Economic Development and Cultural Change, 2021, 70(1) pp.359-414
Abstracts: While the importance of female empowerment and gender equity for development outcomes is well understood and existing theory on the household decision making predicts that the labor market environment plays a key role in household bargaining, there is very little empirical research studying the role of broad labor market policies on female empowerment in developing countries. We address this by estimating the effects of minimum wage policy in Indonesia. Using province-specic minimum wage increases in Indonesia from 2000-2014 and data from a panel of Indonesian households, we implement a method that exploits differences in minimum wages between geographically proximate districts located near the border between separate provinces. Consistent with existing theories on household decision making, we hypothesize that minimum wage increases affect the household decision making process through their heterogeneous effects on male and female labor market outcomes. We document that the minimum wage has a positive and significant effect on labor force participation and overall earned income for married men but does not have a statistically significant effect for married women. As predicted by household decision making theory, we find a negative and significant effect of minimum wage on the wife's role in making decisions related to household resource allocation.
Abstracts: This paper examines an issue in long run forecasting, evaluating a forecast for which the actual data are not yet available. In this case, we analyze the World Bank’s forecasts of the poverty headcount made in 2002, but the actual data for the terminal date will not be available for some time. The methodology requires one to infer a forecast for an intermediate date for which the data are available. We show that the long-run projections were extremely accurate because they are consistent with the trends that are observed in the latest available data.
Abstracts: This paper develops an equilibrium wage-posting model that provides a coherent theoretical prediction of the effect of minimum wage on the labor market structure. The model incorporates labor market features commonly found in developing countries such as (i) monopsonistic competition among firms, (ii) firms that decide whether or not to comply with the minimum wage law, and (iii) heterogeneity of firm and worker productivity in the formal and informal sectors. Using historical minimum wage changes in Indonesia during 2000~2014, this paper empirically confirms the predictions of the equilibrium wage-posting model. An increase in the minimum wage induces (i) no reduction in formal sector employment, (ii) an increase in formal sector wages, (iii) reduced economic rents for monopsonistic employers, and (iv) an increase in the number of formal sector firms that do not comply with the minimum wage regulation.
Abstracts: This paper analyses the impact of the household registration system (Hukou) reform in China on firms’ behavior. We develop an equilibrium search model that features labor market characteristics commonly found in developing countries, such as (i) monopsonistic competition among firms, (ii) heterogeneity of firm productivity, and (iii) disadvantaged group of workers. Using historical hukou reform in China during 1998-2007, this paper empirically confirms the predictions of the equilibrium search model. A hukou reform (i)induces an increase in wage payment for rural hukou owners, (ii) reduces economic rent monopsonistic firms, (iii) forces least productive firms to leave the market, thereby increasing average labor productivity, and (iv) increases employment for remaining firms
Work in Progress
Abstracts: With the increase in technological innovation and globalization, productivity-gap across firms has widened. This paper investigates the effect of such productivity dispersion on job quality across firms and unemployment. Using Youth Panel data (2007-2017), Korean Labor and Income Panel Study (1998-2016), and Wage Structure Survey (1980-2016), we first document evidence on wage gaps between workers in large firms vis-a-vis small and medium-sized companies. Further, utilizing a marginal treatment approach, where treatment is assigned based on a worker's employment status in a large firm, we furnish evidence on labor market segmentation between large and small firms. We propose further work to extend the existing wage-posting model by assuming that firms offer two kinds of jobs, a full-time job and a temporary work. With the increased productivity gap, between-firm competition reduces, and productive firms tend to offer more full-time job vacancies, whereas less productive firms tend to offer short-term vacancies. Also, we propose to endogenize job arrival rates to capture the individuals' incentive to keep searching for job opportunities in more productive firms. With increasing productivity gaps, individuals' choice of lining up at productive firms at the risk of being unemployed is a rational decision.
Tariff Overhang and Temporary Trade Barriers: Substitutes or Complements? (With Youngwoo Rho)
Abstracts: This paper studies trade policy flexibilities under the WTO agreements focusing on comparing the most favored nation (MFN) tariffs and temporary trade barriers (TTBs). Using nine developing countries' panel data (1999-2011), we examine the motivation behind trade policies and provide empirical evidence. We find that the MFN tariffs and TTBs are applied to different economic environments. The MFN tariff is more sensitive to the overall increase of imports, while the TTBs are used to protect the import market from monopolization by a specific country. This is found from nine developing countries’ panel data (1999-2011). The empirical evidence shows that both policy tools have complementary characteristics.
Abstracts: We analyze the nature and driving mechanism of informality experienced by different genders, with a particular emphasis on informality's effect on women's wellbeing. Using the three rounds of the Indonesian Family Life Survey (IFLS) data and the marginal treatment effects (MTE) framework (Heckman, Urzua, and Vytlacil, 1999, 2005, 2007), we generate an inference on the behavioral response of individuals' choice on the treatment status based on their expected outcome, allowing us to infer the driving mechanism for in/formal sector employment. We find substantial heterogeneity in returns to formal sector employment across gender: whereas we observe clear positive sorting on the gain in the male sample, suggesting a rational choice of in/formal sector employment, we do not observe this pattern in the female sample; at best, our analysis suggests that females earn more in the formal sector regardless of individuals' innate preference for in/formal sector employment. This finding suggests a fragmented labor market for women and that working in the formal sector improves the lives of female workers.
Chronic Poverty Measurement
Abstracts: Distinguishing the chronic poor from the transient poor is an important task in that the relevant policy to cope with each kind of poverty varies. As such, researchers suggested different approaches to identify chronic poverty and transient poverty. Two identification approaches have been popularized, and applied in many different contexts: component approach and counting approach. This paper surveys the existing two different chronic poverty measurement, reinterprets the existing methodologies with focus on the intertemporal substitutability assumption which distinguishes these methods, and then suggests the way to apply each measurement given certain survey data (Income/consumption).
Hetergeneity in Household Decision Making: Evidence from Indonesia (with Benjamin Williams)
Abstracts: We investigate heterogeneity in household decision-making, based on wives' labor force participation, using IFLS data. Taking wives' labor force participation status as a treatment and employing the marginal treatment effect method (MTE), we test how wives' involvement in the labor force affects her decision making power in the household. While we find that for most households, wives experience an increase in decision marking power as their labor market participation increases, there are specific sub-groups, where decision-making power reduces with an increase in labor force participation. Our preliminary results suggest that the decision-making process differs across households and that neither the unitary model nor the bargaining model can fully capture underlying household dynamics. Although, the unitary model with a dominant husband could explain the decision making-process for sub-groups where housewives work and subsequently lose their decision making power.
Meat or Poison? Minimum Wages for Chinese Firms and Workers (with Ida Brzezinska, Zhaohe Yang)
Abstracts: We study the effect of minimum wage on employer market power in Chinese manufacturing with firm-level data from the Chinese Annual Survey of Industrial Firms (CASIF). We exploit the 2004 minimum-wage reform in China and adopt the contiguous-city-pair approach to identify the effect of minimum wage on market distortion and labor share of income. Our analysis shows that the minimum wage increase is associated with higher average wages, lower employment, reduced markups and markdowns, and increased relative factor share of labor. In addition, such short-term effects of minimum wage policies continue into the medium term, with some moderate decline in magnitude.