http://repub.eur.nl/res/concept/jel-J31/ Recent publications classified by JEL Code J31 en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/37297/ 2012-05-01T00:00:00Z We model entrepreneurship and the emergence of firms as an outcome of simultaneous bidding for labor services among heterogeneous agents. What distinguishes our approach from prior work is that occupational choice and job matching are determined simultaneously, so that the opportunity costs of entrepreneurs are accounted for. Those who are relatively unmanageable, while possibly excellent managers themselves, become entrepreneurs. Entrepreneurs compete and create value by building efficient organizations and offering potentially well-paid jobs to others. While the entry of an additional entrepreneur typically reduces some individual wages, we show that it always raises the average wage and depresses the average income of incumbent entrepreneurs. This result may help explain the empirically low returns to entrepreneurship. Roessler, C. Koellinger, Ph.D. http://repub.eur.nl/res/pub/32994/ 2012-04-30T00:00:00Z Using data from the universe of Danish manufacturing firms and workers over the period 1995-2007, we estimate output gains linked to productivity spillovers through worker mobility, and calculate the shares in these gains accrued to firms, to the workers who bring spillovers, and to the rest of the workers. Applying our results to the manufacturing sector as a whole, the total output gains average at 0.16% per year, of which 80% is retained by the firms, 15% by the rest of the workers, and only 5% goes to the workers who bring spillovers. We therefore conclude that output gains through worker mobility are largely a positive externality for hiring firms. Stoyanov, A. Zubanov, N.V. http://repub.eur.nl/res/pub/37296/ 2012-02-23T00:00:00Z We model entrepreneurship and the emergence of …rms as an out- come of simultaneous bidding for labor services among heterogeneous agents. What distinguishes our approach from prior work is that oc- cupational choice and job matching are determined simultaneously, so that the opportunity costs of entrepreneurs are accounted for. Those who are relatively unmanageable, while possibly excellent managers themselves, become entrepreneurs. Entrepreneurs compete and create value by building e¢ cient organizations and o¤ering potentially well- paid jobs to others. While the entry of an additional entrepreneur typically reduces some individual wages, we show that it always raises the average wage and depresses the average income of incumbent en- trepreneurs. This result may help explain the empirically low returns to entrepreneurship. Roessler, C. Koellinger, Ph.D. http://repub.eur.nl/res/pub/31002/ 2011-09-01T00:00:00Z Pay for performance (P4P) is increasingly being used to stimulate healthcare providers to improve their performance. However, evidence on P4P effectiveness remains inconclusive. Flaws in program design may have contributed to this limited success. Based on a synthesis of relevant theoretical and empirical literature, this paper discusses key issues in P4P-program design. The analysis reveals that designing a fair and effective program is a complex undertaking. The following tentative conclusions are made: (1) performance is ideally defined broadly, provided that the set of measures remains comprehensible, (2) concerns that P4P encourages "selection" and "teaching to the test" should not be dismissed, (3) sophisticated risk adjustment is important, especially in outcome and resource use measures, (4) involving providers in program design is vital, (5) on balance, group incentives are preferred over individual incentives, (6) whether to use rewards or penalties is context-dependent, (7) payouts should be frequent and low-powered, (8) absolute targets are generally preferred over relative targets, (9) multiple targets are preferred over single targets, and (10) P4P should be a permanent component of provider compensation and is ideally "decoupled" form base payments. However, the design of P4P programs should be tailored to the specific setting of implementation, and empirical research is needed to confirm the conclusions. Eijkenaar, F. http://repub.eur.nl/res/pub/17983/ 2009-01-01T00:00:00Z This note develops a simple occupational choice model to examine three types of selection biases that may occur in empirically estimating the premium for uncertain wages. Individuals may select themselves into risky (wage-uncertain) jobs because they have (1) lower risk aversion, or (2) lower income risks, or (3) higher individual ability. We show that (1) gives no bias, (2) biases the OLS estimate of the risk-premium in a wage regression upward, and (3) yields a bias that analytically may be positive or negative, but empirically is more likely to be negative if our occupational choice model is correct. Jacobs, B. Hartog, J. Vijverberg, W.P.M. http://repub.eur.nl/res/pub/14031/ 2008-06-01T00:00:00Z This paper estimates the impact of work environment health and safety practice on firm performance, and examines which firm-characteristic factors are associated with good work conditions. We use Danish longitudinal register matched employer-employee data, merged with firm business accounts and detailed cross-sectional survey data on workplace conditions. This enables us to address typical econometric problems such as omitted variables bias or endogeneity in estimating i) standard production functions augmented with work environment indicators and aggregate employee characteristics and ii) firm mean wage regressions on the same explanatory variables. Our findings suggest that improvement in some of the physical dimensions of the work health and safety environment (specifically, “internal climate” and “repetitive and strenuous activity”) strongly impacts the firm productivity, whereas “internal climate” problems are the only workplace hazards compensated for by higher mean wages. Buhai, I.S. Cottini, E. Westergaard-Nielsen, N. http://repub.eur.nl/res/pub/27800/ 2008-05-01T00:00:00Z A worker's utility may increase with his income, but envy can make his utility decline with his employer's income. This article uses a principal-agent model to study profit-maximizing contracts when a worker envies his employer. Envy tightens the worker's participation constraint and so calls for higher pay and/or a softer effort requirement. Moreover, a firm with an envious worker can benefit from profit sharing, even when the worker's effort is fully contractible. We discuss several applications of our theoretical work: envy can explain why a lower-level worker is awarded stock options, why incentive pay is lower in nonprofit organizations, and how governmental production of a good can be cheaper than private production. Dur, A.J. Glazer, A. http://repub.eur.nl/res/pub/10910/ 2008-01-18T00:00:00Z This study documents two empirical regularities, using data for Denmark and Portugal. First, workers who are hired last, are the first to leave the firm (Last In, First Out; LIFO). Second, workers’ wages rise with seniority (= a worker’s tenure relative to the tenure of her colleagues). We seek to explain these regularities by developing a dynamic model of the firm with stochastic product demand and hiring cost (= irreversible specific investments). There is wage bargaining between a worker and its firm. Separations (quits or layoffs) obey the LIFO rule and bargaining is efficient (a zero surplus at the moment of separation). The LIFO rule provides a stronger bargaining position for senior workers, leading to a return to seniority in wages. Efficiency in hiring requires the workers’ bargaining power to be in line with their share in the cost of specific investment. Then, the LIFO rule is a way to protect their property right on the specific investment. We consider the effects of Employment Protection Legislation and risk aversion. Buhai, I.S. Portela, M. Teulings, C.N. Vuuren, A.P. van http://repub.eur.nl/res/pub/10884/ 2007-12-08T00:00:00Z Contextual factors are typically neglected in both theorizing and empirical tests on executive pay. The fast majority of empirical investigations use data from U.S. based firms. Theoretical implications are typically developed, understood and tested on the basis of the U.S. context. However, the U.S. case is not the world wide standard. Pay in other countries is on average considerably lower and have a different pay mix. The puzzle that from the typical use of agency theory can’t be explained is the variance of pay practices that exist not only within countries but also across countries. This paper extends scholars renewed attention to managerial power theory on executive pay. It sets out how and why institutional theory must be included in explanations of executive pay. On the basis of a sample of executive pay packages from 17 different countries we test the theoretical extensions. Results indicate that institutions interact with firm level determinants of executive pay. Explanations for executive pay should therefore account for the variance of pay practices within and across countries. Highlighting that the institutional embeddedness of pay practices play an important role in finding conclusive explanations of current pay practices. Otten, J.A. Heugens, P.P.M.A.R. http://repub.eur.nl/res/pub/10159/ 2007-04-11T00:00:00Z Organization differ in the degree to which they differentiate employees by ability. We analyse how the effect of differentiation on employee morale may explain this variation. By comparing employees using ordinary talk, a manager boosts the self-image of some, but hurts that of others. Whether the net effect is positive for the organization depends on the degree of synergy between employees and on the shape of their objective function. An implication for relative performance pay is that it yields a double dividend or constitutes a double-edged sword. Crutzen, B.S.Y. Swank, O.H. Visser, B. http://repub.eur.nl/res/pub/7418/ 2006-01-27T00:00:00Z This paper proposes a simple social network model of occupational segregation, generated by the existence of inbreeding bias among individuals of the same social group. If network referrals are important in getting a job, then expected inbreeding bias in the social structure results in different career choices for individuals from different social groups, which further translates into stable occupational segregation equilibria within the labour market. Our framework can be regarded as complementary to existing discrimination or rational bias theories used to explain persistent observed occupational disparities between various social groups. Buhai, I.S. Leij, M.J. van der http://repub.eur.nl/res/pub/32335/ 2006-01-01T00:00:00Z Th is study assesses the impact of foreign direct investment (FDI) on gendered labour markets in rural Indonesia. It focuses on the gender composition of the workforce, female and male workers’ employment conditions and gender wage inequality. Th e research strategy of »between-methods triangulation« is chosen, denoting the combination of quantitative and qualitative types of data generation and analysis. Two underlying mechanisms have been identifi ed. A »cost eff ect« associated with transnational corporations’ (TNCs’) greater orientation towards the world market is the preferential recruitment of, on average, lower paid female workers. In light of global competitive cost considerations, this appears as a rational strategy for TNCs. Conversely, foreign fi rms’ advanced technological endowments relative to domestic companies require a well-educated workforce with technical skills. In light of these perspectives, gender gaps in education and, on average, women’s weaker labour market attachment disadvantage female workers’ employment in TNCs. Both eff ects are mediated by a »reproductive constraint«. Th is refers to the asymmetric distribution of reproductive obligations between female and male household members, whereby female input into the domestic economy is more demanding relative to that of males. Siegmann, K.A. http://repub.eur.nl/res/pub/6812/ 2005-05-01T00:00:00Z This paper develops a model in which workers to a certain extent like to exert effort at the workplace. We examine the implications of workers' motivation for optimal monetary incentive schemes. We show that in the optimum motivated workers work harder and are willing to work for a lower wage. In addition, we examine whether job seekers have an incentive to be truthful about their motivation in a job interview. When the firm has sufficient bargaining power, workers hide their motivation so as to increase the firm's wage offer. As a result, an inefficient allocation of workers over firms may arise. We show that a commitment to a minimum wage may help to restore allocational efficiency and may be in the interest of the firm. Delfgaauw, J. Dur, A.J. http://repub.eur.nl/res/pub/6589/ 2005-03-01T00:00:00Z We analyze the impact of adolescents' friendship relations in their final-year class of high school on subsequent labor market success. Based on a typology of network positions we locate each student within the social system of the school class as either: an isolate, a sycophant, a broker or a receiver. These positions identify individuals' social standing within the group of classmates and proxy for their interpersonal behavior and social competencies. We offer empirical evidence that differential social standing in adolescence predicts large and persistent earnings disparities over the entire life course. The estimated wage premia and penalties do not appear to be substantially confounded by measures of family and school resources, and materialize largely independent of differences in cognitive abilities, grade rank in class or friends' characteristics. A moderate share of the earnings inequalities is mediated by differential post-secondary human and social capital investment. From a conceptual point of view, we contribute an application of egocentered network methods within conventional labor economic survey research. Galeotti, A. http://repub.eur.nl/res/pub/6593/ 2005-03-01T00:00:00Z This paper employs survey data on the reasons to quit of Dutch job changers who entered or left a public sector job in 2001. We show that workers' reasons to quit their public sector job influence their decision to stay in or leave their industry of employment. A bad experience with, for instance, pay, work pressure, or job duties makes a change in industry more likely. Likewise, many workers who quit out of dissatisfaction with pay or management leave the public sector altogether. Lastly, it is shown that workers' reasons to quit fully explain the differences in wage growth between intra- and interindustry job movers. Delfgaauw, J. http://repub.eur.nl/res/pub/6649/ 2004-11-15T00:00:00Z A worker's utility may increase in his own income, but envy can make his utility decline with his employer's income. Such behavior may call for high-powered incentives, so that increased effort by the worker little increases the income of his employer. This paper employs a principal-agent model to study optimal incentive contracts for envious workers under various assumptions about the object and generality of envy. Envy amplifies the effect of incentives on effort and, therefore, increases optimal incentive pay. Moreover, envy can make profit-sharing optimal, even when the worker's effort is fully contractible. We discuss several applications of our theoretical work. For example, envy can explain why lower-level workers are awarded stock options, why incentive pay is usually lower in non-profit organizations, and higher in larger firms. Envy may also make governmental production of a good more efficient than private production. Dur, A.J. Glazer, A. http://repub.eur.nl/res/pub/6619/ 2004-08-01T00:00:00Z This paper uses the Five-Factor Model of personality structure as an organizing framework to explore the effects of personality on earnings. Using data from a longitudinal survey of American high school graduates, we find that extroversion, agreeableness, conscientiousness, neuroticism and openness to experience are rewarded/penalized significantly and differentially across genders. Antagonistic, emotionally stable and open men enjoy substantial earnings advantages over otherwise similar individuals. In case of women, the labor market appears to value conscientiousness and openness to experience. The positive returns to openness are very similar across genders, suggesting that being creative, unconventional and artistic is equally important for men and women working in all types of occupations. Moreover, we find significant gender differences in personality characteristics. Decomposition of personality-based earnings differentials into trait and parameter effects suggests that gender-atypical traits reduce the earnings advantage that individuals would otherwise enjoy under their own-sex wage structure. Overall, we find that the impact of personality on earnings is significant but not large --not trivial either-- and comparable to the impact of differences in cognitive ability. Mueller, G. Plug, E.J.S. http://repub.eur.nl/res/pub/1091/ 2004-01-06T00:00:00Z This paper investigates the age-dependency of participation and unemployment by integrating job search with intertemporal optimizing behavior of finitely-lived households. We find that search frictions and tax rates distort the decisions of older workers to a much larger extent than that of young workers. This finding provides an explanation of the observed fall of participation rates of elder workers as a result of the post-war increase in tax rates and replacement rates. We show that the age pattern of search unemployment does not match observed unemployment and we propose a new concept of ‘voluntary’ unemployment that agrees well with observations. Bettendorf, L.J.H. Broer, D.P. http://repub.eur.nl/res/pub/6722/ 2003-09-19T00:00:00Z We argue that promoting education may be a means to re- duce income inequality. When workers of different skilllevels are imperfect substitutes in production, an increase in the level of human capital in the economy reduces the return to education and, hence, pre-tax income inequality. The compression of pre- tax wages implies that a given inequality of after-tax incomes can be reached with a less progressive income tax. Optimal redistri- bution policy faces a trade-off between the distortionary effect of progressive income taxation and the distortions arising from education subsidies. The optimal level of education subsidies cru- cially depends on the extent to which education compresses the wage distribution, the distortionary effect of progressive income taxation, and the political desire to redistribute income. We dis- cuss empirical evidence showing that the economy's average years of schooling has a strong effect on pre-tax income inequality. We compute for a number of OECD countries the level of education subsidies that could be justified on redistributive grounds. Our argument for education subsidies goes a long way towards ex- plaining the actual pattern and level of education subsidies in OECD countries. Dur, A.J. Teulings, C.N. http://repub.eur.nl/res/pub/6787/ 2003-08-26T00:00:00Z Trade unions tend to reduce the dispersion of wages among their members. Skilled workers may therefore have an incentive to separate from an encompassing union and organize into a separate craft union. In this paper, we examine a theoretical model to gain insight into the determinants of the number of trade unions at a firm. We show that imperfect competition in the product market may drive skilled and unskilled workers together, even though unskilled workers use their political power in the trade union to extract rents from the skilled workers. Additionally, we examine the influence of several features of production technology on trade union structure. Beniers, K.J. Dur, A.J.