Does High Home-Ownership Impair the Labor Market?

October 24, 2013
By: Blanchflower, David G. (Dartmouth College)
Oswald, Andrew J. (University of Warwick)
This study explores the hypothesis that high home-ownership damages the labor market. We show that rises in the home-ownership rate in a U.S. state are a precursor to eventual sharp rises in unemployment in that state. The elasticity exceeds unity: a doubling of the rate of home-ownership in a U.S. state is followed in the long-run by more than a doubling of the later unemployment rate. What mechanisms might explain this? We provide evidence that rises in home-ownership are associated with three potential concerns: (i) lower levels of labor mobility, (ii) greater commuting times, and (iii) fewer new businesses. Our argument is not that owners are disproportionately unemployed, nor that the observed patterns are due to Keynesian effects. The evidence implies, instead, that the housing market may produce negative ‘externalities’ upon the labor market. The time lags are long. That gradualness may explain why these patterns remain little-known.
Keywords: natural rate of unemployment, labor market, housing market, structural, business cycles, mobility
JEL: I1 I3

Social Spending, Taxes and Income Redistribution in Uruguay

October 24, 2013
By: Marisa Bucheli (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
Nora Lustig (Department of Economics, Stone Center for Latin American Studies and CIPR, Tulane University)
Máximo Rossi (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
Florencia Amábile (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
How much redistribution does Uruguay accomplish through social spending and taxes? How progressive are revenue collection and social spending? A standard fiscal incidence analysis shows that Uruguay achieves a nontrivial reduction in inequality and poverty when all taxes and transfers are combined. In comparison with other five countries in Latin America, it ranks first (poverty reduction) and second (inequality reduction), and first in terms of poverty reduction effectiveness and third in terms of overall (including transfers in kind) inequality reduction effectiveness. Direct taxes are progressive and indirect taxes are regressive. Social spending on direct transfers, contributory pensions, education and health is quite progressive in absolute terms except for tertiary education, which is almost neutral in relative terms
Keywords: poverty, inequality, Uruguay, social spending, taxes
JEL: I3 H2 H5

Mental Illness and Unhappiness

October 15, 2013
By: Layard, Richard (London School of Economics)
Chisholm, Dan (World Health Organization)
Patel, Vikram (London School of Hygiene and Tropical Medicine)
Saxena, Shekhar (World Health Organization)
This paper is a contribution to the second World Happiness Report. It makes five main points. 1. Mental health is the biggest single predictor of life-satisfaction. This is so in the UK, Germany and Australia even if mental health is included with a six-year lag. It explains more of the variance of life-satisfaction in the population of a country than physical health does, and much more than unemployment and income do. Income explains 1% of the variance of life-satisfaction or less. 2. Much the most common forms of mental illness are depression and anxiety disorders. Rigorously defined, these affect about 10% of all the world’s population – and prevalence is similar in rich and poor countries. 3. Depression and anxiety are more common during working age than in later life. They account for a high proportion of disability and impose major economic costs and financial losses to governments worldwide. 4. Yet even in rich countries, under a third of people with diagnosable mental illness are in treatment. 5. Cost-effective treatments exist, with recovery rates of 50% or more. In rich countries treatment is likely to have no net cost to the Exchequer due to savings on welfare benefits and lost taxes. But even in poor countries a reasonable level of coverage could be obtained at a cost of under $2 per head of population per year.
Keywords: mental illness, welfare benefits, healthcare costs, life-satisfaction
JEL: I10 I14 I18

Country Differences in Ultimatum Wage Bargaining with a Real Task: Evidence from Greece, Spain and the UK

October 15, 2013
By: Aurora García-Gallego (LEE & Department of Economics, Universitat Jaume I, Castellón, Spain)
Nikolaos Georgantzís (LEE & Department of Economics, Universitat Jaume I, Castellón, Spain)
Ainhoa Jaramillo-Gutiérrez (LEE-Department of Economics, Universitat Jaume I-Castellón, ERICES-University of Valencia, Spain)
We study ultimatum bargaining over the wage that should be paid in order to have a subject perform a given real task. Our results are obtained from experiments run in Greece, Spain and the UK. We find significantly higher wage offers and lower acceptance probabilities in the UK than in the other two countries. Interestingly, the combination of these two effects leads to higher wages in the British pool, without reducing market efficiency as compared to Spain and Greece. Country differences in both employer and employee behavior have a clear gender component.
Keywords: ultimatum bargaining, real task, country differences
JEL: C91 D03 J16 J31

Catastrophic Job Destruction

October 15, 2013
By: Anabela Carneiro
Pedro Portugal
Jose Varejão
In this article we study the resilience of the Portuguese labor market, in terms of job flows, employment and wage developments, in the context of the current recession. We single out the huge contribution of job destruction, especially due to the closing of existing firms, to the dramatic decline of total employment and increase of the unemployment rate. We also document the very large increase in the incidence of minimum wage earners and nominal wage freezes. We explored three different channels that may have amplified the employment response to the great recession: the credit channel, the wage rigidity channel, and the labor market segmentation channel. We uncovered what we believe is convincing evidence that the severity of credit constraints played a significant role in the current job destruction process. Wage rigidity is seen to be associated with lower net job creation and higher failure rates of firms. Finally, labor market segmentation seemed to have favored a stronger job destruction that was facilitated by an increasing number of temporary workers Dans cet article, nous analysons la résilience du marché du travail portugais, en termes de mouvements de main d’oeuvre, d’emplois et d’évolution des salaires, dans le contexte de la récession actuelle. Nous mettons en évidence la contribution significative des destructions d’emplois, notamment en raison des fermetures d’entreprises, à la baisse importante de l’emploi total et à l’augmentation du taux de chômage. Nous examinons également le très fort accroissement du nombre de travailleurs rémunérés au salaire minimum et le gel des salaires nominaux. Nous explorons trois différentes causes pouvant avoir amplifié la réaction de l’emploi à la grande recession : l’accès au crédit, la rigidité des salaires, et la segmentation du marché du travail. Nous mettons en lumière une preuve, que nous jugeons convaincante, que la rigueur des contraintes de crédit pesant sur les entreprises a joué un rôle important dans le processus actuel de destruction d’emplois. La rigidité des salaires est considérée comme allant de pair avec une création nette d’emplois plus faible et des taux plus élevés de faillite d’entreprises. Enfin, la segmentation du marché du travail semble avoir favorisé des destructions d’emplois plus fortes rendues possibles par un nombre croissant de travailleurs temporaires.
Keywords: wage rigidities, job destruction, segmentation, credit constraints
JEL: E24 J23 J63

Bargaining and the Gender Wage Gap: A Direct Assessment

October 15, 2013
By: Card, David (University of California, Berkeley)
Cardoso, Ana Rute (IAE Barcelona (CSIC))
Kline, Patrick (University of California, Berkeley)
An influential recent literature argues that women are less likely to initiate bargaining with their employers and are (often) less effective negotiators than men. We use longitudinal wage data from Portugal, matched to balance sheet information on employers, to measure the relative bargaining power of men and women and assess the impact of the gender gap in bargaining strength on the male-female wage gap. We show that a model with additive fixed effects for workers and gender-specific fixed effects for firms provides a close approximation to the wage structure for both men and women. Building on this model we present three complementary approaches to identifying the impact of differential bargaining strength. First, we perform a simple decomposition by assigning the firm-specific wage premiums for one gender to the other. Second, we relate the wage premiums for men and women to measures of employer profitability. Third, we show that changes in firm-specific profitability have a smaller effect on the wage growth of female than male employees. All three approaches suggest that women are paid only 85-90% of the premiums that men earn at more profitable firms. Overall, we estimate that the shortfall in women‘s relative bargaining power explains around 3 percentage points – or 10-15% – of the gender wage gap in Portugal.
Keywords: wage differentials, discrimination, gender, linked employer-employee data
JEL: J16 J31 J71

The Heterogeneous Impact of Conditional Cash Transfers

October 15, 2013
By: Sebastian Galiani (University of Maryland)
Patrick J. McEwan (Wellesley College)
The Honduran PRAF experiment randomly assigned conditional cash transfers to 40 of 70 poor municipalities, within five strata defined by a poverty proxy. Using census data, we show that eligible children were 8 percentage points more likely to enroll in school and 3 percentage points less likely to work. The effects were much larger in the two poorest strata, and statistically insignificant in the other three (the latter finding is robust to the use of a separate regression-discontinuity design). Heterogeneity confirms the importance of judicious targeting to maximize the impact and cost-effectiveness of CCTs. There is no consistent evidence of effects on ineligible children or on adult labor supply.
JEL: H00