Labor Market Equilibrium Research Articles

Equilibrium Labor Market Search and Health Insurance Reform

Equilibrium Labor Market Search and Health Insurance Reform

Immigration, Wages, and Education: A Labour Market Equilibrium Structural Model

Recent literature analysing wage effects of immigration assumes labour supply is fixed across education-experience cells. This article departs from this assumption estimating a labour market equilibrium dynamic discrete choice model on U.S. micro-data for 1967–2007. Individuals adjust to immigration by changing education, participation, and/or occupation. Adjustments are heterogeneous: 4.2–26.2% of prime-aged native males change their careers; of them, some switch to white-collar careers and increase education by about three years; others reduce labour market attachment and reduce education also by about three years. These adjustments mitigate initial effects on wages and inequality. Natives that are more similar to immigrants are the most affected on impact, but also have a larger margin to adjust and differentiate. Adjustments also produce a self-selection bias in the estimation of wage effects at the lower tail of the distribution, which the model corrects.

Effects of transportation barriers on geographic asymmetries in labour markets

The main motivation of this paper is to derive testable predictions on how investments in transport infrastructure might influence spatial wage disparities and commuting flows in a region where a topographical barrier separates the geography into two areas. Wages and commuting flows result from a labour market equilibrium with duopsonistic wage-setting. The results provide important input both for the conduction of cost benefit assessments, and for a discussion of wider impacts of transport investments. The analysis distinguishes between alternative types of equilibrium solutions, according to the direction of commuting flows between central and peripheral areas of the region, and the analysis also derives the conditions under which each type of equilibrium solution will be realized.

A benchmark for wage growth through the lens of the Beveridge curve

ABSTRACTUsing an estimated Beveridge curve, we trace out the vacancy–unemployment ratio in the steady state. This steady-state measure for labour market tightness is embedded in a VAR framework to obtain a benchmark for wage growth reflecting a labour market equilibrium.

A Labor Capital Asset Pricing Model

ABSTRACTWe show that labor search frictions are an important determinant of the cross‐section of equity returns. Empirically, we find that firms with low loadings on labor market tightness outperform firms with high loadings by 6% annually. We propose a partial equilibrium labor market model in which heterogeneous firms make dynamic employment decisions under labor search frictions. In the model, loadings on labor market tightness proxy for priced time‐variation in the efficiency of the aggregate matching technology. Firms with low loadings are more exposed to adverse matching efficiency shocks and require higher expected stock returns.

Motivate and select: Relational contracts with persistent types

We develop a model of relational contracts with moral hazard and asymmetric persistent information about an employee's type. We find that the form of the optimal contract depends on the job characteristics and the distribution of employees' talent. Bonus contracts are more likely to be adopted in complex jobs and when high talent is not too common or too rare. Firms with “normal” jobs are more likely to adopt termination contracts. In labor market equilibrium, different contracts may be adopted by ex ante identical firms. Hence, we offer an explanation for the coexistence of different employment systems within the same industry.

Public Sector Wage Policy and Labor Market Equilibrium: A Structural Model

Abstract We develop and estimate a structural model that incorporates a sizeable public sector in a labor market with search frictions. The wage distribution and the employment rate in the public sector are taken as exogenous policy parameters. Overall wage distribution and employment rate are determined within the model, taking into account the private sector’s endogenous response to public sector employment policies. Job turnover is sector specific and transitions between sectors depend on the worker’s decision to accept alternative employment in the same or different sector by comparing the value of employment in the current and prospective jobs. The model is estimated on British data by a method of moments. We use the model to simulate the impact of various counterfactual public sector wage and employment policies.

An Equilibrium Search Model with Endogenous Growth Rate of Human Capital

This article shows how endogenous human capital affects labor market equilibrium when jobs provided by firms can be either unskilled or skilled and workers differ in their education level which can be either low-educated or high-educated. The market equilibrium is characterized by the unemployment rate and the human capital distributions when the growth rate of the human capital is an endogenous variable. The structure proportion of jobs affects the equilibrium which shows there is a threshold that can distinguish whether the equilibrium is separating or cross-skill. In addition, the cross-skill equilibrium solution implies the high-educated workers are more likely to own higher pay rates than the low-educated workers with same tenure. It also yields a new insight on the effect of the structure proportion of workers on the profits, which implies the profits of firms decrease with the increasing number of the low-educated workers. Moreover, the profit of firms offering the skilled jobs is greater than those offering the unskilled jobs until there is only very few high-educated workers.

Занятость на Севере России: анализ на основе микроданных

In the North of Russia employment and migration are closely related. The reduction in population and employment in the northern regions of the Russian Federation for more than two decades together with the high economic potential of the Russian North seems to be paradoxical. Perhaps this situation is related to the mismatch in demand and supply of labor in the northern regions of Russia. The model of the local labor market equilibrium and the theory of compensating differentials predict higher wages in the amenity-poor regions. It means that less qualified workers can earn more in the High North compared with the other regions of the country. The hypothesis was that less qualified employees have higher probability of being employed in the High North regions of Russia than in the rest of the country. Using the binary logit models, probabilities of being employed in the North of Russia and the rest of the country were estimated at the base of microdata of the Survey of the Labour Force, provided by the Federal State Statistics Service. The results showed that the population in the High North regions of Russia is more economically active compared with the rest of the country, what is especially true for women. The working age and professional education make the highest marginal effects in the North and the rest of the Russian Federation. Secondary and tertiary education increases, while primary education reduces, the probability of being employed in the High North regions of Russia compared with the rest of the country.

The impact of high-speed rail investment on economic and environmental change in China: A dynamic CGE analysis

This study investigates the impact of high-speed rail investment on the economy and environment in China using a computable general equilibrium (CGE) model. The analysis is implemented in a dynamic recursive framework capturing long-run capital accumulation and labor market equilibrium. A national level impact was simulated through direct impact drivers including land use conversion, output expansion, cost reduction, productivity increase, transport demand substitution and induced demand. The results suggest that rail investment in China over the past decade has been a positive stimulus to the economy, while the effect on CO2 emissions generation has been large. Overall, the economic impacts of rail investment are achieved primarily through induced demand and output expansion, whereas the contribution from a reduction of rail transportation costs and rail productivity increases were modest. In addition, negligible negative impacts were found from land use for rail development and the substitution effect among other modes. Emissions reduction from substitution of rail for other modes was small and offset by output expansion due to lowered rail transport costs and induced demand.

Crime, Search, and Ex‐offenders’ Accessibility to Labor Markets

AbstractRehabilitation for ex‐offenders has positive (e.g. more production) and negative (e.g. more crime) effects on society. We investigate the effect of rehabilitation on criminal behavior and the labor market using a search model. In the case where ex‐offenders cannot join the labor market, promoting rehabilitation for them may reduce crime. In such a case, the equilibrium allocation may be inefficient. Moreover, under the Hosios condition, equilibrium labor market tightness is lower than the efficient outcome because of crime, as the crime option raises the value of unemployed workers. Because this option works as a negative externality on matched firms, equilibrium tightness is lower than the optimal level.

Group Analytics in Adam Smith’s Work

The link between occupation and character began with David Hume and was extended by Adam Smith in service to their attack on the doctrine of innate national character. A worker’s awareness of the relative approbative rewards to occupation is central to Smith’s competitive labor market equilibrium. When the division of labor is extended by growth, the variance of character increases. With this insight Smith was able to offer a race-blind theory of civilization, something that escaped even Hume. Nineteenth century anthropological focus on the variance of character can be seen as a racialization of Smith’s work.

The Impact of High-Speed Rail Investment on Economic and Environmental Change in China: A Dynamic CGE Analysis

This study investigates the impact of high-speed rail investment on the economy and environment in China using a computable general equilibrium (CGE) model with a focus on the period 2002-2013. The analysis is implemented in a dynamic recursive framework capturing long-run capital accumulation and labor market equilibrium. A national level impact was simulated through direct impact drivers including land use conversion, output expansion, cost reduction, productivity increase, transport demand substitution and induced demand. The results suggest that rail investment in China over the past two decades has been a positive stimulus to both the economy and social welfare, while the effect on CO2 emissions generation has been large. Overall, the economic and welfare contributions of rail investment are achieved primarily through induced demand and output expansion, whereas the contribution from a reduction of rail transportation costs and rail productivity increases were modest. In addition, negligible negative impacts from land use for rail development and the substitution effect among other modes were found. Emissions reduction from substitution of rail for other modes was small and overwhelmed by output expansion due to lowered rail transport costs and induced demand.

Equilibrium unemployment and retirement

We first propose some new empirical evidence on the fact that the labor market conditions matter for the retirement decision at the individual level: we investigate whether unemployed workers retire before employed workers, other things being equal. Our main objective in this paper is then to propose an equilibrium unemployment approach to retirement decisions that allows us to derive the positive and normative features of retirement decisions when search and matching frictions are considered. Two main conclusions emerge: the retirement decision of unemployed workers depends on the labor-market frictions whereas that of employed workers does not; the existence of search externalities makes the retirement age of unemployed workers intrinsically suboptimal. Considering Social Security policy issues, we show that the complete elimination of the implicit tax on continued activity is not necessarily welfare-optimizing in a second best world where the labor market equilibrium suffers from distortions.

Equilibrium Labor Market Search and Health Insurance Reform, Second Version

We present and empirically implement an equilibrium labor market search model where risk averse workers facing medical expenditure shocks are matched with firms making health insurance coverage decisions. Our model delivers a rich set of predictions that can account for a wide variety of phenomenon observed in the data including the correlations among firm sizes, wages, health insurance offering rates, turnover rates and workers' health compositions. We estimate our model by Generalized Method of Moments using a combination of micro datasets including Survey of Income and Program Participation, Medical Expenditure Panel Survey and Robert Wood Johnson Foundation Employer Health Insurance Survey. We use our estimated model to evaluate the equilibrium impact of the 2010 Affordable Care Act (ACA) and find that it would reduce the uninsured rate among the workers in our estimation sample from about 22% in the pre-ACA benchmark economy to less than 4%. We also find that income-based premium subsidies for health insurance purchases from the exchange play an important role for the sustainability of the ACA; without the premium subsidies, the uninsured rate would be around 18%. In contrast, as long as premium subsidies and health insurance exchanges with community ratings stay intact, ACA without the individual mandate, or without the employer mandate, or without both mandates, could still succeed in reducing the uninsured rates to 7.34%, 4.63% and 9.22% respectively.

Labor Market Equilibrium with Public Employment Agency

We develop and empirically test a labor market model with Public Employment Agencies (PEA) in order to understand why not all vacancies use the costless services provided by the PEA. We show that both the search market and the PEA can be active in equilibrium. In such an equilibrium, workers with a higher productivity have a higher chance of receiving a job offer and hence a higher value of searching privately. This enables firms in the search market to attract a better pool of applicants by posting a higher wage than firms registered with the PEA. Registered firms have no incentive to compete with firms in the search market since the application process in the PEA is coordinated so that the offered wage cannot affect the meeting probability. Using the German Job Vacancy Survey, we test the implications of our theory and find strong support for it.

Motivate and Select: Relational Contracts with Persistent Types

We develop a model of relational contracts with moral hazard and asymmetric persistent information about an employee's type. We find that the form of the optimal contract depends on the job characteristics and the distribution of employees' talent. Bonus contracts are more likely to be adopted in complex jobs and when high talent is not too common or too rare. Firms with 'normal' jobs are more likely to adopt termination contracts. In labor market equilibrium, different contracts may be adopted by ex ante identical firms. Hence, we offer an explanation for the co-existence of different employment systems within the same industry.

Unemployment risk and wage differentials

Workers in less-secure jobs are often paid less than identical-looking workers in more secure jobs. We show that this lack of compensating differentials for unemployment risk can arise in equilibrium when all workers are identical and firms differ only in job security (i.e. the probability that the worker is not sent into unemployment). In a setting where workers search for new positions both on and off the job, the worker's marginal willingness to pay for job security is endogenous, increasing with the rent received by a worker in his job, and depending on the behavior of all firms in the labor market. We solve for the labor market equilibrium and find that wages increase with job security for at least all firms in the risky tail of the distribution of firm-level unemployment risk. Unemployment becomes persistent for low-wage and unemployed workers, a seeming pattern of ‘unemployment scarring’ created entirely by firm heterogeneity. Higher in the wage distribution, workers can take wage cuts to move to more stable employment.

Shifting Taxes from Labour to Property: A Simulation Under Labour Market Equilibrium

A tax shifting from labour income to housing taxation is generally advocated on efficiency grounds. However, most of the empirical literature focuses on the distributional implications of property tax reforms without paying much attention to potential consequences on the labour market. The aim of this paper is to fill this gap by investigating the effects of a tax shifting from labour income to property, guaranteeing revenue neutrality, and to assess the consequences of labour market equilibrium, both on occupation rates and income distribution. We propose to consider a hypothetical tax reform in Italy which uses the revenue of the tax on house property (actually implemented in 2012) for increasing tax credits on low incomes and making them refundable. In order to evaluate the reform we have developed a structural model of household labour supply which takes into account the labour market equilibrium conditions. Overall, the simulated policy provides a more effective income support and better incentives to work for low wage households and determines an improvement in inequality indexes.

Labor Market Equilibrium with Public Employment Agency

We develop and empirically test a labor market model with Public Employment Agencies (PEA) in order to understand why not all vacancies use the costless services provided by the PEA. We show that both the search market and the PEA can be active in equilibrium. In such an equilibrium, workers with a higher productivity have a higher chance of receiving a job offer and hence a higher value of searching privately. This enables firms in the search market to attract a better pool of applicants by posting a higher wage than firms registered with the PEA. Registered firms have no incentive to compete with firms in the search market since the application process in the PEA is coordinated so that the offered wage cannot affect the meeting probability. Using the German Job Vacancy Survey, we test the implications of our theory and find strong support for it.