IZA Newsroom

IZA – Institute of Labor Economics

Mark Fallak

Low Emission Zones in Germany improve population health

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Air pollution is a major threat to human health. Vehicle exhaust fumes are particularly harmful as they are emitted close to the ground. To reduce emissions from inner-city traffic, Germany has implemented Low Emission Zones (LEZ). These are signposted areas in cities where high-emitting vehicles, as indicated by a windshield sticker, are banned from entering. The health impact of this policy, however, remains controversial because it is methodologically difficult to prove that improved population health can be causally attributed to LEZs.

A new paper by IZA researchers Nico Pestel and Florian Wozny uses panel data from German hospitals from 2006 to 2016 with precise information on the location and catchment areas of hospitals, as well as the annual frequency of diagnoses. The analysis exploits the variation in timing and geographic coverage of LEZs, which have been rolled out across cities since 2007. Air quality data comes from air pollution monitors, which are assigned to LEZs.

Fewer air pollution-related diagnoses

The findings indicate that LEZs substantially improve air quality. Concentrations of particulate matter (PM10) and nitrogen dioxide (NO2) are significantly reduced. Importantly, these improvements translate into fewer air pollution-related diagnoses, especially diseases of the circulatory and the respiratory system, among hospitals whose catchment areas are covered more by an LEZ.

The authors provide some evidence that these results appear to be driven by reductions in non-emergency diagnoses of chronic diseases, not so much by emergency cases. Given the large literature showing that air pollution has negative consequences for labor supply and productivity on the job, the direct health effects of LEZs may be complemented by indirect benefits for human capital and economic growth.

Mothers’ employment encourages children to work more as adults

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For several decades, the intergenerational correlation of labor market outcomes has been a subject of interest among both academics and policymakers. Much of the economics literature has focused on the correlation of labor earnings, in particular on the transmission of earnings potential. In a recent IZA discussion paper, Gabriela Galassi, David Koll and Lukas Mayr document that not only the potential to earn is transmitted across generations but also the willingness to work.

Using U.S. data from the National Longitudinal Survey of Youth 1979 (NLSY79) and the NLSY79 Children and Young Adults (CNLSY79), the authors document that the fraction of individuals’ working-age life spent in employment is considerably correlated across generations: an increase in lifetime employment of mothers by one year is associated with an increase in the employment of her child by around eleven weeks.

Employment status matters more than earnings or hours worked

The correlation in employment between mothers and children remains substantial also after controlling for the main determinants of the earnings persistence across generations, i.e. ability, education and wealth. This “residual correlation” corresponds to an incremental employment of children of around six weeks when maternal employment is one year higher. The result is robust to a variety of specifications and variables used to measure lifetime employment.

A different picture emerges when considering the intensive margin of labor supply, i.e. hours worked. While there is a substantial correlation of working hours across generations, it does not survive after controlling for education, ability and wealth. This, together with the fact that the literature on earnings transmission generally restricts the analysis to individuals and periods in which earnings (and hence hours) are positive, shows the importance of looking at the intergenerational correlation in employment, a novel outcome in the literature on intergenerational transmission.

Stronger correlation for low-educated mothers

The authors further document that the employment correlation between mothers and their children is heterogeneous across several dimensions. First, it is significantly higher for daughters than for sons, but remains positive and statistically significant even for sons. The latter suggests that the result is not entirely driven by gender roles. Second, the intergenerational correlation of employment decreases in maternal education, being significant only when the mother did not obtain any college education. Finally, the correlation is highest in the bottom quintile of the income distribution and tends to decrease in maternal family income.

The paper also explores potential mechanisms that might explain the high residual intergenerational correlation of employment. In particular, the authors document that whether or not mother-child pairs share the same industry, occupation or local labor market does not significantly affect the correlation in employment. These observations rule out network effects, occupation-specific human capital or conditions within local labor markets as main causes.

Building a positive attitude towards work

By contrast, the authors provide suggestive evidence favoring the existence of a role model channel. In particular, they show that the residual correlation remains unchanged after controlling either for work preferences of the mother or their work behavior when the child is not living with her. This finding suggests that preferences are not directly transmitted. Instead, it seems to be important for the child to observe her mother working in order to build a positive attitude towards work herself.

The positive and strong intergenerational correlation of employment has important implications not only for the analysis of social mobility but, potentially, also for the optimal design of tax-transfer policies. In particular, in-work benefits aimed to move individuals with children and low socio-economic status into the labor force may turn out to trigger revenue increases from following generations, thus reducing their fiscal costs.

How wage expectations differ by gender

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Despite increasing policy efforts to achieve gender-based equality of opportunity, convergence in male-female wages remains slow, particularly among college graduates. A recent IZA paper by Lukas Kiessling, Pia Pinger, Philipp Seegers and Jan Bergerhoff suggests that gender differences in wage expectations play an important role.

Based on a survey of over 15,000 students and recent graduates in Germany, the researchers document a significant and large gender gap in wage expectations that closely resembles actual wage differences. Their findings indicate that sorting and negotiation styles affect the gender gap in wage expectations much more than prospective child-related labor force interruptions. Given the importance of wage expectations for labor market decisions, household bargaining, and wage setting, the results may explain much of the persistent gender inequalities.

Gender gap in wage expectations amounts to nine years of extra work experience

The overall pattern of the results confirms previous findings on the importance of sorting into certain majors, industries or occupations, and a female preference for jobs with flatter wage schedules. In terms of relative magnitudes, females would need to work on average around four hours more per week in the same occupation and industry, or major in other fields (e.g. in medical sciences rather than humanities) to catch up with the starting wages of their male peers. Similarly, in expectation, it would take them about nine years more of accumulated work experience to make up for the gender penalty.

Moreover, reluctant negotiation behavior seems to lead to lower reference points and lower subsequent wage expectations. The data show that women plan to enter wage negotiations with more modest wage claims relative to their reservation wage. Expected wages are thus likely to drive actual wage differences and persistent gender wage gaps.

Women underestimate the long-term motherhood wage penalty

The results suggest that women are aware of the career cost of having children early, which may explain the observational tendency to delay childbirth among highly-educated women. However, aside from considerations of timing, women underestimate the child-related dampening in their wage trajectories, with potential implications for household bargaining and the distribution of child-rearing tasks. Thus, women may stay home at a higher rate not only because they expect lower labor market returns than their spouses, but also because they underestimate the wage loss associated with raising children.

In terms of policy implications, the authors suggest that negotiation trainings – rather than encouraging more negotiations per se – might be an effective measure to improve female labor market outcomes and reduce the gender wage gap. Also, information treatments on child-related wage penalties might help women to gain a more realistic view of the career costs of raising a family, leading them to bargain for a more equal distribution of child-rearing responsibilities within households.

New research team structure at IZA

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IZA has established six new in-house research teams to further sharpen our research focus. Within our four general areas of expertise, these teams will explore key aspects of the changing world of work from a national and international perspective.

Shaping a joint research agenda will enable the teams to exploit the synergies needed to produce top-quality research output. They also benefit from collaboration opportunities with over 1,600 members of our global IZA research network.

Our goal is to respond swiftly to new research questions in academic science and policy advice in order to deliver evidence-based answers. Led by experienced researchers, the teams will cover topical issues ranging from digitalization and skill formation to institutional changes, strategic policy challenges, and the influence of human behavior on the effectiveness of labor market policies.

  • The “Digital Transformation” team analyzes how the trend towards digitalization and automation affects the labor market, and how firms and workers adapt to these technological changes.
  • The “Skill Formation” team examines the competencies that the workers of the future will need in order to succeed in changing labor markets.
  • The “Personalized Labor Policy” team studies how to improve the effectiveness of labor market programs by tailoring policy instruments to the preferences, backgrounds, and needs of different population groups.
  • The “Policy Challenges” team focuses on the implications of the changing world of work for the design and reform of labor market institutions.
  • The “Labor Market Institutions” team adopts an international comparative perspective in exploring how institutional arrangements and reforms influence labor market structures and dynamics.
  • The “Structural Policy Evaluation” team develops a dynamic simulation model for ex-ante policy evaluation based on a behavioral approach.

Strengthening the institute’s profile in empirical labor economics, our new research teams underscore IZA’s role as a “bridge-builder” that aims at expanding the scientific knowledge base and making it accessible for labor market policy practitioners.

IZA Journals now published by Sciendo

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The market for scholarly journals has been rapidly changing towards electronic formats. Among global research institutions in economics, IZA was one of the first to pursue a strictly open-access strategy for our own peer-reviewed journals. We now have three well-established electronic journals: IZA Journal of Labor Economics, IZA Journal of Labor Policy, and IZA Journal of Development and Migration.

While the readership of printed or traditional electronic journals is limited by costly subscriptions, open-access publishing provides immediate worldwide access to all articles, thereby stimulating the exchange of knowledge while maintaining highest quality standards.

Reaching a wider audience and gaining more citations

A recent IZA discussion paper by Seth Gershenson, Morgan S. Polikoff and Rui Wang found that article downloads increased by 60 to 80 percent when the paywall to several prestigious educational research journals was unexpectedly taken down for two months. The researchers conclude that open access makes scholarly articles available to a substantially larger number of academics and practitioners while at the same time increasing the probability of the work being cited.

By transferring the IZA Journal Series to Sciendo as our new publisher, we have now taken the next step towards establishing the open-access principles in the field of labor economics. Owned by the renowned publishing house De Gruyter, Sciendo has specialized in publishing services suited to the needs of journal owners in academia. Its lean production facilitates smoother submission and article processing, faster publication and circulation of articles, as well as substantially reduced publication costs.

The main benefits of our move to Sciendo are:

  • Simplified submission process via Editorial Manager
    Sciendo has set up clearly structured and simple processing via Editorial Manager allowing for hassle-free submissions within a few minutes.
  • Reduced publication fee: €975 instead of €1250
    A growing number of institutions in the field of economics explicitly offer funding for open access publication. While IZA does not expect authors to pay publication fees from their personal funds, we aim at exploiting available funds at research institutions and third party resources. If no other funds exist, IZA will cover the publication costs. The IZA Journals do not charge any submission fees.
  • Well-organized article processing
    Authors, editors and reviewers will benefit from a streamlined workflow that will also further speed up publication.
  • Automated plagiarism detection
    Sciendo implemented an efficient routine to check every submitted paper for plagiarism to meet IZA’s high standards of research integrity. The results will be kept strictly confidential and only shared with the authors if necessary.

We are confident that this will further increase the attractiveness of the IZA Journals as a scientific resource with high visibility and impact.

Higher absence rates in the public than the private sector

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Public sector employees are often said to have excessive rates of absence from work, which gives rise to the stereotype of the “malingering bureaucrat”. To find out whether this is correct, a recent IZA discussion paper by Stephanie Prümer and Claus Schnabel analyzed representative survey data for Germany in 2012. The authors find that absenteeism seems indeed to be more prevalent in the public sector.

Whereas only 53 percent of private sector employees report having been absent at least once in the past 12 months, this figure is 9 percentage points higher for public sector employees. On average public sector employees record one more day of absence per year compared to workers in the private sector. These differences showing up in descriptive statistics are substantially reduced and partly disappear when taking account of individuals’ socio-demographic characteristics, health status, professional activities, and workplace-related factors. Even then, however, the probability of staying home sick at least once a year is still 5.6 percentage points higher in the public sector.

“Malingering bureaucrat” stereotype seems exaggerated

This finding refutes assertions that differences in absence rates between the sectors are mainly due to structural factors like different compositions of the workforce. The study shows that the same observable factors play a role for absenteeism in the public and private sector. It cannot rule out that employees in the two sectors differ in unobservable factors like motivation, commitment, and loyalty towards their employer and their co-workers. It could also be the case that public employers exert less pressure on employees not to call in sick (for instance because they are not so exposed to market pressure).

Nevertheless, since the difference in the probability of sickness absence between similar public and private sector employees is less than 6 percentage points, the authors conclude that the stereotype of the “malingering bureaucrat” seems to be an exaggeration, at least for Germany.

How parents pay for their unemployed adult children

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Parents who financially help their unemployed adult children offset such costs by adjusting their behavior, particularly by spending less money on food, working more and reducing retirement savings, according to a new article published in the IZA Journal of Labor Economics.

It is known that parents are increasingly helping their adult children, including by letting them live at home and providing them money and other assistance. Little, though, has been documented on the economic impact of such decisions on parents themselves.

This study by RAND researchers Kathryn Edwards and Jeffrey Wenger sheds light on exactly how parents curb own behavior – to their own financial detriment – when they provide financial assistance to an unemployed adult child.

“One may assume that since parents willingly help their children, they are not worse off because of that decision,” said Edwards. “But our research shows that that these decisions may not result in the best financial outcome for the parent.”

The authors examined the effect of a child’s unemployment (of at least one week) on parents’ financial assistance to the child, as well as the parents’ household food consumption, income and savings.

When it comes to financial assistance, parents are more likely to give cash to a child once they lose their job, the study found. The analysis also showed that parents spend less money on food once a child becomes unemployed and maintain this drop in consumption for a two-year period.

Also striking is the change in parents’ work and saving habits. Parents work more the year their child becomes unemployed. Some parents also decrease savings for retirement.

“On the individual level, most of the changes were small,” Edwards said. “The problem is what this means in the aggregate. When the labor market risk of one generation is informally insured by another, the older generation may be putting their retirement security at risk, while the younger generation has insurance that depends on how willing and wealthy their parents are. This is a trademark of basic economic inequality.”

The study is based on an analysis of 4,500 mother-child pairs gleaned from the Panel Study of Income Dynamics, a longitudinal sample of U.S. households. The researchers were able to match mothers at a higher rate than fathers and most of the matched fathers were in households with previously matched mothers.

Labor market impacts of digitalization and automation

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The past decades have been characterized by a tremendous rise in computing power, reducing the costs of automating so-called routine tasks which follow clear, explicit rules and can thus be put into computer code. This has led to a polarization of labor markets in advanced economies with declining shares of middle-paid, routine-intensive occupations and rising shares of both, high- and low-paid jobs.

While this computerization has not led to employment declines, the question whether this holds true for the effects of further technological advances in the near future remains open. Whereas previous automation methods were limited to problems that are sufficiently well understood to be put into algorithms of well-defined steps, now even less structured problems appear automatable using big data and machine learning.

Continued increases in computing power, the growing availability of big data, and significant advances in Machine Learning methods are shifting the boundaries of what can be automated by machines. Against this background, some studies predict that about half of the U.S. workforce is “at risk of automation”, which has spurred public fears of technology-induced mass unemployment.

Workers adjust to automation

A new IZA/ZEW paper by Melanie Arntz, Terry Gregory and Ulrich Zierahn contrasts such fears with the scientific debate. The study shows that many estimates of automation potentials are severely upward biased as they often are conducted at the occupational level, ignoring the great variation in what people actually do at work.

As many workers in seemingly automatable occupations already adjust their task schedules to non-automatable tasks, they often face much lower exposure to automation. The study finds that the share of workers in automatable jobs is likely to be less than 10% in the U.S. and many other countries. These numbers, however, only refer to technological potentials and must not be equated with actual job losses or employment effects as is often done in the public debate.

The study outlines three main reasons why the job destruction potential of automation is overrated:

  1. The diffusion of new technologies into the economy is a rather slow process, leaving workers time to adjust. Diffusion is slow due to high costs, uncertainty, the need to undergo organizational change for implementing the technologies, and the need for acquiring workers with suitable skills.
  2. Workers are flexible and adjust. In fact, much of the adjustment to automation is not made by making seemingly replaceable occupations redundant, but by workers doing other tasks in the same occupations. Being in an occupation that is “at risk” thus does not necessarily imply that the worker is about to lose his or her job, but that the worker has to adapt by switching to the right tasks and learning the right skills.
  3. While automation indeed does displace jobs, it simultaneously creates new jobs. The overall effect on the employment has actually been positive, not negative. It thus remains an open question whether the next wave of digitalization and automation will lead to fewer or even more jobs.

The paper also describes scenarios for the potential impact of digitalization and automation via cutting-edge technologies on the German labor market, exploiting a recent survey on the adoption of new digital technologies.

The results suggest that the net effect remains small, and is actually positive in the next five years. However, there appear large structural shifts between occupations and industries, which are accompanied by rising inequality and employment polarization.

Coping with structural change

The main challenge for the future thus is not mass unemployment, but structural change. In addition, the simulations suggest that firms are currently in an investment phase where they first have to incur high investment costs and need to acquire the right skilled workers before being able to reap large productivity gains.

Therefore, the effects of these cutting-edge technologies may change in the medium to long run when the technologies mature. Nonetheless, this does not imply that they will reduce employment in the longer run. Once they mature, productivity effects will also raise the demand for labor. It remains to be seen whether the job-creating effects continue to dominate the job-destruction effects in the longer run.

These results entail three main policy implications:

  1. Promoting the adoption of new technologies seems to be a reasonable policy goal, as these technologies apparently raise employment and production. The focus should be on medium and small firms who currently seem to fall behind.
  2. The introduction of these technologies requires workers with the right skills. The lack of such workers seems to partly hinder the introduction of new technologies. The second recommendation thus is to address skill shortages by education, qualification, and further training.
  3. The coming wave of technological change seems to be associated with a further rise in inequality, as high-skilled, high-wage occupations are on the rise, whereas low- and medium-paid jobs further fall behind. In order to prevent further rising inequality, targeted training and qualification measures may help workers to switch to the expanding occupations, thus helping them to participate in the technology-induced benefits while lowering the losses of those who cannot change their skills and jobs and thus remain in shrinking occupations and sectors.

Expansion of paid parental leave may work against intended goals

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Currently, the United States is the only high-income country that does not have nationwide paid parental leave. This is in stark contrast to European countries which provide new parents with generous periods of benefits. Between 2013 and 2015, the median duration of leave among developed countries was 60 weeks.

While a large body of literature documents significant gains from relatively short leaves (see the IZA World of Labor for an overview), it is less clear how extended periods of benefits affect household behavior and child well-being. A new IZA discussion paper by Serena Canaan provides some of the first evidence that offering lengthy leaves can have detrimental effects on a range of family outcomes.

Cash benefits for up to three years

The paper focuses on a French gender-neutral leave program, which offered parents a fixed monthly cash benefit to take up to three years of time off from work after the birth of a child. Leave take-up was conditional on the parent either working part-time or exiting the labor force, with the latter option yielding a greater amount of benefits.

Upon its introduction, the leave was reserved for parents of three or more children. Benefits were then extended to parents whose second child was born or after July 1, 1994. To identify the causal effects of leave extension, the study compares the outcomes for families with children born just before or after this date-of-birth cutoff.

Revival of traditional gender norms

The findings indicate that leave eligibility induces mothers to take the maximum amount of benefits by exiting the labor force. Barely eligible women are around 16 percentage points more likely to be out of the labor force compared to those who are barely ineligible. Fathers, in contrast, do not alter their leave-taking behavior but provide an additional 2.5 working hours per week on average. Since men’s earnings are unaffected, additional results suggest that fathers could be spending more time at work in order to boost their chances of promotion and raise future earnings.

With regard to responses in the marriage market, the analysis provides no evidence of leave expansion affecting divorce or couple separation. However, cohabiting mothers who benefited from the reform are around 10 percentage points less likely to marry within the next four years. According to the study, this reduction in marital surplus could be driven by couples spending less time together due to household specialization.

Leave eligibility harms children’s verbal development

Finally, the study documents that leave eligibility harms children’s verbal development at ages 5 to 6. The author suggests several mechanisms that could explain this finding. Children could be adversely affected through a reduction in their social interactions if maternal care is substituting for other childcare arrangements. The documented couple instability could have also hurt child development. Since the program does not offer full income replacement, loss of household income could be another potential channel driving the results.

Some of the main arguments for parental leave programs are that they can help narrow the gender gap in the labor market as well as promote family stability and foster child well-being. Thus, the results suggest that parental leave programs can work against their intended goals. “Indeed, leave-induced specialization can play a key role in exacerbating gender inequalities in the labor market,” Canaan writes.

Extensive leave expansions may increase inequality

Furthermore, the documented negative effect on child development is important in light of evidence that childhood circumstances can shape future outcomes and that early interventions can be critical for reducing initial inequalities.

The author stresses that the extent to which these results can be generalized to other settings largely depends on the design of other parental leave programs. Nonetheless, her findings imply that extensive expansions in the duration of parental leaves can have significant negative consequences.

The wrong kind of AI?

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Artificial Intelligence (AI) is one of the most promising technologies currently being developed and deployed. There is a lot of excitement, some hype, and a fair bit of apprehension about what AI will mean for our security, society and economy. But a critical question has been largely overlooked: are we investing in the “right” type of AI, the type with the greatest potential for raising productivity and generating broad-based prosperity? Daron Acemoglu and Pascual Restrepo provide answers in a recent IZA Discussion Paper.

How technology affects labor

The standard approach to study the impact of new technologies on the nature of production and work presumes that any advance that increases productivity (value added per worker) also tends to raise the demand for labor, and thus employment and wages.

The reality of technological change is rather different, as Acemoglu and Restrepo explain. Many new technologies – those we call automation technologies – do not increase labor’s productivity, but are explicitly aimed at replacing it by substituting cheaper capital (machines) in a range of tasks performed by humans. As a result, automation technologies always reduce the labor’s share in value added (because they increase productivity by more than wages and employment).

In an age of rapid automation, labor’s relative standing will deteriorate and workers will be particularly badly affected if new technologies are not raising productivity sufficiently – if these new technologies are not great but just “so-so” (just good enough to be adopted but not so much more productive than the labor they are replacing). With so-so automation technologies, labor demand declines: the displacement is there, while powerful productivity gains contributing to labor demand are missing.

Automation and new tasks

In a second IZA Discussion Paper Acemoglu and Restrepo analyze the displacement and reinstatement of labor through the creation of new tasks. They develop a framework for understanding the effects of automation and other types of technical changes on labor demand, and use it to interpret changes in US employment over the recent past. They find that the slower growth of employment over the last three decades is accounted for by an acceleration in the displacement effect, especially in manufacturing, a weaker reinstatement effect, and slower growth of productivity than in previous decades.

Why the wrong kind of AI?

Economists tend to place great trust in the market’s ability to allocate resources in the most efficient way. But according to Acemoglu and Restrepo, most experts recognize that the market’s star doesn’t shine as brightly when it comes to innovation. For example, innovation creates externalities, i.e. other players benefit from the innovator’s new technology as well. Markets do not do a good job in the presence of such externalities.

There are additional factors that may have distorted choices over what types of AI applications to develop. One is that if employment creation has a social value, beyond what is in the GDP statistics (e.g. less inequality or happier citizens), which will be ignored by the market. Another factor is related to the tax policies adopted in the United States and other Western nations, which subsidize capital and investment while taxing employment. This makes using machines instead of labor more profitable.

All in all, while Acemoglu and Restrepo find no definitive evidence that research and corporate resources today are being directed towards the “wrong” kind of AI, they see no compelling reason to expect an efficient balance between different types of AI in the market for innovation. If at this critical juncture insufficient attention is devoted to inventing and creating demand for (rather than just replacing) labor, that would be the “wrong” kind of AI from the social and economic point of view. Rather than undergirding productivity growth, employment and shared prosperity, rampant automation would contribute to anemic growth and inequality.