Law professors were among the first in universities, and Economics emerged in many places from Law Schools. This make the study of laws an old and established profession, but this is not why I am mentioning cobwebs here. I am rather referring to the cobweb model, where price and quantity bounce around along the path of a spiral to reach an equilibrium.
According to Christoph Engel and Hanjo Hamann, this is what is happening on the market for Law professors in Germany. Say there are a lot of open positions in the German university system. This pikes the interest of law students, who after their doctorates require to go through a "habilitation" process that takes 6-9 years before they can apply for a professor position. And lo and behold, about eight years later, there is a surplus of candidates, which discourages younger students to choose this career, and we enter the other part of the cycle. Engel and Hamann show that this is not just theory, but applies remarkably well to the data, as it has before to cattle, whose biology leads to a similar market (ROsen, Murphy and Scheinkman 1994).
Showing posts with label Germany. Show all posts
Showing posts with label Germany. Show all posts
When do employers support minimum wages?
Germany does not have minimum wages, but there is currently a renewed debate about their introduction. As collective bargaining is largely handled at the sectoral level, one idea is to adopt sectoral minimum wages, for example by negotiating them within collective bargaining. In some sectors, there is already an informal wage this way, but this could be formalized. Given this idea of sectoral minimum wages, it is of interest to see which sectors would support them.
Ronald Bachmann, Thomas Bauer and Hanna Kröger use a survey of 800 firms in 8 sectors and uncover some interesting patterns. It looks like minimum wages are most supported where they would raise barriers of entry for competitors. This means that agreeing on a minimum wage is getting very close to cartelization. This is a feature of the fact that negotiations are done at the sectoral level. It would lead to a reduction in the number of firms, and likely to a reduction in employment as well, but for a different reason than usual with minimum wages: the cartelization reduces output and thus the labor force required for production. I suspect that if the minimum wage were set nationwide, though, this kind of support would largely vanish.
Ronald Bachmann, Thomas Bauer and Hanna Kröger use a survey of 800 firms in 8 sectors and uncover some interesting patterns. It looks like minimum wages are most supported where they would raise barriers of entry for competitors. This means that agreeing on a minimum wage is getting very close to cartelization. This is a feature of the fact that negotiations are done at the sectoral level. It would lead to a reduction in the number of firms, and likely to a reduction in employment as well, but for a different reason than usual with minimum wages: the cartelization reduces output and thus the labor force required for production. I suspect that if the minimum wage were set nationwide, though, this kind of support would largely vanish.
Looking at the transition from Malthus to industrialization in Germany using real wages
A standard model with a production function concave in labor will tell you that the marginal productivity of labor, and hence the real wage, decreases as labor increases. This the core relationship in the Malthusian model and has been the reason brought forward why some have observed that England enjoyed relative prosperity after the many deaths due to the Great Plague (and why some think the same will happen to Africa due to the AIDS epidemic). Of course, empirical evidence is somewhat thin for such old times.
Ulrich Pfister, Jana Riedel and Martin Uebele add an new data point to this by construction measured of real wages in Germany for the years 1500 to 1850, which they compare to population size. And they confirm the above. The Thirty Year War, which lead to significant population loss, was a period of significantly higher welfare for the survivors than before. This kind of relationship weakened over time though, probably reflecting that new factors became important in production. And it appears this change happened before the typical date we set for the Industrial Revolution in Germany.
Ulrich Pfister, Jana Riedel and Martin Uebele add an new data point to this by construction measured of real wages in Germany for the years 1500 to 1850, which they compare to population size. And they confirm the above. The Thirty Year War, which lead to significant population loss, was a period of significantly higher welfare for the survivors than before. This kind of relationship weakened over time though, probably reflecting that new factors became important in production. And it appears this change happened before the typical date we set for the Industrial Revolution in Germany.
Universities as catalysts of the commercial revolution in the Middle Ages
Universities can have a profound impact on the economy of a region, Silicon Valley being a prime recent example. But this is usually difficult to see as they are spread pretty much everywhere now. Hence the interest in looking at older data, where universities were less common and economic activity differed a lot more across regions.
Davide Cantoni and Noam Yuchtman go way back, up to the 14th century in Germany. They compare the establishment of new market places to the founding of universities and find a surprisingly strong correlation when looking at the distance from the nearest university. Of course, you may think this is all endogenous. If a city or region develops, new market places emerge and there is critical mass or wealth for an institution of higher learning. But the authors argue there is causation from universities to markets. Indeed, the Papal Schism of 1386 was an exogenous shock that allowed the creation of universities, and they exploit the trend shift in the granting of markets around this date. The intuition of the causation is that universities provided training in law, which facilitated the creation of legal institutions and ultimately the enforcement of contracts. So, once more, institutions matters, but this is also an interesting counterexample to the intuition that lawyers create demand for there services with no economic or social benefit.
Davide Cantoni and Noam Yuchtman go way back, up to the 14th century in Germany. They compare the establishment of new market places to the founding of universities and find a surprisingly strong correlation when looking at the distance from the nearest university. Of course, you may think this is all endogenous. If a city or region develops, new market places emerge and there is critical mass or wealth for an institution of higher learning. But the authors argue there is causation from universities to markets. Indeed, the Papal Schism of 1386 was an exogenous shock that allowed the creation of universities, and they exploit the trend shift in the granting of markets around this date. The intuition of the causation is that universities provided training in law, which facilitated the creation of legal institutions and ultimately the enforcement of contracts. So, once more, institutions matters, but this is also an interesting counterexample to the intuition that lawyers create demand for there services with no economic or social benefit.
The cost of hiring in Germany
How much does it cost to hire someone? This question is surprisingly difficult to answer. It is not sufficient to keep a log of all the recruitment expenses, the time spent and the training costs. Indeed, there are a lot of implicit costs that may, or may not, appear in the future. Indeed, when you commit to employ someone, you also commit to insuring this person in many ways. In the US, health care insurance is a factor. In many jurisdictions, rules regarding firing may also entail substantial costs, for example if they force you to retain an underperforming employee. And you often also commit to provide some insurance against productivity changes by paying a relatively stable wage. Summing up, figuring out the cost of a hire is damn hard.
Samuel Muehlemann and Harald Pfeifer try to figure out some of these costs for skilled workers in Germany. They find a cost worth on average eight weeks of pay, and that is only taking into account time and expenses during the recruitment process as well as the monetary and time costs of training. Strangely, there are no economies of scale, as the elasticity with respect to the number of hires is 1.3. Even worse, the cost doubles from small to large firms. Labor market institutions do not seem to be blamed for this convexity. I am not sure how to rationalize all this. Large firms can hire several workers simultaneously, and this must save some costs. Same for training programs.
Samuel Muehlemann and Harald Pfeifer try to figure out some of these costs for skilled workers in Germany. They find a cost worth on average eight weeks of pay, and that is only taking into account time and expenses during the recruitment process as well as the monetary and time costs of training. Strangely, there are no economies of scale, as the elasticity with respect to the number of hires is 1.3. Even worse, the cost doubles from small to large firms. Labor market institutions do not seem to be blamed for this convexity. I am not sure how to rationalize all this. Large firms can hire several workers simultaneously, and this must save some costs. Same for training programs.
Sustainable retirement pension reform?
With increasing longevity, it is obvious that something needs to be done to keep pension systems around the world sustainable. The main options are postponing the normal retirement age, lowering retirement benefits or increasing contributions. The typical studies that compare these options and are thrown around in the public arena are done by accountants and actuaries, who do not take into account the changing incentives of market participants. Economists can do better.
Peter Haan and Victoria Prowse take up the challenge and estimate a very complex life-cycle model for Germany. It includes idiosyncratic risk, consumption and labor supply decisions and a complex tax structure. They find that the 6.4 year increase in life expectancy over the next 40 years needs to be met either by an increase in the full-pension age by 4.3 years or a reduction of benefits by 38%. The first approach markedly increases the unemployment rate. This is ironic in Europe where a reduction of that age is typically viewed as a way to reduce chronic unemployment among the young. The other option would markedly increase savings, as people have to fend for themselves more. Consumption of retirees is higher in the first option though.
Am I satisfied with this study? It is much better than what you typically see, yet I want more. The easy bit is that one could actually determine whose welfare increases under which option. That could help in understanding the (political) feasibility of such reforms. And maybe a combination of them turns out best. More critically, the model does not attempt to consider the consequences in the changes in aggregate supply. Lengthening the work age this much increases the work force dramatically and must have consequences for aggregate, and thus individual, wages. Also, while the matching probabilities and wages of retirement age workers are estimated from current data, I do not think these estimates apply once more previous retirees are forced into this pool. The new ones have different qualities compared to those who would have continued working anyway. Therefore, I see more work to be done.
Peter Haan and Victoria Prowse take up the challenge and estimate a very complex life-cycle model for Germany. It includes idiosyncratic risk, consumption and labor supply decisions and a complex tax structure. They find that the 6.4 year increase in life expectancy over the next 40 years needs to be met either by an increase in the full-pension age by 4.3 years or a reduction of benefits by 38%. The first approach markedly increases the unemployment rate. This is ironic in Europe where a reduction of that age is typically viewed as a way to reduce chronic unemployment among the young. The other option would markedly increase savings, as people have to fend for themselves more. Consumption of retirees is higher in the first option though.
Am I satisfied with this study? It is much better than what you typically see, yet I want more. The easy bit is that one could actually determine whose welfare increases under which option. That could help in understanding the (political) feasibility of such reforms. And maybe a combination of them turns out best. More critically, the model does not attempt to consider the consequences in the changes in aggregate supply. Lengthening the work age this much increases the work force dramatically and must have consequences for aggregate, and thus individual, wages. Also, while the matching probabilities and wages of retirement age workers are estimated from current data, I do not think these estimates apply once more previous retirees are forced into this pool. The new ones have different qualities compared to those who would have continued working anyway. Therefore, I see more work to be done.
Obesity on the German labor market
Being obese makes you a social outcast, especially in countries were obese people are relatively rare. This can have consequences on the labor market, as there is plenty of evidence that handsomeness matters, for example. So are obese people discriminated against on the labor market?
Marco Caliendo and Wang-Sheng Lee look at newly employed people in Germany and find that there is not much evidence of discrimination there. Only obese (but not overweight) women may be suffering in the land of beer and wurst. Of course, one may question the validity of a study that must be relying on very few observations for a subgroup of the sample. Yet, surprisingly, half of the men and 37% of the women are considered overweight or obese, proportions I would never have imagined from walking around German towns. And with sample ages averaging in the thirties, they are relatively young too. As the survey sample is based on people who have been unemployed, I wonder whether the discrimination is rather in unemployment rather than employment.
Marco Caliendo and Wang-Sheng Lee look at newly employed people in Germany and find that there is not much evidence of discrimination there. Only obese (but not overweight) women may be suffering in the land of beer and wurst. Of course, one may question the validity of a study that must be relying on very few observations for a subgroup of the sample. Yet, surprisingly, half of the men and 37% of the women are considered overweight or obese, proportions I would never have imagined from walking around German towns. And with sample ages averaging in the thirties, they are relatively young too. As the survey sample is based on people who have been unemployed, I wonder whether the discrimination is rather in unemployment rather than employment.
The Internet did not raise a generation of loners
The image of the basement-dwelling World-of-Warcraft-playing loner is often shown as an example of the adverse impact of the Internet on social capital and in particular social interactions. Whether this is true is not so obvious, as the Internet also makes possible social interactions that could not exist before, as this blog shows in a limited way.
Stefan Bauernschuster, Oliver Falck and Ludger Woessmann study the impact of broadband Internet on social capital using a natural experiment in Eastern Germany. There, some choice by the telecommunications provider resulted in 11% of East German households to be on OPAL lines instead of DSL, which better supports high speeds. Using the German Socio-Economic Panel, they measure social capital with the frequency of going out, visiting friends and performing volunteer work. They find that Internet access has no visible impact on social capital. To the contrary, for children it seems to enhance social capital, possibly because it makes them aware of new opportunities to interact in real life. This is in stark contrast with television use, which has many times been shown to be detrimental to social capital, likely because it is a one-way communication, while the Internet can build two-way communication.
Stefan Bauernschuster, Oliver Falck and Ludger Woessmann study the impact of broadband Internet on social capital using a natural experiment in Eastern Germany. There, some choice by the telecommunications provider resulted in 11% of East German households to be on OPAL lines instead of DSL, which better supports high speeds. Using the German Socio-Economic Panel, they measure social capital with the frequency of going out, visiting friends and performing volunteer work. They find that Internet access has no visible impact on social capital. To the contrary, for children it seems to enhance social capital, possibly because it makes them aware of new opportunities to interact in real life. This is in stark contrast with television use, which has many times been shown to be detrimental to social capital, likely because it is a one-way communication, while the Internet can build two-way communication.
Women stay longer
It is widely documented that women have a much higher tendency to drop out of the labor force than men and that they quit jobs more often. It is obvious that fertility and marriage have a major impact here. And nobody disputes that. But apparently nobody looked into more details by differentiating genders for job market transitions.
Boris Hirsch and Claus Schnabel do it for Germany using excellent panel data that included many job and workplace characteristics along with some details about the workers. Hence, they can factor in a good chunk of heterogeneity. The interesting results is that once you control for the wage, women are less likely to quit their job for another one or non-employment. As women take jobs that pay less, a composition effect is hiding the loyalty of women to their employer.
Boris Hirsch and Claus Schnabel do it for Germany using excellent panel data that included many job and workplace characteristics along with some details about the workers. Hence, they can factor in a good chunk of heterogeneity. The interesting results is that once you control for the wage, women are less likely to quit their job for another one or non-employment. As women take jobs that pay less, a composition effect is hiding the loyalty of women to their employer.
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