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This thesis examines the effects of labor regulation on formal (regulated) labor markets in Latin America. It is divided in three chapters, in which I analyze the effects of pension programs on formal-sector labor supply and the effects of payroll taxes on formal-sector labor demand. The first two chapters analyze how future pension benefits affect formal-sector labor supply. Since formal-sector jobs comply with labor regulation, including contributions to pension plans, formal-sector workers receive long-run benefits in the form of pensions. If workers account for such benefits when they search for formal-sector jobs, the pension system affects formal-sector labor supply before the retirement age. In Chapter 1, I estimate the causal link between future pension benefits and formal-sector labor supply by using a cohort-based reform undertaken in Colombia. I demonstrate that workers with higher pension gains are more willing to work in formal-sector jobs, rather than working in unregulated businesses or by themselves. The result is consistent with a life-cycle model of formal-sector labor supply presented in Chapter 2, where pension benefits are an amenity of working in the formal sector. The results suggest that pension reforms may have large effects on the labor market that should be taken into account in the design of pension programs. Chapter 3 analyzes the effect of payroll taxes on formal-sector labor demand in the presence of wage rigidity. In particular, I study the impact of a reduction of payroll taxes on the creation of formal-sector jobs in Colombia, where about 40 percent of formal-sector workers earn the minimum wage. Using a reform that granted tax credits to firms hiring workers younger than 28 years of age, I obtain estimates of the effect of payroll taxes on formal-sector employment and wages. I show that payroll tax incidence is borne by formal-sector employers. The reduction in payroll taxes increased formal-sector employment and had no effects on wages. Using the estimation results, I recover an estimate of the elasticity of the formal-sector labor demand of -0.44. This result implies that a 10 percent increase in the minimum wage reduces formal-sector employment by 4.4 percent.
This thesis examines two topics in labor economics and policy evaluation. Chapter 1 provides an introduction.Chapter 2 addresses the estimation of the effects of the minimum wage on labor market outcomes in developing countries. The main finding is that, even in the absence of policy variation, that is, when the same level of the minimum wage holds for all the workers in the data, it is still possible to recover the effects of this policy under particular assumptions of a dual economy model. Using this result, the effects of the minimum wage in Brazil from 2001 to 2009 are estimated. It is shown that the minimum wage has considerably increased average wages and reduced wage inequality. However, these effects are accompanied by higher unemployment and an increase in the size of the informal sector. Overall, the loss of tax revenues from the outflow of workers to the informal sector and unemployment more than offsets the increase in wages. Thus, this minimum wage policy contributes to a decrease in the labor tax revenues collected by the government.Chapter 3 also considers estimation of the effects of the minimum wage on labor market outcomes in developing countries. However, this chapter explores the use of less restrictive assumptions regarding the joint distribution of sectors and wages. To ease the estimation of the model parameters, a parametric approach (maximum likelihood) is used. The results validate the conclusions obtained in the previous chapter.Chapter 4 investigates the estimation of policy effects in partially randomized designs. It is shown that when randomization is implemented in a stratified way, the usual tests of balance of characteristics between treatment and control groups can suffer from size distortions, lack of power, or both. A solution to this problem is proposed, and its performance is compared with the baseline estimators in a simulation. It is shown that the proposed test possesses the desirable characteristics of correct nominal size and consistency. Finally, to illustrate the use of these techniques, a stratified, randomized job training program is analyzed.
Recent research has stressed the role of historical events on economic development. This thesis aims at understanding impacts of historical events on China's current economic outcomes. The second chapter analyzes the effect of the number of brothers an individual has on that individual's household savings rate under the current underdeveloped household financial market in urban China. I show that having an additional brother reduces an individual's household savings rate by at least five percentage points. Brothers help households by (1) sharing risks, providing a source of informal borrowing and (2) sharing the cost of supporting parents. In the third and fourth chapter I investigate the long-term impact of the send-down policy. Under the send-down policy (1968--1978) during the Chinese Cultural Revolution, more than 16 million youths were forced to move to rural areas and carry out hard manual labor. I find that the sent-down males were significantly more likely to have had education upgrading after the Cultural Revolution. Conditional on education upgrading, the sent-down males earn higher income than the non-sent-down males who also received education upgrading.
This dissertation combines three contributions to the literature on the determinants of well-beingand the social nature of preferences. Departures from self-centred, consumption-oriented decision making are increasingly common in economic theory and are empirically well motivatedby a wide range of behavioural data from experiments, surveys, and econometric inference. Thefirst two contributions are focused on the idea that reference levels set by others’ consumptionmay figure prominently in both experienced well-being and in decision making. In the firstpaper, the well-being question is addressed empirically through the use of self-reported life satisfaction and high-resolution census and survey data in Canada. Strong income externalitiesare found at multiple spatial scales after controlling for various confounding factors. The second paper explores the general equilibrium consequences of a utility function having an explicitcomparison with neighbours’ consumption. The question is investigated in a model in whichdecision makers knowingly choose their neighbours — and hence their consumption referencelevel — as well as their own consumption expenditure, thereby helping to set the referencelevel for nearby others. For both discrete and continuous distributions of types in an economywith a heterogeneous population undergoing such endogenous formation of consumption reference groups, there exist general equilibria in which differentiation of neighbourhoods occursendogenously. The novel welfare implications of growth in such economies are described. Thefinal paper addresses econometric reservations about the use of subjective reports as dependentvariables. The date and location of survey interviews are combined with weather and climaterecords to construct the random component of weather conditions experienced by respondentson the day of their interview. Standard inferences about the determinants of life satisfactionremain robust after taking into account this significant source of affective bias.