UK teacher unions as legal insurance

Richard Murphy of the University of Texas confirms something that a teacher told me in person just last year - teachers in the UK only join unions because it provides legal insurance in the event of getting sued. 

This paper identifies the threat of accusation as a new source of demand for union representation and how this has increased union density in specific labour markets. Society has become increasingly litigious and this may have many repercussions on labour markets, especially those where employees have unsupervised interactions with vulnerable groups. A rational response to such changes would be an increase in demand for insurance against these risks. I model union membership as a form of private legal insurance, where the decision to join is partly determined by the perceived threat of having an allegation made against the agent. This is examined by estimating the demand for union membership amongst UK teachers, which has been increasing over the last twenty years. I use media coverage of allegations relating to local teachers as an exogenous shock to the perceived threat. I find that unionisation rates increase with media coverage of relevant litigation at the regional and national levels. Ten relevant news stories in a region increases the probability of union membership by 5 percentage points. Additionally, the size of the effect is dependent on the relevance of the story to the teacher. This paper provides a reason why the demand for union membership in this and related sectors has increased, despite the possibility of freeriding as pay and working conditions are set centrally.

Are insurance companies missing an opportunity here? Or would they face adverse selection issues?

Is it wrong to shop from places that use child labour?

I got told off recently for shopping at H&M because of some sweatshop / child labour scandal (a burden I share with Beyonce who has also been criticised for her H&M links). But is a boycott really the right individual action?

Two new(ish) papers look at the impact of government bans on child labour in India:

One economics paper by Bharadwaj, Lakdawala, and Li (via Berk Ozler) looks at the impact of India’s Child Labour (Prohibition and Regulation) Act of 1986. They find that the ban led to a decrease in child wages and an increase in child labour. This is consistent with the theory that families use child labour to reach subsistence levels - so a ban which leads to a reduction in child wages, will make families make their children work more to earn the same amount and reach that subsistence level.  

Second is a note by my colleagues (Ian MacAuslan, Valentina Barca, Yashodhan Ghorpade and Gitanjali Pande) based on qualitative fieldwork in India (150 interviews and focus groups with both children and adults). Their findings support the results of Bharadwaj et al - parents make rational trade-offs, child labour is driven by household poverty, and outright bans might be counter-productive - better to invest in social protection and improving the quality of schooling.

What does all of this imply for me and my new H&M jumper? I'm not really sure. I asked the question a few years ago in Juba, and further quick googling hasn't got me any closer to an answer. I suppose the theory of change is that individual boycotts could force H&M to improve their procurement and make sure no child labour is involved. But this could either lead to those children leaving the factory and going to school, or perhaps more likely and in line with these two papers, a reduction in the going wage rate for children, and an actual increase in child labour.

Any ideas? References? Once again, I'm left wishing that there existed some rigorous impartial GiveWell-style analysis for consumption decisions so I could outsource some more everyday moral dilemmas and not have to do the thinking myself.

More Disappointing Labour Market Policy Outcomes

This new from Jordan:

Wage subsidies and soft skills training are two popular types of policies that governments are turning to around the world as part of their efforts to deal with high youth unemployment. Our experimental analysis shows these policies do not appear to have had large impacts on generating sustained employment for young, relatively educated women in Jordan. Short-term wage subsidies generated large and significant increases in employment while the subsidies were in effect, but most of these jobs disappeared when the subsidies expired. High minimum wages may be one reason, with firms saying that graduates were not productive enough to be affordable without subsidies.

Groh, Krishnan, McKenzie, and Vishwanath, The impact of training and wage subsidy programs on female youth employment in Jordan

I don't see much cause for optimism in getting any solid positive results from labour market interventions. Am I missing something?

When unintended consequences go... well!

After the disappointment of the blank results from the Duflo study on labour market policy in France, a new CSAE study by Imbert and Papp has some more encouraging results - programme side-effects which go in a positive direction.

They find that the "National Rural Employment Guarantee Scheme" (NREGA) in India has a positive impact on private sector wages by bidding up the price of labour. The indirect gains to poor labourers from the higher private sector wages are big - about half of the value of the direct gains to participants from the public works programme. Of course, this increase in wages represents a loss for buyers of labour, but these tend to be people in the top 20%.

A couple of interesting implications that the authors note - first, this is evidence against the Lewis model of surplus labour which can be cheaply tapped for capitalist expansion.

Second - differences in the political power and organisation of landlord farmers may help explain differences in the implementation of the scheme across states.

Finally, a reminder that this is based on nationally representative data in a country of 1.2 billion people, and a programme which spends $9 billion a year and reaches millions of households. Take that, randomistas. 

Segmented Labour Markets: South Africa

Andrew Kerr and Francis Teal at CSAE have an interesting paper exploring the differences between public and private employees in South Africa. 

Unionised public sector and formal private sector workers earn more than informal sector workers - the question is whether this is just because they are simply "better quality" or more productive workers and earn that extra pay, or whether the labour market is "segmented" and trade unions keep wages artificially high and erect barriers to competition from all those informal sector workers. 

To explore these competing hypotheses they control for a bunch of individual characteristics which might indicate the "quality" of the worker to see if an unexplained residual remains which we can attribute to labour market segmentation. This includes controlling for "unobserved" but fixed individual characteristics, which is a pretty cool technique you can use when you have a dataset tracking the same individuals over time.

Their analysis shows that the higher wages for private sector unionised workers can be entirely explained through individual characteristics. They are just higher quality, more productive workers. 

The higher wages for public sector unionised workers can't be explained this way. Similar workers seem to earn more in the public sector than they would in the private sector.

When the counterfactual *really* matters

Jonathan Portes, the Director of Britain's National Institute of Economic and Social Research has a great post up discussing the slightly controversial mandatory work experience placements in supermarkets for unemployed youngsters. Whether the scheme constitutes slave labour or not, it would be interesting to think for a second about its effectiveness.

The Minister in charge of the scheme has proudly trumpeted:

The fact is that 13 weeks after starting their placements, around 50 per cent of those taking part have either taken up permanent posts or have stopped claiming benefits.

Mr. Portes, formally a Chief Economist at the same government department, considers the counterfactual: claimants of job-seekers allowance (JSA) who do not participate in a work experience placement:

Off-flows from JSA remain high - almost 60% of claimants leave within three months

So you have a 60% chance of leaving benefits in 3 months unless you take part in this scheme, after which you only have a 50% chance. Awk-ward. Of course:

Now this is not definitive - without a proper control group and a counterfactual, we do not know what would have happened to the participants without the programme. Maybe I am wrong, and in fact those who go on the programme have very poor characteristics, and would have done even worse without it. Without proper evaluation, we just don't know. But certainly the evidence and analysis so far published by DWP does not make a good case.

Bottom line #1: if you're interested in smart and well-presented UK economic policy analysis you should really be reading Jonathan Portes.

Bottom line #2: There is probably a very good business case to be made for sending Mr. Iain Duncan Smith on the J-PAL Exec Ed course on evaluating social programs. Training budgets must be tight with all the cuts going on and that though, so - genuine offer - if you're interested Mr. Smith I'll pay your tuition fees out of my own pocket :)

Eurozone labour markets not in everything

88 % of all surveyed employers stated that they had job vacancies between July 2010 and July 2011, out of which 37 % did not succeed to fill all of these jobs. Out of these, one in four tried to hire workers from abroad, but only about half succeeded. In particular large enterprises with 500 and more employees hired workers from abroad. In most cases, these foreign workers came from the European Union or the European Free Trade Area, but about half of the employers did also or exclusively recruit staff from third countries.  

Almost half of the employers with unfilled vacancies stated that they did not even consider this option. They explained this often by saying that they lack knowledge about the administrative procedure. Small and medium-sized enterprises perceived this obstacle more strongly than large employers. Furthermore, employers frequently stated to have been discouraged by the complexity of the procedure. Finally, many employers expected prospective labour migrants to lack German language skills.

From a new OECD survey, and one of the reasons why the eurozone is not an optimal currency area.