Fixed-term contracts: Dead-end jobs or useful stepping stones? Video interview with Werner Eichhorst

Fixed-term contracts have become a major form of employment in Europe. While proponents regard them as an important stepping stone to permanent employment, critics deride them as dead-end jobs. Who is right? That depends on the institutional and economic environment, as Werner Eichhorst explains in a video interview.

Fixed-term contracts can be a pathway from unemployment to employment, but their potential as a stepping stone to permanent employment is undercut if there is a strong degree of segmentation in labor markets. Then the labor flexibility motive of employers ends up dominating the screening function for permanent hires.

To counter the trend toward labor market dualization, Eichhorst suggests that policymakers should narrow the gap between contract types by easing dismissal protection for permanent contracts while at the same time strengthening the employment stability of fixed-term contracts.


For more detailed information, see Werner Eichhorst’s article on Fixed-term contracts in the IZA World of Labor.

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High mortality on payday: Don’t get too excited about your money!

euro-96593_1920Payday is supposed to be a cause for celebration. When the salary finally arrives, bills can be paid, and financial stress should be eased. But if there is still some money left, be careful how to spend it: As the latest IZA discussion paper shows, too much excitement could be deadly!

In their study, Elvira Andersson, Petter Lundborg and Johan Vikström find an enormous increase in mortality on payday. Analyzing data on Swedish public sector employees – accounting for 22% of the country’s labor force – they discover a 23% increase in total mortality on the day that salary payments arrive.

The effect is especially pronounced for young workers aged 18 to 35. Their mortality rates on payday increase by as much as 164%. Overall, the results are driven by low-income earners, who are more likely to face liquidity constraints, which means that some extra spending money really makes a difference.

But contrary to what one may assume, wild partying on payday is not the reason for this excess mortality. Instead, the extra deaths are caused mainly by circulatory problems due to an increase in “general economic activity” – including shopping, traveling or eating out. When these activities are too exciting (watching your favorite football team) or unhealthy in other ways (greasy food), they lead to a higher risk of heart attacks and strokes.

Since paydays vary among Sweden’s public sector employers, the authors were able to rule out that their results are based on date-specific effects. Moreover, the rise in mortality is not offset by a subsequent decline, so it really consists of additional premature deaths. When extending the findings to include the entire Swedish working-age population, payday seems to cause approximately 96 premature deaths per year.

Read abstract or download discussion paper.

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Migration decisions of couples: Who wears the pants?

airplanesCouples are less likely than singles, but more likely than families to emigrate to a different country. But who makes the decision to migrate? Does the traditional role model prevail, where the man’s career prospects play the most important role? Or does the migration decision simply depend on the better-educated, higher-earning spouse’s job opportunities?

In a new IZA Discussion Paper Panu Poutvaara, Martin Junge and Martin D. Munk for the first time analyze migration decisions of dual-earner couples distinguishing between couples with male primary earners and couples in which women earned more (which is the case for about 15 percent of the couples). The researchers use register data on the entire Danish population from 1982 to 2010. Every fifth couple in their 20s and 30s decides to leave Denmark at least for a while. In 2010, more than 42,000 couples emigrated.

The authors find that family migration is indeed very responsive to the primary earner’s income  regardless of whether this is the male or the female partner. Each one-percent increase in the earnings of the primary earner increases the likelihood that a couple emigrates for at least 5 years by 1.6 to 3.6 percent. The effect of the secondary earner’s income is small and varies in sign across different groups.

On the other hand, the male’s education plays a bigger role than the female’s education in emigration decisions, independent of which partner earned more in Denmark. Even when the woman earns more, the emigration rate of male power couples (male has college education while female has not) is higher than the emigration rate of female power couples. If both partners went to college, the probability of migrating is six times higher than for couples without a university degree.

Read abstract or download discussion paper.

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How recessions produce career criminals

gunRecessions are known to create higher unemployment rates and lower levels of happiness and income. There is also growing evidence that workers who first enter the labor market during economic downturns suffer from poor job matching that impedes their career progression. But recessions have an even more disturbing effect – they contribute to initiating and forming criminal careers.

In a new IZA Discussion Paper Brian Bell, Anna Bindler and Stephen Machin show that young males who leave school in the midst of a recession are much more likely to become criminals than those who graduate in boom times. These effects are long lasting and persistent.

The researchers discover that entering the U.S. labor market at a time of recession – defined as a 5 percentage points higher than normal unemployment rate – results in a 5.5 percent increase in the probability of being incarcerated at some point over the next two decades. This effect, which is mainly driven by high-school dropouts, is similar in magnitude for the UK.

Even a decade after leaving school, there are strong and positive effects from entry unemployment on arrests, particularly for property crime. In the UK the influence on this sort of crime eventually dies out after 15 to 20 years post-school experience while it remains (and becomes even more significant) for violent crime.

Read abstract or download discussion paper.

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The state of European integration: What labor market experts think

EuropeRecent developments challenge the idea of free mobility in Europe. The rise in Euroskepticism, the perceived threat of welfare migration or the vote of the Swiss people to reintroduce immigration quotas indicate a degeneration of the European ideals. In light of these concerns, leading labor economists have recently joined forces in calling for an EU Charter that serves as a joint commitment to Working Without Borders.

How serious are these concerns? In a new IZA Discussion Paper, Annabelle Krause, Ulf Rinne and IZA Director Klaus F. Zimmermann find that labor market experts are worried about the state of European labor market integration, too. Although the experts are generally convinced of the merits arising from free labor mobility in Europe, the survey results point at several reasons why these benefits have not yet fully materialized – and why the public has difficulties perceiving them.

For example, the majority of experts are satisfied with the European Union, but a sizable 30% are disappointed. While about two-thirds of the respondents agree that a Single European Labor Market is important for achieving larger economic welfare, the majority thinks that Europe has not yet achieved this goal. Increased labor mobility is crucial to achieving this goal. The rapid recognition of qualifications, the harmonization of social security systems, and the knowledge of several languages are named as the three most important factors to increase labor mobility in Europe. Finally, most experts share a rather pessimistic view regarding the impacts of the Great Recession: They believe that the crisis-induced economic divergence between European countries is a long-lasting phenomenon.

These are some important findings of the IZA Expert Opinion Survey 2014 on the Single European Labor Market conducted earlier this year. The online survey was disseminated among the 700 European members of IZA’s network, which is the largest network of labor economists worldwide comprising more than 1,300 experts from 50 countries.

Read abstract or download discussion paper.

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Living with a stranger: The “Retired Husband Syndrome” in Japan

retirementRetirement is not just a major turning point in the life of a working man, but it often affects his entire family – and not in a good way. Many wives suffer from headaches, sleeplessness and other symptoms of anxiety or depression after their husbands have ended their careers. This phenomenon is known as the “Retired Husband Syndrome” (RHS). It is especially prevalent in societies with traditional gender roles like Japan.

The situation has been well documented anecdotally: All of a sudden, the husband stays home all day, gets all grumpy and demanding, and basically turns his wife’s daily life into a nightmare. She was used to having the day to herself, and now she is forced to put up with him 24/7. But despite wide media coverage on this topic in Japan, it has never been formally investigated whether (and to what extent) retirement itself has a direct causal effect on a severe deterioration of mental well-being.

In a new IZA Discussion Paper, Marco Bertoni and Giorgio Brunello look into this matter. Using an annual survey conducted on a representative sample of the Japanese population – with detailed information on individuals and their spouses, including retirement, divorce and self-reported measures of depression, stress and lack of sleep – the authors indeed find a strong negative effect of husbands’ retirement on wives’ mental health.

The causal effect is identified using the exogenous variation generated by a 2006 reform which mandated Japanese employers to guarantee continuous employment between mandatory retirement age (at age 60) and full pension eligibility age – effectively raising the average retirement age. The analysis of the different age cohorts shows that an additional year spent in retirement by Japanese husbands increases the probability that their wives develop RHS by 5.8 to 13.7 percentage points, depending on the underlying model.

One might think that wives are better able to cope with their husband’s retirement if they work themselves rather than stay home. However, the study shows that the opposite is the case: The retirement effects are even stronger for employed women, who are already stressed by their job and have less time to comply with the additional requests by their retired husbands. Increasing female labor force participation is therefore unlikely to stop the diffusion of RHS in Japan.

Husbands, by the way, show similar symptoms themselves. But the survey data used does not allow any conclusions whether wives are more likely to develop RHS after their husband’s mental health has deteriorated due to retirement. Nonetheless, the authors highlight the need to study retirement as a joint process affecting the couple:

“While much debate surrounding retirement in economics is centered around the financial preparedness to retire, our results suggest that attention should also be paid to preparing for retirement from a psychological point of view, so as to avoid or attenuate the consequences on the mental health and well-being of both partners.”

Read abstract or download discussion paper.

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Do personality traits affect productivity? Evidence from the lab

people-220284_640Individual differences in cognitive abilities measures such as IQ cannot fully explain the wage variation across workers, nor the intergenerational persistence of earnings and unemployment. That is probably why economists have recently focused their attention on analyzing how non-cognitive or “soft” skills such as self-control, motivation or perseverance might affect wages. Among these, personality traits have received special attention.

Psychologists were the first to study the so-called Five Factor Model of personality traits, or Big Five, as it is commonly known. According to physiologists, extraversion, neuroticism, conscientiousness, agreeableness and openness to experience can satisfactorily describe the combination of emotional, attitudinal, and behavioral characteristics unique to every individual.

While personality traits are to a large extent genetically inherited and hence can help to account for the intergenerational persistence of earnings, they are also somewhat malleable in adolescence and early adulthood and, thus, potentially more reactive to early policy interventions than cognitive skills.

Personality traits as important as cognitive skills

Studies using U.S. and European data show that the Big Five personality traits seem to be indeed important factors in the determination of wages. They account for almost the same variation in earnings than cognitive skills. Moreover, personality traits vary by gender. For instance, women are consistently more neurotic and agreeable than men, both traits that have negative returns in the labor market. Thus, personality traits could also potentially help to explain the gender wage gap.

Despite the aforementioned survey data evidence on the link between personality and labor productivity, little is still known about the actual mechanisms behind it. Moreover, observational evidence might suffer from potential confounds. For example, personality traits could affect wages and employment status through other indirect channels such as prior schooling choices, job selection, bargaining skills or evaluation by supervisors.

Laboratory experiment to eliminate confounding factors

In their latest IZA Discussion Paper, Ana Nuevo-Chiquero, Maria Cubel, Santiago Sanchez-Pages and Marian Vidal-Fernandez aim to tease out the factors behind the association between labor market outcomes and personality by means of a laboratory experiment. In this study, the authors take advantage of the controlled environment of the laboratory and the clearly defined task to reduce the risk of potential confounds.

More than 350 undergraduate students participated in their study in which they had to calculate as many five two-digit numbers sums as possible in 20 minutes. Students were rewarded for their correct answers and punished for the incorrect ones. Although not all jobs in real-life require knowing fast mental calculus, this task is mentally taxing, requires concentration and time management, all valuable qualities in the labor force.

Different effects for men and women

Consistent with survey evidence, the authors find that neuroticism decreases productivity while conscientiousness increases earnings. However, agreeableness shows only a very weak effect, suggesting that the negative relation between this trait and labor market outcomes found especially for women in previous survey studies might operate through other channels than productivity. The authors also find that extraversion and openness to experience have differential effects by gender and major of study (positive for men and science majors, but negative for women and non-science majors). Surprisingly, family background seems to play a minor role in the effects of personality.

The authors conclude that personality traits clearly affect individual productivity and that much more is to be learned and explored in the relationship between personality and economic outcomes. They also point out that a deeper understanding of the impact of personality on productivity can provide policy makers with a wider variety of instruments when designing policies aimed to improve the economic performance of disadvantaged groups and increase social mobility. This is particularly relevant for educational programs targeted to individuals after the age of 10, when cognitive skills are already mostly established but personality is still being formed.

Read abstract or download discussion paper.

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