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91. The Tradability of Services: Geographic Concentration and Trade Costs

Author:
Antoine Gervais
Publication Date:
08-2015
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
To date, empirical studies have focused almost exclusively on the trade exposure of the manufacturing sector, implicitly assuming that services are not tradable. However, because service trade has grown over time and now accounts for about 20 percent of global international transactions (and 30 percent of US exports), the traditional assumption that goods are tradable and services are not is increasingly inadequate. Gervais and Jensen use a unique dataset on the distribution of producers and consumers across regions of the United States to estimate the share of economic activity exposed to international competition. Their estimation method is a natural extension of the gravity model of trade and identifies trade costs in the absence of trade data. The estimated trade costs are higher on average for service industries, but there is considerable variation across industries within sectors. Using the trade cost estimates, they classify industries into tradable and nontradable categories. They find that accounting for tradable service industries nearly doubles the international exposure of the US economy, tradable services value added is unevenly distributed across geographical regions, labor productivity and wages are higher on average for tradable industries, and potential welfare gains from trade liberalization in the service sector are sizable.
Topic:
Economics, International Trade and Finance, Labor Issues, and Global Markets
Political Geography:
Global Focus

92. Aggregating Elasticities: Intensive and Extensive Margins of Female Labour Supply

Author:
Orazio P. Attanasio, Peter Levell, Hamish Low, and Virginia Sanchez-Marcos
Publication Date:
06-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
There is a renewed interest in the size of labour supply elasticities and the discrepancy between micro and macro estimates. Recent contributions have stressed the distinction between changes in labour supply at the extensive and the intensive margin. In this paper, we stress the importance of individual heterogeneity and aggregation problems. There is a renewed interest in the size of labour supply elasticities and the discrepancy between micro and macro estimates. Recent contributions have stressed the distinction between changes in labour supply at the extensive and the intensive margin. In this paper, we stress the importance of individual heterogeneity and aggregation problems. At the intensive margins, simple specifications that seem to fit the data give rise to non linear expressions that do not aggregate in a simple fashion. At the extensive margin, aggregate changes in participation are likely to depend on the cross sectional distribution of state variables when a shock hits and, therefore, are likely to be history dependent. We tackle these aggregation issues directly by specifying a life cycle model to explain female labour supply in the US and estimate its various components. We estimate the parameters of different component of the model. Our results indicate that (i) at the intensive margin, Marshallian and Hicksian elasticities are very heterogeneous and, on average, relatively large; (ii) Frisch elasticities are, as implied by the theory, even larger; (iii) aggregate labour supply elasticities seem to vary over the business cycle, being larger during recessions.
Topic:
Gender Issues, Labor Issues, Feminism, and Labor Market
Political Geography:
Global Focus

93. Risk Choices and Compensation Design

Author:
Mark Carey and Bo Sun
Publication Date:
01-2015
Content Type:
Commentary and Analysis
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We analyze the impact of bad-tail risks on managerial pay functions, especially the decision to pay managers in stock or in options. In contrast to conventional wisdom, we find that options are often a superior vehicle for limiting managerial incentives to take bad-tail risks while providing incentives to exert effort. Arrangements similar to collar options are able to incent the desired project choice in wider range of circumstances than call options or stock. However, information requirements appear high. We briefly explore alternatives with features similar to maluses and clawbacks, which are a bit like weakening the limited liability of managers.
Topic:
Labor Issues, Risk, Business Management, Stock Markets, and Wage Growth
Political Geography:
Global Focus

94. Large Capital Inflows, Sectoral Allocation, and Economic Performance

Author:
Gianluca Benigno, Nathan Converse, and Luca Fornaro
Publication Date:
03-2015
Content Type:
Commentary and Analysis
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper describes the stylized facts characterizing periods of exceptionally large capital inflows in a sample of 70 middle- and high-income countries over the last 35 years. We identify 155 episodes of large capital inflows and find that these events are typically accompanied by an economic boom and followed by a slump. Moreover, during episodes of large capital inflows capital and labor shift out of the manufacturing sector, especially if the inflows begin during a period of low international interest rates. However, accumulating reserves during the period in which capital inflows are unusually large appears to limit the extent of labor reallocation. Larger credit booms and capital inflows during the episodes we identify increase the probability of a sudden stop occurring during or immediately after the episode. In addition, the severity of the post-inflows recession is significantly related to the extent of labor reallocation during the boom, with a stronger shift of labor out of manufacturing during the inflows episode associated with a sharper contraction in the aftermath of the episode.
Topic:
Industrial Policy, Labor Issues, Capital Flows, Manufacturing, and Capital
Political Geography:
Global Focus

95. An Experimental Game on Entrepreneurship and Labour Protection Policy

Author:
Beatriz Muriel and Marcelo Gutierrez
Publication Date:
12-2015
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
We developed a game, in the line of experimental economics, using an expected utility framework, applied to 108 participants. Specifically, we evaluated the hypothesis that, facing uncertainty over potential employees’ skills, employers prefer a flexible labour policy rather than a protectionist one, and when the option of flexible labour contracts is not available, they choose not to undertake a business, reducing job creation. The empirical results show that 79.3% of participants prefer a flexible labour policy, as well as that when this option is excluded, some participants abstain from business undertakings---reducing job creation---, and instead become workers.
Topic:
Economics, Labor Issues, Employment, Risk, and Flexibility
Political Geography:
Global Focus

96. The Decline of Drudgery and the Paradox of Hard Work

Author:
Brendan Epstein and Miles S. Kimball
Publication Date:
06-2014
Content Type:
Commentary and Analysis
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We develop a theory that focuses on the general equilibrium and long-run macroeconomic consequences of trends in job utility. Given secular increases in job utility, work hours per capita can remain approximately constant over time even if the income effect of higher wages on labor supply exceeds the substitution effect. In addition, secular improvements in job utility can be substantial relative to welfare gains from ordinary technological progress. These two implications are connected by an equation flowing from optimal hours choices: improvements in job utility that have a significant effect on labor supply tend to have large welfare effects.
Topic:
Labor Issues, Economic Theory, Welfare, Social Services, and Wage Growth
Political Geography:
Global Focus

97. Offshoring, Mismatch, and Labor Market Outcomes

Author:
David M. Arseneau and Brendan Epstein
Publication Date:
09-2014
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We study the role of labor market mismatch in the adjustment to a trade liberalization that results in the offshoring of high-tech production. Our model features two-sided heterogeneity in the labor market: high- and low-skilled workers are matched in a frictional labor market with high- and low-tech firms. Mismatch employment occurs when high-skilled workers choose to accept a less desirable job in the low-tech industry. The main result is that--perhaps counter-intuitively--this type of job displacement is actually beneficial for the labor market in the country doing the offshoring. Mismatch allows the economy to reallocate domestic high-skilled labor across both high- and low-tech industries. In doing so, mismatch dampens both the increase in the aggregate unemployment rate and the decline in aggregate wages that come as a consequence of shifting domestic production abroad.
Topic:
Globalization, Industrial Policy, International Trade and Finance, Labor Issues, Work Culture, and Labor Market
Political Geography:
Global Focus

98. What Happens to Wage Elasticities When We Strip Playometrics? Revisiting Married Women Labour Supply Model

Author:
Duo Qin, Sophie van Huellen, and Qing-Chao Wang
Publication Date:
12-2014
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
This paper sheds new light on the well-known phenomenon of dwindling wage elasticities for married women in the US over the recent decades. Results of a novel model experiment approach via sample data ordering unveil considerable heterogeneity across different wage groups. Yet surprisingly constant wage elasticity estimates are revealed within certain wage groups over time as well as across two widely used US data sources, the Current Population Survey (CPS) and the Panel Study of Income Dynamics (PSID). These findings refute the assumed presence of a single-valued aggregate wage elasticity for working wives. Although women’s responsiveness to wages remains largely unchanged over time, we find that the composition of working women into different wage groups has changed considerably, resulting in decreasing wage elasticity estimates at the aggregate level. All these findings were methodologically impossible to acquire had we not dismantled and discarded the stereotyped endogeneity-backed instrumental variable route, which hitherto blocked the way towards sample data ordering.
Topic:
Gender Issues, Labor Issues, Inequality, Discrimination, and Wage Growth
Political Geography:
Global Focus

99. Wage Differentials: Trade Openness and Wage Bargaining

Author:
Gustavo Gonzaga, Beatriz Muriel, and Cristina Terra
Publication Date:
04-2014
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
We build a theoretical model that incorporates unionization in the labor market into a Heckscher-Ohlin-Samuelson (HOS) framework to investigate the impact of unionization on the Stolper-Samuelson Theorem. To capture the American economy case, we assume that unskilled labor in the manufactured goods sector is unionized, and that sector is intensive in skilled labor, and that trade liberalization increases the relative price of manufactured goods. In the HOS model, trade liberalization induces a reallocation of production towards the sector that uses intensively the country’s most abundant factor. The resulting change in relative labor demand impacts wage bargaining in the unionized sector, which, in turn, has a dampening effect on the Stolper-Samuelson effect. Moreover, wages of unionized workers are even less responsive to trade liberalization. Through traditional mandated-wages regressions, we show that skilled-wage differentials changes were less pronounced among more unionized sectors in the U.S. economy for the 1979-1990 period.
Topic:
Labor Issues, Economy, Manufacturing, Trade, and Wages
Political Geography:
Global Focus

100. Should We Clash or Should I Go? The Impact of Low Wage and Bad Working Conditions on the Exit–Voice Trade-off

Author:
Olivier Godechot and Zinaida Salibekyan
Publication Date:
11-2013
Content Type:
Working Paper
Institution:
Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
Abstract:
Although Hirschman’s exit–voice theoretical model has been applied to labor markets, research up to now has not tested one of its most important features: the impact of job quality on exit–voice strategies. Hirschman’s model of consumer behavior explains that those individuals unsatisfied with a product’s quality are more likely to “voice,” whereas those more concerned with its price are more likely to “exit.” A rationale for this tradeoff is based on information: first, information on the price of alternative options is much more accessible than information on quality; second, voice produces more information than exit and favors opportunities for specific improvements. We transpose Hirschman’s assumptions to labor markets and use the French SalSa survey and DADS, declaration by employers on social data, to examine the conditions under which French employees are more likely to exit, and the conditions under which they are more likely to voice. Our results support the Hirschmanian hypothesis. A deterioration by one unit in our working-conditions index increases the probability of participation in collective action by 5 percentage points. An increase in log hourly wage by one unit decreases the probability of quitting by 5 percentage points.
Topic:
Economics, Labor Issues, Labor Market, and Workforce
Political Geography:
Global Focus