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41. Labour Taxes and International Trade: The Role of Domestic Labour Value Added

Author:
Amat Adarov, Mario Holzner, Branimir Jovanovic, and Goran Vukšić
Publication Date:
08-2021
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper revisits the relationship between labour taxation and international trade, focusing on the role of domestic labour value added. Using sectoral data from 41 EU and OECD economies over the period 2005-2014, we assess how labour taxes affect exports and imports and how domestic labour value added shapes this relationship. We find that higher labour taxes reduce exports but that the effect depends to a large extent on the share of domestic labour value added, which differs by industries, countries and time periods. Imports do not seem to be affected. This implies that changes in labour taxes will not affect all sectors and countries in the same way and that policy makers should be aware of this when deciding on labour taxes. We also calculate the contribution of labour tax changes to the export dynamics in the analysed period and sample of countries, finding that in general the contribution is small.
Topic:
International Trade and Finance, Labor Issues, Tax Systems, Exports, and Imports
Political Geography:
Global Focus

42. Job Search and Hiring with Two-Sided Limited Information about Workseekers' Skills

Author:
Eliana Carranza, Robert Garlick, Kate Orkin, and Neil Rankin
Publication Date:
07-2020
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
This paper presents field experimental evidence that limited information about workseekers’ skills distorts both firm and workseeker behavior. Assessing workseekers’ skills, giving workseekers their assessment results, and helping them to credibly share the results with firms increases workseekers’ employment and earnings. It also aligns their beliefs and search strategies more closely with their skills. Giving assessment results only to workseekers has similar effects on beliefs and search, but smaller effects on employment and earnings. Giving assessment results only to firms increases callbacks. These patterns are consistent with two-sided information frictions, a new finding that can inform the design of information-provision mechanisms.
Topic:
Labor Issues, Employment, Business, and Job Creation
Political Geography:
Global Focus

43. Gender Differences in Professional Career Dynamics: New Evidence from a Global Law Firm

Author:
Ina Ganguli, Ricardo Hausmann, and Martina Viarengo
Publication Date:
04-2020
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
We examine gender gaps in career dynamics in the legal sector using rich panel data from one of the largest global law firms in the world. The law firm studied is representative of multinational law firms and operates in 23 countries. The sample includes countries at different stages of development. We document the cross-country variation in gender gaps and how these gaps have changed over time. We show that while there is gender parity at the entry level in most countries by the end of the period examined, there are persistent raw gender gaps at the top of the organization across all countries. We observe significant heterogeneity among countries in terms of gender gaps in promotions and wages, but the gaps that exist appear to be declining over the period studied. We also observe that women are more likely to report exiting the firm for family and work-life balance reasons, while men report leaving for career advancement. Finally, we show that various measures of national institutions and culture appear to play a role in the differential labor-market outcomes of men and women.
Topic:
Gender Issues, Labor Issues, Women, Employment, Inequality, Human Capital, and Legal Sector
Political Geography:
Global Focus

44. Endogenous Growth, Skill Obsolescence and Output Hysteresis in a New Keynesian Model with Unemployment

Author:
Wolfgang Lechthaler and Mewael F. Tesfaselassie
Publication Date:
08-2020
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
We embed human capital-based endogenous growth into a New-Keynesian model with search and matching frictions in the labor market and skill obsolescence from long-term unemployment. The model can account for key features of the Great Recession: a decline in productivity growth, the relative stability of inflation despite a pronounced fall in output (the "missing disinflation puzzle"), and a permanent gap between output and the pre-crisis trend output. In the model, lower aggregate demand raises unemployment and the training costs associated with skill obsolescence. Lower employment hinders learning-by-doing, which slows down human capital accumulation, feeding back into even fewer vacancies than justified by the demand shock alone. These feedback channels mitigate the disinflationary effect of the demand shock while amplifying its contractionary effect on output. The temporary growth slowdown translates into output hysteresis (permanently lower output and labor productivity).
Topic:
International Political Economy, Global Recession, Labor Issues, Economic Growth, Inflation, Keynes, and Capital
Political Geography:
Global Focus

45. Labor force participation, job search effort and unemployment insurance in the laboratory

Author:
Wolfgang Lechthaler and Patrick Ring
Publication Date:
03-2020
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
How the provision of unemployment benefits affects employment and unemployment is a debated issue. In this paper, we aim at complementing theoretical and empirical contributions to this debate with a laboratory experiment: We simulate a job market with search effort and labor force participation decisions while varying the maximum length of unemployment benefit eligibility. Our results reveal two separable, opposing effects: Individuals within the labor force search with lower effort when unemployment benefits are extended. However, individuals are more likely to participate in the labor force and to actively search for a job. Concerning employment, the second effect dominates so that unemployment benefits raise employment.
Topic:
Economics, International Political Economy, Markets, Labor Issues, Employment, Unemployment, and Job Creation
Political Geography:
Global Focus

46. Child Skill Production: Accounting for Parental and Market-Based Time and Goods Investments

Author:
Elizabeth Caucutt, Lance Lochner, Joseph Mullins, and Youngmin Park
Publication Date:
08-2020
Content Type:
Working Paper
Institution:
Centre for Human Capital and Productivity (CHCP), Western University
Abstract:
This paper studies the multidimensional nature of investments in children within a dynamic framework. In particular, we examine the roles of parental time investments, purchased home goods/services inputs, and market-based child care services. We first document strong increases in total investment expenditures by maternal education; yet expenditure shares, which skew heavily towards parental time, vary little with parental schooling. Second, we develop an intergenerational lifecycle model with multiple child investment inputs to study these patterns and the impacts of policies that alter the prices of different inputs. We analytically characterize investment behavior, focusing on the substitutability of different investment inputs and the way parental skills affect the productivity of family-based inputs. Third, we develop an estimation strategy that exploits intratemporal optimality conditions based on relative demand to estimate substitutability between inputs, the relative productivity of different inputs, and the role played by parental education. This approach requires no assumptions about the dynamics of skill investment, preferences, or credit markets. We also account for mismeasured inputs and wages, as well as unobserved heterogeneity in parenting skills. We further show how noisy measures of child achievement (measured several years apart) can also be incorporated in a generalized method of moments approach to additionally identify the dynamics of skill accumulation. Fourth, we use data from the Child Development Supplement of the Panel Study of Income Dynamics to estimate the skill production technology for children ages 12 and younger. Our estimates suggest complementarity between parental time and home goods/services inputs as well as between these family-based inputs and market-based child care, with elasticities of substitution ranging from 0.2 to 0.5. We find no systematic effects of parental education on the relative productivity of parental time and other home inputs. Finally, we use counterfactual simulations to explore the extent and sources of variation in investments across families, as well as investment responses to changes in input prices. We find that variation in prices explains 48% of the overall variance in investment expenditures, and differences in wages explain more than half of the investment expenditure gap between college-educated and non-college-educated parents. We further show that accounting for the degree of input complementarity implied by our estimates has important implications for the responses of individual inputs to any price change and for the responses in total investments and skill accumulation to large (but not small) price changes.
Topic:
Economics, Labor Issues, Children, Human Capital, Economic Mobility, Credit, Productivity, Skilled Labor, and Price
Political Geography:
Global Focus

47. Returns to Skill and the Evolution of Skills for Older Men

Author:
Qian Liu, Lance Lochner, Youngmin Park, and Youngki Shin
Publication Date:
08-2020
Content Type:
Working Paper
Institution:
Centre for Human Capital and Productivity (CHCP), Western University
Abstract:
This paper shows that repeated cross-section data with multiple skill measures (one continuous and repeated) available each period are sufficient to nonparametrically identify the evolution of skill returns and cross-sectional skill distributions. With panel data and the same available measurements, the dynamics of skills can also be identified. Our identification strategy motivates a multi-step nonparametric estimation strategy. We further show that if any continuous repeated measurement is shown to be linear in skills, a much simpler GMM estimator can be used. Using HRS data on men ages 52+ from 1996-2016, we show that one of the available (continuous and repeated) skill measures is linear in skills and implement our GMM estimation approach. Our estimates suggest that the returns to skill were fairly stable from the mid-1990s to the Great Recession, rising thereafter. We document considerable differences in skills and lifecycle skill profiles over ages 52–70 across cohorts, with more recent cohorts possessing lower skills in their mid-50s but experiencing much weaker skill declines with age. We also document skill differences by education and race, which are stable across ages and explain roughly one-third and one-half, respectively, of the corresponding differences in wages. We observe substantial differences in skills for men in their mid-50s choosing to retire at different ages, but no clear evidence of sharp declines in skills surrounding retirement ages. Finally, we show that individual fixed effects account for more than a third of all skill variation at age 60, with considerable persistence in year-to-year skill innovations.
Topic:
Global Recession, Labor Issues, Human Capital, Men, Productivity, Skilled Labor, and Retirement
Political Geography:
Global Focus

48. Marriage, Children, and Labor Supply: Beliefs and Outcomes

Author:
Yifan Gong, Todd Stinebrickner, and Ralph Stinebrickner
Publication Date:
04-2020
Content Type:
Working Paper
Institution:
Centre for Human Capital and Productivity (CHCP), Western University
Abstract:
While a large literature is interested in the relationship between family and labor supply outcomes, little is known about the expectations of these objects at earlier stages. We examine these expectations, taking advantage of unique data from the Berea Panel Study. In addition to characterizing expectations, starting during college, the data details outcomes for ten years after graduation. Methodological contributions come from approaches to validate quality of survey expectations data and the recognition that expectations data, along with longitudinal data, can potentially help address endogeneity issues arising in the estimation of the causal effect of family on labor supply.
Topic:
Economics, Labor Issues, Human Capital, Family, Labor Market, and Productivity
Political Geography:
Canada and Global Focus

49. Perceived and Actual Option Values of College Enrollment

Author:
Yifan Gong, Ralph Stinebrickner, and Todd Stinebrickner
Publication Date:
08-2020
Content Type:
Working Paper
Institution:
Centre for Human Capital and Productivity (CHCP), Western University
Abstract:
An important feature of post-secondary schooling is the experimentation that accompanies sequential decision-making. Specifically, by entering college, a student gains the option to decide at a future time whether it is optimal to remain in college or to drop out, after resolving uncertainty that existed at entrance about factors that affect the return to college. This paper uses data from the Berea Panel Study to quantify the value of this option. The unique nature of the data allows us to make a distinction between “actual” option values and “perceived” option values and to examine the accuracy of students’ perceptions. We find that the average perceived option value is 65% smaller than the average actual option value ($8,670 versus $25,040). A further investigation suggests that this understatement is not due to misperceptions about how much uncertainty is resolved during college, but, rather, because of overoptimism at entrance about the returns to college. In terms of policy implications related to college entrance, we do not find evidence that students understate the overall value of college, which depends on the sum of the option value and expectations at entrance about the returns to college.
Topic:
Economics, Labor Issues, Human Capital, Higher Education, Economic Mobility, and Productivity
Political Geography:
Global Focus

50. Self-Employment and Development

Author:
Juan Herreno and Sergio Ocampo
Publication Date:
11-2020
Content Type:
Working Paper
Institution:
Centre for Human Capital and Productivity (CHCP), Western University
Abstract:
Selection into self-employment among the poor is dominated by subsistence concerns, which leads to high levels of unproductive self-employment in developing countries. We incorporate this view into an otherwise benchmark macro-development model by allowing for labor frictions. Standard models that rely only on financial frictions are at odds with crucial features of the data, including large self-employment rates among the poor and the response of labor markets after well-identified labor demand shocks. We study the efficacy of a wide range of development policies on occupational choices, prices, and productivity. We find that providing unemployment benefits improves selection into self-employment, increasing total-factor productivity (TFP). Self-employment grants and unconditional transfers lower TFP by making self-employment more attractive to low-productivity individuals. Finally, financial reforms that improve access to credit succeed in raising productivity, but they do not address the subsistence concerns of poor individuals. Self-employment is still concentrated among the poor after the reforms take place.
Topic:
Economics, Labor Issues, Employment, Human Capital, Macroeconomics, Economic Development, and Productivity
Political Geography:
Global Focus