Setting the Minimum Wage

The process leading to the setting of the minimum wage so far has been fairly overlooked by economists. This paper suggests that this is a serious limitation as the setting regime contributes to explain cross-country variation in the fine-tuning of the minimum wage, hence in the way in which the trade-off between reducing poverty among working people and shutting down low productivity jobs is addressed. There are two common ways of setting national minimum wages: they are either government legislated or are the outcome of collective bargaining agreements, which are extended erga omnes to all workers. We develop a simple model relating the level of the minimum wage to the setting regime. Next, we exploit a new data set on minimum wages in 66 countries that had already or introduced a minimum wage in the period 1981-2005 to test the implications of the model. We find that a Government legislated minimum wage is lower than a wage floor set within collective agreements. This effect survives to several robustness checks and hints at a causal relation between the setting regime and the level of the minimum wage.minimum wages, collective bargaining, statutory minimum

Immigration to the Land of Redistribution

Negative perceptions about migrants in Europe, the Continent with the largest social policy programmes, are driven by concerns that foreigners are a net fiscal burden. Paradoxically instruments of social inclusion are becoming a weapon of mass exclusion. Increasing concerns of public opinion are indeed pressing Governments, in the midst of the recession, to reduce welfare access by migrants or further tighten migration policies. Are there politically feasible alternatives to these two hardly enforceable (and procyclical) policy options? In this paper we look at economic and cultural determinants of negative perceptions about migrants in Europe. Based on a simple model of the perceived fiscal effects of migration and on a largely unexploited database (EU-Silc), we find no evidence that legal migrants, notably skilled migrants, are net recipients of transfers from the state. However, there is evidence of "residual dependency" on non-contributory transfers and self-selection of migrants more likely to draw on welfare in the countries with the most generous welfare state. Moreover, redistribution does not find much support among those who are in favour of immigration. A way out of the migration into the welfare state dilemma facing Europe involves i. co-ordinating safety nets across the EU, ii. adopting explicitly selective migration policies, and iii. improving activation programmes. Other options – such as restricting migration or welfare access by migrants – are however on the agenda of national Governments.migration policy, welfare access, fiscal externality

Eastern enlargement, migration and Euro adoption

"Western Europe has welcomed its new members by shutting the door in the face of the workers coming from the East and making their road to EMU more difficult. Two years down the road of enlargement, some countries are now liberalizing worker flows. Indeed, as shown in this paper, these restrictions are not justified by migration pressures and rely on ill-founded concerns that nominal convergence could delay real convergence. Moreover, they are mutually inconsistent: delaying EMU convergence would just worsen labour market conditions with respect to a scenario of relatively rapid Euro convergence, by increasing real interest rates and negatively affecting FDI directed to the New Member States. This ultimately means that delaying EMU convergence may backfire in terms of stronger East-West migration pressures." (Author's abstract, IAB-Doku) ((en))EU-Osterweiterung, Eurozone, Währungsunion, internationale Wanderung, Integrationspolitik, europäische Integration, Einwanderungspolitik, Konvergenz, Protektionismus, Wanderungspotenzial, Ost-West-Wanderung, Europäische Union, Osteuropa, Mitteleuropa

Institutional Determinants of Labor Reallocation in Transition

Studying the transition means analyzing the interactions between institutions and structural change, a process we still know very little about. In this paper we show that the transition process has been very different in the countries of the Former Soviet Union (FSU) and those of Central and Eastern Europe (CEE) in terms of reallocation of labor from the old to the new sector, the extent of real wage decline and responsiveness of employment to output changes. We sift through the theoretical and empirical literature to find an explanation for these diverging adjustment trajectories and conclude that the difference can be explained in part by different policy models. The CEE countries adopted social policies that upheld wages at the bottom of the distribution and hence forced the unproductive old sector to restructure or collapse. The FSU countries allowed wages to free fall and hence did not force the hand of the old sector. Why these two models were adopted is the subject for political-economy research, however we speculate that it has to do with the relative appeal of joining the EU.http://deepblue.lib.umich.edu/bitstream/2027.42/39768/3/wp384.pd

Pension Reforms and Women Retirement Plans

We analyse the effects of pension reforms on the planned retirement age of women by exploiting within country variation in pension wealth across cohorts of workers in Italy after the Amato and Dini reforms of the early 1990s, which introduced a “Notionally Defined Contribution” (NDC) method for calculating pension benefits. The effect of the change in the pension regime on retirement decisions is affected by the presence of gaps in careers of women. Binding constraints related to eligibility to pensions indeed reduce the responsiveness of women to changes in pension rules. This explains why, contrary to a priori expectations, men are often found to be more reactive than women to changes in pension rules.Pensions, Social Security Wealth and Accrual, Gaps in careers

Shadow Sorting

This paper investigates the border between formal employment, shadow employment, and unemployment in an equilibrium model of the labor market with market frictions. From the labor demand side, firms optimally create legal or shadow employment through a mechanism that is akin to tax evasion. From the labor supply side, heterogeneous workers sort across the two sectors, with high productivity workers entering the legal sector. Such worker sorting appears fully consistent with most empirical evidence on shadow employment. The model sheds also light on the "shadow puzzle", the increasing size of the shadow economy in OECD countries in spite of improvements in technologies detecting tax and social security evasion. Shadow employment is correlated with unemployment, and it is tolerated because the repression of shadow activity increases unemployment. The model implies that shadow wage gaps should be lower in depressed labor markets and that deregulation of labor markets is accompanied by a decline in the average skills of the workforce in both legal and shadow sectors. Based on micro data on two countries with a sizeable shadow economy, Italy and Braziil, we find empirical support to these implications of the model. The paper suggests also that policies aimed at reducing the shadow economy are likely to increase unemployment.Unemployment, Matching, Shadow Activity.

Pension Reforms and Women Retirement Plans

We analyse the effects of pension reforms on the planned retirement age of women by exploiting within country variation in pension wealth across cohorts of workers in Italy after the Amato and Dini reforms of the early 1990s, which introduced a "Notionally Defined Contribution" (NDC) method for calculating pension benefits. The effect of the change in the pension regime on retirement decisions is affected by the presence of gaps in careers of women. Binding constraints related to eligibility to pensions indeed reduce the responsiveness of women to changes in pension rules. This explains why, contrary to a priori expectations, men are often found to be more reactive than women to changes in pension rules.pensions, social security wealth and accrual, gaps in careers

Returns to Mobility in the Transition to a Market Economy

In spite of ongoing dramatic changes in labor market structure, transitional economies display rather low worker flows across sectors and occupations. Such low mobility can be explained by low returns to job changes as well as by market segmentation in the allocation of job offers. We develop an econometric model which enables us to characterize intertemporal changes in probabilities of dismissal, remuneration, and offer arrival rates on the basis of information on observed transitions and wage payments. The model is estimated using data from the Polish Labor Force Survey. Our results indicate a significant degree of segmentation in the allocation of job offers and more stability in public sector versus private sector jobs. Our model can also be used for policy experiments. In particular, we infer that reductions of 10 per cent in the generosity of unemployment benefits will not significantly boost outflows from the unemployment state. These findings support explanations for low mobility in transitional economies, which are based on informational failures, and high costs of moving from public to private enterprises for those with high levels of job tenure and labor market experience in the public sector.http://deepblue.lib.umich.edu/bitstream/2027.42/39604/2/wp217.pd

Is Social Security Secure with NDC?

The introduction of NDC public pension scheme in few European countries, such as Latvia, Sweden, Italy, and Poland, in the nineties was motivated, among other things, by the need (i) to ensure the long term financial sustainability of the public pension system by linking pension returns to economic growth; (ii) to reduce the existing distortions in the labor market, due to the existing strong incentives to retire early, (iii) to increase the intergenerational equity of the system, jeopardized by the different returns across generations; and (iv) to reduce the systematic political interference with public pension systems under aging through the introduction of a sequence of automatic adjustments in the system that do not require government intervention. After more than ten years from their introduction, these systems have performed reasonably well on these accounts. However, some degree of political involvement with the working of the pension systems has continued (f.e., in Italy), and new concerns have emerged. In particular, the combination of a pension system, which strongly bases the benefit calculation on previous contributions (and on thus labor market status), and the existence in some countries of a dual labor market, with young workers being held on the margin of the regular labor market for many years, create a new, potentially strong challenge to these systems. Our simulations of the future pension benefits for the current generation of young workers with a discontinuous working history in Italy and Sweden suggest that the replacement rates will be low, unless the retirement age is significantly increased. This effect may end up jeopardizing the political sustainability of these NDC systems in the future, unless important labor market reforms are introduced. We discuss the effects on the future generation of retirees in Italy and Sweden of a current labor market reform: the introduction of a unique labor market contract, aimed at reducing the dualism between temporary and permanent workers.notional defined contribution, pay as you go, labor market dualism and pensions