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The Effects of Firm and Co-Worker Behaviors on Employee Outcomes: Quasi-experimental Evidence from Administrative Data

Paper Session

Friday, Jan. 4, 2019 8:00 AM - 10:00 AM

Hyatt Regency Atlanta, Hanover C
Hosted By: Labor and Employment Relations Association
  • Chair: Patrick M. Kline, University of California-Berkeley

The Role of Labor Market Entry and Exports in Sorting: Evidence from West Germany

Benjamin S. Smith
,
Federal Trade Commission

Abstract

The sorting of high-wage workers to high-wage firms accounts for a substantial share of rising wage inequality. Yet, little is known about which worker flows most contribute to sorting or what economic mechanisms have lead to its rise. I make three contributions toward answering these questions. First, to understand how sorting intensifies, I develop a novel decomposition method to measure the relative importance of different worker flow channels. I find that labor market entry of young workers is the dominant sorting channel–accounting for about half of the total rise in sorting–while job-to-job transitions play a more limited role. Second, to understand why sorting is rising, I use exogenous variation in West German trade exposure to estimate the effect of trade liberalization on changes in sorting within local labor markets. Export exposure produces a large, positive effect on sorting and can account for 14% of the total rise in sorting between 1985 and 2009. Third, I apply the worker flow decomposition method to exogenous, export-induced changes in employment. Holding worker composition constant, I confirm that labor market entrants account for about half of rising sorting.

The Effects of Partial Employment Protection Reforms: Evidence from Italy

Raffaele Saggio
,
Princeton University
Diego Daruich
,
New York University
Sabrina Di Addario
,
Bank of Italy

Abstract

We combine matched employer-employee data with firm financial records to study a 2001 Italian reform that lifted constraints on the employment of temporary contract workers while maintaining rigid employment protection regulations for employees hired under permanent employment contracts. Exploiting the staggered implementation of the law across different collective bargaining agreements, we find that the reform led to an increase in the incidence of temporary contracts but failed to raise employment significantly and lowered the earnings of new entrants. By contrast, the reform was successful in decreasing firms' labor costs, leading to higher profitability, some gains in managerial pay, and a rise in within-firm earnings inequality. Our findings suggest that the main beneficiaries of this "partial reform" to employment protection were firms, managers, and older incumbent workers. Rent-sharing estimates show that workers on a temporary contract receive only 66% of the rents shared by firms with workers hired under a permanent contract.

How Responsive are Wages to Demand within the Firm? Evidence from Idiosyncratic Export Demand Shocks

Andrew Garin
,
Harvard University
Filipe Silverio
,
Bank of Portugal

Abstract

How much do employees’ wages directly reflect their employer’s labor demand, rather than competition from other employers in the labor market? We test the wage incidence of product demand shocks by studying a quasi-experiment that idiosyncratically shocked individual firms’ export demand without systematically affecting similar firms’ product or labor demand. Our shocks measure how much Portuguese exporters’ sales were impacted by where—but not what—they had been selling before the recession of 2008. These shocks predict changes in output, payroll, and hiring at affected firms, but not at rival employers in the same labor market segment. An idiosyncratic shock that changes output by 10 percent in the medium-run causes wages of pre-2008 employees to change proportionally by 1.5 percent, relative to trend. Consistent with a simple framework, we find that these pass-through effects are larger in industries with lower employee turnover rates and in firms with higher pay premiums. These findings offer evidence that heterogeneous firm dynamics can plausibly generate substantial cross-sectional wage dispersion, but only in less-fluid labor markets.

The Role of Firms in Determining Work Hours

Marta Lachowska
,
W.E. Upjohn Institute for Employment Research
Alexandre Mas
,
Princeton University
Stephen A. Woodbury
,
Michigan State University

Abstract

The freedom with which workers can choose their work hours is an important determinant of worker and family well-being. With competition among employers, it should be possible for a worker to find a job with the desired work hours and the desired schedule (day, evening, night). But when surveyed, many part-time workers say they would prefer full-time work, and many full-time workers say they would prefer a shorter workweek.

In this project, we examine the role of employers in setting working time and the extent to which differences between desired and actual work hours are due to employers’ constraining the work-hour choices of workers. Preliminary evidence suggests that employers offer tied wage-hour packages that reflect their technology and organization of production. In particular, 35 percent of work hour variation is due to employer effects (or constraints), as opposed to the preferences of workers. Based on the findings, we examine policies that might increase the ability of workers to choose work hours that align more closely with their preferences.
Discussant(s)
Bruce D. Meyer
,
University of Chicago
Serena Canaan
,
American University of Beirut
Till von Wachter
,
University of California-Los Angeles
JEL Classifications
  • J3 - Wages, Compensation, and Labor Costs