The ability of households to insure consumption from adverse shocks is an important aspect of vulnerability to poverty. How is consumption insurance achieved in a low-income setting where formal credit and insurance markets have been observed to be imperfect or missing? Using 2003 data from the Philippine province of Bukidnon, we investigate how labor supply is used to buffer transitory income shocks, in light of credit constraints. We find that the most vulnerable households are those with little education and with few or no able-bodied male members. Appropriate policy responses include counter-cyclical workfare programs targeted to households with high female-to-male ratios, households with high dependency ratios, and households with little or no education, as well as the provision of universal education and health care. These programs are likely to be effective in strengthening the labor endowments of households and improving their ability to cope with adverse shocks in the future.
"This thesis consists of three independent essays in labor and public economics. Chapter 1 argues that credit constraints are an important mechanism to understand the labor supply responses of unemployed workers to increased unemployment insurance generosity. This chapter proposes a novel method to assess the severity of credit constraints for different groups of unemployed workers, via estimation of their internal interest rate. The only inputs of this method are the labor supply responses of unemployed workers to conditional and unconditional income transfers, free of any parameterization of individuals' preferences, beliefs, or market structure. To estimate these inputs, we use administrative data from Spain and provide causal estimates of the labor supply responses to changes in potential duration, benefit level, and severance payment, both in the aggregate and for different subgroups. The results indicate that poorer workers face an internal interest rate 40 percent larger than wealthier workers. Furthermore, for poorer workers, credit constraints represent up to 40 percent of the labor supply responses to increased UI generosity, vs. only 16 percent for richer individuals. Finally, we suggest that redistribution within the unemployment system, from individuals with long to short working experience, can reduce both the inefficiency from credit constraints and the aggregate distortion generated by moral hazard. Chapter 2 provides an alternative approach to define the specificity of human capital, based on how concentrated, or specialized, is the knowledge used in an occupation. I combine this new measure with individual labor histories from the NLSY79-97 to analyze the heterogeneity of earning losses following an exogenous displacement. I provide evidence that, holding any other individual and aggregated characteristics constant, greater levels of knowledge specialization at displacement are associated with significantly larger earning losses, in the range of an additional 5 to 9 pp for an individual in the 75th percentile of knowledge specialization vs the 25th percentile. This larger losses do not seem to be driven by longer periods of unemployment or longer distance (in the task space) occupational moves following displacement. In addition, I show that the loss premia associated with changing industries/ occupations post displacement is almost fully driven by higher specialization levels. For low specialization levels, industry/occupational changes imply relatively small additional losses after the first year. Furthermore, I do not find evidence of negative effect of higher pre displacement specialization on earning losses for those who remain in the same industry or occupation. Finally, Chapter 3 aims to understand whether machines can replace workers in the labor market and, if so, which types of workers are the ones that can be substituted with technology. Using an IV strategy, I take advantage of the shale boom in the US and the relative increase in low skilled labor demand it generated in sectors related to oil & gas production to analyze the changes in the annual capital expenditures, output, labor composition and relative wages of manufacturing firms, located in areas exposed to this shock. My findings suggest a mild substitutability between low skill labor and capital in the manufacturing sector. The structure of my data allows me to assess how is best defined low skill labor in this scenario. I find that the strongest conclusions are reached when the definition of high skill labor includes only those with a college degree or above that level of education"--Pages ix-x.
We study how financial frictions amplify labor supply shocks in a macroeconomic model with occasionally binding financing constraints. Workers supply labor to entrepreneurs who borrow to purchase factors of production. Borrowing capacity is restricted by the value of capital, generating a pecuniary externality when financing constraints bind. Additionally, there is a distributive externality operating through wages. The planner's allocation can be decentralized with two instruments: a credit tax/subsidy and a labor tax/subsidy. Labor shocks, such as the COVID-19 shock, amplify the policy responses, which critically depend on whether financing constraints bind or not.
This paper provides new evidence on how household labor supply responds to fatal and severe non-fatal health shocks in the short- and medium-run. To identify the causal effects of these shock realizations, we leverage administrative data on families' health and labor market outcomes, and construct counterfactuals to affected households by using households that experience the same shock but a few years in the future. We find that fatal health shocks lead to an immediate increase in the surviving spouses' labor supply and that this effect is entirely driven by families who experience significant income losses. Accordingly, widows, who face large income losses when their husbands die, increase their labor force participation by more than 11%; while widowers, who are significantly more financially stable, slightly decrease their labor supply. Notably, however, the patterns of sensitivity to comparable income changes are similar across genders. In contrast to fatal shocks, we find that non-fatal health shocks--in particular, heart attacks or strokes--have no meaningful effects on spousal labor supply, consistent with the adequate insurance coverage for the associated foregone income. Overall, the results point to self-insurance as a driving mechanism for the family labor supply responses that we estimate. Combined with a stylized model, our findings suggest efficient ways to target government transfers through existing social insurance programs.
This paper assesses the responsiveness of wages and labor force movements to employment shocks across British and U.S. regions and across Europe using a multivariate vector autoregression technique. The paper finds inflexible real wages in all three areas in that each area’s real wage responds very little to employment shocks. However, the response of the labor force to employment shocks is much greater in the United States compared to Europe. The strong labor force response in the United States prevents any persistence in relative regional unemployment rates whereas the lack of mobility in Europe results in persistent unemployment rate differentials across British regions and European nations. Europe must therefore adopt measures to reduce barriers to immobility if it is to succeed in moderating the persistence in relative unemployment rates.
We study the impact of bank credit on firm productivity. We exploit a matched firm-bank database covering all the credit relationships of Italian corporations, together with a natural experiment, to measure idiosyncratic supply-side shocks to credit availability and to estimate a production model augmented with financial frictions. We find that a contraction in credit supply causes a reduction of firm TFP growth and also harms IT-adoption, innovation, exporting, and adoption of superior management practices, while a credit expansion has limited impact. Quantitatively, the credit contraction between 2007 and 2009 accounts for about a quarter of observed the decline in TFP.
This book focuses on the implications of the South African labour market dynamics including labour market reforms and fiscal policy for monetary policy and financial stability. Evidence suggests there are benefits in adopting an approach that coordinates labour market policies and reforms, fiscal policy, price and financial stability. In particular, the benefits of coordinating policies present policymakers with policy options in cases where they are confronted by binding policy trade-offs and dilemmas, such as in cases when there is divergence in price and financial and economic growth outcomes. The empirical insights and policy recommendations are based on different techniques that include the counterfactual and endogenous-exogenous approaches, non-linearities introduced by thresholds and the impact of persistent and transitory shock effects. Themes covered in the book include various aspects of labour market conditions and reforms and their link to inflation and inflation expectations, the impact of the national minimum wage, the interaction between public and private sector wage inflation, economic policy uncertainty and employment, government debt thresholds, sovereign yields and debt ratings downgrades, labour productivity, the impact of inflation regimes on expansionary fiscal and monetary policy multipliers, the increase in government cost of funding on price and financial stability and the link between fiscal policy and credit dynamics.
