Labor markets and institutions

Institutions have important consequences for the performance of households, companies, governments and entire markets; they determine the welfare of nations. Contributions explore the underlying mechanisms and the politico-economic determinants of such structures.

Subject Editor

Pierre Cahuc École Polytechnique, France and IZA, Germany

Associate Editor(s)

Torben Andersen University of Aarhus, Denmark, and IZA, Germany

Juan José Dolado Charles III University of Madrid, Spain, and IZA, Germany

Werner Eichhorst IZA, Germany

Henry Farber Princeton University, USA and IZA, Germany

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Short-time work compensations and employment

Temporary government schemes can have a positive economic effect

10.15185/izawol.11 11 Cahuc, P

by Pierre Cahuc

Government schemes that compensate workers for the loss of income while they are on short hours (known as short-time work compensation schemes) make it easier for employers to temporarily reduce hours worked so that labor is better matched to output requirements. Because the employers do not lay off these staff, the schemes help to maintain permanent employment levels during recessions. However, they can create inefficiency in the labor market, and might limit labor market access for freelancers and those looking to work part-time.

Employment protection

Policymakers need to find the right balance between protecting workers and promoting efficient resource allocation and productivity growth

10.15185/izawol.12 12 Scarpetta, S

by Stefano Scarpetta

Laws on hiring and firing are intended to protect workers from unfair behavior by employers, to counter imperfections in financial markets that limit workers’ ability to insure themselves against job loss, and to preserve firm-specific human capital. But by imposing costs on firms’ adaptation to changes in demand and technology, employment protection legislation may reduce not only job destruction but also job creation, hindering the efficient allocation of labor and productivity growth.

Unemployment benefits and unemployment

The challenge of unemployment benefits is to protect workers while minimizing undesirable side effects

10.15185/izawol.13 13 Moffitt, R

by Robert Moffitt

All developed economies have unemployment benefit programs to protect workers against major income losses during spells of unemployment. By enabling unemployed workers to meet basic consumption needs, the programs protect workers from having to sell their assets or accept jobs below their qualifications. The programs also help stabilize the economy during recessions. If benefits are too generous, however, the programs can lengthen unemployment and raise the unemployment rate. The policy challenge is to protect workers while minimizing undesirable side effects.

Equal pay legislation and the gender wage gap

Despite major efforts at equal pay legislation, gender pay inequality still exists in the developed economies. How can this be put right?

10.15185/izawol.16 16 Polachek, S

by Solomon W. Polachek

Despite equal pay legislation dating back 50 years, American women still earn 22% less than their male counterparts. In the UK, with its Equal Pay Act of 1970, and France, which legislated in 1972, the gap is 21% and 17% respectively, and in Australia it remains around 17%. Interestingly, the gender pay gap is relatively small for the young but increases as men and women grow older. Similarly, it is large when comparing married men and women, but smaller for singles. Just what can explain these wage patterns? And what can governments do to speed up wage convergence to close the gender pay gap? Clearly, the gender pay gap continues to be an important policy issue.

The internet as a labor market matchmaker

How effective are online methods of worker recruitment and job search?

10.15185/izawol.18 18 Kuhn, P

by Peter J. Kuhn

Since the internet’s earliest days, firms and workers have used various online methods to advertise and find jobs. Until recently there has been little evidence that any internet-based tool has had a measurable effect on job search or recruitment outcomes. However, recent studies, and the growing use of social networking as a business tool, suggest workers and firms are at last developing ways to use the internet as an effective matchmaking tool. In addition, job boards are also emerging as important for the statistical study of labor markets, yielding useful data for firms, workers, and policymakers.

How responsive is the labor market to tax policy?

When applied to the most responsive segments of the labor market, tax policy can increase lifetime earnings and employment

10.15185/izawol.2 2 Blundell, R

by Richard Blundell

With aging populations and increased demands on government revenue, countries need to boost employment and earnings. Tax policy should focus on labor market entry and retirement. Those are the points where labor supply is most responsive to tax incentives, which can enhance the flow into work of people leaving school and women with young children and can prolong employment among older workers. Human capital policy has a complementary role in improving the payoff to work and ensuring that earnings hold up longer over a lifetime.

Can government policies reverse undesirable declines in fertility?

Government policies can have a modest effect on raising fertility—but broader social changes lowering fertility are stronger

10.15185/izawol.23 23 Brainerd, E

by Elizabeth Brainerd

Since 1989 fertility and family formation have declined sharply in Central and Eastern Europe and the former Soviet Union. Fertility rates are converging on—and sometimes falling below—rates in Western Europe, most of which are below replacement levels. Concerned about a shrinking and aging population and strains on pension systems, governments are using incentives to encourage people to have more children. These policies seem only modestly effective in countering the impacts of widespread social changes, including new work opportunities for women and stronger incentives to invest in education.

Temporary agency work

Temporary agency work is not generally a stepping-stone to regular employment

10.15185/izawol.27 27 Houseman, S

by Susan N. Houseman

Temporary agency work has expanded in most advanced economies since the 1990s, but its growth has been controversial. Some argue that these jobs offer experience and contact with potential employers, serving as a path to regular employment, particularly for low-skilled workers. Others view them as traps, fostering low-wage, unstable employment and providing little experience and few contacts.

Do labor costs affect companies’ demand for labor?

The effect of overtime, payroll taxes, and labor policies and costs on companies’ product output and countries’ GDP

10.15185/izawol.3 3 Hamermesh, D

by Daniel S. Hamermesh

Higher labor costs (higher wage rates and employee benefits) make workers better off, but they can reduce companies’ profits, the number of jobs, and the hours each person works. Overtime pay, hiring subsidies, the minimum wage, and payroll taxes are just a few of the policies that affect labor costs. Policies that increase labor costs can substantially affect both employment and hours, in individual companies as well as the overall economy.

Does increasing the minimum wage reduce poverty in developing countries?

Whether raising minimum wages reduces—or increases—poverty depends on the characteristics of the labor market

10.15185/izawol.30 30 Gindling, T

by T. H. Gindling

Raising the minimum wage in developing countries could increase or decrease poverty, depending on labor market characteristics. Minimum wages target formal sector workers—a minority in most developing countries—many of whom do not live in poor households. Whether raising minimum wages reduces poverty depends not only on whether formal sector workers lose jobs as a result, but also on whether low-wage workers live in poor households, how widely minimum wages are enforced, how minimum wages affect informal workers, and whether social safety nets are in place.

How labor market institutions affect job creation and productivity growth

Key labor market institutions, and the policies that shape them, affect the restructuring that leads to economic growth

10.15185/izawol.38 38 Henrekson, M

by Magnus Henrekson

Economic growth requires factor reallocation across firms and continuous replacement of technologies. Labor market institutions influence economic dynamism by their impact on the supply of a key factor, skilled workers to new and expanding firms, and the shedding of workers from declining and failing firms. Growth-favoring labor market institutions include portable pension plans and other job tenure rights, health insurance untied to the current employer, individualized wage-setting, and public income insurance systems that encourage mobility and risk-taking.

Fixed-term contracts

Are fixed-term contracts a stepping stone to a permanent job or a dead end?

10.15185/izawol.45 45 Eichhorst, W

by Werner Eichhorst

Fixed-term contracts have become a major form of employment in Europe. Available evidence about whether temporary jobs are a stepping stone to a permanent employment or are a dead end is mixed. The usefulness of these jobs depends on the institutional and economic environment. Fixed-term contracts can be a pathway from unemployment to employment, but their potential as a stepping stone to permanent employment is undercut if there is a strong degree of segmentation in labor markets. If that is the case, the labor flexibility motive of employers ends up dominating the screening function in offering a fixed-term contract.

Effect of international activity on firm performance

Trade liberalization benefits better performing firms and contributes to economic growth

10.15185/izawol.47 47 Wagner, J

by Joachim Wagner

There is evidence that better performing firms tend to enter international markets. Internationally active firms are larger, more productive, and pay higher wages than other firms in the same industry. Positive performance effects of engaging in international activity are found especially in firms from less advanced economies that interact with partners from more advanced economies. Lowering barriers to the international division of labor should be part of any pro-growth policy.

Taxpayer effects of immigration

Reliable estimates of taxpayer effects are essential for complete economic analyses of the costs and benefits of immigration

10.15185/izawol.50 50 Smith, J

by James P. Smith

Taxpayer effects are a central part of the total economic costs and benefits of immigration, but they have not received much study. These effects are the additional or lower taxes paid by native-born households due to the difference between tax revenues paid and benefits received by immigrant households. The effects vary considerably by immigrant attributes and level of government involvement, with costs usually diminishing greatly over the long term as immigrants integrate fully into society.

Redesigning pension systems

The institutional structure of pension systems should follow population developments

10.15185/izawol.51 51 Góra, M

by Marek Góra

For decades, pension systems were based on the rising revenue generated by an expanding population (demographic dividend). As changes in fertility and longevity created new population structures, however, the dividend disappeared, but pension systems failed to adapt. They are kept solvent by increasing redistributions from the shrinking working-age population to retirees. A simple and transparent structure and individualization of pension system participation are the key preconditions for an intergenerationally just old-age security system.

Introducing a statutory minimum wage in middle and low income countries

Successful implementation of a statutory minimum wage depends on context, capacity, and institutional design

10.15185/izawol.52 52 Margolis, D

by David N. Margolis

Motivations for introducing a statutory minimum wage in developing countries include reducing poverty, advancing social justice, and accelerating growth. Attaining these goals depends on the national context and policy choices. Institutional capacity tends to be limited, so institutional arrangements must be adapted. Nevertheless, a statutory minimum wage could help developing countries advance their development objectives, even where enforcement capacity is weak and informality is pervasive.

Tuning unemployment insurance to the business cycle

Unemployment insurance generosity should be greater when unemployment is high—and vice versa

10.15185/izawol.54 54 Andersen, T

by Torben M. Andersen

High unemployment and its social and economic consequences have lent urgency to the question of how to improve unemployment insurance in bad times without jeopardizing incentives to work or public finances in the medium term. A possible solution is a rule-based system that improves the generosity of unemployment insurance (replacement rate, benefit duration, eligibility conditions) when unemployment is high and reduces the generosity when it is low.

Do firms benefit from apprenticeship investments?

Why spending on occupational skills can yield economic returns to employers

10.15185/izawol.55 55 Lerman, R

by Robert Lerman

Economists once believed firms do not pay to develop occupational skills that workers could use in other, often competing, firms. Researchers now recognize that most firms benefit from investing in apprenticeship training. Evidence indicates that financial returns to firms vary. Some recoup their investment within the apprenticeship period, while others see their investment pay off only after accounting for reduced turnover, recruitment, and initial training costs. Generally, the first year of apprenticeships involves significant costs, but subsequently, the apprentice’s contributions exceed his/her wages and supervisory costs. Most participating firms view apprenticeships as offering certainty that all workers have the same high level of expertise and ensuring a supply of well-trained workers during sudden increases in demand and to fill leadership positions.

Designing labor market regulations in developing countries

Labor market regulation should aim to improve the functioning of the labor market while protecting workers

10.15185/izawol.57 57 Betcherman, G

by Gordon Betcherman

Governments regulate employment to protect workers and to improve labor market efficiency. However, employment regulations can be controversial, often complicated by opposing ideological views. Thus, it is important for policymakers in developing countries to base decisions on empirical evidence of the impacts of these regulations. The majority of the evidence suggests that most countries have set their regulations in the appropriate range. But it can be costly when countries either overregulate or underregulate their labor market.

Employment effects of minimum wages

When minimum wages are introduced or raised, are there fewer jobs? Global evidence says yes

10.15185/izawol.6 6 Neumark, D

by David Neumark

The potential benefits of higher minimum wages come from the higher wages for affected workers, some of whom are in poor or low-income families. The potential downside is that a higher minimum wage may discourage employers from using the low-wage, low-skill workers that minimum wages are intended to help. If minimum wages reduce employment of low-skill workers, then minimum wages are not a “free lunch” with which to help poor and low-income families, but instead pose a tradeoff of benefits for some versus costs for others. Research findings are not unanimous, but evidence from many countries suggests that minimum wages reduce the jobs available to low-skill workers.

Self-employment and poverty in developing countries

The right policies can help the self-employed to boost their earnings above the poverty level and earn more for the work they do

10.15185/izawol.60 60 Fields, G

by Gary S. Fields

A key way for the world’s poor—nearly half of humanity—to escape poverty is to earn more for their labor. Most of the world’s poor people are self-employed, but because there are few opportunities in most developing countries for them to earn enough to escape poverty, they are working hard but working poor. Two key policy planks in the fight against poverty should be: raising the returns to self-employment and creating more opportunities to move from self-employment into higher paying wage employment.

Public-sector outsourcing

The desirability of outsourcing the provision of public services depends on their characteristics and market conditions

10.15185/izawol.65 65 Poutvaara, P

by Panu Poutvaara

Outsourcing public provision of services tends to lower labor intensity and increase its efficiency. Costs are usually lower, but quality problems can affect services like health care and residential youth care. Consumer choice has stimulated innovation in education, but the picture is ambiguous for health care. Natural monopolies are unsuitable for outsourcing. Network services (public transportation) may be outsourced through public tenders. While some jobs may be lost in the short run, the long-term effects are generally positive for a wide variety of activities.

The consequences of trade union power erosion

Declining union power would not be an overwhelming cause for concern if not for rising wage inequality and the loss of worker voice

10.15185/izawol.68 68 Addison, J

by John T. Addison

The micro- and macroeconomic effects of the declining power of trade unions have been hotly debated by economists and policymakers. Nevertheless, the empirical evidence shows that the impact of the decline on economic aggregates and firm performance is not an overwhelming cause for concern. However, the association of declining union power with rising earnings inequality and a loss of direct communication between workers and firms is potentially more worrisome. This in turn raises the questions of how supportive contemporary unionism is of wage solidarity, and whether the depiction of the nonunion workplace as an authoritarian “bleak house” is more caricature than reality.

Gender quotas on boards of directors

Little evidence that gender quotas for women on boards of directors improve firm performance

10.15185/izawol.7 7 Smith, N

by Nina Smith

Arguments for increasing gender diversity on boards of directors range from ensuring equal opportunity to improving firm performance, but the empirical results are mixed and often negative. Current research does not justify gender quotas on grounds of economic efficiency. Furthermore, in most countries the number of women qualified to join boards of directors is limited, and it is not clear from the evidence that quotas lead to a larger pool of qualified female candidates in the medium and long term.

Entrepreneurs and their impact on jobs and economic growth

Productive entrepreneurs can invigorate the economy by creating jobs and new technologies, and increasing productivity.

10.15185/izawol.8 8 Kritikos, A

by Alexander S. Kritikos

Entrepreneurs are a rare species. Even in innovation-driven economies, only 1–2% of the work force starts a business in any given year. Yet entrepreneurs, particularly innovative entrepreneurs, are vital to the competitiveness of the economy. The gains of entrepreneurship are only realized, however, if the business environment is receptive to innovation. In addition, policymakers need to prepare for the potential job losses that can occur in the medium term through “creative destruction” as entrepreneurs strive for increased productivity.

The effect of early retirement schemes on youth employment

Keeping older workers in the workforce longer not only doesn’t harm the employment of younger workers, but might actually help both

10.15185/izawol.70 70 Böheim, R

by René Böheim

The fiscal sustainability of state pensions is a central concern of policymakers in nearly every advanced economy. Policymakers have attempted to ensure the sustainability of these programs in recent decades by raising retirement ages. However, there are concerns that keeping older workers in the workforce for longer might have negative consequences for younger workers. Since youth unemployment is a pressing problem throughout advanced and developing countries, it is important to consider the impact of these policies on the employment prospects of the young.

Do in-plant alliances foster employment?

An instrument for responding to an imminent economic crisis or for increasing firm competitiveness

10.15185/izawol.79 79 Bellmann, L

by Lutz Bellmann

In-plant alliances that tailor specific deviations from sectoral collective agreements on wages and working time are intended to hold down labor costs. These agreements enable reorganizations to respond to an imminent economic crisis or to improve competitiveness. They encourage social partners to take greater responsibility for employment issues. Both unions and works councils agree to such contracts because they see them as inevitable to avoid severe employment losses. Thus, these alliances substantially unburden public employment policy.

Environmental regulations and labor markets

Balancing the benefits of environmental regulations for everyone and the costs to workers and firms

10.15185/izawol.22 22 Deschenes, O

by Olivier Deschenes

Environmental regulations such as air quality standards can lead to notable improvements in ambient air quality and to related health benefits. 
But they impose additional production costs on firms and may reduce productivity, earnings, and employment, especially in sectors exposed to trade and intensive in labor. The limited empirical evidence suggests that the benefits are likely to outweigh 
the costs.

Union wage effects

What are the economic implications of union wage bargaining for workers, firms, and society?

10.15185/izawol.35 35 Bryson, A

by Alex Bryson

Despite declining bargaining power, unions continue to generate a wage premium. Some feel collective bargaining has had its day. Politicians on both sides of the Atlantic have recently called for the removal of bargaining rights from workers in the name of wage and employment flexibility, yet unions often work in tandem with employers for mutual gain based on productivity growth. If this is where the premium originates, then firms and workers benefit. Without unions bargaining successfully to raise worker wages, income inequality would almost certainly be higher than it is.

Unemployment benefits and job match quality

Do unemployment benefits help those seeking work to obtain better jobs?

10.15185/izawol.44 44 Tatsiramos, K

by Konstantinos Tatsiramos

Unemployment insurance schemes face a well-known trade-off between providing income support to those out of work and reducing their incentive to look for work. This trade-off between benefits and incentives is central to the public debate about extending benefit periods during the recent economic crisis. Often overlooked in this debate is that such support can increase the quality of the work found by the unemployed. This quality rise, in terms of both wages and duration, can be achieved by increasing the time and resources available to an individual to obtain a better job.

Does minimum age of employment regulation reduce child labor?

The global fight against child labor might be better served by focusing less on existing laws and more on implementation and enforcement

10.15185/izawol.73 73 Edmonds, E

by Eric V. Edmonds

Regulation of the minimum age of employment is the dominant tool used to combat child labor globally. If enforced, these regulations can change the types of work in which children participate, but minimum age regulations are not a useful tool to promote education. Despite their nearly universal adoption, recent research for 59 developing countries finds little evidence that these regulations influence child time allocation in a meaningful way. Going forward, coordinating compulsory schooling laws and minimum age of employment regulations may help maximize the joint influence of these regulations on child time allocation, but these regulations should not be the focus of the global fight against child labor.

Structural or cyclic? Labor markets in recessions

How should policy respond to higher unemployment?

10.15185/izawol.4 4 Lazear, E

by Edward P. Lazear

Persistent unemployment after recessions and the policies required to bring it down are the subject of an ongoing debate. One view suggests there are fundamental changes in the labor market that imply a long-term higher rate of unemployment, requiring the implementation of structural policy reforms. The alternative view is that the slow recovery of the economy is due to cyclic reasons coming from lack of demand which prevents unemployment from falling quickly. Knowing whether higher unemployment is caused by structural change in the labor market or whether the problem is cyclic determines how effective policy can be in addressing the problem.

The incentive effects of minimum pensions

Minimum pension programs reduce poverty in old age but they can also reduce the labor supply of low-income workers

10.15185/izawol.84 84 Jiménez-Martín, S

by Sergi Jiménez-Martín

The main purpose of minimum pension benefit programs and old-age social assistance programs is to guarantee a minimum standard of living after retirement and thus to alleviate poverty in old age. In many developing and developed countries, the minimum pension program is a key welfare program and a major influence on the retirement decisions of low-income workers and workers with erratic work histories. The design of many minimum pension programs tends to create strong incentives for low-income workers to retire as soon as they become eligible for the program, which is often earlier than the normal retirement age.

Alternative dispute resolution

How different procedures might succeed in settling disputes

10.15185/izawol.71 71 Dickinson, D

by David L. Dickinson

Alternative dispute resolution procedures such as arbitration and mediation are the most common methods for resolving wage, contract, and grievance disputes, but they lead to varying levels of success and acceptability of the outcome depending on their design. Some innovative procedures, not yet implemented in the real world, are predicted to improve on existing procedures in some ways. But controlled tests of several procedures show that the simple addition of a nonbinding stage prior to binding dispute resolution can produce the best results in terms of cost (monetary and “uncertainty” costs) and acceptability.

International trade regulation and job creation

Trade policy is not an employment policy and should not be expected to have major effects on overall employment

10.15185/izawol.75 75 Winters, L

by L. Alan Winters

Trade regulation can create jobs in the sectors it protects or promotes, but almost always at the expense of destroying a roughly equivalent number elsewhere in the economy. At a product-specific or micro level and in the short term, controlling trade could reduce the offending imports and save jobs, but for the economy as a whole and in the long term, this position has neither theoretical support nor empirical evidence in its favor. Given that protection may have other—usually adverse—effects, understanding the difficulties in using it to manage employment is important for economic policy.

Immigrants and entrepreneurship

Business ownership is higher among immigrants, but promoting self-employment is unlikely to improve outcomes for less skilled immigrants

10.15185/izawol.85 85 Lofstrom, M

by Magnus Lofstrom

Immigrants are widely perceived to be highly entrepreneurial, contributing to economic growth and innovation, and self-employment is often viewed as a means of enhancing labor market integration and success among immigrants. Accordingly, many countries have established special visas and entry requirements to attract immigrant entrepreneurs. Research supports some of these stances, but expectations may be too high. There is no strong evidence that self-employment is an effective tool of upward economic mobility among low-skilled immigrants. More broadly prioritizing high-skilled immigrants may prove to be more successful than focusing on entrepreneurship.

Flat-rate tax systems and their effect on labor markets

Despite their theoretical benefits, flat taxes have been tried only in a few formerly socialist countries

10.15185/izawol.61 61 Peichl, A

by Andreas Peichl

The potential economic outcomes resulting from a flat rate of income tax have been the subject of an ongoing academic and political debate. Many observers have suggested that the introduction of a flat tax would be beneficial for a country’s economy, having a positive influence on the labor market and the gross domestic product by enhancing incentives to work, save, invest, and take risks. A flat tax also significantly simplifies income taxation which increases tax compliance and reduces tax planning, avoidance, and evasion. However, despite flat taxes being on the political agenda in many countries, in practice their implementation has mostly been restricted to the transition economy countries of Eastern Europe. There is no one single flat tax system in place in these countries though; one rate does not fit all.

The effect of overtime regulations on employment

There is no evidence that being strict with overtime hours and pay boosts employment—it could even lower it

10.15185/izawol.89 89 Oaxaca, R

by Ronald L. Oaxaca

Regulation of standard workweek hours and overtime hours and pay can protect workers who might otherwise be required to work more than they would like to at the going rate. By discouraging the use of overtime, such regulation can increase the standard hourly wage of some workers and encourage work sharing that increases employment, with particular advantages for female workers. However, regulation of overtime raises employment costs, setting in motion economic forces that can limit, neutralize, or even reduce employment. And increasing the coverage of overtime pay regulations has little effect on the share of workers who work overtime or on weekly overtime hours per worker.

Entrepreneurship and the business cycle

Nascent entrepreneurship can have some predictive power over the business cycle

10.15185/izawol.90 90 Thurik, R

by Roy Thurik

Entrepreneurship has a cyclical component, raising two questions. Is the entrepreneurship cycle related to the business cycle? And is there causality? A two-way relationship between entrepreneurship and the business cycle would be in line with the two faces of entrepreneurs: as agents of change creating upswings (opportunity entrepreneurship) and as rational actors escaping unemployment by setting up a business (necessity entrepreneurship). Nascent entrepreneurship can indeed be precyclical, implying that the two faces of entrepreneurship also show up in the business cycle, with promising policy implications.

Tax evasion, labor market effects, and income distribution

Market adjustments to tax evasion alter factor and product prices, which in turn determine the true impact and beneficiaries of tax evasion

10.15185/izawol.91 91 Alm, J

by James Alm

To determine the full effects of taxation on income distribution, policymakers need to consider the impacts of tax evasion. In the standard analysis of tax evasion, all the benefits are assumed to accrue to tax evaders. But tax evasion has other impacts that determine its true effects. As factors of production move from tax-compliant to tax-evading (informal) sectors, changes in relative prices and productivity reduce incentives for workers to enter the informal sector. At least some of the gains from evasion are thus shifted to the consumers of the output of tax evaders, through lower prices.

Impact of privatization on employment and earnings

Workers and policymakers may fear that privatization leads to job losses and wage cuts, but what’s the empirical evidence?

10.15185/izawol.93 93 Earle, J

by John S. Earle

Conventional wisdom and prevailing economic theory hold that the new owners of a privatized firm will cut jobs and wages. But this ignores the possibility that new owners will expand the firm’s scale, with potentially positive effects on employment, wages, and productivity. Evidence generally shows these forces to be offsetting, usually resulting in small employment and earnings effects and sometimes in large, positive effects on productivity and scale. Foreign ownership usually has positive effects, and the effects of domestic privatization tend to be larger in countries with a more competitive business environment.

Unemployment and happiness

Successful policies for helping the unemployed need to confront the adverse effects of unemployment on feelings of life satisfaction

10.15185/izawol.94 94 Winkelmann, R

by Rainer Winkelmann

Many studies document a large negative effect of unemployment on happiness. Recent research has looked into factors related to impacts on happiness, such as adaptation, social work norms, social capital, religious beliefs, and psychological resources. Getting unemployed people back to work can do more for their happiness than compensating them for doing nothing. But not all unemployed people are equally unhappy. Understanding the differences holds the key to designing effective policies, for helping the unemployed back into work, and for more evenly distributing the burden of unemployment resulting from economic restructuring.

Poverty persistence and poverty dynamics

Snapshots of who is poor in one period provide an incomplete picture of poverty

10.15185/izawol.103 103 Biewen, M

by Martin Biewen

A considerable part of the poverty that is measured in a single period is transitory rather than persistent. In most countries, only a portion of people who are currently poor are persistently poor. People who are persistently poor or who cycle into and out of poverty should be the main focus of anti-poverty policies. Understanding the characteristics of the persistently poor, and the circumstances and mechanisms associated with entry into and exit from poverty, can help to inform governments about options to reduce persistent poverty. Differences in poverty persistence across countries can shed additional light on possible sources of poverty persistence.

Women in crime

Over the last 50 years women have been increasing their participation in the labor market and in the crime market

10.15185/izawol.105 105 Campaniello, N

by Nadia Campaniello

In recent decades, women’s participation in the labor market has increased considerably in most countries and is converging toward the participation rate of men. Though on a lesser scale, a similar movement toward gender convergence seems to be occurring in the criminal world, though many more men than women still engage in criminal activity. Technological progress and social norms have freed women from the home, increasing their participation in both the labor market and the crime market. With crime no longer just men’s business, it is important to investigate female criminal behavior to determine whether the policy prescriptions to reduce crime should differ for women.

Late-life work and well-being

Flexible retirement may be one solution to the challenges of unemployment, aging populations, and public pension burdens

10.15185/izawol.107 107 Graham, C

by Carol Graham

Flexible work time and retirement options are a potential solution for the challenges of unemployment, aging populations, and unsustainable pensions systems around the world. Voluntary part-time workers in Europe and the US are happier, experience less stress and anger, and are more satisfied with their jobs than other employees. Late-life workers, meanwhile, have higher levels of well-being than retirees. The feasibility of a policy that is based on more flexible work arrangements will vary across economies and sectors, but the ongoing debate about these multi-tiered challenges should at least consider such arrangements.

How to improve participation in social assistance programs

Government agencies can lower barriers that impede people’s take-up of social assistance

10.15185/izawol.104 104 Ribar, D

by David C. Ribar

Social assistance programs are intended to improve people’s well-being. However, that goal is undermined when eligible people fail to participate. Reasons for non-participation can include inertia, lack of information, stigma, the time and “hassle” associated with applications and program compliance, as well as some programs’ non-entitlement status. Differences in participation across programs, and over time, indicate that take-up rates can respond both positively and negatively to policy change. However, there are clearly very identifiable ways in which relevant agencies can improve take-up.

Who benefits from the minimum wage—natives or migrants?

There is no evidence that increases in the minimum wage have hurt immigrants

10.15185/izawol.98 98 Zavodny, M

by Madeline Zavodny

According to economic theory, a minimum wage reduces the number of low-wage jobs and increases the number of available workers, allowing greater hiring selectivity. More competition for a smaller number of low-wage jobs will disadvantage immigrants if employers perceive them as less skilled than native-born workers—and vice versa. Studies indicate that a higher minimum wage does not hurt immigrants, but there is no consensus on whether immigrants benefit at the expense of natives. Studies also reach disparate conclusions on whether higher minimum wages attract or repel immigrants.

Perverse effects of two-tier wage bargaining structures

Two-tier wage bargaining fails to link wages more closely to productivity and increases allocative inefficiencies

10.15185/izawol.101 101 Boeri, T

by Tito Boeri

Debate over labor market flexibility focuses mainly on firing costs, while largely ignoring wage determination and the need for collective bargaining reform. Most countries affected by the euro debt crisis have two-tier bargaining structures in which plant-level bargaining supplements national or industrywide (multi-employer) agreements, taking the pay agreement established at the multi-employer level as a floor. Two-tier structures were intended to link pay more closely to productivity and to allow wages to adjust downward during economic downturns, while preventing excessive earning dispersion. However, these structures seem to fail precisely on these grounds.

Market competition and executive pay

Increased competition affects the pay incentives firms provide to their managers and may also affect overall pay structures

10.15185/izawol.115 115 Ferreira, P

by Priscila Ferreira

Deregulation and managerial compensation are two important topics on the political and academic agenda. The former has been a significant policy recommendation in light of the negative effects associated with overly restrictive regulation on markets and the economy. The latter relates to the sharp increase in top executives’ pay and the nature of the link between pay and performance. To the extent that product-market competition can affect the incentive schemes offered by firms to their executives, the analysis of the effects of competition on the structure of compensation may be informative for policy purposes.

Fertility postponement and labor market outcomes

Postponed childbearing increases women’s labor market attachment but may reduce overall fertility

10.15185/izawol.117 117 Bratti, M

by Massimiliano Bratti

The rise in the average age of women bearing their first child is a well-established demographic trend in recent decades. Postponed childbearing can have important consequences for the mother and, at a macro level, for the country as a whole. Research has focused on the effect postponing fertility has on the labor market outcomes for mothers and on the total number of children a woman has in her lifetime. Most research finds that postponing the first birth raises a mother’s labor force participation and wages but may have negative effects on overall fertility, especially in the absence of supportive family-friendly policies.

Ethnic minority self-employment

Poor paid employment prospects push minority workers into working for themselves, often in low-reward work

10.15185/izawol.120 120 Clark, K

by Ken Clark

In many countries, ethnic minority groups are over-represented in self-employment compared with the majority community. The kind of work done by minority entrepreneurs can therefore be an important driver of the economic well-being of their ethnic group. Furthermore, growing the self-employment sector is a policy objective for many governments, which see it as a source of innovation, economic growth, and employment. While self-employment might offer economic opportunities to minority groups, it is important to understand the factors that underlie the nature and extent of ethnic entrepreneurship to evaluate whether policy measures should support it.

Slavery, racial inequality, and education

Historical slavery may be a driver of human capital and its unequal racial distribution, with implications for education and income inequalities

10.15185/izawol.122 122 Bertocchi, G

by Graziella Bertocchi

Income inequality is a critical issue in both political and public debate. Educational attainment is a key causal factor of continuing inequality, since it influences human capital accumulation and, as a consequence, the unequal distribution of earnings. Educational inequality displays a racial dimension that is particularly persistent and difficult to eradicate through policy measures. Its roots lie in the colonial institution of slave labor, which was widespread in the US and Latin America up until the 19th century. However, the influence of slavery differs significantly across countries and between regions.

The shadow economy in industrial countries

Reducing the size of the shadow economy requires reducing its attractiveness while improving official institutions

10.15185/izawol.127 127 Enste, D

by Dominik H. Enste

The shadow (underground) economy plays a major role in many countries. People evade taxes and regulations by working in the shadow economy or by employing people illegally. On the one hand, this unregulated economic activity can result in reduced tax revenue and public goods and services, lower tax morale and less tax compliance, higher control costs, and lower economic growth rates. But on the other hand, the shadow economy can be a powerful force for advancing institutional change and can boost the overall production of goods and services in the economy. The shadow economy has implications that extend beyond the economy to the political order.

Is unconditional basic income a viable alternative to other social welfare measures?

Countries give basic education and health care to everyone, and for good reasons—why not basic income?

10.15185/izawol.128 128 Colombino, U

by Ugo Colombino

Automation and globalization have brought about a tremendous increase in productivity, but also accelerated job destruction, systemic risks, and greater income inequality. Current social policies may not be adequate for achieving the goals of redistributing the gains from automation and globalization, providing efficient buffers against economic shocks, and advancing the reallocation of jobs and skills. Under certain circumstances, an unconditional basic income might be a better alternative for achieving those goals. It is simple, transparent, and has low administrative costs, though it may require higher taxes.

Employment and wage effects of extending collective bargaining agreements

Extending provisions of collective contracts to all workers in an industry or region may lead to employment losses

10.15185/izawol.136 136 Villanueva, E

by Ernesto Villanueva

In many countries, the minimum wages and working conditions set in collective bargaining contracts negotiated by a limited set of employers and unions are subsequently extended to all the employees in an industry. Those extensions ensure common working conditions within the industry, limit wage inequality, and reduce gender wage gaps. However, several studies suggest that those benefits come at the cost of reduced employment levels, especially during recessions. The income losses of workers who are displaced because of a collective contract extension can offset the wage gains among workers who keep their jobs.

Do works councils raise or lower firm productivity?

Works councils can have a positive impact on firm productivity, but only when specific conditions are in place

10.15185/izawol.137 137 Hübler, O

by Olaf Hübler

The German model of co-determination 
(Mitbestimmung) with works councils, in which workers are involved in the management of a company, was a role model for other countries for many years. However, since the 1990s the appeal of works councils has been declining, to the extent that now even employees are sometimes voting against representation. This was recently demonstrated by workers at the Volkswagen factory in Chattanooga, Tennessee, who voted against union representation. An important question for firms and for policymakers is whether the adoption of a works council has a positive influence on a firm’s productivity and what the consequences are for a firm’s profits.

Relative deprivation and individual well-being

Low status and a feeling of relative deprivation are detrimental to health and happiness

10.15185/izawol.140 140 Chen, X

by Xi Chen

People who are unable to maintain the same standard of living as others around them experience a sense of relative deprivation that has been shown to reduce feelings of 
well-being. Relative deprivation reflects conditions of worsening relative poverty despite striking reductions in absolute poverty. The effects of relative deprivation explain why average happiness has been stagnant over time despite sharp rises in income. Consumption taxes on status-seeking spending, along with official and traditional sanctions on excess consumption and redistributive policies may lessen the negative impact of relative deprivation on well-being.

Pension reform and couples’ joint retirement decisions

The success of policies raising the retirement age depends on people’s responsiveness to changes in pension eligibility

10.15185/izawol.142 142 Hospido, L

by Laura Hospido

Rising life expectancy and the growing fiscal insolvency of public pension systems have prompted many developed countries to raise the pension entitlement age. The success of such policies depends on the responsiveness of individuals to such changes. Retirement has increasingly become a decision made jointly by a couple rather than individually by one partner. The empirical evidence indicates that almost a third of dual-earner couples in Europe and the US coordinate their retirement decision despite age differences between partners. This joint determination of retirement has important implications for policies intended to reduce the burden of pension costs.

Wage compression and the gender pay gap

Wage-setting institutions narrow the gender pay gap but may reduce employment for some women

10.15185/izawol.150 150 Kahn, L

by Lawrence M. Kahn

There are large international differences in the gender pay gap. In some developed countries in 2010–2012, women were close to earnings parity with men, while in others large gaps remained. Since women and men have different average levels of education and experience and commonly work in different industries and occupations, multiple factors can influence the gender pay gap. Among them are skill supply and demand, unions, and minimum wages, which influence the economywide wage returns to education, experience, and occupational wage differentials. Systems of wage compression narrow the gender pay gap but may also lower demand for female workers.

Happiness as a guide to labor market policy

Happiness is key to a productive economy, and a job is key to individual happiness

10.15185/izawol.149 149 Ritzen, J

by Jo Ritzen

Measures of individual happiness, or well-being, can guide labor market policies. Individual unemployment, as well as the rate of unemployment in society, have a negative effect on happiness. In contrast, employment protection and unemployment benefits can contribute to happiness—though when such policies prolong unemployment, the net effect on national happiness is negative. Active labor market policies that create more job opportunities increase happiness, which in turn increases productivity. Measures of individual happiness should therefore guide labor market policy more explicitly.

Do minimum wages induce immigration?

The minimum wage affects international migration flows and the internal relocation of immigrants

10.15185/izawol.151 151 Giulietti, C

by Corrado Giulietti

An increase in the minimum wage in immigrant destination countries raises the earnings that low-skilled migrants could expect to attain if they were to migrate. While some studies for the US indicate that a higher minimum wage induces immigration, contrasting evidence shows that immigrants are less likely to move into areas with higher or more frequent increases in the minimum wage. These different findings seem to reflect different relocation decisions by immigrants who have lived in the US for several years, who are more likely to move in response to higher minimum wages, and by new immigrants, who are less likely to move.

Performance-related pay and labor productivity

Do pay incentives and financial participation schemes have an effect on a firm’s performance?

10.15185/izawol.152 152 Lucifora, C

by Claudio Lucifora

Many firms offer employees a remuneration package that links pay to performance as a means of motivation. It also improves efficiency and reduces turnover and absenteeism. The effects on productivity depend on the type of scheme employed (individual or group performance) and its design (commissions, piece-rate or sharing schemes). Individual incentives demonstrate the largest effect, while group or team incentives are smaller in magnitude. The case for government intervention through tax breaks and other financial incentives is highly debated due to differences across firms and the potential for economic inefficiencies.

The minimum wage versus the earned income tax credit for reducing poverty

Enhancing the earned income tax credit would do more to reduce poverty, at less cost, than increasing the minimum wage

10.15185/izawol.153 153 Burkhauser, R

by Richard V. Burkhauser

Minimum wage increases are not an effective mechanism for reducing poverty. And there is little causal evidence that they do so. Most workers who gain from minimum wage increases do not live in poor (or near-poor) families, while some who do live in poor families lose their job as a result of such increases. The earned income tax credit is an effective way to reduce poverty. It raises only the after-tax wage rates of workers in low- and moderate-income families, its tax credit increases with the number of dependent children, and evidence shows that it increases labor force participation and employment in these families.

Innovation and employment

Technological unemployment is not inevitable—some innovation creates jobs, and some job destruction can be avoided

10.15185/izawol.154 154 Vivarelli, M

by Marco Vivarelli

Studies find that technological change has contributed 
to the decline in manufacturing and to persistent unemployment in many advanced economies. While 
process innovation can be job-destroying, product innovation can imply the emergence of new firms, new sectors, and thus new jobs. But even for process innovation, the final impact on labor demand is shaped by market mechanisms that can compensate for the direct job-destroying impact if market and institutional rigidities do not impede them. Policies should maximize the job-creation effect of product innovation and minimize the direct 
labor-saving impact of process innovation.

Who owns the robots rules the world

Workers can benefit from technology that substitutes robots or other machines for their work by owning part of the capital that replaces them

10.15185/izawol.5 5 Freeman, R

by Richard B. Freeman

Robots, that is any sort of machinery from computers to artificial intelligence programs that provides a good substitute for work currently performed by humans, can increasingly replace workers, even highly skilled professionals, and thus reduce opportunities for good jobs and pay. But, with appropriate policies, the higher productivity due to robots can improve worker well-being by raising incomes and creating greater leisure for workers. Consider the way Google reduces the need for reference librarians and research assistants, or the way massive open online courses reduce the need for professors and lecturers. How these new technologies affect worker well-being and inequality depends on who owns them.

Latent entrepreneurship in transition economies

Some entrepreneurs and would-be entrepreneurs face financial and bureaucratic barriers to starting a business

10.15185/izawol.155 155 Atasoy, H

by Hilal Atasoy

Because entrepreneurial activity can stimulate job creation and long-term economic growth, promoting entrepreneurship is an important goal. However, many financial, bureaucratic, and social barriers can short-circuit the process of actually starting a business, especially in transition economies that lack established institutional systems and markets. The main obstacles are underdeveloped financial markets, perceptions of administrative complexity, political and economic instability, and lack of trust in institutions. Gender disparities in the labor market are also reflected in less entrepreneurial activity among women than men.

Does it pay to be a public-sector employee?

Contrary to common belief, the long-term public-private pay gap is negligible in many countries

10.15185/izawol.156 156 Postel-Vinay, F

by Fabien Postel-Vinay

Direct wage comparisons show that public-sector 
employees earn around 15% more than private-sector employees. But should these differences be interpreted as a “public-sector premium”? Two points need to be considered. First, the public and private sectors differ in the jobs they offer and the type of workers they employ, which explains a large share of the wage gap. Second, public- and private-sector careers also differ in other important dimensions, such as job stability and income progression, which are relevant to individual career choices. So any comparison of the two sectors should take these points into account.

Can hiring subsidies benefit the unemployed?

Hiring subsidies can be a very cost-effective way of helping the unemployed, but only when they are carefully targeted

10.15185/izawol.163 163 Brown, A

by Alessio J. G. Brown

Long-term unemployment can lead to skill attrition and have detrimental effects on future employment prospects, particularly following periods of economic crises when employment growth is slow and cannot accommodate high levels of unemployment. Addressing this problem requires the use of active labor market policies targeted at the unemployed. In this context, hiring subsidies can provide temporary incentives for firms to hire unemployed workers and, when sensibly targeted, are a very cost-effective and efficient means of reducing unemployment, during both periods of economic stability and recovery.

Entrepreneurship for the poor in developing countries

Well-designed entrepreneurship programs show promise for improving earnings and livelihoods of poor workers

10.15185/izawol.167 167 Cho, Y

by Yoonyoung Cho

Can entrepreneurship programs be successful labor market policies for the poor? A large share of workers in developing countries are self-employed in low-paying work or engage in low-return entrepreneurial activities that keep these workers in poverty. Entrepreneurship programs provide business training and access to finance, advisory, and networking services with the aim of boosting workers’ earnings and reducing poverty. Programs vary in design, which can affect their impact on outcomes. Recent studies have identified some promising approaches that are yielding positive results, such as combining training and financial support.

Offshoring and the migration of jobs

Offshoring has little net effect on domestic employment, while pushing domestic workers toward more complex jobs

10.15185/izawol.170 170 Ottaviano, G

by Gianmarco Ottaviano

The impact of offshoring on domestic jobs is more complicated than it first appears. In the standard narrative, offshoring production is thought to harm domestic workers by providing cheap alternative sources of labor. However, while offshoring may directly displace domestic workers, the resulting foreign market access and lower production costs allow domestic firms to increase efficiency, expand production, and thus create new jobs for domestic workers. These new jobs often involve more complex tasks, as revealed by the positive relation between the share of offshored jobs and the average cognitive and interactive task content of domestic jobs.

A flexicurity labor market during recession

Long-term unemployment did not rise under the flexicurity model during the great recession, despite the large drop in GDP

10.15185/izawol.173 173 Andersen, T

by Torben M. Andersen

Before the great recession of 2008–2009, the “flexicurity” model (with flexibility for firms to adjust their labor force along with income security for workers through the social safety net) attracted attention for its ability to deliver low unemployment. But how did it fare during the recession, especially in Denmark, which has been highlighted as having a well-functioning flexicurity model? Flexible hiring and firing rules are expected to lead to large adjustments in employment in a recession. Did the high rate of job turnover continue or did long-term unemployment rise? And did the social safety net become overburdened?

Should severance pay be consistent for all workers?

Single, open-ended contracts with severance pay smoothly rising with seniority can decrease both unemployment and job losses

10.15185/izawol.174 174 García Pérez, J

by J. Ignacio García Pérez

The trend towards labor market flexibility in Europe has typically involved introducing legislation that makes it easier for firms to issue temporary contracts with low firing costs, while not changing the level of protection that is in place for permanent jobs. This has created a strong “dualism” in some European labor markets, which might affect turnover, wage setting, and human capital accumulation. In view of this, some economists propose replacing the existing system of temporary and permanent contracts by a single open-ended contract for new hires, with severance pay smoothly increasing with tenure on the job.

The decline in job-to-job flows

An aging workforce and declining entrepreneurship explain the decline in job-to-job flows only partially

10.15185/izawol.175 175 Hyatt, H

by Henry R. Hyatt

As part of a more general process of employment reallocation from less to more productive employers, job-to-job flows tend to be beneficial for productivity and for workers. Thus, when this rate slows, it is important to understand why. In the US, for example, the job-to-job flow rate is now at an all-time low. While job-to-job flows are a means of boosting wages and productivity, a decline could indicate improvements for workers if it means that they are now better matched to their jobs. Furthermore, when job-to-job flows are lower, firms and workers incur fewer costs related to job transitions, such as job search and hiring costs.

Institutional long-term care and government regulation

Focus on family and portable allowances to lower the costs of institutional long-term care while monitoring its quality

10.15185/izawol.179 179 Stancanelli, E

by Elena Stancanelli

The demand for institutional long-term care is likely to remain high in OECD countries, because of longer life expectancy and falling cohabitation rates of the elderly with family members. As shortages of qualified nurses put a cap on the supply of beds at nursing homes, excess demand builds. That puts upward pressure on prices, which may not reflect the quality of the services that are provided. Monitoring the quality of nursing home services is high on the agenda of OECD governments. Enlisting feedback from family visitors and introducing portable benefits might improve quality at little extra cost.

New firms entry, labor reallocation, and institutions in transition economies

In transition economies, better property rights protection and rule of law enforcement can boost job creation and growth

10.15185/izawol.180 180 Bruno, R

by Randolph L. Bruno

In the transition from central planning to a market economy in the 1990s, governments focused on privatizing or closing state enterprises, reforming labor markets, compensating laid-off workers, and fostering job creation through new private firms. After privatization, the focus shifted to creating a level playing field in the product market by protecting property rights, enforcing the rule of law, and implementing transparent start-up regulations. A fair, competitive environment with transparent rules supports long-term economic growth and employment creation through the reallocation of jobs in favor of new private firms.

Collective bargaining in developing countries

Negotiating work rules at the firm level instead of the industry level could lead to productivity gains

10.15185/izawol.183 183 Lamarche, C

by Carlos Lamarche

Because theoretical arguments differ on the economic impact of collective bargaining agreements in developing countries, empirical studies are needed to provide greater clarity. Recent empirical studies for some Latin American countries have examined whether industry- or firm-level collective bargaining is more advantageous for productivity growth. Although differences in labor market institutions and in coverage of collective bargaining agreements limit the generalizability of the findings, studies suggest that work rules may raise productivity when negotiated at the firm level but may sometimes lower productivity when negotiated at the industry level.

Should the earned income tax credit rise for childless adults?

The earned income tax credit raises income and work incentives among low-income parents but little goes to adults without children

10.15185/izawol.184 184 Holzer, H

by Harry J. Holzer

The earned income tax credit provides important benefits to low-income families with children in the US. At an annual cost of about $60 billion, it increases the incomes of such families while encouraging parents to work more by subsidizing their incomes. But low-income adults without children and non-custodial parents receive only very low payments under the program, providing them with little income benefits or work incentives. Many of these adults are low-income young men whose wages and employment rates have been declining for years and who might benefit substantially from expanded eligibility for the earned income tax credit.

Active labor market policies and crime

Unemployment increases crime among youth, while active labor market policies can mitigate the problem

10.15185/izawol.185 185 Tranaes, T

by Torben Tranaes

Active labor market programs continue to receive high priority in wealthy countries despite the fact that the benefits appear small relative to the costs. This apparent discrepancy suggests that the programs may have a broader purpose than simply increasing employment—for instance, preventing anti-social behavior such as crime. Indeed, recent evidence shows that participation in active labor market programs reduces crime among unemployed young men. The existence of such effects could explain why it is the income-redistributing countries with greater income equality that spend the most on active labor market programs.

The effects of wage subsidies for older workers

Wage subsidies to encourage employers to hire older workers are often ineffective

10.15185/izawol.189 189 Boockmann, B

by Bernhard Boockmann

Population aging in many developed countries has motivated some governments to provide wage subsidies to employers for hiring or retaining older workers. The subsidies are intended to compensate for the gap between the pay and productivity of older workers, which may discourage their hiring. A number of empirical studies have investigated how wage subsidies influence employers’ hiring and employment decisions and whether the subsidies are likely to be efficient. To which groups subsidies should be targeted and how the wage subsidy programs interact with incentives for early retirement are open questions.

Should unemployment insurance cover partial unemployment?

Time-limited benefits may yield significant welfare gains and help underemployed part-time workers move to full-time employment

10.15185/izawol.199 199 Ek Spector, S

by Susanne Ek Spector

A considerable share of the labor force consists of underemployed part-time workers: employed workers who, for various reasons, are unable to work as much as they would like to. Offering unemployment benefits to part-time unemployed workers is controversial. On the one hand, such benefits can strengthen incentives to take a part-time job rather than remain fully unemployed, thus raising the probability of obtaining at least some employment. On the other hand, these benefits weaken incentives for part-time workers to look for full-time employment. It is also difficult to distinguish people who work part-time by choice from those who do so involuntarily.

Unions and investment in intangible capital

When workers and firms cannot commit to long-term contracts and capital investments are sunk, union power can reduce investment

10.15185/izawol.201 201 Sulis, G

by Giovanni Sulis

Although coverage of collective bargaining agreements has been declining for decades in most countries, it is still extensive, especially in non-Anglo-Saxon countries. Strong unions may influence firms’ incentives to invest in capital, particularly in sectors where capital investments are sunk (irreversible), as in research-intensive sectors. Whether unions affect firms’ investment in capital depends on the structure and coordination of bargaining, the preference of unions between wages and employment, the quality of labor-management relations, and the existence of social pacts, among other factors.

How are minimum wages set?

Countries set minimum wages in different ways, and some countries set different wages for different groups of workers

10.15185/izawol.211 211 Dickens, R

by Richard Dickens

The minimum wage has never been as high on the political agenda as it is today, with politicians in Germany, the UK, the US, and other OECD countries calling for substantial increases in the rate. One reason for the rising interest is the growing consensus among economists and policymakers that minimum wages, set at the right level, may help low-paid workers without harming employment prospects. But how should countries set their minimum wage rate? The processes that countries use to set their minimum wage rate and structure differ greatly, as do the methods for adjusting it. The different approaches have merits and shortcomings.

What makes a good job? Job quality and job satisfaction

Job satisfaction is important to well-being, but intervention may be needed only if markets are impeded from improving job quality

10.15185/izawol.215 215 Clark, A

by Andrew E. Clark

Many measures of job satisfaction have been trending downward. Because jobs are a key part of most people’s lives, knowing what makes a good job (job quality) is vital to knowing how well society is doing. Integral to worker well-being, job quality also affects the labor market through related decisions on whether to work, whether to quit, and how much effort to put into a job. Empirical work on what constitutes a good job finds that workers value more than wages; they also value job security and interest in their work. Policy to affect job quality requires information on the cost of the different aspects of job quality and how much workers value them.

Employment effects of longer working hours

Extending work hours may reduce employment in the short term but may increase it in the long term if hourly pay remains constant

10.15185/izawol.216 216 Schank, T

by Thorsten Schank

Standard hours, a major component of total work hours, vary considerably across Europe. Many countries lowered their standard work hours during the 1980s and 1990s, attempting to boost employment by splitting up a fixed number of worker-hours among more workers. Germany has seen a partial reversal of the trend as several companies increased their standard hours to reduce their labor costs in the early 2000s. The employment effect of increased standard hours depends on the time horizon examined, how wages respond, whether employees collected overtime pay before the change, and the productivity of hours worked, among other factors.

Knowledge spillovers and future jobs

In the future, jobs will be created by those bold enough to transform new ideas and knowledge into innovations

10.15185/izawol.218 218 Audretsch, D

by David B. Audretsch

Globalization brings both good and bad job news. The bad news is that jobs will be outsourced from high-cost developed countries into lower-cost locations as soon as the associated economic activity becomes mechanized and predictable. The good news is that globalization creates opportunities that can be realized by people bold enough to transform new ideas and knowledge into innovations. In that way, entrepreneurs will play a vital role in creating the jobs of the future by transforming ideas and knowledge into new products and services, which will be the competitive advantage of the advanced economies.

Do minimum wages stimulate productivity and growth?

Minimum wage increases fail to stimulate growth and can have a negative impact on vulnerable workers during recessions

10.15185/izawol.221 221 Sabia, J

by Joseph J. Sabia

Proponents of minimum wage increases have argued that such hikes can serve as an engine of economic growth and assist low-skilled individuals during downturns in the business cycle. However, a review of the literature provides little empirical support for these claims. Minimum wage increases redistribute gross domestic product away from lower-skilled industries and toward higher-skilled industries and are largely ineffective in assisting the poor during both peaks and troughs in the business cycle. Minimum wage-induced reductions in employment are found to be larger during economic recessions.

Wage coordination in new and old EU member states

Stronger wage coordination and higher union density are associated with lower unemployment and higher inflation

10.15185/izawol.222 222 Rovelli, R

by Riccardo Rovelli

Aside from employment protection laws, which have been converging, other labor market institutions in new and old EU member states, such as wage bargaining coordination and labor union density, still differ considerably. These labor market institutions also differ among the new EU member states, with the Baltic countries being much more liberal than the others. Research that pools data on old and new EU member states shows that wage coordination mechanisms can improve a country’s macroeconomic performance. Stronger wage coordination and higher union density reduce the response of inflation to the business cycle.

Should firms allow workers to choose their own wage?

Delegating the choice of wage setting to workers can lead to better outcomes for all involved parties

10.15185/izawol.223 223 Charness, G

by Gary B. Charness

Economists typically predict that people are inherently selfish; however, experimental evidence suggests that this is often not the case. In particular, delegating a choice (such as a wage) to the performing party may imbue this party with a sense of responsibility, leading to improved outcomes for both the delegating entity and the performing party. This strategy can be risky, as some people will still choose to act in a selfish manner, causing adverse consequences for productivity and earnings. An important issue to consider is therefore how to encourage a sense of responsibility in the performing party.

Profit sharing: Consequences for workers

Profit sharing, a formal “bonus” program based on firm profitability, can provide strong employee motivation if properly designed

10.15185/izawol.225 225 Fang, T

by Tony Fang

Profit sharing can lead to higher productivity and thus to higher firm profitability and employee wages. It may also enhance employment stability by enabling firms to adjust wages during downturns rather than lay off workers. While adoption of profit sharing increases earnings fluctuations, it also increases earnings growth in the longer term. As with any group incentive plan, profit sharing may result in some workers benefiting from the effort of others without themselves exerting greater effort (“free-rider problem”). However, there is evidence that in team-based production workplaces, profit sharing may reduce shirking and thus contribute to productivity growth.

Can “happiness data” help evaluate economic policies?

“Happiness data” may help assess the welfare effects of a new labor market policy, like a change in benefit generosity

10.15185/izawol.226 226 MacCulloch, R

by Robert MacCulloch

Imagine a government confronted with a controversial policy question, like whether it should cut the level of unemployment benefits. Will social welfare rise as a result? Will some groups be winners and other groups be losers? Will the welfare gap between the employed and unemployed increase? “Happiness data” offer a new way to make these kinds of evaluations. These data allow us to track the well-being of the whole population, and also sub-groups like the employed and unemployed people, and correlate the results with relevant policy changes.

Do skills matter for wage inequality?

Policies to tackle wage inequality should focus on skills alongside reform of labor market institutions

10.15185/izawol.232 232 Broecke, S

by Stijn Broecke

Policymakers in many OECD countries are increasingly concerned about high and rising inequality. Much of the evidence (as far back as Adam Smith’s The Wealth of Nations) points to the importance of skills in tackling wage inequality. Yet a recent strand of the research argues that (cognitive) skills explain little of the cross-country differences in wage inequality. Does this challenge the received wisdom on the relationship between skills and wage inequality? No, because this recent research fails to account for the fact that the price of skill (and thus wage inequality) is determined to a large extent by the match of skill supply and demand.

Job search requirements for older unemployed workers

How do they affect re-employment rates and flows into states of inactivity for older unemployed workers?

10.15185/izawol.235 235 Bloemen, H

by Hans Bloemen

Many OECD countries have, or have had, a policy that exempts older unemployed people from the requirement to search for a job. An aging population and low participation by older workers in the labor market increasingly place public finances under strain, and spur calls for policy measures that activate labor force participation by older workers. Introducing job search requirements for the older unemployed aims to increase their re-employment rates. Abolishing the exemption from job search requirements for these workers has been shown to initiate higher outflow rates from unemployment for the older unemployed.

The effects of minimum wages on youth employment and income

Minimum wages reduce entry-level jobs, training, and lifetime income

10.15185/izawol.243 243 Kalenkoski, C

by Charlene Marie Kalenkoski

Policymakers often propose a minimum wage as a means of raising incomes and lifting workers out of poverty. However, improvements in some young workers’ incomes as a result of a minimum wage come at a cost to others. Minimum wages reduce employment opportunities for youths and create unemployment. Workers miss out on 
on-the-job training opportunities that would have been paid for by reduced wages upfront but would have resulted in higher wages later. Youths who cannot find jobs must be supported by their families or by the social welfare system. Delayed entry into the labor market reduces the lifetime income stream of young unskilled workers.

Do in-work benefits work for low-skilled workers?

To boost the employment rate of the low-skilled trapped in inactivity is it sufficient to supplement their earnings?

10.15185/izawol.246 246 Van der Linden, B

by Bruno Van der Linden

High risk of poverty and low employment rates are widespread among low-skilled groups, especially in the case of some household compositions (e.g. single mothers). “Making-work-pay” policies have been advocated for and implemented to address these issues. They alleviate the above-mentioned problems without providing a disincentive to work. However, do they deliver on their promises? If they do reduce poverty and enhance employment, can we further determine their effects on indicators of well-being, such as mental health and life satisfaction, or on the acquisition of human capital?

The effects of recessions on family formation

Fertility and marriage rates are pro-cyclical in many countries, but the longer-term consequences are inconclusive

10.15185/izawol.248 248 Kondo, A

by Ayako Kondo

Low fertility rates are a cause of social concern in many developed countries, with growing youth unemployment often being considered a primary cause. However, economic theory is not conclusive about whether deterioration in youth employment prospects actually discourages family formation or for how long the effect might persist. In addition, recessions can affect the divorce rate. Therefore, understanding the relationship between labor market conditions and family formation can provide important insights into the type of policies that would be most effective in promoting fertility.

Effects of entering adulthood during a recession

Recent declines in youth employment, net worth, and family formation could permanently affect financial well-being

10.15185/izawol.242 242 Dettling, L

by Lisa Dettling

Current cohorts of young adults entered adulthood during an international labor and housing market crisis of a severity not experienced since the Great Depression. Concerns have arisen over the impacts on young adults’ employment, income, wealth, and living arrangements, and about whether these young adults constitute a “scarred generation” that will suffer permanent contractions in financial well-being. If true, knowing the mechanisms through which young adults’ finances have been affected has important implications for policy measures that could improve the financial well-being of today’s young adults in the present and future.

Are part-time workers less productive and underpaid?

The impact of part-time workers on firms’ productivity is unclear, and lower wages depend mainly on occupation and sector

10.15185/izawol.249 249 Garnero, A

by Andrea Garnero

About one in five workers across OECD countries is employed part-time, and the share has been steadily increasing since the beginning of the economic and financial crisis in 2007. Part-time options play an important economic role by providing more flexible working arrangements for both workers and firms. Part-time employment has also contributed substantially to increasing the employment rate, especially among women. However, part-time work comes at a cost of lower wages for workers, mainly because part-time jobs are concentrated in lower paying occupations and sectors, while the impact on firms’ productivity is still not very clear.

Financing high-potential entrepreneurship

Government should create an enabling environment—for entrepreneurs and investors—rather than try to pick “winners”

10.15185/izawol.252 252 Nanda, R

by Ramana Nanda

Entrepreneurship is essential to job creation and to productivity growth and therefore is an important matter for government policy. However, policymakers face a difficult challenge because successful growth for a few firms—which cannot easily be identified in advance—is accompanied by widespread failure for most other new firms. Predicting which firms will fail and which will succeed is nearly impossible. Instead of futilely trying to pick winners, governments can play a useful role in facilitating the growth of the most promising firms by setting the conditions for efficient trial-and-error experimentation across firms.

Disability and labor market outcomes

Disability is associated with labor market disadvantage; recent evidence points to a causal relationship

10.15185/izawol.253 253 Jones, M

by Melanie Jones

In Europe, about one in eight people of working age report having a disability; that is, the presence of a long-term limiting health condition. Despite the introduction of a range of legislative and policy initiatives designed to eliminate discrimination and facilitate retention of and entry into work, disability is associated with substantial and enduring employment disadvantages. Identifying the reasons for this is complex, but critical to determine effective policy solutions that reduce the social and economic costs of disability disadvantage.

The rise and fall of piecework

Incidence of piecework has significantly reduced in advanced industrialized economies—has its decline gone too far?

10.15185/izawol.254 254 Hart, R

by Robert A. Hart

A pieceworker receives a fixed rate for each unit (“piece”) produced or action performed. In part, the rate reflects a cost of monitoring output. A timeworker receives a fixed wage rate per hour that, in the short term, does not vary with output performance. From the 18th century up to the last third of the 20th century these were the two dominant payment methods in the manufacturing and production industries. Yet, today the incidence of piecework in advanced economies is very small, having lost considerable ground to time rates and to other forms of incentive pay. What caused this transformation, and has the movement away from piecework gone too far?

Conditions for high-potential female entrepreneurship

Individual and environmental factors can lead women to start innovative market-expanding and export-oriented ventures—or block them

10.15185/izawol.255 255 Terjesen, S

by Siri A. Terjesen

Female-led ventures that are market-expanding, export-oriented, and innovative contribute substantially to local and national economic development, as well as to the female entrepreneur’s economic welfare. Female-led ventures also serve as models that can encourage other high-potential female entrepreneurs. The supply of high-potential entrepreneurial ventures is driven by individuals’ entrepreneurial attitudes and institutional factors associated with a country’s conditions for entrepreneurial expansion. A systematic assessment of those factors can show policymakers the strengths and weaknesses of the environment for high-potential female entrepreneurship.

Corporate income taxes and entrepreneurship

The type, quality, and quantity of entrepreneurship are influenced significantly by corporate income taxes—though only slightly

10.15185/izawol.257 257 Block, J

by Jörn Block

Corporate income taxation influences the quantity and type of entrepreneurship, which in turn affects economic development. Empirical evidence shows that higher corporate income tax rates reduce business density and entrepreneurship entry rates and increase the capital size of new firms. The progressivity of tax rates increases entrepreneurship entry rates, whereas highly complex tax codes reduce them. Policymakers should understand the effects and underlying mechanisms that determine how corporate income taxation influences entrepreneurship in order to provide a favorable business environment.

Institutions and the support for market reforms

A combination of individual self-interest and good institutions determines the level of public support for market reforms

10.15185/izawol.258 258 Denisova, I

by Irina Denisova

Economic self-interest and social considerations are the key determinants of public support for market reforms in transition countries. However, political strategies that rely mainly on public support for pushing through economic reforms have limited relevance if the prevailing institutional environment is weak or corrupt. Poor governance and under-developed democracy significantly reduce the level of support. A good institutional framework allows the potential gains from reforms to be realized in a beneficial way, while corruption and poor governance deny the prospect of gains for individuals and for society.

Income inequality and social origins

Promoting intergenerational mobility can make societies more egalitarian

10.15185/izawol.261 261 Cappellari, L

by Lorenzo Cappellari

Income inequality has been rising in many countries. Is this bad? One way to decide is to look at the change in incomes across generations (intergenerational mobility) and, more generally, at the extent to which income differences among individuals are traceable to their social origins. Inequalities that reflect factors largely out of one’s control—such as local schools and communities—require attention in order to reduce income inequality. Evidence shows a negative association between income inequality and intergenerational mobility. The debate on whether community effects exert additional effects is still open.

Do family and kinship networks support entrepreneurs?

Family and kinship ties offer multiple benefits to developing country entrepreneurs but can also have adverse effects

10.15185/izawol.262 262 Nordman, C

by Christophe Jalil Nordman

Family and kinship networks are important in helping people get jobs and start companies, as statistics for developing countries show. Promising new research has begun to assess the positive and negative effects of these family and kinship ties on entrepreneurial success. To what extent, and why, are family networks used, and do they result in better economic outcomes for entrepreneurs? Results point to the need for policymakers to identify and emulate efficient informal networks in order to develop innovative support policies for vulnerable entrepreneurs, especially for those who are attached to weak or inefficient networks.

Do economic reforms hurt or help the informal labor market?

The evidence is mixed on whether and how economic reforms benefit informal labor

10.15185/izawol.263 263 Kar, S

by Saibal Kar

The evidence is mixed on whether informal labor in developing countries benefits from trade and labor market reforms. Reforms lead to higher wages and improved employment conditions in the informal sector in some cases, and to the opposite effect in others. At a cross-country level, lifting trade protection boosts informal-sector employment. The direction and size of the impacts on informal-sector employment and wages are determined by capital mobility and the interactions between trade and labor market reforms and public policies, such as monitoring the formal sector. To guarantee best practice policymakers need to take these interdependencies into account.

Impacts of regulation on eco-innovation and job creation

Do regulation-induced environmental innovations affect employment?

10.15185/izawol.265 265 Horbach, J

by Jens Horbach

New environmental technologies (environmental/eco-innovations) are often regarded as potential job creators—in addition to their positive effects on the environment. Environmental regulation may induce innovations that are accompanied by positive growth and employment effects. Recent empirical analyses show that the introduction of cleaner process innovations, rather than product-based ones, may also lead to higher employment. The rationale is that cleaner technologies lead to cost savings, which help to improve the competitiveness of firms, thereby inducing positive effects on demand.

Do product market reforms stimulate employment, investment, and innovation?

Reducing entry barriers and increasing competition can be beneficial for the economy, under certain conditions

10.15185/izawol.266 266 Schiantarelli, F

by Fabio Schiantarelli

Most OECD countries have recently introduced product market reforms with the objective of lowering barriers to entry and increasing competition in many sectors, such as telecommunications, utilities, and transport. The timing and extent of regulatory reform have varied significantly, starting in the US in the early 1980s and in the mid-1990s in many European countries. Will these developments improve economic performance in terms of creating jobs, fostering investment, and encouraging innovations—all of which are important factors for policymakers?

Labor market policies, unemployment, and identity

Policies to help the unemployed can affect feelings of identity and well-being, so measures need to be evaluated carefully

10.15185/izawol.270 270 Schöb, R

by Ronnie Schöb

Unemployment not only causes material hardship but can also affect an individual’s sense of identity (i.e. their perception of belonging to a specific social group) and, consequently, feelings of personal happiness and subjective well-being. Labor market policies designed to help the unemployed may not overcome their misery: wage subsidies can be stigmatizing, workfare may not provide the intended incentives, and flexicurity (a system that combines a flexible labor market with active policy measures), may increase uncertainty. Policies aimed at bringing people back to work should thus take the subjective well-being of the affected persons more into consideration.

Employment and rebellion in conflicted and fragile states

Jobs programs may not reduce rebellion

10.15185/izawol.271 271 Gilligan, M

by Michael J. Gilligan

In addition to the heart-breaking human costs, violent civil rebellion is a cause of chronic economic under-development. Employment programs with former combatants and at-risk youth have improved their livelihoods, but not their support for non-violence and respect for law. Rebel groups provide security and social benefits that formal employment does not offer, possibly making switching out of rebellion into formal employment unappealing. However, a jobs program that addressed the psycho-social motivations to join rebel groups resulted in significant reductions in crime and violence. This is an important step forward in our understanding of how to lure people away from violent rebellion.

Trade liberalization and poverty reduction

Trade can reduce poverty when accompanied by appropriate policies and institutions

10.15185/izawol.272 272 Mitra, D

by Devashish Mitra

Economic growth is essential, though not sufficient, for poverty reduction in developing countries. Research based on many different approaches and including both cross-
country and intra-country studies shows that international trade can contribute to economic growth, and thus can help many poor people escape poverty. However, the domestic environment has to be conducive to realizing the poverty-reduction benefits of increased trade. Complementary domestic policies and institutions needed include regulations that foster labor mobility, adequate financial development, and good public infrastructure.

Efficiency wages: Variants and implications

Wages affect productivity and non-wage costs; this carries important labor market and policy implications

10.15185/izawol.275 274 Schlicht, E

by Ekkehart Schlicht

Higher wages increase labor costs but also improve the productivity of the labor force in several ways. If firms take this into account and set their wages accordingly, the resulting wages could fail to adjust demand and supply but may induce phenomena like over-education, discrimination, regional wage differentials, and a tendency for larger firms to pay higher wages. All these phenomena are quantitatively important and well-established empirically. Efficiency wage theory provides an integrated theoretical explanation rather than a sundry list of reasons, and offers an efficiency argument for progressive income taxation.

Low-wage employment

Are low-paid jobs stepping stones to higher paid jobs, do they become persistent, or do they lead to recurring unemployment?

10.15185/izawol.276 276 Schnabel, C

by Claus Schnabel

Low-wage employment has become an important feature of the labor market and a controversial topic for debate in many countries. How to interpret the prominence of low-paid jobs and whether they are beneficial to workers or society is currently an open question. The answer depends on whether low-paid jobs are largely transitory and serve as stepping stones to higher-paid employment, whether they become persistent, or whether they result in repeated unemployment. The empirical evidence is mixed, pointing to both stepping-stone effects and “scarring” effects (i.e. long-lasting detrimental effects) of low-paid work.

Estimating the return to schooling using the Mincer equation

The Mincer equation gives comparable estimates of the average monetary returns of one additional year of education

10.15185/izawol.278 278 Patrinos, H

by Harry Anthony Patrinos

The Mincer equation—arguably the most widely used in empirical work—can be used to explain a host of economic, and even non-economic, phenomena. One such application involves explaining (and estimating) employment earnings as a function of schooling and labor market experience. The Mincer equation provides estimates of the average monetary returns of one additional year of education. This information is important for policymakers who must decide on education spending, prioritization of schooling levels, and education financing programs such as student loans.

Cash wage payments in transition economies: Consequences of envelope wages

Reducing under-reporting of salaries requires institutional changes

10.15185/izawol.280 280 Horodnic, I

by Ioana Alexandra Horodnic

In transition economies, a significant number of companies reduce their tax and social contributions by paying their staff an official salary, described in a registered formal employment agreement, and an extra, undeclared “envelope wage,” via a verbal unwritten agreement. The consequences include a loss of government income and a lack of fair play for lawful companies. For employees, accepting under-reported wages reduces their access to credit and their social protections. Addressing this issue will help increase the quality of working conditions, strengthen trade unions, and reduce unfair competition.

Do youths graduating in a recession incur permanent losses?

Penalties may last ten years or more, especially for high-educated youth and in rigid labor markets

10.15185/izawol.281 281 Cockx, B

by Bart Cockx

The Great Recession that began in 2008–2009 dramatically increased youth unemployment. But did it have long-lasting, adverse effects on the careers of youths? Are cohorts that graduate during a recession doomed to fall permanently behind those that graduate at other times? Are the impacts different for low- and high-educated individuals? If recessions impose penalties that persist over time, then more government outlays are justified to stabilize economic activity. Scientific evidence from a variety of countries shows that rigid labor markets can reinforce the persistence of these setbacks, which has important policy implications.

The relationship between recessions and health

Economic recessions seem to reduce overall mortality rates, but increase suicides and mental health problems

10.15185/izawol.283 283 Drydakis, N

by Nick Drydakis

Recessions are complex events that affect personal health and behavior via various potentially opposing mechanisms. While recessions are known to have negative effects on mental health and lead to an increase in suicides, it has been proven that they reduce mortality rates. A general health policy agenda in relation to recessions remains ambiguous due to the lack of consistency between different individual- and country-level approaches. However, aggregate regional patterns provide valuable information, and local social planners could use them to design region-specific policy responses to mitigate the negative health effects cause by recessions.

Public or private job placement services—Are private ones more effective?

Analyzed public employment agencies were at least equally as successful as private ones in placing unemployed workers

10.15185/izawol.285 285 Stephan, G

by Gesine Stephan

Expenditures on job placement and related services make up a substantial share of many countries’ GDP. Contracting out to private providers is often proposed as a more efficient alternative to the state provision of placement services. However, the responsible state agency has to design and monitor sufficiently complete contracts to ensure that the private contractors deliver the desired quality of services. None of the recent empirical evidence indicates that contracting out is necessarily more effective or more efficient than public employment services.

Do global value chains create jobs?

Impacts of GVCs depend on lead firms, specialization, skills, and institutions

10.15185/izawol.291 291 Farole, T

by Thomas Farole

Global value chains (GVCs) describe the cross-national activities and inputs required to bring a product or service to the market. While they can boost exports and productivity, the resulting labor market impacts vary significantly across developing countries. Some experience large-scale manufacturing employment, while others see a shift in demand for labor from manufacturing to services, and from lower to higher skills. Several factors shape the way in which a country’s labor market will be impacted by GVC integration, including the type of sector, lead firms’ strategies, domestic skills base, and the institutional environment.

How to minimize lock-in effects of programs for unemployed workers

Appopriate timing and targeting of activation programs for the unemployed can help improve their cost-effectiveness

10.15185/izawol.288 288 Wunsch, C

by Conny Wunsch

Activation programs, such as job search assistance, training, or work experience programs for unemployed workers, typically initially produce negative employment effects. These so-called “lock-in effects” occur because participants spend less time and effort on job search activities than non-participants. Lock-in effects need to be offset by sufficiently large post-participation employment or earnings for the programs to be cost-effective. They represent key indirect costs that are often more important than direct program costs. The right timing and targeting of these programs can improve their cost-effectiveness by reducing lock-in effects.

The effect of the internet on voting behavior

The internet can reduce political participation and thus affect legislation in labor and other areas

10.15185/izawol.294 294 Heblich, S

by Stephan Heblich

The internet has transformed the way in which voters access and receive political information, such that it has circumvented the filtering of information previously undertaken by editorial offices. Consequently, consumers have had to learn how to filter relevant information themselves. The introduction phase of the internet coincided with a decreasing voter turnout, possibly due to “information overload” or less-focused political information. However, the subsequent rise of social media may help reverse the negative effect on turnout. But this poses challenges for regulatory policy. Understanding the internet’s effects on the consumption of information is also relevant for how voters view labor policies.

Does unemployment insurance offer incentives to take jobs in the formal sector?

Unemployment insurance can protect against income loss and create formal employment

10.15185/izawol.300 300 Bosch, M

by Mariano Bosch

Unemployment insurance can be an efficient tool to provide protection for workers against unemployment and foster formal job creation in developing countries. How much workers value this protection and to what extent it allows a more efficient job search are two key parameters that determine its effectiveness. However, evidence shows that important challenges remain in the introduction and expansion of unemployment insurance in developing countries. These challenges range from achieving coverage in countries with high informality, financing the scheme without further distorting the labor market, and ensuring progressive redistribution.

What can be expected from productive inclusion programs?

Grants and training programs are great complements to social assistance to help people out of poverty

10.15185/izawol.301 301 Rigolini, J

by Jamele Rigolini

Productive inclusion programs provide an integrated package of services, such as grants and training, to promote self-employment and wage employment among the poor. They show promising long-term impacts, and are often proposed as a way to graduate the poor out of social assistance. Nevertheless, neither productive inclusion nor social assistance will be able to solve the broader poverty challenge independently. Rather, the future is in integrating productive inclusion into the existing social assistance system, though this poses several design, coordination, and implementation challenges.

How do social networks affect labor markets?

Job-referral networks can make labor markets more productive and efficient but may increase the importance of luck in job matches

10.15185/izawol.304 304 Schmutte, I

by Ian Schmutte

Social networks, or “job-referral” networks, can help make labor markets become more efficient. Outside the firm, they help workers obtain employment after displacement and secure higher-paying jobs. They can also match highly-skilled workers to more productive employment. Inside the firm, referrals facilitate employment relationships that are more stable, productive, and profitable. In aggregate, referral networks help “grease the wheels” of a labor market that can be beset by a range of information problems. However, such networks can also be segmented along racial, ethnic, and socio-economic lines, which brings into question the effect they may have on inequality between and within different groups of workers.

The effect of emigration on home-country political institutions

Migrants can have positive political effects on their home countries’ institutions

10.15185/izawol.307 307 Lodigiani, E

by Elisabetta Lodigiani

The number of immigrants from developing countries living in richer, more developed countries has increased substantially during the last decades. At the same time, the quality of institutions in developing countries has also improved. The data thus suggest a close positive correlation between average emigration rates and institutional quality. Recent empirical literature investigates whether international migration can be an important factor for institutional development. Overall, the findings indicate that emigration to institutionally developed countries induces a positive effect on home-country institutions.

Privatizing sick pay: Does it work?

Employer provision of sickness/disability benefits reduces take-up but may also have unintended effects

10.15185/izawol.324 324 Koning, P

by Pierre Koning

Public schemes for sickness benefits and disability insurance are often criticized for the lack of incentive they provide for preventive and reintegration activities by employers. To stimulate the interest of employers in engaging with these schemes, several modes of privatization could be considered, including the provision of sickness benefits by employers, “experience rating” of disability insurance costs, employer self-insurance, or insurance by private insurance providers. These types of employer incentives seem to lower sickness rates, but they also come at the risk of increased under-reporting and less employment opportunities for workers with disabilities or bad health conditions. Policymakers should be aware of this trade-off.

Gender differences in wages and leadership

Gender gaps in wages and leadership positions are large—Why, and what can be done about it?

10.15185/izawol.323 323 Macis, M

by Mario Macis

Gender wage gaps and women’s underrepresentation in leadership positions exist at remarkably similar magnitudes across countries at all levels of income per capita. Women’s educational attainment and labor market participation have improved, but this has been insufficient to close the gaps. A combination of economic forces, cultural and social norms, discrimination, and unequal legal rights appear to be contributing to gender inequality. A range of policy options (such as quotas) have been implemented in some countries; some have been successful, whereas for others the effects are still unclear.

Measuring entrepreneurship: Type, motivation, and growth

Effective measurement can help policymakers harness a wide variety of gains from entrepreneurship

10.15185/izawol.327 327 Desai, S

by Sameeksha Desai

Policymakers rely on entrepreneurs to create jobs, provide incomes, innovate, pay taxes to support public revenues, create competition in industries, and much more. Due to its highly heterogeneous nature, the choice of entrepreneurship measures is critically important, impacting the diagnosis, analysis, projection, and understanding of potential and existing policy. Some key aspects to measure include the how (self-employment, new firm formation), why (necessity, opportunity), and what (growth). As such, gaining better insight into the challenges of measuring entrepreneurship is a necessary and productive investment for policymakers.

The economics of employment tribunals

Understanding how employment tribunals make decisions can guide reforms of employment dispute settlement

10.15185/izawol.331 331 Latreille, P

by Paul Latreille

Employment tribunals or labor courts are responsible for enforcing employment protection legislation and adjudicating rights-based disputes between employers and employees. Claim numbers are high and, in Great Britain, have been rising, affecting both administrative costs and economic competitiveness. Reforms have attempted to reduce the number of claims and to improve the speed and efficiency of dealing with them. Balancing employee protection against cost-effectiveness remains difficult, however. Gathering evidence on tribunals, including on claim instigation, resolution, decision making, and post-tribunal outcomes can inform policy efforts.

The effects of public sector employment on the economy

The size and wage level of the public sector affect overall employment volatility and the economy

10.15185/izawol.332 332 Caponi, V

by Vincenzo Caponi

Public sector jobs are created because governments opt to provide goods and services produced directly by public employees. Governments, however, may also choose to regulate the size of the public sector in order to stabilize targeted national employment levels. However, economic research suggests that these effects are uncertain and critically depend on how public wages are determined. Rigid public sector wages lead to perverse effects on private employment, while flexible public wages lead to a stabilizing effect. Public employment also has important productivity and redistributive effects.

Do institutions matter for entrepreneurial development?

In post-Soviet countries, well-functioning institutions are needed to foster productive entrepreneurial development and growth

10.15185/izawol.334 334 Aidis, R

by Ruta Aidis

Supportive institutional environments help build the foundations for innovative and productive entrepreneurship. A few post-Soviet countries have benefitted from international integration through EU membership, which enabled the development of democracy and free market principles. However, many post-Soviet economies continue to face high levels of corruption, complex business regulations, weak rule of law and uncertain property rights. For them, international integration can provide the needed support to push through unpopular yet necessary stages of the reform process.

Do/can firms benefit from training apprentices?

by Robert Lerman

Apprenticeships offer workers the chance to learn valuable occupational skills. Apprentices earn salaries, receive instruction in relevant concepts, contribute to production, and attain occupational q...

The union wage premium: Is it real?

by Alex Bryson

Very few areas of labor economics have attracted as much attention as unions’ impact on wages. The literature goes way back and has a well-established pedigree. There is a general consensus that...

Political participation in a digital economy

by Robert Gold and Stephan Heblich

Globalization and digitalization go hand in hand. While international trade and labor mobility had already intensified before the invention of the internet, only with modern information and communicat...

Brexit and the American election

by Daniel S. Hamermesh

The divorce of the UK from the EU, after over 40 years of “marriage,” is crucially important for the entire European continent. Some politicians seem to believe that the multilateral (EU-w...

Brexit: Implications for UK labor

by Daniel S. Hamermesh

The implications of the UK’s decision to leave the EU are unclear, and will depend on what happens politically once the dust has settled. The transition to a new relationship between the UK and ...

Brexit: An American politico-economic view

by Daniel S. Hamermesh

Perhaps I should not be commenting on the Brexit referendum, as I cannot vote on it. But even if I did not hold a professorship in England, it would still concern me directly, both as an economist and...

International Workers' Day, 2016

by Daniel S. Hamermesh

In most countries May 1 celebrates workers, as it has since it was created by the Second Socialist International. Interestingly, it is not celebrated in the US, which instead observes the first Monday...

Commentary on high minimum wage proposals

by Daniel Hamermesh

I am continually amazed at the absurdities of proposals that one sees made by politicians searching for votes. One of the most ridiculous labor-related proposals that I have seen in recent years was m...

The FutureWork Opinion Series - Pierre Cahuc

by Pierre Cahuc

In this opinion series, part of our FutureWork campaign, we are asking key figures from the IZA World of Labor community to speculate on the future of the global labor economic landscape. Our Subject ...

Reflections on International Workers’ Day

by Klaus F. Zimmermann

In a couple of weeks’ time, on May 1st, we mark the first anniversary of our IZA World of Labor project. It is hard to believe that this time last year we were preparing for our launch in Washin...

An effective plan to promote youth employment

by Samuel Bentolila and Marcel Jansen

Employment has, at last, been growing over the past year in Spain. Are young people benefiting from this growth? The answer, unfortunately, is no. Whereas total employment has grown by 1.6% between th...

Should we raise the minimum wage?

by Klaus F. Zimmermann

The minimum wage debate is making headlines again, with recent studies fueling arguments on both sides. The discussion is global, from the US to Russia and China. Germany will also gradually introduce...

Tackling youth unemployment

by Klaus F. Zimmermann

Are today’s young people doomed to be part of a "lost generation?" In the wake of global financial crises, employment rates among 16 to 24-year-olds are looking increasingly gloomy. Bu...