Beyond the Phillips curve: Understanding low wage growth in the euro area

a column by Christiane Nickel, Elena Bobeica, Gerrit Koester, Eliza Lis, Mario Porqueddu and Cecilia Sarchi for VOX: CEPR’s Policy Portal

Wage growth in the euro area over 2013 to 2017 was subdued despite notable improvements in the labour market, leading some to claim a breakdown of the output–inflation relationship.

This column presents comparative analyses of wage developments in the euro area, showing that the Phillips curve is alive and well and can be used to explain much of the weakness in wage growth during 2013-2017. Other factors also found to have played a role include compositional effects, the possible non-linear reaction of wage growth to cyclical improvements, and structural and institutional factors.

Figure 1 Measures of wage growth over the cycle

Note: left-hand scale: annual rates of change; right-hand scale: percentage of the labour force. Latest observation: Q2 2019 for unemployment rate and negotiated wages and Q1 2019 for the rest.
Sources: Eurostat, national statistical offices, NCB and ECB staff calculations.

Continue reading and find some illuminating graphs and charts.

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The labour market is delivering on jobs and pay – it is vital for living standards that we keep it that way

a post by Nye Cominetti for the Resolution Foundation blog

A tight labour market is finally delivering decent pay growth. In the three months to July 2019, average weekly regular pay (i.e. excluding bonuses) grew by 1.9 per cent on the previous year (slightly down on the previous month). Given that average real pay grew by 2.1 per cent in the eight years prior to the crisis, we can safely say now that we more or less back to ‘normal’ on pay growth. And with employment (and unemployment) little changed in recent months – at record highs and close to record lows respectively – it looks like the labour market has settled into a healthy holding pattern.

But we should not take this for granted – it has taken ten years to get the economy delivering on both jobs and pay. And there remains an underlying fragility. We only have to look back to 2015 to see that a recovery can turn sour quickly. Then it was the Brexit vote, with the ensuing fall in the value of the pound and the jump in inflation choking off real pay growth. Today, stronger real pay growth is underpinned by stable inflation at normal levels, so we can be more confident that recent growth rates will be sustained. But this assumes, of course, that we do not suffer an economic shock. Our newly healthy labour market would surely not survive the economic disruption that would accompany a no-deal Brexit.

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Refugee skills and labour market needs: How matching can support lawful adult refugee mobility

Information about a cedefop project



Most refugees live in developing countries of asylum, struggling to prove themselves in economies which are unable to absorb and make full use of their labour market potential. As a result, their skills often remain unused and become obsolete over time. Key challenges for Europe include sharing the global responsibility for refugees fairly with major countries of asylum and meeting existing and future skill gaps and labour market needs.

The project seeks to contribute to these challenges by identifying and piloting a skills-based complementary pathway that allows lawful and safe pathways to protection of adult refugees by drawing on their human capital potential and labour market needs. The central element of this pathway is matching refugees’ skills and qualifications to the labour market needs of a potential host country; this will allow refugees to move from a major country of asylum to a new destination country based.

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Refugee skills and labour market needs

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The Declining Labor Market Prospects of Less-educated Men

a paper (NBER Working Paper No. 25577) by Ariel J. Binder and John Bound (National Bureau of Economic Research, Cambridge, MA, USA) republished in Journal of Economic Prospects Volume 33 Number 2 (Spring 2019)

Abstract

Over the last half century, U.S. wage growth stagnated, wage inequality rose, and the labor force participation rate of prime-age men steadily declined.

In this article, we examine these labor market trends, focusing on outcomes for males without a college education.

Though wages and participation have fallen in tandem for this population, we argue that the canonical neo-classical framework, which postulates a labor demand curve shifting inward across a stable labor supply curve, does not reasonably explain the data. Alternatives we discuss include adjustment frictions associated with labor demand shocks and effects of the changing marriage market—that is, the fact that fewer less-educated men are forming their own stable families—on male labor supply incentives.

Our observations lead us to be skeptical of attempts to attribute the secular decline in male labor-force participation to a series of separately-acting causal factors.

We argue that the correct interpretation probably involves complicated feedback between falling labor demand and other factors which have disproportionately affected men without a college education.

JEL Classificagtion: E24, J12, J21, J22, J23, J31

Full text (PDF 48pp)

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How confident are we in forecasting the automation of work?

an article by Elliot Jones for the DEMOS blog

Earlier today I blogged what the BBC Business News was saying about the ONS forecast, this one is more detailed.

This week, the Office for National Statistics released their first statistics on which occupations they believe are at the highest risk of automation across England. They estimate about 7.4% of all jobs are at high risk of automation, i.e. there is a 70%+ probability that workers in that occupation will be replaced with some combination of software and robotics. In particular, they predict:

1. Over 10% of roles held by women are at high risk of automation, compared to 4% of men’s roles.
2. 15.7% of 20-24-year-olds are in roles that are at high risk of automation, more than any other age group.
3. The North-East, the East of England, Cornwall and Devon have the highest average risk of local jobs being automated, whereas the rest of the South and London have the lowest average risk of automation.

Forecasts like these are an important tool in making effective long-term policy decisions. Where do we need to invest in reskilling? What skills should form the basis of our education and training system to future-proof our economy? To what extent is unemployment systematic versus cyclical? All of these are important questions a robust forecast could help us answer. However, there are reasons to take this forecast with more than a pinch of salt.

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Automation could replace 1.5 million jobs, says ONS

a post by Jonty Bloom for the BBC Business News blog



Some 1.5 million people in England are at high risk of losing their jobs to automation, according to the Office for National Statistics (ONS).

It says 70% of the roles at high risk of automation are currently held by women. Part-timers and the young are the next most at risk.

The ONS analysed the jobs of 20 million people in 2017 and found 7.4% of these were at high risk of being replaced.

It has developed a "bot" to show the risks for particular occupations.

The ONS defines automation as tasks currently carried out by workers being replaced with technology. That could mean computer programs, algorithms, or even robots.

The three occupations with the highest probability of automation are waiters and waitresses, shelf fillers and elementary sales occupations, all of which are low-skilled or routine.

Those at the lowest risk are medical practitioners, higher education teaching professionals, and senior professionals in education.

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Monopsony in the UK

a column by Will Abel, Silvana Tenreyro and Gregory Thwaites for VOX: CEPR’s Policy Portal

Concentrated labour markets, in which workers have few choices of potential employers, reduce the wages of workers when they are not covered by collective wage bargaining agreements.

But these types of agreements have become much less common in the past 20 years.

This column uses employee-level data to show that even though UK labour markets have not on average become much more concentrated, concentration – which varies a great deal across regions and industries – is having a bigger impact on wages than before.

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You are needed but not your skills: Challenges to manufacturing workers in the wake of globalisation

a column by Hâle Utar for VOX: CEPR’s Policy Portal

The impact of trade shocks on labour market shifts is usually studied in the context of re-training and social welfare frictions.

Using evidence from Denmark, this column shows how workers can experience long-run reductions in earnings no matter how easy it is to change sector. A sudden and obligatory shift toward a new sector may, by its nature, generate some worker dissatisfaction.

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Losing it: The economics and politics of migration

a column by Ian Goldin and Benjamin Nabarro for VOX: CEPR’s Policy Portal

Anti-migration sentiment has been rising across Europe.

This column shows that the economic impact of migration is positive, but depends almost entirely on the policies implemented to ensure that migrants can be productive and the extent to which the positive economic consequences of migration are distributed across individuals.

Unless the rhetoric of a perceived cultural and economic threat posed by migrants is countered effectively, economies stand to lose out substantially from the implementation of anti-immigration policies.

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Comparing retrospective and panel data collection methods to assess labor market dynamics [feedly]

an article by  Ragui Assaad (University of Minnesota, Minneapolis, USA),  Caroline Krafft (University of Minnesota, Minneapolis, USA; St. Catherine University, St. Paul, USA) and Shaimaa Yassin (University of Lausanne, Switzerland; University of Le Mans, France)  published in IZA Journal of Development and Migration Volume 8  Article 17 (2018)

Abstract

There is potential for measurement problems in both retrospective and panel microdata.

In this paper, we compare results on basic indicators related to labor markets and their dynamics from retrospective and panel survey data in Egypt, in order to determine the conditions under which results are similar or different.

Specifically, we

1. assess the consistency of reporting of time-invariant characteristics in different waves of the panel,
2. compare the retrospective and panel data results on past labor market statuses,
3. assess the consistency of estimates of labor market transition rates across two specific dates by comparing panel and retrospective data,
4. assess the consistency of estimates of the level and trends of annual labor market transition rates across retrospective data from different waves of the survey, and
5. assess whether retrospective data can provide accurate trends of labor market aggregates, such as unemployment rates.

We find that it is possible to garner useful information on labor market dynamics from retrospective data, but one must be cautious about which information to trust and at what level of detail. We conclude with a discussion of implications for future research as well as future survey design.

JEL Classification: C83, C81, J01, J62, J64

Full text (PDF 34pp)

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voxThe economics of immigration amnesties

a column by Alessandra Casarico, Giovanni Facchini and Tommaso Frattini for VOX: CEPR’s Policy Portal

European countries have recently experienced an extraordinary inflow of asylum seekers.

Using a theoretical framework and US data, this column studies the key economic triggers which prompt policymakers to implement immigration legalisation programmes. It shows that the more restricted the occupational opportunities of undocumented immigrants and the smaller the fiscal leakage to undocumented immigrants via the welfare state, the more desirable an amnesty is.

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Intergenerational mobility across the world: Where socioeconomic status of parents matters the most (and least)

a column by Ambar Narayan and Roy Van der Weide for VOX: CEPR’s Policy Portal

Intergenerational mobility is important for both fairness and economic efficiency in a society.

This column uses data from a new global study spanning five decades to show that average relative mobility is lower in developing economies, with no sign that the gap with developed countries is getting smaller.

In addition, income mobility in several developing economies is much lower than their levels of educational mobility would lead us to expect. Labour market deficiencies appear to be contributing to this gap between mobility in education and income.

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Job seekers react to market incentives: Implications for labour market policies

a column by Benjamin Villena-Roldán and Stefano Banfi for VOX: CEPR’s Policy Portal

Researchers often pick a random or a directed search model based on convenience and theoretical implications, but distinguishing between the two is important as many labour market regulations may be welfare-improving under random search, but not under directed search.

This column uses data from Chile to show that job-seekers respond to information posted by employers, suggesting that policy design should consider the prescriptions of directed search models. However, the evidence also shows that relevant features of these markets are not well captured by existing models.

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Cautious optimism in 2018 as North Sea assets change hands, says expert

a post by Bob Ruddiman is an energy law expert at Pinsent Masons, published on the Out-Law.com blog

There is a cautious optimism that, as the 'old guard' redefine where to deploy global resources over the next decade and more, there is a new generation of owners ready to take their place who will inject fresh thinking and renewed impetus to maximise recovery and returns from an ageing basin. It is said that the best place to find and extract hydrocarbons is often the place they have been found already.

In 2017, some of the major operators loosened control while others sharpened their focus on core areas for investment. Shell's $3.8 billion disposal of a package of North Sea assets to Chrysaor was the largest of the 'exploration and production' (E&P) deals over the course of a year which also saw a significant increase in infrastructure changing hands. EnQuest acquired an interest in the Sullom Voe terminal from BP, Ancala Partners took on Apache Corporation's SAFE pipeline interest and INEOS, owner of the Grangemouth oil refinery, expanded its portfolio with the purchase of the Forties pipeline system.

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‘It seems at the moment my career is dependent on factors outside of my control’: reflections on graduates’ experiences of employment and career enactment in an era of economic uncertainty and austerity

an article by Tony Leach (York St John University, UK) published in British Journal of Guidance & Counselling Volume 35 Issue 2 (2017)

Abstract

This paper explores contested notions of the purpose of education and careers work. The research for the paper examines public sector employee reactions to notion of a psychological contract breach, when cuts in funding put their jobs and careers at risk.

It argues that, in this environment, the search for career fulfilment can be marked by feelings of cruel optimism, wicked problems and broken expectations.

The findings are then used to present the case for further research, firstly, to address the notion of possible selves, as individuals explore alternative identity affirming career opportunities; and secondly, the impact of changes in public policy on the processes of psychological contracting between students and staff in further and higher education.

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Age at immigration matters for labor market integration – the Swedish example

an article by Bjorn Anders Gustafsson (University of Gothenburg, Sweden; Institute for the Study of Labor (IZA), Bonn, Germany) and Hanna Mac Innes and Torun Österberg (University of Gothenburg, Sweden) published in IZA Journal of Development and Migration Volume 7 Issue 1 (2017)

Abstract

This paper analyses how age at immigration to Sweden and getting a first foothold in the labor market is related. We estimate hazard rate models using registry data on all persons who arrived in each of the years 1990, 1994, 1998, and 2002.

The results show that the number of years taken to get a foothold in the Swedish labor market increases rapidly by age among immigrants from middle- and low-income countries aged 40+.

Most individuals who are born in middle- or low-income countries who immigrate after age 50 never get a foothold in the Swedish labor market.

JEL classification: J15, J21, J61

Full text (PDF)

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The Role of Domestic Employment Policies in Shaping Precarious Work

an article by Merita Jokela (Department of Social Research, University of Turku, Finland) published in Social Policy & Administration Volume 51 Issue 2 (March 2017)

Abstract

This article compares policy approaches regarding domestic employment in affluent countries and examines their impact on precarious work. Drawing on secondary literature and policy documents, this study identifies five policy approaches commonly applied in affluent countries to regulate and develop domestic employment:

1. affordable services;
2. simplifying use;
3. regulating employment;
4. regulating labour migration; and
5. no policy. 

The comparative analysis of different policy types shows that policy design is crucial in regulating employment conditions and the level of precariousness in paid domestic labour.

Based on a literature review, three dimensions of precarious work are studied:

1. the nature of employment (formal/informal);
2. the employment relationship; and
3. the form of employment (temporary or permanent, part time or full time).

I argue that the current policy measures in place may increase precariousness either directly by promoting, for example, informal and irregular work, or indirectly through households (offering incentives for households that weaken workers’ positions).

The analysis also identifies positive measures that contribute to creating more secure employment conditions in domestic work through formalizing the sector. While there are differences in the outcomes of the different policy types, the findings suggest that across welfare states, domestic employment policies are still mostly demand driven and sustain the traditional, special nature of domestic work – often at the workers’ expense.

Full text (HTML)

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Oblivion of online reputation: how time cues improve online recruitment

an article by Alexander Novotny and Sarah Spiekermann (Vienna University of Economics and Business Administration, Austria) published in International Journal of Electronic Business Volume 13 Number 2/3 (2017)

Abstract

In online crowdsourcing labour markets, employers decide which job-seekers to hire based on their reputation profiles. If reputation systems neglect the aspect of time when displaying reputation profiles, though, employers risk taking false decisions, deeming an obsolete reputation to be still relevant.

As a consequence, job-seekers might be unwarrantedly deprived of getting hired for new jobs and can be harmed in their professional careers in the long-run. This paper argues that exposing employers to the temporal context of job-seekers' reputation leads to better hiring decisions. The visible temporal context in reputation systems helps employers to ignore a job-seeker's obsolete reputation.

An experimental lab study with 335 students shows that current reputation systems fall short of making them aware of obsolete reputation. In contrast, graphical time cues improve the social efficiency of hiring decisions.

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Steady improvement of European labour market conditions according to Joint Employment Report

European Commission: Employment, Social Affairs & Inclusion News

On 3 March, the European Council of employment and social policy ministers adopted the 2017 Joint Employment Report.

The report takes a snapshot of the employment and social situation across the EU. It also highlights the extent of reforms carried out in the Member States over the past year. A draft version was presented by the Commission in November 2016 as part of the Autumn Package launching the European Semester.

The report points out the steady improvement of labour market conditions in Europe. The unemployment rate kept falling and stood at 8.5% (10% in the euro area) in the third quarter of 2016. The employment rate in 2016 was, for the first time, above the levels recorded before the crisis. If the current trend continues, the 75% employment rate target set by the Europe 2020 strategy for 2020 could be within reach.

The report also shows that, despite first signals of convergence among Member States, employment and social outcomes continue to vary significantly across countries.

As also shown by the scoreboard of Key Employment and Social Indicators, which is part of the report,

• unemployment, youth unemployment and poverty levels remain far too high in many parts of Europe;
• labour market and social outcomes also vary by gender, age and education for example;
• despite a recent overall stabilisation, income inequality remains high in many EU countries with potential negative implications for economic output and inclusive and sustainable growth.

Many Member States have implemented important reform agendas in recent years, with positive effects on job creation. This efforts need to continue to promote the creation of quality jobs and increase the inclusiveness of labour markets, including by

• removing barriers to labour market participation,
• tackling labour market segmentation and undeclared work,
• ensuring that social protection systems provide adequate income support,
• enabling services to all while encouraging transitions into employment and making work pay.

Joint Employment Report 2017 - accompanying the Communication from the Commission on the Annual Growth Survey 2017
PDF but on my laptop it is not readable online and has to be downloaded

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Current changes to the labour market may well define the future of Europe

In this blog piece, based on Eurofound’s contribution to the July 2016 informal meeting of the Employment, Social Policy, Health and Consumer Affairs Council (EPSCO), Eurofound Director Juan Menéndez-Valdés looks at how the European labour market has changed in recent years and assesses future challenges.

Most discussions on the future of work are dominated by the impact of key changes in society, such as the digital revolution and demographic changes. These changes raise various issues of concern, sometimes suggesting contradictory trends such as labour shortages linked to an ageing population, or new technologies resulting in job loss. Migration and mobility are discussed as part of the solution, but also present important challenges of their own. Eurofound’s research analyses the structural changes that are ongoing in European labour markets in order to inform and complement these discussions, as well as identifying any additional issues.

Europe currently faces the challenge of labour market segmentation, which can result in a divided landscape of winners and losers, with very different experiences and perceptions of European integration and globalisation more generally.

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