Dissertation: Labor search, inequality, and public policy.
Posted and negotiated wages in markets with on-the-job search: Theory
(please click here for a pdf of chapter 1) (updated Jan. 22, 2014)
Abstract: I model a labor market in which workers search on- and off-the-job and firms choose between two wage formation mechanisms. Firms may either post a non-negotiable wage or offer a contingent wage contract which updates to match workers' best-to-date outside offer when profitable. I show that when firms must pay a per-firm cost to offer the contingent contract, a separating equilibrium arises in which only low productivity firms offer non-negotiable contracts. Modeling contract heterogeneity improves the on-the-job search model's fit with respect to empirical regularities. With only inflexible wages the model struggles to achieve reasonable labor share at the same time as realistic wage dispersion. With only flexible wage contracts the model fails to provide incentive to search while unemployed and suggests implausibly low entry wages. The mixed-contract model is able to fit wage dispersion and at the same time simulated labor share is proportional to national accounting data, simulated employment transitions are consistent with observed worker histories, and simulated flow value of unemployment is consistent with value guaranteed by social insurance programs. Improved fit makes the new mixed-contract model a better candidate for welfare analysis of social insurance programs particularly when the researcher seeks to value the impact on workers and on firms.
"Dead-end" versus "career" jobs: equilibrium on-the-job search with heterogeneous firms, workers, and wage contracts
(please click here for a pdf version of chapter 2) (updated May 21, 2014)
Abstract: I include differential skill levels on the part of workers in an on-the-job search equilibrium which features heterogeneous wage contracts. Firms choose between posting a non-negotiable contract or hiring under contingent pay which matches the value of a workers best-to-date outside offer. I give conditions under which the market decomposes into parallel skill-specific sub-markets in each of which a separating equilibrium arises where only low productivity firms offer non-negotiable contracts. Even when skill-specific sub-markets are ex-ante identical, differences arise ex-post. More skilled workers are more likely to receive negotiable wage offers. Consequently, high skilled workers experience lower rates of unemployment, more wage dispersion, and higher returns to experience than low skilled workers. I explore the implications for evaluating job training which increases worker skill level while unemployed. The full effect of training is expressed in wages only over time; however, effects are expressed more rapidly in higher percentiles wage distributions. This suggests estimating the returns to training programs, at least in the shorter-run, based on impacts in the right tail of the wage distribution.
Empirical identification of the composition of contracts in an on-the-job search equilibrium with heterogeneous wage contracts using administrative data.
Abstract: I address issues which arise when the model on-the-job search model with contract heterogeneity is brought to bear on the data. The key issues are how to asses which firms workers prefer to work for and how this information is related to the output produced by a matched firm and worker. It is typical in the related literature to assume that worker compensation increasing with firm productivity. The model featuring heterogeneous contracts, however, is at odds with this assumption. Using German labor market histories based on Social Security data provided by the Institute for Employment Research, I establish that workers' preferences over firms can be more accurately predicted by using data on the rate of employee exit from each firm than by using measures of compensation. In a first, stage I use this information to estimate hazards of job offers and separation using the method of maximum likelihood. In a second, I experiment with parametric and non-parametric methods of identifying the aggregate output distribution using aggregate wage data, estimated transition hazards, and the method of simulated moments.
Other papers in progress:
Unemployment insurance and posted wage offers
Abstract: In the literature on optimal unemployment insurance it is common to assume that unemployment increases when in the generosity of unemployment insurance benefits increases. This assumption is substantiated in a model of labor search in which wage offers are drawn from an exogenous distribution. However, in a model where wage-posting firms maximize profits subject to workers optimal strategy, it need not be the case that increasing benefits increases expected unemployment. Trade-offs can be substantially impacted by public policy which manipulates the dispersion of insurance benefits. I examine the efficiency of the design of unemployment insurance policy in the United States. Design can be described by policy changes which induce greater heterogeneity - e.g. the statutory replacement rate - and which decrease heterogeneity - e.g. the maximum benefit cap. I give evidence that policy changes which reduce heterogeneity also reduce unemployment.