Countering absenteeism by bringing temporarily disabled workers partly back to work

Disability rolls have been rising for decades in many OECD countries, entailing both a substantial volume of labor withdrawn from the market, as well as heavy social security costs. This has led to increased attention on the trade-off between generosity towards those hit by a negative health shock and potential moral hazard problems that faces any social security system. Traditional responses to this trade-off have been to establish strong screening criteria or other gatekeeping policies, or to limit the level or duration of benefits.

Activation reform in Norway

A new IZA Discussion Paper by Øystein Hernæs (Institute for Social Research and IZA) tries to answer whether an activation strategy based on graded sickness insurance, i.e. requiring temporary disabled workers to be partly back at work to the extent possible, as opposed to any absence automatically being 100%, can help reduce absenteeism and curb the corresponding social security costs. The paper analyzes a program implemented in the Norwegian region of Hedmark in 2013 aimed at strictly enforcing an already existing requirement that an employee on long-term sick leave be partly back at work unless explicitly judged by a physician to be unable to work at all, irrespective of adaptions at the workplace.

Absenteeism goes down markedly

The results show that the program to make use of the partial work capacity of workers on long-term sick-leave reduced absenteeism by 12 percent and brought large savings to the social insurance system. The effects were remarkably similar across gender and age groups, and somewhat smaller in the construction sector. Hernæs finds evidence that the absence rate declined not only through exploiting the partial work capacity of temporary disabled workers, but also by speeding up the transition rate back to full-time work. Consistent with expectations, the largest decline occurred for absenteeism due to musculoskeletal disorders, the smallest for respiratory disorders, with diagnoses for psychological and other disorders in between.

Viable alternative to traditional policies

Such an activation strategy represents an alternative to traditional attempts at welfare reform involving stricter screening or reductions in generosity, and may be more compatible with already existing legislation and contractual obligations, as well as easier to find support for across political priorities, according to Hernæs.

Download the complete paper (IZA DP No. 10991):

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Can debt restructuring help households out of the debt trap?

bankruptcyDuring the last financial crisis, the indebtedness of households and the number of bankrupt households reached levels that had not yet been experienced on a worldwide scale. In such an environment of high private debt, the policy debate seems to have shifted from the establishment of an ex ante “optimal” bankruptcy regime to the implementation of “ex post” special policy programs to restructure the debt of households in financial distress. A large number of policy initiatives were launched to ease the restructuring of household debt.

One aspect that has received little attention is the impact of the debt restructuring on the ability of the household to escape from the debt trap. A new IZA Discussion Paper by Henri Fraisse (Banque de France) studies for the case of France how debt suspensions influence the re-filing for bankruptcy.

Strong but short-lived effect on the likelihood to re-default

The author finds that granting a household a two-year suspension of debt repayment significantly and strongly decreases the likelihood of a re-default. A suspension of debt repayment leads to a 36.9% decrease in the probability of a re-default over the seven years following the bankruptcy decision of the marginal household.

The figure below reports the magnitude of the impact of the suspension over the years that follow. The suspension appears to have a significant impact in the first four years on the probability of re-default, reaching its peak in the second year following the decision. Five years after the decision – conditionally on not having previously re-defaulted – the probability of re-default is the same whether or not the household benefits from the grace period. For these households, the grace period therefore does not further disincentive repayment, nor give sufficient relief to further decrease the risk of re-default.

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Re-default effect of a two-year suspension of debt repayment over the years relative to the year of the bankruptcy decision (2008)

 

Key drivers: expenditure rate and characteristics of the credit providers

Fraisse then measures how the impacts depend on the characteristics of the filers. He finds higher re-default effects for the population of filers who are in more dire financial straits. Unemployed filers with very low incomes and higher levels of indebtedness are substantially less likely to re-default following a suspension of debt repayment. However, neither the number of creditors,  nor the dispersion of the debt – in sum, the overall debt structure – seem to lead to significantly different re-default effects. The collective restructuring that is offered by the bankruptcy process seems to compensate for the relative higher financial fragility of households with atypical debt structures.

One key driver of heterogeneous effects is the expenditure rate. Low levels of expenditure rates are related to a non-significant effect of debt suspensions, whereas the likelihood to re-default is 67% lower for the population in the top quartile of the expenditure rate distribution in comparison with the bottom quartile. Fraisse further observes noticeable heterogeneous effects among providers of consumer credits. Following a suspension, a customer of one bank has a 3 percentage point lower probability to re-default than a customer of another bank. These results suggest that some banks target more financially fragile households.

In sum, these results indicate the importance of debt restructuring programs to help households to escape poverty trap. They also underline the necessity of policy actions on budget counseling, as well as the importance of regulation of credit distribution to avoid both entering into bankruptcy and re-filing for bankruptcy.

Download the complete paper (IZA DP No. 11032):

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How tax policy can promote lifelong learning

adult-education-2706977_960_720In the face of demographic and technological change, people will have to work longer and are more likely to switch jobs, careers, or tasks within a given job. Faster depreciation of human capital increases the need for lifelong learning. Some governments have therefore tried to promote lifelong learning through financial support or information campaigns.

In a recent IZA Discussion Paper, researchers from the CPB Netherlands Bureau for Economic Policy Analysis assess the effectiveness of Dutch tax policy, which allows workers to deduct expenditures on post-initial work-related training and education from their pre-tax personal income. The authors, Wiljan van den Berge, Egbert Jongen and IZA Fellow Karen van der Wiel, examine how jumps in marginal tax rates affect the probability of fi ling lifelong learning expenditures and the amount of such expenditures for different subgroups.

High-income earners more likely to invest in lifelong learning

Their analysis finds that tax deductions are effective only for some groups: Among singles, those at a relatively low level of income (around 18,000 euros) do not take advantage of the tax incentives to invest in lifelong learning at all, while for those with a relatively high income (around 55,000 euros) the probability to invest in professional education increases by 10%. Among couples, primary earners are also more responsive to making use of the tax deductions. The researchers observe that secondary earners tend to shift their investment in lifelong learning to their better-earning partners.

From a policy perspective, the low responsiveness of low-income singles seems most problematic. The authors explain that many people with a lower income are uninformed about possible tax breaks or tend to underestimate the utility of investing in lifelong learning measures and making long-term career plans. Those with a lower educational background often dislike formal learning and are psychologically not inclined to attend a school again. Tax deductions should thus be accompanied by information campaigns specifically targeting those at the lower end of the income distribution.

Download the complete study (IZA DP No. 10885):

Read more about lifelong learning on IZA World of Labor:

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The labor market in Japan, 2000–2016: A role model for aging societies across the globe

IZAWOL385-chart1A new IZA World of Labor report looking at developments in the labor market in Japan since 2000 finds that despite a plummeting working-age population, Japan has sustained its labor force size, thanks to surging employment among women.

Aging populations pose challenges to the fiscal sustainability of many countries as a consequence of shrinking workforces and increasing costs for social insurance programs. As the third largest economy in the world and a precursor of global trends in population aging, Japan’s recent experiences provide important lessons regarding how demographic shifts affect the labor market and individuals’ economic well-being. According to IZA fellow Daiji Kawaguchi (University of Tokyo) and Hiroaki Mori (Hitotsubashi University), Japan’s experience exemplifies how rapid population aging affects the structure of the labor market through an expanding healthcare services industry.

Fast increase in female labor force participation

The two economists found that despite the sharp decline in the working-age population in Japan, between 2000 and 2016 by slightly less than 10 million, the size of the labor force remained relatively stable during this period. The stability of the labor force reflects the fast-increasing labor force participation rate (LFPR) among prime-age women (aged 25−54). While the LFPR among prime-age women was somewhat stagnant during the 1990s, it rose by nearly 10 percentage points, from 66.5% to 76.1%, between 2000 and 2016. It is particularly in the Health Care Industry that Women’s employment increased sharply, by about 2.5 million. Consequently, about 21.6% of female workers were employed in the healthcare services industry in 2016.

The fast-growing elderly population appears to be a main driver of the rising employment in the healthcare services industry. Traditionally, healthcare sectors in Japan, similarly to those of many other countries, tend to employ more women than men. As a consequence, female labor force participation is increasing and more than one in five female workers are currently employed in the healthcare services industry. Japan’s experience suggests that population aging may have profound influences not only on the labor supply but also on labor demand.

The growth of the healthcare sector is a foreseeable development in aging societies and one that politicians need to factor into their labor market policies. Securing an adequate supply of healthcare workers and childcare professionals (who enable women to work) is a key policy issue. Carefully designed interventions in those industries may facilitate an efficient division of labor and help dealing with the problem of an aging work force.

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Equality of opportunity – for what?

By Daniel Mahler and Xavi Ramos

The notion that individuals ought to have equal opportunities in life is popular among politicians, the general public, and philosophers alike. It is deeply embodied in the American Dream and has resonated with politicians ranging from Margaret Thatcher to Nelson Mandela.

Although there is wide agreement on the objective of providing equal opportunities, it is not altogether clear what, exactly, there ought to be equal opportunities for. The last decade has seen a rising discussion about whether we should go ‘beyond GDP’ – beyond income – when measuring societal well-being. This very same discussion can be applied to providing equal opportunities. Should individuals have equal opportunities for acquiring income? Or is there more to individuals’ well-being than just income? These discussions are not purely of theoretical interest; evidence shows that the concept of well-being we employ matters for assessments of both poverty and welfare.

By now, a sizable number of empirical studies have been carried out analyzing the extent to which individuals have equal opportunities for income acquisition (see Ferreira & Peragine (2016) for an excellent recent review). In general, these studies measure opportunities by predicting individuals’ income based on a range of factors outside the realm of personal responsibility, such as individuals’ gender, birth area, and their parents’ education. These predictions can be thought of as the opportunities of individuals; individuals with a high predicted value come from a fortunate background with high chances of succeeding, and vice versa. Under this interpretation, inequality of opportunity can be calculated as the inequality in the predicted incomes.

However, if there is more to life than just income, perhaps we need to rethink – and re-measure – what we ought to provide equal opportunities for.

In a new IZA discussion paper, we set out to do just that on German data. Besides looking at whether individuals have equal opportunities for acquiring income, we utilize three other measures of well-being: A multidimensional index, life satisfaction, and equivalent incomes. Based on this, we look at whether trends in inequality of opportunity over time and a characterization of the most opportunity-deprived depend on what we want to equalize opportunities for.

To our surprise, it doesn’t.

To illustrate this, suppose we rank a population according to their opportunities for acquiring income. The ones standing furthest to the left have the lowest opportunities (the lowest predicted income), while the ones standing furthest to the right have the highest opportunities. We then ask everyone whose father only had primary education to take one step forward. The more to the left these people stand, the lower opportunities for acquiring income individuals with a low educated father have. We can re-rank the population according to their opportunities for having a high life satisfaction, once again ask the ones whose father had a low education to take one step forward, and see where they rank. If they stand approximately the same place as before, then fathers’ education plays the same role in predicting opportunities regardless of whether we want to equalize opportunities for income or for life satisfaction.

The figure below shows that individuals stand approximately the same place, regardless of which of our four well-being measures we utilize. This applies not only to fathers’ education, but also to a range of other factors outside the realm of personal responsibility. Individuals with low educated parents, individuals whose father was a blue-collar worker or unemployed, individuals who grew up on the countryside, and (for the most part) women, are always opportunity-deprived.

Based on IZA Discussion Paper No. 10940, Figure 2, p. 28.

So why does the measure of well-being hardly matter for equality of opportunity, when previous studies have shown that how we measure well-being matters greatly in a range of other contexts? We believe the intuition is straightforward. Some people may have a high income but a low satisfaction with life, and vice versa. However, for any plausible account of well-being, we always expect individuals coming from a poor background with uneducated parents to have lower levels of well-being. Regardless of what we want to equalize opportunities for, the individuals with the lowest opportunities will, broadly speaking, be the same.

Perhaps this is good news. Whereas the debates about how to measure societal well-being are long and intricate, we may be able to sidestep this whole discussion if our policy objective is to provide equal opportunities.

Download the complete paper (IZA DP No. 10940):

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Gender bias in teaching evaluations by economics students

female-profIn an ongoing heated debate on sexism in the economic profession, sparked by an analysis by Alice Wu of sexist speech in an anonymous online forum, economists see themselves accused of discrimination against women in the profession. Indeed, female professors are scarce. Although the share of female students enrolling in graduate programs has increased over the last decades, the proportion of women who continue their careers in academia remains low.

A new IZA discussion paper contributes to this discussion by providing empirical evidence on gender bias in academia, this time studying how economics and business students evaluate female teachers different from their male counterparts.

Using data on about 20,000 evaluations of instructors from the School of Business and Economics at Maastricht University, a leading business school in Europe, Friederike Mengel, Jan Sauermann and Ulf Zölitz demonstrate a systematic bias against women in end-of-class teaching evaluations.

Relying on random assignment of students to instructors teaching within the same type of courses, the authors pin down the causal impact of instructor gender on evaluations, grades and future performance.

The results are worrying. Female faculty receive systematically lower teaching evaluations than their male colleagues despite the fact that neither students’ current or future grades nor the effort they put into studying are affected by the gender of the instructor.

The lower teaching evaluations of female faculty stem mostly from male students, but female students also tend to give lower evaluations to their female teachers, albeit to a lower degree. Strikingly, even text books and other teaching material, such as the online learning platform – clearly independent of the gender of the teacher – receive lower evaluations if a course is taught by a female teacher.

In the competitive world of academia, student evaluations are an important and frequently used assessment criterion for faculty performance. Gender bias in teaching evaluations affects hiring, tenure and promotion decisions and, thus, is likely to have a strong impact on career progression of women in academia.

Read the complete paper (IZA DP No. 11000):

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Transitioning across gender is related to greater life and job satisfaction

Trans-people-labor-market-outcomesA new IZA World of Labor report finds that after transitioning, trans people experience better mental health, and greater life and job satisfaction. Furthermore, studies show that while becoming a man is related to a small rise in wages, trans-women experience a significant fall in earnings.

Trans people have a gender identity that differs from their assigned sex. In the EU and the US there is a growing population of trans people who start their transition in order to align their inner gender identities with their outward appearance.

IZA fellow Nick Drydakis of Anglia Ruskin University summarizes a number of recent studies on trans identity. Due to transphobia, trans people are exposed to extremely high levels of bias.

Fear of discrimination and violence

Between 2008 and 2016 the number of murders of trans people globally increased by 96%. Furthermore, in the US, it has been found that trans people face twice the unemployment rate of the general population. A study from the National Center for Transgender Equality reports that 90% of trans or gender non-conforming people reported experiencing harassment or mistreatment at their place of work. In addition, the study states that 71% of trans employees attempted to hide their gender transitions and 57% delayed their transitions to avoid workplace discrimination.

However, trans employees, after having reached the point of passing to their inner gender identity, do not generally experience the bullying and harassment to which they were subjected before transitioning. They experience less depression as well as less psychological distress. Further benefits trans people associate with being trans and accepting their gender identity are: personal growth and resiliency, improvements in their relationships with others, and being inspired to engage in social justice causes.

Research finds that transitioning negatively affects wages for trans women. A study that utilizes US data suggests that becoming a trans woman brings a reduction in hourly earnings of about 32%. Also, an EU study, based on Dutch data, shows a reduction in annual earnings, on the order of 23%. On the other hand, becoming a trans man might positively affect wages.

Legal hurdles

More than half of the EU member states require by law that trans people undergo sex reassignment surgery which entails sterilization before their gender identity is officially recognized. Trans individuals continue to experience severe exclusions when they are unable to obtain identity documents that reflect their gender identity. Many trans people are either not keen on surgery or don’t have the financial means to pay for it.

drydakis

Nick Drydakis

Drydakis says: “Having to choose between sex recognition and potential sterilization, which occurs in sex reassignment surgeries that include genital reconstruction, is a human rights violation. Trans people should be able to change gender identification on official documents without having to undergo sex reassignment surgery. This policy would minimize employment and societal exclusions for those who are not keen, ready, or financially able to undergo such a surgical procedure. Explicit legal employment protections against discrimination on the grounds of gender identity should become mandatory.”

Read the full IZA World of Labor article:

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