|
on Labor Markets - Supply, Demand, and Wages |
| By: | Weinstein, Russell (University of Illinois at Urbana-Champaign) |
| Abstract: | This paper analyzes labor market matching in the presence of search and informational frictions, by studying employer recruiting on college campuses. Based on employer and university interviews, I develop a model describing how firms choose target campuses given relevant frictions. The model predicts that with screening costs, the decision to recruit and the wage are driven by the selectivity of surrounding universities, in addition to the university's selectivity. The prediction has strong support using data from 39 finance and consulting firms and the Baccalaureate and Beyond. Structural estimation of an equilibrium model directly quantifies the impact of reducing screening costs. |
| Keywords: | labor market search, employer recruiting, return to university education, screening costs |
| JEL: | J23 J31 D83 M51 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10912&r=lma |
| By: | Shiferaw, Admasu (College of William and Mary); Bedi, Arjun S. (ISS, Erasmus University Rotterdam); Söderbom, Mans (University of Gothenburg); Alemu, Getnet (University of Addis Ababa, Ethiopia) |
| Abstract: | This paper examines the labor market implications of a mandatory social insurance scheme introduced in Ethiopia in 2011 for private sector employees in the formal sector. We use firm-level panel data and exploit differences in pre-reform pension plans across firms to identify the effects of the reform. We find no evidence of employers fully shifting the cost of pension benefits to workers in the form of lower wages. In fact the reform seems to be associated with an increase in real wage rates particularly among large firms. Firm-level employment declined after the reform with a greater contraction among firms without pre-reform provident funds and firms that were initially small. The composition of the workforce also shifted in favor of skilled workers although this effect may not be attributed entirely to the pension reform. We also find an increase in firm-level investment, capital per worker, and labor productivity. |
| Keywords: | social insurance, pension reform, labor markets, Ethiopia |
| JEL: | H55 J2 J3 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10903&r=lma |
| By: | Glitz, Albrecht (Universitat Pompeu Fabra); Wissmann, Daniel (Ludwig-Maximilians-Universität München) |
| Abstract: | In this paper, we study the development and underlying drivers of skill premiums in Germany between 1980 and 2008. We show that the significant increase in the medium to low skill wage premiums since the late 1980s was almost exclusively concentrated among the group of workers aged 30 or below. Using a nested CES production function framework which allows for imperfect substitutability between young and old workers, we investigate whether changes in relative labor supplies could explain these patterns. Our model predicts the observed differential evolution of skill premiums very well. The estimates imply an elasticity of substitution between young and old workers of about 8, between medium- and low-skilled workers of 4 and between high-skilled and medium/low-skilled workers of 1.6. Using a cohort level analysis based on Microcensus data, we find that long-term demographic changes in the educational attainment of the native (West-)German population – in particular of the post baby boomer cohorts born after 1965 – are responsible for the surprising decline in the relative supply of medium-skilled workers which caused wage inequality at the lower part of the distribution to increase in recent decades. We further show that the role of (low-skilled) migration is limited in explaining the long-term changes in relative labor supplies. |
| Keywords: | cohorts, baby boom, labor supply, labor demand, skill-biased technological change, wage distribution, wage differentials |
| JEL: | J11 J21 J22 J31 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10901&r=lma |
| By: | Di Paolo, Antonio (University of Barcelona); Tansel, Aysit (Middle East Technical University) |
| Abstract: | This paper analyzes the drivers of wage differences among college graduates who hold a degree in a different field of study. We focus on Turkey, an emerging country that is characterized by a sustained expansion of higher education. We estimate conditional wage gaps by field of study using OLS regressions. Average differentials are subsequently decomposed into the contribution of observable characteristics (endowment) and unobservable characteristics (returns). To shed light on distributional wage disparities by field of study, we provide estimates along the unconditional wage distribution by means of RIF-Regressions. Finally, we also decompose the contribution of explained and unexplained factors in accounting for wage gaps along the whole distribution. As such, this is the first work providing evidence on distributional wage differences by college major for a developing country. The results indicate the existence of important wage differences by field of study, which are partly accounted by differences in observable characteristics (especially occupation and, to a lesser extent, employment sector). These pay gaps are also heterogeneous over the unconditional distribution of wages, as is the share of wage differentials that can be attributed to differences in observable characteristics across workers with degrees in different fields of study. |
| Keywords: | fields of study, wage differentials, decomposition, unconditional wage distribution, Turkey |
| JEL: | J31 J24 I23 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10915&r=lma |
| By: | Akay, Alpaslan (University of Gothenburg); Bargain, Olivier (Aix-Marseille University); Jara, Xavier (KU Leuven) |
| Abstract: | Subjective well-being (SWB) data is increasingly used to perform welfare analyses. Interpreted as 'experienced utility', SWB has recently been compared to 'decision utility' using specific experiments, most often based on stated preferences. Results point to an overall congruence between these two types of welfare measures. We question whether these findings hold in the more general framework of non-experimental and large-scale data, i.e. the setting commonly used for policy analysis. For individuals in the British household panel, we compare the ordinal preferences either "revealed" from their labor supply decisions or elicited from their reported SWB. The results show striking similarities on average, reflecting the fact that a majority of individuals made decisions that are consistent with SWB maximization. Differences between the two welfare measures arise for particular subgroups, lending themselves to intuitive explanations that we illustrate for specific factors (health and labor market constraints, 'focusing illusion', aspirations). |
| Keywords: | decision utility, experienced utility, labor supply, subjective well-being |
| JEL: | C90 I31 J22 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10907&r=lma |
| By: | Thomas K. Bauer (Ruhr-University Bochum and RWI Essen); Tanja Kasten (Deutsche Rentenversicherung Bund); Lars-H. R. Siemers (Siegen University) |
| Abstract: | Empirical evidence on the degree of business-tax shifting is rare. It remains open to which extent the tax burden is shifted, whether there are differences for tax increases and decreases, or whether there exists some treatment heterogeneity. Using a large administrative panel data set, we exploit the regional variation of the German business-income taxation and find that 65% to at most 93% is shifted to labour through real wage adjustments. We find that business taxation increases wage inequality significantly. Workers in a weak labour-market position bear the highest part of business taxation. The incidence effect of tax reliefs is significantly higher than that of tax increases. Therefore, reducing business taxes might, surprisingly, effectively reduce inequality. |
| Keywords: | tax incidence, profit taxation, wages, inequality, asymmetric effects |
| JEL: | H22 H25 H32 J31 J38 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201732&r=lma |
| By: | Edin, Per-Anders (IFAU); Fredriksson, Peter (Stockholm University); Nybom, Martin (SOFI, Stockholm University); Öckert, Björn (IFAU) |
| Abstract: | We examine the changes in the relative rewards to cognitive and non-cognitive skill during the time period 1992–2013. Using unique administrative data for Sweden, we document a secular increase in the returns to non-cognitive skill, which is particularly pronounced in the private sector and at the upper-end of the wage distribution. Workers with an abundance of non-cognitive skill were increasingly sorted into occupations that were intensive in: cognitive skill; as well as abstract, non-routine, social, non-automatable and offshorable tasks. Such occupations were also the types of occupations which saw greater increases in the relative return to non-cognitive skill. Moreover, we show that greater emphasis is placed on noncognitive skills in the promotion to leadership positions over time. These pieces of evidence are consistent with a framework where non-cognitive, inter-personal, skills are increasingly required to coordinate production within and across workplaces. |
| Keywords: | wage inequality, sorting, returns to skills, cognitive skills, noncognitive skills |
| JEL: | J24 J31 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10914&r=lma |
| By: | Akay, Alpaslan (University of Gothenburg); Bargain, Olivier (Aix-Marseille University); Jara, Xavier (KU Leuven) |
| Abstract: | Multidimensional welfare analysis has recently been revived by money-metric measures based on explicit fairness principles and the respect of individual preferences. To operationalize this approach, preference heterogeneity can be inferred from the observation of individual choices (revealed preferences) or from self-declared satisfaction following these choices (subjective well-being). We question whether using one or the other method makes a difference for welfare analysis based on income-leisure preferences. We estimate ordinal preferences that are either consistent with actual labor supply decisions or with income- leisure satisfaction. For different ethical priors regarding work preferences, we compare the welfare rankings obtained with both methods. The correlation in welfare ranks is high in general and very high for the 60% of the population whose actual choices coincide with subjective well-being maximization. For the rest, most of the discrepancies seem to be explained by labor market constraints among the low skilled and underemployment among low-educated single mothers. Importantly from a Rawlsian perspective, the identification of the worst o¤ depends on ethical views regarding responsibility for work preferences and the extent to which actual choices are constrained on the labor market. |
| Keywords: | fair allocation, money metric, decision utility, experienced utility, labor supply, subjective well-being |
| JEL: | C35 C90 D60 D63 D71 H24 H31 J22 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10908&r=lma |
| By: | Joel Wagner |
| Abstract: | The existence of downward nominal wage rigidity (DNWR) has often been used to justify a positive inflation target. It is traditionally assumed that positive inflation could “grease the wheels” of the labour market by putting downward pressure on real wages, easing labour market adjustments during a recession. A rise in the inflation target would attenuate the long-run level of unemployment and hasten economic recovery after an adverse shock. Following Daly and Hobijn (2014), we re-examine these issues in a model that accounts for precautionary motives in wage-setting behaviour. We confirm that DNWR generates a long-run negative relation between inflation and unemployment, in line with previous contributions to the literature. However, we also find that the increase in the number of people bound by DNWR following a negative demand shock rises with inflation, offsetting the beneficial effects of a higher inflation target. As an implication, contrary to previous contributions that neglected precautionary behaviour, the speed at which unemployment returns to pre-crisis levels during recessions is relatively unaffected by variations in the inflation target. |
| Keywords: | Inflation targets, Labour markets |
| JEL: | E24 E52 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:17-31&r=lma |
| By: | Bruce D. Meyer; James X. Sullivan |
| Abstract: | Official income inequality statistics indicate a sharp rise in inequality over the past five decades. These statistics do not accurately reflect inequality because income is poorly measured, particularly in the tails of the distribution, and current income differs from permanent income, failing to capture the consumption paid for through borrowing and dissaving and the consumption of durables such as houses and cars. We examine income inequality between 1963 and 2014 using the Current Population Survey and consumption inequality between 1960 and 2014 using the Consumer Expenditure Survey. We construct improved measures of consumption, focusing on its well-measured components that are reported at a high and stable rate relative to national accounts. While overall income inequality (as measured by the 90/10 ratio) rose over the past five decades, the rise in overall consumption inequality was small. The patterns for the two measures differ by decade, and they moved in opposite directions after 2006. Income inequality rose in both the top and bottom halves of the distribution, but increases in consumption inequality are only evident in the top half. The differences are also concentrated in single parent families and single individuals. Although changing demographics can account for some of the changes in consumption inequality, they account for little of the changes in income inequality. Consumption smoothing cannot explain the differences between income and consumption at the very bottom, but the declining quality of income data can. Asset price changes likely account for some of the differences between the measures in recent years for the top half of the distribution. |
| JEL: | H23 H53 I3 I31 I32 I38 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23655&r=lma |
| By: | Sanchez, Manuel (University of Bristol); Wellschmied, Felix (Universidad Carlos III de Madrid) |
| Abstract: | We study workers' idiosyncratic earnings risk over the life-cycle using a German administrative data set. Positive and negative earnings shocks both contain a highly persistent component. The variance and average size of positive persistent shocks is decreasing over the life-cycle. The (absolute) size of negative persistent shocks is increasing. The probability to experience either of these shocks is U-shaped in age; during prime-age it is around 35 percent. Negative transitory shocks are relatively larger and more dispersed than positive transitory shocks. Their size and variance are increasing over the life-cycle. Large persistent positive shocks early in life generate large wealth holdings for the top one percent of workers in an incomplete markets model. Moreover, age-varying risk implies a linear increase in consumption inequality late in working life. |
| Keywords: | life-cycle, earnings risk, wealth dispersion |
| JEL: | E21 E24 J31 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10925&r=lma |
| By: | Merfeld, Joshua D |
| Abstract: | Most research on labor market effects of the Mahatma Gandhi National Rural Employment Guarantee Scheme focuses on outcomes at the district level. This paper shows that such a focus masks substantial spatial heterogeneity: treated villages located near untreated areas see smaller increases in casual wages than treated villages located farther from untreated areas. I argue that worker mobility, rather than spatial differences in implementation or program leakages, drives this spatial heterogeneity. I also present evidence that the effects of the program on private-sector employment display similar intra-district heterogeneity. Finally, by exploiting the difference in wage changes over space, I show that a large portion of consumption increases are driven by wage increases, not program employment. Overall, these results suggest that a district-level focus underestimates the true effect of the program on wages and also support the argument that increasing rural wages is an effective poverty-fighting tool in developing countries. |
| Keywords: | India; Public Works; Labor; Wages; Spillovers |
| JEL: | D50 H53 I38 J38 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80630&r=lma |
| By: | Weinstein, Russell (University of Illinois at Urbana-Champaign) |
| Abstract: | Using Baccalaureate and Beyond data, I study whether university quality, both absolute and relative to other universities in the region, affects earnings one and ten years after graduation, controlling for the individual's SAT score. One year after graduation, high SAT score students earn 12% less if their university's regional rank is worse by 35 places, conditional on absolute university quality. This effect disappears ten years after graduation. The results suggest initial job quality does not have long-run career effects. The results also confirm the initial importance of a university's regional rank, an often overlooked dimension of university quality. |
| Keywords: | labor market return to higher education, employer learning, statistical discrimination |
| JEL: | I23 J31 D83 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10911&r=lma |
| By: | Das, Tirthatanmoy (Indian Institute of Management); Polachek, Solomon (Binghamton University, New York) |
| Abstract: | This paper examines how human capital based approaches explain the distribution of earnings. It assesses traditional, quasi-experimental, and new micro-based structural models, the latter of which gets at population heterogeneity by estimating individual-specific earnings function parameters. The paper finds one's ability to learn and one's ability to retain knowledge are most influential in explaining earnings variations. Marketable skills actually acquired in school depend on these two types of ability. However, schools may also implement ability enhancing interventions which can play a role in improving learning outcomes. Policy initiatives that improve these abilities would be a possible strategy to increase earnings and lower earnings disparity. |
| Keywords: | earnings distribution, human capital, heterogeneity, ability |
| JEL: | I3 J3 J7 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10922&r=lma |
| By: | Hartley, Robert Paul (Columbia University); Lamarche, Carlos (University of Kentucky) |
| Abstract: | Recent studies have used a distributional analysis of welfare reform experiments suggesting that some individuals reduce hours in order to opt into welfare, an example of behavioral-induced participation. Using data on Connecticut's Jobs First experiment, we find no evidence of behavioral-induced participation at the highest conditional quantiles of earnings. We offer a simple explanation for this: women assigned to Jobs First incur welfare participation costs to labor supply at higher earnings where the control group is welfare ineligible. Moreover, as expected, behavioral components and costs of program participation do not seem to play a differential role at other conditional quantiles where both groups are eligible to participate. Our findings show that a welfare program imposes an estimated cost up to 10 percent of quarterly earnings, and these costs can be heterogeneous throughout the conditional earnings distribution. The evidence is obtained by employing a semi-parametric panel quantile estimator for a model that allows women to vary arbitrarily in preferences and costs of participating in welfare programs. |
| Keywords: | welfare reform, quantile regression, panel data, program participation |
| JEL: | J22 I38 C21 C33 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10905&r=lma |
| By: | Sheng, Liugang (Chinese University of Hong Kong); Yang, Dennis T. (University of Virginia) |
| Abstract: | We present a global production sharing model that integrates the organizational choices of offshoring into the determination of relative wages in developing countries. The model shows that offshoring through foreign direct investment contributes more prominently than arm's length outsourcing to the demand for skill in the South, thereby increasing the relative wage of skilled workers. We incorporate these theoretical results into an augmented Mincer earnings function and test the model based on a natural experiment in which China lifted its restrictions on foreign ownership for multinational companies upon its accession to the World Trade Organization in 2001. Empirical findings based on detailed Urban Household Surveys and trade data from Chinese customs provide support to our proposed theory, thus shedding light on the changes in firm ownership structure, the skill upgrading in exports, and the evolution of wage inequality from 1992 to 2008 in China's manufacturing sector. |
| Keywords: | offshoring, ownership structure, processing trade, wage inequality, China |
| JEL: | F16 J31 D23 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10924&r=lma |
| By: | Viktor Slavtchev (Halle Institute for Economic Research (IWH)); Michael Wyrwich (FSU Jena) |
| Abstract: | Can TV influence the entrepreneurial decisions of individuals? To identify causal effects, we utilize a quasi-natural experiment, namely that during the division of Germany after WWI into the capitalistic West Germany and the socialistic East Germany, West TV was exogenously available only in some regions of the latter. Using regional and individual data, we show that, after the Reunification, entrepreneurship is higher among the residents of East German regions with West TV signal, indicating a direct effect of TV on the entrepreneurial mindset of exposed individuals. Moreover, we find second-order effects due to intergenerational transmission, which cause persistent differences. |
| Keywords: | Entrepreneurship, TV, Culture, Occupational choice, Institutions |
| JEL: | L26 J24 M13 P20 P30 O30 D02 D03 Z10 |
| Date: | 2017–08–08 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2017-007&r=lma |
| By: | Dupuy, Arnaud (University of Luxembourg); Galichon, Alfred (New York University) |
| Abstract: | This note introduces a maximum likelihood estimator of the value of job amenities and labor productivity in a single matching market based on the observation of equilibrium matches and wages. The estimation procedure simultaneously fits both the matching patterns and the wage curve. Our estimator is suited for applications to a wide range of assignment problems. |
| Keywords: | matching, observed transfers, structural estimation, value of job amenities, value of productivity |
| JEL: | C35 C78 J31 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10900&r=lma |
| By: | Ruolz Ariste; Ali Bejaoui |
| Abstract: | Several studies and media sources often report a labour shortage in the nursing profession. Given this shortage, one might assume that registered nurses (RNs) would have a perspective of maximizing wage income: increase the hourly wage or the number of hours worked. Institutional incentives in place can influence these two components, particularly the hourly wage. However, previous studies of Canadian nurse wages were limited to individual factors and did not take into account contextual factors such as hospital market share, labour market size or unionization. Based on market share, some refer to the nursing labour market as a monopsony; which depresses wages and might explain the shortage. However, this has not yet been tested empirically in the Canadian RN labour market. This article aims to fill this gap by using the confidential microdata files of the Labour Force Survey (LFS) for the years 2010 to 2012 and the multi-level analysis to shed light on this issue. The contribution of this work is that it takes into account both individual and contextual variables to try to explain nurses' hourly wage. In accordance with the monopsony model, we hypothesize a negative correlation between hourly wage and level of market share; i.e. monopsony employers would pay a lower wage rate. The results do not support the monopsony model to explain nursing labour shortage: there is no statistically significant relation between RNs wages and market share; no relation was found for market size either. This suggests explanation for RN labour shortage must be investigated elsewhere. |
| JEL: | I11 I18 J31 J38 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cch:wpaper:170010&r=lma |
| By: | Baltagi, Badi H. (Syracuse University); Deng, Ying (School of International Trade and Economics, Beijing); Ma, Xiangjun (School of International Trade and Economics, Beijing) |
| Abstract: | This paper studies the fact that 37 percent of the internal migrants in China do not sign a labor contract with their employers, as revealed in a nationwide survey. These contract-free jobs pay lower hourly wages, require longer weekly work hours, and provide less insurance or on-the-job training than regular jobs with contracts. We find that the co-villager networks play an important role in a migrant's decision on whether to accept such insecure and irregular jobs. By employing a comprehensive nationwide survey in 2011 in the spatial autoregressive logit model, we show that the common behavior of not signing contracts in the co-villager network increases the probability that a migrant accepts a contract-free job. We provide three possible explanations on how networks influence migrants' contract decisions: job referral mechanism, limited information on contract benefits, and the "mini labor union" formed among co-villagers, which substitutes for a formal contract. In the sub-sample analysis, we also find that the effects are larger for migrants whose jobs were introduced by their co-villagers, male migrants, migrants with rural Hukou, short-term migrants, and less educated migrants. The heterogeneous effects for migrants of different employer types, industries, and home provinces provide policy implications. |
| Keywords: | contract, co-villager network, spatial autoregressive logit model, internal migrants |
| JEL: | O15 R12 J41 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10926&r=lma |
| By: | Yamaguchi, Masao |
| Abstract: | This paper argues how an increase in minimum wage affects employment, consumption, and social welfare with dynamic general equilibrium model without market frictions. The study demonstrates that a minimum wage hike reduces an actual unemployment rate and has positive effects on an employment rate under the demand-shortage economy whereas they do not under a non-demand shortage economy. The study also shows that optimal minimum wage which maximize social welfare and minimize an actual unemployment rate when the economy faces the demand-shortage initially. These findings imply that the minimum wage can be considered as one of the effective policy for overcoming deflation and stagnation although it increases the natural rate of unemployment. |
| Keywords: | Minimum wage, Unemployment, Natural rate of unemployment, Deflation, Stagnation, Demand shortage, Dynamic general equilibrium model |
| JEL: | E24 E31 J38 |
| Date: | 2017–08–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80359&r=lma |
| By: | Brixy, Udo (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Brunow, Stephan (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); D''Ambrosio, Anna |
| Abstract: | "The study analyses the impact of different ethnic compositions of start-ups in Germany on the innovativeness of the new businesses. We are able to distinguish between the ethnicity of the founders and that of the early employees following new results that demonstrate the importance of including all new firms' stakeholders for the firm's success. We make use of a measure introduced by Ruef (2002) and Ruef et al. (2003) which not only takes into account the number of different ethnicities involved, but also includes the unusualness of the ethnic compositions. Our results first reveal that foreigners are an important source of both entrepreneurs and employers. Second, we can show that only really rare combinations, of the founders and employees together, lead to more innovative businesses whereas the more common minorities are even found to have a negative impact on firms' innovativeness." (Author's abstract, IAB-Doku) ((en)) |
| JEL: | J15 J21 L26 M13 M14 |
| Date: | 2017–08–03 |
| URL: | http://d.repec.org/n?u=RePEc:iab:iabdpa:201725&r=lma |
| By: | Altindag, Duha T. (Auburn University); Filiz, S. Elif (University of Southern Mississippi); Tekin, Erdal (American University) |
| Abstract: | An important question in representative democracies is how to ensure that politicians behave in the best interest of citizens rather than their own private interests. Aside from elections, one of the few institutional devices available to regulate the actions of politicians is their pay structure. In this paper, we provide fresh insights into the impact of politician salaries on their performance using a unique law change implemented in 2012 in Turkey. Specifically, the members of the parliament (MPs) in Turkey who are retired from their pre-political career jobs earn a pension bonus on top of their MP salaries. The law change in 2012 significantly increased the pension bonus by pegging it to 18 percent of the salary of the President of Turkey, while keeping the salaries of non-retired MPs unchanged. By exploiting the variation in total salaries caused by the new law in a difference-in-differences framework, we find that the salary increase had a negative impact on the performance of the retired MPs. In particular, the overall performance of these MPs was lowered by 12.3 percent of a standard deviation as a result of the increase in salary caused by the new law. This finding is robust to numerous specification tests. Furthermore, the results obtained from an auxiliary analysis suggest that one of the mechanisms through which MPs reduce their performance is through absenteeism. |
| Keywords: | politician, MP, members of the parliament, performance, salary, bonus, Turkey, election |
| JEL: | J22 J26 J33 J45 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10923&r=lma |
| By: | Omar Adam Ayaita (University of Tuebingen, LEAD Graduate School & Research Network); Filiz Gülal (Paderborn University); Philip Yang (University of Tuebingen, LEAD Graduate School & Research Network) |
| Abstract: | Several studies have analyzed different motives to work in the public versus private sector. Some studies focus on prosocial motivation, others focus on need for security (risk aversion). However, the study of prosocial motivation in the context of public sector employment has largely focused on altruism and neglected other forms of prosocial motivation, in particular civic virtue, the motive to contribute to the society. In addition, it is unclear whether the positive relationship between prosocial motivation and public sector employment is due to selection at the career start or socialization during the career. Our study extends the understanding of the motivational basis of public sector employment by considering civic virtue in addition to altruism and risk aversion and by investigating selection and socialization. Using a largely representative, longitudinal data set of employees in Germany including 63,101 observations of 13,673 different individuals, we find that civic virtue relates positively to public sector employment beyond altruism and risk aversion. We find evidence on selection and no evidence on socialization as an explanation for this result. Our study offers important insight into the motivational basis of public versus private sector employment and has implications for employers’ attempts to attract and retain suitable employees. |
| Keywords: | Civic virtue, engagement, prosocial motivation, public sector employment, selection, socialization |
| JEL: | H0 H1 J45 M5 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iso:educat:0134&r=lma |