Research


'Dismissals for cause: The difference that just eight paragraphs can make' (Paper)
Abstract: This paper provides evidence about the effects of dismissals-for-cause requirements, a specific component of employment protection legislation that has received little attention despite its potential relevance. We study a quasi-natural experiment generated by a law introduced in Portugal in 1989: out of the 12 paragraphs in the law that dictated the costly procedure required for dismissals for cause, eight did not apply to firms employing 20 or fewer workers. Using detailed matched employer-employee longitudinal data and difference-in-differences matching methods, we examine the impact of that differentiated change in firing costs upon several variables, measured from 1991 to 1999. Unlike predicted by theory, we do not find robust evidence of effects on worker flows. However, firm performance improves considerably while wages fall. Overall, the results suggest that firing costs of the type studied here decrease workers' effort and increase their bargaining power.


'Dispersion in Wage Premiums and Firm Performance' (Paper)
Abstract: Using matched employer-employee panel data, we estimate measures of pay dispersion per firm-year that take into account both firm and worker unobserved heterogeneity. Unlike research that controls only for differences in observables, we find that within-firm pay inequality is significantly associated to lower firm performance.


'The Impact of Exporting on Firm Productivity: A Meta-Analysis', with Yong Yang (Paper)
Abstract: We conduct a meta-analysis of more than 30 papers that study the causal relationship between exporting and firm productivity. Our results, robust to different specifications and to different weights for each observation, indicate that the impact of exporting upon productivity is higher 1) at developing economies (when compared to developed economies); 2) in the first year that firms start exporting (compared to later years); 3) with other estimators than OLS; and 4) when the sample used in the paper is not restricted to matched firms. Moreover, we find no evidence of publication bias.


'Worker Churning and Firms' Wage Policies' (Paper)
International Journal of Manpower (special issue: "The impact of compensation policies within firms: Evidence from linked employer-employee data"), forthcoming, 2008.
Abstract:If a random firm were to increase its wages, would that decrease the firm’s churning (“excessive” worker reallocation)? Although the trade-off between wage and churning costs has received attention in both the labour and HRM literatures, there seems to be no evidence about the causal impact of wages upon churning. This paper seeks to fill that gap by considering detailed Portuguese matched employer-employee panel data and different identification methods. After presenting comprehensive evidence about job and worker flows and churning, we find that even models based on within-firm time differences do still generate the negative association between wages and turnover found in most research. However, that result no longer holds when we consider instrumental variables based on minimum wages determined by collective bargaining arrangements. One possible interpretation of our finding is that workers’ effort may not be sufficiently sensitive to wages: employers may replace workers priced out of the labour market with more skilled individuals, so that churning does not fall. 


'Heterogeneity in Real Wage Cyclicality' (Paper)
Scottish Journal of Political Economy, 54(5), forthcoming, 2007.
Abstract:This paper presents evidence that real wage cyclicality can be a particularly heterogeneous parameter, depending on different worker characteristics and also on the specific stage of the business cycle. Using matched employer-employee panel data for Portugal covering the period 1986-2004, real wages are shown to be considerably more procyclical during recessions than during expansions, resulting in relatively moderate overall levels of cyclicality (about -0.6). However, most of the procyclicality during downturns is shown to be driven by the younger employees, as older workers appear to be insulated from the business cycle. Moreover, movers between firms typically display higher cyclicality than workers that stay in the same firm, regardless of whether the latter move or not between job levels. Most results also hold when considering basic wages instead of total wages, except that the procyclicality of movers during downturns is substantially higher.


'Inter-Firm Worker Mobility, Wages and International Spillovers' (Paper)


'Is There Rent Sharing in Developing Countries? Matched Panel Evidence from Brazil' (Paper)
Abstract:
We provide evidence about the determinants of the wage structures of developing countries by examining the case of Brazil . Our specific question is whether Brazil ’s dramatic income and wage differentials can be explained by the division of rents between firms and their employees, unlike in competitive labour markets. Using detailed individual-level matched panel data, covering a large share of manufacturing firms and more than 30 million workers between 1997 and 2002, we consider the endogeneity of profits, by adopting different measures of profits and different instruments and by controlling for spell fixed effects. Our results, robust to different specifications and tests, indicate no evidence of rent sharing. This conclusion contrasts with findings for most developed countries, even those with flexible labour markets. Possible explanations for the lack of rent sharing include the weakness of labour-market institutions, the high levels of worker turnover and the macroeconomic instability faced by the country.


'Wage Differentials and Wage Spillovers of Foreign Firms'.
Bank of Portugal, Conference Proceedings, 2004. (Paper)
Abstract: We evaluate the impact of Foreign Direct Investment on the Portuguese labour market using a matched employer-employee panel covering the manufacturing sector between 1991-99. Wage differentials are found to be negligible when considering methods such as propensity score matching and difference-indifferences. Using OLS, the multinational premium also falls substantially when firm and/or worker characteristics are added and does not vary monotonically with foreign control. Spillover effects (from foreign presence to wages paid by domestic firms) are significantly positive, even when one accounts for unobserved heterogeneity, endogeneity and the domestic industry size. Foreign-presence elasticities of domestic wages range between 2% and 3%.


'Industry Wage Dispersion: Evidence from the Wage Distribution'.
Economics Letters
, 83(2), 157-163, 2004. (Paper)
Abstract: We argue that, under the unobserved quality explanation of industry wage differentials, industries with high average premia are more likely to have even higher premia among higher wage workers. Using quantile regression, we find, however, that the OLS premia correctly illustrate the industry impact across the entire wage distribution.


'Returns to Education and Wage Equations', with Pedro T. Pereira.
Applied Economics
, 36(6), 525-531, 2004. (Paper)
Abstract: The paper shows why considering a number of education-dependent covariates in a wage equation decreases the coefficient of education in that equation. This result is illustrated empirically with a meta-analysis for Portugal. The education coefficient decreases when covariates are used that can be considered post-education decisions; on the other hand, it is independent of sample size, tenure and whether hourly or monthly wages are used. These results support the use of a simple specification of the Mincer equation for the study of the total returns to education.


'Does Education Reduce Wage Inequality? Quantile Regressions Evidence From Sixteen Countries', with Pedro T. Pereira.
Labour Economics
, 11(3), 355-371, 2004. (Paper)
Abstract: Quantile regression estimates of returns to education are used to address the relation between schooling and wage inequality. Empirical evidence for male workers from 16 countries for the mid-1990s suggests a robust stylised fact: Returns to schooling are higher for the more skilled individuals, conditional on their observable characteristics. This suggests that schooling has a positive impact upon within-levels wage inequality. Factors such as over-education, ability–schooling interactions and school quality or different fields of study may be driving this result.


'Firm Wage Differentials in a Competitive Industry: Some Matched Panel Evidence'.
International Journal of Manpower, 24(4), 336-346, 2003. (Paper)
Abstract: Studies wage dispersion across firms and time in a specific industry that exhibits competitive features: the Portuguese clothing industry in the 1991-1994 period. By drawing on a large matched employer-employee panel, obtains the following results: the workers’ firm affliation plays an important role in wage determination; there is a sizeable and persistent dispersion of firm fixed effects, which is also similar for workers of different tenure levels and occupations; workers in high-turnover firms are generally paid less. It is believed that these findings are not consistent with a simple competitive labour market model.


'Is There A Return-Risk Link in Education?', with Pedro T. Pereira.
Economics Letters
, 75(1), 31-37, 2002. (Paper)
Abstract: Using results for 16 countries, the positive relationship between return to education and the risk involved in this investment is studied. It seems that most of the countries fit the pattern well: higher risk–higher return and the tradeoff is rather large.


'Education and Earnings in Portugal', with Pedro T. Pereira.
Bank of Portugal, Conference Proceedings, 2002. (Paper)
Abstract: This report presents evidence on the returns to education in Portugal. We find that, at 11%, Portugal exhibits a considerably large microeconomic return to education. This has been increasing since the early 1980s up until the mid-1990s but has decreased since then.
Although the average return to education is large, the marginal return differs substantially as it generally increases with the schooling level. We find that Engineering is the best rewarded degree, while Human and Social Sciences (except Economics) reap the lowest returns. Some evidence suggests that holders of technical degrees have out-performed holders of similar degrees but of a more academic nature and that the private returns to some currently offered types of vocational schooling are very low. As to differences between gross and net returns to education, the latter are systematically lower. Wage dispersion is higher for workers of high schooling attainment levels. No evidence of signalling or selectivity in the returns to education is found.

Our policy suggestions focus on the role of the schools’ governance structure upon students’ performance. While Portugal would certainly benefit from a more qualified workforce, the evidence suggesting low quality or inefficiency in the teaching/learning process should also be acknowledged. The efficiency and performance of the system may benefit from a gradual shift in the role of the government in education, from that of a provider and a producer to that of a provider and a regulator.


'Wage Dynamics, Cohort Effects and Limited Commitment Models', with Andy Snell and Jonathan Thomas
Journal of the European Economic Association, Papers and Proceedings, 3(2/3), 350-359, 2005. (Paper)
Abstract: This paper re-examines a problem first studied by Beaudry and DiNardo (1991), who derived testable implications of three models of wage formation and found support for an implicit contract model in which workers are perfectly mobile. We analyse a model in which firms cannot pay discriminate based on year of entry to the firm, and argue that the wage dynamics are similar to the Beaudry and DiNardo model. Since in the latter model worker (under a hiring condition) mobility/commitment does not affect the optimal contract, it is argued that existing empirical research does not discriminate between different models of worker commitment.


'Student Achievement and Educational Production: A Case-Study of the Effect of Class Attendance', with Ian Walker (Paper)
Abstract:
We examine the empirical determinants of student achievement in higher education, focusing our attention on its small-group teaching component (classes or seminars) and on the role of attendance, number of students per class, peers, and tutors. The empirical analysis is based on longitudinal administrative data from a major undergraduate program where students are allocated to class groups in a systematic way, but one which is plausibly uncorrelated with ability. Although, in simple specifications, we find positive returns to attendance and sizeable differences in the effectiveness of teaching assistants, most effects are not significant in specifications that include student fixed effects. We conclude that unobserved heterogeneity amongst students, even in an institution that imposes rigorous admission criteria and so has little observable heterogeneity, is apparently much more important than observable variation in inputs in explaining student outcomes.


'External Hirings and Firm Productivity'
, with Francisco Lima (Paper)
Applied Economics Letters, 13(14), 911-915, 2006
Abstract: In the context of tournament theory, and drawing on a panel data set of several firms and their employees, we present evidence of a negative relationship between the share of external recruitments for top management positions and firm productivity.


'Do Foreign Firms Really Pay Higher Wages? Evidence from Different Estimators' (Paper)
Abstract:
We contribute to the literature on Foreign Direct Investment and labour markets by examining wage differentials between domestic and foreign firms, drawing on a large Portuguese matched employeremployee panel. Using OLS, the foreign-firm premium is large and significantly positive but falls substantially when firm and worker controls are added. Moreover, the premium also does not vary monotonically with foreign control, increases along the wage distribution and is generally insignificant when using propensity score matching (PSM). Finally, using differences-in- differences (DID), we find lower wage growth for workers in domestic firms that are acquired by foreign investors, a result that holds when combining DID and PSM. Overall, our evidence suggests that the commonly-documented OLS premium cannot be interpreted as a causal impact.


'The return to university degrees: the students’ perspectives' (Paper)
Abstract: Drawing on a large survey of Portuguese undergraduate students, we test two key assumptions of Becker’s human capital theory: 1) financial returns play an important role in students’ choice of university degrees and 2) students understand how such differ across degrees. We find that expected wages matter in degree choice but preferences for degree content are at least as important. Moreover, many factors also shape students’ wage expectations besides the degree type: the schooling of parents, the student’s gender and whether they have a job. Finally, our evidence suggests students overestimate their future wages by about 10%.


'Rent Sharing and Foreign Ownership' (Paper)
Abstract: Rent sharing is perceived as an important explanation for the stylised fact that foreign firms pay higher wages. Using a matched panel of large firms based in Portugal, we find rent sharing to be insignificant for foreign firms, unlike for their domestic counterparts.


'Firm-Level Social Returns to Education' (Paper)
Abstract:


'Rent Sharing Before and After the Wage Bill' (Paper)
Applied Economics, forthcoming, 2008.
Abstract: Many biases plague the estimation of rent sharing in labour markets. Using a Portuguese matched employer-employee panel, these biases are addressed in this paper in three complementary ways: 1) Controlling directly for the fact that firms that share more rents will, ceteris paribus, have lower net-of-wages profits. 2) Instrumenting profits via interactions between the exchange rate and the share of exports in total sales of firms. 3) Considering firm or firm/worker spell fixed effects and highlighting the role of downward wage rigidity. These approaches clarify conflicting findings in the literature and result, in our preferred specification, in a Lester range of pay dispersion of 56%, also shown to be robust to a number of competitive interpretations.


'The Inter-Industry Wage Structure of US Multinationals' (Paper)
Economics Bulletin, 10(1), 1-12, 2005
Abstract: Little is known about wage determination by multinational firms, despite the much-discussed role of globalisation upon wage dispersion. We contribute to this topic by examining industry- and host-country-specific 1998 data on compensation of foreign affiliates of US firms and by comparing that with US labour market data. We find substantial differences in employment distributions, that the inter-industry wage structure of US affiliates is less dispersed than the same structure in the US and that the two industry wage premia are moderately correlated. These findings are consistent with the vertical model of FDI but but do not support claims that multinationals increase wage inequality.


'Over-Education and Unobserved Skills: Evidence from a Matched Panel' (Paper)
Abstract: I examine the wage implications of schooling/occupation mismatches, motivated by the evidence of a poor synchronisation between education systems and labour markets. My main contribution is in studying the role of unobserved heterogeneity in over- and under-education, drawing on a matched employer-employee panel. Although the identification of the key parameters is difficult due to the lack of variability in the regressors, some interesting results include the evidence found of selectivity in the transitions experienced by workers and of a “stepping-stone” interpretation of schooling mismatches.


'O Ensino da Microeconomia: Uma Comparação entre a Nova e Warwick' [In Portuguese] (with J-P Gomes) (Paper)
Abstract: Analisamos vários aspectos das disciplinas de Microeconomia (nível introdutório/intermédio) em duas universidades europeias, com vista a establecer padrões de “benchmarking”. Constatamos um grande leque de diferenças, em características como: carga horária, dimensão das turmas práticas, método de condução das aulas práticas (orientação teórica/prática e participação dos alunos), exigência da avaliação e resultados finais/aproveitamento dos alunos.



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