Do firms benefit from active labor market policies? In order to answer this question, Michael Lechner, Conny Wunsch and Patrycja Scioch investigate the link between variation in the supply of workers who participate in specific types of active labor market policies (ALMPs) and firm performance using a new and rich German employer-employee data base. The paper exploits that local employment agencies in Germany have a high degree of autonomy in determining their own mix of ALMPs. In addition, firms’ hiring regions overlap only imperfectly with the areas of responsibility of the employment agencies. This mismatch allows the authors to identify the effect of ALMPs on firm performance. The results indicate that in general firms do not benefit from ALMPs and in some cases may even be harmed by certain programs. In particular, subsidized employment and longer training programs seem to be detrimental to firm performance. These findings complement the negative assessment of the cost-effectiveness of ALMPs from the empirical literature on the effects for participants.
Longer maternity leave: Good for children of highly educated mothers
Do children do better in school if mothers stay longer at home after birth? A new IZA Discussion Paper by Natalia Danzer and Victor Lavy investigates this question by estimating if and how long-term human capital outcomes are affected by the duration of maternity leave, that is, by the time mothers spend at home with their newborn before returning to work. The authors exploit an unanticipated policy reform in Austria: the maximum duration of parental leave for children born on July 1, 1990 or later was extended from 12 to 24 months. Thus, as of July 1, 1990, newborns had a higher probability that their mothers stayed home longer after birth. Using scores from the Austrian PISA test to measure school performance and proxy human capital, the study shows that there is no significant overall impact of the extended parental leave on test scores at age 15. Yet, the authors also look at the effect for different subgroups, finding opposing effects. On the one hand, children of highly educated mothers do better in school if mothers stay home longer. In contrast, schooling outcomes of children from lower educated mothers seem to have been harmed: boys have lower test scores and girls have a higher likelihood of being in a lower grade. The authors conclude that in a country with no formal child care system for very young children, early maternal employment of highly educated women might have detrimental effects for their offspring. Yet, it remains an open question to what extent such potential negative effects can be mitigated or reversed through a high-quality formal day care system.
Firms with female CEOs exhibit a more stable performance
Do female-led firms perform differently than male-led ones? A new IZA Discussion Paper by Pierpaolo Parrotta and Nina Smith investigates this relationship. The authors measure female leadership by CEO gender and composition of the board of directors, thus by the presence of a female chairman and share of women in the boardroom. They then relate female firm leadership to measures of firm performance such as investments, profits, return to equity, and sales. Relying on Danish worker-company data, the authors show that there is no association between a female CEO and the levels of firm performance measures. Yet, there is a significant effect in terms of volatility: female-led firms exhibit a more stable performance over time – a finding which is in line with previous findings in the literature showing that women are more risk-averse decision makers who focus more on monitoring activities and on the implementation of a stricter firm governance.
Have the benefits from marriage changed over the past decades? A new IZA Discussion Paper by Shelly Lundberg and Robert A. Pollak investigates this question by putting it into an economic perspective. In particular, the authors take the changing labor market role of women into account: the educational attainment of women has overtaken and surpassed that of men, and the ratio of male to female wage rates has fallen.
The authors argue that this development has weakened traditional patterns of gender specialization in work as the primary economic benefits from marrying in the 1950s lay in the specialization between work (typically the husband’s task) and the production of household services and commodities (typically the wife’s). Instead, in modern times, the main benefit from marriage is the investment in children. Lundberg and Pollak argue that for some couples, this change means that marrying is no longer worth the costs since people give up independence and face the risk of choosing the wrong partner. Because of that, cohabitation has become an acceptable living arrangement, but cohabitation serves different functions among different groups.
The authors stress the fact that the poor and less educated are much more likely to rear children in cohabitating relationships, while the college educated typically cohabit before marriage, and marry before conceiving children. In addition, marriages of well-educated couples are relatively stable. According to the paper, different patterns of childrearing are the key to understanding class differences in marriage and parenthood: marriage is the commitment mechanism that supports high levels of investment in children and is hence more valuable for parents adopting a high-investment strategy for their children.
Unmet expectations: Why we are unhappy during midlife
Human beings are happy when they are in the mid-20s and when they are hitting the 60s, but they experience quite low levels of wellbeing and life satisfaction during midlife. Some theories have assumed that this U-shaped pattern over the life cycle is caused by unmet expectations that are felt painfully during that time of the life. A new IZA discussion paper by Hannes Schwandt puts this theory at a test by comparing 132,609 expectations of future life satisfaction with the actual life satisfaction outcome. He finds people to err systematically in predicting their life satisfaction over the life cycle: Young adults have high aspirations that are subsequently unmet. And their life satisfaction decreases with age as long as expectations remain high and unmet. In the late 50s, most people abandon their aspirations and expectations align with current wellbeing. At that age wellbeing starts to rise again. The author argues that given the disappointed expectations accumulated until that age, it is possible that wellbeing increases if the elderly learn to feel less regret. In other words: people might not anticipate the wellbeing enhancing effects of abandoning high aspirations and experiencing less regret.
Most people do not know the amount of their pensions
Governments are increasingly concerned about the capacity of pensions systems to meet demands in the coming years. According to the OECD, one part of the policy response in many countries will be greater private provision on the part of individuals through occupational and other pension arrangements. If such a strategy is to work, it requires that individuals are well-informed about pensions. However, there are many reasons to believe that individuals may not be well-informed due to the complexity of pensions systems and degrees of myopia. A new IZA Discussion Paper by Alan Barrett, Irene Mosca and Brendan J. Whelan tests the knowledge of pensions using a representative sample of older Irish people. Looking at people who are enrolled in pension schemes, they find that two-thirds of these people do not know what amount will be paid out. Neither are most people aware of whether the payments will be in the form of lump-sums, monthly payments or both. Women are more likely not to know, as are people with lower levels of education. The findings are important for public policy. According to the authors, one obvious and direct recommendation would be to better inform certain groups. Another approach might be to extend the mandatory elements in pension systems such as contribution rates.
How to motivate workers? Money versus mission
How much harder do people work when they believe in the mission of their organization? And equally important: How much less do they work when they disagree with the mission? To answer these questions, Jeffrey P. Carpenter and Erick Gong conducted an experiment to estimate the effect of missions on worker productivity. During the 2012 US Presidential election, the authors randomly assigned individuals to work for either the Obama or Romney presidential campaign, thus creating both mission “matches” and “mismatches.” Compared to people who do not care intensely about the candidates, the authors find that Democrats or Republicans assigned to work for their preferred candidate have a 27% increase in productivity but workers assigned to work for the other candidate work 43% less. The study also shows, however, that workers who were assigned to work for their opposition could be “bought”: performance-based monetary incentives for these workers greatly mitigate the productivity gap. The results have implications for how organizations define their mission, screen workers, and provide compensation: They are good news for non-profit organizations on a shoestring budget since workers work hard given high levels of intrinsic motivation. At the same time, the responsiveness to monetary incentives may allow other, better-funded, organizations to take advantage of worker goodwill.
How job security increases insecurity
The goal of employment protection legislation is to increase workers’ job security by making it more difficult and costly for employers to fire people. A new IZA Discussion Paper by Alexander Hijzen, Leopoldo Mondauto and Stefano Scarpetta shows that such measures can, however, cause the opposite effect and reduce rather than increase worker security. The authors study a new dataset on Italian firms and workers and look at a special feature of the Italian legislation on employment protection: until June 2012 firms with more than 15 employees faced high costs and uncertainly when dismissing a worker with a permanent contract without a proper cause. In contrast, for firms with less than 15 employees such unfair dismissals were less costly. Exploiting this special rule, the authors show that firms just above the threshold of 15 employees had a 2 to 2.5 percentage points higher probability to hire temporary workers. Moreover, the authors show that the incentive to rely more on temporary workers persist well beyond the threshold. Overall, the results suggest that employment protection legislation may account for about 20% of the overall incidence of temporary work in Italy. In addition, the authors show that the greater use of temporary employment has a negative impact of firm labor productivity.
From a policy perspective, these results are important in the context of the recent reforms of employment protection in Italy as well as in a number of other countries. The study shows the problems of promoting temporary and other atypical contracts on the one hand, while leaving in place stringent regulations for permanent contracts on the other – a phenomenon observed in many, mainly European countries as well as Korea and Japan, over the past two decades. The study suggests that such developments have encouraged firms to substitute temporary for regular workers with also potentially negative effects both on the workers affected as well as productivity and overall economic performance.
Men earn more because they negotiate better
Women have been found to do worse when it comes to negotiating their salaries: first, because they renegotiate less, and, second, because they are less effective once they start to bargain. But how does this restraint translate into wage differences? A new IZA Discussion Paper by David Card, Ana Rute Cardoso and Patrick Kline answers this question by measuring the relative bargaining power of men and women in Portugal. In a second step, the authors calculate how much of the male-female wage gap can be explained by differences in bargaining strength. The paper shows that women are paid only 85 to 90% of the premiums that men earn at more profitable firms. Overall, the authors estimate that the shortfall in women’s relative bargaining power explains around 3 percentage points — or 10 to 15% — of the gender wage gap in Portugal.
High testosterone, high wages?
Does the level of testosterone, which is associated with more aggressive and competitive behavior, explain why men earn more than women? In a new IZA Discussion Paper, Anne C. Gielen, Jessica Holmes and Caitlin Knowles Myers study this question by looking at the labor market careers of twins. Biologists suggest that embryos with a male twin are exposed to higher levels of testosterone in utero than embryos with a female twin. As a consequence, individuals with a twin brother have been found to exhibit more masculine characteristics than those with a twin sister. Hence, the authors analyze the wages of more than 80,000 twins born in the Netherlands between 1959 and 1979 and compare the earnings of individuals with a male twin to the earnings of individuals with a female twin. The results suggest that the effect of testosterone differs by gender: While men with a male twin earn higher wages than men with a female twin, there is no such effect for women. In fact, the findings indicate that women with a male twin, and thus a higher exposure to testosterone, may even earn a little less than women with a twin sister.