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Purpose– The purpose of this paper is to test empirically whether there exist spillover externalities in job satisfaction, i.e., to test whether individual-level job satisfaction is affected by the aggregate job satisfaction level in a certain labor market environment.Design/methodology/approach– The authors use a linear-in-means model of social interactions in the empirical analysis. The authors develop an original strategy, motivated by the hierarchical models of social processes, to identify the parameters of interest. BHPS and WERS datasets are used to perform the estimations both at the establishment and local labor market levels.Findings– The authors find that one standard deviation increase in aggregate job satisfaction leads to a 0.42 standard deviation increase in individual-level job satisfaction at the workplace level and a 0.15 standard deviation increase in individual-level job satisfaction at the local labor market level. In other words, the authors report that statistically significant job satisfaction spillovers exist both at the establishment level and local labor market level; and, the former being approximately three times larger than the latter.Originality/value– First, this is the first paper in the literature estimating spillover effects in job satisfaction. Second, the authors show that the degree of these spillover externalities may change at different aggregation levels. Finally, motivated by the hierarchical models of social processes, the author develop an original econometric identification strategy.

Based on a law enacted in November 1999, males born on or before December 31st 1972 are given the option to benefit from a paid exemption from compulsory military service in Turkey. Exploiting this natural experiment, we devise an empirical strategy to estimate the intention-to-treat effect of this paid exemption on education and labor market outcomes of the individuals in the target group. We find that the paid exemption reform reduces the years of schooling among males who are eligible to benefit from the reform relative to the ineligible males. In particular, the probability of receiving a college degree or above falls among the eligible males. The result is robust to alternative estimation strategies. We find no reduction in education when we implement the same exercises with (i) data on females and (ii) placebo reform dates. The interpretation is that the reform has reduced the incentives to continue education for the purpose of deferring military service. We also find suggestive evidence that the paid exemption reform reduces the labor income for males in the target group. The reduction in earnings is likely due to the reduction in education. It should be noted, however, that due to the characteristics of the population on the treatment margin, the external validity of these results should be assessed cautiously.

Although the season of birth variable is often used as an instrumental variable to estimate the rate of returns to schooling in the labor economics literature, there is an emerging consensus that the season of birth is systematically associated with later outcomes in life such as the educational and labor market success; thus, it is highly likely non-random. Using a large micro-level data set from Turkey, we argue that the degree of this non-randomness can be even larger in a developing-country context. Specifically, we show that around 20 percent of all individuals in Turkey have January as their month of birth due to a combination of geographical, seasonal, institutional, and idiosyncratic factors that lead to misreporting. We further document that being January-born strongly predicts worse socio-economic outcomes in later life. We show that this can be a serious problem in evaluating policies that define eligibility based on the month of birth – such as compulsory schooling and compulsory military service laws that set the eligibility birth date cutoff as the January 1st. We confirm the validity of this concern based on a series of regression discontinuity design exercises. We conclude that, in a developing-country context, additional caution should be exercised when using the season-of-birth variable as a statistical tool.

Observationally equivalent workers are paid higher wages in larger firms. This fact is often named as the "firm-size wage gap" and is regarded as a key empirical puzzle. Using micro-level data from Turkey, we document a new stylized fact: the firm-size wage gap is more pronounced for informal (unregistered) jobs than for formal (registered) jobs. To explain this fact, we develop a two-stage wage-posting game with market imperfections and segmented markets, the solution to which produces wages as a function of firm size in a well-defined subgame-perfect equilibrium. The model proposes two explanations. First, taxes on formal employment generate a wedge between formal and informal size wage gaps. Thus, government policy can potentially affect the magnitude of the firm-size wage gaps. The second explanation features a market-based framework with strategic interactions. Relative to small firms, large firms typically post higher wages for both formal and informal jobs they open. A high-wage formal job attracts a larger pool of applicants than a high-wage informal job. The larger pool of applicants for the formal job, in turn, allows the firm to somewhat lower the initial wage offer, while this second-round effect is negligible for informal jobs. As a result, size differentials are lower in formal jobs than informal jobs. We argue that the observed patterns in the use of social connections in job search and heterogeneity in job preferences can be used to justify the validity of this second mechanism.

Based on a law enacted in November 1999, males born on or before December 31st 1972 are given the option to benefit from a paid exemption from the compulsory military service in Turkey. Exploiting this natural experiment, we devise an empirical strategy to estimate the intention-to-treat effect of this paid exemption on the education and labor market outcomes of the individuals in the target group. We find that the paid exemption reform reduces the years of schooling among males who are eligible to benefit from the reform relative to the ineligible ones. In particular, the probability of receiving a college degree or above falls among the eligible males. The result is robust to alternative estimation strategies. We find no reduction in education when we implement the same exercises with (i) data on females and (ii) placebo reform dates. The interpretation is that the reform has reduced the incentives to continue education for the purpose of deferring military service. We also find suggestive evidence that the paid exemption reform reduces the labor income for males in the target group. The reduction in earnings is likely due to the reduction in education.