Thursday, March 18, 2010

Family values and labor market regulation

You probably went through this situation at some point: a good job opportunity arises, but it involves some moving and you would end up away from family. If you value much being close to family, you likely decline this opportunity. In terms of labor market policy, what do such attitudes imply?

Alberto Alesina, Yann Algan, Pierre Cahuc and Paola Giuliano claim that in regions where the attachment to family is stronger, labor markets end up more regulated. The reason is that when people do not like to move, they force authorities to protect their current job by enacting various costs to firing. Also, because workers are then in a captive market, they are subject to the monopsony power of employers, thus they push also for regulation. This leads thus to two possible equilibria: one with laissez-faire, with high labor mobility, and the other with a heavily regulated labor market and immobile labor. Note that once workers do not move, family ties are reinforced, and regulation becomes even stronger.

This is all theory, but is anything of this happening in the data? the typical contrast one has when looking at labor market mobility and regulation is comparing the United States and Europe. The analysis is two-pronged. First Alesina, Algan, Cahuc and Giuliano show cross-country evidence that regions where people are surveyed to have strong family ties also implement more stringent labor market regulation. They also use household-level data: second generation immigrant to the US from countries with strong labor market regulation (thus implying strong family ties) are less mobile and face wage penalties, and they ask for more regulation.

Of course, how important family ties are is also dependent on mobility costs. As these are gradually reduced, both because transportation costs have a downward trend and especially because location becomes less important for jobs. So there is still hope that labor mobility will increase despite strong family ties.

1 comment:

Parag Waknis said...

Have not read the paper yet, but the first country that came to my mind was India. Family ties were and still remain strong affecting preference for mobility adversely. Following Alesina, labor regulations therefore, should be relatively stringent. For India, this indeed is the case, in spite of the recent liberalizing stance of overall economic policy.