• The role of cognitive and socio-emotional skills in labor markets

    Cognitive skills are more relevant in explaining earnings, socio-emotional skills in determining labor supply and schooling

    Common proxies, such as years of education, have been shown to be ineffective at capturing cross-country differences in skills acquisition, as well as the role they play in the labor market. A large body of research shows that direct measures of skills, in particular cognitive and socio-emotional ones, provide more adequate estimations of individuals’ differences in potential productive capacity than the quantity of education they receive. Evidence shows that cognitive skills in particular are quite relevant to explain wages, while socio-emotional skills are more associated with labor force and education participation decisions.
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  • The consequences of trade union power erosion Updated

    Declining union power would not be an overwhelming cause for concern if not for rising wage inequality and the loss of worker voice

    John T. Addison , February 2020
    The micro- and macroeconomic effects of the declining power of trade unions have been hotly debated by economists and policymakers, although the empirical evidence does little to suggest that the impact of union decline on economic aggregates and firm performance is an overwhelming cause for concern. That said, the association of declining union power with rising earnings inequality and the loss of an important source of dialogue between workers and their firms have proven more worrisome if no less contentious. Causality issues dog the former association and while the diminution in representative voice seems indisputable any depiction of the non-union workplace as an authoritarian “bleak house” is more caricature than reality.
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  • Language and culture as drivers of migration

    Linguistic and cultural barriers affect international migration flows

    Alicía Adserà , July 2015
    As migration flows to developed countries have increased in recent decades, so have the number of countries from which migrants arrive. Thus, it is increasingly important to consider what role differences in culture and language play in migration decisions. Recent work shows that culture and language may explain migration patterns to developed countries even better than traditional economic variables, such as income per capita and unemployment rates in destination and origin countries. Differences in culture and language may create barriers that prevent the full realization of the potential economic gains from international mobility.
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  • Do institutions matter for entrepreneurial development?

    In post-Soviet countries, well-functioning institutions are needed to foster productive entrepreneurial development and growth

    Ruta Aidis , February 2017
    Supportive institutional environments help build the foundations for innovative and productive entrepreneurship. A few post-Soviet countries have benefitted from international integration through EU membership, which enabled the development of democracy and free market principles. However, many post-Soviet economies continue to face high levels of corruption, complex business regulations, weak rule of law and uncertain property rights. For them, international integration can provide the needed support to push through unpopular yet necessary stages of the reform process.
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  • Tax evasion, market adjustments, and income distribution Updated

    Market adjustments to tax evasion alter factor and product prices, which determine the true impacts and beneficiaries of tax evasion

    How does tax evasion affect the distribution of income? In the standard analysis of tax evasion, all the benefits are assumed to accrue to tax evaders. However, tax evasion has other impacts that determine its true effects. As factors of production move from tax-compliant to tax-evading (informal) sectors, these market adjustments generate changes in relative prices of products and factors, thereby affecting what consumers pay and what workers earn. As a result, at least some of the gains from evasion are shifted to consumers of goods produced by tax evaders, and at least some of the returns to tax evaders are competed away via lower wages.
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  • The good and the bad in remittance flows

    Remittances have the potential to lift up developing economies

    Remittances have risen spectacularly in recent decades, capturing the attention of researchers and policymakers and spurring debate on their pros and cons. Remittances can improve the well-being of family members left behind and boost the economies of receiving countries. They can also create a culture of dependency in the receiving country, lowering labor force participation, promoting conspicuous consumption, and slowing economic growth. A better understanding of their impacts is needed in order to formulate specific policy measures that will enable developing economies to get the greatest benefit from these monetary inflows.
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  • Tuning unemployment insurance to the business cycle

    Unemployment insurance generosity should be greater when unemployment is high—and vice versa

    High unemployment and its social and economic consequences have lent urgency to the question of how to improve unemployment insurance in bad times without jeopardizing incentives to work or public finances in the medium term. A possible solution is a rule-based system that improves the generosity of unemployment insurance (replacement rate, benefit duration, eligibility conditions) when unemployment is high and reduces the generosity when it is low.
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  • A flexicurity labor market during recession

    Long-term unemployment did not rise under the flexicurity model during the great recession, despite the large drop in GDP

    Before the great recession of 2008–2009, the “flexicurity” model (with flexibility for firms to adjust their labor force along with income security for workers through the social safety net) attracted attention for its ability to deliver low unemployment. But how did it fare during the recession, especially in Denmark, which has been highlighted as having a well-functioning flexicurity model? Flexible hiring and firing rules are expected to lead to large adjustments in employment in a recession. Did the high rate of job turnover continue or did long-term unemployment rise? And did the social safety net become overburdened?
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  • The Danish labor market, 2000–2018 Updated

    Employment has increased since the recession due to a cyclical upturn and structural reforms

    Torben M. Andersen , December 2019
    Denmark is often highlighted as a “flexicurity” country characterized by lax employment protection legislation, generous unemployment insurance, and active labor market policies. Despite a sharp and prolonged decline in employment in the wake of the Great Recession, high job turnover and wage adjustments worked to prevent increased long-term and structural unemployment. Most unemployment spells were short, muting the effects on long-term and youth unemployment. Recent reforms boosted labor supply and employment, targeting the young, elderly, and immigrants. Employment recovered to its structural level around 2015 and has since increased due to a favorable business cycle situation and structural reforms (particularly increases in retirement age).
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  • Human capital effects of marriage payments

    Investing in female human capital can reduce brideprice and dowry practices and increase welfare

    Siwan Anderson , September 2014
    Payments at the time of marriage, which are ubiquitous in developing countries, can be substantial enough to impoverish parents. Brideprice and dowry have both been linked to domestic violence against women, and inflation in these payments has prompted legislation against them in several jurisdictions. Marriage payments are often a substitute for investment in female human capital, so from a welfare and policy perspective, they should be prohibited. This highlights the importance of promoting direct economic returns over legal and customary rights.
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