Working Papers

An overview of working papers by ECON staff


Working  Paper 1-2018       

Underground Activities and Labour Market Performance


Abstract: We build a general equilibrium model in terms of a search and matching model with an informal sector. We consider the impact of the traditional policy instruments considered in the tax evasion literature, such as changes in the tax- and punishment system as well as changes in the employment protection legislation and concealment costs, on labour market outcomes. To this end, we set-up a model which allows workers to allocate their search for formal and informal sector jobs optimally. We calibrate and simulate the model to fit the North and the South of Europe, where the share of informal sector workers is equal to three percent in the North and more than 4 times as high in the South. We consider the impact of concealment costs, as there are large differences in terms of tax administration procedures between the South and the North, in terms of that Northern countries make more extensively use of third-party reporting. We also examine whether stricter employment protection legislation in Southern Europe may explain the observed fact.

Keywords: informal economy; tax policy; tax evasion; Northern Europe; Southern Europe

 Authors: Ann-Sofie Kolm and Birthe Larsen

30 pages, January 29, 2018



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Working Paper 2-2018:   

Measuring Welfare Comparisons of EU Member States Before, During, and After the Financial Crisis: A Dominance Approach


Abstract: How did the financial crisis affect population welfare in EU member states in key dimensions such as income, health, and education? We seek to answer this question by way of welfare comparisons between countries and within countries over time,using EU-SILC data. Our study is novel in using a multidimensional first order dominance comparison approach on the basis of multi-level ordinal data. We find that the countries most often dominated are southern and eastern European member states, and the dominant countries are mostly northern and western European member states. However, for most country comparisons, there is no dominance relationship. Moreover, only a few member states have experienced a temporal dominance improvement in welfare, while no member states have experienced a temporal dominance deterioration during the financial crisis.

Keywords: first order dominance; multidimensional well-being; multi-level indicators; EU-SILC

Authors: M. Azhar Hussain, Nikolaj Siersbæk and Lars Peter Østerdal

50 pages, First version: July 20, 2017. Revised: July 1, 2018.

Note: 2. version of WP - previous version July 2017                                                  


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Working Paper 3-2018  


The Impact of Immigration on Firm Level Offshoring


Abstract: This paper studies the relationship between immigration and offshoring by examining whether an influx of foreign workers reduces the need for firms to relocate jobs abroad. We exploit a Danish quasi-natural experiment in which immigrants were randomly allocated to municipalities using a refugee dispersal policy and we use the Danish employer-employee matched data set covering the universe of workers and firms over the period 1995-2011. Our findings show that an exogenous influx of immigrants into a municipality reduces firm-level offshoring at both the extensive and intensive margins. The fact that immigration and offshoring are substitutes has important policy implications, since restrictions on one may encourage the other. While the multilateral relationship is negative, a subsequent bilateral analysis shows that immigrants have connections in their country of origin that increase the likelihood that firms offshore to that particular foreign country.

Keywords: Immigration; Offshoring

Authors: William W. Olney and Dario Pozzoli

50 pages, April 12, 2018


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Working Paper 4-2018 

The Role of Institutions and Networks in Firms' Offshoring Decisions


Abstract: The offshoring of production by multinational firms has expanded dramatically in recent decades, increasing the potential for economic growth and technological transfers. What determines the location of such offshore production? How do the policies and characteristics of countries affect these decisions? Do firms choose specific countries because of their policies or because they are more familiar with them? In this paper, we use a very rich dataset on Danish firms to analyze how their decisions regarding offshore production depend on institutional characteristics and firm-specific bilateral connections with these countries. We find that institutions that enhance investor protections and reduce corruption increase the probability of offshoring, while those that introduce regulatory constraints in the labor market discourage it. We also show that offshoring activities are more likely for firms that have developed networks in the country of destination.

Keywords: Offshoring; product market; labor regulations; network; fixed costs

AuthorsSimone Moriconi, Giovanni Peri and Dario Pozzoli

48 pages, August 6, 2018


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Working Paper 5-2018


Should I Stay or Must I Go? Temporary Protection and Refugee Outcomes


Abstract: We study a Danish reform in 2002 that lowered the ex ante probability of refugees receiving permanent residency by prolonging the time period before they were eligible to apply for permanent residency. Assignment to the new rules was completely determined by the date of the asylum application and the reform was implemented retroactively. We formulate a simple search and matching model to derive predictions that can be tested using our data. Then we study the effects on educational and labor market outcomes and find that the reform significantly increased enrollment in formal education, especially for females and low skilled individuals. In terms of employment and earnings, coefficients are in general negative but non-significant. Other outcomes of interest are also studied. The reform had a negative impact on criminal activity driven by a reduction among males. There are no effects on health outcomes and significant but relatively small negative effects on childbearing for females. The results do not seem to be driven by selection, since the reform had no significant effect on the share that stayed in Denmark in the long run.

Keywords: refugees; human capital; immigration law

Authors: Matilda Kilström, Birthe Larsen and Elisabet Olme

62 pages, May 9, 2018


Full text:  5 - 2018.pdf

Working Paper 6-2018


Trade-Induced Skill Polarization


Abstract: We study how the skill distribution in an economy responds to changes in wage gaps induced by trade integration. Using administrative data for Denmark (1993-2012), we conduct a two-step empirical analysis. In the first step, we predict changes in wage gaps that are triggered by exogenous trade shocks. In the second step, we estimate the impact of such changes on the skill distribution. The main results for Denmark show that both the average and the standard deviation of skills increase as a result of trade integration. We then extend our analysis to Portugal, using its administrative data (1993-2012), to shed light on the potential role the labor market and education policy may play in establishing the feedback effect of trade on the skill distribution. Finally, we provide a theoretical intuition to rationalize both sets of results. 

Authors: Grace Gu, Samreen Malik, Dario Pozzoli and Vera Rocha

58 pages, July 9, 2018 
Full text:  6 - 2018.pdf

Working Paper 7-2018


Coordination of Hours within the Firm


Abstract: Although coworkers are spending an increasing share of their working time interacting with one another, little is known about how the coordination of hours among heterogenous coworkers affects pay, productivity and labor supply. In this paper, we use new linked employer-employee dataon hours worked in Denmark to first document evidence of positive correlations between wages, productivity and the degree of hours coordination - measured as the dispersion of hours - within firms. We then estimate labor supply elasticities by exploiting changes made to the personal income tax schedule in 2010. We find that hours coordination is associated with attenuated labor supply elasticity and spillovers on coworkers not directly affected by the tax change. These spillovers led to a 15% increase in the marginal excess burden from the 2010 tax reform, and if ignored, they induce substantial downward bias in estimates of the labor supply elasticity. We explain these findings in a framework in which differently productive firms choose whether to coordinate hours in exchange for productivity gains, leading more productive firms to select into coordinating hours and to pay compensating wage differentials. 
Authors: Claudio Labanca and Dario Pozzoli 
115 pages, June 9, 2018 
Full text:  7-2018.pdf

Working Paper 8-2018 


Vertical Structure and the Risk of Rent Extraction in the Electricity Industry

Abstract: This paper studies how competition and vertical structure jointly determine generating capacities, retail prices, and welfare in the electricity industry. Analyzing a model in which demand is uncertain and retailers must commit to retail prices before they buy electricity in the wholesale market, we show that welfare is highest if competition in generation and retailing is combined with vertical separation. Vertically integrated generators choose excessively high retail prices and capacities to avoid rent extraction in the wholesale market when their retail demand exceeds their capacity. Vertical separation eliminates the risk of rent extraction and yields lower retail prices. 
Authors: Anette Boom and Stefan Buehler 
51 pages, August 23, 2018 
Full text:  8-2018.pdf

Working Paper 9-2018

The Ins and Outs of Involuntary Part-time Employment


Abstract: We develop an adjustment procedure to construct U.S. monthly time series of involuntary part-time employment stocks and flows from 1976 until today. Armed with these new data, we provide a comprehensive account of the dynamics of involuntary part-time work. Transitions from full-time to involuntary part-time employment dominate this dynamics, spiking up at recessions' onsets and persisting well into recovery periods. On the other hand, weaknesses in job creation contribute little to these fluctuations. Our data and findings are relevant to inform a broader assessment of labor market performance and to develop models of cyclical labor adjustment.


Keywords: Involuntary part-time employment; Unemployment; Labor market flows; Business cycles

Authors: Daniel Borowczyk-Martins and Etienne Lalé

21 pages, August 1, 2018


Full text: 9-2018.pdf

Working Paper 10-2018

Det koster at være lille. Grønlands hjemtagelser 1980 til 1993 og smådriftsulemper


Abstract: After home rule in 1979 Greenland gradually takes over expenditure of general government from Denmark during the 1980ies. Step by step Denmark gives a subsidy to Greenland covering what were the Danish expenditures. Nearly the entire subsidy comes in four lumps, 1980, 1985, 1987 and 1992. Subsequently the subsidies have been regulated according to the increase in costs for the Danish general government in providing services. Supposing government expenditures being a constant fraction of GDP, we calculate what would have been the hypothetical Danish expenditures to the four areas and then compare these to the actual Greenlandic expenditures in 1994 and 2014. Actual expenditures are much higher than the projected Danish ones. Especially this is true for general public services and education where the level is more than twice the projection. The article’s point of view is that a large part of the overshooting is due to small scale diseconomies.


Keywords: Greenland; Goverment Expenditure; Small Scale Disadvantages

Author: Lars Lund 

21 pages, December 1, 2017

Full text: 10-2018.pdf

Working Paper 11-2018

Optimal Management of Evolving Hierarchies


Abstract: We study the optimal management of evolving hierarchies, which abound in real-life phenomena. An initiator invests into finding a subordinate, who will bring revenues to the joint venture and who will invest herself into finding another subordinate, and so on. The higher the individual investment (which is private information), the higher the probability of finding a subordinate. A transfer scheme specifies how revenues are reallocated, via upward transfers, as the hierarchy evolves. Each transfer scheme induces a game in which agents decide their investment choices. We consider two optimality notions for schemes: initiator-optimal and socially-optimal schemes. We show that the former are schemes imposing to each member a full transfer to two recipients (the predecessor and the initiator) with a constant ratio among the transfers. We show that the latter are schemes imposing full transfers to the immediate predecessors.


Keywords: Optimal transfer schemes; Hierarchies; Management; Nash equilibrium

Authors: Jens Leth Hougaard, Juan D.Moreno-Ternero  and  Lars Peter Østerdal

24 pages, December 30, 2018

Full text: 11-2018.pdf

Working paper 1-2019


Bid Costs and the (In)efficiency of Public Procurement Auctions


Abstract: The paper analyzes the excess entry hypothesis for sealed-bid first price public procurement auctions.The hypothesis is proved analytically for any feasible combination of bid preparation cost and bid evaluation cost when the bidders face a rectangular cost density function and confirmed in numerical simulations based on a family of flexible cost density functions. The excess entry hypothesis implies that the procurer may reduce both his own cost and the social cost by imposing a positive fee on the bids. Sequential search is a superior strategy to a public procurement auction whether or not the procurer imposes an optimal fee on the bids.


Keywords: Excess entry; Public procurement auctions; Optimal fee; Sequential search

Author: Niels Blomgren-Hansen

23 pages, February 5, 2019 


PDF iconFull text: 1-2019.pdf

Working paper 2-2019

Risk Attitudes, Sample Selection and Attrition in a Longitudinal Field Experiment


Abstract: Longitudinal experiments allow one to evaluate the temporal stability of latent preferences, but raise concerns about sample selection and attrition that may confound inferences about temporal stability. We evaluate the hypothesis of temporal stability in risk preferences using a remarkable data set that combines socio-demographic information from the Danish Civil Registry with information on risk attitudes from a longitudinal field experiment. Our experimental design builds in explicit randomization on the incentives for participation. The results show that the use of different participation incentives can affect sample response rates and help identify the effects of selection. Correcting for endogenous sample selection and panel attrition changes inferences about risk preferences in an economically and statistically significant manner. Estimates of risk preferences change with these corrections. In general we find evidence consistent with temporal stability of risk preferences when one corrects for selection and attrition.


Keywords: PreferencesRisk Attitudes

Authors:  Glenn W. Harrison, Morten I. Lau and Hong Il Yoo 

52 pages, January 2, 2019



Full text: 

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The page was last edited by: Department of Economics // 05/21/2019