Worker-firm Matches Research Articles

The Effect of Interviewing Upon Wages in Worker-Firm Matching

Bulow and Levin (2006) provide a model to explain the equilibrium wage in a centralized matching market such as the National Resident Matching Program (NRMP). Their model predicts that the average wages is lower than in any competitive equilibrium. This paper considers an example that incorporates an interview stage into Bulow and Levin (2006)'s framework to study its effect on the equilibrium wages. I find that: (i) the link patterns can influence the intensity of wage competition; (ii) each worker may earn a higher wage than in the firm-optimal competitive equilibrium.

Optimal Unemployment Insurance with Variable Skill Levels

I study the consequences of heterogeneity of skills for efficient unemployment insurance design, using a principal-agent setup. Agents' wages depend on individual productivity and the quality of the worker-firm match. Productivity declines during unemployment and increases on the job. For plausible parameter constellations, more productive agents experience shorter unemployment durations and higher productivity growth under the optimal contract. Benefits do not only depend on employment histories, but also on the skills reported by the agent. Agents are rewarded for accepting jobs that are in line with the insurer's expectations, meaning that agents typically consume more if they find better jobs.

Wage differentials in the presence of unobserved worker, firm, and match heterogeneity

We consider the problem of estimating and decomposing wage differentials in the presence of unobserved worker, firm, and match heterogeneity. Controlling for these unobservables corrects omitted variable bias in previous studies. It also allows us to measure the contribution of unmeasured characteristics of workers, firms, and worker-firm matches to observed wage differentials. An application to linked employer-employee data shows that decompositions of inter-industry earnings differentials and the male-female differential are misleading when unobserved heterogeneity is ignored.

Wage Differentials in the Presence of Unobserved Worker, Firm, and Match Heterogeneity

We consider the problem of estimating and decomposing wage differentials in the presence of unobserved worker, firm, and match heterogeneity. Controlling for these unobservables corrects omitted variable bias in previous studies. It also allows us to measure the contribution of unmeasured characteristics of workers, firms, and worker-firm matches to observed wage differentials. An application to linked employer-employee data shows that decompositions of inter-industry earnings differentials and the male-female differential are misleading when unobserved heterogeneity is ignored.

Job and Worker Reallocation in German Establishments: The Role of Employers' Wage Policies and Labour Market Institutions

Using a large linked employer-employee data set, this paper studies the relationship between job reallocation, worker reallocation and the flexibility of wages in western German manufacturing. Using the plant-specific residual wage dispersion as a proxy for wage flexibility, we find that more flexible wages are associated with less job reallocation due to demand shocks being absorbed by wage rather than by quantity adjustments. As to excess worker reallocation, our results provide evidence of a significant positive relationship between excess worker flows and residual wage dispersion. Consistent with the hypothesis that more flexible wages should help employers in dissolving bad matches, this relationship is found to be most pronounced for low-quality workers. In interacting our measure of wage flexibility with the degree of plantspecific employment protection we find that less stringent firing practices may considerably reduce the need for more flexible wages in order to attain optimal worker-firm matches.

People I Know: Workplace Networks and Job Search Outcomes

We examine the role of information networks in job-search outcomes of displaced individuals. We draw on longitudinal Social Security records covering the universe of worker-firm matches in a tight labor market in Northern Italy. Unlike previous research, we focus on workplace networks whose labor market attributes we are able to describe extensively. A workplace network is defined as all coworkers a displaced individual worked with prior to displacement. Estimates of network effects are thus affected by omitted variable bias if the labor market sorts workers across firms along relevant determinants of search outcomes and network characteristics or if past coworkers are exposed to the same shocks. The empirical strategy accounts for these possibilities by comparing subsequent outcomes of workers displaced by the same firm; in addition, we exploit the longitudinal dimension to develop controls for potential residual within-firm heterogeneity. In particular, we control for pre-displacement wages and employment status as well as descriptions of pre-displacement firms and their workforce. Contacts' labor market attributes have a significant effect on a variety of job search outcomes. Employed contacts significantly increase the probability of re-employment. They are more effective if they experienced a recent job change and when geographically and technologically closer to the displaced. Stronger ties and lower competition for the available information also speed up re-employment. While largely irrelevant for unemployment duration, contacts' quality is a significant determinant of entry wages and subsequent job stability.

Wages, layoffs, and privatization: Evidence from Ukraine

This paper estimates the effects of privatization on worker separations and wages using retrospective data from a national probability sample of Ukrainian households. Detailed worker characteristics are used to control for compositional differences and to assess types of observable “winners” and “losers” from privatization. Pre-privatization worker–firm matches are used to control for unobservables in worker and firm selection. The results imply privatization reduces wages by five percent and cuts the layoff probability in half. Outside investor ownership reduces separations but leaves wages unaffected. Winners from privatization tend to be higher skilled employees of larger firms, but there is no discernible relationship with gender, education, or experience. Journal of Comparative Economics 34 (2) (2006) 272–294.

Why Do Worker-Firm Matches Dissolve?

In a dynamic labor market worker-firm matches dissolve frequently causing workers to separate and firms to look for replacements. A separation may be initiated by the worker (a quit) or the firm (a layoff), or may result from a joint decision. A dissolution of a worker-firm match may be inefficient if it can be prevented by wage renegotiation. In this paper we study worker separations in the Dutch labor market. From an analysis of matched worker-firm data we conclude that both quits and layoffs are less likely to occur in high quality matches. We also find that workers with a high propensity to quit are offered higher wages to prevent them to quit. Similarly, workers with a high layoff probability give up some of their wage to prevent them from being laid-off. Despite these wage renegotiations some inefficiency in separations remains. However, there is a clear difference between quits and layoffs. Whereas inefficient quits are rare, inefficient layoffs occur frequently. These phenomena may be related to downward wage rigidity. While it is easy to renegotiate higher wages to prevent quits, it is much more difficult to renegotiate lower wages to prevent layoffs even if that would overall be beneficial to the workers involved. (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This ab (This abstract was borrowed from another version of this item.)

Is the ADA Efficient?

The Americans with Disabilities Act (ADA) is a significant legal intervention designed to improve outcomes for people with disabilities. In this article, I use an informal model of worker-firm matching as an organizing framework to explore the economic effects of disability discrimination law in the workplace. The framework shows how the presence of individuals with disabilities in the labor market creates precisely the conditions - incomplete and asymmetric information - that can lead to inefficient mismatching, employee churning, and In contrast to the conclusions of more conventional economic analyses, I argue that the statutory duty of reasonable accommodation promotes labor market efficiency by combating churning and scarring. The duty to accommodate constrains employers whose private gains from discharging disabled employees often produce social losses which are borne by other employers and by public disability insurance schemes. The framework thus sheds new light on how disability discrimination law influences labor market efficiency. It is important to remember that arguments based on distributive justice and the dignitary interests of people with disabilities have always been - and will no doubt remain - a critical part of the policy debate. Nevertheless, an efficiency defense of accommodation mandates bolsters these non-economic arguments offered in support of the ADA. It also challenges the conventional conclusion that a statutory duty of accommodation most closely resembles an implicit tax and transfer scheme with purely redistributive effects. My analysis of comparative accommodation costs also illustrates some areas of tension between dignitary and efficiency approaches to accommodation. We can pursue complete freedom of choice for individuals with disabilities only if we are willing to compromise significantly the economic objective of matching. By identifying more clearly the diverse ways in which accommodation promotes both economic and non-economic goals, we can hope that legal doctrine will tend to express a more orderly balancing of these values.

Labor Heterogeneity in an Urban Labor Market

We construct a model of agglomeration economies in a labor market with friction and heterogeneity of both workers and firms. With friction, matches between workers and firms are random. We show that with random matches, an increase in the number of workers brings improvements in worker–firm match quality and agglomeration economies emerge if and only if the technology of search exhibits increasing returns to scale. We then discuss how to find out empirically whether this condition is satisfied. Furthermore, we investigate properties of the agglomeration economies here and the relation between the city size and states of a labor market.

Wiring the Labor Market

Workers and jobs are naturally heterogeneous and the quality of their interaction when paired is difficult to forecast. The Internet promises to open new channels for worker-firm communications. What are the consequences of this opening? I discuss three labor market features that may be altered: how worker-firm matches are made; how labor services are delivered; and how local markets shape labor demand. Theory predicts these developments will produce social benefits. But the gains are unlikely to be uniform and realizing them will generate novel problems. One result may be the formation of new institutions to address issues accompanying these opportunities.

Wiring the Labor Market

Workers and jobs are naturally heterogeneous and the quality of their interaction when paired is difficult to forecast. The Internet promises to open new channels for worker-firm communications. What are the consequences of this opening? I discuss three labor market features that may be altered: how worker-firm matches are made; how labor services are delivered; and how local markets shape labor demand. Theory predicts these developments will produce social benefits. But the gains are unlikely to be uniform and realizing them will generate novel problems. One result may be the formation of new institutions to address issues accompanying these opportunities.

Worker-Firm Matching and Unemployment in Transition to a Market Economy: (Why) Are the Czechs More Successful than Others?

In this paper we compare the nature and determinants of outflows from unemployment in the case of the Czech and Slovak Republics, which in early 1990's experienced a process close to a controlled experiment. Overall, our study suggests that the exceptionally low unemployment rate in the Czech Republic as compared to Slovakia and the other Central and East European economies has been brought about principally by (1) a rapid increase in vacancies along with unemployment, resulting in a balanced unemployment-vacancy situation at the aggregate as well as district level, (2) a major part played by vacancies and the newly unemployed in the outflow from unemployment, (3) a matching process with strongly increasing returns to scale throughout (rather than only in parts of) the transition period, and (4) ability to keep the long term unemployed at relatively low levels. Using the framework of matching functions we find that in many years the usual Cobb-Douglas specification and the hypothesis of constant returns to scale are rejected. A translog matching function with weak separability between the existing and newly unemployed is found to be the functional form best supported by the data. Our theoretical analysis also indicates that by not adjusting data for the varying size of districts or regions, previous studies may have generated estimates of the returns to scale of the matching function that were biased toward unity.

Worker-Firm Matching and Unemployment in Transition to a Market Economy: (Why) are the Czechs More Successful than Others?

In this paper we compare the nature and determinants of outflows from unemployment in the case of the Czech and Slovak Republics which in early 1990’s experienced a process close to a controlled experiment. Overall, our study suggests that the exceptionally low unemployment rate in the Czech Republic as compared to Slovakia and the other Central and East European economies has been brought about principally by (1) a rapid increase in vacancies along with unemployment, resulting in a balanced unemployment-vacancy situation at the aggregate as well as district level, (2) a major part played by vacancies and the newly unemployed in the outflow from unemployment, (3) a matching process with strongly increasing returns to scale throughout (rather than only in parts of) the transition period, and (4) ability to keep the long term unemployed at relatively low levels. Using the framework of matching functions we find that in many years the usual Cobb-Douglas specification and the hypothesis of constant returns to scale are rejected. A translog matching function with weak separability between the existing and newly unemployed is found to be the functional form best supported by the data. Our theoretical analysis also indicates that by not adjusting data for the varying size of districts or regions, previous studies may have generated estimates of the returns to scale of the matching function that were biased toward unity.

Employer search and worker-firm match quality

Labor economists are devoting increasing attention to employer search. The existing literature falls into two categories: research on information networks and research on search effort. The empirical research on search effort considers the determinants of effort but does not attempt to measure its effectiveness. Other research considers the impact of information networks on labor market outcomes, but ignores the role of search effort. Using data from the Employment Opportunities Pilot Project (EOPP), this paper attempts to synthesize the empirical research on employer search effort by considering information networks and search effort together within a job-matching framework. Specifically, the effects of employer search on employee turnover are examined using both hazard models and Probit analysis. The effect of employer search on wage growth within the job is also considered. I find, consistent with prior research, that when firms search through informal networks, the resulting worker-firm matches are superior to those resulting from search through formal networks. I also find that the impact of employer search effort depends upon the type of information network used in the search process.

Wages and Job Mobility of Young Workers

This paper presents a discrete-time version of Jovanovic's model of worker-firm matching. Descriptive evidence is presented that supports the notion that unobserved worker-firm heterogeneity is an important component in the intertemporal structure of wages for young workers. A structural econometric model of wage dynamics under worker-firm sorting is developed and estimated. Finally, a formal test of the matching model is carried out, and the matching structure on intertemporal covariances of wages is not rejected. My results indicate the necessity of jointly considering processes of turnover and wage growth when analyzing the labor market experiences of young workers.