While standard microeconomic theory suggests that firms have no power over setting wages when markets are perfectly competitive, this view obviously clashes with the perceptions of the casual observer. This column uses data from Sweden to investigate the extent to which differences in firms’ pay are related to differences in physical productivity. It finds that firms that benefit from positive productivity shocks increase the wages of incumbent workers, and in particular firms among which there is substantial labour mobility. The evolution of productivity among such firms appears to be a crucial determinant of workers’ wages.
Julián Messina, Oskar Nordström Skans, Mikael Carlsson, 23 October 2016
Sergei Guriev, Biagio Speciale, Michele Tuccio, 13 September 2016
A common explanation for the growth in unemployment in southern Europe after the Great Recession is lack of flexibility in over-regulated labour markets. This column examines wage adjustment in regulated and unregulated labour markets in Italy during the recent crisis. Using data on immigrant workers, it shows that before the crisis wages in the formal and informal sectors moved in parallel. During the crisis, however, formal wages did not adjust downwards, while informal labour wages did. Greater flexibility in wages in the formal market could slow the decline in employment.
Daron Acemoglu, Pascual Restrepo, 05 July 2016
Many economists throughout history have been proven wrong in predicting that technological progress will cause irreversible damage to the labour market. This column shows that so far, the labour market has always adapted to the replacement of jobs with capital, using evidence of new types of skilled jobs between 1970 and 2007. As long as the rate of automation of jobs by machines and the creation of new complex tasks for workers are balanced, there will be no major labour market decline. The nature of new technology, and its impact on future innovation potential, has important implications for labour stability.
Dalia Marin, 23 June 2016
Income inequality is less severe in Germany than in the US. Part of this is due to CEO pay in the US growing faster than in Germany. This column offers some novel explanations for these observations. From the mid-1990s, Germany began offshoring managerial tasks to Eastern Europe, reducing demand for German managers. In addition Germany offshored skill-intensive jobs to Eastern Europe, reducing the skill premium.
Alexander Bick, Nicola Fuchs-Schündeln, David Lagakos, 04 June 2016
The development accounting literature tries to account for cross-country output per worker differences by taking stock of inputs per worker. The data employed are often measured without great precision, however, making comparisons difficult. This column presents a new, internationally comparable dataset of average hours worked per adult across the world income distribution. Adults in poor countries are found to work a lot more and with lower productivity than those in rich countries. The findings suggest that those from poorer countries are not only ‘consumption poor’, but also ‘leisure poor’.
Timo Boppart, Per Krusell, 21 May 2016
The rise of automation and, more generally, IT-driven structural change in the labour market have made policymakers and researchers worry about ‘disappearing jobs’ and a dire future for employment. This column examines data from several countries to get a long-term view of labour supply. To the extent that productivity improvements continue, hours worked will indeed likely fall. But this will not necessarily be a bad thing and jobs will not necessarily disappear.
Michael Kosfeld, Susanne Neckermann, Xiaolan Yang, 08 May 2016
Employees care about more than just money. Understanding these non-monetary motivations can help organisations incentivise performance. This column presents evidence from a field experiment that explored the motivational effects of ‘meaningful’ work. Recognition and meaning are found to have substitutive motivational effects, while monetary incentives and meaning have additive effects.
James Banks, Carl Emmerson, Gemma Tetlow, 07 May 2016
Many countries are increasing the age at which people can start claiming state-funded pensions. One objection often raised is that such policies are unfair because some will be too unhealthy to remain in paid work. This column compares employment rates in England of older people today to those of earlier generations, and also to those of younger people today. These comparisons suggest that a significant minority of older people appear to be unable to work on the grounds of health alone.
Elias Einiö, Henry Overman, 07 April 2016
Areas experiencing poor economic performance are often targeted by governments with programmes aimed at improving employment. However, there are concerns that any increases in employment come at the cost of reduced employment elsewhere. This column examines the displacement effects of one such programme in the UK. While employment increased within the targeted areas, there were comparable decreases in employment just outside the areas’ boundaries. These findings suggest place-based policies should focus on traded activities that are less susceptible to local displacement effects.
Wolfgang Dauth, Sebastian Findeisen, Jens Südekum, 21 February 2016
A common theme of recent trade theory models is that globalisation-related shocks induce worker sorting across industries, labour markets, and plants. However, there is little empirical evidence of shocks causing such endogenous mobility responses. This column explores how rising international trade exposure affected the job biographies and earnings profiles of German manufacturing workers since the fall of the Berlin Wall. Individuals are found to systematically adjust to globalisation, with a notable asymmetry in the individual labour market responses to positive and negative shocks. Critically, the push effects out of import-competing manufacturing industries are not mirrored by comparable pull effects into export-oriented branches.
André Sapir, 12 February 2016
Misalignments of real exchange rates continue to be the most visible and painful symptom of asymmetric shocks within the Eurozone. An important factor behind such misalignment is the difference in national wage formation and bargaining systems, especially between core and periphery members. This column argues that all members need to have institutions that ensure wage developments are in line with productivity developments. This would eliminate an important source of asymmetric behaviour and reduce resistance to EZ-wide fiscal mechanisms capable of absorbing asymmetric shocks.
Nauro Campos, Jeffrey Nugent, 28 January 2016
Labour market liberalisation is both one of the most important structural reforms and one of the least well understood. This is partly due to a lack of data. This column introduces a new index of labour market regulations rigidity covering over 140 countries from 1950 onwards. Trade liberalisation and per capita income are shown to be more powerful explanations of the dynamics of labour market reform than ‘legal origins’.
Patrick Arni, Rafael Lalive, Gerard Van den Berg, 11 January 2016
The standard empirical evaluations of labour market policy only consider the direct effects of single programmes on their participants. This column argues that this fails to capture important aspects of real-world labour market policy – policy regimes and strategies. Using Swiss data, it employs a novel empirical approach that concurrently examines the effects of supportive and punitive policies (‘carrots’ and ‘sticks’). Policy regimes are shown to exert economically relevant effects, and accounting for these effects is crucial when designing labour market policy.
Moshe Hazan, Hosny Zoabi, 11 December 2015
Economists are increasingly interested in measuring the relationship between women’s work and education and the number of children they have – in part as a response to public policies that aim to empower women. This column assesses the evidence and finds that whereas in the 1990s highly educated women had fewer children than women with a lower education in the US, it is no longer true today.
Kevin Daly, Tim Munday, 28 November 2015
The fallout from the Global Crisis and its aftermath has been deeply damaging for European output. This column uses a growth accounting framework to explore the pre-Crisis and post-Crisis growth dynamics of several European countries. The weakness of post-Crisis real GDP in the Eurozone manifested itself in a decline in employment and average hours worked. However, decomposing growth for the Eurozone as a whole conceals significant differences across European countries, in both real GDP growth and its factor inputs.
James Feyrer, Erin Mansur, Bruce Sacerdote, 16 November 2015
Fracking has driven an oil and natural gas boom in the US over the past decade. This column examines the impact these mining activities have had on local and regional economies. US counties enjoy significant economic benefits, including increased wages and new job creation. These effects grow as the geographic radius is extended to include neighbouring areas in the region. The results suggest that the fracking boom provided some insulation for these areas during the Great Recession, and lowered national unemployment by as much as 0.5%.
William Kerr, Martin Mandorff, 31 October 2015
Immigrants are more likely to concentrate around specific industries and entrepreneurship. Market integration and discrimination only go a certain way towards explaining this phenomenon. This column explores how social interactions affect immigrants’ employment decisions in the US. Fifteen ethnic groups are found to cluster around certain industries at a rate 10 times greater than the native population. Immigrants are argued to be drawn to the same industries as their countrymen due to the ease of diffusing skills through social interactions in the group, along with higher earnings due to specialisation.
Simone Moriconi, Giovanni Peri, 19 October 2015
Unemployment rates vary widely across EU countries. While national institutions and policies explain much of the variation, cultural values, attitudes, and beliefs may also play a role. This column uses survey data from 26 EU countries to investigate the existence of culturally transmitted preferences for work. Country-specific preferences for work are found to have a positive effect on emigrants’ labour market outcomes, with those from countries with an above-average preference for work having higher employment rates abroad. Cultural preferences are significant enough that EU countries may never converge to the same employment rate.
Robert Lawrence, 15 October 2015
The US debate over income inequality in the 1980s and 1990s focused on the growing disparity between the earnings of the skilled, the unskilled and the super-rich. After the global crash, the decline in labour’s share of national income has been added to these concerns. This column presents an alternative explanation for this decline, arguing that limited substitution possibilities between capital and labour combined with the acceleration in the pace of labour-augmenting technical change raises the effective labour-capital ratio. The policy implications of this alternative explanation are profoundly different from those currently circulating.
Emilie Anér, Anna Graneli, Magnus Lodefalk, 14 October 2015
A large body of research has established a positive link between immigrants and bilateral trade. However, the temporary movement of people across borders has received less attention. This column uses Swedish data to analyse the impact of temporary cross-border movement on trade. Recently arrived migrants are found to reduce the negative impact of distance on foreign trade, by assisting firms to overcome informal and informational barriers to trade with their origin country. Facilitating movement of people across borders can be a highly useful tool for engaging in and benefitting from specialised and internationalised production networks.