Background information

Some articles include "background information" boxes that provide further details on concepts, economic, scholarly, or technical terms, or on the historical background to an argument. All background information terms and concepts are brought together here in an alphabetized list—with direct links back to the corresponding article.

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  • Panel data

    Also known as longitudinal data or cross-sectional time series data, panel data are a data set in which the same entities (such as firms, individuals, and countries) are observed across time. Panel data allow researchers to control for omitted (unobserved or unmeasured) variables that change over time but not across entities as well as for time-invariant omitted characteristics related to entities.

  • Parental leave

    Parental leave policies give the mother and (sometimes) the father the right to take a limited period of time off work and to return to the same position or an equivalent one that is paid at the same rate (called “job-protected leave”). The details of the schemes vary widely across countries. Some schemes make parents eligible for benefits (i.e. “paid leave”) while they are not working. The size of the benefits during parental leave can either be a flat rate or it can depend on the parent’s pre-childbirth wage. Parental leave typically starts with a period that is restricted to the mother (maternity leave).

    Maternity leave is the period immediately before and after childbirth (usually eight weeks). The initial goal of maternity leave is to protect the health of the mother and the child. In some systems, parents can share the remaining period (up to three years’ worth) and, sometimes, a period is reserved for the father, called paternity leave (typically lasting from four weeks up to a third of the total leave period). Parents may be forced to forgo these weeks of job-protected leave and any associated benefits if the father does not make use of them.

    Source: Detailed statistics on cross-country comparison of parental leave systems are provided in section 3 “Public policies for families and children (PF)” of the OECD Family Database. Online at: http://www.oecd.org/els/family/database.htm

  • Pensions: Matching contribution programs in Colombia and Peru

    Colombia and Peru have created matching contribution schemes that subsidize the pension contributions of middle- and low-income informal workers. Colombia implemented the Complementary Economic Benefits social security system (known as BEPS), a voluntary pension scheme for low-income workers who are not paying into the traditional system. BEPS provides a 20% subsidy on an individual’s accumulated contributions, thus reducing the minimum contribution and enabling workers earning less than the minimum wage to contribute to the social security system. Peru’s Social Pension System is a voluntary scheme for workers in microenterprises (earning up to 1.5 times the minimum wage) and their owners who are not yet affiliated with the national pension system. This scheme provides for a progressive reduction of social contributions, matched by government contributions.

    These incentive schemes increase the returns from contributing to the pension system and seem to be directed especially to informal or marginally formal workers in the urban middle class. The main concern with these programs is that they could become parallel schemes that discourage workers and firms from transitioning into the formal sector. While the design of the Colombian system seems to avoid this problem (savings generated through BEPS are integrated with savings generated through the traditional system), Peru’s system might inadvertently establish a new de facto pension scheme that could motivate companies to stay (or appear to be) small to qualify for the small-company contributions. Therefore, these instruments, while born of good intentions, could end up creating undesirable outcomes.

  • Positional spending and visibility-based consumption tax

    Positional spending is socially observable spending that is motivated by status concerns. People are often concerned about consumption of these visible status goods (such as a lavish gift, a mansion, or a luxury car) relative to others in the reference group.

    Visibility-based consumption tax refers to a type of tax whose rate is in proportion to how “visible” a commodity is. For example, the purchase of a luxury car would be subject to a higher rate of visibility-based tax than the purchase of an ordinary, less status-signaling car.

  • Programme for International Student Assessment (PISA)

    The Programme for International Student Assessment (PISA) is a joint effort among OECD countries to assess the achievement of 15 year olds in reading, mathematics, and science literacy through a common international test. PISA defines reading literacy as “the ability to understand, use and reflect on written texts in order … to participate effectively in society.” The PISA tests are repeated every three years.

    Source: OECD. Glossary of Statistical Terms: Reading Literacy. OECD.stat database, 2003. Online at: https://stats.oecd.org/glossary/detail.asp?ID=5420

  • Pronatalist policies

    Government pronatalist policies are designed to increase birth rates, often through financial incentives such as birth bonuses, child benefits, and tax credits.

  • Propensity score matching

    When subjects are not randomly assigned to treatment and non-treatment groups, as is the case with observational studies, other methods are needed to avoid the possibility of selection bias. Bias can arise when apparent differences in outcome between treatment and non-treatment groups can be attributed to characteristics that affected whether a subject received a given treatment rather than simply to the effect of the treatment itself. Propensity matching adjusts for such potential bias by creating a sample group of subjects who received the treatment that is comparable on all observed characteristics to a sample of subjects that did not receive the treatment.

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  • Raising payroll taxes in Colombia

    In rich countries it is often difficult to see the impact of changes in labor costs on demand for labor because these costs change slowly and usually in small increments. This is less true in developing economies. In Colombia payroll tax rates on manufacturers averaged 47% in 1982, but in 1996 they averaged 60%. This 13% increase in labor costs reduced employment by, on average, 6%. Moreover, the drops in employment were largest in those manufacturing companies on which the largest increases in payroll taxes were imposed (Kugler and Kugler, 2009).

    Kugler, A., and M. Kugler. “Labor market effects of payroll taxes in developing countries: Evidence from Colombia.” Economic Development and Cultural Change 57:2 (2009): 335–358.

  • Randomized (field) experiments

    In randomized (field) experiments, participants are randomly assigned into treatment or control groups. This has the advantage that the decisions as to which applications to review anonymously are influenced neither by the applicants nor by the firms. The outcomes for treatment and control groups can therefore be directly compared, since the two groups should, on average, not differ from each other in either observed or unobserved characteristics.

  • Rational decision-making mode

    The model of rational decision-making assumes that the decision-maker carefully evaluates all possible alternatives and does not make any mistakes.

  • Reallocation rate

    The number of jobs lost in contracting or exiting firms plus the number of jobs gained in new or expanding firms in a certain period divided by the average number of existing jobs.

  • Reduced-form framework and structural models

    Structural model

    Given the assumptions describing individual behavior (for example, to maximize utility given a budget constraint) and the assumptions related to the institutions of the market in which the agents operate, a family of structural economic models describes how endogenous outcomes (for example, the quantity of labor supplied, the amount of effort exerted at work, and the number of job offers rejected) vary in the population. The outcomes are usually determined given the description of exogenous (predetermined) conditions that may or may not be observed. Distinct values of the structural form parameters describe distinct members of a given family of model. The analyst can interpret the parameters of a structural model in terms of the behavioral or the institutional assumptions (such as the response in labor supply to wage changes, the coefficient of risk aversion, and the arrival of job offers).

    Knowledge of the structural form is important since it allows a researcher to calculate the distribution of outcomes of the model in a variety of situations, even those that are not observed. Constraints on behavior can be changed or relaxed (for example, income taxes can be added to the model), new constraints on behavior can be introduced (for example, a minimum wage can be instituted or the retirement age can be increased), or different market institutions can be considered. Hence a structural model can describe (given its assumptions) a variety of counterfactual distributions of outcomes.

    Reduced form

    The reduced form of a structural model describes the relationship between the endogenous variables on the one hand, and the exogenous variables and the unobserved components on the other hand. While the reduced form depends on the same parameters as the structural form, some precise features of the relationship between the endogenous and exogenous variables is not available to the analyst when the model is expressed as a reduced form. In general, it is not possible to interpret the parameters of the reduced form in terms of the parameters of the structural model. Estimation of the parameters of the reduced form is often easier than estimation of the parameters of the structural form.

    A model that describes how the demand for and the supply of labor depend on the wage rate has a structural interpretation (the model requires that the analyst knows both the wage elasticity of demand and the wage elasticity of supply). The description of the demand and the supply of labor, together with the assumption that at equilibrium labor supply matches labor demand, determines the quantity and the price of labor at equilibrium. The reduced form of the model (in this case) describes how the equilibrium wage and labor quantity vary as the general economic conditions change. The parameters of the reduced form are only informative about the structural parameter values (the supply and demand wage elasticities) if, for example, some of the variables that describe the economic conditions can be specifically attributed to the demand side or to the supply side.

  • Regional differences within Christianity

    Important denominational differences within Christianity exist between three distinct groups of countries: the former Soviet Union; Central and Eastern Europe; and Western Europe. As of 2000, in former Soviet Union countries, the dominant Christian denomination is Orthodoxy. In Central and Eastern Europe, 40% of the population identify as Catholics and 23% as Orthodox, while in Western Europe, 44% are Catholics and 31% are Protestants.

    Source: Barett, D. B., J. T. Kurian, and T. M. Johnson. World Christian Encyclopedia. 2nd edn. New York: Oxford University Press, 2001.

  • Regression discontinuity design

    When a policy specifies cutoffs for determining eligibility for an intervention, a regression discontinuity design can be used to estimate the causal impact of the intervention. Suppose assignment to an intervention is made if an underlying variable exceeds some threshold value. Individuals just above and just below the threshold are expected to be the same in all ways except for the intervention. Comparing outcomes for those above and below the threshold gives an estimate of the local average treatment effect (local to individuals near the threshold).

  • Regression error term

    When trying to estimate the relationship between the outcome of interest and its explanatory (observable) variables, there are other (unobservable) variables that are captured in the error term, often called u or ɛ. One main assumption in econometric models is that this error term is not related (uncorrelated) with the explanatory variables included in the model. In mathematical terms this means the error term and explanatory variables are orthogonal.

    Again, this is true because of the assumption of the linear regression equation; if the (unknown) regression function for matching happens to be linear, then orthogonality would be all that needs to be assumed. Orthogonality is a much weaker assumption.

  • Regression specifications

    The regression specifications include not only firm fixed effects but also firm-specific time trends, which control for fixed differences among firms and also for differing trend growth rates that could affect the probability of privatization and whether the new owners are domestic or foreign investors (Brown et al., 2010). The alternative estimators may be compared using several specification tests, including variants of the Heckman-Hotz pre-program test which measures selection bias under an estimator as the difference in the dependent variable between the treated and comparison groups prior to treatment. In the privatization context, this test must be evaluated well before the privatization year to avoid possible contamination through anticipatory effects.

    Brown, J. D., J. S. Earle, and Á. Telegdy. “Employment and wage effects of privatisation: Evidence from Hungary, Romania, Russia, and Ukraine.” Economic Journal 120 (2010): 683–708.

  • Regularization policies for the undocumented

    Regularization policies, always heavily contested politically, are varied and context-specific. They may be part of an immigration reform package or stand alone, large in scale, or targeted to a specific group, with or without many conditions, time limited, or permanent, and resulting in many or few rights for the affected persons. Some policies require employment as a condition of regularization while others do not. Regularization programs balance many humanitarian, economic, and political goals. Almost all require a minimum length of residence. Terms such as legalization, amnesty, normalization, categorical protections, adjustment of status, or special status enactments are also used in reference to regularization policies.

  • Relationship capital

    “Relationship capital,” a term used in economics, sociology, and business studies, refers to the strength of the mutually beneficial relationships between individuals or groups of individuals. As in the case of other forms of capital, such capital can be created by investment—through building relationships. However, if such relationships are not maintained through regular interaction and reciprocity, relationship capital will depreciate. Like financial capital, relationship capital yields a return to the owners, in the form of trust, cooperation, and resource sharing. Communities benefit from the combined relationship capital that links community members, which is referred to as a community’s social capital.

  • Relevance of paid and unpaid overtime in Germany

    In Germany, the total volume of paid overtime hours was cut in half between 1991 and 2014, while unpaid work rose 16% and now exceeds the amount of paid overtime. In 2014, employees worked on average 21.1 paid overtime hours and 27.8 unpaid overtime hours. Paid overtime constituted just 1.6% of all hours worked (Wanger et al., 2015). Still, the actual volume of 0.8 billion overtime hours is equivalent—assuming equal productivity—to about 550,000 employees working standard hours. According to data from the IAB Establishment Panel, in 2011, 21% of private establishments paid overtime, and 55% of their employees actually worked paid overtime; 19% of all employees in the private sector worked paid overtime. The difference between collectively agreed standard hours per week and reported actual working hours (which includes paid and unpaid overtime but also factors like absence) is 2.7 hours, which is larger than in most other European countries (Cabrita and Galli da Bino, 2013).

    Sources: Cabrita, J., and C. Galli da Bino. Developments in Collectively Agreed Working Time 2012. Dublin: European Foundation for the Improvement of Living and Working Conditions 2013.

    Wanger, S., R. Weigand and I. Zapf. Measuring Hours Worked in Germany. IAB Discussion Paper No. 22, 2015.

  • Replacement fertility level

    The replacement fertility level is the total fertility rate needed to keep a country’s population constant. It is equivalent to approximately 2.1 children per woman.

  • Research on entrepreneurship and the business cycle: Data and methods

    Cross-country differences in definitions of entrepreneurship may have impeded research on entrepreneurship and the business cycle. The harmonized COMPENDIA dataset, compiled by Panteia/EIM Business and Policy Research for countries in the Organisation for Economic Co-operation and Development (OECD), resolved this issue and enabled new international empirical research (van Stel, 2005).

    Nascent entrepreneurship is measured here by the rate of (prospective) business ownership. Data come from the Global Entrepreneurship Monitor surveys, which show yearly estimates on nascent entrepreneurship and its subcategories such as nascent innovative, imitative, opportunity, and necessity entrepreneurship. The survey asks entrepreneurs about their motives (opportunity or necessity), along with questions about innovation and competition. Data for 22 OECD countries—Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the UK, and the US—cover 2001–2011. Gross domestic product (GDP) and population data are retrieved from OECD data sources with real GDP in constant 2005 US dollars. GDP per capita has been detrended using a Hodrick-Prescott filter with lambda equal to 100. Nascent entrepreneurship series are too short for serious detrending. See Koellinger and Thurik (2012) for details about data and definitions.

    Source: Koellinger, P. D., and A. R. Thurik. “Entrepreneurship and the business cycle.” Review of Economics and Statistics 94:4 (2012): 1143–1156.

    van Stel, A. J. “COMPENDIA: Harmonizing business ownership data across countries and over time.” International Entrepreneurship and Management Journal 1:1 (2005): 105–123.

  • Reservation wages

    The lowest wage for which an individual is willing to provide labor. Below this wage, the individual would rather be unemployed. If the employment agency provides many good services (like vocational training vouchers) and at the same time delivers few sanctions or other tough measures, then the unemployed could feel relatively comfortable in unemployment. In this case, the negative consequences of unemployment decrease and reservation wages are likely to increase.

  • Ricardian and Heckscher-Ohlin comparative advantage

    Comparative advantage is the idea that countries will export goods which they can produce relatively more cheaply than their partners and import those in which their costs are relatively greater (with, possibly, a band of non-traded products in between). The theory was formulated by David Ricardo in 1817 in On the Principles of Political Economy and Taxation. In his exposition of trade between England and Portugal the differences in relative costs arose from the two countries having different patterns of labor productivity across industries. In modern usage, we apply the term “Ricardian comparative advantage” to any circumstance in which cost differences arise from technological differences in productivity patterns regardless of which factor the differences reside in.

    The alternative view of Eli Heckscher and Bertil Ohlin postulates that technology is the same in all countries but that countries differ in the proportions with which they are endowed with different factors of production. If goods require different factors in different proportions from each other, Heckscher and Ohlin were able to show that, say, a good requiring relatively more labor would be relatively cheaper in a more labor abundant country in the absence of trade and thus would become an export when trade occurred. We use the term Heckscher-Ohlin comparative advantage wherever the differences in relative costs are postulated to stem from countries’ different endowments of factors.

    Ricardo, D. On the Principles of Political Economy and Taxation. London: John Murray, 1817.

  • Right-to-manage

    Under right-to-manage, wage bargaining is typically carried out at the multi-employer level, while employment levels are set by employers of individual firms or plants.

  • Robot substitutes for human labor

    The term “robots” refers broadly to any sort of machinery, from computers to artificial intelligence programs, that provides a good substitute for work currently performed by humans. This ranges from computers with artificial intelligence programs that bear no resemblance to humans, to robot vaccuum cleaners and Google cars, to social robots designed to look and act as if they are human. It does not matter whether a robot/machine has a humanoid appearance, as long as it can perform human functions. Advances in computer power and the development of artificial intelligence programs and wiring of microchips that can assess information and make decisions are rapidly improving the ability of machines to perform complicated tasks that seemed impossible just a decade or so ago. Taking the continuing progress in developing smarter technologies as a given, the focus here is on the social and economic issue of the ownership of these technologies.

  • Robots vs workers: Recent headlines from news articles on robots and work
  • Roma

    It is important to bear in mind that although researchers may use the term “Roma” as a convenient general-purpose ethnonym for a specific group of people, in reality the Roma are a highly heterogeneous population, differentiated by ethnic identity, social status, and language—even within a given country. These various groups also differ in their level of integration and labor market position. Furthermore, individual Roma may have multiple identities, which do not necessarily correspond to how they are perceived by non-Roma populations. Mixed marriages further complicate the binomial grouping of Roma and non-Roma.