Contributions published at Macroeconomics and Labor Markets (Josef Zweimüller)

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This study presents a simple empirical framework suitable for describing individuals' subjective evaluations of wage inequality and their normative assessment of market justice. The framework is illustrated using survey data from the International Social Survey Program from Switzerland. Although most individuals accept the fact that there are quite large pay differentials across different occupations, they would still prefer a more equal distribution of market wages. The empirical analysis further shows that financial self-interest, normative beliefs, and perceptions of how wages are determined all have an impact on the assessment of market justice. Finally, subjective inequality measures and the assessment of market justice turn out to be substantive predictors of individuals' general support for the welfare state and their party identification.

The empirical literature on the relationship between inequality and growth offers a contradictory assessment: Estimators based on time-series variation indicate a positive link while estimators (also) exploiting the cross-sectional variation suggest a negative relationship. The present paper (i) confirms this conflicting pattern in an expanded dataset; (ii) proposes a simple theoretical framework to highlight the biases associated with the different techniques. We argue that mechanisms generating a positive inequality-growth relationship work mainly in the short-run and are reflected in difference-based estimators. In contrast, mechanisms generating a negative relationship work over the longer term and are reflected in level-based estimators.

We analyze the fertility and health effects resulting from the abolition of the Austrian baby bonus in January 1997. The abolition of the benefit was publicly announced about ten months in advance, creating the opportunity for prospective parents to (re-)schedule conceptions accordingly. We find robust evidence that, within the month before the abolition, about 8% more children were born as a result of (re-)scheduling conceptions. At the same time, there is no evidence that mothers deliberately manipulated the date of birth through medical intervention. We also find a substantial and significant increase in the fraction of birth complications, but no evidence for any resulting adverse effects on newborns' health.

Does culture shape the demand for social insurance against risks to health and work? We study this issue across language groups in Switzerland where a language border sharply separates social groups at identical actual levels of publicly provided social insurance. We find substantially stronger support for expansions of social insurance among residents of French, Italian or Romansh-speaking language border municipalities compared with their German-speaking neighbours in adjacent municipalities. Informal insurance does not vary enough to explain stark differences in social insurance but differences in ideology and segmented media markets potentially contribute to the discrepancy in demand for social insurance.

Can different social groups develop different demands for social insurance of risks to health and work? We study this issue across language groups in Switzerland. Language de*fines social groups and Swiss language groups are separated by a clear geographic border. Actual levels of social insurance are identical on either side of the within state segments of the language border. We can therefore study the role of culture in shaping the demand for social insurance. Specifically, we contrast at the language border actual voting decisions on country-wide changes to social insurance programs. Key results indicate substantially higher support for expansions of social insurance among residents of Latin-speaking (i.e. French, Italian, or Romansh) border municipalities compared to their German-speaking neighbors in adjacent municipalities. We consider three possible explanations for this finding: informal insurance, ideology, and the media. We find that informal insurance does not vary enough to explain stark differences in social insurance. However, di*fferences in ideology and segmented media markets are potentially important explanatory factors.

Parental leave regulations in most OECD countries have two key policy instruments: job protection and cash benefits. This paper studies how mothers’ return to work behavior and labor market outcomes are affected by alternative mixes of these key policy parameters. Exploiting a series of major parental leave policy changes in Austria, we find that longer cash benefits lead to a significant delay in return to work and that the magnitude of this effect depends on the relative length of job protection and cash benefits. However, despite their impact on time on leave, we do not find a significant effect on mothers’ labor market outcomes in the medium run, neither of benefit duration nor of job-protection duration. To understand the relative importance (and interaction) of the two policy instruments in shaping mothers’ return to work behavior, we set up a non-stationary job search model in which cash benefits and job protection determine decisions of when to return to work and whether or not to return to the pre-birth employer. Despite its lean structure, the model does surprisingly well in matching empirically observed return to work profiles. The simulation of alternative counterfactual regimes shows that a policy that combines both job protection and benefits payments succeeds to induce mothers to spend some time with the child after birth without jeopardizing their medium run labor market attachment.

Recent immigrants in Switzerland are overrepresented at the top of the wage distribution in high and at the bottom in low skill occupations. Basic economic theory thus suggests that immigration has led to a compression of the wage distribution in the former group and to an expansion in the latter. The data confirm this proposition for high skill occupations, but reveal effects close to zero for low skill occupations. While the estimated wage effects are of considerable magnitude at the tails of the wage distribution in high skill occupations, the effects on overall inequality are shown to be negligible.

Workplace accidents are an important economic phenomenon. Yet, the pro-cyclical fluctuations in workplace accidents are not well understood. They could be related to fluctuations in effort and working hours, but workplace accidents may also be affected by reporting behavior. Our paper uses unique data on workplace accidents from an Austrian matched worker-firm dataset to study in detail how economic incentives affect workplace accidents. We find that workers who reported an accident in a particular period of time are more likely to be fired later on. And, we find support for the idea that recessions influence the reporting of moderate workplace accidents: if workers think the probability of dismissals at the firm level is high, they are less likely to report a moderate workplace accident.

It is frequently argued that unemployment plays a crucial role in the occurrence of right-wing extremist crimes (RECs). We test this hypothesis empirically using data from Germany. We find that right-wing criminal activities occur more frequently when unemployment is high. The substantial difference in the numbers of RECs occurring in the East and West German states can mostly be attributed to differences in unemployment. This finding reinforces the importance of unemployment as an explanatory factor for RECs, and it questions explanations based solely on the different socialization in former communist East Germany and the liberal West German states

This paper calculates the impact of Active Labour Market Programmes through the use of three new indicators measuring the application performance of the unemployed. These indicators can be measured repeatedly and therefore allow the usage of Panel Regression methods, cancelling out any unobserved individual heterogeneity. To implement the new approach, data on 30,000 applications has been collected. Using this data, a large positive effect for unemployed with a long term unemployment forecast was estimated. For unemployed without such a forecast, the effect is much smaller. The paper also shows that the new evaluation approach fulfils the requirements of a good controlling instrument: It is accurate, detailed, non-intrusive, inexpensive and therefore easy to keep up to date, easy to understand and communicate.

This paper uses microdata to evaluate the impact on the steady-state unemployment rate of an increase in maximum benefit duration. We evaluate a policy change in Austria that extended maximum benefit duration and use this policy change to estimate the causal impact of benefit duration on labor market flows. We find that the policy change leads to a significant increase in the steady-state unemployment rate and, surprisingly, most of this increase is due to an increase in the inflow into rather than the outflow from unemployment.

This paper studies differences in inequality perceptions, distributional norms, and redistributive preferences between East and West Germany. As expected, there are substantial differences with respect to all three of these measures. Surprisingly, however, differences in distributional norms are much smaller than differences with respect to inequality perceptions or redistributive preferences. Nonetheless, individuals from East Germany tend to be more supportive of state redistribution and progressive taxation, and less likely to have a conservative political orientation, even conditional on having the same inequality perceptions and distributional norms.

We explore how the underemployment problem of less-developed economies is related to income inequality. Consumers have nonhomothetic preferences over differentiated products of formal-sector goods and thus inequality affects the composition of aggregate demand via the price-setting behavior of firms. We find that high inequality divides the formal sector into mass producers and exclusive producers (which serve only the rich); high inequality generates an equilibrium where many workers are crowded into the informal economy; and an increase in subsistence productivity raises the unskilled workers' wages and boosts employment due to the higher purchasing power of poorer households.

Economists have traditionally treated preferences as exogenously given. Preferences are assumed to be influenced by neither beliefs nor the constraints people face. As a consequence, changes in behaviour are explained exclusively in terms of changes in the set of feasible alternatives. Here, we argue that the opposition to explaining behavioural changes in terms of preference changes is ill-founded, that the psychological properties of preferences render them susceptible to direct social influences and that the impact of ‘society’ on preferences is likely to have important economic and social consequences.

Parental leave regulations in most OECD countries have two key policy instruments: jobprotection and cash benefits. This paper studies how mothers’ return to work behavior andlabor market outcomes are affected by alternative mixes of these key policy parameters.Exploiting a series of major parental leave policy changes in Austria, we find that longer cashbenefits lead to a significant delay in return to work and that the magnitude of this effectdepends on the relative length of job protection and cash benefits. However, despite theirimpact on time on leave, we do not find a significant effect on mothers’ labor marketoutcomes in the medium run, neither of benefit duration nor of job-protection duration. Tounderstand the relative importance (and interaction) of the two policy instruments in shapingmothers’ return to work behavior, we set up a non-stationary job search model in which cashbenefits and job protection determine decisions of when to return to work and whether or notto return to the pre-birth employer. Despite its lean structure, the model does surprisingly wellin matching empirically observed return to work profiles. The simulation of alternativecounterfactual regimes shows that a policy that combines both job protection and benefitspayments succeeds to induce mothers to spend some time with the child after birth withoutjeopardizing their medium run labor market attachment.

My thesis is centered on the macroeconomic causes and consequences of income inequality. The first two essays develop theoretical frameworks to analyze the impact of income inequality on technical change and long-term economic growth. Inspired by Ford’s “Model T”, the first essay studies a model of endogenous growth where firms invest in product as well as process innovations which introduce low-cost, low-quality versions affordable to the middle class. Income inequality shapes product cycles and generates substantially different incentives for product and process innovation. Whereas an egalitarian society creates incentives for process innovations (such as the Model T), an unequal society favors product innovations (new luxuries). While the first essay focuses on process innovations that cut manufacturing costs (at a quality discount), the second studies process innovations that introduce higher quality versions of a variety. The effects of income inequality on product quality and variety are explored in a simple heterogeneous household economy. The income distribution is a key determinant of the quality levels and varieties produced and consumed in an economy when consumers’ willingness to pay for quality and variety differs across levels of income. The final essay is concerned with the causes rather than the consequences of income inequality, studying the effect of financial booms and asset bubbles on wage inequality and sector employment both theoretically and empirically. Meine Doktorarbeit dreht sich um die makroökonomischen Ursachen und Auswirkungen von Einkommensungleichheit. Die ersten zwei Aufsätze entwickeln theoretische Modelle, die den Effekt von Einkommensungleichheit auf den technologischen Wandel und das langfristige Wirtschaftswachstum untersuchen. Inspiriert durch das “Ford Model T“ studiert die erste Arbeit ein endogenes Wachstumsmodell, in dem Firmen in Produkt- sowie Prozessinnovationen investieren, die neue kostengünstige Versionen minderer Qualität einführen, die sich die Mittelklasse leisten kann. Einkommensungleichheit beeinflusst die Produktzyklen und generiert substantiell unterschiedliche Anreize für Produkt- und Prozessinnovationen. Eine gleiche Gesellschaft schafft Anreize für Prozessinnovation (wie das Model T), wohingegen eine ungleiche Gesellschaft Produktinnovationen (Luxusgüter) favorisiert. Während der erste Aufsatz sich auf Prozessinnovationen, die die Produktionskosten senken, konzentriert, untersucht die zweite Arbeit Prozessinnovationen, die höhere Qualitäten von bestehenden Produktvarietäten einführen. Die Einkommensverteilung ist eine wichtige Determinante der produzierten und konsumierten Qualitätslevel und Varietäten in einer Wirtschaft, wenn die Zahlungsbereitschaft für Qualität und Varietät über die Einkommenslevel variiert. Der letzte Aufsatz beschäftigt sich mit den Ursachen statt den Auswirkungen von Einkommensungleichheit und untersucht den Effekt von Finanzbooms und Vermögensblasen auf Lohnungleichheit und sektorale Beschäftigung sowohl theoretisch als auch empirisch.