This paper argues that the textbook search and matching model cannot generate the observed business-cycle-frequency fluctuations in unemployment and job vacancies in response to shocks of a plausible magnitude. In the United States, the standard deviation of the vacancy-unemployment ratio is almost 20 times as large as the standard deviation of average labor productivity, while the search model predicts that the two variables should have nearly the same volatility. A shock that changes average labor productivity primarily alters the present value of wages, generating only a small movement along a downward-sloping Beveridge curve (unemploymentvacancy locus). A shock to the separation rate generates a counterfactually positive correlation between unemployment and vacancies. In both cases, the model exhibits virtually no propagation. (JEL E24, E32, J41, J63, J64)

/pdf/the-cyclical-behavior-of-equilibrium-unemployment-and-17ieb2nfw9.pdf

The Cyclical Behavior of Equilibrium Unemployment and Vacancies

The growth of precarious work since the 1970s has emerged as a core contemporary concern within politics, in the media, and among researchers. Uncertain and unpredictable work contrasts with the re...

/pdf/precarious-work-insecure-workers-employment-relations-in-5fvbgvv3hl.pdf

Precarious Work, Insecure Workers: Employment Relations in Transition

The well-known Easterlin paradox points out that average happiness has remained constant over time despite sharp rises in GNP per head. At the same time, a micro literature has typically found positive correlations between individual income and individual measures of subjective well-being. This paper suggests that these two findings are consistent with the presence of relative income terms in the utility function. Income may be evaluated relative to others (social comparison) or to oneself in the past (habituation). We review the evidence on relative income from the subjective well-being literature. We also discuss the relation (or not) between happiness and utility, and discuss some nonhappiness research (behavioral, experimental, neurological) related to income comparisons. We last consider how relative income in the utility function can affect economic models of behavior in the domains of consumption, investment, economic growth, savings, taxation, labor supply, wages, and migration.

/pdf/relative-income-happiness-and-utility-an-explanation-for-the-5g4b5vo8t4.pdf

Relative income, happiness, and utility : an explanation for the Easterlin paradox and other puzzles

We look for evidence of habituation in twenty waves of German panel data: do individuals tend to return to some baseline level of well-being after life and labour market events? Although the strongest life satisfaction effect is often at the time of the event, we find significant lag and lead effects. We cannot reject the hypothesis of complete adaptation to marriage, divorce, widowhood, birth of child and layoff. However, there is little evidence of adaptation to unemployment for men. Men are somewhat more affected by labour market events (unemployment and layoffs) than are women but in general the patterns of anticipation and adaptation are remarkably similar by sex.

/pdf/lags-and-leads-in-life-satisfaction-a-test-of-the-baseline-4cdk5s6l63.pdf

Lags and leads in life satisfaction: a test of the baseline hypothesis

We survey the literature on search-theoretic models of the labor market. We show how this approach addresses many issues, including the following: Why do workers sometimes choose to remain unemployed? What determines the lengths of employment and unemployment spells? How can there simultaneously exist unemployed workers and unfilled vacancies? What determines aggregate unemployment and vacancies? How can homogeneous workers earn different wages? What are the tradeoffs firms face from different wages? How do wages and turnover interact? What determines efficient turnover? We discuss various modeling choices concerning wage determination and the meeting process, including recent models of directed search.

/pdf/search-theoretic-models-of-the-labor-market-a-survey-1vd8x5tbbs.pdf

Search-Theoretic Models of the Labor Market: A Survey

We construct and estimate an equilibrium search model with on–the–job–search. Firms make take–it–or–leave–it wage offers to workers conditional on their characteristics and they can respond to the outside job offers received by their employees. Unobserved worker productive heterogeneity is introduced in the form of cross–worker differences in a "competence" parameter. On the other side of the market, firms also are heterogeneous with respect to their marginal productivity of labor. The model delivers a theory of steady–state wage dispersion driven by heterogenous worker abilities and firm productivities, as well as by matching frictions. The structural model is estimated using matched employer and employee French panel data. The exogenous distributions of worker and firm heterogeneity components are nonparametrically estimated. We use this structural estimation to provide a decomposition of cross–employee wage variance. We find that the share of the cross–sectional wage variance that is explained by person effects varies across skill groups. Specifically, this share lies close to 40% for high–skilled white collars, and quickly decreases to 0% as the observed skill level decreases. The contribution of market imperfections to wage dispersion is typically around 50%.

/pdf/equilibrium-wage-dispersion-with-worker-and-employer-5bp8dh1o4p.pdf

Equilibrium Wage Dispersion with Worker and Employer Heterogeneity

Most applications of Nash bargaining over wages ignore between-employer competition for labor services and attribute all of the workers' rent to their bargaining power. In this paper, we write and estimate an equilibrium model with strategic wage bargaining and on-the-job search and use it to take another look at the determinants of wages in France. There are three essential determinants of wages in our model: productivity, competition between employers resulting from on-the-job search, and the workers' bargaining power. We find that between-firm competition matters a lot in the determination of wages, because it is quantitatively more important than wage bargaining a la Nash in raising wages above the workers' "reservation wages," defined as out-of-work income. In particular, we detect no significant bargaining power for intermediate- and low-skilled workers, and a modestly positive bargaining power for high-skilled workers.

Wage bargaining with on-the-job search: Theory and evidence

Many European labor markets are characterized by heavy employment protection taxes and the widespread use of fixed-duration contracts. The simultaneous use of these two policy instruments seems somewhat contradictory since the former primarily aims at limiting job destruction whereas the latter clearly intensifies it. In this paper, we use a simple matching model with endogenous job destructions to analyze the impact of a combination of the two policies. We find that the political support of insiders to firing restrictions does not necessarily worsen unemployment. In fact, it may be the willingness of a majority of workers to support the "combination" of two instruments with opposite effects on job destruction and job creation that increase unemployment and deteriorates efficiency. Moreover, we argue, that the concentration of firm ownership is likely to influence labor market regulations. We show that the preferred point of a majority of workers is a very flexible labor market, without any firing cost when profits are evenly distributed across the labor force (which portrays a situation where firm ownership is extremely dispersed), whereas a combination of job protection and temporary jobs is preferred by workers when the share of profits that they earn is zero (which corresponds to a situation where firm ownership is concentrated among a few shareholders not participating in the labor market).

https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=265640

Temporary Jobs, Employment Protection and Labor Market Performance

/pdf/wage-bargaining-with-on-the-job-search-theory-and-evidence-29ots13la3.pdf

http://www.crest.fr/ckfinder/userfiles/files/Pageperso/cahuc/cahucPostelCDD.pdf

Fabien Postel-Vinay

Papers

Equilibrium Wage Dispersion with Worker and Employer Heterogeneity

Wage bargaining with on-the-job search: Theory and evidence

Temporary Jobs, Employment Protection and Labor Market Performance

Wage bargaining with on-the-job search: Theory and evidence

Temporary jobs, employment protection and labor market performance