Three Essays in Labor Productivity
Creators: name: Meng, Sun
Publisher: name: Arts
Year: 2018
Subjects: subject: Economics

description: This dissertation is a collection of three independent essays in studying the causes and consequences of labor productivity. In the first two chapters, I examine the health and labor productivity effects of pollution. In the third chapter, I study whether government policies can help to improve labor productivity, with special focus on workers’ work effort provision. The first two chapters investigate the casual effects of air pollution on cognitive ability. In the first chapter, I estimate the causal effects of particulate matter (PM10) on cognitive ability. Cognitive ability is measured by the Mini-Mental Status Examination (MMSE), which is one of the most commonly used instrument for systematically screening cognitive function. To exploit the exogenous pollution variation, I use the drastic air pollution regulations around the 2008 Beijing Olympic Games as a quasi-natural experiment. By comparing Beijing with other selected unregulated provinces before and after the regulation period, I find that PM10 has significant negative impacts on cognitive ability. In the second chapter, I estimate the causal effects of sulfur dioxide (SO2) on cognitive ability, using the same quasi-natural experiment as in the first chapter. Since the data on SO2 are only available for one year, I apply the cross-sectional instrumental variable approach in this study. The results show that SO2 can significantly reduce cognitive ability. While re- search on the impacts of air pollution on labor productivity has generally focused on the extensive margin (i.e., labor supply), recent studies find that the impacts also occur on the intensive margin whereby productivity is affected, even when labor supply does not change. Since brain function is highly related to human capital and labor productivity, the findings in the first two chapters highlight the potential mechanism of the impacts of air pollution on the intensive margin. The third chapter studies the macroeconomic implications of minimum wage incorporating workers’ work effort responses. I analyze the issue in an environment where work effort positively affects output and determines workers’ probability of being laid off. When making search decisions, firms and workers take into account the trade-off between the value of an offer and the associated matching rate. Minimum wage policy affects firms’ contracting decision corresponding to workers’ effort responses, which further affects workers’ and firms’ search decisions. These assumptions enable me to analyze the effects of minimum wage on the behavior of both the labor supply and demand sides. The steady state comparison of the calibrated model shows that minimum wage increases work effort and unemployment rate. Moreover, the average hiring, layoff, and quit rates decrease. Due to the higher unemployment, the aggregate output decreases even with the higher average work effort. Lastly, shutting down the effort channel entirely leads to greater labor market impacts. These results suggest that workers’ work effort have strong offsetting effects on the cost of higher minimum wage.