Showing papers by "Institute for the Study of Labor published in 1998"

The Economics of Child Labor

Abstract: If child labor as a mass phenomenon occurs not because of parental selfishness but because of the parents' concern for the household's survival, the popular argument for banning child labor loses much of its force. However, this assumption about parental decision-making coupled with the assumption of substitutability in production between child and adult labor could result in multiple equilibria in the labor market, with one equilibrium where children work and another where adult wage is high and children do not work. The paper establishes this result and discusses its policy implications.

Characterizing Selection Bias Using Experimental Data

Abstract: This paper develops and applies semiparametric econometric methods to estimate the form of selection bias that arises from using nonexperimental comparison groups to evaluate social programs and to test the identifying assumptions that justify three widely-used classes of estimators and our extensions of them: (a) the method of matching; (b) the classical econometric selection model which represents the bias solely as a function of the probability of participation; and (c) the method of difference-in-differences. Using data from an experiment on a prototypical social program combined with unusually rich data from a nonexperimental comparison group, we reject the assumptions justifying matching and our extensions of that method but find evidence in support of the index-sufficient selection bias model and the assumptions that justify application of a conditional semiparametric version of the method of difference-in-difference. Fa comparable people and to appropriately weight participants and nonparticipants a sources of selection bias as conveniently measured. We present a rigorous defin bias and find that in our data it is a small component of conventially meausred it is still substantial when compared with experimentally-estimated program impa matching participants to comparison group members in the same labor market, givi same questionnaire, and making sure they have comparable characteristics substan the performance of any econometric program evaluation estimator. We show how t analysis to estimate the impact of treatment on the treated using ordinary obser

Child Labor: Cause, Consequence, and Cure, with Remarks on International Labor Standards

Abstract: Should child labor be banned outright? Should the World Trade Organization be given the responsibility to discourage child labor using trade sanctions? The answer to this complicated problem depends on the economic milieu, says Basu. At least 120 million of the world's children aged 5 to 14 worked full-time in 1995, most of them under hazardous, unhygienic conditions, for more than 10 hours a day. This is an old problem worldwide but particularly so in Third World countries in recent decades. What has changed, with globalization, is our awareness of these child laborers. (The International Labour Organisation distinguishes between child work, which could include light household chores and could have some learning value, and child labor, a pejorative phrase.) By bringing together the main theoretical ideas, Basu hopes to encourage both more theoretical research and empirical work with a better theoretical foundation. Among other things, Basu observes that: ° The problem is most serious in Africa, where the child-labor participation rate is 26.2 percent. The rate is 12.8 percent in Asia. But since 1950, the trend is a decline in that participation rate worldwide. For most Latin American countries, the decline is notable but less marked than in Asia. In large parts of Africa, including Ethiopia, the problem has been extremely persistent, but even there the trend is downward. ° Child labor has not always been considered evil, and there is no consensus on why it began to decline. In some (not all) countries legislative acts declared it illegal, in some there were rules about compulsory education, and increasing prosperity generally made families less likely to experience poverty if their children weren't working. ° Mandating compulsory education is regarded as more effective than outlawing child labor, because attendance at school is easier to monitor, but some experts believe economic progress is the answer to the problem. The justification for many interventions is that the state is more concerned about the well-being of children than their parents are; Basu believes such an assumption to be wrong when child labor occurs as a mass phenomenon rather than as isolated abuse. Basu argues that, in some economies, the market for labor may exhibit multiple equilibria, with one equilibrium having low adult wage and a high incidence of child labor and another equilibrium exhibiting high adult wage and no child labor. The model is used to provide a framework for analyzing the role of international labor standards. This paper - a product of the Office of the Senior Vice President, Development Economics - is part of a larger effort in the Bank to promote understanding of the causes of child labor. The study was funded by the Bank`s Research Support Budget under the research project Literacy and Child Labor (RPO 683-07). The author may be contacted at kbasu@worldbank.org.

Consequences of Employment Protection? the Case of the Americans with Disabilities Act

Abstract: The Americans With Disabilities Act (ADA) requires employers to accommodate disabled workers and outlaws discrimination against the disabled in hiring, firing, and pay. Although the ADA was meant to increase employment of the disabled, it also increases costs for employers. The net theoretical impact turns on which provisions of the ADA are most important and how responsive firm entry and exit is to profits. Empirical results using the CPS suggest that the ADA had a negative effect on the employment of disabled men of all working ages and disabled women under age 40. The effects appear to be larger in medium size firms, possibly because small firms were exempt from the ADA. The effects are also larger in states where there have been more ADA-related discrimination charges. Estimates of effects on hiring and firing suggest the ADA reduced hiring of the disabled but did not affect separations. This weighs against a pure firing-costs interpretation of the ADA. Finally, there is little evidence of an impact on the nondisabled, suggesting that the adverse employment consequences of the ADA have been limited to the protected group.

An Analysis of Sample Attrition in Panel Data: The Michigan Panel Study of Income Dynamics

Abstract: By 1989 the Michigan Panel Study on Income Dynamics (PSID) had experienced approximately 50 percent sample loss from cumulative attrition from its initial 1968 membership. We study the effect of this attrition on the unconditional distributions of several socioeconomic variables and on the estimates of several sets of regression coefficients. We provide a statistical framework for conducting tests for attrition bias that draws a sharp distinction between selection on unobservables and on observables and that shows that weighted least squares can generate consistent parameter estimates when selection is based on observables, even when they are endogenous. Our empirical analysis shows that attrition is highly selective and is concentrated among lower socioeconomic status individuals. We also show that attrition is concentrated among those with more unstable earnings, marriage, and migration histories. Nevertheless, we find that these variables explain very little of the attrition in the sample, and that the selection that occurs is moderated by regression-to-the-mean effects from selection on transitory components that fade over time. Consequently, despite the large amount of attrition, we find no strong evidence that attrition has seriously distorted the representativeness of the PSID through 1989, and considerable evidence that its cross-sectional representativeness has remained roughly intact.

Key lessons for labour market reforms: evidence from OEGD countries' experiences

Abstract: Summary II Since 1992, the OECD has been intensively researching into the causes and consequences of high, persistent unemployment and effective remedies to tackle it. In particular, since the Jobs Stu& was published in 1994, the OECD has elaborated detailed policy recommendations for each of its member countries and closely monitored their progress (or lack of it) in implementing these recommendations. This process identified six countries that ha1.e succeeded in reducing unemployment significantly in the 1990s, together with a few other countries that have maintained unemployment at relatively low levels. The purpose of this paper is to distil the lessons for labour market reforms from the szicceues and faihres. It begins by discussing the structural urlemploj~ment indicator that the OECD has used to identify the successful countries. This is followed by a review of the cross-country determinants of structural unemplojrment that focuses on the role of labour market policies and certain institutional factors. One novelty is the specific attention paid to potential interactions between labour market policies and institutional features of the collective bargaining system. The paper also highlights several key lessons for labour market reforms drawing on recent OECD research. In particular, it discusses the role played by labour market insiders in the process of reform. It considers the uTay in which concerns about the equity effects of labour market reforms have played a role in shaping policies. Finally, it discusses the role of crises as a potential catalyst for needed reforms. II

Research, Innovation, and Productivity: an Econometric Analysis at the Firm Level

Abstract: This paper studies the links between productivity, innovation and research at th level. We introduce three new features: (i) A structural model that explains pro by innovation output, and innovation output by research investment; (ii) New dat manufacturing firms, including the number of European patents and the percentage sales, as well as firm-level demand pull and technology push indicators; (iii) E which correct for selectivity and simultaneity biases and take into account the features of the available data: only a small proportion of firms engage in resea apply for patents; productivity, innovation and research are endogenously determ investment and capital are truncated variables, patents are count data and innov We find that using the more widespread methods, and the more usual data and mode may lead to sensibly different estimates. We find in particular that simultaneit with selectivity, and that both sources of biases must be taken into account tog results are consistent with many of the stylized facts of the empirical literatu of engaging in research (R&D) for a firm increases with its size (number of empl share and diversification, and with the demand pull and technology push indicato capital intensity) of a firm engaged in research increases with the same variabl research capital being strictly proportional to size). The firm innovation outpu patent numbers or innovative sales, rises with its research effort and with the indicators, either directly or indirectly through their effects on research. Fin correlates positively with an higher innovation output, even when controlling fo the skill composition of labor as well as for physical capital intensity.

Determinants of Recent Immigrants’ Locational Choices

Abstract: High levels of immigration to the United States have caused the size of the foreign-born population to increase dramatically in recent years. Recent immigrants are concentrated in several states, particularly California. This paper examines the determinants of the intended state of residence of new recipients of legal permanent-resident status and new refugees over the 1989-94 period. The presence of other foreign-born people is the primary determinant of the locational choices of new legal permanent residents, but there are some differences among immigrant groups by admission category and by country of origin. Only refugees' locations appear to be sensitive to welfare generosity.

The Earned Income Tax Credit and the Labor Supply of Married Couples

Abstract: Over 18 million taxpayers are projected to receive the Earned Income Tax Credit (EITC) in tax year 1997, at a total cost to the federal government of about 25 billion dollars. The EITC is refundable, so that any amount of the credit exceeding the family's tax liability is returned in the form of a cash refund. Advocates of the credit argue that this redistribution occurs with much less distortion to labor supply than that caused by other elements of the welfare system. This popular view that the credit is unlikely to hold among married couples. Theory suggests that primary earners (typically men) would increase labor force participation, but secondary earners would reduce their labor supply in response to an EITC. We study the labor supply response of married couples to several EITC expansions between 1984 and 1996. While our primary interest is the response to changes in the budget set induced by the EITC, our estimation strategy takes account of budget set changes caused by federal tax policy, and by cross-sectional variation in wages, income, and family size. We use both quasi-experimental and reduced form labor supply models to estimate the impact of EITC induced tax changes. The results suggest that EITC expansions between 1984 and 1996 increased married men's labor force participation only slightly but reduced married women's labor force participation by over a full percentage point. Overall, the evidence suggests that family labor supply and pre-tax family earnings fell among married couples. Our results imply that the EITC is effectively subsidizing married mothers to stay at home, and therefore have implications for the design of the program.

What Makes an Entrepreneur

Abstract: Seeks to understand the impact of capital availability and psychological characteristics on one's decision to pursue self-employment. In analyzing the effect of capital availability, focus is placed on the impact that inheritance or gift has on the decision to become self-employed. This is done by studying the effects of earlier inheritances on the cross-section probability of being self-employed. A theoretical model is created to explain the liquidity constraints faced by those that are seeking to become self-employed. Data used in the first part of the analysis is from the National Child Development Survey and examines the respondents at ages 23 and 33. Results show a strong positive correlation between the size of the inheritance and the incidence of self-employment. Further analysis is done using data from the British Social Attitudes Survey and the National Survey of the Self-Employed. The findings in both of these surveys were that capital poses the greatest constraint on pursuing self-employment. Most small businesses were found to have been started with the individual's money or his family's money, not bank loans. In addition, there is support for the proposition that the self-employed are happier than those that are employees. As to psychological traits, the analysis shows that individuals who were anxious for acceptance as children were not likely to run their own business at age 33. (SRD)

Changing Inequality in Markets for Workplace Amenities

Abstract: We know that earnings inequality has increased sharply in the United States since the late 1970s, but there has been no evidence on the changing inequality of nonmonetary aspects of work nor on how any such changes are related to changes in earnings. I begin by studying patterns of interindustry differences in occupational injuries during 1979-95, breaking the total burden of injuries into its components, risk of injury and injury duration. In those industries where earnings rose relatively, we observed a relative drop in injury rates and in the total burden of injuries. Obversely, during the 1960s interindustry wage differentials narrowed, a decline that was associated with an increase in the relative risk of injury in high-wage industries. Evidence for large sectors of Dutch industry from 1974-92 suggests that injury rates there fell most in sectors where wages grew most rapidly. Examination of another workplace disamenity, working evenings or nights, shows analogous results for the period 1973-91: This disamenity was increasingly borne by low-wage male workers. Changes in earnings inequality thus have understated absolute changes in inequality in the returns to work. All the outcomes are readily explicable as income effects of exogenous shocks to the distribution of full earnings in the presence of skill-neutral changes in the cost of reducing workplace disamenities. Under reasonable assumptions we can infer from the estimates that the demand for the amenities, workplace safety and desirable work times, is highly income-elastic.

Minimum Wages and Training Revisited

Abstract: Theory predicts that minimum wages will reduce employer-provided on-the-job training designed to improve workers' skills on the current job, but may increase the amount of training that workers obtain to qualify for a job. We estimate the effects of minimum wages on the amount of both types of training received by young workers by exploiting cross-state variation in minimum wage increases. The evidence provides considerable support for the hypothesis that higher minimum wages reduce training (especially formal training) aimed at improving skills on the current job. At the same time, there is little or no evidence that minimum wages increase training undertaken to qualify for or obtain jobs. Consequently, it appears that, overall, minimum wages substantially reduce training received by young workers.

Network Effects and Welfare Cultures

Abstract: This paper empirically examines the role of social networks in welfare participation. Social theorists from across the political spectrum have argued that network effects have given rise to a culture of poverty. Empirical work, however, has found it difficult to distinguish the effect of networks from unobservable characteristics of individuals and areas. We use data on language spoken to better infer an individual's network within an area. Individuals who are surrounded by others speaking their language have a larger pool of available contacts. Moreover, the network influence of this pool will depend on their welfare knowledge. We, therefore, focus on the differential effect of increased contact availability: does being surrounded by others who speak the same language increase welfare use more for individuals from high welfare using language groups? The results strongly confirm the importance of networks in welfare participation. We deal with omitted variable bias in several ways. First, our methodology allows us to include local area and language group fixed effects and to control for the direct effect of contact availability; these controls eliminate many of the problems in previous studies. Second, we instrument for contact availability in the neighborhood with the number of one's language group in the entire metropolitan area. Finally, we investigate the effect of removing education controls. Both instrumentation and removal of education controls have little impact on the estimates.

Understanding Barter in Russia

Abstract: This paper analyses the incidence and growth of non-monetary transactions - barter, veksels, debt offsets, tax offsets and other monetary surrogates - in Russia. The empirical backbone of the paper is a survey of 350 - predominantly industrial - firms, carried out in October and November 1998. The paper provides an analytical framework for understanding both firm-level incentives for using barter and the reasons for its phenomenal growth since 1993. Having examined some of the costs of Russia's non-monetary economy, the paper discusses a number of policy options.

English Language Fluency Among Immigrants in the United States

Abstract: This paper analyzes the determinants of English language fluency among adult foreign-born men and women in the United States. It shows that fluency rates are higher among those for whom the benefits of English language fluency are greater and the costs are lower. The data are from the PUMS file of the 1990 Census of Population and a set of variables added to the Census file. The latter variables include a minority language concentration measure, an index of linguistic distance between English and the origin language, the geographic distance from the origin to the U.S., the return migration rate from the U.S., and a measure of the extent of foreign language media (i.e., the number of radio stations in Spanish). The language model is based on the integrating of migration theory and human capital theory. The conceptual variables (exposure, efficiency and economic variables) are converted into empirically measurable variables. It is shown that the model is very robust. In particular, fluency rates are higher for those with more schooling, who immigrated at a younger age, who lived in the U.S. a longer period of time, who live in areas with fewer origin language speakers, and, among women, who have fewer and younger children. Fluency rates are also higher for those with less access to origin language media, with a lower probability of returning to the origin, whose country of origin is geographically further from the U.S., and whose origin language is linguistically closer to English.

Does Cash Flow Cause Investment and R&D?: An Exploration Using Panel Data for French, Japanese, and United States Scientific Firms

Abstract: The role of financial institutions and corporate governance in the conduct and performance of industrial firms, especially in the area of technological innovation and international competition, has been hotly debated in the recent past. The results presented here are a contribution to the empirical evidence on the behavior of individual firms that operate in somewhat different institutional environments. Using a Panel Data version of the Vector Auto Regressive (VAR) methodology, we test for the causal relationship among sales and cash flow on the one hand and investment and R&D on the other in three large panels of firms in the scientific (high technology) sectors in the United States, France, and Japan. Our findings are that both investment and R&D are more highly sensitive to cash flow and sales in the United States than in France and Japan. Correspondingly, investment and R&D predict both cash flow and sales positively in the United States, while their impact is somewhat more mixed in the other countries.

Does the Sector Bias of Skill-Biased Technical Change Explain Changing Wage Inequality?

Abstract: This paper examines whether the sector bias of skill-biased technical change (sbtc) explains changing skill premia within countries in recent decades. First, using a two-factor, two-sector, two-country model we demonstrate that in many cases it is the sector bias of sbtc that determines sbtc's effect on relative factor prices, not its factor bias. Thus, rising (falling) skill premia are caused by more extensive sbtc in skill-intensive (unskill-intensive) sectors. Second, we test the sector-bias hypothesis using industry data for many countries in recent decades. An initial consistency check strongly supports the hypothesis. Among ten countries we find a strong correlation between changes in skill premia and the sector bias of sbtc during the 1970s and 1980s. The hypothesis is also strongly supported by more structural estimation on U.S. and U.K. data of the economy-wide wage changes mandated' to maintain zero profits in all sectors in response to the sector bias of sbtc. The suggestive mandated-wage estimates match the direction of actual wage changes in both countries during both the 1970s and the 1980s. Thus, the empirical evidence strongly suggests that the sector bias of sbtc can help explain changing skill premia.

Estimating Labor Market Discrimination with Selectivity Corrected Wage Equations: Methodological Considerations and an Illustration from Israel

Abstract: This paper presents a modified and improved methodology for the decomposition of wage differentials between two groups of workers into an endowment component and a discrimination component. The standard decomposition technique does not take into account different probabilities of entering the profession under discussion. To incorporate this type of segregation into the wage differential decompositions, two statistical methodologies are merged: the Oaxaca methodology and the Heckman selectivity bias correction procedure. Using information derived from the entrance equations, the decomposition procedure is then modified, in order to take into account the contribution of segregation to the endowments and the discrimination components. It appears that there is more than one way to do it. The proposed methodology is applied to the analysis of wages of professionals in the Israeli labor market. Comparisons are made between the two genders and between Westerners and Easterners. Our results show that discrimination plays a more important role in explaining gender wage differentials than in explaining ethnic wage gaps and that selectivity corrected decompositions are quite capable of yielding very different conclusions than those based on the standard decompositions.

Privatization, Competition, and Budget Constraints: Disciplining Enterprises in Russia

Abstract: We investigate whether privatization, competitive forces, and hardening of budget constraints have yet begun to play efficiency-enhancing roles in Russia. The empirical work is based on information from a 1994 survey of privatized and state-owned Russian firms, together representing around 10 percent of Russian manufacturing output. We find robust evidence of a positive impact of privatization on labor productivity: in our basic specifications, we estimate that a ten percentage point increase in private share ownership raises real sales per employee by three to five percent. The evidence for the effect of product market competition is much weaker, depending on measurement and model specification: in some equations, domestic sales concentration is estimated to have a negative impact and the geographic scope of markets a positive effect on productivity, but the results are sensitive to minor changes in specification, and import penetration is never estimated to play a positive disciplinary role. While subsidies (soft budget constraints) are estimated to reduce the pace of restructuring in most of our models, the effect is usually small and rarely precisely estimated. We find some evidence that privatization and subsidy reduction are substitutes, that privatization and competition are complements when the latter is measured as the geographic scope of markets, and that competition and subsidy reduction are independent, in their impacts on Russian enterprise productivity.

Ties That Bind: Employment Protection and Labor Market Outcomes in Latin America

Abstract: This paper reviews the regulations governing hiring, firing, overtime work, social security contributions, minimum wages, and collective bargaining in the region, examining their impact on labor market outcomes.

Child Labor and School Attendance: Two Joint Decisions

Abstract: In this paper, a variety of potentially explanatory indicators for child labor and school attendance in Zambia is scrutinized. By analysing the results from a bivariate probit model, new doubt is raised with regard to the income sensitivity of the child labor choice. Different factors in the model influence the child labor and schooling choice. Based on the results, sensitization, narrowly targeted subsidies or stipends are suggested to at-risk households in selected provinces, provided that children are sent to school.

Hiring Risky Workers

Abstract: Uncertainty presents a major challenge to employers who are formulating a hiring policy. Despite their best efforts, worker quality is not known with certainty at the time of hire. Indeed, precise information on worker quality may never be available. Firms must make employment decisions under uncertainty. But uncertainty, generally regarded negatively, has a positive feature: if an employer cannot assess precisely a worker’s productivity, there is a chance that the worker will turn out better than expected, instead of worse. Variance provides employers with an option: risky workers have value because a better-than-expected worker can be kept and a worsethan-expected worker can be terminated. This point raises a number of questions. Should a firm favour risky hires over safe ones? When should a firm invest to increase the information that it has about a job candidate? Consistent with the optimising behaviour of firms is the market equilibrium that results. What can be said about the nature of this equilibrium? How, for example, does the market value risk in new candidates? Are there predictable variations in compensation for ‘new’ versus ‘used’ candidates?

Globalization and the Market for Teammates

Abstract: The globalization of firms is explored at theoretical and empirical levels. The idea is that a global firm is a multi-cultural team. The existence of a global firm is somewhat puzzling. Combining workers who have different cultures, legal systems, and languages imposes costs on the firm that would not be present were all workers to conform to one standard. In order to offset the costs of cross-cultural dealing, there must be complementarities between the workers that are sufficiently important to overcome the costs. Disjoint and relevant skills create an environment where the gains from complementarities can be significant. It is also necessary that teammates be able to communicate with one another. The search for the best practice' is analyzed and empirical support from an examination of trading patterns is provided.

Gini Indices and the Redistribution of Income

Abstract: Just as the Gini inequality index captures people's relative deprivation [Yitzhaki (1979)], so, we show in this paper, Gini-based progressivity and horizontal inequity indices capture individual perceptions of relative fiscal harshness and ill-fortune. In fact, we find that these links between individualistic perceptions and the measurement of the distribution and redistribution of income generalise to the family of indices based on the extended Ginis of Donaldson and Weymark (1980) and Yitzhaki (1983). Through "leaky bucket" experiments, we also suggest how we can parameterise the inequality aversion present in these indices. Analysis of the Canadian gross and net income distributions (conducted using recently developed statistical inference procedures) shows the distribution and the aggregation of these individual indicators of relative deprivation, fiscal harshness and ill-fortune in 1981 and in 1990.

Effect of Private Tutoring on University Entrance Examination Performance in Turkey

Abstract: There is an excess demand for university education in Turkey. Highly competitive university entrance examination which rations the available places at university programs is very central to the lives of young people. In order to increase the chances of success of their children in the university entrance examination parents spend large sums of money on private tutoring (dersane) of their children. In this study, we investigate the factors that determine participation in private tutoring and the effect of private tutoring on getting placed at a university program. We further examine the impact of private tutoring on the scores of the applicants in the university entrance examination. The results indicate that controlling for other factors those students who receive private tutoring perform better in the university entrance examination.

Household Labor Supply, Sharing Rule and the Marriage Market

Abstract: In this paper we estimate a model of household labor supply based on the collective approach developed by Chiappori (JPE, 1992). This approach assumes that the intra-household decision process leads to Pareto efficient outcomes. Our model extends this theory by allowing the marriage market, and especially the sex ratio, to affect the sharing rule and the household labor supplies. We show that our model imposes new restrictions on the parameters of the labor supply functions. Also, individual preferences and the sharing rule are recovered using an identification procedure that is both simpler and more robust than in Chiappori's initial approach. The model is estimated using PSID data for the year 1988. Our results do not reject the restrictions imposed by the model. Moreover, the sex ratio influences the sharing rule and the labor supply behavior in the directions predicted by the theory. Finally, the impact of individual wage rates suggests that spouses behave in an altruistic manner within the household.

Empirical Strategies in Labor Economics

Abstract: This chapter provides an overview of the methodological and practical issues that arise when estimating causal relationships that are of interest to labor economists. The subject matter includes identification, data collection, and measurement problems. Four identification strategies are discussed, and five empirical examples--the effects of schooling, unions, immigration, military service and class size--illustrate the methodological points. In discussing each example, we adopt an experimentalist perspective that draws a clear distinction between variables that have causal effects, control variables, and outcome variables. The chapter also discusses secondary data sets, primary data collection strategies, and administrative data. The section on measurement issues focuses on recent empirical examples, presents a summary of empirical findings on the reliability of key labor market data, and reviews the role of survey sampling weights and the allocation of missing values in empirical research.

A Reanalysis of the Effect of the New Jersey Minimum Wage Increase on the Fast-Food Industry with Representative Payroll Data

Abstract: This paper re-examines the effect of the 1992 New Jersey minimum wage increase on employment in the fast-food industry. We begin by analyzing employment trends using a comprehensive new data set derived from the Bureau of Labor Statistics's (BLS's) ES-202 data file. Both a longitudinal sample and a repeated-cross-section sample drawn from these data indicate similar or slightly faster employment growth in New Jersey relative to eastern Pennsylvania after the rise in New Jersey's minimum wage, consistent with the main findings of our earlier survey. We also use the ES-202 data to measure the effects of the 1996 increase in the federal minimum wage, which raised the minimum wage in Pennsylvania but not in New Jersey. We find no indication of relative employment losses in Pennsylvania. In light of these findings, we re-examine employment trends in the sample of fast-food restaurants assembled by the Employment Policies Institute (EPI) and David Neumark and William Wascher. The differences between this sample and both the BLS data and our earlier sample are attributable to a small set of restaurants owned by a single franchisee who provided the original Pennsylvania data for the 1995 EPI study. We also find that employment trends in the EPI/Neumark-Wascher sample are strikingly different for firms that reported their data on a weekly, biweekly or monthly basis, possibly because of seasonal factors. Controlling for the systematic effects of the varying reporting intervals, the combined EPI/Neumark-Wascher sample shows no difference in hours growth between New Jersey and Pennsylvania.

The structure of labor markets in developing countries : time series evidence on competing views

Abstract: The informal sector behaves as an unregulated entrepreneurial sector rather than the disadvantaged segment of a dual labor market. Overall, it expands in upturns and contracts in downturns, though there is some evidence of queuing to enter the formal sector. Competing conceptions of the large, unprotected, informal workforce in developing countries differ greatly in their implications for the labor reform considered to be essential complements to trade liberalization and fair competition in international trade. Traditionally, the informal sector is viewed as the disadvantaged segment of a dual labor market segmented by legislated or union-induced rigidities and high labor costs in the protected (or formal) sector. In this view, the size of the informal sector is a testament to the inefficiencies in labor allocation and the magnitude of required reform. In cyclical downturns, the informal sector is thought to absorb displaced workers from the formal sector (with informal earnings falling relative to those in the formal sector) and then to contract again during recovery as the queue for good jobs shortens again. A recent, related view postulates a long-term trend in which large enterprises, confronted by heightened global competition, increasingly subcontracts to unprotected workers as a way to reduce costs and gain flexibility. This is particularly relevant in the debate about establishing common labor standards in regional trade agreements. Maloney reexamines the traditional view of the dual labor market by studying the dynamics between the formal and informal sectors across a business cycle and a period of trade liberalization in Mexico (1987-93). He shows conventional comparisons of earnings, even across time, to be unreliable tests for segmentation. As an alternative, he shows that transitions on informal employment, the size of the informal sector, and levels of mobility to be procyclical, increasing with upturns, and decreasing with recessions. He tests for, and finds, however, some evidence of queuing to enter formal employment. Overall, he contends, the informal sector behaves as an unregulated entrepreneurial sector rather than the disadvantaged wing of a dual labor market. There is evidence of increased subcontracting over time, with trade liberalization, but it is not clear that workers are worse off as a result. This paper - a product of the Poverty and Economic Management Unit, Latin America and the Caribbean Region - is part of a larger effort in the region to reexamine the role of the informal sector. The study was funded by the Bank`s Research Support Budget under the research project The Informal Sector in Mexico (RPO 680-59). The author may be contacted at wmaloney@worldbank.org.

Reporting format for economic evaluation. Part II: Focus on modelling studies.

Abstract: This article presents the first version of a reporting format for modelling studies which is based on a general reporting format by our taskforce, which was published in the previous issue of this journal. The use of decision-analytical models for economic evaluations is increasing because, in practice, it is not always possible to derive information from prospective studies. However, the acceptance of modelling studies is generally lower than prospective studies not only because of the use of secondary data, but also because the reports of modelling studies do not always have sufficient transparency. Hence, a standardised reporting format may improve the transparency and, consequently, the acceptance of modelling studies. This article presents an example of a reporting format for economic evaluation based on modelling studies, which may facilitate the development of future guidelines for modelling studies. The format consists of a number of headings, which are followed by a brief recommendation on the content. This format does not deal with methodology and data management, but especially addresses validation and quality assurance, which may increase the transparency of the report.