David S. Kaplan

Exports and Within-Plant Wage Distributions: Evidence from Mexico (Forthcoming)

Judith A. Frias et al. — Thu, 26 Jan 2012 14:58:47 PST

This paper has had the modest goal of establishing several facts about the effect of exporting on within-plant wage distributions, focusing on wages at the 10th, 25th, 50th, 75th and 90th percentiles. There are three key findings: (1) there is no evidence of an effect of exporting on wages at the 10th percentile; (2) the wage effects of exporting are larger at higher percentiles, up to the 75th; and (3) there is no evidence of an increase in dispersion between the 75th and 90th percentiles. The third fact suggests that the increase in within-plant wage dispersion is not due solely to wage increases for top managers.

Displaced Workers and Unemployment Insurance in Mexico: Preparing for the Next Crisis

David S. Kaplan et al. — Thu, 14 Apr 2011 11:49:08 PDT

The recent global economic crisis highlighted the fact that Mexico does not have a safety net that is sufficient for dealing with transitory but serious shocks to employment. We believe that a system of unemployment insurance should be a priority for the country. We hope that in the near future, before the memory of the 2008 crisis fades, policymakers will consider adopting such a system. We especially hope that an unemployment insurance system is in place when the next crisis occurs.

Employment and Wage Responses to Trade Shocks: Evidence from Mexico during the 2008-09 U.S. Recession

David S. Kaplan et al. — Fri, 25 Mar 2011 12:48:37 PDT

During the “Great Trade Collapse” of 2008, Mexico’s trade with the U.S. fell nearly 45 percent. The severity and suddenness of this unfortunate external shock for Mexico provides a natural experiment to assess the effect of trade shocks on labor market outcomes in a developing economy. Our analysis of Mexico’s social security records suggests that, contrary to many other studies, employment is more responsive to trade shocks than wages (at least in the short run). Formal employment in the trade-intensive northern states fell more than 9 percent from September 2008 to March 2009, while the average change in the log real wage of workers who stayed at the same firm between quarters was 0.030 and 0.018 in the first and second quarters of 2008 respectively and -0.001 and -0.012 in the third and fourth quarters respectively. The authors develop a new measure of industry relatedness to analyze how the shocks are spread through the economy, both across industries and over time, and find evidence suggesting that trade shocks spread through output linkages rather than through worker mobility.

The Plaintiff’s Role in Enforcing a Court Ruling: Evidence from a Labor Court in Mexico

David S. Kaplan et al. — Fri, 23 Oct 2009 10:39:37 PDT

We analyze the outcomes of 332 cases from a labor court in Mexico in which a judge awarded money to a plaintiff who claimed to have been fired by a firm without cause. The judgment was enforced in only 40% of the cases. A plaintiff may try to enforce a judgment by petitioning the court to seize the firm’s assets when the firm refuses to pay. Thirty eight percent of the enforced judgments required at least one seizure attempt. We estimate the parameters of post judgment games in which the worker does not know if a seizure attempt would ultimately succeed and show that these models explain the data well. We then simulate the effects of a policy that reduces worker costs of a seizure attempt. We find that this policy would increase the probability of enforcement, either by increasing the probability that the worker attempts an asset seizure or by inducing firms to pay voluntarily to avoid such seizure attempts. However, reducing worker costs of seizure attempts can only have a modest effect on enforcement probabilities because a high percentage of firms are able to avoid payment in spite of worker efforts to force collection.

Exports and Wage Premia: Evidence from Mexican Employer-Employee Data

Judith A. Frías et al. — Tue, 01 Sep 2009 12:12:22 PDT

This paper draws on a new combination of employer-employee and plant-level data from Mexico to investigate the relationship between exports and wage premia, defined as wages above what workers would receive elsewhere in the labor market. We first use detailed information on individual workers' wage histories to decompose plant-level average wages into a component reflecting skill composition and a component reflecting wage premia. Our estimating procedure allows for changes in the return to ability and feedback from current idiosyncratic shocks to future mobility. We then use the peso devaluation of late 1994, which we argue generated an exogenous differential inducement to export within industries, to estimate the eect of export incentives on the two components. Comparing across plants within industries, we find that approximately two-thirds of the higher level of wages in larger, more productive plants is explained by higher levels of wage premia, and that nearly all of the differential within-industry wage change due to the export shock is explained by changes in wage premia. The findings argue against the hypothesis that sorting on individual ability is solely responsible for the well-documented correlation between exporting and wages.

The Effects of Exaggeration in Labor Lawsuits in Mexico

Alexander Gotthard et al. — Mon, 31 Aug 2009 04:30:05 PDT

This paper uses data gathered by the authors from the archives of a local labor court in the State of Mexico to study the effects of overtime claims on lawsuit outcomes. Labor law in Mexico dictates that labor courts must record the amounts of compensation in all pre-trial settlements. This allows us to measure the impact of strategies chosen by the parties on all lawsuit outcomes, including settlement. In particular, this paper focuses on the plaintiff (employee)’s choice of overtime claim as part of her total claim. Overtime claims are generally unverifiable, particularly because firms that are sued in this court tend to be small or medium-sized firms that do not have formal time-keeping procedures. In addition, labor jurisprudence indicates that judges in labor courts should evaluate unverified overtime claims conservatively, that is they should not recognize unreasonable amounts of overtime. We find that these overtime claims, although often large enough to be considered unreasonable, do affect court rulings, making them more favorable to workers. In addition, in cases that settle, workers whose cases are handled by private lawyers tend to receive higher payments as their claims contain relatively more overtime, while workers whose cases are handled by public lawyers tend to receive lower payments as their claims contain relatively more overtime. This may indicate that private and public lawyers choose very different strategies in relation to the amount of overtime claimed, but may also reflect the selection effect of lawyer type, that is the fact that cases going to public lawyers tend to be different, in both observable and unobservable ways, from cases going to private lawyers.

What Influences Firms’ Perceptions?

David S. Kaplan et al. — Fri, 21 Aug 2009 12:07:38 PDT

Perceptions-based indicators are sometimes used to measure the quality of the business environment. For instance, firms are asked about the major constraints on business operations and expansion. Little is known, however, about what shapes their responses. In this paper, using perceptions-based indicators from 38 countries (84 country-year pairs) from the World Bank Enterprise Surveys, we argue that firm responses are critically influenced by macroeconomic conditions. Paradoxically, we find that perceptions worsen during periods of high GDP growth. We also examine other indicators from the Enterprise Surveys that are objective measures of constraints, and find mixed evidence on how business constraints vary with the business cycle. Finally, we find that firms that introduce new product lines, which are likely those with the most interactions with regulatory agencies, have particularly bad perceptions of the business environment. We conclude that changes in firms’ perceptions over time may not reflect changes in the business environment.

Guest comment: How Can Latin American Countries Create Good Jobs?

David S. Kaplan — Wed, 10 Dec 2008 08:28:27 PST

Because of protective labor laws, many firms will find it too costly to fire workers in spite of the difficult times. In this sense, the labor laws will be partially successful in protecting existing jobs.

On the other hand, firms will not be hiring either. Labor markets in the region will essentially freeze. Workers who have jobs will hold on to them, often to the detriment of productivity. Those who are looking for jobs will not find them, unless they are willing to work in the lower-paid informal sector.

The absence of labor mobility will prevent labor markets from making necessary adjustments and will prolong the negative effects of the crisis. Instead of trying to protect jobs through measures such as high severance payments, countries in the region might try to protect workers through unemployment insurance. Unemployment insurance provides social protection without restricting worker mobility and without hampering labor productivity. The implementation of unemployment insurance would be challenging, but the potential benefits are enormous.

The World Bank's Doing Business project presents a ranking of labor market flexibility. Bolivia and Venezuela have inflexible labor markets and will likely feel the effects of the crisis for years to come. Colombia and Chile have comparatively flexible labor markets and should recover more quickly. Chile, which offers modest unemployment insurance, may offer the best social protection as well.

Job Creation and Labor Reform in Latin America

David S. Kaplan — Tue, 15 Jul 2008 07:56:04 PDT

This paper studies the effects of labor-regulation reform using data for 10,396 firms from 14 Latin American countries. Firms are asked both how many permanent workers they would have hired and how many they would have terminated if labor regulations were made more flexible. I find that making labor regulations more flexible would lead to an average net increase of 2.08 percent in total employment. Firms with fewer than 20 employees would benefit the most, with average gains in net employment of 4.27 percent. Countries with more regulated labor markets would experience larger gains in total employment. These larger gains in total employment, however, would be achieved through higher rates of hiring and higher rates of termination. These results may explain why there is substantial opposition to labor reforms despite the predicted gains in efficiency and total employment.

Mexican Employment Dynamics: Evidence from Matched Firm-Worker Data

David S. Kaplan et al. — Tue, 11 Dec 2007 13:05:51 PST

Using a census of all workers in private establishments in the formal sector in Mexico to track workers and establishments over time, this paper presents the first Mexican worker and job flow statistics. The data allow for comparing these flows across time, space, and worker characteristics. Although many patterns are similar to those documented in developing countries, the analysis uncovers patterns that have potentially important policy implications. The authors compare the results to the literature, illustrate how the statistics change during times of reform and crisis, and present novel findings that contribute to the broader literature on worker reallocations.

Enforceability of Labor Law: Evidence from a Labor Court in Mexico

David S. Kaplan et al. — Thu, 06 Dec 2007 14:49:09 PST

We analyze lawsuits involving publicly-appointed lawyers in a labor court in Mexico to study the enforcement of a law that nominally provides high levels of worker protection. We show that, even after a judge rules in favor of the worker, the judgment goes uncollected 56% of the time due to the costs associated with the excessive formalism of the enforcement process. Differences in the probability of receiving compensation after trial, both across lawyers and across workers with different levels of tenure, are not due to differences in win rates at trial, but rather are entirely attributable to post-trial differences in the probability of enforcing the judgment. This paper is the first in the literature that demonstrates the importance of post-trial collection costs on litigation outcomes. We then develop a simple model of litigation that includes costs of collecting awards after trial and show how differences in lawsuit outcomes across lawyers can be rationalized theoretically.

Inflation and Establishment Turnover

Gaetano Antonolfi et al. — Tue, 12 Jun 2007 13:41:27 PDT

We study a channel through which inflation can have effects on the real economy. Using job creation and destruction data from U.S. manufacturing establishments from 1973-1988, we show that both jobs created by new establishments and jobs destroyed by dying establishments are negatively correlated with inflation. These results are robust to controls for the real-business cycle and monetary policy. Over a longer time frame, data on business failures confirm our results obtained from job creation and destruction data. We show that a financial-markets explanation and a nominal-wage rigidities explanation are both consistent with our empirical evidence.

Entry Regulation and Business Start-ups: Evidence from Mexico

David S. Kaplan et al. — Sun, 08 Apr 2007 16:27:37 PDT

We estimate the effect on business start-ups of a program that significantly speeds up firm registration procedures. The program was implemented in Mexico in different municipalities at different dates. Our estimates suggest that new start-ups increased by about 5% per month in eligible industries, and we present evidence supporting robustness and a causal effect interpretation. Most of the effect is temporary, concentrated in the first 15 months after implementation. The estimated effect is much smaller than World Bank and Mexican authorities claim it is, which suggests attention in business deregulation may be over emphasized.

El Efecto de los Salarios Minimos en los Ingresos Laborales de Mexico

David S. Kaplan et al. — Tue, 06 Mar 2007 13:30:26 PST

This paper analyzes the effect of minimum wages on the income of workers in Mexico. Using panel data from the National Urban Employment Survey (ENEU) and from the administrative records of the Mexican Social Security Institute (IMSS), this paper shows that changes in the real minimum wage induce changes in the same direction on wages in the Mexican labor market. This effect is weaker (although positive) the higher the income of the worker. It is also shown that the effect was stronger in the period comprising 1985-1993 than in the period comprising 1994--2001, suggesting that this effect is losing strength.

What Happens to Wages after Displacement?

David S. Kaplan et al. — Tue, 06 Mar 2007 13:17:15 PST

Faced with limited resources, policymakers need to know when and where to target support for displaced workers. The academic literature offers little support, presenting wide-ranging results with no consistent explanation for the observed differences in wages after workers are displaced. In this paper, we demonstrate that the heterogeneity found in the literature is consistent with varying market conditions. The results suggest that support for displaced workers can be more efficiently allocated by considering the timing and location of displacement.

Firmwide Versus Establishment-Specific Labor Market Practices

David S. Kaplan et al. — Tue, 06 Mar 2007 13:05:53 PST

We construct a novel data set matching occupational data from separate establishments to the establishments' corporate parents, in order to study labor market links across establishments within diverse firms. We find substantial wage components common to all establishments within firms, even after netting out industry and occupation effects. However, employment changes are localized to establishments. The data suggest that internal labor markets of multiestablishment firms are linked throughout their entire organizations, but that establishment-level demand shocks do not permeate the firm.

Nominal wage rigidities in Mexico: evidence from social security records

Sara G. Castellanos et al. — Tue, 06 Mar 2007 12:55:04 PST

This paper analyzes the existence and extent of downward nominal wage rigidities in the Mexican labor market using data from the administrative records of the Mexican Social Security Institute (IMSS). This establishment-level, panel dataset allows us to track workers employed with the same firm, observe their wage profiles and calculate the nominal-wage changes they experience over time. Based on the estimated density functions of nominal wage changes, we are able to calculate some standard tests of nominal wage rigidity that have been proposed in the literature. Furthermore, we extend these tests to take into account the presence of minimum wage laws that may affect the distribution of nominal wage changes. The densities and tests calculated using these data are similar to those obtained using administrative data from other countries, and constitute a significant improvement over the measures of nominal wage rigidities obtained from household survey data. We document the importance of minimum wages in the Mexican labor market, as evidenced by the large fraction of minimum wage earners and the indexation of wage changes to the minimum wage increases. We find considerably more nominal wage rigidity than previous estimates obtained for Mexico using data from the National Urban Employment Survey (ENEU) suggest, but lower than that reported for developed countries by other studies that use comparable data.

Executive Compensation: Six Questions That Need Answering

John M. Abowd et al. — Tue, 06 Mar 2007 12:46:17 PST

There is a growing realization by the popular business press that a proper analysis of stock and option holdings is crucial to understanding U.S. executive compensation practices. The academic economics literature has also come to this conclusion, although only very recently. The economics literature on the effects of stock and options holdings is only in its infancy, but it has already yielded large dividends and has the potential for much more.

In this article, we focus on how these recent advances can be used to address the following six questions: How much does executive compensation cost the firm? How much is executive compensation worth to the recipient? How well does executive compensation work? What are the effects of executive compensation? How much executive compensation is enough? Could executive compensation be improved? Our discussion will focus on the role of agency theory, which predicts that stock-based compensation will align executive and shareholder interests by linking the executive's compensation directly to increases in the market value of the company.

Litigation and Settlement: New Evidence from Labor Courts in Mexico

David S. Kaplan et al. — Tue, 06 Mar 2007 12:33:33 PST

Using a newly assembled data set on procedures filed in Mexican labor tribunals, we study the determinants of final awards to workers. On average, workers recover less than 30% of their claim. Our strongest result is that workers receive higher percentages of their claims in settlements than in trial judgments. We also find that cases with multiple claimants against a single firm are less likely to be settled, which partially explains why workers involved in these procedures receive lower percentages of their claims. Finally, we find evidence that a worker who exaggerates her claim is less likely to settle.