Equilibrium Unemployment: The Role of Discrimination

U.S. labor markets are increasingly diverse and persistently unequal between genders, races and ethnicities, skill levels, and age groups. We use a structural model to decompose the observed differences in labor market outcomes across demographic groups in terms of underlying wedges in fundamentals. Of particular interest is the potential role of discrimination, either taste-based or statistical. Our model is a version of the Diamond-Mortensen-Pissarides model extended to include a life cycle, learning by doing, a nonparticipation state, and informational frictions. The model exhibits group-specific wedges in initial human capital, returns to experience, matching efficiencies, and job separation rates. We use the model to reverse engineer group-specific wedges that we then feed back into the model to assess the fraction of various disparities they account for. Applying this methodology to 1998–2018 U.S. data, we show that differences in initial human capital, returns to experience, and job separation rates account for most of the demographic disparities; wedges in matching efficiencies play a secondary role. Our results suggest a minor aggregate impact of taste-based discrimination in hiring and an important role for statistical discrimination affecting particularly female groups and Black males. Our approach is macro, structural, unified, and comprehensive.

South Africa

In this chapter the authors synthesize the findings from several recent studies on South Africa’s high income inequality. These studies use new datasets—including income tax data—and new empirical methods to investigate the drivers of household income and individual earnings inequality in South Africa. Increased returns to experience and an increased rate of return to tertiary qualifications are key drivers of a widening earnings distribution. Tax data merged with survey data show that those at the top of the earnings and income distributions have done well in both absolute and relative terms, thus increasing inequality. Direct taxes and social grants are progressive, indirect taxes are less progressive, and tax exemptions for health insurance and pension fund contributions are regressive. A significant proportion of the current middle class are vulnerable to falling into poverty. Overall, South Africa has not made progress in reducing its extreme inequality over the past decade.

On-Demand Digital Economy: Can Experience Ensure Work and Income Security for Microtask Workers?

Digital labour platforms have been increasingly gaining popularity over the past decade. In particular, there has been much debate about workers’ motivations and working conditions on microtask platforms. There exists little evidence on whether dependence on digital microtask platforms provides workers with work and income security in the long term and whether it provides opportunities for skill development. This paper explores the extent to which the seemingly flexible platform work ensures work and income security and provides opportunities for skill development for workers with different levels of experience, based on novel survey data collected on five globally operating microtask platforms and in-depth interviews with workers. The findings show that despite high financial dependence on this work, returns to experience on the platform are meagre in terms of earnings, and highly experienced workers face the same risks as new entrants with regard to discrimination, high work intensity, lack of autonomy and control over work, and social protection. There is also a skills gap between the nature of tasks available on these microtask platforms and the workers’ education levels. Finally, experience does not ensure that workers have the opportunities to undertake complex and challenging tasks, and the possibilities to develop their skills and improve career prospects are limited.

Accounting for changing returns to experience

Returns to experience for U.S. workers have changed over the post-war period. This paper argues that a simple model goes a long way towards replicating these changes. The model features three well-known ingredients: (i) an aggregate production function with constant skill-biased technical change; (ii) cohort qualities that vary with average years of schooling; and crucially (iii) time-invariant age-efficiency profiles. The model quantitatively accounts for changes in longitudinal and cross-sectional returns to experience, as well as the differential evolution of the college wage premium for young and old workers.

Returns to Teacher Experience: Student Achievement and Motivation in Middle School

We use rich longitudinally matched administrative data on students and teachers in North Carolina to examine the patterns of differential effectiveness by teachers’ years of experience. The paper contributes to the literature by focusing on middle school teachers and by extending the analysis to student outcomes beyond test scores. Once we control statistically for the quality of individual teachers using teacher fixed effects, we find large returns to experience for middle school teachers in the form both of higher test scores and improvements in student behavior, with the clearest behavioral effects emerging for reductions in student absenteeism. Moreover these returns extend well beyond the first few years of teaching. The paper contributes to policy debates by documenting that teachers can and do continue to learn on the job.