“Testing the Independence of Job Arrival Rates and Wage Offers,” joint with Christine Braun, Bryan Engelhardt, and Peter Rupert (Labour Economics, vol 63, April 2020)
Abstract: Is the arrival rate of a job independent of the wage that it pays? We answer this question by testing whether unemployment insurance alters the job finding rate differentially across the wage distribution. To do this, we use a Mixed Proportional Hazard Competing Risk Model in which we classify quantiles of the wage distribution as competing risks faced by searching unemployed workers. Allowing for flexible unobserved heterogeneity across spells, we find that unemployment insurance increases the likelihood that a searcher matches to higher paying jobs relative to low or medium paying jobs, rejecting the notion that wage offers and job arrival rates are independent. We show that dependence between wages and job offer arrival rates explains 9% of the increase in the duration of unemployment associated with unemployment insurance.
Note: Previously circulated under the title “Do Workers Direct their Search?” and “Testing the Independence of Job Arrival Rates and Wage Offers in Model of Job Search”
Abstract: This paper explores a participation externality that emerges in low-wage labor markets and how well a minimum wage can address it. Workers, who are heterogeneous with respect to their abilities, search for homogeneous jobs. A low ability worker’s market entry acts to suppress vacancy creation which the worker does not internalize. Match-specific productivity is incorporated to capture the fact that lower wage earners are over represented among the unemployed. The Planner sets an ability cut-off for participation, a match-specific productivity threshold for each ability level, and controls vacancy creation. A binding minimum wage can exclude low ability workers but, depending on the dispersion of the match-specific productivity shocks, can also excessively prevent matching by higher ability workers. The model is calibrated to CPS data for prime age high school drop-outs. Quantitatively, while the externality is shown to be important, the minimum wage is not a particularly effective means of addressing it.
“Search and the Sources of Life-Cycle Inequality,” new version June 2020
Note: Previously circulated under the titles “Borrowing Constraints, Search, and Life-Cycle Inequality” and “Wealth Effects, Search, and Life-Cycle Inequality”
Abstract: We develop a model of part and full-time employment and use it to assess the volatility of the labor market. A number of papers have sought to assess the viability of the Diamond-Mortensen-Pissarides model as a vehicle for understanding unemployment and vacancy dynamics during the US business cycle. Shimer (2005) argues that for reasonable calibrations, a wide range of canonical search models cannot match the volatility of these two series in the data. We show that a modest extension of the Mortensen and Pissarides (1994) framework is able to bridge both of these gaps. Our model endogenously generates part and full-time employment as a result of acyclical fixed costs assessed on firms. We show that this generates a large increase in the volatility of vacancies, unemployment, and labor market tightness. We also explore the impact of benefits policies on employment and find that both mandatory healthcare for full-time workers and increases in unemployment benefits depress employment and increase volatility.
“What do Worker Flows Say about the Wage Gains from Unemployment Insurance,” joint with Stan Rabinovich [PDF available upon request]
Abstract: How large are the effects of unemployment insurance on re-employment wages? Search theory holds that UI increases accepted wages by making workers more selective about the jobs they accept. We show that the standard search model puts strong testable restrictions on the magnitude of this selectivity effect, given observed worker flows. A simple formula links the effect of UI on wages to its effect on job-finding hazard and to the size of frictional wage dispersion. Given the model-implied magnitude of the latter, the implied wage gain from UI cannot be very large. Our own empirical analysis using SIPP shows that, for high-wealth workers, the effects of UI on both duration and wages are close to zero, consistent with the model’s predictions. However, for liquidity-constrained workers, the estimated wage effect of UI is substantially larger than what a standard search model implies given its estimated effect on the job-finding hazard. We conclude that large estimated wage gains from UI are likely not due to selectivity alone.
“Wealth, Search, and Human Capital over the Business Cycle,” joint with Stan Rabinovich [PDF available upon request]
Abstract: We assess how an economy’s wealth distribution shapes its labor market dynamics. We answer this question in a quantitative model featuring directed search, incomplete markets, aggregate shocks, and endogenous on-the-job human capital accumulation. On the individual level, poorer workers apply for lower-wage jobs when unemployed and under-accumulate human capital when employed to self-insure against unemployment risk. These differences in behavior by wealth are intensified in recessions when jobs are scarce and unemployment risk is high. On the aggregate level, an economy entering a recession with more wealth dispersion suffers a greater reduction in human capital and hence more persistent earnings and output losses. We calibrate the model and use it to evaluate the importance of the wealth distribution for the impact of the Great Recession.
Note: Previously circulated under the title “Precautionary Search and Human Capital over the Business Cycle”
“Public Education Spending and Intergenerational Mobility”