The Role of (De-)Centralized Wage Setting for Industry Dynamics and Economic Growth: An Agent-Based Analysis with the Eurace@Unibi Model (Neugart with Herbert David and Philipp Harting)
In this paper, we employ the agent-based macroeconomic Eurace@Unibi Model to study the economic implications of different degrees of de-centralization in the wage setting. Starting from a baseline scenario, corresponding to a high degree of unionization, in which wages are fully centralized and indexed on economy-wide productivity gains and inflation, we investigate how an increasing level of de-centralization affects the dynamic of output, employment, inequality, and market concentration. We think of de-centralization as wages being a weighted average of an economy-wide 'union wage' and a firm-specific component depending on the firm's productivity and the experienced tightness of the labor market. Our findings suggest that stronger centralization of the wage setting process induces lower wage inequality and stronger concentration on the consumption good market. Furthermore, due to more physical investments, an economy with more centralized wage setting is characterized by higher productivity and faster economic growth.
Thorstein Veblen, Joan Robinson and George Stigler (probably) never met: Social Preferences, Monopsony, and Government Intervention (Michael Neugart with Laszlo Goerke)
Wages and employment are lower in a monopsonistic labor market than in its competitive counterpart. Furthermore, a minimum wage or a subsidy may raise employment up to its first-best, competitive level. We analyze whether these important predictions still hold if workers have social preferences and compare their income to that of a reference group. First, we investigate how such social comparisons affect wages and employment in monopsony. Second, we show that the undistorted, competitive outcome may no longer constitute the benchmark for welfare comparisons in the presence of social comparisons. Third, we derive a condition which guarantees that the monopsony distortion is exactly balanced by the impact of social comparisons and the first-best results without government intervention. Finally, we show that depending on the relative strength of the two distortions either a minimum or a maximum wage, respectively wage cap, can ensure this condition. Alternatively, the government may employ subsidies or taxes.
Social Networks, Promotions, and the Glass-Ceiling Effect (Michael Neugart with Anna Zaharieva)
Empirical studies show that female workers are under-represented in highest hierarchical positions of companies, which is known as the glass-ceiling effect. In this study we investigate the relationship between social networks and the glass-ceiling effect. Specifically, we develop an equilibrium search and matching model where job ladders consist of three hierarchical levels and social networks are generated endogenously. Male and female workers move up in the hierarchical ladder via job-to-job transitions between firms and internal promotions within firms. They also accumulate experience which is a necessary requirement for applying to jobs in the highest hierarchical level. Open vacancies can be filled by formal matching of applicants to jobs or by referrals, which implies that senior workers recommend their social contacts for the job. Social networks exhibit gender homophily, which reflects the fact that social ties are more likely to be formed between workers of the same gender. In a setting when female workers are the minority, there are too few female contacts in the social networks of their male colleagues. This disadvantage implies that female workers are refereed less often for the jobs and under-represented in senior hierarchical positions of firms. We show that referrals via homophilous social networks can explain part of the total wage gap stemming from the glass-ceiling effect in Germany (6.4%). This mechanism is amplified by more hierarchical firm structures, stronger clustering of social networks, and earlier promotion times.
Is there a link between democratic experience and retrospective voting? (Michael Neugart with Johannes Rode)
Abstract: Retrospective voting may be an effective instrument for overcoming moral hazard of politicians if voters evaluate the performance of elected representatives correctly. Whether democratic experience helps them to properly assess a policymaker’s performance is less well understood. We analyze whether voters are more likely to vote for an incumbent party which launched a disaster relief program and whether voters’ behavior is related to their democratic experience. Our identification rests on two natural experiments: a disastrous flood in Germany in 2013, and the separation of Germany into a democratic West and a non-democratic East after World War II. We find that the incumbent party increased its vote share by two percentage points in the flooded municipalities in the East compared to the West in the 2013 elections. We interpret the findings such that voters with less democratic experience seem to be easier prey to pre-election policies of incumbent parties.
Do neighbors help finding a job? Social networks and labor market outcomes after plant closures (Michael Neugart with Elke Jahn)
Abstract: Social networks may affect workers' labor market outcomes. Using rich spatial data from administrative records, we analyze whether the employment status of neighbors influences the employment probability of a worker who lost his job due to a plant closure and the channels through which this occurs. Our findings suggest that a ten percentage point higher neighborhood employment rate increases the probability of having a job six months after displacement by 0.9 percentage points. The neighborhood effect seems to be driven not by social norms but by information transmission at the neighborhood level, and additionally by networks of former co-workers who also lost their jobs due to plant closure.
Economic systems and risk preferences: evidence from East and West Germany (Michael Neugart)
Abstract: For standard economic models it is typically assumed that preferences are given and stable. But do economic systems shape individuals' risk preferences? Using the reunification of East and West Germany as a natural experiment I evaluate differences in financial risk taking comparing Eastern and Western German households for almost two decades after the fall of the Berlin Wall. Controlling for a large set of socio-economic variables East Germans having been "treated'' by a command economy were more prone to taking financial risk than West German citizens. The differences were quantitatively relevant after the fall of the Iron Curtain and almost vanished by 2008.