Flexible working hours improve job satisfaction

home officeTemporal and locational flexibility (TLF) is an important element in current policy debates about working conditions and the combination of work and private life. More flexibility provides employees with a greater scope to reconcile their professional, private, and family lives. Furthermore, TLF is expected to increase female labor participation and reduce skilled labor shortages.

From a theoretical point of view, many advantages are conceivable: TLF provides employees with more control over their working life, leads to a better match between paid work and other activities, decreases the amount of stress experienced by employees, and signals to workers that their employer cares about their well-being and their responsibilities outside work.  Since higher job satisfaction translates into fewer job quits and lower absenteeism, it is not only beneficial to employees, but should also be a key concern for employers.

In a new IZA Discussion Paper Daniel Possenriede and Janneke Plantenga analyze whether flexibility in the work schedule (flexi-time), location (telehomework) and duration (part-time) improves the work/leisure balance and increases employee’s overall job satisfaction. They use panel data on Dutch households with self-reported measures of job satisfaction. In the sample, 39% of the employees report freedom to determine the start and end times of their work, and 17% work at home at least once a week.

The analysis finds that a flexible work schedule is positively associated with both working-time fit and job satisfaction. Surprisingly, the effects are not stronger for employees with family responsibilities, who would be expected to struggle more with the combination of work and private life than other groups of workers.

Telehomework or location flexibility is also related to higher job satisfaction, although to a smaller extent than flexible working times. Part-time work increases working-time fit similarly to flexi-time, but it sometimes even has a negative effect on job satisfaction for women – contrary to some previous empirical findings. Overall, the results indicate that schedule flexibility may be a superior alternative to duration flexibility.

Read abstract or download discussion paper.

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Peter Kuhn on the internet as a labor market matchmaker

Since the internet’s earliest days, firms and workers have used various online methods to advertise and find jobs. Until recently there has been little evidence that any internet-based tool has had a measurable effect on job search or recruitment outcomes. However, recent studies, and the growing use of social networking as a business tool, suggest workers and firms are at last developing ways to use the internet as an effective matchmaking tool. In addition, job boards are also emerging as important for the statistical study of labor markets, yielding useful data for firms, workers, and policymakers.

Read more in an article for IZA World of Labor watch this video interview with author, Peter Kuhn (IZA Visiting Research Fellow from UC Santa Barbara).

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Chinese imports push low-skilled Norwegians into unemployment

factoryChina’s rise to global economic power has had a major impact on the recent globalization process. In 2009, China became the world’s largest exporter. This evolution affects local labor markets all over the planet. Many nations complain that Chinese competition increases domestic unemployment and depresses wages. But how large is this effect really?

In a recent IZA Discussion Paper Ragnhild Balsvik, Sissel Jensen and Kjell G. Salvanes explore the impact of import shocks from China on the Norwegian labor market from 1996 to 2007. In this time range, the amount of imports from China increased more than sixfold while employment in the manufacturing sector declined.

The researchers find that this negative employment effect is especially pronounced for low-skilled workers who are pushed into unemployment, or even leave the labor force entirely. For workers without college education, an increase in import exposure of about 1,600 U.S. dollars per worker reduces manufacturing employment by about 0.8%. At the same time, employment in other private sectors rises by 0.5%. Unemployment rises by 1.8%, and labor force exits by 0.3%.

This outcome is related to the import of intermediate goods rather than products for final consumption. Also, the decline in employment is mainly due to imports from China to Norway’s domestic market, not to increased competition in Norwegian export markets.

Consistent with features of the Nordic welfare state, such as generous unemployment benefits or disability pensions and a centralized wage bargaining process that makes wages rather sticky, the authors find no significant change in earnings. Overall, about 10% of the reduction in the manufacturing employment share can be attributed to import competition from China. This is roughly half the size of the effect found for the U.S. in another IZA paper.

Read abstract or download discussion paper.

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Italy’s reform challenge: The need for evidence-based labor market reforms

italianflagIn many respects Italy is facing the same reforms needs as Germany did in the early 2000s. The German experience has shown that economic difficulties are the friend of labor market reforms. For Italy to succeed as well, there are a number of lessons to be learned from the German case. One of the lessons is that the right policy mix should not be determined by partisan or ideological affiliation but rather be based on solid evidence.

This is the key message of IZA Director Klaus F. Zimmermann‘s plenary lecture on “The Economics of Labor Market Reforms” at the 29th National Conference of Labour Economics organized by the Italian Association of Labour Economists (AIEL) on September 11, 2014.

In his presentation, Zimmermann calls for evidence-based policy making rather than dreaming of a one-size-fits-all solution. While the interests of politicians are often centered on gaining votes, policymakers should be provided with the tools to make their decisions based on solid empirical grounds. A key tool in this respect is the innovative online resource IZA World of Labor.

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It’s all about data – a data vignette with the Toll Index


Toll Index 2007-2014

In mid August I was writing that against the gloom and doom German economic journalism was spreading at the time “we feel confident going out on a limb to say that the real industrial production number for July (to be published by the BMWi in mid September) will have to reflect the positive Toll Index picture somehow” because “it ought to be highly unlikely that all these heavy trucks drive around empty”. I was also a bit ironically forecasting that this would force “professional forecasting departments in the banking sector and elsewhere to postcast July in order to explain why they did not see it coming…”. 

Well now the numbers are out by the BMWi and I can say “we told you so”. German industrial production in July “surprisingly” went up by 2.6% compared to the month before (seasonally etc adjusted of course) and even for June the number was adjusted upwards by .3 percentage points (what had caused the pessimistic hysteria in the German press was a first reading of -.2% of GDP in 2014Q2). If you follow the Toll index you are of course not surprised. Elsewhere I was commenting that the numbers on which pessimistic economic journalism bases their gloomy outlook (which is border line irresponsible) “will be revised later and may in fact be wrong”. These numbers “ought to be well within the revision error” so that they  “should not be any more worth of a headline than the ink needed to print it”. To top it all off the BMWi announced Monday that German exports broke the monthly ceiling of 100 billion euros this July, just like the Toll Index had seen it.

The only way to eliminate bad quality economic reporting is to change the way we measure things. We need to part from the ways of a bygone era of scarce computing resources and realize that we can timely measure and analyze the entirety of most observational universes. The Toll Index is an example of this type of thing. Although the government failed to realize its full potential it still allows us an accurate, fast and timely look into the entirety of the fleet of heavy trucks roaming the German highways and hence a sneak peak into economic activity. Had the government utilized the full potential of the MAUT we could have a complete dump of heavy transport (and hence its associated economic activity) at the much higher frequency of every 3 days or so. Economic measurement has a long way to go before it is up to date with the current state of technology.

More on the Toll Index:
– Website of the IDSC of IZA
– Article in Journal of Forecasting

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Evidence-ignoring family policy in Germany

flexible-workThe German federal government recently introduced the Betreuungsgeld, a family benefit paid to parents who keep their one- and two-year-old children at home rather than sending them to public childcare. In August 2014, monthly benefit payments were raised to 150 euros per family.

While this subsidy was celebrated by some politicians as granting “recognition, support and freedom of choice” to parents of young children, sober economic analysis has long proven that the actual effects differ diametrically from the intended purpose. As studies on parental home-care benefits in Norway and the German state of Thuringia have shown, well-meaning is not always well-done.

Published as IZA Discussion Papers, these studies have triggered a heated public debate in Germany. The most recent evaluation of the Germany’s new Betreuungsgeld on the federal level, presented by the German Youth Institute, underscores the concerns voiced by IZA researchers long ago.

Economic incentives are powerful – the Betreuungsgeld is a case in point. It shows that the “wrong” incentives also lead to rational responses. The subsidy makes public childcare unattractive compared to the subsidized private option. As a result, it is mainly women who leave the labor force and stay home to look after their children, including older pre-school children not targeted by the policy. Even worse, the subsidy is particularly attractive for problem groups of the labor market, such as low-skilled, low-wage workers and single parents, whose labor market participation is already low – and whose children would benefit the most from early childhood education.

Given the overwhelming empirical evidence on the negative effects, why do policymakers keep defending the Betreuungsgeld? This shows that family policy in Germany is still dominated by clientelism and party politics. Policymakers should finally acknowledge the key social policy concerns: Disadvantaged children need the earliest possible support, and female labor market participation must be strengthened. But the vast body of scientific evidence is negligently, if not deliberately, ignored. Facts and evidence-based arguments are used selectively at best in the current debate.

Last year’s comprehensive evaluation of German family policy was a call for action that has so far gone unheard. At first, it seemed that the findings would be silently shelved by the ministries. Now that they have been published after all, they are still met with inactivity. This deplorable lack of evidence-based policymaking results in a continuing waste of tax-payer money. The sheer scope of government programs supporting family and marriage in Germany, amounting to over 200 billion euros in public spending every year, is no indication of a successful family policy.

What politicians must realize is that allocating money to new programs alone is no proof that their policy goals will be met. All programs must live up to the scrutiny of independent science. Failure to take this into account signifies a backward-oriented approach to policymaking. The tiring debate on the Betreuungsgeld is a prime example.

This op-ed is forthcoming in IZA Compact, September 2014.

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Union threat: Where is it highest?

organizeWhat kind of businesses do unions approach to organize workers? Much is known about what happens to a business after it becomes unionized. But there is little information on where the threat of union formation is highest, and where union activity is most concentrated. Do unions mainly try to organize big and profitable business establishments? These establishments can provide larger employment and benefits to the union. However, they may also be harder for unions to organize, because in general they have higher wages, as well as greater resources and better management to resist unionization.

Alternatively, unions may more frequently focus on smaller or medium-sized establishments that may be easier to organize because of poorer labor conditions and weak management. These establishments also offer lower wages and benefits in general, potentially implying a higher demand for unionization.As to the timing of union activity, when in an establishment’s life cycle does a union try to organize it? Does a union emerge in a business when the business is young, or later when it is more established? Such timing can matter for the survival and growth prospects of an establishment, if a union is successful in extracting surplus from a young establishment in the early stages of growth.

A new IZA discussion paper by Emin Dinlersoz, Jeremy Greenwood, and Henry Hyatt explores the union organizing process in the US. They offer a model of union learning in which a union gradually gathers information about the productivity of a business and decides whether to organize its employees at some point in time.

The model predicts that unions target large and productive establishments early on in their life cycles. To see the relevance of these predictions, the authors assemble a new, comprehensive panel data on union activity at the establishment level for the period 1977-2007. The data allows tracking of union activity in an establishment starting from its birth until exit, making it possible to identify when exactly a union election occurs in an establishment’s lifetime.

The analysis of data reveals that unions are indeed much more likely to target and successfully organize larger, more productive, and younger businesses. For example, in manufacturing a large plant with 500 or more employees is about 25 times more likely to be targeted by a union for organizing purposes, compared to a small plant with less than 10 employees.Furthermore, unions do not wait too long to target a large and productive establishment after it is born. The youngest group of establishments (0-3 years old) is approximately twice as likely to be targeted as the oldest group (25+ years old).

Given that unions generally target, and successfully organize, large, productive firms in the U.S. economy, any effects of unions on business outcomes may be larger than previously thought, as these establishments account for the bulk of economic activity. First, the disproportionate presence of the mere threat of union targeting in these establishments can have larger welfare consequences. For instance, these establishments may have to raise wages and devote more resources to resist unionization.Second, the concentration of successful union organizing in these establishments means that post-unionization effects can be more prevalent in the larger and more productive segment of the establishments. If unions indeed have large adverse effects on businesses, this prevalence has important consequences.

Read abstract or download discussion paper.

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