Oil price shocks and labor market fluctuations

We examine the impact of real oil price shocks on labor market flows in the U.S. We first use smooth transition regression (STR) models to investigate to what extent oil prices can be considered as a driving force of labor market fluctuations. Then we develop and calibrate a modified version of Pissarides' (2000) model with energy costs, which we simulate in response to shocks mimicking the behavior of the actual oil price shocks. We find that (i) these shocks are an important driving force of job market flows; (ii) the job finding probability is the main transmission mechanism of such shocks; and (iii) they bring a new amplification mechanism for the volatility and should thus be seen as complementary of labor productivity shocks. Overall we conclude that shocks in oil prices cannot be neglected in explaining cyclical labor adjustments in the U.S.

Employment consequences of restrictive permanent contracts: Evidence from Spanish labor market reforms

Temporary employment contracts allowing unrestricted dismissals wereintroduced in Spain in 1984 and quickly came to account for most new jobs.As a result, temporary employment increased from around 10% in themid-eighties to more than 30% in the early nineties. In 1997, however,the Spanish government attempted to reduce the incidence of temporaryemployment by reducing payroll taxes and dismissal costs for permanentcontracts. In this paper, we use individual data from the Spanish LaborForce Survey to estimate the effects of reduced payroll taxes anddismissal costs on the distribution of employment and worker flows. Weexploit the fact that recent reforms apply only to certain demographicgroups to set up a natural experiment research design that can be usedto study the effects of contract regulations. Our results show that thereduction of payroll taxes and dismissal costs increased the employmentof young workers on permanent contracts, although the effects for youngwomen are not always significant. Results for older workers showinsignificant effects. The results suggest a moderately elastic responseof permanent employment to non-wage labor costs for young men. We alsofind positive effects on the transitions from unemployment and temporaryemployment into permanent employment for young and older workers, althoughthe effects for older workers are not always significant. On the otherhand, transitions from permanent employment to non-employment increasedonly for older men, suggesting that the reform had little effect ondismissals.

Protective or counter-productive? Labor market institutions and the effect of immigration on EU natives

We estimate the effect of immigrant flows on native employment in WesternEurope, and then ask whether the employment consequences of immigrationvary with institutions that affect labor market flexibility. Reducedflexibility may protect natives from immigrant competition in the nearterm, but our theoretical framework suggests that reduced flexibility islikely to increase the negative impact of immigration on equilibriumemployment. In models without interactions, OLS estimates for a panel ofEuropean countries in the 1980s and 1990s show small, mostly negativeimmigration effects. To reduce bias from the possible endogeneity ofimmigration flows, we use the fact that many immigrants arriving after1991 were refugees from the Balkan wars. An IV strategy based onvariation in the number of immigrants from former Yugoslavia generateslarger though mostly insignificant negative estimates. We then estimatemodels allowing interactions between the employment response toimmigration and institutional characteristics including business entrycosts. These results, limited to the sample of native men, generallysuggest that reduced flexibility increases the negative impact ofimmigration. Many of the estimated interaction terms are significant,and imply a significant negative effect on employment in countrieswith restrictive institutions.

The relevance of post-match LTC: why has the Spanish labor market become as volatile as the US one?

We present a Search and Matching model with heterogeneous workers (entrants and incumbents) that replicates the stylized facts characterizing the US and the Spanish labor markets. Under this benchmark, we find the Post-Match Labor Turnover Costs (PMLTC) to be the centerpiece to explain why the Spanish labor market is as volatile as the US one. The two driving forces governing this volatility are the gaps between entrants and incumbents in terms of separation costs and productivity. We use the model to analyze the cyclical implications of changes in labor market institutions affecting these two gaps. The scenario with a low degree of workers’ heterogeneity illustrates its suitability to understand why the Spanish labor market has become as volatile as the US one.

The Macroeconomics of the labor market: three fundamental views

We distinguish and assess three fundamental views of the labor market regarding the movements in unempoyment: (i) the frictionless equilibrium view; (ii) the chain reaction theory, or prolonged adjustment view; and (iii) the hysteresis view. While the frictionless view implies a clear compartmentalization between the short- and long-run, the hysteresis view implies that all the short-run fluctuations automatically turn into long-run changes in the unemployment rate. We assert the problems faced by these conceptions in explaining the diversity of labor market experiences across the OECD labor markets. We argue that the prolonged adjustment view can overcome these problems since it implies that the short, medium, and long runs are interrelated, merging with one another along an intertemporal continuum.

Immigrants'assimilation process in a segmented labor market

While much of the literature on immigrants' assimilation has focused on countries with a large tradition of receiving immigrants and with flexible labor markets, very little is known on how immigrants adjust to other types of host economies. With its severe dual labor market, and an unprecedented immigration boom, Spain presents a quite unique experience to analyze immigrations' assimilation process. Using data from the 2000 to 2008 Labor Force Survey, we find that immigrants are more occupationally mobile than natives, and that much of this greater flexibility is explained by immigrants' assimilation process soon after arrival. However, we find little evidence of convergence, especially among women and high skilled immigrants. This suggests that instead of integrating, immigrants occupationally segregate, providing evidence consistent with both imperfect substitutability and immigrants' human capital being under-valued. Additional evidence on the assimilation of earnings and the incidence of permanent employment by different skill levels also supports the hypothesis of segmented labor markets.

The Part-time pay penalty in a segmented labor market

This paper is the first to examine the implications of switching to PT work for women's subsequent earnings trajectories, distinguishing by their type of contract: permanent or fixedterm. Using a rich longitudinal Spanish data set from Social Security records of over 76,000 prime-aged women strongly attached to the Spanish labor market, we find that PT work aggravates the segmentation of the labor market insofar there is a PT pay penalty and this penalty is larger and more persistent in the case of women with fixed-term contracts. The paper discusses problems arising in empirical estimation (including a problem not discussed in the literature up to now: the differential measurement error of the LHS variable by PT status), and how to address them. It concludes with policy implications relevant for Continental Europe and its dual structure of employment protection.

Informality and overeducation in the labor market of a developing country

In this paper, we explore the connection between labor market segmentation in two sectors, a modern protected formal sector and a traditional- unprotected-informal sector, and overeducation in a developing country. Informality is thought to have negative consequences, primarily through poorer working conditions, lack of social security, as well as low levels of productivity throughout the economy. This paper considers an aspect that has not been previously addressed, namely the fact that informality might also affect the way workers match their actual education with that required performing their job. We use micro-data from Colombia to test the relationship between overeducation and informality. Empirical results suggest that, once the endogeneity of employment choice has been accounted for, formal male workers are less likely to be overeducated. Interestingly, the propensity of being overeducated among women does not seem to be closely related to the employment choice.

The Labor Market Effects of Technology Shocks

We analyze the labor market effects of neutral and investment-specific technology shocks along the intensive margin (hours worked) and the extensive margin (unemployment). We characterize the dynamic response of unemployment in terms of the job separation and the job finding rate. Labor market adjustments occur along the extensive margin in response to neutral shocks, along the intensive margin in response to investment specific shocks. The job separation rate accounts for a major portion of the impact response of unemployment. Neutral shocks prompt a contemporaneous increase in unemployment because of a sharp rise in the separation rate. This is prolonged by a persistent fall in the job finding rate. Investment specific shocks rise employment and hours worked. Neutral shocks explain a substantial portion of the volatility of unemployment and output; investment specific shocks mainly explain hours worked volatility. This suggests that neutral progress is consistent with Schumpeterian creative destruction, while investment-specific progress operates as in a neoclassical growth model.

Attribution and reciprocity in a simulated labor market: An experimental investigation

While papers such as Akerlof and Yellen (1990) and Rabin (1993) argue that psychological considerations such as fairness and reciprocity are important in individual decision-making, there is little explicit empirical evidence of reciprocal altruism in economic environments. This paper tests whether attribution of volition in choosing a wage has a significant effect on subsequent costly effort provision. An experiment was conducted in which subjects are first randomly divided into groups of employers and employees. Wages were selected and employees asked to choose an effort level, where increased effort is costly to the employee, but highly beneficial to the employer. The wage-determination process was common knowledge and wages were chosen either by the employer or by an external process. There is evidence for both distributional concerns and reciprocal altruism. The slope of the effort/wage profile is clearly positive in all cases, but is significantly higher when wages are chosen by the employer, offering support for the hypothesis of reciprocity. There are implications for models of utility and a critique of some current models is presented.

Toward a theory of labor market institutions

Standard economic analysis holds that labor market rigidities are harmfulfor job creation and typically increase unemployment. But many orthodoxreforms of the labor market have proved difficult to implement because ofpolitical opposition. For these reasons it is important to explain why weobserve such regulations. In this paper I outline a theory of how they may arise and why they fit together. This theory is fully developed in aforthcoming book (Saint-Paul (2000)), to which the reader is referred forfurther details.

Selective hiring and welfare analysis in labor market models

Firms select not only how many, but also which workers to hire. Yet, in standardsearch models of the labor market, all workers have the same probability of being hired.We argue that selective hiring crucially affects welfare analysis. Our model is isomorphicto a search model under random hiring but allows for selective hiring. With selectivehiring, the positive predictions of the model change very little, but the welfare costsof unemployment are much larger because unemployment risk is distributed unequallyacross workers. As a result, optimal unemployment insurance may be higher and welfareis lower if hiring is selective.

Product market deregulation and labor market outcomes

We consider the dynamic relationship between product market entry regulationand equilibrium unemployment. The main theoretical contribution is combininga Mortensen-Pissarides model with monopolistic competition in the goods marketand individual wage bargaining. Product market competition affects unemploymentvia two channels: the output expansion effect and a countervailing effect dueto a hiring externality. Competition is then linked to barriers to entry. Acalibrated model compares a high-regulation European regime to a low-regulationAnglo-American one. Our quantitative analysis suggests that under individualbargaining, no more than half a percentage point of European unemployment ratescan be attributed to entry regulation.

Endogenous labor market participation and the business cycle

Existing models of equilibrium unemployment with endogenous labor market participation are complex, generate procyclical unemployment rates and cannot match unemployment variability relative to GDP. We embed endogenous participation in a simple, tractable job market matching model, show analytically how variations in the participation rate are driven by the cross-sectional density of home productivity near the participation threshold, andhow this density translates into an extensive-margin labor supply elasticity. A calibration of the model to macro data not only matches employment and participation variabilities but also generates strongly countercyclical unemployment rates. With some wage rigidity the model also matches unemployment variations well. Furthermore, the labor supply elasticity implied by our calibration is consistent with microeconometric evidence for the US.

Wage inequality in a frictional labor market

Wage inequality in the United States has grown substantially in thepast two decades. Standard supply-demand analysis in the empiricsof inequality (e.g.Katz and Murphy (1992)) indicates that we mayattribute some of this trend to an outward shift in the demand forhigh skilled labor. In this paper we examine a simple static channelin which the wage premium for skill may grow -increased firm entry.We consider a model of wage dispersion where there are two types ofworkers and homogeneous firms must set wages and preferences forwhat type of worker they would like to hire. We find that both thewage differential and the demand for high skill workers can increasewith the proportion of high skill workers -these high skill workerstherefore 'create' their own demand without exogenous factors. Inaddition, within group wage inequality can increase in step with thebetween group wage inequality. Simulations of the model are providedin order to compare the findings with empirical results.