Both divides may be ineﬃcient and inequitable. Unemployment and work- ing poverty are obvious sources of income inequality. These problems may also reflect inequality of opportunity if the incentives to work and search for jobs are unequally distributed among the working population. Furthermore, un- employment and working poverty are ineﬃcient when incentives for work, job search, and human capital acquisition have been distorted. For these reasons these problems become legitimate objects of government policies. A wide vari- ety of employment policy instruments have been used for this objective: income taxes and income tax credits, wage subsidies, hiring vouchers, in-kind benefits, and so on. For the purposes of our chapter, we are concerned only with the eﬀect of these policy instruments on incentives in the labormarket; diﬀerent policies that create the same incentives will be indistinguishable in our model. On this account, we will denote all these instruments as "employment subsi- dies," in the sense that they promote employment by altering the incentives of labormarket participants. The central issues of this chapter are how to target these subsidies and how large the subsidies should be.
30 30 65. Pakistan’s own National Rural Support Program (NRSP) provides a good example of successful entrepreneurship program that targets youth (See Box 4). The NRSP reaches out to unskilled, uneducated rural youth living in poverty, taking advantage of an existing network of community organizers to identify eligible households in rural communities. In recognition of their mobility constraints, NRSP provides full accommodation at the nearest city center so that the participants can fully concentrate on training during the training period lasting up to three months. This gives equitable opportunities to women and consequently half of the participants are female in the NRSP. The program provides vocational training in diverse occupations as well as life skills training, and additionally accommodates business skills training and microfinance for those who aim to become entrepreneurs. The Small and Medium Enterprise Development Authority (SMEDA) can be also benchmarked to promote growth of micro and small enterprises (See Box 5)—and after evaluation could be expanded.
98 4. Estimating equilibrium eects
We also focus on how the experiment affects vacancy supply, wages and working hours. We find some evidence that the supply of vacancies increased faster in the experiment regions but we do not find any effect on the post-unemployment job quality. Next, we develop an equilibrium search model that incorporates the activation program, and allows for both positive or negative congestion effects (it takes more time for non- treated workers in the treatment region to find work), adapting vacancy supply and no effects on job characteristics. We use the results from the empirical analyses to estimate the parameters of the equilibrium search model using indirect inference. The estimated equilibrium search model allows us to study the effects of a large-scale role out of the activation program and compute the effects on labormarket behavior and outcomes. Our main finding is that in case of a large-scale role out welfare would decrease. This finding is robust to different specifications in terms of wage mechanism and matching function. The model that fits the data best has a matching function that allows for strong congestion effects (if the average search intensity increases, the aggregate matching rate can even decrease) and has Nash wage bargaining. In this model, aggregate unemployment would increase slightly (half a percent point) in case of a large-scale roll out.
Economic problems have always been a challenge for the leaders of this subject that always follow the most progressive ways that in their country enable higher employment, better development, a better future for the youth, people, place and the globe in general, because a proverb says: "The economy is in recession when your neighbor is unemployed, falls into crisis when you become unemployed" (Harry Truman). This statement suggests that the unemployment issue requires to be careful that the best way is to create the most progressive methods to reach to send the country into higher economic development. Unemployment in the EU Almost in most European Union countries is growing. This redundancy according to experts of the economy are caused as a result of not drafting properly macroeconomic policies. Countries that are in the greatest crisis of unemployment are Greece, Spain, Italy, France and several other member states of the EU, but among those who mostly have problems with unemployment and its economic viability is Greece, which, despite the large funds that are provided by the IMF (International Monetary Fund) and WB (World Bank), still continues to have great problems in its financial system.
In this section, we extend the model to incorporate a dual labormarket – one with high wages and the other with low wages. As discussed in the intro- duction, this is done for variety of reasons. First, labormarketpolicies such as the minimum wage and unemployment benefits are more likely to affect (directly) the low wage sector. Second, it allows us to incorporate transitions from self-employment to wage employment, which is quantitatively very sig- nificant. Our calculation shows that on average 18 percent of self-employed move to wage employment from one year to the next in the United States. Third, this extension allows us to study the interaction between the high and the low wage sectors. Finally, it also implies that wage workers need not just be employed by small businesses and firms. Empirical evidence suggests that most of the wage workers are employed by large (incorporated) businesses and firms.
In Table 5 we estimate wage equations similar to those in Table 4 using largely the same covariates but add an indicator for certification status. We find that the certification variable, although positive, is not statistically significant and the coefficients are of a much smaller in magnitude than was found for licensing, averaging about 8percent. Specifications with no controls for occupation and estimates with four digit occupational controls were specified and produced precisely estimated coefficients for the licensing coefficients, and were of similar magnitude. The results of these wage equations are consistent with the interpretation that licensing policy enables the individuals in a licensed job to obtain a degree of monopoly control, or the ability to “fence out” competitors for a service, which results in increased wages for licensed workers. Licensing policies, with regulations that require additional effort to get into the occupation, matter more in wage determination than the government merely giving its approval of a title for an occupation.
Higher values of τ reduce the model economy’s productivity and inequality (obviously in disposable income terms, and also in terms of gross earnings inasmuch as their dis- tribution is more skewed but not more dispersed when fewer workers earn the more strongly differentiated wages needed to preserve investment incentives). Thus, for given model parameters variation of τ drives output and inequality in opposite directions, and implies a negative relationship between the average amount and the cross-sectional variance of income that is reminiscent of the classic Okun (1975) “equity vs. efficiency” trade-off. Since inequality across ex ante homogeneous individuals correspond to ex-ante risk, different values of τ determine the welfare-ranked outcomes discussed above for the economy’s average individual. The form of the trade-off, and the point chosen along it by policy, depend on all of the model’s parameters. For example, more uncertainty would imply that more intense redistribution is optimal, and lower productivity at the same time as ex post inequality increases (Mulligan, 2012). To interpret real-life variation of policy outcomes, however, it is important to recognize that observed production and inequal- ity outcomes need not be those that maximize the total welfare of the economy. When financial markets are imperfect, welfare cannot be pooled, and the average individual is not as “representative” as if aggregate consumption could be transferred across real-life individuals.
Our model and the empirical findings have important implications for labor economics as well as political economy. The predictions of our model can be tested for other European countries in which the effectiveness of ALMP programs have been controversial. Empirical studies could also employ other ALMP measures than job-creation schemes. Avenues for future research include the following questions: have electoral motives and government ide- ology influenced training programs and wage subsidies to the same extent? Are some ALMP measures more prone to strategic considerations before elections? If yes: can these effects explain why some AMLP programs turn out to be less effective than others? Is the influence of electoral motives and government ideology on ALMP different in East and West European countries? 13
inattention given to these prevalent policies, they claimed “ a major reason for the lack of empirical work has been the absence of national data that clearly de ﬁ nes whether a worker is regulated and the extent of regulation ” (p. S174). Our data help ﬁll that void. Kleiner and Krueger (2013) found that attaining a license confers a signi ﬁ cant wage premium. This relationship persists when they attempted to mitigate selection bias by using only within-occupation wage variation to identify this effect. However, their sample size was relatively small, about 2200 respondents, with a low response rate compared with gov- ernment labor force surveys. The SIPP’s large sample size, its second advan- tage, allows for more externally valid and more precise estimates of the wage beneﬁts of professional licenses. Increased precision is especially advantageous when estimating models that include occupation ﬁ xed effects.
The maximum likelihood estimator presented in Section 3 takes advantage of the fact that the likelihood function is fully specified under the Dual-Economy extension of Meyer and Wise’s model. However, this comes at the cost of restrictive assumptions on how the minimum wage affects the bottom part and the upper part of the wage distribution. That estimator, however, will in general be inconsistent to the true value of the parameters of the model if the minimum wage generates effects higher up on the wage distribution or if the form of minimum wage effects imposed by the effect structure we impose in our main specification (Remarks 1 and 2 in the paper) are incorrect. In this section, we investigate how one can attempt to estimate the model parameters without relying on the complete absence of spillovers (Remark 1) or fully specifying the effects of the minimum wage on the bottom part of the wage distribution (Remark 2). To do that, we rely on the technical condition imposed by Remark 3 above. We will also rely on limited spillovers, that is, we assume that the spillover effects of the minimum wage at a known point km higher up on the wage distribution. Under these assumptions, one can estimate the parameters of the latent wage distribution by means of the following optimization:
To examine whether licensing is associated with higher pay, we present estimates of log wage regressions in the estimated model in Table 4. 6 We augment a standard earnings equation to include a dummy variable indicating whether a license is required for the worker’s job. We regard these estimates as mainly descriptive, since licensed workers may differ from unlicensed workers in unobserved ways, even after we condition on education and occupation. If a dummy indicating license status is added to a standard wage equation, having a license is associated with approximately 14 percent higher hourly earnings depending on the detail of the specification of occupational control variables (p-value < 0.001). When we include detailed occupation controls such as two-digit ones in column 2, the coefficient rises to .199 and then falls when four-digit controls are introduced in column 3, but the coefficient on licensing is still a robust 11 percent. 7 The cross-sectional effect of licensing is similar in magnitude to the estimated effect of
than comparable natives, but after some form of investment in host country-speciﬁc human capital, their labormarket outcomes improve with years of residence.
4.1 Investment Activities of Immigrants
Since we do not ﬁnd any support for the family investment hypothesis by looking at assimilation patterns of labor supply and wages, we investigate whether immigrants provide support for their spouses by delaying investment in own skills. If the family investment hypothesis holds, we might expect that immigrant spouses who were “chosen” to support the family in the early years of migration would postpone in- vestments in their own skills. On the other hand, the spouses who were “designated” to initially invest in post-migration skills would reduce or withdraw from training in the latter course of migration in the new country. To test this hypotheses, we run a probit model to explain whether an individual undergoes training, where training is deﬁned as a dummy variable equal to one if the individual is receiving education or undergoing other forms of training. We relate training to the usual demographic and assimilation variables of the individual and the spouse. The estimation results, which are reported in Table 3, show that the number of years since migration do not signiﬁcantly aﬀect the decision to take up formal training.
** Percent of population.
Sources: Labor force surveys, Statistics Sweden and Thoursie (1996).
Youth unemployment skyrocketed as the slump hit the Swedish economy in the early 1990s. Overall unemployment increased from 1.6 percent to 8.2 percent between 1990 and 1993 and has remained stubbornly high. Unemployment among 18-24-olds increased from 3.5 percent to 19.1 percent during the same three-year period. The overall employment-to-population ratio declined by 10 percentage points, whereas the youth employment rate declined by no less than 25 percentage points. There has also been a substantial increase in school enrollment, including activities organized as active labormarketpolicies. We will return to a discussion of these policies in Section 4. Suffice here to note that they were traditionally not particularly targeted at unemployed youths, but this changed already in the mid-1980s. By 1993, 10 percent of the 18-24-year-olds were enrolled in various labormarket programs.
First, the monthly discount factor β is set to 0.997, which is equivalent to an annual interest rate of 3.67%. Then, the remaining parameters are calibrated by simultaneously matching moments in the simulated data to targeted moments in the NLSY79. Although the simulated moments are affected by all parameters, I highlight the close relationship between some of them and their corresponding moments. First, the number of months of learning before starting work α, which measures the amount of workers’ knowledge about their types (productivities) before they enter the labormarket, is closely related to the proportion of workers who change occupations in the first year. Workers who know their types well at entry are not likely to revise their beliefs about their productivity in their current occupation to the extent that they change occupations in the first year. Second, according to the model, the wage growth of a worker who stays in one occupation is driven by the new information about her productivity revealed in the output process. The noise in the output pro- cess determines the amount of information that a worker learns about her type. Thus, the standard deviations of changes in log wages in the three occupations for workers not changing occupations in the first or second year are used to calibrate the stan- dard deviations of three noises (σ 1 , σ 2 , σ 3 ). The remaining parameters (k 1 , k 2 , k 3 ) and
We test the differences between leftist and rightwing governments predicted by our model on the simple leftwing-rightwing scale using the variable “Left” and different coalition type dummies, separately. The dummy “Left” takes on the value of one in periods when an SPD Prime Minister was in office (excluding grand coalitions) and zero otherwise. In the alterna- tive specification, the coalition type dummies take on the value of one when the considered coalition type was in power and zero otherwise. We distinguish between six different coalition types that governed in the former Western German states: CDU, CDU/FDP, CDU/SPD, SPD/FDP, SPD/GR, and SPD. With respect to the grand coalitions, we do not distinguish which of the two parties appointed the Prime Minister. To avoid multicollinearity between these dummies, one of them must function as the reference category (here SPD). The esti- mated effects of the other dummies must then be interpreted as deviations from this reference category. Descriptive statistics are provided in Table 1.
Neither can we in this case risk a hypothesis on whether this phenomenon was produced mainly by the lower employment opportunities observed in the country or by the increasing training requirements for the positions to be filled in the labormarket. The fact that we were not able to discriminate between these two major and possible causes of the rise in the demand for education does not mean that we should give less importance to this task, which in our view is crucial to design policies oriented towards the labormarket and the education sector. Nevertheless, trend break of school attendance towards the end of the period under study is striking. If we recall what was analyzed about unemployment, we can suspect some type of relation between unemployment and school attendance, especially among women and men from more recent generations.
Since the returns to upgrading skills may be low if the overall demand for youthlabor is low – as outlined above – a second issue to be addressed by ALMP programs is the stimulation of youthlabor demand. There are several reasons why the demand for youthlabor may be low. First, youth are commonly the ones most affected by economic down- turn, as firms may be less willing or able to let go of workers with longer tenure. Second, even under normal economic conditions, employers may prefer hiring more experienced workers, in particular, if previous work credentials or colleague referrals allow employers to discriminate better between low and high ability workers (compare Montgomery, 1991, for a theoretical analysis of employee referrals). Third, in the presence of job-specific human capital, firms may be less willing to hire youth and invest in costly training if there is a high probability that youth leave the firm without redeeming this initial investment (see Wolter and Ryan, 2011, for an extensive summary of firm’s training involvement). Hence, if low work- or job-specific experience is a barrier to initial labormarket entry, the provision of financial incentives for employers to hire and train young people may consti- tute an effective tool to improve labormarket integration. As youth gain more experience and firms are better able to observe their ability, it is intended that youth are offered reg- ular work contracts following the initial subsidy period. Furthermore, Cockx and Picchio (2013) suggest that stigmatization rather than the depreciation of human capital may be the source of state-dependence in long-term unemployment among youth. Following this line of reasoning, wage subsidies promoting the take-up of “real” employment, albeit subsidized, may help youth signal their employability.
for participants, some public training programs work. These programs appear to work for some target groups (adult women) but not for others (prime-age men, youth). Four crucial features can increase effectiveness: tight targeting on participants, relative small scale, need to result in a qualification or certificate that is recognized and valued by the market, strong on-the-job component (establishing strong links with local employers). Job search assistance is usually the least costly active labormarket program but must be combined with increased monitoring of the job-search behavior of the unemployed and enforcement of work tests. Subsidies to employment involve large dead weight losses and substitution effects. Finally, direct job creation has been of little success in helping unemployed get permanent jobs in the open labormarket. Most jobs provided through direct job creation schemes typically have a low marginal product, they should be short in duration and not become a disguised form of heavily subsidized permanent employment.
Since the two models of unions predict such di¤erent e¤ects on unemploy- ment rates, it is important to discuss what evidence favors one type of model over the other. Note that in the coalitions model of unions, union members receive higher wages than workers in the competitive sector. The opposite is true in the union-boss model. Thus, an indirect test of the relative relevance of the two models would be provided by the sign of the union wage premium in the data. Card  provides such evidence. Using panel data from the 1987 and 1988 Current Population Surveys, he reported that the union wage premium is about 15 percent in the U.S. economy. The sign of this premium favors the coalitions model of unions over the union-boss model. However, the evidence in favor is stronger than this. In order to obtain a wage premium of the magnitude reported by Card, about 20 percent of the islands must be unionized (the generated wage premium is 12.5 percent). Under this degree of unionization we verify that 13 percent of the workforce is employed in the unionized sector. This is surprisingly close to the empirical counterpart of 15.6 percent reported by Nickell, providing additional con…dence about the quantitative relevance of the coalitions model of unions.