Hard Labor
Screening, Competition, and Job Design: Economic Origins of Good Jobs
Björn Bartling, Ernst Fehr & Klaus Schmidt
American Economic Review, forthcoming
Abstract:
High-performance work systems give workers more discretion, thereby increasing effort productivity but also shirking opportunities. We show experimentally that screening for work attitude and labor market competition are causal determinants of the viability of high-performance work systems, and we identify the complementarities between discretion, rent-sharing, and screening that render them profitable. Two fundamentally distinct job designs emerge endogenously in our experiments: "bad" jobs with low discretion, low wages, and little rent-sharing and "good" jobs with high discretion, high wages, and substantial rent-sharing. Good jobs are profitable only if employees can be screened, and labor market competition fosters their dissemination.
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The Short- and Long-Term Career Effects of Graduating in a Recession
Philip Oreopoulos, Till von Wachter & Andrew Heisz
American Economic Journal: Applied Economics, January 2012, Pages 1-29
Abstract:
This paper analyzes the magnitude and sources of long-term earnings declines associated with graduating from college during a recession. Using a large longitudinal university-employer-employee dataset, we find that the cost of recessions for new graduates is substantial and unequal. Unlucky graduates suffer persistent earnings declines lasting ten years. They start to work for lower paying employers, and then partly recover through a gradual process of mobility toward better firms. We document that more advantaged graduates suffer less from graduating in recessions because they switch to better firms quickly, while earnings of less advantaged graduates can be permanently affected by cyclical downgrading.
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Raymond Fisman et al.
NBER Working Paper, January 2012
Abstract:
We examine the labor supply of politicians using data on Members of the European Parliament (MEPs). We exploit the introduction of a law that equalized MEPs' salaries, which had previously differed by as much as a factor of ten. Doubling an MEP's salary increases the probability of running for reelection by 23 percentage points and increases the logarithm of the number of parties that field a candidate by 29 percent of a standard deviation. A salary increase has no discernible impact on absenteeism or shirking from legislative sessions; in contrast, non-pecuniary motives, proxied by home-country corruption, substantially impact the intensive margin of labor supply. Finally, an increase in salary lowers the quality of elected MEPs, measured by the selectivity of their undergraduate institutions.
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When to "Fire" Customers: Customer Cost-Based Pricing
Jiwoong Shin, K. Sudhir & Dae-Hee Yoon
Management Science, forthcoming
Abstract:
The widespread adoption of activity-based costing enables firms to allocate common service costs to each customer, allowing for precise measurement of both the cost to serve a particular customer and the customer's profitability. In this paper, we investigate how pricing strategies based on customer cost information affects a firm's customer acquisition and retention dynamics, and ultimately its profit, using a two-period monopoly model with high- and low-cost customer segments. Although past purchase and cost information helps firms to increase profits through differential prices for good and bad customers in the second period ("price discrimination effect"), it can hurt firms because strategic forward-looking consumers may delay purchases to avoid higher future prices ("ratchet effect"). We find that when the customer cost heterogeneity is sufficiently large, it is optimal for firms to "fire" some of its high-cost customers, and customer cost-based pricing is profitable. Surprisingly, it is optimal to fire even some profitable customers. This result is robust even when the cost to serve is endogenous and determined by the consumer's choice of service level. We also shed insight on acquisition-retention dynamics, on when firms can improve their profitability by selectively firing known old "bad" customers, and on replacing the old "bad" customers with a mix of new "good" and "bad"
customers.
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The Spending and Debt Response to Minimum Wage Hikes
Daniel Aaronson, Sumit Agarwal & Eric French
American Economic Review, forthcoming
Abstract:
Following a minimum wage hike, household income rises on average by about $250 per quarter and spending by roughly $700 per quarter for households with minimum wage workers. Most of the spending response is caused by a small number of households who purchase vehicles. Furthermore, we find that the high spending levels are financed through increases in collateralized debt. Our results are consistent with a model where households can borrow against durables and face costs of adjusting their durables stock.
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The economy and absenteeism: A macro-level study
Mindy Shoss & Lisa Penney
Journal of Applied Psychology, forthcoming
Abstract:
Despite much speculation, little is known about the net effects of the economy on the employed workforce. To fill this gap, we used state-level data collected by the Bureau of Labor Statistics to examine the effects of the condition of the economy, as indicated by the unemployment rate, on incidence rates of absence reportedly due to symptoms of illness and violent acts in the workplace for 43 states from 1992 to 2009. Our results suggest that the unemployment rate is positively associated with these indicators of absenteeism, and that these effects are delayed in time.
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Human Capital Augmentation versus the Signaling Value of MBA Education
Andrew Hussey
Economics of Education Review, forthcoming
Abstract:
Panel data on MBA graduates is used in an attempt to empirically distinguish between human capital and signaling models of education. The existence of employment observations prior to MBA enrollment allows for the control of unobserved ability or selection into MBA programs (through the use of individual fixed effects). In addition, variation in the amount of pre-MBA work experience allows for a test to distinguish between the models. In particular, a predominant signaling view is shown to predict smaller returns to the degree, the more pre-MBA work experience one has (controlling for total experience). Additionally, a unique feature of the data is that respondents were asked to report skills or abilities gained through their schooling, allowing us to determine the extent to which these purported skills are valued in the labor market. The combined evidence suggests that while human capital accumulation may contribute to the returns to an MBA, the majority of the returns is derived from the signaling/screening function of the degree.
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Globalization and Wage Inequality: Evidence from Urban China
Jun Han, Runjuan Liu & Junsen Zhang
Journal of International Economics, forthcoming
Abstract:
This paper examines the impact of globalization on wage inequality using Chinese Urban Household Survey data from 1988 to 2008. Exploring two trade liberalization shocks, Deng Xiaoping's Southern Tour in 1992 and China's accession to the World Trade Organization (WTO) in 2001, we analyze whether regions more exposed to globalization experienced larger changes in wage inequality than less-exposed regions. Contrary to the predictions of the Heckscher-Ohlin model, we find that the WTO accession was significantly associated with rising wage inequality. We further show that both trade liberalizations contributed to within-region inequality by raising the returns to education (the returns to high school after 1992 and the returns to college after 2001).
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Understanding the Evolution of the US Wage Distribution: A Theoretical Analysis
Fatih Guvenen & Burhanettin Kuruscu
Journal of the European Economic Association, forthcoming
Abstract:
In this paper, we propose an analytically tractable overlapping-generations model of human capital accumulation and study its implications for the evolution of the US wage distribution from 1970 to 2000. The key feature of the model, and the only source of heterogeneity, is that individuals differ in their ability to accumulate human capital. Therefore, wage inequality results only from differences in human capital accumulation. We examine the response of this model to skill-biased technical change (SBTC) theoretically. We show that in response to SBTC, the model generates behavior consistent with some prominent trends observed in the US data including (i) a rise in overall wage inequality both in the short run and long run, (ii) an initial fall in the education premium followed by a strong recovery, leading to a higher premium in the long run, (iii) the fact that most of this fall and rise takes place among younger workers, (iv) a rise in within-group inequality, (v) stagnation in median wage growth (and a slowdown in aggregate labor productivity), and (vi) a rise in consumption inequality that is much smaller than the rise in wage inequality. These results suggest that the heterogeneity in the ability to accumulate human capital is an important feature for understanding the effects of SBTC and interpreting the transformation of the US labor markets since the 1970s.
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Trends in the Transitory Variance of Male Earnings: Methods and Evidence
Robert Moffitt & Peter Gottschalk
Journal of Human Resources, Winter 2012, Pages 204-236
Abstract:
We estimate the trend in the transitory variance of male earnings in the United States using the Michigan Panel Study of Income Dynamics from 1970 to 2004. Using an error components model and simpler but only approximate methods, we find that the transitory variance started to increase in the early 1970s, continued to increase through the mid-1980s, and then remained at this new higher level through the 1990s and beyond. Thus the increase mostly occurred about 30 years ago. Its increase accounts for between 31 and 49 percent of the total rise in cross-sectional variance, depending on the time period.
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The effects of a natural gas boom on employment and income in Colorado, Texas, and Wyoming
Jeremy Weber
Energy Economics, forthcoming
Abstract:
Improvements in technology have made it profitable to tap unconventional gas reservoirs in relatively impermeable shale and sandstone deposits, which are spread throughout the U.S., mostly in rural areas. Proponents of gas drilling point to the activity's local economic benefits yet no empirical studies have systematically documented the magnitude or distribution of economic gains. I estimate these gains for counties in Colorado, Texas, and Wyoming, three states where natural gas production expanded substantially since the late 1990s. I find that greater gas production caused modest increases in employment, wage and salary income, and median household income. The results suggest that each million dollars in gas production created 2.35 jobs, which led to a 1.5 percent annual increase in employment for the average gas boom county. Comparisons show that ex-ante estimates of the number of jobs created by developing the Fayetteville and Marcellus shale gas formations may have been too large.
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How ya Gonna Keep 'em Down on the Farm: Which Land Grant Graduates Live in Rural Areas?
Georgeanne Artz & Li Yu
Economic Development Quarterly, November 2011, Pages 341-352
Abstract:
This article analyzes factors related to the rural/urban residence choice of college-educated adults using a unique data set resulting from a 2007 stratified random sample survey of Iowa State University alumni graduating between 1982 and 2006. Rural origin is the most significant predictor of rural residence choice. An important finding is that nonpecuniary goals and values such as family tradition, being respected by friends, and building a business for one's children to inherit have more weight with Iowa State University alumni who reside in rural areas after college than do monetary returns. This implies that incentives such as tax breaks will not work, or will be too expensive, to attract or retain college graduates in rural areas. Second, entrepreneurship rates are higher among Iowa State University alumni in rural areas and rural entrepreneurs tend to have local or, at least, rural roots. This finding lends support to the increasingly popular "grow your strategies" for rural business development.
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Sick pay provision in experimental labor markets
Peter Duersch, Jörg Oechssler & Radovan Vadovic
European Economic Review, January 2012, Pages 1-19
Abstract:
Sick pay is a common provision in most labor contracts. This paper employs an experimental gift exchange environment to explore two related questions using both managers and undergraduates as subjects. First, do workers reciprocate generous sick pay with higher effort? Second, do firms benefit from offering sick pay? Our main finding is that workers do reciprocate generous sick pay with higher effort. However, firms benefit from offering sick pay in terms of profits only if there is competition among firms for workers. Consequently, competition leads to a higher voluntary provision of sick pay relative to a monopsonistic labor market.
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Budget Shortfalls, Employee Compensation, and Collective Bargaining in Local Governments
Thom Reilly & Mark Reed
State and Local Government Review, December 2011, Pages 215-223
Abstract:
The purpose of this study was to examine how local governments are responding to budget shortfalls and to explore how compensation practices across the United States are correlated to changes in service delivery. One hundred thirty-four of the largest cities and counties responded to a mail survey, for a response rate of 45 percent. A large percentage (95 percent) of local governments reported experiencing budget shortfalls. In response, local governments are reducing their workforces, laying employees off and/or utilizing reserves rather than raising taxes and/or scaling back wages and benefits. Type of government (county or city) and collective bargaining were associated with budget shortfalls. Despite the fiscal distress of governments, average cost of living increases were between 2 and 3 percent for each of the two years surveyed and nearly half of respondents reported increases in employee benefits (fewer than 10 percent reported any decreases). Collective bargaining was significantly associated with higher increases in benefits, increased cost-of-living adjustments, and responses to budget shortfalls.
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David Card & Ana Rute Cardoso
NBER Working Paper, December 2011
Abstract:
Although military conscription was widespread during most of the past century, credible evidence on the effects of mandatory service is limited. We provide new evidence on the long-term effects of peacetime conscription, using longitudinal data for Portuguese men born in 1967. These men were inducted at a relatively late age (21), allowing us to use pre-conscription wages to control for ability differences between conscripts and non-conscripts. We find that the average impact of military service for men who were working prior to age 21 is close to zero throughout the period from 2 to 20 years after their service. These small average effects arise from a significant 4-5 percentage point impact for men with only primary education, coupled with a zero-effect for men with higher education. The positive impacts for less-educated men suggest that mandatory service can be a valuable experience for those who might otherwise spend their careers in low-level jobs.