Life cycle earnings, education premiums, and internal rates of return
Manudeep Bhuller, Magne Mogstad, Kjell G. Salvanes 22 September 2014
The impact of education on earnings over the life cycle is a critical factor for policy decisions ranging from education to taxation and pensions. This column exploits a unique Norwegian population panel data set to estimate an internal rate of return to additional schooling of about 10%. The standard Mincer-regression approach is also shown to substantially underestimate schooling’s rate of return.
Many empirical studies use cross-section data to estimate Mincer regressions of log earnings on years of schooling and (potential) experience (see the review articles by Card 1999, Harmon et al. 2003, Psacharopoulos and Patrinos 2004, and Heckman et al. 2006). The problem of selection bias can be addressed by controlling for correlated determinants of earnings or with an instrumental variable for schooling. However, it is not clear how the coefficient on schooling should be interpreted.
Education Labour markets
education, Labour Markets, Mincer regressions, pensions, earnings, schooling, Norway, taxes, education premium, returns to education
Skill gaps, skill shortages, and skill mismatches: Evidence for the US
Peter Cappelli 21 September 2014
Many high-paying jobs in the US cannot be filled, raising concerns about an existing skills gap. However, this column does not find evidence in support of serious skills gap or shortages in the US labour force. Similarly to other developed economies, the prevailing situation in the US is due to skill mismatches. This could have implications for students and their tuition-paying families.
Federal and State governments in the US are giving serious consideration to the idea that the there are important problems with the overall quality of labour in the US.
skill gap, Labour Markets, US, skill mismatches
How immigration benefits natives despite labour market imperfections and income redistribution
Michele Battisti, Gabriel Felbermayr, Giovanni Peri, Panu Poutvaara 08 August 2014
Immigration continues to be a hotly debated topic in most OECD countries. Economic models emphasising the benefits of immigration for natives have typically neglected unemployment and redistribution – precisely the things voters are most concerned about. This column analyses the effects of immigration in a world with labour market rigidities and income redistribution. In two-thirds of the 20 countries analysed, both high-skilled and low-skilled natives would benefit from a small increase in immigration from current levels. The average welfare gains from immigration are 1.25% and 1.00% for high- and low-skilled natives, respectively.
A fierce policy debate with little insight from economists
Labour markets Migration
Labour Markets, unemployment, wages, immigration, redistribution, welfare, Skill Complementarities
Employee satisfaction and firm value: A global perspective
Alex Edmans 25 July 2014
Happy workers might well be more productive than unhappy ones, but high worker satisfaction could also be a sign that workers are overpaid or underworked. This column examines the link between worker satisfaction and future stock returns in 14 countries. In most but not all countries, employee satisfaction is associated with higher future stock returns. Abnormal returns to companies with high worker satisfaction are significantly increasing in the flexibility of their countries’ labour markets.
Is employee satisfaction good or bad for firm value? While it may seem natural that companies should do better if their workers are happier, this relationship is far from obvious. The 20th-century way of managing workers (e.g. Taylor 1911) is to view them as any other input – just as managers shouldn’t overpay for or underutilise raw materials, they shouldn’t do so with workers. High worker satisfaction may be a sign that workers are overpaid or underworked. However, the world is different nowadays.
Labour markets Microeconomic regulation Productivity and Innovation
employment, Labour Markets, productivity, Management, happiness, Stock returns, labour-market flexibility, employment protection, work, employee satisfaction, worker satisfaction, profits, labour-market regulation
Minimum wages: the effects on employment and labour-force turnover
Pierre Brochu, David A Green 22 January 2014
Economic research finds little evidence in support of the hypothesis that an increase in minimum wages significantly affects employment – either positively or negatively. This column discusses a study of the impact of minimum-wage changes on turnover rates. Minimum-wage increases are associated with a lower probability that a job will end, and with a lower probability that an unemployed person will find work. The former effect is established only for newly hired workers. Increases in the minimum wages are also associated with more stable jobs for all low educated workers. Thus, the trade-off between fewer jobs with higher wages and more job stability versus easier access to jobs should be taken into account in the minimum-wage policy debates.
On 14 January 2014 a group of 75 economists, including seven Nobel laureates, released a letter calling for an increase in the US minimum wage (Woellert 2014). At the same time, George Osborne, the Conservative Chancellor of the Exchequer in the UK, has called for the minimum wage in that country to rise by more than the rate of inflation this year (BBC 2014). In both cases, the key argument for an increase concerns a need for fairness in insuring that the lowest paid workers share in the benefits of post-recession economic growth.
employment, Labour Markets, minimum wage
Hollowing out and the future of the labour market – the myth
Bob Butcher 17 December 2013
The labour market ‘hollowing out’ thesis suggests that there are far fewer intermediate-level jobs and far more low- and high-level jobs than two or three decades ago, primarily due to technological advancement. This column reviews recent research that finds little evidence in support of this conclusion. Though the composition of intermediate-level jobs has changed, their volume has probably not. Policy implications for specific groups of job seekers are discussed.
The 'hollowing out' thesis argues that intermediate-level jobs have been disappearing, and are replaced by a rise in low-level and in high-level jobs, and that this is primarily due to technology replacing routine jobs. That position, however, does not match what is seen in reality.
Labour Markets, hollowing out, medium-level jobs
Does offshoring hurt domestic innovation activities?
Bernhard Dachs, Bernd Ebersberger, Steffen Kinkel, Oliver Som 07 September 2013
European offshoring mostly concerns factory jobs, but some worry that innovation will soon follow. This column shows that offshoring firms employ more people in R&D and design, introduce more frequently new products, and invest more frequently in advanced process technologies compared to non-offshoring firms. Concerns that offshoring may hurt innovation because of the lost links between production and product development are not supported by the evidence.
Offshoring of production activities has been a topic of economic policy debates for at least the last decade. A central issue in these debates are the economic effects of offshoring on firms in the home country. Most contributions investigated the effects of offshoring on output, employment or skills (see the surveys of Lipsey 2002, Olsen 2006, Crinò 2009) and find a complementary relationship between foreign and domestic economic activity, at least in the long run.
Productivity and Innovation
R&D, Labour Markets, offshoring
Small isn’t always beautiful: The cost of French regulation
Luis Garicano, John Van Reenen 30 May 2013
France has a raft of labour-market regulations that kick in for firms with 50 workers or more. This column uses this threshold to identify the economic effects of size-contingent regulations. Such policies seem to subsidise small firms at the expense of larger firms. But since small firms are on average less productive than large firms, the French economy loses out.
Slow growth in Europe has led to a debate over whether structural reforms can be used to raise productivity (see Costello et al. 2009, Crafts 2012). Many countries have tough labour regulations which may be a barrier to growth. Quantifying the welfare costs of such regulations has proven elusive, however, and policymakers are reluctant to spend scarce political capital reforming labour laws when the benefits are uncertain and vociferous opposition is assured.
Europe's nations and regions Labour markets
France, Labour Markets, Eurozone crisis
Preparing to export
Danielken Molina, Marc Muendler 27 May 2013
Exporting is essential for economic development. But can firms move from local sales to export sales? How do firms prepare for exporting? This column presents new research showing that worker mobility is an important mechanism by which exporter knowledge spreads through the economy.
Exporting is an essential feature of strategies for economic development for very good reasons. A large body of empirical evidence shows that exporters are larger, more productive, pay higher wages and hire more skilled workers (Bernard and Jensen 1995). But do firms move from local sales to export sales? What choices do firms make in preparation for exporting? How do these choices affect a firm’s future export performance?
Labour Markets, exports, firms