Research

Migration and Job Search

The Composition of Wage Differentials between Migrants and Natives (with Chris Schluter)

European Economic Review, 65, 23-44, January 2014 (with C. Schluter)

Abstract: We consider the role of unobservables, such as differences in search frictions, reservation wages, and productivities for the explanation of wage differentials between migrants and natives. We disentangle these by estimating an empirical general equilibrium search model with on-the-job search due to Bontemps, Robin, and van den Berg (1999) on segments of the labour market defined by occupation, age, and nationality using a large scale German administrative dataset. The native-migrant wage differential is then decomposed into several parts, and we focus especially on the component that we label "migrant effect", being the difference in wage offers between natives and migrants in the same occupation-age segment in .firms of the same productivity. Counterfactual decompositions of wage differentials allow us to identify and quantify their drivers, thus explaining within a common framework what is often labelled the unexplained wage gap.

Equilibrium Search & Matching Models

Minimum Wage Spillover Effects and Social Welfare in a Model of Stochastic Job Matching

Abstract: In this paper, I carry out a welfare analysis of the minimum wage in the framework of a Pissarides-type stochastic job matching model. I explore the role of the minimum wage in a labor market with trading externalities and present the necessary and sufficient condition for a minimum wage hike to be efficiency-enhancing. The characterization of minimum wage spillover effects in this context leads to an interesting result: there is a direct link between the welfare effects and spillover effects of a minimum wage. This theoretical finding suggests that the welfare impact of minimum wage changes can be inferred from the empirical observation of spillover effects on the wage distribution.

Wage Inequality

The Minimum Wage and the Distribution of Wages: Analysing the Spillover Effects of the National Minimum Wage in the UK

Abstract: This paper investigates the impact of the National Minimum Wage on the distribution of wages in the UK. Past research suggests that minimum wage spillover effects are rather small and insignificant in the UK as opposed to the USA. I address this puzzle using an empirical model employed in previous studies (Lee 1999, Manning 2003) and demonstrate that the magnitude of the estimated spillover effects is dependent on the initial assumptions about the counterfactual wage distribution. This finding implies that the emergence of the puzzle is due to the lack of a unified estimation framework capable of producing comparable results. My estimations are suggestive of a positive minimum wage spillover effect in the UK.

Human Capital Theory

Minimum Wage Effects on Specific Training in a Model of Stochastic Job Matching

Abstract: This paper examines the effects of a wage floor on the decisions of firms and workers to invest in specific training. In a model of stochastic job matching with continuous training and Nash bargaining, I demonstrate that all accepted firm-worker pairs make positive investments in training, the level of which varies with the conditions prevailing in capital markets: when there are no credit constraints, training maximizes joint surplus; when workers are credit constrained, training maximizes the firm's share of the surplus, so underinvestment ensues. The introduction of a wage floor forces firms to pay the minimum wage on a range of productive values. In the case of imperfect capital markets, I show that all firms paying the minimum wage find it profitable to increase the training of their employees, for they reap the benefits of higher productivity without incurring extra wage costs. I conclude that the minimum wage moderates the inefficiency generated by capital market imperfections and under specific conditions leads to higher job acceptance.

Directed Search & Endogenous Frictions

Endogenous Frictions in a Market for Homogeneous Workers and Heterogeneous Firms

Abstract: This study presents a scenario that justifies the emergence of frictions in a labour market without information imperfections. I extend the model of Lagos (2000) to account for the workings of a labour market with homogeneous workers and heterogeneous firms. Firms post a set of exogenously determined, heterogeneous wages that divide the aggregate market in several submarkets. The absence of information imperfections allows workers to distribute themselves in a way that their expected utility is equalized across submarkets. This result in combination with wage heterogeneity implies that submarkets with excess supply of workers coexist with submarkets with excess demand for workers, and thus, the aggregate market exhibits frictions. Aggregation over submarkets gives rise to an endogenous matching function, whose shape is sensitive to changes that may alter agents’ incentives. I use the matching function to evaluate the effects of policy changes on the number of matches and on aggregate unemployment. My findings suggest that there are channels through which policy changes impact on the unemployment rate other than those presented by conventional search models. I also discuss the relevance of these results in the context of endogenous wage determination.

Research in Progress

Job Search of Migrants and Natives: A Structural and Spatial Approach