Transitions through the Labor Market

Work, Occupation, Earnings and Retirement

Solomon W. Polachek, Konstantinos Tatsiramos

• Publisher: Emerald Publishing Limited
• Year: 2018
• Print ISBN:
  9781787564626
• eBook ISBN:
  9781787564633
• Topic: Personal Development
• Subtopic: Labour Economics

Understanding the factors that affect how one transitions from school to the labor market and finally to retirement is important both to the individual and to the policy maker. This volume contains seven original and innovative articles that analyze aspects of such labor market transitions. Questions answered include: How did hiring and firing decisions change for blacks and Hispanics relative to whites in the Great Recession? Can redesigning the minimum wage lead to more efficient employment transitions and greater social welfare? What are the factors leading a company to fast-track an employee? How does the number of layers in a company's hierarchical structure affect one's ability to be promoted? Do women gravitate to more socially caring occupations because they care more than men? Does gaming among youth increase math scores more for boys than girls? And, does good health impede one's inclination to retire?

WAGE DETERMINATION IN SOCIAL OCCUPATIONS: THE ROLE OF INDIVIDUAL SOCIAL CAPITAL*

Julie L. Hotchkiss^a and Anil Rupasingha^b

^aFederal Reserve Bank of Atlanta and Georgia State University

^bEconomic Research Service - US Department of Agriculture

ABSTRACT

The purpose of this chapter is to assess the importance of individual social capital characteristics in determining wages, both directly through their valuation by employers and indirectly through their impact on individual occupational choice. We find that a person’s level of sociability and care for others works through both channels to explain wage differences between social and nonsocial occupations. Additionally, expected wages in each occupation type are found to be at least as important as a person’s level of social capital in choosing a social occupation. We make use of restricted 2000 Decennial Census and 2000 Social Capital Community Benchmark Survey.

Keywords Social capital; wage differentials; occupational choice; switching regression; nonpublic data; factor analysis

JEL classifications J31; Wage Differentials; J24; Occupational Choice; C34; Switching Regression Models

1. INTRODUCTION

The purpose of this chapter is to assess the role that individual social capital plays in the determination of observed wage differentials between “social” and “nonsocial” occupations. As an extra-market characteristic, or reflection of preferences, social capital is expected to have a significant impact on a worker’s occupational choice. More specifically, we conjecture that individuals’ social capital in the form of “sociability” and “concern for others” (or narrow altruism) may play a role in the determination of their wages. This might occur directly through the value employers place on these attributes, and indirectly through self-selection into occupations based on preferences reflecting different levels of social capital. The role of self-selection may have important implications for the theory of compensating wage differentials in explaining the estimated lower pay in social occupations. The direct value employers place on individual social capital could have implications for identifying the role a firm’s value of corporate social responsibility (CSR) plays in wage determination.

We apply a switching regression model to determine that self-selection is a primary contributor to the observed difference in wages across occupations.¹ Structural estimation of the occupational choice equation allows us to determine that pecuniary considerations are important in choosing a social versus nonsocial occupation and that a person’s level of social capital contributes significantly to that choice. In addition, workers with high levels of social capital are likely to be more amenable to participate in corporate-sponsored community service. This may be why employers, especially nonsocial employers, are willing to pay a premium for those characteristics in efforts to boost their CSR image.

The analysis in this chapter makes multiple contributions to the literature. First, we do not rely on our own subjective assessment to determine which occupation should be classified as social. But, rather, we turn to a third-party source for classification. This is important since it does not require us to assume that individuals are able to process the multiple dimensions in which an occupation might be considered “social” or “caring” based on an arbitrary statistical determination. Individuals make binary choices regarding one occupation versus another and the classification mechanism we employ acknowledges that. Second, we allow for self-selection to play a role in the determination of wage differentials between social and nonsocial occupations; this is absent from most other papers investigating this specific wage differential. Third, we make use of observed social and civic engagement activities to determine a person’s innate level of social capital (sociability and caring for others attributes), rather than rely on historical activities while in school. Fourth, by estimating the structural choice model, we are able to distinguish between the importance of pecuniary and nonpecuniary (preference) factors in choosing a social occupation. And, last, we make use of nonpublic data to be able to identify a person’s census tract, providing us an opportunity to construct an instrument for an individual’s level social capital. This is important to be able to claim the direction of causation goes from social capital attributes to occupational choice, rather than the other way around. There is a lot going on in this chapter, but the complexity is required to make advances in the literature along all of the fronts detailed above.

2. BACKGROUND AND LITERATURE REVIEW

The importance of pre-market characteristics and preferences in labor market outcomes, and particularly, occupational choice, is well-established in the literature (e.g., Manning & Swaffield, 2008; Reuben, Wiswall, & Zafar, 2017; Speer, 2017; Wiswall & Zafar, 2016). This chapter places particular emphasis on the mechanism of self-selection in determining wages in social and nonsocial occupations and the importance of social capital in that relationship.

Wages paid in occupations labeled as “caring” or “social” have received attention in the economics literature, with the historical focus being the fact that these occupations are dominated by women (e.g., England, Budig, & Folbre, 2002; Kilbourne, England, Farkas, Beron, & Weir, 1994; Pitts, 2003). Because of this high representation of women, wage penalties associated with the occupations are often identified as an important source of wage differentials between men and women. Although the wage penalty may be greater for men in these occupations, as is typically found in the literature, there are many more women than men found in these occupations, making the existence of a penalty particularly salient for women.

A natural question arises as to why women, mostly, would continue to choose these occupa...

Table of contents

• Cover
• Half Title Page
• Racial Differences in Labor Market Transitions and the Great Recession
• The Optimal Graduated Minimum Wage and Social Welfare
• Promotion Determinants in Corporate Hierarchies: An Examination of Fast Tracks and Functional Area
• Flattening Firms and Wage Distribution
• Wage Determination in Social Occupations: The Role of Individual Social Capital
• Computer Gaming and the Gender Math Gap: Cross-Country Evidence among Teenagers
• The Role of Health in Retirement
• Index