Capitalism and Freedom

This paper surveys recent work in equilibrium models of labor markets characterized by search and recruitment frictions and by the need to reallocate workers across productive activities. The duration of unemployment and jobs and wage determination are treated as endogenous outcomes of job creation and job destruction decisions made by workers and firms. The solutions studied are dynamic stochastic equilibria in the sense that time and uncertainty are explicitly modeled, expectations are rational, private gains from trade are exploited and the actions taken by all agents are mutually consistent. A number of alternative wage determination mechanisms are explored, including the frequently studied non-cooperative wage bargaining and wage posting by firms. We use the framework to study the influence of alternative labor market institutions and policies on wages and unemployment.

New Developments in Models of Search in the Labour Market

Since the early 1980s, the econometric analysis of duration variables has become widespread. This chapter provides an overview of duration analysis, with an emphasis on the specification and identification of duration models, and with special attention to models for multiple durations. Most of the chapter deals with so-called reduced-form duration models, notably the popular Mixed Proportional Hazard (MPH) model and its multivariate extensions. The MPH model is often used to describe the relation between the empirical exit rate and “background variables” in a concise way. However, since the applications usually interpret the results in terms of some economic-theoretical model, we examine to what extent the deep structural parameters of some important theoretical models can be related to reduced-form parameters. We subsequently examine the specification and identification of the MPH model in great detail, we provide intuition on what drives identification, and we infer to what extent biases may occur because of misspecifications. This examination is carried out separately for the case of single-spell data and the case of multi-spell data. We also compare different functional forms for the unobserved heterogeneity distribution. Next, we examine models for multiple durations. In the applied econometric literature on the estimation of multiple-duration models, the range of different models is actually not very large. Typically, the models allow for dependence between the duration variables by way of their unobserved determinants, with each single duration following its own MPH model. In addition to this, the model may allow for an interesting “causal” effect of one duration on the other, as motivated by an underlying economic theory. For all these models we examine the conditions for identification. Some of these are intimately linked to particular estimation strategies. The multiple-duration model where the marginal duration distributions each satisfy an MPH specification, and the durations can only be dependent by way of their unobserved determinants, is called the Multivariate Mixed Proportional Hazard (MMPH) model. For this model, we address the issue of the dimensionality of the heterogeneity distribution and we compare the flexibility of different parametric heterogeneity distributions. On a number of occasions, we incorporate recent insights from the biostatistical literature on duration analysis, and we contrast points of view in this literature to those in the econometric literature. Finally, throughout the chapter, we discuss the importance of the possible collection of additional data.

/pdf/duration-models-specification-identification-and-multiple-51osmgtis8.pdf

Duration Models: Specification, Identification, and Multiple Durations

This paper studies the labor market experiences of white male college graduates as a function of economic conditions at time of college graduation. I use the National Longitudinal Survey of Youth whose respondents graduated college between 1979 and 1988 and are followed for 14 to 23 years after college graduation. I employ both national and state variation in economic conditions at time of college graduation to identify the effect. Because timing and location of college graduation could potentially be affected by economic conditions, I also instrument for the national unemployment rate usinf year of birth and for the state unemployment rate using year of birth and state of residence at age 14. I find large, negative wage effects to graduating in a worse economy which persist for the entire period studied. I find that cohorts who graduate in worse economies are in lower level occupations and have slightly higher educational attainment. Labor supply is unaffected.

The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy

The long-term labor market consequences of graduating from college in a bad economy

Using unique, representative data on domestic violence, we document several stylized facts on abuse: the average characteristics of abused wives and abusive husbands are markedly dierent than the characteristics of individuals in non-violent marriages, the vast majority of violent marriages end in divorce, and employment rates are lower for women who experience abuse We then construct a sequential model of employment, marriage and abuse The results indicate abuse is the primary factor in the decision to divorce and witnessing violence as a child is a strong predictor of becoming an abusive spouse Policy experiments suggest men are more responsive to policies designed to increase the costs of abuse than women are to policies reducing the cost of leaving violent marriages and policies designed to reduce the inter-generational eects of domestic violence may be promising strategies for preventing abuse

/pdf/domestic-violence-employment-and-divorce-4oqstwcv0h.pdf

Domestic violence, employment, and divorce*

Using National Longitudinal Survey of Youth data on tenure and wages, this article analyzes the extent to which the level of job mismatching varies over the business cycle and how it is dealt with by the labor market. I find significant cyclical variation in job match quality and an internalization of the variation by the labor market through wages. Mismatching occurs more during recessions but is primarily captured in starting wages. The evidence suggests the cyclical phenomenon is one of general mismatching rather than an increased number of stopgap jobs during recessions.

Matching Workers and Jobs: Cyclical Fluctuations in Match Quality

A general equilibrium search framework is used to examine the role of gender differences in labor market behavior patterns (e.g., quit rates for personal reasons) in determining gender wage differentials. For samples of high school and college graduates from the National Longitudinal Survey of Youth (NLSY), these behavioral patterns are found to be significantly different across the sexes and account for 20%–30% of the wage differentials. In particular, they play a key role in explaining the male‐female wage differential that remains after controlling for the gender composition across occupations.

/pdf/a-search-interpretation-of-male-female-wage-differentials-2cga47evee.pdf

A Search Interpretation of Male-Female Wage Differentials

We analyze an equilibrium search model with three sources for wage and unemployment differentials among workers with the same (observed) human capital but different appearance (race): unobserved productivity, search intensities, and discrimination due to an appearance-based employer disutility factor. We show that the structural parameters are identified using labor market survey data. Estimation results for a black and white high school graduate sample imply: black productivity is 3.3% lower than white productivity; the employer's disutility factor is 31% of the white's productivity level; and 56% of firms have a disutility factor toward blacks.

Discrimination and Skill Differences in an Equilibrium Search Model

https://are.berkeley.edu/courses/ARE251/2003/papers/Bowlus_Sicular.pdf

Audra J. Bowlus

Papers

Domestic violence, employment, and divorce*

Matching Workers and Jobs: Cyclical Fluctuations in Match Quality

A Search Interpretation of Male-Female Wage Differentials

Discrimination and Skill Differences in an Equilibrium Search Model

Moving toward markets? Labor allocation in rural China