Wage and Productivity Differentials in Japan: The Role of Labor Market Mechanisms

This paper aims at explaining two stylized facts of the Lost Decade in Japan: rising wage inequalities and increasing firm‐level productivity differentials. We build a model where firms can choose between efficiency wages with endogenous effort and competitive wages, and show that it can replicate those facts. Using Japanese microeconomic data, we find support for the existence of efficiency wages in one group of firms and competitive wages in the other group. Based on those results, a simulation shows that the share of firms using efficiency wages has declined, within sectors, during the Lost Decade, as predicted by the model.     

DOES EMPLOYMENT PROTECTION CREATE ITS OWN POLITICAL SUPPORT?

This paper investigates the ability of employment protection to generate its own political support. A version of the Mortensen–Pissarides model is used for this purpose. If wages are set through Nash bargaining, workers value employment protection because it strengthens their hand in wage negotiations. Workers in high productivity matches benefit most from higher wages as they expect to stay employed for longer. By reducing turnover employment protection shifts the distribution of match‐specific productivity toward lower values. Thus stringent protection in the past actually reduces support for employment protection today. Introducing involuntary separations reverses this conclusion. Now workers value employment protection because it delays involuntary dismissals. Workers in low productivity matches gain most since they face the highest risk of dismissal. The downward shift in the productivity distribution is now a shift towards supporters.     

RETHINKING THE EFFECT OF IMMIGRATION ON WAGES

This paper calculates the effects of immigration on the wages of native US workers of various skill levels in two steps. In the first step we use labor demand functions to estimate the elasticity of substitution across different groups of workers. Second, we use the underlying production structure and the estimated elasticities to calculate the total wage effects of immigration in the long run. We emphasize that a production function framework is needed to combine own‐group effects with cross‐group effects in order to obtain the total wage effects for each native group. In order to obtain a parsimonious representation of elasticities that can be estimated with available data, we adopt alternative nested‐CES models and let the data select the preferred specification. New to this paper is the estimate of the substitutability between natives and immigrants of similar education and experience levels. In the data‐preferred model, there is a small but significant degree of imperfect substitutability between natives and immigrants which, when combined with the other estimated elasticities, implies that in the period from 1990 to 2006 immigration had a small effect on the wages of native workers with no high school degree (between 0.6% and +1.7%). It also had a small positive effect on average native wages (+0.6%) and a substantial negative effect (−6.7%) on wages of previous immigrants in the long run.     

COMPETITION AND RELATIONAL CONTRACTS: THE ROLE OF UNEMPLOYMENT AS A DISCIPLINARY DEVICE

Abstract When workers are faced with the threat of unemployment, their relationship with a particular firm becomes valuable. As a result, a worker may comply with the terms of a relational contract that demands high effort even when performance is not enforceable by a third party. But can relational contracts motivate high effort when workers can easily find alternative jobs? We examine how competition for labor affects the emergence of relational contracts and their effectiveness in overcoming moral hazard in the labor market. We show that effective relational contracts do emerge in a market with excess demand for labor. Long‐term relationships turn out to be less frequent when there is excess demand for labor than they are in a market characterized by exogenous unemployment. However, stronger competition for labor does not impair labor market efficiency: higher wages induced by competition lead to higher effort out of concerns for reciprocity.     

ROUTES OF INFECTION: EXPORTS AND HIV INCIDENCE IN SUB‐SAHARAN AFRICA

This paper estimates whether exports affect the incidence of HIV in Africa. This relationship has implications for HIV prevention policy as well as for the consequences of trade increases in Africa. I estimate this impact using two sources of data on HIV incidence, one generated based on UNAIDS estimates and the other based on observed HIV mortality. These data are combined with data on export value and volume. I find a fairly consistent positive relationship between exports and new HIV infections: doubling exports leads to a 10%–70% increase in new HIV infections. Consistent with theory, this relationship is larger in areas with higher baseline HIV prevalence. I interpret the result as suggesting that increased exports increase the movement of people (trucking), which increases sexual contacts. Consistent with this interpretation, the effect is larger for export growth than for income growth per se and is larger in areas with more extensive road networks.     

AN INTERNATIONAL COMPARISON OF LIFETIME INEQUALITY: HOW CONTINENTAL EUROPE RESEMBLES NORTH AMERICA

We compare earnings inequality and mobility across the United States, Canada, France, Germany and the United Kingdom during the late 1990s. A flexible model of earnings dynamics that isolates positional mobility within a stable earnings distribution is estimated. Earnings trajectories are then simulated, and lifetime annuity value distributions are constructed. Earnings mobility and employment risk are found to be positively correlated with base‐year inequality. Taken together they produce more equalization in countries with high cross‐section inequality such that the countries in our sample have more similar lifetime inequality levels than cross‐section measures suggest.     

THE RELATIONSHIP BETWEEN CHILD HEALTH,DEVELOPMENTAL GAPS,AND PARENTAL EDUCATION: EVIDENCE FROM ADMINISTRATIVE DATA

We use administrative German data to examine the role of physical and mental health conditions in explaining developmental gaps between children whose parents have different educational levels. Specifically, we employ sibling fixed effect models to estimate the effect of a comprehensive list of childhood health conditions—diagnosed by government physicians—on the cognitive and verbal ability of pre‐school children. We also apply decomposition methods to examine the extent to which gaps in child development can be attributed to child health conditions. While most physical health conditions have small and insignificant effects, mental health conditions, in particular hyperactivity, have a large and significant effect on development. Mental health conditions account for 14%–36% of the gap in cognitive ability and for 23%–24% of that in verbal ability. Thus, policies aimed at reducing disparities in child development and socioeconomic inequalities later in life should focus more on the early diagnosis and effective treatment of mental health conditions.     

Comparing migrants to non-migrants: The case of Dutch migration to New Zealand

We analyse post-war Dutch migration to New Zealand. We document that history, reflect on analytical and econometric modelling and then combine a sample of Dutch migrants in New Zealand with a representative sample of Dutch in The Netherlands to estimate wage equations and the determinants of the migration decision. We use the results for ex post evaluation of the migration decision.Joop Hartog is Fellow of IZA (Bonn), CESifo (München), AIAS and Tinbergen Institute (Amsterdam). Work on this project was begun when Hartog was Erskine Visitor at the University of Canterbury, Christchurch New Zealand. Rainer Winkelmann is Fellow of CEPR and IZA (Bonn). This paper is produced as part of a CEPR research programme on European Migration from Economic Analysis to Policy Response, supported by a grant from the Commission of the European Communities under its Human Capital and Mobility Programme (no. ERBCHRXCT940515).It was presented at the European Society for Population Economics meetings in Bonn, June 2000. We gratefully acknowledge comments by Justin Lee Tobias, Jacques Poot, Ed Vytlacil, an anonymous referee and Paul Schultz. Responsible editor: T. Paul Schultz.     

The utilization of prevailing evaluation policy in the selection of performance measures

This study considers the problem of inferring a functional evaluation criterion from existing performance measure policies. The objective is to develop a rational basis by which to adaptively evaluate a current best set of performance measures from alternative sets. The analysis is based on a matrix approach for relating system characteristics to performance measures across a set of activities. A procedure for ranking measure combinations which are candidate implementation alternatives is devised using this matrix representation and cost information. An example illustrating the procedure is presented.