Estimating the effects of immigration in one city

This paper presents a new method of estimating the effects of immigration on the labor market that does not require variations in immigration across cities. With a two-stage CES model that aggregates immigrant groups by age cohorts and aggregates cohorts into effective labor, the econometric estimation and the interpretation of parameters are particularly straightforward. The paper uses data from Hong Kong to estimate the elasticities of complementarity associated with increased immigration. A simulation study indicates that a 40% increase in the stock of new immigrants will lower wages by no more than one percent. Received: 13 August 1997/Accepted: 7 December 1998     

Male-female differences in labor market outcomes during the early transition to market: The cases of Estonia and Slovenia

Changes in women's relative wages and employment are analyzed, using social security data from Slovenia (1987–1992) and a retrospective labor force survey in Estonia (1989–1994). Estonia adopted liberal labor market policies. Slovenia took an interventionist approach. Nevertheless, relative wages for women rose in both countries. Factors favoring women included: returns to human capital rose in transition, benefiting women; relative labor demand shifted toward predominantly female sectors; low-wage women had a disproportionate incentive to exit the labor market, especially in Estonia. However, women were less mobile across jobs in both countries, so men disproportionately filled new jobs in expanding sectors. Received: 27 November 1997/Accepted: 20 December 1998     

Population growth,economic development and family planning

This report discusses research conducted to determine whether reduction in population growth rates contributed to the rapid economic growth of Indonesia, South Korea, Japan and Thailand. The 5-year research projects, jointly sponsored by the UN Fund for Population Activities, the Nihon University Population Research Institute, and the East-West Population Institute, concluded that development and family planning programs contributed substantially to fertility decline in these countries. The project examined 3 factors that influence the long-term productive capacity and growth of the 4 Asian economies: savings, the size of the labor force, and the quality of labor (measured by educational attainment). Available evidence indicates a strong positive contribution of population decline toward growth of savings, a growth in labor force concurrent with a decline in fertility rates which enables per capita income to rise, and an increase in 2ndary education enrollment ratios as fertility is lowered. Development factors by themselves explain no more than 1/2 of the decline in fertility observed, suggesting that family planning programs particularly in Thailand, South Korea and Indonesia since 1976 have had an important impact on fertility and economic development.     

Labor market assimilation and the self-employment decision of immigrant entrepreneurs

This paper uses data from the 1980 and 1990 U.S. Censuses to study labor market assimilation of self-employed immigrants. Separate earnings functions for the self-employed and wage/salary workers are estimated. To control for endogenous sorting into the sectors, models of the self-employment decision are estimated. Self-employed immigrants are found to do substantially better in the labor market than wage/salary immigrants. Earnings of self-employed immigrants are predicted to converge with natives' wage/salary earnings at about age 30 and natives' self-employed earnings at about age 40. Including the self-employed in the sample reduces the immigrant-native earnings gap by, on average, 14%. Received: 10 November 1999/Accepted: 3 August 2000     

The expected length of male retirement in the United States, 1850–1990

This paper estimates the expected length of retirement for each labor market cohort between 1850 and 1990. Since 1850, the expected length of retirement has increased by more than six-fold and now represents up to 30% of male length of life after entry into the labor force. The rise of the duration of retirement during the twentieth century is analyzed according to the effects of mortality decline and of decreased age of retirement. Implications of the result for a number of economic issues, including the relative importance of life-cycle savings and the potential saving effect of Social Security, are discussed. Received: 22 September 1999/Accepted: 11 July 2000     

A note on the changing relationship between fertility and female employment rates in developed countries

In this paper we look at a panel of OECD aggregate fertility and labor market data between 1970 and 1995 and we report some striking recent developments. Total Fertility Rates (TFR) were falling and Female Participation Rates (FPR) were increasing, conforming to a well known long-run trend. Along the cross-sectional dimension, the correlation between TFR and FPR was negative and significant during the 1970's and up to the early 1980's. This seemed consistent with secular comovements. However, by the late 1980's the correlation had become positive and equally significant. We discuss our findings within the framework of standard neoclassical models of fertility and labor supply adapted to macro data, as in Butz and Ward (1979). Received: 14 April 2000/Accepted: 29 December 2000 All correspondence to Pedro Mira. Namkee Ahn is grateful for financial support received from the Bank of Spain and from Spain's Ministerio de Educación y Cultura, grant SEC97-1249. We benefited from comments by two anonymous referees and by seminar participants at FEDEA, CEMFI and ESPE-98. All remaining errors are our own. Responsible editor: John F. Ermisch.     

Can skill-biased technological change compress unemployment rate differentials across education groups?

Our aim is to explain why the pattern of relative unemployment rates by education groups was non monotonic in most of the OECD countries. In a two-sector matching model, a simple unexpected productivity shock biased against unskilled labor can replicate the observed dynamics. Demographic effects of skill-biased shocks can be related to inequality in the distribution of wealth. Received: 27 April 1999/Accepted: 08 June 2000     

Skill premium effects on fertility and female labor force supply

In the last twenty years the United States has seen a positive relationship between female labor supply and total fertility rates, which differs from the pattern observed over the preceding years. We construct a general equilibrium overlapping generations model capable of generating this changing relationship between fertility and female labor supply. We argue that skilled biased technological change in recent decades has increased the skill premium and has therefore decreased the relative cost of (unskilled) child care services. The positive effect of the increase in female mean wages on fertility rates, and the inducement for labor force participation provided by the reduction in the relative cost of child care services, generated the positive relationship between fertility rates and female labor force participation in the last two decades.All correspondence to Amaia Iza. This paper has benefited particularly from comments by Juan Carlos Conesa, Pedro Mira and Sara de la Rica. We also acknowledge countless conversations with María Paz Espinosa and useful comments from Jaime Alonso, Jose María Da-Rocha, Tim Kehoe, José Victor Rios-Rull, when the paper was presented at the IV Workshop of Dynamic Macroeconomics held in Vigo (Spain, July 1999) and in Universidade de Vigo (October, 2000). We also thank an anonymous referee whose comments enabled us to improve the paper considerably. Financial support from Universidad del País Vasco 9UPV 00035.321-13511/2001, Ministerio de Educación y Ciencia PB097-0620, MCYT BEC2000/1394 and Instituto de la mujer (Ministerio de Trabajo y Asuntos Sociales) MTAS 33/00 is gratefully acknowledged. Any remaining errors are the authors responsibility. Responsible editor: Junsen Zhang.     

Public policy and the labor market adjustment of new immigrants to Australia

Two separate cohorts of immigrants to Australia are compared in order to assess the potential role of immigrant selection criteria, labor market conditions, and income-support policy in facilitating the labor market adjustment of new arrivals. Although these two cohorts entered Australia only five years apart, their initial labor market outcomes varied dramatically. The results indicate that changes in immigration policy may have led to increased human capital endowments that in turn resulted in higher participation rates and reduced unemployment. At the same time, improvement in Australian labor market conditions and changes in income-support policy over the 1990s – which most likely altered the returns to human capital – were probably instrumental in reinforcing the effects of tighter immigrant selection criteria. As much as half of the fall in unemployment rates among women and one third the decline among men appears to have occurred as the result of changes in the returns to demographic and human capital characteristics. Responsible editor:Christoph M. Schmidt     

The effect of work absence on wages and wage gaps in Sweden

We use unique information about short-term absence from the labor market among Swedish employees to investigate the potential wage loss attributed to this type of absence. A reform in the Swedish health insurance system was used as an instrument. The results indicate that women's wages are significantly reduced by work absence due to own sickness, while absence to care for a sick child has no significant wage effect. For men, we find no support for effects on wages from short-term absence. We also show that the distribution of the gender wage gap depends to a large extent on work absence. Received: 29 September 1998/Accepted: 16 April 1999     

Premium differentiation in the Unemployment Insurance system and the demand for labor

We simulate the effect of the introduction of premium differentiation (experience rating) in the Dutch Unemployment Insurance system on the demand for labor for a variety of sectors in the Dutch economy. For the simulations we use the Bentolila and Bertola (1990) framework as a point of departure. In the simulations, the introduction of experience rating is modeled as expenditure neutral: in the absence of premium differentiation the cost of financing UI is modeled as a wage tax (independent of the number of workers fired by the firm), whereas in the presence of experience rating this cost is attributed to firing cost (affected by the firing action). Thus, the introduction of experience rating results in a shift from wage cost to firing cost. Following the political debate on the issue in the Netherlands, we assume that the introduction of experience rating does neither lead to a change in tax rates paid by workers nor to a change in eligibility rules or replacement rates of benefit claimants. Specific attention is paid to the distinction between young and old workers . In the model, labor adjustment costs (hiring and firing costs) are linear. The model allows for uncertainty in the business cycle.All correspondence to Hans Bloemen. Responsible editor: Alessandro Cigno     

Immigrant quality and assimilation: a review of the U.S. literature

Empirical research on US immigrants is reviewed: their productivity and assimilation; their contribution and use of public services; and their impact on native Americans. I discuss the characteristics of cohorts of immigrants that enter the United States at different times, and then quantify the assimilation of immigrants, typically in terms of economic productivity of immigrants compared with natives. Few have found quantifiable negative effects of immigrants on native wages or unemployment in local labor markets, but a more general equilibrium approach than has been empirically implemented may be needed to draw any conclusions regarding the distributional consequences of immigration. Received: 22 September 1995 / Accepted: 2 March 1997     

Income and employment effects of health shocks A test case for the German welfare state

Using data from the first eleven waves of the German Socio-Economic Panel this study investigates the dynamic effects of health shocks on employment and economic well-being of older workers. A health shock trebles the probability of leaving the labor force and almost doubles the unemployment risk. The financial effects of health shocks are small on average and those individuals with the highest remaining earnings potential are least affected by the health shock. Welfare state instruments support the poorest section of the population but do not succeed in neutralizing the effects of a health shock for these groups. Received: 9 April 1997/Accepted: 28 May 1998     

Does time preference change with age?

This study looks at compensating differentials in the National Longitudinal Survey of Youth (NLSY) to derive estimates of the levels of time preference for labor force participants in each of 15 waves of data from 1979 to 1994. With these estimates the evolution of time preference over the life course is described. Future utility among labor force participants appears to be valued more highly by subjects who are older, more schooled, white, or male. Controlling for schooling level, a higher IQ is associated with a preference for more immediate rewards.If social rates of time preference are correlated with individual rates of time preference then population aging could create intergenerational asymmetries in the social rate of time preference.This phenomenon could make the optimal investments of young populations appear selfish to future generations that are older.Support from Hopkins Population Center (R24) is gratefully acknowledged. I am thankful for helpful comments received from Jim Burgess, Mike Grossman, Bruce Hamilton, Fritz Laux, Athanasios Orphanides, Katie Roche, and Eric Slade. All errors are my own. Responsible editor: Alessandro Cigno.     

Immigrant earnings: Language skills, linguistic concentrations and the business cycle

This study of the determinants of earnings among adult foreign-born men using the 1990 Census of Population focuses on the effects of the respondent's own English language skills, the effects of living in a linguistic concentration area, and the effects of the stage of the business cycle at entry into the U.S. labor market. The analysis demonstrates the importance of English language fluency among the foreign born from non-English speaking countries. There is also strong evidence for the complementarity between language skills and other forms of human capital. Furthermore, there is strong evidence using selectivity correction techniques for the endogeneity between language and earnings. Received: 30 November 1999/Accepted: 6 February 2001     

Banking on fewer children: financial intermediation,fertility and economic development

This paper shows that financial intermediation can influence fertility and labor allocation decisions by raising market wages. The increase in wages induces some households to abandon “traditional” labor intensive methods of production managed at the household level and supply labor to “modern” sector firms. Since it is optimal for households in the modern sector to have fewer children, the labor allocation decision leads to lower national fertility. A panel VAR using financial intermediation, fertility and industrial employment share data in 87 countries is estimated. The empirical results show that the data are consistent with the theoretical predictions. Received: 20 October 1997/Accepted: 31 August 1998     

Population growth and social security financing

By allowing the population growth to be flexible, this paper analyzes the effect of a tax reform that involves an introduction of consumption taxation for social security financing. It is found that population growth and labor supply play an important role in determining the effect of the tax reform. If population growth and labor supply are exogenous, then an introduction of a consumption tax for social security financing, with the payroll tax rate being endogenous, decreases the interest rate and increases capital accumulation. However, if population growth and labor supply are endogenous, then an introduction of a consumption tax for social security financing increases the interest rate and reduces capital accumulation. Received: 26 February 2001/Accepted: 26 August 2001     

The effect of child care and part time opportunities on participation and fertility decisions in Italy

Economic models of household behavior typically yield the prediction that increases in schooling levels and wage rates of married women lead to increases in their labor supply and reductions in fertility. In Italy, low labor market participation rates of married women are observed together with low birth rates. Our explanation involves the Italian institutional structure, particularly as reflected in rigidities and imperfections in the labor market and characteristics of the publicly-funded child care system. These rigidities tend to simultaneously increase the costs of having children and to discourage the labor market participation of married women. We analyze a model of labor supply and fertility, using panel data. The empirical results show that the availability of child care and part time work increase both the probability of working and having a child. Received: 14 February 2000/Accepted: 20 February 2001     

The sectoral labor supply of married couples in Brazil: Testing the unitary model of household behavior

An assumption of the unitary model of household decision-making is that household members maximize one household utility function. This assumption implies that households pool their income and, therefore, the ownership of nonwage income has no effect on household demand. In this paper, this implication is tested by estimating multi-sector labor supply equations for men and women in Brazil. The results indicate that the unitary model is rejected in the informal and self-employment sectors for men and the formal and informal sectors for women; in these cases own nonwage income has a significantly negative effect on labor supply while spousal nonwage income has no significant effect. Received: 29 December 1997/Accepted: 9 December 1998     

Residential location and youth unemployment: The economic geography of school-to-work transitions

In response to increased international policy attention to youth unemployment this study investigates post-secondary school transitions of school leavers. Multinomial logit models are estimated for male and female German youth. The models control for individual, parent, and household characteristics, for those of the youth's region of residence and local labor markets. The findings suggest that immigrant youth has particularly low participation rates in continued education, and that youth unemployment is centered in high unemployment states and metropolitan areas. More generous academic benefit policies seem to be correlated with increased academic enrollment, and men's transitions to the military do reflect recent changes in defense policies. Received: 30 November 1999/Accepted: 3 August 2000