Outline. Human capital theory by C. Echevarria. Investment decision. Outline. Investment decision. Investment decision

Transcription

1 Outline Human capital theory by C. Echevarria BFW, ch. 6 M. Turcotte 1. Investment decision 2. Human Capital 3. Formal Education a) Relation between Education and Productivity b) Investment Decision c) Why a different male and female decision? d) Gender Differences Outline 4. On-the-Job Training (learning by doing) 1. Relation between Experience and Productivity 2. Investment Decision 3. Why a Different Decision? 4. Gender Differences 5. Other supply-side explanations Investment decision Suppose you have PV (present value) and the interest rate is i. In one year you have PV + PV i = PV (1+i) In two years, PV (1 + i) (1 + i) = PV (1 + i) 2 In t years, FV (future value) = PV (1 + i) t Investment decision Conversely, the present value of FV t years from now PV = FV / (1 + i) t If instead of one payment, we have N payments of value I t : present value of a stream of payments t=1, N I t / (1 + i) t Investment decision do not invest if P > t=1, N I t / (1+d) t invest if P < t=1, N I t / (1+d) t P = initial investment N = years it yields a return d = discount rate (subjective) I t = interest (return) in year t 1

2 Human capital Human capital investments: resources invested in an individual today to increase his/her future productivity (earnings). Include nutrition, health care, formal education, on-the-job training, etc. Formal Education a) Relation between Education and Productivity Differences between the human and physical capital: nutrition, health care or formal education are also a good in itself. Formal Education b) Investment Decision In general: compare cost with present value of stream of benefits In this case: benefits = differences in wages; cost has two components: direct costs (DC) ; and opportunity cost (OC). Investment decision No: DC + OC > t=1,n (wc t -wh t ) / (1+d) t, Yes: DC + OC < t=1,n (wc t -wh t ) / (1+d) t, DC = direct cost OC = opportunity cost wc t = wage of a college grad. at t wh t = wage of a high school grad. at t Formal Education 2

3 Formal Education Reasons for different decisions: 1. Different direct costs. 2. Different opportunity costs. 3. Difference in wages depend on individual abilities. 4. Different intertemporal preferences. Formal education Private rate of return r that makes DC + OC = t=1,n (wc t -wh t ) / (1+r) t If d > r, no If d < r, yes Formal Education (pg. 163) The experience earnings profile = annual earnings associated with each level of labor market experience for each level of education. Formal Education c) Why a different male and female decision? I. Amount 1. Private rate of return of education different for men and women. 2. Shorter expected work life: the lower the fertility, the higher the level of female education and vice-versa. Formal Education II. Fields: Societal Discrimination (??) 1. Perception of (gender appropriate) competences. 2. Unfriendly environment 3. Subtle barriers. Formal Education d) Gender Differences I. Amount enrolment = flow variable. average years of schooling = stock variable. Cohort (or generation) effect 3

4 Percentage of women among university graduates, by field of study, Canada, 1992 and 2008 Formal Education II. Fields (2008) Female dominated: humanities, communication, education, fitness Gender neutral: agriculture, life sciences Male dominated: engineering, computer science, economics, mathematics Field of study Total Instructional programs Architecture, engineering and related services Mathematics, computer and information sciences Personal, protective and transportation services Business, management and public administration Agriculture, natural resources and conservation Physical and life sciences, and technologies Humanities Visual and performing arts and communication technology Social and behavioural sciences, law Other instructional programs Education Health, parks, recreation and fitness Women among enrolments and completions in registered apprenticeship training programs, by non-traditional trade group, Canada, On-the-Job Training (learning by doing) a) Relation between Experience and Productivity b) Investment Decision I. General Training Increases worker's productivity in all (or many) firms; employee pays the cost (apprenticeship). General training On the job training UU experience earning profile of unskilled (equals productivity) GG experience earning profile of trained (equals productivity) 4

5 On-the-Job Training II. Firm-Specific Training Increases worker's productivity only at the firm providing the training. Employer and employee share costs and benefits. Firm specific training On the job training UU experience earning profile of unskilled (equals productivity) GG experience productivity profile of trained SS experience earning profile of trained On-the-Job Training c) Why a Different Decision? - Shorter work life. - Firms expecting women to have a high turn-over will be more willing to invest in men. On-the-Job Training d) Gender Differences Proportion of Canadians aged 25 to 64 who took job-related studies or training Both sexes Women Men Total Studies or training Studies Training Proportion of persons who received support from an employer

6 4. Other supply-side explanations 1.The "baby penalty =e1-e2=skill depreciation Other supply-side explanations Baby penalty estimated 3% per year of absence (Caranci and Gauthier) Other supply-side explanations 2. Longer hours at home reduce effort at work and decrease productivity. 3. Quitting jobs (and decreasing tenure) more often than men 4. Giving up opportunities 5. Turning down promotion opportunities 6. Putting less effort on job searching. 6

7 Discrimination by C. Echevarria BFW, ch. 7 Outline 1. Measurement: the Oaxaca decomposition 1. Extent 2. Models of labour market discrimination 1. Statistical discrimination 2. A taste for discrimination (pure discrimination) 3. Subtle forms of discrimination Outline 3. Segregation and wage differential 1. The overcrowding model 2. Other explanations 4. Policy 1. Empirical evidence on impact of these policies Labour market discrimination Labour market discrimination: when two equally qualified individuals are treated differently solely on the basis of gender, race, etc. Measurement: the Oaxaca decomposition Estimates discrimination as a residual: anything not explained by difference in qualifications. Measurement The average wage for men and women: 1. Divide the sample into two sub-samples (male and female) and estimate the wage equation for both. 1

8 Measurement Measurement 2. Decompose the difference into two parts: a) Difference due to different qualifications b) Unexplained difference (attributed to labour market discrimination) Measurement Measurement Measurement Extent Early 1980s: 38 points gap in earnings: - 16 points: diff in hours Discrimination explains from 5 to 20 points Models of labour market discrimination Statistical discrimination Judging an individual in the basis of group characteristics. Rational but illegal. 2

9 Models of labour market discrimination A taste for discrimination (pure discrimination) Employer discrimination Employer dislikes working with women: nonpecuniary cost. Compensation = value in dollars of this (personal) cost = discrimination coefficient (d) = measure of the distaste of the employer. Employers act as if w (1+d e ) were the wage paid to women when they pay w. Models of labour market discrimination Employee (co-workers) discrimination 1. Male employees dislike working with women: employer needs to pay an unpleasant conditions premium. Usual response: segregation. Male co-workers act as if w (1- d w ) were the wage received when they receive w 1. Lowering the productivity of the male co-workers (case of a female boss) Models of labour market discrimination 3. Worse on-the-job training 4. Excluding women from unions. Customer discrimination Customers act as if p (1+d c ) were the price paid when they pay p. Models of labour market discrimination Subtle forms of discrimination ("glass ceiling ). 1. Women in male dominated occupations lack role models. 2. It is difficult to find a mentor for a women in a men dominated field. 3. They cannot participate in the informal network (the "old boys club" problem). Segregation and wage differential The overcrowding model Why segregation implies a wage gap in the absence of other discrimination (assumes segregation) No segregation and no discrimination: men and women with same qualifications are paid the same. Segregation and wage differential Segregation: if the demand for female labour is proportionally lower than the demand for male labour, female wages will be lower than male wages. Alternative explanation for relation wage/segregation Femaleness penalty 3

10 Segregation and wages Segregation and wages Explanations for segregation (other than disc.) 1. Women avoid occupations with high "baby penalty" 2. Because they are not the main breadwinner, they avoid unpleasant, unsafe,, occupations. 3. Women avoid occupations with high commitment (Sovala) Policy 1. Equal employment opportunity (EEO): Discrimination on employment on the basis of race, sex, etc., is prohibited. Employers should pay the same wages to workers who do substantially equal work 2. Affirmative action (employment equity in Canada): Employers should give preference, other things being equal, to women, aboriginal people, handicapped and visible minorities to remedy imbalances (systemic discrimination) in the labour force. Policy 3. Comparable worth : Employers should pay the same wages to workers whose work involves similar skills, efforts, and responsibility, and similar conditions of safety, unpleasantness, etc., even if they do not do substantially the same work. EEO = equal pay for equal work, CW = equal pay for work of comparable worth. CW = administrative concept of value Policy Theoretical problems: a) may hurt women by creating unemployment b) large administrative costs Practical (endemic) problems: a) lack of compliance b) lack of male comparators for female jobs Policy Empirical evidence on impact of these policies 1. EEO (implemented in the 1950s) was not very effective on closing the gap. 2. Employment Equity Act of 1986: more effective on closing the gap 3. CW: only applied in the public sector except in Ontario. 4

11 Policy Baker and Fortin (2000) compared Ontario to Québec. Findings: even where the legislation had "bite", positive effects on women's wages in female jobs were statistically insignificant negative effects on female employment are insignificant (lack of substitution between men and women = low demand elasticity) Policy surprising result: the most consistently estimated effects is that the law suppressed wage growth for women working in male jobs (and to a lesser extent for males working in female jobs): law is likely to have unintended consequences. the gender wage gap closed at a similar rate in Ontario and Québec. 5

12 Outline Labour market issues by C. Echevarria BFW, ch. 8 Ferrao 1. a) Definitions b) Measurement c) Patterns of unemployment Duration Demographic variation d) The burden of unemployment e) Gender differences in unemployment Data Reasons for the differential f) Burden of unemployment for women Outline 2. Unions Reasons 3. Hours of work Definitions Cyclical unemployment: due to the business cycle (or wage rigidity). Cyclical unemployment fluctuates around the natural rate of unemployment (NAIRU): it depends on institutions. It is always (equal or) greater than Frictional unemployment: unemployment due to the time it takes to match workers and jobs Measurement Unemployed = actively searching for a job. About 17% of unemployed quit looking after a month. Employed = if you work one hour per week. Patterns of unemployment Duration 25% find a job during a month. 50% up to 6 months. 25% unemployed for more than six months. 1

13 Has an effect in the unemployment rate. Both countries: 100 workers, incidence = 5%; Country 1 duration = 1 m; UR = 5% Country 2 duration 80% = 1m, duration 20% = 6 m; UR = 10% Month UR January 5 Feb. 6 March 7 April 8 May 9 June 10 July 10 2/3 of the increase in the UR over the last 2 decades due to an increase in duration. Demographic variation Higher for young people. Difference between groups due to separation. The burden of unemployment Frictional unemployment does not have much of a (negative) impact for the economy. Individual? 1. Economic hardship. 2. Permanent effects because of the loss in experience and tenure. 3. Psychological costs. Gender differences in unemployment Data Until recently: The difference fluctuates - cyclical pattern. Business cycles affects male employment rates more. (2010) Male UR: 9.4% Female UR: 7% 2

14 Reasons for a positive differential A larger separation rate: The larger proportion of women reentering the labor force. In 2009, 55% of unemployed women were so after reentering the LF (vs 42% of unemployed men) Women work in occupations in which quitting the job is more likely, because of the lack of rewards for tenure (no career ladder). Reasons for a negative differential 1. Women are more likely to be discouraged workers (cyclical) 2. Men and women are employed in different occupations and industries (both cyclical and natural rates) Women used to get unemployed more often but they were less time unemployed. Not any more. Unions Burden of unemployment for women Was unemployment less painful for women, because their spells of unemployment are shorter? It depends on the main reason for a shorter spell. Historically, low female representation in unions. Union membership has been declining in the US since Not the case in Canada Density Men 38% Women 15.6 Total 30% Unions UNIONS Reasons Did not admit women until the beginning of the 20th century. Tended to neglect female concerns as harassment, parental leave or day care. (Made in Dagenham 1968 Ford sewing machinists strike UK 1970 Equal pay act) 2009 Density Men 30 Women 33 Total 32 Women not possessing characteristics that make unionization likely: occupational distribution, job tenure, and full time work. 3

15 Unions Why did the gender unionization gap close? 1. On the part of women: Length of job tenure increasing More likely to work full time. 2. On the part of unions: Effort to unionize services More attention to women s issues Hours of work Directly, fewer hours mean lower earnings at the same wage rate Indirectly, fewer hours mean less experience and less tenure which translate into fewer promotions (reduced hours understood as lower commitment) In 1991 (all workers), men: 42 hours per week: women: 34 (82%). The ratio is greater for educated women. Hours of work In 1990: 29% of working women PTs vs 11% of men. In 2010: 25%. Women are 70% of PTs (since 1970s) : school : family responsibilities. Hours of work In gral. Involuntary PTE rates are similar (26 of FPTs vs 31% for men ) Men more likely to be PT because of school. Women more likely b/c family responsibilities (17% of FPTs vs 2% for men). That means: 5% of women in the LF work PT b/c of family responsibilities; 0% of men in the LF work PT b/c of family responsibilities 4