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Firms can rely on workers referred by current employees

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Hiring job applicants who were referred by current employees is a common and empirically well-supported practice, but there is relatively little scientific evidence about exactly why this works. A new IZA discussion paper by Stephen Burks, Bo Cowgill, Mitchell Hoffman and Michael Housman shows that referred workers perform better and that this is primarily because referrals allow firms to select workers better-suited for particular jobs.

The authors use large survey and operational data sets on workers from nine firms in three industries (call centers, high-tech software, and long distance trucking) to investigate the performance of referred workers. In the data referred applicants are very similar to non-referred ones on most measures of individual characteristics and on general productivity. However, they are more valuable to employers because they are substantially less likely to quit, and also because they are measurably better on such as the number of patents or preventable truck accidents. The researchers develop several tests of why referred workers are better in these ways, and conclude that most of the effects result from referred applicants being a better match for the specific jobs for which they are referred. This is in contrast to referred workers being generally more skilled, or to having better experiences on the job, such as receiving coaching from those who referred them. [Read more…] about Firms can rely on workers referred by current employees

Ora et non labora? A test of the impact of religion on female labor supply

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Religious norms on family formation and the respective roles of husband and wife are likely to influence labor market outcomes – in particular female labor supply behavior. A new IZA discussion paper by Francesco Pastore and Simona Tenaglia examines the influence of religion on women’s decision to enter the labor market by using data on 47 European countries and find a strong negative association between the share of individuals belonging to the catholic religion in the population of European countries and that of active women in the labor market. Moreover, the authors show that women belonging to the Orthodox and Muslim denomination present a higher risk of non-employment than agnostics, while being Protestant increases the probability for a woman to be employed. Intuitively, the authors show that these religious effects are mainly driven by groups that live their religious beliefs more intensively.

Basic entrepreneurship helps women out of poverty – new evidence from Bangladesh

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The world’s poorest people lack capital and skills and work in occupations that others shun. Using a large-scale and long-term randomized control trial in Bangladesh, a new IZA discussion paper by Oriana Bandiera, Robin Burgess, Narayan Das, Selim Gulesci, Imran Rasul and Munshi Sulaiman
demonstrates that sizable transfers of assets and skills enable the poorest women to shift out of agricultural labor and into running small businesses. This shift, which persists and strengthens after
assistance is withdrawn, leads to a 38% increase in earnings. Inculcating basic entrepreneurship, where severely disadvantaged women take on occupations which were the preserve of non-poor women, is shown to be a powerful means of transforming the economic lives of the poor.

Seek and ye shall find: how search requirements affect job finding rates of older workers

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Older workers often have difficulties to find a new job after becoming unemployment. While this problem is often attributed to low job availability, new evidence from the Netherlands suggests that older workers should by no means be discouraged as job search effort of older workers has a positive impact on job finding rates. In a new IZA discussion paper, Patrick Hullegie and Jan van Ours study how a specific rule in the Dutch of unemployment insurance affected the job finding rates of elderly unemployed workers. In the Netherlands unemployment insurance recipients were for a long time exempt from the requirement to actively search for a job when they reached the age of 57.5. The authors find evidence that the job finding rate of unemployed workers who were getting close to the age of 57.5 is reduced in anticipation of the removal of the search requirement. In addition the study shows a large negative effect on job finding rates of the actual removal of the search requirement. Apparently, even for persons with seemingly poor job prospects search requirements have a positive effect on finding rates. Read the complete discussion paper.

Workers bear most of the corporate tax burden

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Do higher corporate taxes reduce wages? While this question has heavily been discussed in economics since the 1960s, compelling empirical evidence is still scarce. In a new IZA discussion paper, Clemens Fuest, Andreas Peichl and Sebastian Siegloch exploit the specific institutional setting of the German local business tax — the most important German profit tax — to provide new answers to this old question. The authors use annual changes in the local business tax rates set by 11,441 German municipalities to show that a one euro increase in a firm’s annual tax liabilities yields a decrease of the annual wage bill of 50 to 75 cents. This means that raising one euro of corporate tax revenue reduces local wages by up to three quarters of the revenue raised. The authors only find a negative effect on wages if firms are under a collective bargaining agreement. If workers are not represented by a trade union, the local business tax has no effect on the wage. The reason for this finding: workers which are represented by a trade union receive higher wages and have more to lose if corporate taxes increase. Consequently, high and medium-skilled workers experience relatively higher wage losses than low-skilled workers if corporate tax rates increase.

In the public and political debates, arguments in favor of (higher) corporate taxes are often based on redistributive motives: allegedly rich firm owners are supposed to contribute to financing public goods and social safety nets by paying their fair share of taxes. Opponents of high corporate taxes often claim that eventually the tax burden is (fully) shifted to labor, being immobile in an international context. The findings by Fuest, Peichl and Siegloch shed new light on this debate and show that the shifting of the corporate tax burden is more complex. First, if workers receive relatively high wages — e.g. through collective bargaining agreements –, they are likely to suffer from higher corporate taxes through wage decreases. If wages are low, employees do not have much to lose. Second, the analysis suggests that local corporate taxation might offer a possibility to prevent firm owners from shifting large(r) shares of the tax burden to workers. If labor is regionally mobile, competitive wages are determined within the regional or even the national labor market and should hardly respond to the tax changes in a small jurisdiction.

Will There Be Blood? – Economic incentives increase blood donations without negative consequences

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Institutions such as the World Health Organization and national blood agencies have for 40 years promoted policy guidelines that oppose the use of economic incentives to attract blood donors. In an article that appeared in the May 24, 2013, issue of Science, Nicola Lacetera (University of Toronto) and IZA Fellows Mario Macis (Johns Hopkins University) and Robert Slonim (University of Sydney) argue that such opposition should be reconsidered.

The authors state that the current guidelines are based in part on outdated evidence mainly from uncontrolled studies using non-random samples, and surveys and artificial scenarios using hypothetical questions. These studies typically have suggested that economic incentives can decrease intrinsic motivations to donate and may also attract blood donations with greater risks such as viruses and infectious diseases.

However, a large body of field-based evidence from large, representative samples on actual donations has recently emerged, and the results clearly refute the previous findings: economic rewards have a positive effect on donations, without negative consequences on the safety of the blood.

Lacetera, Macis and Slonim cite the work of other researchers, as well as their own extensive work in this area, one initially appearing as an IZA DP No. 4567, which examined incentives for actual blood donors in the United States, Argentina, Switzerland and Italy. Of the 19 incentive items examined by the field-based studies, 18 had a positive effect and only one (a free cholesterol test) had no effect.

The authors note that there are many differences between the earlier approaches and the new evidence, including that in the field studies donors do not feel scrutinized by the researcher and thus might be less concerned about their image and more excited about the rewards. Moreover, the past research often focused on getting paid cash to donate, whereas offering “gifts” such as t-shirts may be seen as a token of appreciation which can reinforce rather than undermine donors’ intrinsic motivation. Also, the rewards are typically provided for presenting at the blood drives, not for donating blood, which should reduce the risk that an ineligible donor might misrepresent health or other information.

The voluntary supply of blood is typically low, in wealthy countries and especially in the developing world, which raises the question of how best to address blood shortages when they occur. The Science article demonstrates that even small economic rewards can be a powerful tool to address shortages [read summary | obtain full text].

Extended unemployment insurance did not affect U.S. unemployment rate

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Unemployment insurance (UI) benefits typically are available for 26 weeks in the United States. In response to the Great Recession of 2007-2009, UI benefit availability was extended to the historically unprecedented level of 99 weeks. Some observers and analysts have argued that this policy measure was counterproductive and was in fact a major contributing factor to the severe, sustained dislocation in the U.S. labor market. In a new IZA discussion paper, Henry Farber and Robert Valletta find that such concerns have little basis in the facts. The effects of extended UI on the overall unemployment rate and labor market efficiency were quite limited.

Farber and Valletta apply direct statistical tests to data on unemployed individuals and find that extended UI accounts for less than half a percentage point of the 5.5 percentage-point increase in the unemployment rate. Moreover, these effects occurred primarily through prolonged labor force attachment rather than reduced job finding, suggesting that extended UI benefits do not substantially disrupt the hiring process. Using a common basis for comparison, the authors also find that the impact of extended UI on the behavior of job seekers was quite similar between the recent episode of extended benefits and an earlier episode associated with the milder recession of 2001. Despite their limited impact on overall unemployment, the results for both episodes indicate that extended UI can account for a substantial fraction of the recessionary increase in long-term unemployment, a nuance that is commonly overlooked in public debate over extended UI.

Immigrant integration: Linguistic distance impedes literacy

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Language acquisition of immigrants is crucially affected by the dissimilarity between the immigrant’s mother tongue and the language of the destination country, according to a new IZA discussion paper by Ingo E. Isphording. The study relies on a combination of linguistic information on the differences between languages with rich data on literacy skills in OECD countries.

The research demonstrates that the role of the linguistic background outweighs the importance of socioeconomic factors like age, education, or exposure to the destination country language. Migrants with a very distant mother tongue (e.g. a Turk in the Netherlands) face distinctive hurdles in acquiring literacy skills in the destination country language. This disadvantage of a distant mother tongue in the language acquisition intensifies with the age at migration.

According to the author, the diversity in language background is a factor not to be ignored in understanding the integration process of immigrants into the host country societies. Language skills are an important prerequisite for this integration and have significant impacts on the success of immigrants in the labor market. Thus, hurdles by distant language background are likely to be translated into economic disadvantages.

Microinsurance in developing countries can help prevent child labor

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Child labor is a common consequence of economic shocks in developing countries. A new IZA discussion paper by Andreas Landmann and Markus Frölich shows how reducing the vulnerability to such shocks can affect child labor and schooling. The authors exploit the extension of a health and accident insurance scheme by a Pakistani microfinance institution (MFI): on the hand the program was extended to include supplementary household members such as adult children of the client or other household members; on the other hand clients were assisted with claim procedures. Importantly, the extension of the insurance scheme was set up as a randomized controlled trial, which allows clean identification of the effects of the extension. The paper finds lower incidence of child labor and lower child labor earnings caused by the innovation. Separating the two parts of the innovation package, the effects of claim assistance are mostly insignificant, while increased insurance coverage strongly decreases child labor incidence, hours worked and days missed at school. The authors show that the positive outcomes are largely due to an ex-ante feeling of protection as opposed to a shock-mitigation effect.

Older workers use longer unemployment benefit duration to retire earlier

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Extending the duration of unemployment insurance (UI) bene fits is one of the most important policy instruments to ease economic hardships of job losers – this is especially true for older workers who might be less likely to find a new job. Yet, a prolonged duration of unemployment benefits could also provide wrong incentives as older workers might exploit too generous rules as the first step into early retirement. A new IZA discussion paper by Lukas Inderbitzin, Stefan Staubli and Josef Zweimüller studies this trade-off by analyzing the impact of extended UI benefi ts on employment and retirement behavior of older workers in Austria.

The authors find the extended duration of unemployment benefits increases the probability of early retirement: a job loser aged 50-54 is 17 percentage points more likely to withdraw from the labor market when he is eligible for the longer benefit entitlement period. The paper finds that the Austrian program also affected the pathways into early retirement: the 17 percentage point increase in early retirement is associated with a 12.6 percentage point increase in a subsequent disability insurance take-up. From a welfare perspective, the authors conclude that Austrian unemployment insurance rules for older workers were too generous and the regional extended benefit program was a suboptimal policy.