater job responsibility.     

Unequal Opportunities for Young People with Immigrant Backgrounds in the Swedish Labour Market

Abstract. This paper investigates labour‐market performance for ‘young people with immigrant backgrounds’ and those ‘born in Sweden with native‐born parents’ in the Swedish labour market. It focuses on young people who were aged 18–20 during 1990, and their labour‐market status after 8 years, in 1998. The results indicate that young people of immigrant descent have lower annual wage income and are at higher risk of not being employed than those born in Sweden with native‐born parents. Differences in human capital characteristics cannot explain these results. Other theories, which stress the effect of discriminatory behaviour and the power of social network composition, are discussed as alternative interpretations. Having one native‐born parent is considered to be important to labour market success. However, having a native‐born father rather than a native‐born mother is associated with better labour‐market achievement.     

Labour Policy in the Federal Republic of Germany: Challenges and Concepts

ABSTRACT: This paper describes how German labour policy, both employment policy and active labour market policies, has developed between 1974 and 1987. Government intervention for full employment in a welfare state, a cooperative system of industrial relations, an active labour market policy, and a comparatively efficient system of vocational and adult education did not prevent the loss of full employment in 1974. But persistent labour market slack until today has not fundamentally changed the climate of relative political and social calm. The basic concepts, programmes and specific measures of labour policies pursued in the FRG are surveyed with special reference to their costs and effects on employment and the structure of unemployment. The challenges to labour policy stem from three complete business cycles around a slightly falling trend in employment and the bad prospectives of the German labour market until the year 2000. Four major measures of labour market policy now reduce registered unemployment by about 400,000 in the mid 1980s. Total costs of unemployment amounting to 57 billion DM per year offer financial alternatives to create jobs and to reduce working hours. Finally, actual proposals under discussion in Germany are examined in order to combat unemployment in a determined commitment to full employment immediately.     

Labour Market Structures,Labour Market Policy and Wage Formation in the OECD

This paper investigates why the incentive to moderate wages in an environment of rising unemployment differs so strongly among the OECD countries. In the first part we develop an insider-outsider bargaining model in which the wage results from a confrontation of the insiders' wage claims and the employer's wage offer. The second part of the paper empirically tests the model's predictions for the determinants of wage flexibility. The degree of centralization of wage bargaining, the extent of active labour market policy and the characteristics of the unemployment benefit system are shown to be relevant determinants.     

Labour‐market Institutions and Macroeconomic Shocks

Abstract. Macroeconomic shocks and labour‐market institutions jointly determine employment growth and economic performance. The effect of shocks depends on the nature of these institutions and the effect of institutional change depends on the macroeconomic environment. It follows that a given set of institutions may be appropriate in one epoch and not in another. We derive a dynamic model of labour demand in which the effect of firing costs on labour demand depends on the macroeconomic environment: when the level of macroeconomic activity is expected to drop and/or the trend rate of productivity growth is small, a rise in firing costs affects mainly (and adversely) the hiring decision and not the layoff decision. This makes firing costs harmful to employment when it may appear most appropriate. In contrast, firing costs can raise employment during periods of high growth and positive shocks. Our hypothesis is supported by empirical results using OECD data.