Regulation, employment and wages
Over the last two decades the institutional structures across the OECD countries have changed dramatically, having a significant impact on labour market performance. This thesis seeks to make four contributions to our understanding of the implications and applications of regulations. This is done in two distinct ways: firstly, to focus on a specific policy change in Chapter 1 and Chapter 2, and secondly, to analyse (more generally) the disparities in policies across the OECD countries, in Chapter 3 and Chapter 4. Chapter 1 seeks to contribute to the literature on tax credit policies, which have been a popular way to alleviate in-work poverty. The assumption is typically that the incidence is on the claimant workers. However, economic theory suggests no particular reason to believe that this should be the case. This chapter investigates the incidence of the Working Families' Tax Credit (WFTC) in the UK introduced in 1999, which unlike similar tax credit policies was paid through the wage packet, increasing the connection between the employer and worker with regard to the tax credit. Using two stage parametric and non-parametric censored regression methods I find compelling evidence to suggest that the firm discriminates by cutting the wage of claimant workers relative to similarly skilled non-claimant workers when looking at men and that there is a spill-over effect onto the wage for both men and women. Chapter 2 then goes on to look more closely at the acclaimed relationship between tax credits and labour supply. One of the principle aims of the WFTC was to increase the participation of those with low labour market attachment. The literature to date concludes that for lone mothers there was approximately a 5% point increase in employment. The differences-in-differences methodology that is typically used compare lone mother with single women without children. However, the characteristics of these groups are both observably and unobservably different, such that the identifying assumption may not be satisfied. I find that when I control for differential trends between people with and without children, the employment effect of WFTC falls significantly. Moreover, by looking at movements in the hour's distribution, it is clear that any WFTC effect is solely borne on those working full-time (30 hours or more). Another concern is that I find that the policy did not induce people into the labour market from inactivity. Chapter 3 seeks to explain why it is that in some OECD countries the male and female unemployment rates are very similar but in others (notably the 'Mediterranean' countries) the female unemployment rate is much higher than the male. The analysis shows that, in countries where there is a large gender gap in unemployment rates, there is a gender gap in both flows from employment into unemployment and from unemployment into employment. Overall it seems that differences in human capital accumulation between men and women interacted with labour market institutions is an important part of the explanation. Chapter 4 looks at how the labour's share of GDP in many OECD countries has declined over the last two decades. The little evidence that exists on this important issue is almost entirely macro-economic. This chapter uses cross-country panel data evidence from a group of 'network industries', where there have been substantial changes of public ownership and entry barrier. The results show that privatisation can explain a significant proportion of the fall of labour's share in these industries, even when the endogeneity of the policy rules is accounted for using sociopolitical instrumental variables. The impact of privatisation has been somewhat offset by falling barriers which dampen profit margins.