Hiring credits stimulated employment during recession in France

work-222768_640In response to soaring unemployment during the Great Recession, the French government introduced a hiring credit in December 2008. The program called zéro charges allowed firms with fewer than ten employees to hire workers at the minimum wage without paying any social security contributions. Wages up to 1.6 times the minimum wage were subject to reduced contributions.

In a new IZA Discussion Paper, Pierre Cahuc, Stéphane Carcillo and Thomas Le Barbanchon analyze the employment effects of this policy. Since the reform went into effect on the very day it was announced, the researchers set up a research design similar to a laboratory experiment: they define a treatment group consisting of firms with 6 to 9 employees, which was affected by the reform, and a control or placebo group consisting of firms with 10 to 14 employees. By comparing employment trends among treatment and control groups before and after the reform, the authors were able to identify the causal effect of the hiring credits.

The study finds that the hiring credit was very effective. It allowed the government to create jobs at zero net cost in a small amount of time. Within three months, hirings went up significantly. In the period before the reform, the treatment and control groups showed similar employment trends. In 2009, after the reform, employment decreased in the treatment group by only 0.9 percent while it dropped by 1.6 percent in the control group. Overall, the authors estimate that about 5,200 jobs were created within one year. The analysis also shows that the policy did not increase layoffs to hire new workers at lower costs.

However, the authors caution that their results were obtained in a very specific context. The program was targeted at low wages, which are very rigid in France due to binding collective agreements and a high minimum wage. Permanent hiring credits, or hiring credits not targeted at low wages, could have a much weaker employment impact. The authors also estimate that the program would have been even more effective if it had been conditional on net job creation.

Read abstract or download discussion paper.

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Female quotas in company boards: Norwegian evidence shows no trickle-down effect

women quotaWomen still earn less than men, and are still under-represented in executive positions. In 2003, the Norwegian government passed a reform to change that, setting up a mandatory quota of 40 percent for women in the boards of publicly limited liability companies. Like in many other countries where such reforms have been implemented or are discussed, the resistance of firm owners was immense. The typical concern is that there might not be enough qualified women available to fill all the seats, which would lead to inefficiencies and declines in productivity.

In a new IZA Discussion Paper, Marianne Bertrand, Sandra E. Black, Sissel Jensen and Adriana Lleras-Muney take a closer look at the introduction of a binding female quota in executive boards and analyze the labor market effects of such a reform. First, as a direct reaction, the researchers show that many firms tried to evade the rule by changing the legal form so that they would not be affected by the reform. The remaining publicly limited liability companies were, however, compliant: the share of women in the boards indeed reached 40 percent in 2008. Second, the researchers demonstrate that women, who were newly introduced to the boards, had on average an outstanding educational and professional background. Third, they find that the quota achieved another goal as the female wage gap within executive boards decreases significantly

Despite these intended effects in the boards of affected companies, the reform had no significant spill-over effects: while there seem to be more women among the top 5 earners within a company, the effect did not trickle down as the female representation within the top 5%, 10% and 25% of earners in the firm was not affected. Moreover, the authors look at highly skilled women who have not been newly appointed to become a board member, finding neither a significant earnings increase nor a higher probability to fill a top position in the future.

Last, the researchers investigate the effect of the quota on the attitudes of young women interested in a business career.  The authors show that the introduction of the quota had no effect on the enrollment of women in business programs.  In addition, there seems to be no reduction in the large gender gap in starting wages induced by the reform.

Read abstract or download discussion paper.

Read also in IZA World of Labor:
Gender quotas on boards of directors (article by Nina Smith)

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Risk and compensation in the labor market for drug smugglers

US-Mexican borderEvery year, roughly 3,000 people are arrested while working as “mules” smuggling drugs through the ports of entry along the U.S.-Mexican border in California, Arizona, New Mexico, and Texas. For every mule caught, many more get through. Despite the great public concern over cross-border drug smuggling, and the enormous expenditures devoted to stopping it, little is known about the labor market mechanisms underlying this activity.

In a new IZA Discussion Paper, David Bjerk and Caleb Mason study this underground labor market using unique data from California with detailed information on smuggling events. The authors estimate that the average compensation of a mule caught at the California ports of entry is approximately 1,600 U.S. dollars. This implies that a drug mule would have to complete about two smuggling trips per month to earn as much as an American commercial truck driver.

Compensation for drug smuggling also responds to sentencing risk: one extra year in jail when caught increases the smuggler’s pay by around 1,200 dollars. Given harsher sentences for meth and cocaine, compensation for smuggling these drugs increases sharply with the quantity smuggled until a certain load size is reached where larger quantities make no difference in sentencing. Since expected prison time is much shorter for smuggling marihuana, mules’ pay in this case increases linearly: each additional 50 kilos pay about 420 dollars extra.

The authors conclude that this underground labor market is subject to competitive market pressures with risk-sensitive, reasonably informed workers being compensated for higher risks. Their findings also suggest that border enforcement and sentencing may impact the drug market not just through restricting the amount of drugs that come through the border, but by raising the price due to higher labor costs.

Read abstract or download discussion paper.

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Long-run effects of ADHD medication on health and crime

medicineThe number of children diagnosed with attention deficit hyperactivity disorder (ADHD) is on its all-time high. In Germany, for example, the number of diagnosed ADHD cases rose by 42 percent between 2006 and 2011. At age 11, about 7 percent of all boys and 2 percent of all girls were treated with Methylphenidate, the most common drug, mainly known under the brand name Ritalin. Although widely used, very little is known about the long-run effects of these pharmaceuticals.

A new IZA Discussion Paper by Søren Dalsgaard, Helena Skyt Nielsen and Marianne Simonsen contributes to filling this gap. Using Danish data, the economists show that children diagnosed with ADHD who undergo treatment have better long-run health outcomes and show less criminal behavior. More precisely, treated children have fewer hospital contacts due to injuries and fewer emergency room visits, and they are less likely to be charged with a crime as teenagers.

To identify these effects, the researchers use a complex strategy. Since it is not possible to observe the development of the same child with and without treatment, the authors compare outcomes of very similar ADHD children and exploit the fact that some physicians have a much stronger preference for prescribing pharmaceuticals than others. In other words, the researchers try to find statistical twins who go to different doctors and thus are treated differently.

While the findings suggest that treatment of ADHD with Ritalin has benefits in terms of health and criminal behavior, the authors stress that this does not imply all children should be treated. In order to arrive at an overall evaluation of ADHD medication, the estimated gains should be contrasted with (a) the costs of the drugs and (b) possible side effects like insomnia or high blood pressure.

Read abstract or download discussion paper.

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How Viagra changed the lifestyle of elderly men

ViagraThe introduction of Viagra in 1998 changed the world of men suffering from erectile dysfunction. Up until then, there were nearly no remedies available that could have helped men effectively. No wonder that within a few months after its introduction, Viagra dominated the market. Until today, Viagra has been prescribed to approximately 37 million men worldwide.

In a new IZA Discussion Paper, which is forthcoming in Economic Enquiry, Jacob LaRiviere and Hendrik Wolff analyze how the little blue pill influenced lifestyle and behavior of elderly men in the U.S. In a nutshell, the introduction of Viagra seemed to have influenced short-term rather than long-term behavior. On the one hand, Gonorrhea rates for men older than 45 increased by 15-28 percent. Apparently, the drug had an effect on short-term decisions of older men to become more open to risky sexual relationships, increasing the amount of infections with sexual transmittable diseases. On the other hand, the authors find no influence of Viagra on long-term-decisions as divorce and natality rates of the target population are not affected.

Read abstract or download discussion paper.

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Understanding the German minimum wage

eichhorst_harvardWith the introduction of a statutory minimum wage at a rather high starting level of 8.50 euros, Germany has undertaken a large-scale policy experiment that continues to raise eyebrows among economists worldwide. In a statement for Chinese Social Sciences Today, IZA Director of Labor Policy Europe Werner Eichhorst, put this decision into a broader political and economic perspective:

In July 2014, the German Parliament has passed legislation on a new general statutory minimum wage to be introduced by January 2015. The minimum wage of €8.50 gross per hour only allows for very limited exemptions such as for the long-term unemployed when hired initially (up to six months), seasonal workers, young people below the age of 18 as well as for apprentices and student interns (the latter for up to three months).

Furthermore, if collective agreements with wages below the new minimum wage exist currently, they will remain effective during a two-year transition period. A bipartite commission consisting of representatives of employer associations and the trade unions will decide annually on the adjustment of the minimum wage, based on the development of collectively agreed wages observed over a two-year period. This mechanism will be operated for the first time in 2017.

The statutory minimum wage is a remarkable step and a major departure from the current system of industrial relations and labor market governance in Germany. For the first time in post-war Germany, this quasi-universal minimum wage will set a general wage floor for all sectors, occupations and regions. This political decision, supported by the two governing parties, Christian Democrats and Social Democrats, but also by a vast majority of the electorate, can only be understood as a response to the growth of the low-pay sector over the last decade.

With a stricter activation policy addressing the unemployed, a liberalization of non-standard contracts such as temporary agency work and marginal part-time jobs, and a long-term decline of collective bargaining coverage, a larger share of workers were employed at a relatively low wage rate. This low-pay segment was a challenge to the trade unions, but also to the widely shared belief in a ‘fair’ distribution of wages and income. Therefore, the statutory minimum wage will particularly affect those parts of the labor market where low pay is widespread and collectively agreed wage settlements to not really matter.

From an economic point of view, the new minimum wage is likely to put pressure on low-paid jobs, leading most probably to wage and price increases in some cases, but also to job losses in heavily affected occupations and regions. Simulations point at a strong employment impact in small companies, in non-standard jobs, in the eastern part of Germany, and in some low- to medium-skilled occupations of the service sector.

For the sake of evidence-based policymaking, it is necessary to evaluate the effects of the new minimum wage on employment, wages and other outcomes independently and timely before deciding on an adjustment of the statutory minimum wage. Yet, the new legislation does not provide for a systematic consideration of evaluation results.

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Recommended book: How the federal government analyzes and influences the economy

Public EconomicsA newly published three-volume set on “Public Economics in the United States” takes a close look at how the U.S. federal government analyzes and influences the economy. Edited by Steven Payson, 47 chapters written by 61 leading experts deal with economic measurement, fiscal policy, regulatory economics, monetary policy, migration policy, and a variety of other topics such as professional ethics for government economists.

Volume 1 examines government support for businesses, households, infrastructure, and national defense. The second volume addresses the economic analysis of legislation, regulation, and taxation. Volume 3 presents statistical measurement, strategy development, and accountability in government economics. Introductions to the three volumes were written by Murray Weidenbaum, former Chair of the President’s Council of Economic Advisors, Rudolph Penner, former Director of the Congressional Budget Office, and Keith Hall, former Commissioner of the Bureau of Labor Statistics.

IZA Program Director Migration Amelie F. Constant contributed the chapter “An Economic Analysis of Immigration,” which evaluates U.S. migration policy since the beginning on the 20th century. Of all current references available today, this set provides the most authoritative and comprehensive coverage of virtually everything the U.S. government does in the field of economics.

[read more at ABC-CLIO]

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