Another Economic Miracle? The German Labor Market and the Great Recession

January 31, 2012

By: Rinne, Ulf (IZA)
Zimmermann, Klaus F. (IZA and University of Bonn)


The mild response of the German labor market to the worst global recession in post-war history appears as an economic miracle. In response to the crisis, Germany has shown to be a strong case of internal flexibility. We argue that important factors that have contributed to this development include the strong position of the German economy due to recent labor market reforms, the nature of the crisis affecting mainly export-oriented companies in Germany, the extension of short-time work, the behavior of social partners, and automatic stabilizers. Among these factors, we emphasize the key role of the interaction between short-time work and long-term shortages of skilled workers in sectors and regions that were particularly affected by the crisis. Although the German experience is in stark contrast to that in the United States, we identify and discuss three challenges that will be at the center of debate on both sides of the Atlantic in the future.
Keywords: economic crisis, Germany, short-time work, unemployment, labor market institutions, internal flexibility
JEL: J68


“A Comparison of Inequality and Living Standards in Canada and the United States Using an Expanded Measure of Economic Well-Being”

January 22, 2012

By: Edward N. Wolff
Ajit Zacharias
Thomas Masterson
Selcuk Eren
Andrew Sharpe
Elspeth Hazell


We use the Levy Institute Measure of Economic Well-being (LIMEW), the most comprehensive income measure available to date, to compare economic well-being in Canada and the United States in the first decade of the 21st century. This study represents the first international comparison based on LIMEW, which differs from the standard measure of gross money income (MI) in that it includes noncash government transfers, public consumption, income from wealth, and household production, and nets out all personal taxes. We find that, relative to the United States, median equivalent LIMEW was 11 percent lower in Canada in 2000. By 2005, this gap had narrowed to 7 percent, while the difference in median equivalent MI was only 3 percent. Inequality was notably lower in Canada, with a Gini coefficient of 0.285 for equivalent LIMEW in 2005, compared to a US coefficient of 0.376-a gap that primarily reflects the greater importance of income from wealth in the States. However, the difference in Gini coefficients declined between 2000 and 2005. We also find that the elderly were better off relative to the nonelderly in the United States, but that high school graduates did better relative to college graduates in Canada.
Keywords: Well-Being; Living Standards;
Inequality; Income; International Comparisons
JEL: D31

Educational Upgrading and Returns to Skills in Latin America: Evidence from a Supply-Demand Framework, 1990-2010

January 20, 2012

By: Gasparini, Leonardo (CEDLAS-UNLP)
Galiani, Sebastián (Washington University, St. Louis)
Cruces, Guillermo (CEDLAS-UNLP)
Acosta, Pablo A. (World Bank)


It has been argued that a factor behind the decline in income inequality in Latin America in the 2000s was the educational upgrading of its labor force. Between 1990 and 2010, the proportion of the labor force in the region with at least secondary education increased from 40 to 60 percent. Concurrently, returns to secondary education completion fell throughout the past two decades, while the 2000s saw a reversal in the increase in the returns to tertiary education experienced in the 1990s. This paper studies the evolution of wage differentials and the trends in the supply of workers by educational level for 16 Latin American countries between 1990 and 2000. The analysis estimates the relative contribution of supply and demand factors behind recent trends in skill premia for tertiary and secondary educated workers. Supply-side factors seem to have limited explanatory power relative to demand-side factors, and are only relevant to explain part of the fall in wage premia for high-school graduates. Although there is significant heterogeneity in individual country experiences, on average the trend reversal in labor demand in the 2000s can be partially attributed to the recent boom in commodity prices that could favor the unskilled (non-tertiary educated) workforce, although employment patterns by sector suggest that other within-sector forces are also at play, such as technological diffusion or skill mismatches that may reduce the labor productivity of highly-educated workers.
Keywords: skill premia, supply and demand of labor, income inequality, Latin America

First-Round Impacts of the 2008 Chilean Pension System Reform

January 6, 2012

By Jere R. Behrman (University of Pennsylvania)
Maria Cecilia Calderon (Population Council)
Olivia S. Mitchell (Wharton School, University of
Javiera Vasquez (Universidad de Chile)
David Bravo (Universidad de Chile)


Chile’s innovative privatized pension system has been lauded as
possible model for Social Security system overhauls in other
countries, yet it has also been critiqued for not including a
strong safety net for the uncovered sector. In response, the
Bachelet government in 2008 implemented reforms to rectify this
shortcoming. Here we offer the first systematic effort to
directly evaluate the reform’s impacts, focusing on the new Basic
Solidarity Pension for poor households with at least one person
age 65+. Using the Social Protection Survey, we show that
targeted poor households received about 2.4 percent more
household annual income, with little evidence of crowding-out of
private transfers. We also suggest that recipient household
welfare probably increased due to slightly higher expenditures on
basic consumption including healthcare, more leisure hours, and
improved self-reported health. While measured short-run effects
are small, follow-ups will be essential to gauge longer-run