Standard search and matching models of equilibrium unemployment, once properly calibrated, can generate only a small amount of frictional wage dispersion, i.e., wage differentials among ex-ante similar workers induced purely by search frictions. We derive this result for a specific measure of wage dispersion

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Frictional Wage Dispersion in Search Models : A Quantitative Assessment, Working Paper 06-07

The growth in labor market participation among women with young children has raised concerns about the potential negative impact of the mother’s absence from home on child outcomes. Recent data show that mother’s time spent with children has declined in the last decade, while the indicators of children’s cognitive and noncognitive outcomes have worsened. The objective of our research is to estimate a model of the cognitive development process of children nested within an otherwise standard model of household life cycle behavior. The model generates endogenous dynamic interrelationships between the child quality and employment processes in the household, which are found to be consistent with patterns observed in the data. The estimated model is used to explore the eects of schooling subsidies and employment restrictions on household welfare and child development.

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Household choices and child development

We argue in this paper that the focus on employment effects in recent studies of minimum wages ignores an important interaction between schooling, employment, and the minimum wage. To study these linkages, we estimate a conditional logit model of employment and enrollment outcomes for teenagers using state-year observations for the period 1977 to 1989. The results show a negative influence of minimum wages on school enrollment and a positive effect on the proportion of teens neither employed nor in school. We further suggest that our results are consistent with substitution by employers of higher- for lower-skilled teenagers, with the displaced teens ending up both out of work and out of school.

Minimum wage effects on employment and school enrollment: evidence from policy variation in schooling quality and compulsory schooling laws

We consider an equilibrium search model with on-the-job search where firms set wages. When an employee receives an outside job offer, it is optimal for the employer to try to retain the employee by matching the offer. This results in a wage increase for the worker. However, if workers are able to vary their search intensity, then this `offer-matching' policy runs into a moral hazard problem. Knowing that outside offers lead to wage increases, workers tend to search more intensively, which is costly for the firms. Assuming that firms can commit never to match outside offers, we examine the set of firm types for which it is preferable to do so. In particular, we show that a plausible pattern is one where a `dual' labor market emerges, with `bad' jobs at low-productivity, nonmatching firms and `good' jobs at high-productivity, matching firms. (Copyright: Elsevier) Download Info

To Match or Not To Match ? Optimal Wage Policy with Endogenous Worker search Intensity

This paper provides a step-by-step guide to estimating infinite horizon discrete choice dynamic programming (DDP) models using a new Bayesian estimation algorithm (Imai et al., Econometrica 77:1865–1899, 2009a) (IJC). In the conventional nested fixed point algorithm, most of the information obtained in the past iterations remains unused in the current iteration. In contrast, the IJC algorithm extensively uses the computational results obtained from the past iterations to help solve the DDP model at the current iterated parameter values. Consequently, it has the potential to significantly alleviate the computational burden of estimating DDP models. To illustrate this new estimation method, we use a simple dynamic store choice model where stores offer “frequent-buyer” type rewards programs. Our Monte Carlo results demonstrate that the IJC method is able to recover the true parameter values of this model quite precisely. We also show that the IJC method could reduce the estimation time significantly when estimating DDP models with unobserved heterogeneity, especially when the discount factor is close to 1.

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A practitioner’s guide to Bayesian estimation of discrete choice dynamic programming models

We generalize a search, matching, and bargaining model to allow individuals to acquire productivity-enhancing schooling prior to labor market entry. In general, search frictions and weakness in bargaining position contribute to underinvestment in schooling from an efficiency perspective. Using estimates of a general equilibrium version of the model in which firm vacancy creation decisions are included, we find that minimum wages and schooling subsidies improve aggregate welfare, but have very different welfare impacts across the ability distribution. In particular, policies that maximize the average welfare of workers have strongly negative effects on the welfare of the least able.

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Labor market search and schooling investment

In order to assess the child welfare impact of policies governing divorced parenting, such as child support orders, child custody and placement regulations, and marital dissolution standards, one must consider their influence not only on the divorce rate but also on spouses' fertility choices and child investments. We develop a model of marriage, fertility and parenting, with the main goal being the investigation of how policies toward divorce influence outcomes for husbands, wives and children. Estimates of preferences and the technology of child development are disciplined by data on parental time inputs, and simulations based on the model explore the effects of changes in custody allocations and child support standards on outcomes for intact and divided families. Simulations indicate that, while a small decrease in the divorce rate may be induced by a significant child support hike, the major effect of child support levels for both intact and divided households is on the distribution of welfare between parents. Simulated divorce, fertility, test scores and parental welfare all increase with a move toward shared physical placement. Finally, the simulations indicate that children's interests are not necessarily best served by minimizing divorced parenting.

http://www.econ.nyu.edu/user/flinnc/papers/Family_Law_Brown_Flinn.pdf

Family Law Effects on Divorce, Fertility and Child Investment

We study the formation of wages in a frictional search market where firms can choose either to bargain with workers or post non-negotiable wage offers. Workers can secure wage increases for themselves by engaging in on-the-job search and either moving to firms that offer higher wages or, when possible, leveraging an outside offer into a higher wage at the current firm. We characterize the optimal wage posting strategy of non-negotiating firms and how this decision is influenced by the presence of renegotiating firms. We quantitatively examine the model's unique implications for efficiency, wage dispersion, and worker welfare by estimating it using data on the wages and employment spells of low-skill workers in the United States. In the estimated steady state of the model, we find that more than 10% of job acceptance decisions made while on the job are socially sub-optimal. We also find that, relative to a benchmark case without renegotiation, the presence of even a small number of these firms increases the wage dispersion attributable to search frictions, deflates wages, and reduces worker welfare. Moving to a general equilibrium setting, we use the estimated model to study the impact of a minimum wage increase on firm bargaining strategies and worker outcomes. Our key finding is that binding minimum wages lead to an increase in the equilibrium fraction of renegotiating firms which, relative to a counterfactual in which this fraction is fixed, significantly dampens the reduction in wage dispersion and gains in worker welfare that can typically be achieved with moderate minimum wage increases. Indeed, the presence of endogenous bargaining strategies reverses the sign of the average welfare effect of a $15 minimum wage from positive to negative.

Firms' Choices of Wage-Setting Protocols in the Presence of Minimum Wages

Les parents investissent du temps et de l’argent a la maison dans le developpement du capital humain de leurs enfants. Beaucoup investissent aussi de fortes sommes dans des services de garde lucratifs. De nombreuses politiques gouvernementales influencent ces decisions d’investissement. Leur incidence sur le bien-etre et le developpement des enfants depend de comment les familles reagissent en modifiant la repartition des investissements dans une periode donnee et au fil du temps.

Dans la litterature, on estime habituellement les fonctions de production de capital humain chez les enfants de deux facons : soit on reduit les investissements pour chaque periode a un seul intrant composite, soit on fait des hypotheses sur la substituabilite entre les intrants. Dans cette etude, nous examinons une technologie qui definit les habitudes de substitution entre, d’une part, le temps et les biens et services achetes a la maison et, de l’autre, les services de garde achetes sur le marche.

Nos estimations portent a croire a une complementarite entre le temps consacre par les parents et les biens et services a la maison, ainsi qu’entre ces intrants et les services de garde lucratifs. Il importe de tenir compte du degre de complementarite des intrants sous-entendu par nos estimations pour comprendre les tendances transversales des donnees ainsi que les reactions aux variations des prix sur les marches et aux changements de politiques.

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Child Skill Production: Accounting for Parental and Market-Based Time and Goods Investments

We generalize the standard search, matching, and bargaining framework to allow individuals to acquire productivity-enhancing schooling prior to labor market entry. As is wellknown, search frictions and weakness in bargaining position contribute to under-investment from an efficiency perspective. In order to evaluate the sensitivity of schooling investments to “hold up,” the model is estimated using Current Population Survey data. We focus on the impact of bargaining power on schooling investment, and find that the effects are large in the partial equilibrium version of the model. However, large increases in bargaining power in the general equilibrium version of the model choke off firm vacancy creation and actually reduce the level of schooling investment.

Joseph Mullins

Papers

Labor market search and schooling investment

Family Law Effects on Divorce, Fertility and Child Investment

Firms' Choices of Wage-Setting Protocols in the Presence of Minimum Wages

Child Skill Production: Accounting for Parental and Market-Based Time and Goods Investments

Labor Market Search and Schooling Investment