New trends in labor economics and policy advice: IZA/CERGE-EI conference in Prague


Jan Svejnar

To celebrate the work of 2015 IZA Prize laureate Jan Svejnar, IZA organized a joint conference with CERGE-EI on “Labor Economics and its Public Policy Impact on Economic Growth” in Prague on November 21, which attracted a distinguished audience of over 100 academics and policymakers.

During the first part, an academic session chaired by Corrado Giulietti (IZA), Nobel laureate Christopher Sims (Princeton University) presented some puzzling figures about the cyclicality of labor productivity, showing that output per worker in the wake of the recent economic crisis increased in the U.S. and Spain, but decreased in many other developed countries. He suggested that the cyclicality of labor productivity might become a central topic for macroeconomists in the years to come.

Henry S. Farber (Princeton University and IZA) demonstrated that taxi drivers in New York City respond positively to unanticipated increases in earnings opportunities, which goes against previous research showing that taxi drivers work less when the wage is unexpectedly higher.

iza_cerge-eiStepan Jurajda (CERGE-EI and IZA) documented a large wage database of McDonald’s workers around the world. Comprising data for the period 2000-2015, this database allows the comparison of how real wages of workers who supply comparable skill inputs have evolved across countries over time.

Alan B. Krueger (Princeton University and IZA) presented recent figures on the “uberization” of the U.S. labor market, showing that the size of the “offline” gig economy is much larger than the online activities of Uber et al. Analyzing the working arrangements of individuals involved in these activities is fundamental for the understanding of potential downward pressures on labor standards and for the design of proposals to extend the social compact between workers and companies in the sharing economy.

The academic session concluded with Gerard Roland (UC Berkeley) giving a condensed review about 25 years of research in the economics of transition. His presentation showed how the topics in the area evolved over the years, highlighting the important contributions made by Jan Svejnar and other academic experts in the area of transition economics.

iza_cerge-ei_2The policy panel, chaired by Jan Svejnar, was dedicated to experiences and practices in evidence-based policy advice. Representing the “demand” side, Czech Labor Minister Michaela Marksová highlighted the challenges of labor market policy making and politicians’ need for scientific advice. IZA Director Klaus F. Zimmermann presented the IZA World of Labor platform as an effective instrument for the wider dissemination of scientifically founded policy advice.

Stefano Scarpetta shared insights from the OECD while Daniel Münich introduced IDEA, an academic and policy think tank recently established within CERGE-EI, as a platform to bring research results closer to policy makers. IZA Program Director Hartmut Lehmann (University of Bologna) highlighted the importance of strengthening data collection initiatives based on his experience of leading transition research within IZA.

A more detailed report will appear in the next issue of IZA Compact.

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Courage, trust and autonomy: Werner Eichhorst outlines challenges of the new world of work

Werner Eichhorst

Werner Eichhorst

In a recent podcast by the WorkLife HUB, an online platform focusing on work-life balance topics, Werner Eichhorst speaks about the challenges and opportunities of future work. He describes what to expect from the rising importance of robots in the workplace and explains how education systems will have to adapt to the requirements of life-long learning. Eichhorst also provides a set of recommendations for CEOs who worry about their company keeping up with competition and the future of work.

Will robots take our jobs? With all the hype generated around this question it is getting harder to separate facts from the noise. Werner Eichhorst reassures us that the future is not as gloomy as it may seem. In the podcast interview, he unpicks the different elements as to what it means to be working side by side with smart machines and robots.

Key skill of the future: Adapting to change

On the one hand, there will be a lot more interaction between humans and robots, during which the smart machines will take on more and more complex tasks. But the technological advances will also lead to an increased human-to-human interaction in most jobs. And both of these will require not only new skills but also a dedication to a continuous updating of skills. Perhaps one of the most important skills for the future will be the capacity to adapt to change, including the willingness to change occupations.

This alone raises a number of issues, such as figuring out where the responsibility lies for continuously updating the skills and competences of the workforce throughout their working lives. This calls for different responses for low-skilled and high-skilled labor, with the latter requiring much more individual initiative to ensure that skills are relevant.

Government and employers must to their part to ensure employability

Eichhorst also underlines that we must differentiate between cultures. In Europe there is major responsibility for general education by the government, so there needs to be a universal public policy to not only ensure a minimum set of skills for everyone across the workforce for employability, but also to take on some of the responsibility for updating these skills throughout the working lives of employees in collaboration with employers and individuals. Examples include leave or part-time arrangements for educational purposes.

One of the biggest challenges for employers will be to ensure job security and a high level of job quality for their workforce while at the same time organizing workers in a flexible way to get the most out of their innovation capacity. This calls for a new balance of different aspects of flexibility inside the firm, but also using flexible types of employment and project-based work to a reasonable extent.

Eichhorst also recommends the creation of an “enabling working environment” that provides space for formal and informal exchanges between employees that foster innovation. In short: employers who want to be well-prepared and gain a competitive edge in the future world of work should hire the right people, break down rigid hierarchical structures, give them autonomy, and trust in them to help co-create the work organization. Some of this, of course, will take great courage to implement.

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Sexual orientation related to preferences for competition

businesspeopleThe gender wage gap is one of the most researched empirical facts in labor economics. But it is not only the biological sex that is related to wages. A small but growing empirical evidence documents how individual sexual orientation is related to significant differences in labor market success. Gay men earn less than straight men; lesbian women earn more than straight women. Still, the reasons remain largely unknown.

Thomas Buser, Lydia Geijtenbeek and Erik Plug from the University of Amsterdam try to uncover a so far under-researched mechanism behind differences in labor market success by sexual orientation: do gays and lesbians differ from straight workers in their preference for competition? Are gays less competitive than straight men and lesbians more competitive than straight women? And can this explain the gay penalty and lesbian premium?

In an experiment with members of an online survey panel, the researchers set gay, lesbian and straight panel members to work on a simple mathematical task: finding the two numbers in a grid of eight numbers that add up exactly to ten. Participants were paid according to their performance. To measure their competitiveness, the participants could choose whether they preferred to get paid a fixed amount for each grid they solved or whether to compete against another participant in a tournament, earning more if they performed better than their opponent and earning nothing if they performed worse.

Percentage of players choosing competitive mode, by sexual orientation

Percentage of players choosing competitive mode, by sexual orientation (Source: IZA DP No. 9382)

The results show that the competitive hypothesis by sexual orientation holds for men, but not for women. When given the choice of whether to compete, lesbians proved to be as competitive as straight women. By contrast, gays were much less likely to opt for the tournament than straight men, regardless of their grid solving abilities. When the experimental choices are matched to survey data on salaries, the researchers find that these differences in competitiveness can account for almost 40 percent of the gay penalty in earnings.

Download the complete paper (IZA DP No. 9382):

Image source: Pixabay
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Demanding occupations and the retirement age

With populations aging in across most developed countries, governments are under pressure to reform pension schemes to guarantee their fiscal sustainability. Raising the statutory retirement age – the age at which individuals are entitled to ‘full’ retirement benefits – is one of the most common policy responses already applied in many settings.

However, concerns arise about consequences for workers in demanding occupations. While in many jobs people are able to work much longer, more demanding occupations require workers to retire before reaching any statutory retirement age, thereby entering less favorable early retirement, unemployment, or disability schemes.

In the Dutch policy debate, it was argued that low-skilled construction workers cannot work longer since their job requires a level of physical health they are unable to longer maintain at an older age due to the strains of many years of heavy physical work. Soon several other occupational groups argued for exceptions, too.

Despite these concerns, and out of practical implementation problems, the Dutch government decided to raise the statutory retirement age without any exceptions. While the Dutch discussion is far from over, similar debates are ongoing in Belgium, the UK and potentially any other country that raises the statutory retirement age.

Which occupation is considered more demanding than others?

At the core of these debates lies the question of what qualifies as a demanding occupation. When policy makers have to decide where to draw the line, public opinion is a crucial factor. A recent IZA paper by Niels Vermeer, Mauro Mastrogiacomo and Arthur van Soest analyzes the opinion of the Dutch population on early retirement arrangements of demanding occupations. Continue reading

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IZA World of Labor informs B20 Employment Taskforce Report

b20When global leaders meet at the G20 summit in Antalya this weekend, they will receive prioritized policy recommendations from the B20 Employment Taskforce. The report of the taskforce, to which IZA Director Klaus F. Zimmermann has contributed as a member, focuses on three key recommendations:

  1. Advance a business friendly environment to create employment opportunities
  2. Increase youth and female labor force participation by making labor markets more dynamic and inclusive
  3. Develop and finance programs aimed at reducing skills mismatches in an era of innovation and rapid technological change

[Download the B20 Employment Taskforce Policy Paper – PDF]

IZA World of Labor, the innovative knowledge hub for evidence in labor economics, has played a key role in the preparation for the report. The following IZA WoL articles are cited by the B20 Taskforce:

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Youth employment programs around the world – do they work?

Improving the employment prospects of the young generation has become a top priority in labor market policymaking around the globe. Accordingly, youth employment interventions play an important role in international development cooperation. However, since the implementation of a program alone does not guarantee that the desired outcome is achieved, it is not always clear whether the money is well spent.

yei1A new IZA Research Report by Werner Eichhorst and Ulf Rinne therefore aims to provide empirical evidence for informed policy decisions. The good news: Overall, youth employment initiatives seem to be on the right track. Very few of the interventions for which conclusive evidence is available have zero or negative effects. However, the vast majority of measures lack a rigorous evaluation.

On behalf of GIZ and BMZ, the IZA experts have analyzed 730 projects in 110 countries covered in the Youth Employment Inventory (YEI) as of May 2014. This internet-based databank is a worldwide stock-taking exercise of employment-related projects for youth which documents program design, implementation and results. Originally initiated by the World Bank, the YEI is now a joint effort of international institutions including BMZ, ILO and others.

yei2These are some of the findings of the descriptive analysis:

  • 82% of the interventions in the YEI involve skills training.
  • 66% of the interventions were implemented in the Middle East and North Africa (MENA countries) and in Sub-Saharan Africa.
  • For each intervention some kind of evaluation is available.
  • For 48% of the interventions just a basic descriptive evaluation has been performed.
  • For 73% of the interventions there is not enough evidence to make an assessment.

The meta-analysis of evaluations with conclusive results reveals the following:

  • Youth employment measures are more effective in developing countries than in developed countries.
  • Employment services (focusing on job placement) outperform other measures.
  • Combined measures do not outperform programs that include only one type of intervention.

The analysis thus confirms many previous findings in the literature but finds some more heterogeneity across categories of intervention, and points out that integration per se does not guarantee success.

The IZA study concludes that the YEI’s potential for evidence-based policy making could be significantly improved if more interventions were subject to rigorous scientific evaluation. The authors suggest that evaluation requirements should be taken into account in the design of interventions, as well as in budgeting, implementation and reporting.

Download the complete study (IZA Research Report No. 67):

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Interview with Michael Clemens on smart policy toward high-skill emigration

IZA World of Labor, the unique online resource for evidence-based policymaking, has now published over 200 articles! The author of the most recent article, Michael A. Clemens (Center for Global Development and IZA), is one of the leading scholars in the economics of migration. During his visit to IZA last week, we took the opportunity to talk to him about what constitutes smart policy toward high-skill emigrants.

IZA: With the refugee crisis dominating European headlines, public opinion is starting to turn against legal immigration driven by economic motives. More and more people support politicians who advocate more restrictive immigration policies. What is your opinion, based on the evidence?


Michael Clemens at the IZA Research Seminar

Clemens: The effects of refugees and economic migrants are created primarily by policy. It is possible to turn either refugees or economic migrants into a burden. It is also possible to turn them into a resource. This is a choice. There is recent and groundbreaking research on this, in two very different settings. Low-skill refugees in Denmark have raised the wages of native Danish workers. This is shown in a study with data on every single worker in Denmark across two decades, by Mette Foged of the University of Copenhagen and Giovanni Peri of the University of California Davis. When refugees were dispersed across the country, they generally complemented the labor of native workers. And where they did displace limited numbers of native workers, those natives ended up earning more, because they were displaced into jobs requiring more complex tasks.

The result is similar in a radically different setting: the effects of the two million Syrian refugees now in Turkey. You might think that such a large and unmanaged flow, unlike in Denmark, would have to break the Turkish labor market. But that refugee inflow, too, has actually raised wages for Turkish workers. This is shown in a remarkable new study by Ximena del Carpio of the World Bank and Mathis Wagner of Boston College. Those refugees have displaced many Turkish workers, but they have displaced many of them into higher-paid formal work, while Syrians take the informal jobs that Turks used to fill.

It didn’t have to work out this way. In either of these situations, policy could have converted these people from an economic resource into an economic burden. Denmark, instead of spreading refugees around the country and helping integrate them into the labor force, could have tried to ‘protect’ native workers from them (as some Eastern European countries are doing now). This, Foged and Peri show, would have actually harmed native workers. Turkey, rather than issuing Syrians identification cards designed to facilitate job offers, could have confined them in the camps and actively prevented them from working (as Lebanon has done). That would have lowered Turkish wages and increased their dependence on government handouts. In economic terms, there is nothing necessarily beneficial or harmful about people arriving in desperate conditions; policy makes the difference.

IZA: Many have advocated limits on high-skill migration in the name of economic development overseas, to keep skilled people from leaving countries where they are needed. In your IZA WoL article, you argue that many such policies are misguided. How is that?

Clemens: This is a common idea. Even respected development experts have recommended blocking migration of skilled people from poor countries on these grounds. The basic problems with such policies related to effectiveness and ethics.

On effectiveness: They have never been shown to work. Think about a poor neighborhood you are familiar with, and consider whether forcibly preventing smart young people from leaving that neighborhood would result in improved well-being there. For one thing, you might find the brightest kids being a lot less interested in school if they knew that they could never work outside a ghetto, where their efforts would be rewarded. There would be many other pernicious effects as well. With countries, too, there are indirect effects of this kind. This is why no one has ever demonstrated a positive effect on development, economic or otherwise, from trapping skilled people inside a poor country. In fact, if you think of places where skilled people really have been trapped against their will in the past—East Germany, North Korea—you are not thinking of places with vibrant development.

IZAWOL.203.gaBeyond this, for the truly poor countries the problem is that they have extremely few skilled workers, period, not that those skilled workers are leaving. Think of the countries on earth with the lowest numbers of university-educated workers as a fraction of the labor force, like Malawi. Even if some draconian policy somehow forced all the skilled people from those countries who are abroad to return home—including the ones who got their training abroad—this would barely change the skill shortages at home.

And on ethics: Think for a moment about the policy I just mentioned, of forcing all skilled people from poor countries to go back there. That prospect should be shocking and abhorrent. Imagine someone arriving at your own door, and informing you that your plans for your life are not important, and that someone else has determined that your skills are needed in a place you have decided you don’t want to live—so you’ll be sent there against your will. It would shatter your universe; it is not something we should discuss casually. The United Nations Universal Declaration of Human Rights, Article 13, guarantees the unconditional right of all people to leave any country they wish to leave, for any reason. Interfering with such a basic human right is something we should only ponder gravely, in the face of extremely compelling evidence that it would do good. As I mentioned above, we don’t have such evidence.

IZA: But why should politicians in developed countries care? And what can they do?

Clemens: Politicians who care about development should promote well-regulated skilled migration. High-skill emigration brings many indirect benefits to developing countries. Economists have shown that high-skill emigration increases trade for the countries that those migrants leave, by building their networks abroad. And it increases not just the amount of trade, but the diversity of products produced and exported. High-skill migration similarly causes investment in the countries migrants come from, and transfers new technologies (measured by patents) to the countries of origin. The effects of skilled workers are global, and many of them do more for their countries abroad than they can do at home.

These effects are documented in rigorous statistical studies. But they are easy to see as well. A well-known example of this is Mohamed Ibrahim, an engineer who once worked as a functionary in Sudan’s telecommunications agency. He emigrated to the United Kingdom and founded a telecom company, later bringing new technologies and billions in investment to Africa. A shortsighted policymaker may have tried to block him from leaving Sudan in the first place, since his ‘skills were needed’ there. Farsighted policymakers understand that the world and the economy are much more complex than that.

But this does not mean that regulation on skilled migration, in the name of development, is useless. An important concern for the countries that skilled migrants leave is a fiscal concern: many poor countries heavily subsidize higher education, and this can turn skilled emigration into a fiscal drain. The best policy solution to this isn’t to block skilled migration, which is ethically problematic and would cut off the many benefits. Rather, a policy priority is to develop systems of higher education finance that are built around the reality of migration, encouraging skill formation and mobility while limiting fiscal drain. I proposed one such system in IZA’s Journal of Labor Policy, but we need a lot more innovation here.


Read the IZA World of Labor article by Michael A. Clemens:


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