Research

Working Papers

“Why do flexible work arrangements exist?“

In the media: Telegraph, Times

This paper studies flexible work arrangements, with a focus on zero-hours contracts (ZHCs). Leveraging a unique dataset from a large UK firm in the low-pay sector, it provides novel descriptives on ZHC workers, as well as evidence on demand and supply side mechanisms for the use of ZHCs. The results show that ZHC workers experience significantly higher turnover rates and lower wages than permanent employees, and large heterogeneity in hours and earnings volatility. Causal evidence on the firm demand-side demonstrates that ZHCs help firms manage production and demand shocks. On the supply-side, ZHC roles attract 25% more applicants than comparable permanent jobs. ZHC roles are concentrated among specific demographics, and vacancy applicant and firm offer data demonstrates this is supply driven. Few ZHC workers apply for permanent positions and their decision to apply for a permanent position is wage insensitive. In contrast, permanent workers exhibit ZHC-wage elasticities that are an order of magnitude larger than those of their ZHC counterparts.

“The Equilibrium Effects of Regulating Junk Fees: Evidence from the Rental Brokerage Market” with Jan David Bakker

Previously “Avenging the tenants: Regulating the middle man’s rents”

In the media: The Conversation

Hidden “junk” fees have the potential to distort competition, creating high costs to consumers. However, regulating them can lead to adverse effects, especially in complex markets with intermediaries where they are most prevalent. To explore the equilibrium adjustments of regulating hidden fees, we leverage a unique matched landlord-broker dataset and a recent policy reform in the UK rental market capping non-salient broker fees charged to tenants. To guide our empirical analysis we first develop a conceptual framework of imperfectly competitive two-sided markets with non-salient price components. We estimate pass-throughs of the broker-tenant fee price cap to broker-landlord fees and advertised rental prices, examine demand responses, and net exit of both brokers and landlords. In line with imperfect competition, brokers absorb 75% of the regulation and landlords the remaining 25%. There is no market exit of landlords or brokers. Combining our reduced-form estimates and the theoretical framework we find that the policy saved tenants £376 per tenancy (equivalent to 4% of median yearly rent), landlords lost £74, and brokers lost £288. Overall, there was an aggregate welfare gain of £14 per tenancy, amounting to at least £16.4 million per year, as the policy reallocated market shares from less to more productive intermediaries. If the fee had been fully salient, consumer savings would be almost halved, and reallocated to landlords. Our results highlight the importance of economic analysis for designing consumer protection regulation.

 “Local Monopsony Power” (New version, July 2024, JMP Version)

Awarded “Econ Job Market Best Paper Award”, 8th Edition, UniCredit Foundation

This paper studies monopsony power in a low pay labour market and explores its determinants. I emphasise the role of the spatial distribution of activity and workers’ distaste for commuting in enerating imperfect substitutability between jobs, and heterogeneity in monopsony power. To formalise the role of commutes in generating monopsony power I develop a job search model where utility depends on wages, commutes and an idiosyncratic component. The model endogenously defines probabilistic spatial labour markets which are point specific and overlapping, and generates labour supply to the firm elasticities which vary across space. Distaste for commuting is shown to increase monopsony power, but does so heterogeneously, increasing monopsony power in rural areas more than in denser urban ones. Using detailed applicant data for a firm with hundreds of establishments across the UK, coupled with two sources of job-establishment level exogenous wage variation I estimate the model parameters and show that commutes generate considerable spatial heterogeneity in monopsony power and are responsible for approximately 1/3 of the total wage markdown. A decomposition exploiting the granularity of the model demonstrates that 40% of spatial variation in monopsony power is within Travel To Work Areas. Calculating employer concentration based on highly-granular 1km2 grids and probability of applying across grids based on pair-wise grid travel times shows how coarsely discretised labour markets such as Commuting Zones can cause sizeable mismeasurement in concentration measures.

“Government contracting and living wages > minimum wages” with Stephen Machin

Government procurement accounts for a significant share of GDP, and environmental, social and corporate governance (ESG) clauses in government contracts have become common across developed economies. This paper studies one of these clauses: living wages that are set considerably higher than mandated minimum wages. When a local government in the UK signs up to become a living wage employer, as a significant number did in the time period we study, firms that have procurement contracts with them have to pay workers the living wage. This variation is studied with rich matched data on workers in establishments for a service sector company with many establishments located across the country. Just under half of the firm’s establishments were made to comply with the living wage as a consequence of the local government becoming a living wage employer in the period between 2011 and 2019. In a staggered difference-in-differences research design, low wage workers are shown to receive a significant wage boost from the living wage introduction. Consistent with a model of monopsony power and where bottom-of-the-rung workers and supervisors are gross complements, the living wage induced labour-labour substitution in favour of the former. Further adjustment to the wage bill increase from the introduction of the living wage took place through within-establishment internal changes to the establishment pay policy structures. The overall result was that the Company was able to absorb the wage cost shock embodied in living wage adoption in a way that significantly narrowed establishment wage inequality.

 “The Measure of Monopsony: The Labour Supply Elasticity to the Firm and its Constituents“ (some results in this paper are split from my JMP “Local Monopsony Power”) (CEP DP Version)

The estimation of labour supply elasticities is central to the measurement of monopsony power in the labour market. In this paper I provide new, firm-level estimates of the labour supply elasticity that distinguish between a recruitment elasticity (for potential new workers) and a separation elasticity (as relevant to incumbents). My study uses comprehensive HR data for a large multi-establishment firm in the UK. This setting allows me to develop job-establishment level variation in wages derived from both a government wage floor policy which only effects my firm under study and arbitrary variation in advertised wages resulting from idiosyncratic HR department decisions. My estimates show that, in contrast to common assumptions, the recruitment elasticity is almost double the size of the separation elasticity. Heterogeneity analysis is suggestive that differences in wage-saliency for job seekers versus incumbents is likely a factor in this difference. Combined the elasticities give a labour supply elasticity to the firm of 4.6 implying a wage markdown of 18% from the marginal product of labour. I find no evidence of spillovers from wage changes to the local market despite establishments being relatively large, indicating a monopsonistic wage setting framework is more suitable than an oligopsonistic one.

 “Non-tariff barriers and consumer prices: evidence from Brexit“ with Jan David Bakker, Richard Davies & Josh De Lyon

In the media: Guardian, BBC, the Times, the Independent, CNBC, Evening Standard, Daily Mirror, Politico, Sky News, Economic Times, City AM, Bloomberg…

Non-Tariff Barriers (NTBs) are the main policy impediment to international trade, yet little is known about their pass-through to prices. This paper exploits the Brexit trade policy shock to quantify how NTBs affect consumer prices and welfare. The increase in NTBs raised prices by 6%, implying a passthrough of 50-80%. Based on a standard welfare framework, we show households lost £5.84bn, domestic producers gained £4.78bn, and £1.06bn was lost through deadweight loss. Due to differences in food expenditure shares, households in the lowest decile experience a 52% higher increase in the cost of living than households in the top decile.

 “Living wages and age discontinuities for low-wage workers“ with Stephen Machin

This paper considers an emerging, highly policy relevant feature of minimum wages, studying what happens when a wage floor significantly higher than a nationally legislated minimum is imposed. The consequences of age-wage discontinuities and wage floors higher than mandated minimum wages are explored in the context of a Living Wage being introduced to a large UK organisation through time. Between 2011 and 2019, the Company was exposed to a Living Wage Rate higher than the statutory National Minimum Wage, which was sequentially introduced into some of its establishments and had the effect of boosting wages and strongly increasing the age-wage discontinuity from age-related pay grades. The analysis finds positive labour supply responses at the age discontinuity before Living Wage treatment, but a fall in hours at the discontinuity following treatment. The Living Wage raised wage costs but did not affect aggregate hours, showing a within-establishment reallocation of hours by age arising from differential eligibility to be paid the Living Wage.

 “Willing to pay for security: a discrete choice experiment to analyse labour supply preferences”

In the media: CentrePiece, LSE USAPP, VoxEU, WEF, Helsinki Times, Workplace Insights

This paper investigates the extent to which labour supply preferences are responsible for the marked rise in atypical work arrangements in the UK and US. By employing vignettes in a discrete job choice experiment in a representative survey, I estimate the distribution for preferences and willingness-to-pay over various job attributes. The list of attributes includes key distinguishing factors of typical and atypical work arrangements, such as security, work-related benefits, flexibility, autonomy and taxation implications. The results are indicative that the majority of the population prefer characteristics associated with traditional employee-employer relationships, and this preference holds even when analysing just the sub-sample of those in atypical work arrangements. Additionally, preferences across the UK and US are very similar, despite differences in labour market regulations. Rather than suggesting that labour supply preferences have contributed to the increase in atypical work arrangements, I find that the changing nature of work is likely to have significant negative welfare implications for many workers.

Funding:  CEP Research Grant (£25,000, Principal Investigator)

Works In Progress

“Shocks and security: The supply and demand of zero-hours contracts“

Published Work

 “Zero Hours Contracts and Labour Market Policy”, with G. Giupponi and S. J. Machin

Economic Policy, 34(99): 369–427, 2019

In the media: The Guardian, Apolitical, OUP Blog

The evolving nature of atypical work arrangements is studied. A particular focus is placed on one such form of work relation: zero hour contracts (ZHCs). The paper uses existing secondary data and new survey data collected for the specific purpose of studying alternative work arrangements to describe the nature of ZHC work in the UK labour market. The interaction with labour market policy is also explored, in the context of the 2016 introduction of the UK’s National Living Wage. ZHC work is shown to be an important feature of today’s work arrangements, and a higher minimum wage has resulted in an increased use of ZHCs in the UK social care sector, and in low wage sectors more generally.