Showing papers by "Institute for the Study of Labor published in 2001"

What Can Economists Learn from Happiness Research

Abstract: Over the past few years, there has been a steadily increasing interest on the part of economists in happiness research. We argue that reported subjective well-being is a satisfactory empirical approximation to individual utility and that happiness research is able to contribute important insights for economics. We report how the economic variables income, unemployment and inflation affect happiness as well as how institutional factors, in particular the type of democracy and the extent of government decentralization, systematically influence how satisfied individuals are with their life. We discuss some of the consequences for economic policy and for economic theory.

The Effect of Education on Crime: Evidence from Prison Inmates, Arrests, and Self-Reports

Abstract: We estimate the effect of high school graduation on participation in criminal activity accounting for endogeneity of schooling. We begin by analyzing the effect of high school graduation on incarceration using Census data. Instrumental variable estimates using changes in state compulsory attendance laws as an instrument for high school graduation uncover a significant reduction in incarceration for both blacks and whites. When estimating the impact of high school graduation only, OLS and IV estimators estimate different weighted sums of the impact of each schooling progression on the probability of incarceration. We clarify the relationship between OLS and IV estimates and show that the 'weights' placed on the impact of each schooling progression can explain differences in the estimates. Overall, the estimates suggest that completing high school reduces the probability of incarceration by about .76 percentage points for whites and 3.4 percentage points for blacks. We corroborate these findings using FBI data on arrests that distinguish among different types of crimes. The biggest impacts of graduation are associated with murder, assault, and motor vehicle theft. We also examine the effect of drop out on self-reported crime in the NLSY and find that our estimates for imprisonment and arrest are caused by changes in criminal behavior and not educational differences in the probability of arrest or incarceration conditional on crime. We estimate that the externality of education is about 14-26% of the private return to schooling, suggesting that a significant part of the social return to education comes in the form of externalities from crime reduction.

Is There a Glass Ceiling in Sweden

Abstract: Using data from 1998, we show that the gender log wage gap in Sweden increases throughout the wage distribution and accelerates in the upper tail of the distribution, which we interpret as a glass ceiling effect. Using earlier data, we show that the same pattern held at the beginning of the 1990's but not in the prior two decades. Further, we do not find this pattern either for the log wage gap between immigrants and non-immigrants in the Swedish labor market or for the gender gap in the U.S. labor market. Our findings suggest that a gender-specific mechanism in the Swedish labor market hinders women from reaching the top of the wage distribution. Using quantile regressions, we examine whether this pattern can be asribed primarily to gender differences in labor market characteristics or to gender differences in rewards to those characteristics. We estimate pooled quantile regressions with gender dummies, as well as separate quantile regressions by gender, and we carry out a decomposition analysis in the spirit of the Oaxaca-Blinder technique. Even after extensive controls for gender differences in age, education (both level and field), sector, industry, and occupation, we find that the glass ceiling effect we see in the raw data persists to a considerable extent.

Understanding International Differences in the Gender Pay Gap

Abstract: This paper tests the hypotheses that overall wage compression and low female supply relative to demand reduce a country's gender pay gap. Using micro-data for 22 countries over the 1985-94 period, we find that more compressed male wage structures and lower female net supply are both associated with a lower gender pay gap. Since it is likely that labor market institutions are responsible for an important portion of international differences in wage inequality, the inverse relationship between the gender pay gap and male wage inequality suggests that wage-setting mechanisms, such as encompassing collective bargaining agreements, that provide for relatively high wage floors raise the relative pay of women, who tend to be at the bottom of the wage distribution. Consistent with this view, we find that the extent of collective bargaining coverage in each country is significantly negatively associated with its gender pay gap. Moreover, the effect of pay structures on the gender pay gap is quantitatively very important: a large part of the difference in the gender differential between high gap and low gap countries is explained by the differences across these countries in overall wage structure, with another potentially important segment due to differences in female net supply.

What works and for whom: a review of OECD countries' experiences with active labour market policies

Abstract: High and persistent unemployment has been a major blot on the economic and social record of most OECD countries since the early 1970s: the OECD average standardised unemployment rate rose from an estimated 3 per cent in 1973 to a peak of 8 per cent in 1993 before falling back to 6.4 per cent in 2000. In response to growing political concerns about the seemingly inexorable rise in unemployment, various policy blueprints were developed in the 1990s to improve labour market performance on a durable basis. Prime examples include the OECD Jobs Strategy launched in 1994 and the EU Employment Guidelines which were launched in 1997 following the Amsterdam summit. These policy blueprints assign an important role to active labour market policies. But this emphasis begs the obvious question: what is the potential contribution which active labour market policies can make as part of a strategy to combat high and persistent unemployment? In order to answer this question, it is vital to know what works among active policies and f or whom. The OECD Secretariat has been working intensively on these questions in recent years and this paper summarises the main results of our work to date. The structure of the paper is as follows. Section 1 provides some factual background on public spending on labour market policies in OECD countries over the period 1985-2000. The bulk of the paper summarises the main results of on‑going OECD research into the effectiveness of active labour market policies. This review mainly exploits two sources: (i) the recent literature on the evaluation of active labour market programme (Section 2); and (ii) in-depth country reviews and analytical studies which the OECD has conducted over the past decade on the interactions between active and passive labour market policies and the role of the public employment service (Section 3). The final section draws some conclusions.

Improving Nurse Retention in the National Health Service in England: The Impact of Job Satisfaction on Intentions to Quit

Abstract: In recent years the British National Health Service (NHS) has experienced an acute shortage of qualified nurses. This has placed issues of recruitment and retention in the profession high on the political agenda. In this Paper, we investigate the determinants of job satisfaction for nurses and establish the importance of job satisfaction in determining nurses' intentions to quit the NHS. We find that nurses who report overall dissatisfaction with their jobs have a 65% higher probability of intending to quit than those reporting to be satisfied. However, dissatisfaction with promotion and training opportunities are found to have a stronger impact than workload or pay. Recent policies, which focus heavily on improving the pay of all NHS nurses, will have only limited success unless they are accompanied by improved promotion and training opportunities. Better retention will, in turn, lead to reduced workload.

Accountability and Corruption: Political Institutions Matter

Abstract: The results of a cross-country empirical analysis suggest that political institutions are extremely important in determining the prevalence of corruption: democracy, parliamentary systems, political stability, and freedom of the press are all associated with lower corruption. Using a cross-country panel, Lederman, Loayza, and Soares examine the determinants of corruption, paying particular attention to political institutions that increase political accountability. Previous empirical studies have not analyzed the role of political institutions, even though both the political science and the theoretical economics literature have indicated their importance in determining corruption. The main theoretical hypothesis guiding the authorsi empirical investigation is that political institutions affect corruption through two channels: political accountability and the structure of the provision of public goods. The results suggest that political institutions are extremely important in determining the prevalence of corruption: democracy, parliamentary systems, political stability, and freedom of the press are all associated with lower corruption. In addition, the authors show that common findings of the earlier empirical literature on the determinants of corruption related to openness and legal traditionodo not hold once political variables are taken into account. This paper - a product of the Office of the Chief Economist, Latin America and the Caribbean Region - is part of a larger effort to conduct research on pressing policy issues in the region. The authors may be contacted at dlederman@worldbank.org or nloayza@worldbank.org.

How Do Sex Ratios Affect Marriage and Labor Markets? Evidence from America's Second Generation

Abstract: Sex ratios, i.e., relative numbers of men and women, can affect marriage prospects, labor force participation, and other social and economic variables. But the observed association between sex ratios and social and economic conditions may be confounded by omitted variables and reverse causality. This paper uses variation in immigrant flows as a natural experiment to study the effect of sex ratios on the children and grandchildren of immigrants. The flow of immigrants affected the second generation marriage market because second generation marriages were mostly endogamous, i.e., to members of the same ethnic group. The empirical results suggest that high sex ratios had a large positive effect on the likelihood of female marriage, and a large negative effect on female labor force participation. Perhaps surprisingly, the marriage rates of second generation men appear to be a slightly increasing function of immigrant sex ratios. Higher sex ratios also appear to have raised male earnings and the incomes of parents with young children. The empirical results are broadly consistent with theories where higher sex ratios increase female bargaining power in the marriage market.

Instrumental Variables And The Search For Identification: From Supply And Demand To Natural Experiments

Abstract: The method of instrumental variables was first used in the 1920s to estimate supply and demand elasticities, and later used to correct for measurement error in single-equation models. Recently, instrumental variables have been widely used to reduce bias from omitted variables in estimates of causal relationships such as the effect of schooling on earnings. Intuitively, instrumental variables methods use only a portion of the variability in key variables to estimate the relationships of interest; if the instruments are valid, that portion is unrelated to the omitted variables. We discuss the mechanics of instrumental variables, and the qualities that make for a good instrument, devoting particular attention to instruments that are derived from "natural experiments." A key feature of the natural experiments approach is the transparency and refutability of identifying assumptions. We also discuss the use of instrumental variables in randomized experiments.

Does Entry Regulation Hinder Job Creation? Evidence from the French Retail Industry

Abstract: Are product market and entry regulation key sources of low employment growth in many European countries? We investigate this question in the context of the French retail industry. Since 1974, approval by regional zoning boards has been required for the creation or extension of any large retail store in France. We exploit a unique database that provides time and region specific variation in boards' approval decisions. We show that stronger deterrence of entry by the boards, and the increase in large retail chains' concentration it induced, slowed down employment growth in France.

On Optimal Contracting with Subjective Evaluation

Abstract: This paper extends the standard principal-agent model to allow for subjective evaluation. It is shown that the optimal contract entails the use of more compressed evaluations relative to the case with objective performance measures. The degree of compression increases as the correlation between the principal's and agent's beliefs decreases. It is possible for the agent to implement a contract with high power incentives, however this necessarily entails a high level of "conflict" in the relationship, with the optimal amount of compression resulting from trading off between performance incentives and the socially wasteful "conflict" that they create. The model is also used to show how a bias or discrimination against an individual can lead to lower wages and performance.

Does Training Generally Work? The Returns to In-Company Training.

Abstract: Using data from surveys of enterprises in Ireland in 1993 and 1996–97, the authors estimate the productivity effects of general training, specific training, and all types of training combined. Statistically significant positive effects on productivity are found both for all training and for general training, but not for specific training. The positive effect of general training remains when the researchers control for factors such as changes in work organization, corporate re-structuring, firm size, and the initial level of human capital in the enterprise. The impact of general training varies positively with the level of capital investment.

Reputation and Reciprocity: Consequences for the Labour Relation

Abstract: Recent evidence highlights the importance of social norms in many economic relations. However, many of these relationships are long-term and provide repeated game incentives for performance. We experimentally investigate interaction effects of reciprocity and repeated game incentives in two treatments (one-shot and repeated) of a gift-exchange game. In both treatments we observe reciprocity, which is strengthened in the repeated game. A detailed analysis shows that in the repeated game some subjects imitate reciprocity. Thus, reciprocity and repeated game incentives reinforce each other. Observed behaviour is robust against experience. We conclude that a long-term interaction is a "reciprocity-compatible" contract enforcement device.

The Skill Content of Recent Technological Change: An Empirical Exploration

Abstract: We apply an understanding of what computers do -- the execution of procedural or rules-based logic -- to study how computer technology alters job skill demands. We contend that computer capital (1) substitutes for a limited and well-defined set of human activities, those involving routine (repetitive) cognitive and manual tasks; and (2) complements activities involving non-routine problem solving and interactive tasks. Provided these tasks are imperfect substitutes, our model implies measurable changes in the task content of employment, which we explore using representative data on job task requirements over 1960 -- 1998. Computerization is associated with declining relative industry demand for routine manual and cognitive tasks and increased relative demand for non-routine cognitive tasks. Shifts are evident within detailed industries, within detailed occupations, and within education groups within industries. Translating observed task shifts into educational demands, the sum of within-industry and within-occupation task changes explains thirty to forty percent of the observed relative demand shift favoring college versus non-college labor during 1970 to 1998, with the largest impact felt after 1980. Changes in task content within nominally identical occupations explain more than half of the overall demand shift induced by computerization.

The Economics of Employment Protection

Abstract: Empirical investigation of the labor market consequences of employment protection has mushroomed since Lazear's (1990) pioneering study. Having sketched the theoretical background, we chart the course of the modern empirical literature. We focus mainly on dismissals protection, distinguishing between the themes of employment and unemployment development and labor market dynamics proper. Our discussion of employment and unemployment largely deals with the effect of employment protection on levels of these outcome indicators. We distinguish between overall and compositional effects (e.g., by demographic group and type of contract), between developing and industrialized nations, and identify some key control variables. Our discussion of labor market dynamics focuses on the speed of adjustment issue and on gross flows. It also formalizes the link between analyses of levels and changes in variables. At all times potential offsets to the adverse effects of employment protection receive consideration.

Children and Career Interruptions: The Family Gap in Denmark

Abstract: The effect of children and career interruptions on the family gap is analysed based on Danish longitudinal data covering the years 1980-1995. The estimated model controls for unobserved time-constant heterogeneity. The results show that when controlling for unobserved heterogeneity, the negative effect of children on mothers' wages disappears. The main effect of children seems to be loss of human capital accumulation during childbirth periods. Beside this, there is no indication that children have long-term effects on the earnings potential of their mothers, holding experience constant.

Works Councils and Collective Bargaining in Germany: The Impact on Productivity and Wages

Abstract: This paper investigates the interaction between establishment-level codetermination and industry-level collective bargaining in Germany. Based on a simple bargaining model we derive our main hypothesis: In establishments covered by collective bargaining agreements works councils are more likely to be engaged in productivity enhancing activities and less engaged in rent seeking activities than their counterparts in uncovered firms. Using data from German manufacturing establishments, our empirical analysis confirms this hypothesis. The presence of works councils exerts a positive impact on productivity within the covered industrial relations regime but not within the uncovered industrial relations regime. In contrast, the presence of works councils has a positive effect on wages within the uncovered industrial relations regime but not to the same degree within the covered industrial relations regime.

Outsourcing at Will: The Contribution of Unjust Dismissal Doctrine to the Growth of Employment Outsourcing

Abstract: Over the past three decades, the U.S. Temporary Help Services (THS) industry grew five times more rapidly than overall employment. Contemporaneously, courts in 45 states adopted exceptions to the common law doctrine of employment at will that limited employers' discretion to terminate workers and opened them to litigation. This paper assesses the contribution of "unjust dismissal" doctrine to THS employment and finds that it is substantial - explaining 20 percent of the growth of THS between 1973 and 1995 and contributing a half million workers to THS in 2000. States with smaller declines in unionization also saw substantially more THS growth.

Self-Selection Among Undocumented Immigrants from Mexico

Abstract: This paper examines the effect of changes in migration determinants on the skill level of undocumented immigrants from Mexico. The authors focus on the effect of changes in economic conditions, migrant networks, and border enforcement on the educational attainment of Mexican-born men who cross the border illegally. Although previous research indicates that illegal aliens from Mexico tend to be unskilled relative to U.S. natives and that economic conditions, networks, and border enforcement affect the size of illegal immigrant flows across the border, the interaction of these variables has not been investigated. Results from hazard models using data from the Mexican Migration Project indicate that improvements in U.S. and Mexican economic conditions are associated with a decline in the average educational levels of undocumented immigrants. Stricter border enforcement is associated with higher average skill levels. Access to a network of previous immigrants appears to lower the cost of migrating but has no differential effect by skill level.

Demographic and Economic Pressure on Emigration out of Africa

Abstract: Two of the main forces driving European emigration in the late nineteenth century were real wage gaps between sending and receiving regions and demographic booms in the low-wage sending regions (directly augmenting the supply of potential movers as well as indirectly making already-measured employment conditions less attractive). These two features are even more prominent in Africa today, but do or can Africans respond to them with the same elasticity as in the days of "free" migration? Our new estimates of net migration and labor market performance for the countries of sub-Saharan Africa suggest that exactly the same forces are at work driving African across-border migration today. Rapid growth in the cohort of young potential migrants, population pressure on the resource base, and poor economic performance are the main forces driving African migration. A century ago, more modest demographic forces in Europe were accompanied by strong catching-up economic growth in the low-wage emigrant regions, followed by a slowdown in already-modest demographic growth. Yet, migrations were still mass. In Africa today, economic growth has faltered, its economies have fallen further behind the high-wage OECD leaders, and there is a demographic speed up in the making. Our estimates suggest that the pressure on emigration out of Africa will intensify, manifested in part by a growing demand for entrance into high-wage OECD labor markets.

Economic Reform and Mortality in the Former Soviet Union: A Study of the Suicide Epidemic in the 1990s

Abstract: Male suicide rates in Russia, Belarus, Ukraine and the Baltic countries increased substantially in the early 1990s and are now the highest in the world. To what extent is this suicide epidemic explained by the macroeconomic instability experienced by these countries in that period? Fixed effects regressions across 22 transition economies indicate that male suicide rates are highly sensitive to the state of the macroeconomy, suggesting that the steep and prolonged declines in GDP in the western countries of the former Soviet Union may have been partly to blame for the suicide epidemic. Evidence also indicates that the general adult male mortality crisis in the region had a 'feedback' effect on suicide rates, with the loss of a spouse or friend ? or declining life expectancy itself ? contributing to rising suicide rates. Female suicide rates, in contrast, are insensitive to the state of the macroeconomy and are more strongly related to alcohol consumption.

Markov Chain Monte Carlo Analysis of Correlated Count Data

Abstract: This article is concerned with the analysis of correlated count data. A class of models is proposed in which the correlation among the counts is represented by correlated latent effects. Special cases of the model are discussed and a tuned and efficient Markov chain Monte Carlo algorithm is developed to estimate the model under both multivariate normal and multivariate-t assumptions on the latent effects. The methods are illustrated with two real data examples of six and sixteen variate correlated counts.

Estimates of Union Density by State

Abstract: This paper describes the construction of time-consistent national and state-level estimates of union density for the years 1964 through 2000. Two sources of data are combined to produce these estimates, the Current Population Survey (CPS), a monthly survey of U.S. households, and the discontinued BLS publication Directory of National Unions and Employee Associations, based on data reported by labor unions to the government. The union density measure represents the percentage of nonagricultural wage and salary employees who are union members, including employees in the public sector. A more limited database, available for years since 1977 and based exclusively on the CPS, provides a measure of union coverage density, representing the percentage of nonagricultural wage and salary workers covered by a collective bargaining agreement. The databases will be updated annually and distributed freely via the Internet.

Progressing through progresa: an impact assessment of a school subsidy experiment

Abstract: A new anti-poverty program in Mexico, PROGRESA, provides monetary transfers to families that are contingent upon their children's regular attendance at school. The benefit levels are intended to offset the opportunity costs of not sending children to school and vary with the grade level and gender of the child. The initial phase of the program was implemented as a randomized social experiment. This paper uses a Markov schooling transition model applied to the experimental data to assess the impact of the educational subsidy program along several dimensions, including effects on initial ages of school entry, dropout rates, grade repetition rates, and school reentry rates. The findings show that the program effectively reduces drop-out rates and facilitates progression through the grades, particularly during the transition from primary to secondary school. Results based on a simulation evaluating the effects of longer terms of exposure to the program indicate that if children were to participate in the program between ages 6 to 14, they would experience an increase of 0.6 years in average educational attainment levels years and an increase of 19% in the percentage of children attending junior secondary school.

What's Driving the New Economy?: The Benefits of Workplace Innovation

Abstract: Using a unique nationally representative sample of U.S. establishments surveyed in both 1993 and 1996, we examine the relationship between workplace innovations and establishment productivity and wages. Using both cross-sectional and longitudinal data, we find evidence that high-performance workplace practices are associated with both higher productivity and higher wages. Specifically, we find a positive and significant relationship between the proportion of non-managers using computers and the productivity of establishments. We find that firms re-engineer their workplaces and incorporate more high-performance practices experience higher productivity. For example, profit sharing is associated with increased productivity, and employee voice has a large positive effect on productivity when it is implemented in the context of unionized establishments. These workplace practices appear to explain a large part of the movement in multifactor productivity over the 1993-96 period. When we examine the determinants of wages within these establishments, we find that re-engineering a workplace to incorporate more high-performance practices leads to higher wages. However, increasing the usage of profit sharing results in lower regular pay for workers, especially technical workers and clerical/sales workers. Finally, increasing the percentage of workers meeting regularly in groups has a larger positive effect on wages in unionized establishments.

International Migration and the Role of Remittances in Eastern Europe

Abstract: Many studies have addressed the effect of migration on both home and host countries, but few have focused on the effect of the economic flows derived from migration, especially for the Central and East European (CEE) countries. In this paper we analyze the effect of remittances on employment performance for CEE economies. To model the macro effects of remittances on the source country we proceed along the lines of Mancellari et al (1996) who extended the model of Aghion and Blanchard (1994) by adding migration. The impact of remittances on unemployment depends on its effect on productivity growth and entrepreneurial investment. In order to empirically analyze the impact of remittances we estimated a productivity equation using a set of 11 transition countries during the 1990-1999 period. We also analyze the impact of remittances on investment and consumption. Our results show support for the view that remittances have a positive impact on productivity and employment both directly and indirectly through its effect on investment.

Nonstationary Panels, Cointegration in Panels and Dynamic Panels: A Survey

Abstract: This chapter provides an overview of topics in nonstationary panels: panel unit root tests, panel cointegration tests, and estimation of panel cointegration models. In addition it surveys recent developments in dynamic panel data models.

The Gender Pay Gap in the Transition from Communism: Some Empirical Evidence

Abstract: This short paper investigates the path through the 1990s of the gender pay gap in a number of former communist countries of Eastern Europe and the Soviet Union. The main findings are that the gender pay gap has not exhibited, in general, an upward tendency over the transitional period to which available data relate. Most of the gender pay gap is ascribed to the "unexplained" component using conventional decompositions and this may partly be attributable to the proxy measure for labor force experience used in this study. Quantile regression analysis indicates that, in all but one country, the ceteris paribus gender pay gap rises as we move up the wage distribution.

A Simple, Analytically Solvable Chamberlinian Agglomeration Model

Abstract: This paper presents a simple, analytically solvable Chamberlinian agglomeration model. As in the canonical core-periphery (CP) model, two agglomerative forces are at work. However, the present model exhibits a 'pitchfork bifurcation' rather than the 'tomahawk bifurcation' of the CP model.

How Regional Blocs Affect Excluded Countries: The Price Effects of Mercosur

Abstract: Price data on exports to Brazil from countries excluded from MERCOSUR show that preferential trading agreements hurt nonmember countries by compelling them to reduce their prices to meet competition from suppliers within the regional trading bloc. The welfare effects of preferential trading agreements are most directly linked to changes in trade prices - that is, the terms of trade. Chang and Winters use a simple strategic pricing game in segmented markets to measure the effects of MERCOSUR on the pricing of nonmember exports to the regional trading bloc. Working with detailed data on unit values and tariffs, they find that the creation of MERCOSUR is associated with significant declines in the prices of nonmembers' exports to the bloc. These can be explained largely by tariff preferences offered to a country`s partners. Focusing on the Brazilian market (by far the largest in MERCOSUR), they show that nonmembers' export prices to Brazil respond to both most-favorable-nation and preferential tariffs. Preferential tariffs induce reductions in nonmember export prices. This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to understand the effects of regional integration. The authors may be contacted at wchang@worldbank.org or l.a.winters @sussex.ac.uk.