Essays on Labor Market Frictions, Technological Change and Macroeconomic Fluctuations

The dissertation consists of an introductory chapter and three essays that apply search-matching theory to study the interaction of labor market frictions, technological change and macroeconomic fluctuations. The first essay studies the impact of capital-embodied growth on equilibrium unemployment by extending a vintage capital/search model to incorporate vintage human capital. In addition to the capital obsolescence (or creative destruction) effect that tends to raise unemployment, vintage human capital introduces a skill obsolescence effect of faster growth that has the opposite sign. Faster skill obsolescence reduces the value of unemployment, hence wages and leads to more job creation and less job destruction, unambiguously reducing unemployment. The second essay studies the effect of skill biased technological change on skill mismatch and the allocation of workers and firms in the labor market. By allowing workers to invest in education, we extend a matching model with two-sided heterogeneity to incorporate an endogenous distribution of high and low skill workers. We consider various possibilities for the cost of acquiring skills and show that while unemployment increases in most scenarios, the effect on the distribution of vacancy and worker types varies according to the structure of skill costs. When the model is extended to incorporate endogenous labor market participation, we show that the unemployment rate becomes less informative of the state of the labor market as the participation margin absorbs employment effects. The third essay studies the effects of labor taxes on equilibrium labor market outcomes and macroeconomic dynamics in a New Keynesian model with matching frictions. Three policy instruments are considered: a marginal tax and a tax subsidy to produce tax progression schemes, and a replacement ratio to account for variability in outside options. In equilibrium, the marginal tax rate and replacement ratio dampen economic activity whereas tax subsidies boost the economy. The marginal tax rate and replacement ratio amplify shock responses whereas employment subsidies weaken them. The tax instruments affect the degree to which the wage absorbs shocks. We show that increasing tax progression when taxation is initially progressive is harmful for steady state employment and output, and amplifies the sensitivity of macroeconomic variables to shocks. When taxation is initially proportional, increasing progression is beneficial for output and employment and dampens shock responses.

Chinese immigrants to Finland: A qualitative study of housing, employment, access to health care and child care as sociological dimensions in their settlement process

The Master’s thesis is qualitative research based on interviews of 15 Chinese immigrants to Finland in order to provide a sociological perspective of the migration experience through the eyes of Chinese immigrants in the Finnish social welfare context. This research is mainly focused upon four crucial aspects of life in the settlement process: housing, employment, access to health care and child care. Inspired by Allardt’s theoretical framework ‘Having, Loving and Being’, social relationships and individual satisfaction are examined in the case of Chinese interviewees dealing with the four life aspects. Finland was not perceived as an attractive migration destination for most Chinese interviewees in the beginning. However, with longer residence in Finland, the Finnish social welfare system gradually became a crucial appealing factor in their permanent settlement in Finland. And meanwhile, social responsibility of attending their old parents in China, strong feelings of being isolated in Finland, and insufficient integration into the Finnish society were influential factors for their decision of returning to China. Social relationships with personal friends, migration brokers, schools, employers and family relatives had great influences in the four life aspects of Chinese immigrants in Finland. The social relationship with the Finnish social welfare sector is supportive to Chinese immigrants, but Chinese immigrants do not heavily rely on Finnish social protection. The housing conditions were greatly improved over time while the upward mobility in the Finnish labour market was not significant among Chinese immigrants. All Chinese immigrants were satisfied with their current housing by the time I interviewed them while most of them had subjective feelings of being alienated in the Finnish labour market, which seriously prevented them from integrating into the Finnish society. In general, Chinese immigrants were satisfied with the low cost of accessing the Finnish public health care services and affordable Finnish child day care services and financial subsidies for children from the Finnish social welfare sector. This research also suggests that employment is the central basis in well-being. Support from the Finnish social welfare sector can improve the satisfaction levels among immigrants, especially when it mitigates the effects of low-paid employment. As well, my empirical study of Chinese immigrants in Finland shows that Having (needs for materials), Loving (needs for social relations) and Being (needs for social integration) are all involved in the four concrete aspects (housing, employment, access to health care and child care).

Work Stress and Early Atherosclerosis: Do Genetic Background and Pre-Employment Risk Factors Explain Conflicting Findings?

According to the models conceptualizing work stress, increased risk of health problems arise when high job demands co-occur with low job control (the demand-control model) or the efforts invested by the employee are disproportionately high compared to the rewards received (effort-reward imbalance model). This study examined the association between work stress and early atherosclerosis with particular attention to the role of pre-employment risk factors and genetic background in this association. The subjects were young healthy adults aged 24-39 who were participating in the 21-year follow-up of the ongoing prospective "Cardiovascular Risk in Young Finns" study in 2001-2002. Work stress was evaluated with questionnaires on demand-control model and on effort-reward model. Atherosclerosis was assessed with ultrasound of carotid artery intima-media thickness (IMT). In addition, risk for enhanced atherosclerotic process was assessed by measuring with heart rate variability and heart rate. Pre-employment risk factors, measured at age 12 to 18, included such as body mass index, blood lipids, family history of coronary heart disease, and parental socioeconomic position. Variants of the neuregulin-1 were determined using genomic DNA. The results showed that higher work stress was associated with higher IMT in men. This association was not attenuated by traditional risk factors of atherosclerosis and coronary heart disease or by pre-employment risk factors measured in adolescence. Neuregulin-1 gene moderated the association between work stress and IMT in men. A significant association between work stress and IMT was found only for the T/T genotype of the neuregulin-1 gene but not for other genotypes. Among women an association was found between higher work stress and lower heart rate variability, suggesting higher risk for developing atherosclerosis. These associations could not be explained by demographic characteristics or coronary risk factors. The present findings provide evidence for an association between work stress and atherosclerosis in relatively young population. This association seems to be modified by genetic influences but it does not appear to be confounded by pre-employment adolescent risk factors.

Cancer survivors at work : Work-related problems and factors associated with their employment, work ability and social support from the work community

Due to the improved prognosis of many forms of cancer, an increasing number of cancer survivors are willing to return to work after their treatment. It is generally believed, however, that people with cancer are either unemployed, stay at home, or retire more often than people without cancer. This study investigated the problems that cancer survivors experience on the labour market, as well as the disease-related, sociodemographic and psychosocial factors at work that are associated with the employment and work ability of cancer survivors. The impact of cancer on employment was studied combining the data of Finnish Cancer Registry and census data of the years 1985, 1990, 1995 or 1997 of Statistics Finland. There were two data sets containing 46 312 and 12 542 people with cancer. The results showed that cancer survivors were slightly less often employed than their referents. Two to three years after the diagnosis the employment rate of the cancer survivors was 9% lower than that of their referents (64% vs. 73%), whereas the employment rate was the same before the diagnosis (78%). The employment rate varied greatly according to the cancer type and education. The probability of being employed was greater in the lower than in the higher educational groups. People with cancer were less often employed than people without cancer mainly because of their higher retirement rate (34% vs. 27%). As well as employment, retirement varied by cancer type. The risk of retirement was twofold for people having cancer of the nervous system or people with leukaemia compared to their referents, whereas people with skin cancer, for example, did not have an increased risk of retirement. The aim of the questionnaire study was to investigate whether the work ability of cancer survivors differs from that of people without cancer and whether cancer had impaired their work ability. There were 591 cancer survivors and 757 referents in the data. Even though current work ability of cancer survivors did not differ between the survivors and their referents, 26% of cancer survivors reported that their physical work ability, and 19% that their mental work ability had deteriorated due to cancer. The survivors who had other diseases or had had chemotherapy, most often reported impaired work ability, whereas survivors with a strong commitment to their work organization, or a good social climate at work, reported impairment less frequently. The aim of the other questionnaire study containing 640 people with the history of cancer was to examine extent of social support that cancer survivors needed, and had received from their work community. The cancer survivors had received most support from their co-workers, and they hoped for more support especially from the occupational health care personnel (39% of women and 29% of men). More support was especially needed by men who had lymphoma, had received chemotherapy or had a low education level. The results of this study show that the majority of the survivors are able to return to work. There is, however, a group of cancer survivors who leave work life early, have impaired work ability due to their illness, and suffer from lack of support from their work place and the occupational health services. Treatment-related, as well as sociodemographic factors play an important role in survivors' work-related problems, and presumably their possibilities to continue working.

Energiapuuharvennus osana metsänkasvatusta ja ilmastonmuutoksen hillitsemistä

The aim of this study was to compare the differences between forest management incorporating energy wood thinning and forest management based on silvicultural recommendations (baseline). Energy wood thinning was substituted for young stand thinning and the first commercial thinning of industrial wood. The study was based on the forest stand data from Southern Finland, which were simulated by the MOTTI-simulator. The main interest was to find out the climatic benefits resulting from carbon sequestration and energy substitution. The value of energy wood was set to substitute it for coal as an alternative energy fuel (emission trade). Other political instruments (Kemera subsidies) were also analysed. The largest carbon dioxide emission reductions were achieved as a combination of carbon sequestration and energy substitution (on average, a 26-90 % increase in discounted present value in the beginning of rotation) compared to the baseline. Energy substitution increased emission reductions more effectively than carbon sequestration, when maintaining dense young stands. According to the study, energy wood thinning as a part of forest management was more profitable than the baseline when the value of carbon dioxide averaged more than 15 €/CO2 and other political subsidies were unchanged. Alternatively, the price of energy wood should on average exceed 21 €/m3 on the roadside in order to be profitable in the absence of political instruments. The most cost-efficient employment of energy wood thinning occured when the dominant height was 12 meters, when energy substitution was taken into account. According to alternative forest management, thinning of sapling stands could be done earlier or less intensely than thinning based on silvicultural recommendations and the present criteria of subsidies. Consequently, the first commercial thinning could be profitable to carry out either as harvesting of industrial wood or energy wood, or as integrated harvesting depending on the costs of the harvesting methods available and the price level of small-size industrial wood compared to energy wood.

Posted Workers and Free Movement of Services in the European Union – the Impact on National Employment and Immigration Law

This thesis examines posting of workers within the free movement of services in the European Union. The emphasis is on the case law of the European Court of Justice and in the role it has played in the liberalisation of the service sector in respect of posting of workers. The case law is examined from two different viewpoints: firstly, that of employment law and secondly, immigration law. The aim is to find out how active a role the Court has taken with regard these two fields of law and what are the implications of the Court’s judgments for the regulation on a national level. The first part of the thesis provides a general review of the Community law principles governing the freedom to provide services in the EU. The second part presents the Posted Workers’ Directive and the case law of the European Court of Justice before and after the enactment of the Directive from the viewpoint of employment law. Special attention is paid to a recent judgment in which the Court has taken a restrictive position with regard to a trade union’s right to take collective action against a service provider established in another Member State. The third part of the thesis concentrates, firstly, on the legal status of non-EU nationals lawfully resident in the EU. Secondly, it looks into the question of how the Court’s case law has affected the possibilities to use non-EU nationals as posted workers within the freedom to provide services. The final chapter includes a critical analysis of the Court’s case law on posted workers. The judgments of the European Court of Justice are the principal source of law for this thesis. In the primary legislation the focus is on Articles 49 EC and 50 EC that lay down the rules concerning the free movement of services. Within the secondary legislation, the present work principally concentrates on the Posted Workers’ Directive. It also examines proposals of the European Commission and directives that have been adopted in the field of immigration. The conclusions of the case study are twofold: while in the field of employment law, the European Court of Justice has based its judgments on a very literal interpretation of the Posted Workers’ Directive, in the field of immigration its conclusions have been much more innovative. In both fields of regulation the Court’s judgments have far-reaching implications for the rules concerning posting of workers leaving very little discretion for the Member States’ authorities.

Encouragement and discouragement : Essays on taxation and government expenditure

This thesis consists of an introduction to a topic of optimal use of taxes and government expenditure and three chapters analysing these themes more in depth. Chapter 2 analyses to what extent a given amount of subsidies affects the labour supply of parents. Municipal supplement to the Finnish home care allowance provides exogenous variation to labour supply decision of a parent. This kind of subsidy that is tied to staying at home instead of working is found to have fairly large effect on labour supply decisions of parents. Chapter 3 studies theoretically when it is optimal to provide publicly private goods. In the set up of the model government sets income taxes optimally and provides a private good, if it is beneficial to do so. The analysis results in an optimal provision rule according to which the good should be provided when it lowers the participation threshold into labour force. Chapter 4 investigates what happened to prices and demand when hairdressers value added tax was cut in Finland from 22 per cent to 8 per cent. The pass-through to prices was about half of the full pass-through and no clear indication of increased demand for the services or better employment situation in the sector is found.

An Expenditure-Based Estimation of Self-Employment Income Underreporting in Finland

This paper estimates the extent of income underreporting by the self-employed in Finland using the expenditure based approach developed by Pissarides & Weber (1989). Household spending data are for the years 1994 to 1996. The results suggest that self-employment income in Finland is underreported by some 27% on average. Since income for the self-employed is about 8 % of all incomes in Finland, the size of this part of the black economy in Finland is estimated to be about 2,3% of GDP.

The Effect of Obesity on Wages and Employment: The Difference Between Having a High BMI and Being Fat

In this paper, we re-examine the relationship between overweight and labour market success, using indicators of individual body composition along with BMI (Body Mass Index). We use the dataset from Finland in which weight, height, fat mass and waist circumference are not self-reported, but obtained as part of the overall health examination. We find that waist circumference, but not weight or fat mass, has a negative effect on wages for women, whereas all measures of obesity have negative effects on women’s employment probabilities. For men, the only obesity measure that is significant for men’s employment probabilities is fat mass. One interpretation of our findings is that the negative wage effects of overweight on wages run through the discrimination channel, but that the negative effects of overweight on employment have more to do with ill health. All in all, measures of body composition provide a more refined picture about the effects of obesity on wages and employment.