Job Quality and Effort

1. Job Quality and Effort Andrew E. Clark (Paris School of Economics- CNRS) http://www.parisschoolofeconomics.com/clark-andrew/

2. THE BROADEST OF BROAD QUESTIONS “Have jobs been getting worse?” or “Has job quality declined since the (mythical) golden age of the 1960s and 1970s?” Nostalgia is a wonderful thing. But it is our duty to look at the facts, and then try to bring economic analysis to bear on them. So what has happened?

3. 1) Unemployment has arguably overall been better than it was in the 1970s and 1980s. Even despite the current great recession. Something of an “Anglo-Saxon” phenomenon. UK = 4.0; US = 3.9 Euro Area = 8.2; France = 9.2; OECD = 5.3 2) The characteristics of these jobs would broadly seem to be better than in the past. Which characteristics?

4. Wages have increased in almost all countries. One major exception is the US. Over the 1985-’95 period, real labour income in the first decile fell. But so did real labour income in the fifth decile. Median US real wages have barely changed over a 25-year period.

8. There was rising earnings inequality, as measured by D9/D1. This will reduce utility at a given level of mean income.

9. OECD Inequality Figures

10. OECD Inequality Figures

12. Hours of work trended inexorably downwards.

13. Hours of work trended inexorably downwards.

14. Hours of work trended inexorably downwards… and have continued to do so (1997-2017).

15. d) But did jobs become less secure? Five-year retention rates fell sharply 1980-’95 in Finland, France and Spain. No strong movement elsewhere.

16. Although we should note that: • RR is not the only important characteristic, the consequences of job loss need to be taken into account (chances of finding another job, unemployment benefits). The advantages of flexicurity. • Movement between jobs might allow better matches.

17. Subjective evidence on job security from three waves of the ISSP

19. Overall, good news might outweigh the bad. Unfortunately, work on the time series of job satisfaction – workers’ evaluations of their own jobs – has shown that this dropped sharply from the 1980s and 1990s into the 2000s. An exception is the US.

21. Figure 4: Average job satisfaction of self-employed and employees in Germany 1984 to 2009 This trend has continued in Germany up to 2009…

22. What’s gone wrong? One idea here is that it is what individuals actually do when they are at work: “job content”. This captures how hard they work, danger, interest etc. I will mostly concentrate on worker effort.

23. There is a small literature on accidents at work. Workplace accidents are found to be • Higher (a little) for temporary rather than permanent workers. • Unrelated to hours of work. • Lower in unionised workplaces. There is also a more aggregate/macro literature that has looked at time series movements in accidents – see Askenazy’s book.

24. The health-related consequences of work worsened in Europe between 1990 and 2000

25. The US was on the same trajectory until the early 1990s Since 1990 the number of accidents and work-related illnesses have dropped by 1/3.

26. Why have the French and American experiences been so different in recent years? 1) Americans take worker health seriously (Ergonomics and training have long-run productivity payoffs).

27. 2) Government and unions take an aggressive stance on workplace safety. Information on safety violations made public. So workers won’t work there, or will ask for higher wages, and insurance premia (private) rise. The latter rose from 1.4% of labour costs in 1985 to 2.4% in 1994. Dropped back to 1.6% in 2001. In France the number of Inspecteurs de Travail has fallen. The results of investigations are not made public. There is thus less incentive to make workplaces safer (insurance is mutual, so we have the problem of the commons).

28. Worker Effort We tend to write production functions as Q=Q(N,K). We should probably write Q=Q(Nh,K), or better Q=Q(N,h,K), as workers and hours aren’t perfect substitutes. Even better, let’s write Q=Q(N,h,e,K), where e shows the level of effort furnished by workers per hour of work. Firm’s profit rises with e; worker utility falls with e. Effort is not contractable: we are in the world of incentives

29. Could falling job quality be caused by greater worker effort? One way of looking at this is to trace out movements in overall job satisfaction, and then decompose them. BHPS data from 1992-2002. Two regressions: Pooled: each observation treated as if it represented a different person; presents a snapshot of average job quality in each year. Panel: Follows the same individual from one year to another; picks out within subject changes in job quality.

30. These regressions include “standard” controls: age, sex, education, marital status etc. They also control for job characteristics: region, occupation, industry and firm size. They also include a full set of year dummies (1992 is the omitted category). These plot the conditional movements in overall job quality. This falls pretty much monotonically, both in pooled and in panel regressions.

37. Worse job content from greater effort? In an efficiency-wage framework, effort rises due to: • Higher wages (but higher wages raise utility) • Higher unemployment (but endogenous….) • Falling cost of monitoring • Falling cost of firing shirking workers • Greater cost of shirking for workers I concentrate on the last three.

38. Employment protection and effort Consider absenteeism as an indicator of employee effort. You can be absent because you’re sick, or because you shirk (“pulling a sickie”). • Most popular sick days are Monday and Friday • Sick days correlated with holidays and sporting events • Public-sector sick rates are 44% higher than in the private sector (selection of worse health to public sector?). Effect of a probationary period before permanent job: Ichino and Riphahn (2005).

45. In normal efficiency-wage theory, we can’t perfectly monitor worker effort, and set wages high enough to maximise profit (the cost of higher wages is offset by workers’ greater effort due to the higher wages). Here we don’t want to discourage shirking, but rather identify the maximum number of shirkers in the first period, so that we can costlessly sack them before they receive tenure. The cost of monitoring is zero in this model.

46. Test the model on Italian data. There is a probationary period with little protection (three months), followed by a sudden jump to a great deal of employment protection. Data from a large Italian Bank (18 000 employees). Information on 545 men and 313 women hired into white-collar positions (Jan. 1993 to Feb. 1995). Observed over a full year following hiring.

47. The workers here are a fairly homogeneous group: young, with high-school education. They calculate the number of days absent because “ill” per week (so that they have 52 x 858 observations). AF(9%) < AM (5%): for family reasons? But with a notable jump after 12 weeks of employment (end of probation).