Posts categorized under Labor Market

The effects of reducing working hours

August 31, 2022
The debate on if and how to shorten the length of the working week has strengthened in the past years, especially because of the COVID-19 pandemic. The number of working hours can have a direct impact on economic outcomes such as labor cost, employment, and productivity, but also workers’ health and welfare. Since 1995, there have been five national reforms reducing standard working time in European countries. Aside from the (in)famous French 35-hour reform, an interesting yet understudied case study is that of the 1996 Portuguese reform.

Digital technologies and productivity

July 28, 2022
Economies in industrialized countries have been experiencing slow productivity growth and a persistent decline in business dynamics, despite significant technological changes, capital investment and various public programs supporting firms. This paper asks if digitization is able to engender positive effects on productivity and to foster a catch-up process of low-productivity firms. Using a representative sample of Portuguese firms for the period 2014-2019, this study assesses the impact of adopting digital technologies on firms´ productivity.

Firms and wage inequality dynamics

July 28, 2022
Policies aimed at mitigating wage inequality, such as redistribution or access to services, frequently focus on workers. Fewer efforts are directed toward firms, despite their relevance for wage inequality dynamics. This paper exploits a sharp reduction in Portuguese inequality over the last decades – driven exclusively by the compression of firm pay premiums – to pin down the role of firms in the evolution of wage inequality. Over the past two decades, Portugal witnessed a 20 percent decline in wage inequality (see panel A of the figure), almost single-handedly driven by firms (see panel b of the figure).

R&D tax credit and firm behavior

July 18, 2022
Studies carried out to date assessed and compared the impact of public support for R&D activities, whether in direct funding (grants) or tax credits. This paper studies how these instruments’ affect R&D personnel. The growing knowledge orientation of the economy and society and changes in the labor market make investing in skills and their lifelong upgrading increasingly important. Skilled human capital for research, innovation, and economic development are crucial in sustaining the needs of a knowledge economy.

The struggle of small firms to retain high-skill workers

July 18, 2022
Small knowledge firms struggle to keep their best employees: highly-skilled workers are needed for growth and success, but small firms cannot hold onto them. Advanced knowledge increases the productivity of skilled workers. Because large firms are more innovative and technological, this knowledge-skill complementarity may be different for small and large firms. This paper applies discrete-time proportional hazards models with unobserved heterogeneity for several worker skill measures and human capital accumulation, interacted with firm-size categories and industry knowledge-intensity to ascertain how knowledge-skill complementarities are influenced by firm size.

Heterogeneity in gender wage growth gap across fields of study in Europe

June 29, 2022
This paper analyzes the early career dynamics of wages of European college graduates using data from the Flexible Professional in the Knowledge Society, a retrospective survey interviewing individuals a few years after their graduation in 1999/2000. The sample includes individuals from Austria, Belgium, Finland, France, Germany, Italy, Netherlands, Spain, UK, Portugal and Norway. The paper finds a gender gap of 0.7 percentage points on an average annual raw wage growth over the five-year period after graduation of 6 1/2%.

Are online platforms killing the offline star?

June 22, 2022
Online platforms that facilitate the exchange of goods and services, including delivery services, accommodation, or retail products, have become widespread over the last decade. The COVID-19 shock has further contributed to the accelerated the digitalization of economies. This development has underpinned hopes for a productivity revival. However, significant differences across countries in factors such as access to communication networks and digital skills raise questions about the scope for platform use to underpin broad-based increases in productivity.

Loan guarantees and their implications for post-COVID-19 productivity

June 22, 2022
Many countries introduced or ramped-up loan guarantee schemes to bridge liquidity shortages as a key element of the policy response to the COVID-19 crisis. The analysis in this paper discusses the potential short and medium-term effects on productivity of loan guarantees via reallocation, relying on historical data on European firms. The findings suggest that, absent policy support, the COVID-19 shock had the potential to seriously distort market selection, as it would have raised sharply the probability to face financial difficulties across the whole distribution of firm-level productivity.

Wage inequality and entrepreneurship in regional labour markets

May 19, 2022
Entrepreneurship has been recognized as an important driver of innovation and economic growth. For that reason, policymakers seek to attract knowledge-based and high-tech entrepreneurial activities into their cities and regions. To achieve this objective, increasing attention has been paid to people engaged in ‘creative’ professions, i.e., those occupations where knowledge is created, transformed, or used in innovative ways. By attracting creative professions, policymakers expect to contribute to better economic performance.

Entrepreneurship and industry clusters

May 12, 2022
The clustering of successful firms within small geographical areas is a feature of many industries that is usually attributed to the greater availability of economically valuable information and a specialized workforce. However, it is regularly observed that entrepreneurs locate their firms in their home region rather than being attracted by agglomerations. This paper reconciles these views by arguing that industry clusters can emerge because employees of incumbent firms often leave to create their own successful firms (usually called “spinoffs” or “spinouts”).

Wages and firm-level unexpected good times

April 28, 2022
Suppose that a firm unexpectedly experiences good times in the form of higher revenues. Does it choose to invest or hire more workers? Does it alter workers’ compensation, and if so mainly through base wages or other components of pay? How are these decisions shaped by the attributes of top executives? Research on these questions has faced two important challenges. First, it is difficult to quantify in a systematic but precise way the unexpected component of revenue shocks at the firm-level, while distinguishing it from anticipated changes in market conditions.

The experience of losing a job in different countries in Europe

March 22, 2022
This paper documents the consequences of losing a job across countries using administrative datasets from various European countries and the same empirical methodologies throughout the analysis. The paper shows that workers from Northern countries, such as Denmark and Sweden, experience the lowest earnings declines following job displacement, while workers in Southern countries, such as Portugal, Italy, and Spain experience losses three times as high. French and Austrian workers face earnings losses somewhere in-between (see Figure 1).

Coworker network effects on displaced workers

March 9, 2022
Between 30 and 50 percent of jobs are obtained through personal connections. Social contacts may contribute to reduce the incomplete information faced by workers when looking for a job (where are the good jobs?) or the asymmetric information faced by companies during recruitment (who is a good worker?). Despite substantial evidence on the widespread use of social contacts in various contexts, there is limited evidence on the extent to which they facilitate matching between workers and firms.

Wage flexibility under collective bargaining

February 17, 2022
In Portugal, there is almost universal coverage by collective bargaining with trade unions. This paper asks how this constrains firms’ ability to adjust wages to changing firm- and sector-level conditions. If wages are set by bargaining between trade unions and employers’ associations, and almost all workers are covered, it may seem that firms have no margin to adjust wages. However, collective bargaining in Portugal and in Continental Europe does not set the actual wage of workers, but rather minimum wage floors.

Financial constraints and the executive gender gap

February 1, 2022
This paper investigates how financing constraints following the 2008-9 financial crisis affected executive pay and the gender pay-gap of executives, as well as the share of females in executive positions. The paper uses employer-employee data for Portugal, and exploits pre-crisis variation in external finance dependence across industries to estimate the differential effect of the crisis for more exposed firms - which relied more on external finance - relative to other firms.

Long-term changes in wage inequality in Portugal and the modernization of the labor force

January 25, 2022
Wage inequality increased in Portugal for over 40 years starting in the beginning of the 1980s. The aim of this paper is to study the causes of the long-term trend in wage inequality in Portugal. Specifically, did wage inequality increase because the labor force became increasingly heterogeneous, or rather because wage differences between or within groups of workers expanded over time even if labor force heterogeneity did not change? The empirical analysis of this research is carried out with data from Quadros de Pessoal.

Evaluating fixed-term employment contracts

January 24, 2022
In February 2009, Portugal sought to promote the use of open-ended employment contracts by reducing the range of circumstances under which fixed-term contracts (FTCs henceforth) could be used by large firms. Before this date, new establishments were free to hire under FTCs. After February 2009, such flexibility applied only in the case of firms with fewer than 750 employees. Large firms could still hire under FTCs in new establishments in specific cases.

The human side of productivity

January 7, 2022
How much do the characteristics of a firm’s workforce matter for its productivity? Firms producing similar goods exhibit very different levels of productivity. Using the same amount of capital and number of workers, some firms produce much more than others. Over time, these performance gaps have widened in many countries. Such large and rising performance gaps suggest that substantial opportunities for boosting economic growth are being missed – if ’low’ productivity firms would adopt the best practices of ‘high’ productivity firms, the economy’s productivity would be much higher.

Fluctuations in the wage gap between vocational and general secondary education

December 14, 2021
What type of education gives the best preparation for the labour market? Vocational education, where you learn the skills for specific occupations? Or a more general education, advancing intellectual and cultural development? It’s an old question in the economics of education literature. The common presumption is that vocational education gives an initial advantage, as the graduate has been trained for specific jobs, and can perform required tasks right-away, but that the general graduate is better prepared for future changes in the labour market, as broader intellectual skills facilitate learning new tasks.

Wage inequality and firm reorganization when firm competition changes

November 19, 2021
This paper studies how increased domestic product market competition induces firms to change their internal organization and how this change affects wage inequality. The paper exploits the Empresa na Hora (Firm On the Spot) program in Portugal as a quasi-natural experiment of a shock to competition. The paper uses detailed employer-employee data for the analysis. The main findings are that increased domestic competition following the “Firm On the Spot” program leads firms to flatten their hierarchies by delayering and that reorganization is accompanied by a reduction in within-firm wage inequality.

A policy evaluation of the reform "Empresa na Hora"

November 10, 2021
This paper studies the effects of the 2005 reform Empresa na Hora (Firm on the Spot) on firm entry, exit, and employment decisions. Before the reform, starting a business implied a long and convoluted bureaucratic procedure that would take between two to three months to complete. After the reform, the duration of this process decreased to less than one hour. It also involved a substantial reduction in the monetary costs associated with firm creation.

Redistributive effects of monetary policy on labor income

October 26, 2021
In recent years, inequality has attracted a great deal of attention in monetary policy circles. A growing strand of the macroeconomic literature suggests that monetary policy is not immune to redistributive consequences, despite inequality not being an explicit target of its actions. The bulk of this debate centers around the relationship between monetary policy and asset prices, yet labor income represents a major source of inequality, and its relationship with monetary policy remains unexplored.

Self-employment and health outcomes

October 8, 2021
Is self-employment typically good for one’s health? This is an important question as a large number of people around the world and also in Europe are self-employed and many express concerns about the potential negative effects of this type of work. This research question also matters in the context of the Covid crisis. The COVID-19 pandemic may contribute to the growth of self-employment (as the labour market contracts and many individuals look to developed their own work opportunities).

Corporate reorganization as labor insurance in bankruptcy

July 13, 2021
How does corporate reorganization affect labor outcomes in bankruptcy? The existing literature argues that corporate reorganization affects labor reallocation because it retains workers in bankrupt firms. One the one hand, firms can remain alive for too long and retain workers inefficiently. On the other hand, reorganization reduces the probability of inefficient liquidation. This paper tests the hypothesis that job contracts are a form of insurance in times of adversity; that reorganization improves labor outcomes because it reduces the probability that workers lose the insurance provided by job contracts when the costs of job loss are high.

Side benefits of promoting entrepreneurship

March 30, 2021
Are there societal side benefits to encouraging entrepreneurship? This study answers this question by looking at the effects of a policy promoting new firm creation on crime levels within municipalities. Between 2005 and 2009, the Portuguese government gradually introduced a deregulation reform (“Empresa na Hora”) in 144 out of 308 municipalities. In the municipalities targeted by this reform, the costs of establishing a firm declined drastically: it took just one hour and about 300 euros to become an “entrepreneur”.

When does remote work boost productivity?

March 13, 2021
The COVID-19 pandemic has forced many workers to work from home. Even before this emergency shift, there were societal calls for allowing workers location and time flexibility to achieve a better work-life balance (e.g. EU Directive 2019/1158). While there may be social benefits from working at home, research on the impacts of remote work on worker productivity and firm profitability shows contradictory results. This paper studies the impact on worker productivity of a precondition for remote work, namely the possibility to access firm resources remotely.

Has investment in wind energy impacted local labor markets in Portugal?

March 1, 2021
Investment in wind power has grown remarkably in the past decades in Portugal (see figure). Although economic development is an argument for investment incentive policies, little evidence exists as to their net impact on local-level unemployment. Despite project-level estimates of direct employment creation, doubts remain as to whether these effects translate into an increase in overall employment - rather than a displacement of resources - as well as into effects at the local-level rather than at the aggregate level only.

Dream jobs

February 12, 2021
What makes some jobs better than others? The positive effect that a ‘good’ job has on lifetime wage income may be due to a wage jump upon taking the job (i.e., a static effect) or to a faster wage growth after taking the job (i.e., a dynamic effect), and may depend on whether the benefits are portable to another job, as well as on the quality of the match between occupation worker’s skill and ability.

What drives exceptional job creation in Portuguese companies?

February 12, 2021
It is generally recognized in the economic literature that a small number of companies, known as Gazelles, contribute disproportionately to net job creation. This article analyzes the drivers of high employment growth such as firm age, access to external sources of finance, and firms’ human capital, as well as companies’ ability to export and innovate through investment in R&D. The results suggest that younger companies are more likely to grow faster, and that human capital is an essential determinant of high growth phenomena.

A taxonomy of productivity growth in Portugal

February 2, 2021
Technologies such as computers, robots, and artificial intelligence are changing how we work and interact, rendering routine jobs (which are also middle-wage jobs) obsolete due to automation and computerization of many tasks. In contrast, high-skilled workers that do complex abstract tasks benefit from this, as technology increases their productivity. There is evidence that several labor markets have polarized in the past two decades between high-skilled abstracted jobs and low paid jobs (with the simultaneous disappearance of routine middle-skilled jobs).

The impact of minimum wage policies in financially distressed firms

September 19, 2020
The Portuguese government promised to increase the minimum wage to 750 euros by 2023. If this goal is achieved, between 2014 and 2023 the nominal minimum wage will have increased 55%. The final objective of this measure is to reduce poverty and income inequality. However, it implies additional costs to firms and customers. When many firms are already under pressure and living in a context of high uncertainty due to the covid-19 pandemic, the announced minimum wage increases cast further doubts on the evolution of employment and on the financial condition of firms.

Assessing the legal value added of collective bargaining

January 30, 2020
Collective bargaining – the negotiation about working conditions between one or more employers and workers’ representatives – can improve wages, working time and various other dimensions of employment. Successful bargaining that takes into account the characteristics of the firms and workers involved can also increase engagement and stability, improve productivity and profitability. This paper investigates the extent to which collective bargaining in Portugal has changed any employment dimension, over and above existing statutory labor laws.

Finance and labor rigidity in Portugal

January 7, 2020
How do credit shocks affect firms’ employment adjustment and exit? How does the propagation of these shocks depend on labor rigidities? Do credit shocks reinforce or hinder productivity-enhancing reallocations in the real economy? According to the classic Schumpeterian view, shocks should bring about creative destruction and a “cleansing effect” on the real economy. However, financial frictions might attenuate or even reverse this, thus leading to “scarring”. The contribution of the paper is to exploit the exogeneity of a credit shock to Portugal to analyze these contrasting issues, and document how the responsiveness of firms to credit shocks depends on labor rigidities.

Potentially hidden unemployment in the Portuguese labor market data

October 8, 2019
The unemployment classification relies on the degree of attachment to the labor market, based on the job search criterion. An individual aged between 15 and 74 years-old is considered to be unemployed if he or she is not working, but is actively searching for a job and is available to start working within the next two weeks. Several studies have highlighted the arbitrariness of the unemployment classification criteria used in the Portuguese Labor Force Survey, considering that the non-employed population is a heterogeneous group.

The China shock and employment in Portuguese firms

September 30, 2019
China’s rise as an export powerhouse has impacted labor markets across the Western world – but the effects appear to differ dramatically across countries. We evaluate the impact of rising Chinese exports on employment in Portuguese manufacturing industries by looking at both direct competition in the Portuguese market and indirect competition in Portugal’s largest export markets in Western Europe (Germany, Spain, Italy, France , and the UK). In addition, we explore how Portugal’s stringent labor market regulations might have shaped those responses.

Labor market effects of the Portuguese unemployment insurance reform

March 7, 2019
The Portuguese labor reform of 1999 increased the maximum duration of unemployment benefits only for workers in specific age brackets. Workers with ages outside of the affected brackets had no change in the maximum benefit duration. Workers between 30 and 34 years old, for example, had the maximum benefit duration extended from 15 months to 18 months. But for workers between 35 and 39 years old, the maximum benefit duration was unchanged at 18 months.

The effect of competition by Chinese exports in international markets on the Portuguese labour market

February 19, 2019
Chinese exports may affect a given country directly through intensifying competition in the domestic market, but also indirectly in foreign markets where firms from that country compete with Chinese exports. In fact, the large export market share gains of China in low-tech, low-skill products, like textiles, clothing, footwear, and electric appliances, were accompanied by losses in the export shares of several other countries, like Portugal. These indirect effects of competition in third-country export markets are the main object of this study; they can be significant given the growing sophistication of China’s exports, implying greater competition in virtually all industries in which developed economies operate.

Hiring older workers in Portugal

April 24, 2018
This paper asks why companies retain older workers while not hiring older workers in Portugal. The Portuguese case is particularly relevant to study this question, because the level of participation of older workers in the labor market is at least twice as high in Portugal when compared to European countries. Using unique matched employer-employee data of 2007, from Quadros de Pessoal, this paper examines the determinants of hiring individuals aged 50 and older.

The effect of mass influx on labor markets: Portuguese 1974 evidence revisited

April 12, 2018
The study of how labor supply shocks, especially immigration, affect labor market conditions has been a long-lasting concern in empirical labor economics. The textbook model of a competitive labor market suggests that high levels of immigration should lower the wage of competing workers. Despite the common sense intuition behind the theory, existing empirical literature offers contradictory evidence. This article provides a reappraisal of the evidence from the influx that has been unique in the recent European history, the flood of more than half million returnees from Mozambique and Angola to Portugal in the mid-1970s.

Upward nominal wage rigidity: extensions to wage agreements

July 12, 2017
In Portugal, as in many other countries in continental Europe, the collective wage agreements between trade unions and employer associations are systematically extended to non-subscriber workers and employers. Since these agreements establish wage floors for most job titles, their frequent extension is equivalent to setting a wide range of compulsory minimum wages, which are regularly adjusted upward. In some firms these extensions can result in a wage structure that may not be appropriate, causing fewer hirings or added dismissals.

The impact of collective labor bargaining extensions

November 20, 2016
The recent crises raised a number of questions about the role of structural reforms in promoting economic growth. One area that has received greater attention is collective bargaining: the interactions between firms and employees in setting of pay and many other working conditions can be highly relevant promoting micro and macro flexibility, increasing resilience during a crisis and growth during the recovery. This paper studies the causal impact of collective bargaining on the labor market.

Maximum duration of fixed-term labor contracts in recessions

November 20, 2016
Policy makers and academics put great effort in understanding and minimising the negative employment effects of business cycles. This paper evaluates one policy option in this regard: greater flexibility in the maximum duration of fixed term contracts during recessions. Its simple rationale is that, when faced with an uncertain outlook (and restrictive permanent contracts), firms may be more likely to dismiss fixed-term contracts if the only legal alternative is to convert them.

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