How to Sell Jobs
Daniel Ferreira (LSE)
Radoslawa Nikolowa (QMUL)

Abstract : Profit-maximizing firms should fill job positions at the lowest possible cost. Because employees may have preferences over the attributes of their jobs, we can view this problem as one of finding the optimal way to sell job attributes to potential employees. In this paper, we characterize the optimal mechanism by which a firm can sell jobs with desirable attributes. This mechanism is implemented by offering employees a long-term employment contract in which firms create a number of low-quality job positions and offer them to young employees, while only a subset of these employees are promoted to a desirable job. In contrast to the traditional compensating differentials framework, job desirability and wages are positively related in the optimal contract. Our analysis provides a novel framework for thinking about a number of phenomena, such as the span of control, inequality within and between generations, and the effect of competition on employment and wages.

Explaining the Female Labor Participation Gap Across Religion and Caste in India
Ardina R. Hasanbasri (Washington University in St. Louis)

Abstract : Why does labor share vary for married women across religion and caste in India? The gaps in employment shares across groups are not trivial, ranging from 17% for Hindu Brahmins to 32% for Christians in 2011. I estimate a static female labor supply model that incorporates variations in individual demographic characteristics from the Indian Human Development Survey and two sets of parameters characterizing the labor behavior of specific groups. Religion and caste enters the model through a preference component and an "institutional" component embedded as a fixed cost for women entering the labor force. Given model specification and estimates, I document group labor supply behavior in the intensive and extensive margin and quantify the relative importance of each model component in generating behavioral differences. In a counterfactual exercise without group heterogeneity---every group faces the same preferences and fixed-labor costs---the variance of participation across groups reduces by 0.75 relative to patterns seen in data. This suggest that inequality in terms of demographic characteristics, such as education, non-labor income, and children, alone does not generate large participation gaps. When group differences enter the model through preferences, the variance of participation does not change significantly. Only when heterogeneity in labor costs is introduced, the variance of participation gaps starts to increase. I further investigate possible sources of variations in labor cost and study how groups react to policy changes in terms of wages and a subsidy to non-labor income.

Law, Institutions and Economic Development: Examining the Development of the Home Mortgage Market in India - Can Two Wrongs Make a Right?
Vikramaditya S. Khanna (University of Michigan Law School)

Abstract : A vast literature examines the interactions between law, institutions and economic development, but it only occasionally examines how actual markets in emerging economies have developed and transitioned to relying on legal institutions. This paper addresses that question by examining the growth of the formal home mortgage market (HMM) in India from the mid 1990s onwards. Long delays in foreclosing on property, along with other factors, led to a trivial HMM. However, from about 1994 to 2003, and before any mortgage law changes took effect, the HMM in India grew impressively. This paper examines what led to this and finds that, amongst other things, banks in India relied on “dysfunctions” in the criminal justice system to help overcome dysfunctions in the civil justice system for enforcing mortgages. In particular, in house departments at banks relied on a provision that criminalized “bounced” checks along with the predictability of extortion by the police to enhance their ability to obtain payments for mortgages and other kinds of debts. Although this aided the HMM’s growth, it also resulted in substantial negative collateral effects by enhancing corruption and worsening adjudicative delays. Indeed, the “bounced” check strategy (BCS) came to represent one of the largest areas of litigation in India. However, once the mortgage market started growing banks pushed for law changes around 2003 that facilitated the continued expansion of the market, but reduced the need to rely on the increasingly costly BCS. The HMM’s development not only tracks the incentives faced by the players and highlights the improvisational aspects of this market’s growth, but also has implications for a number of areas of research. This includes insights on the interactions between law, institutions and economic development; how institutional change or transition might arise in some contexts; and the role of private ordering, and key players like in-house lawyers, in market development.

How Are Workers Compensated Following Trade Liberalization?
Krzysztof Pelc (McGill University)
Sung Eun Kim (Korea University)

Abstract : How do workers cope with the adjustment costs from trade liberalization? Governments’ ability to deal with the distributional consequences of lifting trade barriers has become one of the key challenges facing developed democracies. Recent findings have shown how among workers harmed by liberalization, some turn to dedicated government training programs, while others fall back on disability payments and early retirement. These choices largely determine the odds of an individual returning to work, so what explains the variation? We demonstrate how in the US, the politically fraught nature of Trade Adjustment Assistance (TAA), combined with its administrative complexity, means that individuals are prone to elite framing effects. We use roll-call votes and legislators’ floor speeches on TAA to measure their attitudes towards trade adjustment, and proxy for the demand for trade adjustment by using economic shocks from Chinese import competition. When legislators hold negative views of the program, individuals in their districts become less likely to petition for, and receive, trade adjustment benefits. This, in turn, appears to render them more likely to fall back on alternative transfers, such as disability payments, which are less likely to get individuals back to work.