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IZA – Institute of Labor Economics

IZA/SOLE Transatlantic Meeting of Labor Economists celebrates 20th anniversary

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Organized by Gerard A. Pfann and Terry Gregory, the 20th edition of the IZA/SOLE Transatlantic Meeting of Labor Economists (TAM) was held in a virtual format. The event traditionally brings together researchers from the IZA network and from the U.S.-based Society of Labor Economics (SOLE) to discuss cutting-edge research in the field of labor economics.

In light of the 20th anniversary, the president of SOLE (Kevin Lang) as well as the TAM originators (Gerard Pfann and Daniel Hamermesh) together with two presenters at the first meeting (Petra E. Todd and Coen Teulings) accepted invitations to present papers to celebrate the occasion. Among others, invited labor economists from both sides of the Atlantic exchanged research on fundamental changes on the labor market due to rapid technological progress, minimum wage policies and forces behind the gender pay gap.

Rising wage inequality in the digital transformation

The conference started with a presentation by Jeanne Tschopp, who addressed the rise in wage inequality observed between firms in many developed countries. She provided evidence on Germany speaking in favor of task-biased technological change in driving this trend. Accordingly, progress in automation and digitization technologies substitutes for workers in occupations that are intensive in routine, easily codifiable tasks. While other studies have shown this to widen the wage gap between workers in different task groups, Tschopp pointed out that rising wage inequality is also driven by increased wage differentials within tasks across firms. In other words, the type of firm to which individuals are matched is crucial: “Routine workers employed in low-productivity firms lose out not only relative to abstract workers in these firms, but also relative to routine workers in high-productivity ones,” Tschopp concluded.

What is an optimal minimum wage policy?

Other researchers discussed minimum wage policies as one of the most popular instruments in fighting wage inequality. For instance, Coen Teulings addressed the question of an optimal minimum wage in his key note lecture. After sketching some of the major challenges in minimum wage research over the past 40 years, Teulings used US data starting from 1979 to show that while minimum wages reduce wage inequality, they also lead to heterogeneous employment effects along the human capital distribution. In particular, he finds negative employment effects for the lowest percentiles of the human capital distribution, whereas employment effects for all other lower-percentile workers are positive, provided that the minimum wage is not set “too high.”

Returns to personality traits as drivers for gender pay gap

A further highlight of the conference was the keynote by Petra Todd on “Labor Market Returns to Personality.” She provided evidence for the impact of the so-called Big Five personality traits on labor market outcomes and related gender disparities using German data. She finds that women and men are rewarded differently for two traits, conscientiousness and agreeableness, which largely explains gender labor market disparities on the labor market. In her final statement, she concluded that “if women were to receive the same return that men receive for their personality traits, the wage gap would be eliminated.”

See the conference  program for the full set of presentations.

The impact of climate change on labor markets

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Climate change is increasing the frequency of extreme weather events such as heatwaves, floods, and hurricanes for the global population. In addition to causing damages to the environment and human health, global warming poses challenges for the functioning of labor markets. The First IZA Workshop on Climate Change and Labor Markets, organized by Andrew Oswald, Olivier Deschenes and Nico Pestel, brought together researchers working on the implications of global warming and climate change adaptation for labor markets.

In his welcome address, Oswald emphasized the urgency of the problem for the modern world, drawing attention to what had just been witnessed in the unprecedented temperatures recently in British Columbia in Canada. He also pointed to a comparative lack of research articles in the major general journals of Economics and stressed IZA’s commitment to help foster research in this important area.

“Changing Climate, Changing Economics”

The workshop was opened by a keynote address delivered by Lord Nicholas Stern from the London School of Economics on “Changing Climate, Changing Economics”. According to Stern, the central problem with respect to climate change is to stabilize the global average temperature by achieving net zero emissions of greenhouse gases by the mid of the 21st century. A global warming by two degrees Celsius would already provide large risks for humanity and a warming by three degrees or even more would be absolutely disastrous and make whole areas of the world uninhabitable, said Stern.

He pointed out that preventing such a climate disaster requires rapid change and tremendous investments particularly in energy systems. The contribution of economics and economic policy-making should mainly focus on overcoming market failures and should not stop at suggesting and implementing a global carbon price given that more systemic change is required.

Rainfall affects employment mainly in agriculture

The first session of the workshop focused on direct impacts of weather anomalies on labor market outcomes. A paper co-authored by Camilo Bohorquez-Penuela studies effects of municipality-level precipitation shocks on formal rural employment in Colombia. The results indicate that episodes of excessive rainfall have a negative impact on formal employment in rural areas for both the agricultural and non-agricultural sector, while episodes of lack of rainfall affect the formal rural labor market in the opposite direction. These findings are explained by substitution effects between water and labor inputs in agricultural production.

Droughts impact on migration decisions

Beyond direct labor market effects, climate change may have an impact on location decisions of workers and firms. The study presented by Fernanda Martínez Flores investigates the extent to which soil moisture anomalies have an impact on international migration from West Africa directed to Europe. The results show that drier soil conditions decrease rather than increase the probability to migrate. This effect is concentrated during the crop-growing season, suggesting that the decrease in migration is mainly driven by financial constraints, also because the effect is only seen for areas in the middle of the income distribution, with no impact on the poorest or richest areas who can never or always afford migration.

Adjustment to climate change is costly

Climate change will cause precipitation volatility to increase around the world, leading to economic damages in the face of adjustment costs. Jeffrey G. Shrader presented his co-authored work on estimating these damages for U.S. construction, an economically important, climate exposed industry. He showed that employment falls in response to predicted rainfall and more so as the forecast horizon increases. Firms anticipate and adapt to rainfall events through costly adjustment of their labor force. Higher adjustment costs reduce this adaptation, leading to greater damage from bad weather realizations. These results imply that firms value forecasts and would be willing to pay to learn about rainfall sooner.

See the online program of the workshop for more downloadable papers.

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For more research on environmental regulation and the labor market, see also the IZA World of Labor topic page.

How environmental pollution affects educational and labor market outcomes

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Climate change and environmental pollution are the central challenges of our time. The COVID-19 pandemic has also moved population health a top policy priority. To present and discuss new research on these issues, the 8th IZA Workshop on “Environment, Health and Labor Markets”, organized by Olivier Deschenes and Nico Pestel, brought together researchers analyzing the interaction between environmental factors, health policies, labor markets and education.

Central questions evolved around the impacts of environmental pollution on educational and labor market outcomes, the effects of environmental policies on employment, as well as health benefits of public policies.

Lead exposure spills over to classmates

It is well established that children exposed to lead are more disruptive and have lower achievement. In her paper, Ludovica Gazze studies how lead-exposed children affect the long-run outcomes of their peers by using new data on preschool blood lead levels matched to education data for all students in North Carolina public schools. Having more lead-exposed peers is associated with lower high-school graduation and SAT-taking rates and increased suspensions and absences.

School building quality important for student performance

Governments devote a large share of public budgets to constructing, repairing and modernizing school facilities. Juan Palacios presented evidence on the implications for student performance of poor environmental conditions inside classrooms by continuously monitoring the environmental conditions (i.e. CO2, fine particles, temperature, humidity) in the classrooms of 3,000 children over two school years, and linking them to their scores in standardized tests. The findings show that exposure to poor indoor air quality during the school term preceding the test is associated with significant performance drops. Changes in teaching time could be a potential mechanism.

Low-emission zones improve child health

Hannah Klauber examines the impact of early-life exposure to air pollution on children’s health from their in-utero period to school enrollment by using public health insurance records covering one-third of the population of children in Germany. The results indicate that children born just before and just after a Low Emission Zone, banning high-emission vehicles, was implemented in the county of birth exhibit persistent differences in medication usage for at least five years.

Management quality crucial for climate change mitigation

Cap-and-trade programs for CO2 emissions are being considered by governments worldwide to address the climate change challenge. The success of such a market-based climate policy at minimizing overall abatement cost and fostering low-carbon investment and innovation depends on participants fully understanding the system. Ulrich Wagner provides evidence on how management quality moderates responses to carbon pricing, by analyzing firms that participated in two of China’s regional pilot emissions trading schemes (ETS). The findings show that the launch of the pilot ETS has reduced consumption of coal and electricity, but only for well-managed firms.

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More papers are downloadable from the workshop homepage.

New research on the economic effects of migration policies

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In 2020, the number of international migrants across the globe reached a new high of 281 million, equal to 3.6 percent of the world’s population and affecting all regions of the planet. Research on the economic aspects of migration thus could not be timelier. In a new edition of a longstanding and successful series, IZA’s 17th annual migration meeting discussed new and cutting-edge research on a wide variety of migration topics in economics.

This year’s workshop, organized by George Borjas and Marc Witte, focused on the economic drivers and impacts of refugee migration, the integration of immigrants in their host societies, and the impact of migration policies on both sending and receiving countries. After the 2020 migration workshop was canceled due to the pandemic, this year’s edition was the first to be held entirely online.

Many of the 17 presenters analyzed various migration policies and/or natural experiments across the globe, from the US, Mexico, Colombia, to Portugal’s former African Colonies, as well as Italy, and Israel.

Several papers studied the effect of migration-curbing policies in receiving countries on development in the sending countries, as exemplified by Davide Coluccia’s work on “The Economic Effects of Immigration Restriction Policies”. Looking at the Italian mass migration to the U.S. at the beginning of the 20th century, he finds that the American 1921-1924 Immigration Acts led to a population increase in those Italian districts that previously showed large emigration to the U.S. As a consequence, Italian manufacturing firms located in those districts invested less in capital goods, while industrial employment rose due to an abundance of workers. A migration policy enacted in a destination country thus had potential long-run effects on growth and productivity in the sending country.

Obtaining citizenship boosts labor market integration

Another presentation by Yajna Govind analyzed the effect of naturalization of immigrants on their labor market outcomes. The paper exploits a French reform in 2006 that doubled the minimum years of marriage (to a French citizen) required before naturalization, from two to four. From this policy change it can be deducted that obtaining citizenship leads to an increase in annual earnings by almost 30%, driven both by rising working hours and hourly wages. Interestingly, the margins starkly differ by gender: while naturalized men work more hours, naturalized women earn more per hour. For both genders, in any case, naturalization boosts labor market integration.

The immigration experience to America is perhaps best described with a quote from an Italian immigrant in the 1900s:

“I came to America because I heard the streets were paved with gold. When I got here, I found out three things: First, the streets were not paved with gold. Second, they weren’t paved at all. Third, I was expected to pave them.”

In his keynote speech “Streets of Gold: Immigration and the American Dream over two Centuries”, Ran Abramitzky compares immigration to the U.S. one century ago with current immigration patterns. Characterizing the view of the past European mass migration as overly nostalgic, Ran showed that immigrants then and today only partially assimilate to their host country, both economically and culturally. Their children, however, cover a lot of ground to their US-born counterparts and catch up with them in most economic aspects, regardless of the sending country.

Other topics discussed in the workshop’s presentations included how taking the perspective of an immigrant affects natives’ pro-sociality, the impact of immigration on the top 1% income earners in the UK, or the influence of immigration on the creative arts in the US.

Measuring labor market conditions

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Economists and policymakers rely on labor market indicators produced by statistical agencies to gauge the health of economies during recessions and recoveries, to identify labor market trends, and to develop policy responses to problems identified in the data. Yet, the data on which these analyses depend often provide an incomplete, noisy, or even biased picture of labor market conditions. In addition, the rapidity with which the global recession developed during the Covid-19 pandemic has underscored the need for more timely economic data than national statistical agencies typically provide, spurring the use of real-time data from proprietary sources.

The 4th IZA workshop on labor statistics, organized by Katharine Abraham and Susan Houseman, featured twelve papers that critiqued existing measures of labor market conditions, provided corrected or new measures, and made use of novel data to address substantive labor market questions.

Improving measures of labor market slack

Several workshop papers addressed problems with statistics designed to measure the degree of unemployment and underemployment (or “slack”) in labor markets. The data for calculating the unemployment and the labor force participation rates in the United States come from a monthly household survey in which households are surveyed a total of eight times. This allows one to observe how workers move between being employed, unemployed, and out of the labor force.

Hie Joo Ahn and James Hamilton, however, point to large inconsistencies in the monthly estimates of the unemployment rate and labor force participation rate, on the one hand, and the movements between these labor force states over time.  Part of the problem arises from the fact that the more times survey respondents are interviewed, the less likely they are to report being unemployed or part-time, or to answer survey questions at all, owing to stigma associated with being unemployed or underemployed.  Correcting for these and other problems in the data, Ahn and Hamilton find that the unemployment rate and the labor force participation rate both are underestimated by about 2 percentage points.

Instead of correcting official measures, Jason Faberman, Andreas Mueller, Ayşegül Şahin, and Giorgio Topa propose a new measure, the “Aggregate Hours Gap,” to capture the degree of slack in labor markets. Their measure is derived from questions on desired hours worked in a household survey conducted by the Federal Reserve Bank of New York. They find that their measure performs as well as or better than the unemployment rate in accounting for changes in wages. Their measure also suggests that the recovery following the Great Recession was slower than suggested by the unemployment rate or other measures of labor market slack.

Using proprietary data to measure the economic impacts of Covid-19

Lags in the collection and publication of government data have hampered efforts to provide timely analysis of the impacts the pandemic recession is having on businesses and workers. To assess the widely held belief that small businesses and their workforces have been especially harmed by the recession in the United States, André Kurmann, Etienne Lalé, and Lien Ta use data from Homebase—a company that provides scheduling software primarily to small service-sector businesses—supplemented with business opening and closing information gleaned from Google, Facebook, and other online sources. Contrary to expectations, they find that, while small business employment was especially hard hit in the early stages of the recession, small businesses have rebounded and, on net, have not fared worse than larger businesses during the recession.

Links to these and other papers may be found on the workshop program.

IZA Young Labor Economist Award goes to Patrick Kline

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Patrick Kline (University of California, Berkeley) has been selected as the winner of the 2021 IZA Young Labor Economist Award for his research on empirical methodology in labor economics and on the determination of wages. This biennial prize is awarded to outstanding labor economists whose Ph.D. was received fewer than 15 years ago.

“The Award typifies the interaction of economic ideas with the development of proper tools to frame their measurement,” said Daniel Hamermesh, who chairs the IZA Prize Committee.  This year’s committee selecting the awardee consisted of Joseph Altonji (Yale), Oriana Bandiera (LSE), Richard Blundell (UCL), George Borjas (Harvard), Pierre Cahuc (Sciences Po), and Claudia Goldin (Harvard).

The Award contains a small monetary prize, which will be conferred during the IZA Reception at the ASSA Meetings on January 7-9, 2022, in Boston, Massachusetts.

Working from home continues to increase

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To reduce the risk of infection at work, Germany’s Federal Labor Ministry issued a new regulation in late January 2021, mandating employers to offer work from home to all employees whose tasks are suitable for remote work. A representative survey conducted by IZA in mid-February assesses the incidence of, and experience with, working from home, as well as changes in working conditions due to the new regulation, employees’ perceived risk of infection at the workplace, and general stress perceptions.

Almost half of employees work at least partly from home

According to the survey, 49% of employees worked from home at least some of the time, while 34% worked mainly or exclusively from home in February. Compared to January, 22% of employees worked more hours from home.

One-fourth of respondents stated that the new workplace health and safety regulation had an impact on workplace arrangements at their firm, with more coworkers switching to remote work or increasing their hours working from home. Those who did not notice any changes attributed this mainly to already existing remote work options before the regulation came into effect, or to the fact that their jobs cannot be done from home.

Only one in five employees cites a lack of suitable technical equipment as a reason for not working (more) from home. While some plan to ask their employer to increase their share of work done from home, the overwhelming majority of employees are satisfied with the options currently offered by their firm.

High satisfaction with measures taken by employers

In addition to the increase in work from home, the new regulation also seems to have led to improved infection control measures in the workplace. One-third of employees noted that their firm tightened social distancing at work when compared to December 2020. One-fourth indicated their firm had started providing medical protective masks, while 12% (22% in small firms) did not receive them from their employer.

Most employees are satisfied with the way their employer handles infection control. Only 17% are very concerned they could become infected at work. With regard to the provision of technical equipment, 85% stated they received computers, laptop or tablets, and 44% were given smartphones. Notably, female employees were less likely to receive technical equipment for remote work than their male coworkers.

Many employees feel a heavy workload

Gender differences also appear with respect to the perception of workload, exhaustion, and stress. 42% of employees currently feel a high or very high level of stress, which is more prevalent among women (48%) than among men (36%).

The rising stress level also seems to have a negative impact on life satisfaction. On a scale from 0 (completely dissatisfied) to 10 (completely satisfied), the surveyed employees reported an average value of 6.7. At the outset of the pandemic in April 2020, a representative survey of the entire German population had recorded an average of 7.4 points.

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The IZA study was conducted on behalf of the Federal Labor Ministry and is available in German language only.

IZA Crisis Monitor assesses national policy responses to the COVID-19 pandemic

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While the unprecedented COVID-19 pandemic severely affects societies, economies and labor markets, the impact differs across countries, socio-economic groups and sectors within in countries. For the IZA Crisis Response Monitoring, IZA invited selected labor economists as country experts to jointly monitor the labor market and social policy responses that have been deployed to help mitigate the imminent crisis effects.

Policy inventories released by the OECD and other institutions show significant cross-country differences in policy responses. The IZA initiative aims at providing an independent assessment of actual crisis-related policy responses, based on a qualitative survey among the country experts. Consisting of a set of eight questions, the second wave of the survey covers a sample of 13 European and G7 countries heavily affected by COVID-19.

Second report available online

The second crisis management report is now available on IZA’s “COVID-19 and the Labor Market” website. The crisis monitoring page contains all country reports in an interactive format that makes for easy comparison (see screenshot), as well as PDF downloads including a summary of the most striking similarities and differences between countries.

While labor markets continue to be heavily affected by the pandemic, countries have started to extend and adjust stabilization measures that were introduced at the outset of the crisis. In an overview, IZA researchers Werner Eichhorst, Paul Marx and Ulf Rinne address three essential elements of the crisis response that require particular attention: the further development of short-time work schemes, ad hoc income protection for the self-employed, and the specific difficulties labor markets are currently facing.

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Read also interviews with our country experts from Sweden, Austria, The Netherlands, and Canada.

IZA Fellow Edward Lazear passes away

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It is with tremendous sadness that we announce the passing of Edward Lazear, Stanford University professor and winner of the 2004 IZA Prize in Labor Economics. He had been an IZA Research Fellow since 2002 and was one of the first contributors to the IZA World of Labor.

His book Personnel Economics, published in 1995, established a new field in labor economics, focused on human resource practices and incentives in organizations. He made important contributions as well in education, immigration, productivity and entrepreneurship.

A student of and intellectual successor to economist and Nobel Laureate Gary Becker, Lazear founded the Society of Labor Economists and later served as its president. He was the founding editor of the Journal of Labor Economics, and also founded the working group on Personnel Economics at the National Bureau of Economic Research.

“In a whole variety of ways, Ed was an inspiration to a whole generation of economists, including many contemporaries. His seriousness about economics has always been a beacon, reflected both in his own work and in his discussions of others’ work,” said IZA Network Director Daniel Hamermesh.

“Ed cared deeply about economics, but he did not take himself too seriously. He had a good sense of humor and was great fun to be around. Perhaps the combination of scholarly achievement and sense is what recommended Ed for so many of the positions that he held, including as Chair of the Council of Economic Advisors in the U.S. from 2007-2009. Ed Lazear was a true gentleman. He will be sorely missed by all who knew him.”

Read also the obituary from Stanford University.

The Economics of Immigration: 2nd Edition

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The second edition of The Economics of Immigration, by Cynthia Bansak, Nicole Simpson and Madeline Zavodny, is being published by Routledge this year. All three authors have been IZA Research Fellows for many years. We asked them about the purpose and contents of the book, and the importance of IZA research in this field.

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Who should read your book?

Our textbook is geared towards undergraduate students who have taken an introductory economics course. This textbook  comprehensively covers the economics of immigration at the undergraduate level, and it is suitable both for economics students and for students studying migration in other disciplines, such as sociology and politics. The book is international in scope, with examples from all around the globe.

You obviously put a lot of work into it. What was your motivation?

We wanted to provide students with the tools needed to examine the economic impact of immigration and immigration policies. Students will develop an understanding of why and how people migrate across borders and will learn how to analyze the economic causes and effects of immigration.

Students will develop an understanding of why and how people migrate across borders.

The main objectives of the book are for students to understand the decision to migrate; to understand the impact of immigration on markets and government budgets; and to understand the consequences of immigration policies in a global context.

Tell us more about the topics covered…

Key topics include the effect of immigration on labor markets, housing markets, international trade, tax revenues, human capital accumulation, and government fiscal balances. The book also considers the impact of immigration on what firms choose to produce, and even on the ethnic diversity of restaurants and on financial markets, as well as the theory and evidence on immigrants’ economic assimilation.

The book also considers the impact of immigration on what firms choose to produce.

We have included a comparative study of immigration policies in a number of immigrant-receiving and sending countries. Finally, the book explores immigration topics that directly affect developing countries, such as remittances, brain drain, human trafficking, and rural-urban internal migration. The idea is to fully equip students with the tools needed to understand and contribute to policy debates on this controversial topic.

What’s new in the second edition?

In addition to updating time-sensitive material, we made several other changes. The second edition puts more emphasis on refugees and asylum seekers since those groups swelled in number over the 2010s. Students in many countries are interested in those groups.

We put more emphasis on refugees and asylum seekers since those groups swelled in number over the 2010s.

While many refugees and asylum seekers are not economic migrants, they nonetheless have economic effects that are important to consider. The second edition also puts more emphasis on European immigration, environmental migration, political outcomes of migration and immigrant innovation.

How important has IZA research been in this field?

There has been an explosion of research on the topic of immigration in the last few decades, much of which has been facilitated by IZA, and we have made a concerted effort to place recent findings at the center of our discussions in the book. Through its migration program area, IZA focuses research on the many dimensions of international and internal migration.

There has been an explosion of research on the topic of immigration, much of which has been facilitated by IZA.

In books, chapters, journal articles and discussion papers, IZA researchers examine adjustment among the migrants and their descendants in the destination country, the effects of immigration on both origin and destination countries, and public policies that affect migration. Our book discusses the work of many IZA researchers on this topic and makes their findings accessible and relevant to undergraduates. In fact, we cite dozens of IZA articles and working papers in the textbook.

What online resources do you provide?

The textbook is accompanied with a companion website with resources for instructors and a blog that connects students and instructors to recent events and debates related to immigration. We are developing course materials, including power points, that align with the updated version. In addition, the companion provides suggested class activities related to the book. We welcome instructors to contact us with feedback on the book and requests for updated course materials.