CONTRACT VIOLATIONS, NEIGHBORHOOD EFFECTS, AND WAGE ARREARS IN RUSSIA

We present a model of neighborhood effects in wage payment delays. Positive feedback arises because each employer’s arrears affect the late payment costs faced by other firms in the same local labor market, resulting in a strategic complementarity in the practice. The model is estimated on panel data for workers and firms in Russia, facilitating identification through the use of a rich set of covariates and fixed effects for employees, employers, and local labor markets. We also exploit a policy intervention affecting public sector workers that provides an instrumental variable to estimate the endogenous reaction in the non-public sector. Consistently across specifications, the estimated reaction function displays strongly positive neighborhood effects, and the estimates of four feedback loops – operating through worker quits, effort, strikes, and legal penalties – imply that costs of delays are attenuated by neighborhood arrears. We also study a nonlinear case exhibiting two stable equilibria: a “punctual payment equilibrium” and a “late payment equilibrium.” The estimates imply that the theoretical conditions for multiple equilibria under symmetric local labor market competition are satisfied in our data.wage arrears, contract violation, neighborhood effect, social interactions, multiple equilibria, network externality, strategic complementarity, transition, Russia.

Equilibrium Wage Arrears: A theoretical and empirical analysis of institutional lock-in

We present a model of managerial choice of wage delays that implies a possibility of multiple equilibria in the level of arrears. Positive feedback arises because each employer's wage arrears choice has externalities for other employers by affecting worker quit, effort and protest behavior and the probability of legal penalties. We study the case of three equilibria, distinguishing two that are stable - the "punctual payment equilibrium" and the "late payment equilibrium" - and one unstable "critical mass equilibrium," a threshold of arrears in the local labor market beyond which even profitable firms may adopt the practice. Our econometric analysis of linked employer-employee data for Russia provides evidence that workers' responses to wage delays are attenuated by local labor market arrears, that the wage arrears reaction function exhibits positive feedback, and that the theoretical conditions for multiple equilibria under symmetric local labor market competition are satisfied empirically in 1995 and 1998. Simulation results imply clustering of regions around two stable levels of arrears, with the late payment equilibrium characterized by six months overdue wages for a typical worker in 1995 and nine months in 1998.http://deepblue.lib.umich.edu/bitstream/2027.42/39705/2/wp321.pd

Equilibrium Wage Arrears: Institutional Lock-In of Contractual Failure in Russia

We present a model of managerial choice of wage delays that implies a possibility of multiple equilibria in the level of arrears. Positive feedback arises because each employer's wage arrears choice has externalities for other employers by affecting worker quit, effort and protest behavior and the probability of legal penalties. We study the case of three equilibria, distinguishing two that are stable - the "punctual payment equilibrium" and the "late payment equilibrium" - and one unstable "critical mass equilibrium," a threshold of arrears in the local labor market beyond which even profitable firms may adopt the practice. Our econometric analysis of linked employer-employee data for Russia provides evidence that workers' responses to wage delays are attenuated by local labor market arrears, that the wage arrears reaction function exhibits positive feedback, and that the theoretical conditions for multiple equilibria under symmetric local labor market competition are satisfied empirically in 1995 and 1998. Simulation results imply clustering of regions around two stable levels of arrears, with the late payment equilibrium characterized by six months overdue wages for a typical worker in 1995 and nine months in 1998.

Soviet Launch of Sputnik: Sputnik-Inspired Educational Reform and Changes in Private Returns in America

On October 4th 1957, the Soviet Union launched the world’s first man-made satellite, Sputnik 1, into an elliptical low Earth orbit. This surprise triggered an arms race between the United States and the Soviet Union, and science-oriented educational reform in the U.S. The Sputnik swung off of the U.S. in military, politics, policies, and education. The Sputnik woke Americans up from complacency came from technology, science, and educational superiority. Educational reform started with emphasizing science and defense education and it was expanded to educations at all level. Early reforms, National Science Foundation (NSF), National Defense Education Act (NDEA) of 1958, were focused on science and defense education during Eisenhower. Domestic programs, Civil Rights and Great Society, diffused educational policy to produce more general human capitals for improve poverty and economic growth during Kennedy and Johnson. Higher Education Act (HEA) of 1965 was enacted for supporting postsecondary education. I insist that these policy outputs have contributed to the increase in the supply of college graduates dramatically since 1960. This study begins with emphasizing the Soviet launching of Sputnik and educational reform in early 1960s in U.S. as a cause and effect relationship. Analysis focuses on the policy process of educational reform by applying Kingdon’s multiple streams model, and on the economic effects of increase in the supply of college graduates by applying Acemoglu’s theory, the pooling and separating equilibria (1999). According to Acemoglu, economy transits from initial pooling equilibrium to separating equilibrium as supply of high skilled labor increases and thus labor markets show different patterns in unemployment rates and wage structures for skilled and unskilled, and job mismatch. I find that occupational segregation at the state labor markets increases corresponding to supply of college graduates, and overeducation decreases as occupational segregation increases. Moreover, occupational segregation has positive wage effects and wage penalty from overeducation becomes smaller in states where occupations are more separated between the skilled and the unskilled. College graduates earn more wage premiums in states where occupations are more separated between the skilled and the unskilled

Rural-urban migration in developing countries : a survey of theoretical predictions and empirical findings

The migration of labor from rural to urban areas is an important part of the urbanization process in developing countries. Even though it has been the focus of abundant research over the past five decades, some key policy questions have not found clear answers yet. To what extent is internal migration a desirable phenomenon and under what circumstances? Should governments intervene and, if so, with what types of interventions? What should be their policy objectives? To shed light on these important issues, the authors survey the existing theoretical models and their conflicting policy implications and discuss the policies that may be justified based on recent relevant empirical studies. A key limitation is that much of the empirical literature does not provide structural tests of the theoretical models, but only provides partial findings that can support or invalidate intuitions and in that sense, support or invalidate the policy implications of the models. The authors'broad assessment of the literature is that migration can be beneficial or at least be turned into a beneficial phenomenon so that in general migration restrictions are not desirable. They also identify some data issues and research topics which merit further investigation.Labor Markets,Urban Housing and Land Settlements,National Urban Development Policies&Strategies,Voluntary and Involuntary Resettlement,Economic Theory&Research

Matching, Reallocation, and Retention in Labor Markets

This dissertation is devoted to studying how workers initially match with firms, and are subsequently retained or reallocated over time. The first two chapters---one theoretical, the other empirical---specifically ask how asymmetric employer information distorts career placement and efficiency in a dynamic setting. The final chapter studies optimal dynamic compensation policy from the standpoint of a single employer attempting to maximize retention at minimum cost. In Chapter 1, I develop a new framework to investigate the efficiency costs of asymmetric information in the labor market. I consider a setting where, similar to Greenwald (1986), employers have an inside advantage in learning their employees' abilities. I then add complementarity between firms' heterogeneous technologies and the abilities of their workers in order to study how asymmetric information can disrupt the efficient assignment of workers to firms. Workers' abilities are initially hidden and become privately observed by their employers. Incumbent firms retain high-ability workers. Low-ability workers separate to uninformed but comparatively advantaged outsiders where the returns to ability are low. Relative to a static optimum, new hires over-place into inefficiently high-type firms, and then become under-placed as they accumulate tenure. These placement distortions present an added source of inefficiency relative to a symmetric learning environment. I derive a variety of testable implications of the model, and prove a non-parametric method for identifying the surplus function.In Chapter 2, I present evidence on how adverse selection and production complementarities interact to produce distinct patterns in reallocation. I build a new data-set on the US market for lawyers by linking together the Martindale-Hubbell professional directories from 1930-1963. I show evidence that lawyers who separate from surviving firms are adversely selected, and move to firms where their peers have lower average ability. Meanwhile, lawyers who separate after their firm exits move to firms with higher-ability peers, but are not positively selected compared to similar lawyers who are retained. These results provide evidence to support the asymmetric learning model of Chapter 1. In Chapter 3, which is co-authored with Moshe Buchinsky and John de Figueiredo, we examine the cost-effectiveness of compensation policy in the federal government. We estimate a dynamic retention model using the federal government's personnel data, exploiting exogenous pay variation caused by the 1990s civil service pay reform known as the Federal Employees Pay Comparability Act (FEPCA). We find that the elasticity of retention to pay is typically around 25% for the workers in our sample. The model can be combined with assumptions about government hiring in order to make long-run out-of-sample forecasts of payroll costs, turnover, and workforce composition under alternative compensation policies

Active Labour Market Policies in Denmark : A Comparative Analysis of Post-Program Effects

URL des Documents de travail : http://centredeconomiesorbonne.univ-paris1.fr/bandeau-haut/documents-de-travail/Documents de travail du Centre d'Economie de la Sorbonne 2011.71 - ISSN : 1955-611XThe scope of the paper is to estimate post-program effects in fostering good transitions from unemployment to work. Such an issue implies that besides job finding rates, qualitative variables related to work have to be included as well. The evaluation is based on a comprehensive transversal dataset of Danes who ended an activation program in the year 2002, merged with individual characteristics and yearly information related to their labour market status until 2004. To control for unobserved heterogeneity treatment-effects models have been applied. As regards transitions to work and labour market integration, main results show fairly large positive effects for private sector employment programs. It is worthwhile to be aware that job opportunities for private sector employment participants are highly dependent on the business cycle. Besides, the "creaming effects" minimize the positive impact of this type of programs as unemployed with longer work experience benefit the most from the private sector. Smaller positive impacts are found for labour market training and intensive job seeking, whereas negative coefficients are assigned to public sector employment programs. Long-term effects on wages are the most positive for those who involved into labour market training.L'objectif de ce papier est d'estimer les effets du passage par les dispositifs d'activation sur les transitions entre chômage et emploi. A côté du taux de retour à l'emploi, il est important d'intégrer des variables qualitatives telles que le niveau de salaire, le type de contrat de travail et les épisodes d'emploi. L'analyse s'appuie sur des données danoises transversales incluant l'ensemble des personnes qui ont achevé leur participation à un programme d'activation fin 2002. A côté des caractéristiques individuelles, nous disposons d'informations annuelles jusqu'en 2004 par rapport au statut occupé sur le marché du travail. Afin de contrôler l'hétérogénéité inobservable, nous avons eu recours aux modèles à effets de traitement. Nos résultats mettent en évidence que les programmes pour l'emploi dans le secteur privé enregistrent les meilleures performances quant au retour et au maintien dans l'emploi. Il convient de préciser que, pour les participants à ce type de programmes, les opportunités d'emploi après la période d'activation dépendent fortement de la situation conjoncturelle. Par ailleurs, l'impact positif des programmes pour l'emploi dans le secteur privé est atténué par "les effets d'écrémage", dans la mesure où ils profitent davantage aux personnes possédant une plus grande expérience professionnelle. L'analyse montre que les programmes renforcés d'aide aux chômeurs et les programmes de formation hors de l'emploi ont des effets positifs plus faibles sur les transitions vers l'emploi, tandis que les programmes pour l'emploi dans le secteur public ont des effets négatifs. Les effets de long terme des programmes de formation hors de l'emploi sont les plus positifs sur les niveaux de salaire

Essays on Health Insurance Market Design and Labor Market Interactions

This dissertation aims to develop empirical frameworks to assess a variety of health insurance market policies and explore the optimal policy design taking into account their impacts on the labor market and public insurance program. The first chapter (co-authored with Hanming Fang) presents and empirically implements an equilibrium labor market search model where risk averse workers facing medical expenditure shocks are matched with firms making health insurance coverage decisions. We use our estimated model to evaluate the equilibrium impact of the 2010 Affordable Care Act (ACA) and find that it would reduce the uninsured rate among the workers in our estimation sample from 20.12% to 7.27%. The second chapter evaluates the current health insurance exchange (HIX) system implemented under the ACA and examines its optimal design, accounting for adverse selection and equilibrium labor market interactions. I develop and empirically implement a life cycle equilibrium labor market search model integrated with the pre-ACA health insurance market. Counterfactual experiments show that the ACA decreases not only the uninsured rate but also aggregate labor productivity. Next, I examine the optimal design of HIX by choosing the values of three major design components---tax penalties on the uninsured, premium subsidies and age-based rating regulations. I find that the optimal combination of these components makes it less beneficial for older workers relative to younger workers to purchase health insurance from HIX. Implementing the optimal structure leads to higher labor productivity and a slightly lower uninsured rate. The third chapter (co-authored with You Suk Kim) studies the incentives for private insurers to use advertising to attract low-cost, healthy individuals and the impacts of advertising on selection, competition, and welfare in the context of the Medicare Advantage (MA). We develop and estimate an equilibrium model of the MA market, which incorporates strategic advertising by insurers. We find that advertising has positive effects on overall demand, but a much larger effect on the demand of the healthy individuals. Moreover, we find that advertising accounts for 15% of the selection of healthier individuals into MA. The impact of risk adjustment policies is also examined

Extrinsic Rewards and Intrinsic Motives: Standard and Behavioral Approaches to Agency and Labor Markets

Employers structure pay and employment relationships to mitigate agency problems. A large literature in economics documents how the resolution of these problems shapes personnel policies and labor markets. For the most part, the study of agency in employment relationships relies on highly stylized assumptions regarding human motivation, e.g., that employees seek to earn as much money as possible with minimal effort. In this essay, we explore the consequences of introducing behavioral complexity and realism into models of agency within organizations. Specifically, we assess the insights gained by allowing employees to be guided by such motivations as the desire to compare favorably to others, the aspiration to contribute to intrinsically worthwhile goals, and the inclination to reciprocate generosity or exact retribution for perceived wrongs. More provocatively, from the standpoint of standard economics, we also consider the possibility that people are driven, in ways that may be opaque even to themselves, by the desire to earn social esteem or to shape and reinforce identity.agency, motivation, employment relationships, behavioral economics

The voters' curses: why we need Goldilocks voters

Scholars have long deplored voters' lack of interest in politics and argued in favor of greater political engagement. We present a formal theory of elections where successful communication of campaign messages requires both effort by candidates and attention from voters. Voters' interest in politics affects their attention, and impacts the effectiveness of the electoral process as a screening and disciplining device. In line with existing theories, there exists a curse of the uninterested voter: When voters have little interest in politics, the electoral process performs poorly, and voters' attention to politics is low. Surprisingly, we uncover a curse of the interested voter, by which the same happens when voters have a strong interest in politics. Our results highlight the importance of distinguishing between voters' interest and attention, two notions often conflated in empirical studies. Moreover, policy interventions aimed at subsidizing the cost of acquiring political information can have unintended consequences