Macroeconomics and Labor Markets (en) Archive - IAB - Institut für Arbeitsmarkt- und Berufsforschung

How to Make Tax Systems Regressive

This study is about tax regressivity in a two-period model with intergenerational transfers through bequests, inter vivos gifts, and trust funds.

Our paper proposes a novel mechanism underlying a regressive tax system. We study tax regressivity in a two-period model with intergenerational transfers through bequests, inter vivos gifts, and trust funds.

Transfers are subject to piecewise linear tax schedules with exemptions and positive marginal rates above the allowance. Bequests and inter vivos gifts are perfect substitutes and occur late in life, while trust funds must be established early and involve a sizable fixed cost, making them accessible only to very wealthy individuals.

We show that tax regressivity can arise only for the very and super rich - those who optimally use all three transfer channels. In particular, paying the fixed cost to establish a trust fund is a necessary condition for a declining average tax rate. Regressivity then emerges if and only if any one of the tax allowances falls below a threshold that depends on preferences and marginal tax rates.

Our results highlight the central role of fixed-cost avoidance technologies in generating regressivity at the top of the wealth distribution.

Joint work with Hoang Van Khieu.

Furloughs, Employment, and Worker Reallocation in Normal Times

We discuss about furlough schemes: Are they useful under normal business cycle conditions?

Are furlough schemes useful under normal business cycle conditions? We address this question using administrative data from Finland, where such a scheme has long existed, and a model of firm dynamics with hiring and layoff costs, frictional unemployment, and firm-level wage rigidity.

Furloughs provide firms with flexibility by allowing temporary workforce reductions at a lower cost than layoffs followed by rehiring. Yet in the model, it is optimal to eliminate the furlough option, as it does little to facilitate reallocation from low productivity to high productivity firms and does not reduce layoffs much. In contrast, a small layoff tax improves welfare by balancing employment gains against reduced productivity.

Joint work with Niku Määttänen and Eero Mäkynen.

Find here draft of the working paper.

The U-Shaped Cost of Job Loss

Job displacement causes large and lasting earnings losses. Challenging the common view that these losses increase monotonically with age, we document a clear U-shaped pattern in French administrative data: both young and older workers lose significantly more than those in mid-career. We identify distinct age-specific mechanisms behind this pattern. Young workers face prolonged job instability, whereas older workers encounter poor reemployment prospects and wage declines. We develop a search-and-matching model with human capital accumulation and obsolescence that reproduces these dynamics. For the young, displacement disrupts skill growth and traps them in high-turnover jobs; for the old, losses reflect an inability to redeploy human capital and firms’ reluctance to hire near retirement. While policy debates often emphasize older displaced workers, our findings highlight the need to also support displaced youth.

Wage Setting in Multiproduct Firms

This is a lesson about Wage Setting in Multiproduct Firms.

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Trade Shocks: Next generation

This paper explores the effects of childhood import shocks on long-run outcomes using linked full-count Census data.

This paper explores the effects of childhood import shocks on long-run outcomes using linked full-count Census data between 1910 and 1940 and a novel identification strategy that isolates quasi-random variation in local import competition.

We show that individuals exposed to import competition in their first 10 years of life report lower incomes and reduced upward mobility 30 years later, with effects that fall most heavily on the left tail of the income distribution. More exposed individuals also exhibit lower educational attainment and increased mobility between states.

Intergenerational structural change plays a critical role in our results, with import competition reducing the probability that sons work in high-earning, high-education occupations regardless of their father’s income level.

(Joint work with John Lopresti and Andrew Greenland).

Left Behind? West-East German Disparities in the Cost of Job Loss

This paper studies regional disparities in the cost of job loss between West and East Germany.

Based on German administrative data, I document that, relative to their pre-displacement level, earnings losses of displaced workers are on average lower in East Germany than in West Germany. A shift–share decomposition shows that roughly one-third of this West–East gap is due to differences in the industry mix of job destruction: after the early deindustrialization of the East, job losses there were less concentrated in manufacturing and more in construction than in the West.

The remaining two thirds reflects smaller earnings losses in the East within industries, which are linked to lower firm wage premia among East German employers. Structural effects - the earnings losses associated with the same job lost across different regions - allow identifying an earnings penalty for displaced workers in the East that is more in line with the weaker labor market performance of the East. Although regional mobility to the West offsets earnings losses among movers, the vast majority of East Germans do not relocate to the West after job loss.

The Ins and Outs of Vacancies

The study documents the cyclicality of vacancy flows and their contribution to variation in the vacancy stock with data from Austria.

This paper uses large-scale high-frequency data on vacancy flows and matched employer-employee data from Austria to document the cyclicality of vacancy flows and their contribution to variation in the vacancy stock.

We document four key facts: (1) Vacancy inflows explain at least one-third of the cyclical variation in the vacancy stock, whereas the remainder is explained by vacancy fillings; (2) vacancy lapses, while accounting for about 20% of vacancy outflows, are acyclical and do not contribute to variation in the stock; (3) replacement vacancies, i.e. vacancies posted following a quit of a worker to another firm, are a key driver of vacancy inflows over the business cycle; and (4) the composition of vacancy inflows varies little over the business cycle and cannot account for the cyclical variation in vacancy filling. We set up a search-and-matching model with fixed costs of vacancy posting and on-the-job search, and calibrate it to match the averages of vacancy flows.

The calibrated model highlights the crucial role of on-the-job search – particularly replacement hires – in explaining the observed importance of vacancy inflows for cyclical fluctuations in the vacancy rate.

New Hires’ Informal Training and Turnover

This study analyses the relationship between informal on-the-job training and turnover of new hires.

We analyze the relationship between informal on-the-job training and turnover of new hires. To this end, we use unique survey data about different aspects of informal co-worker training and link it to both firm-level and individual-level administrative data.

We find that informal training is negatively associated with turnover of new hires six months after entering the firm. However, this relationship becomes smaller and statistically weaker after 12 months.

Further heterogeneity analysis reveals a trade-off after one year, as onboarding can, to some extent, contribute to increased retention in firms with a lower wage premium and thereby help to mitigate costly worker turnover in these firms.

Joint work with Didier Fouarge and Carolin Linckh.

The Role of Wages and Fringe Benefits in Job Search

This paper studies the role of wages and job benefits in job search behavior. We use wage and benefit data from a market-leading employer review platform and run a large-scale randomized control trial on an online job board to estimate the elasticity of job seekers' applications to posted wages and their willingness to pay for job benefits. A 10% higher wage increases job seekers' probability to view and apply to an ad by 3-5%. Many job benefits are highly valued by job seekers: Home office and company cars are valued at around 15 percent of wages, company-provided child care at 10 percent and and parking spots at around 7 percent of wages. The average vacancy offers job benefits worth 25 percent of wages. We further document that higher-paying firms typically offer more amenities. Taking the distribution and valuation of job benefits into account, we show that job value inequality is significantly higher than wage inequality.

Globalization and Gender Equality

Legal rights continue to differ between women and men, particularly in developing countries. In this paper, we examine whether economic integration can improve gender equality by the law during working life. We design a novel instrumental variable strategy based on regional waves of globalization, which serve as strong exogenous predictors of national globalization trends. Our main estimate suggests that an increase in globalization by one relative standard deviation, equivalent to a permanent transition from Indonesia to the United States, is associated with an 12.1% increase in gender equality, measured by the extent to which men and women are treated equally by law. We also find that this effect is almost entirely driven by de facto globalization. Linking globalization to more than 300,000 individuals from over 100 countries, we provide evidence for a microfoundation of the macroeconomic effects.