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Session 9: The Micro and Macro of Labor Markets

August 28-29, 2019 | Landau Economics Bldg, 579 Serra Mall, Rm 134, Stanford

The idea of this session is to bring together labor economists and macroeconomists with interests in labor markets with two goals. The first goal is to be a venue to discuss the latest research about labor markets. The second goal is to promote intellectual exchange among scholars working on similar topics, but with different approaches. Specific topics will depend on the submissions.

Organizers: Gregor Jarosch (Princeton University) and Isaac Sorkin (Stanford)

In this Session

Aug 28 | 8:30 am to 9:00 am

Check-in | Breakfast

Aug 28 | 9:00 am to 10:00 am

Firm and Worker Dynamics in Frictional Labor Market

Presented by: Gianluca Violante (Princeton)
Co-Author(s): Adrien Bilaly (Princeton), Niklas Engbom (Federal Reserve Bank of Minneapolis) and Simon Mongey (University of Chicago)
Aug 28 | 10:00 am to 10:15 am


Aug 28 | 10:15 am to 11:15 am

The Effects of Credit Supply on Wage Inequality between and within Firms

Presented by: Christian Moser (Columbia University)
Co-Author(s): Farad Saidi (Stockholm School of Economics) and Benjamin Wirth (IAB)

In this paper, we study the effect of a credit supply shock on the distribution of wages within and between firms. We construct a novel dataset combining administrative linked employer-employee data with information on firms’ preexisting bank relationships in the credit market. We use the introduction of negative monetary policy rates in the euro area as a source of variation in banks’ credit supply to firms in Germany. We find that this credit supply shock leads to higher within-firm wage inequality at more affected employers. At the same time, we find a reduction in between-firm wage inequality due to relatively higher average wages among initially lower paying employers. Our results suggest that monetary policy can have important distributional consequences through affecting credit supply and firm pay heterogeneity

Aug 28 | 11:15 am to 11:30 am


Aug 28 | 11:30 am to 12:30 pm

Deleting a Signal: Evidence from Pre-Employment Credit Checks

Presented by: Alexander Bartik (University of Illinois at Urbana-Champaign)
Co-Author(s): Scott Nelson (University of Chicago Booth School of Business)

We study the removal of information that favors one group over another. Empirically, we focus on banning the use of credit reports to screen job applicants, a practice alleged to disadvantage minority groups with poorer average credit. We estimate these bans decrease job-finding rates for blacks by 2.4 percentage points and increase involuntary separations for black new hires by 3 percentage points. Theoretically, we show the incidence of removing information depends on the information’s relative precision, not necessarily group averages. We estimate credit checks benefit black job seekers because other screening tools, such as interviews, are noisier signals for blacks.

Aug 28 | 12:30 pm to 1:30 pm


Aug 28 | 1:30 pm to 2:30 pm

Discrimination in Hiring: Evidence from Retail

Presented by: Alan Benson (University of Minnesota, Twin-Cities)
Co-Author(s): Simon Board (UCLA) and Moritz Meyer-ter-Vehn (UCLA)

Using data on 43,634 newly-hired commission-based salespeople at a major U.S. retailer, we find that white, black and Hispanic managers within the same store are more likely to hire workers of their own race. This may be caused by managers’ intrinsic taste for hiring same-race applicants (taste-based discrimination) or by their greater ability to screen same-race applicants (screening discrimination). We find that within-store productivity of white and Hispanic workers has greater mean and lower variance if hired by same-race managers. This is consistent with the screening hypothesis,  suggesting that screening discrimination plays an underappreciated role in explaining racial disparities.

Aug 28 | 2:30 pm to 2:45 pm


Aug 28 | 2:45 pm to 3:45 pm

The Duration and Wage Effects of Long-Term Unemployment Benefits: Evidence from Germany's Hartz IV Reform

Presented by: Brendan Price (University of California Davis)

Many displaced workers exhaust their initial stream of unemployment insurance benefits (UI). I analyze Germany’s 2005 Hartz IV reform, which reduced the generosity of long-term unemployment assistance available once these initial benefits run out. Using administrative data on UI claimants, I exploit crosscohort and within-cohort heterogeneity in the timing of Hartz IV’s effective onset to estimate how longterm benefit reductions affect jobless durations, subsequent wages, and job characteristics. The hazard rate of reemployment rises steadily in the months before benefit cuts bind, culminating in a much larger spike at initial benefit exhaustion than was evident before the reform. I find that a worker subject to the new benefit schedule is 12.4 percent less likely to experience a one-year jobless spell. Conditional on completed jobless duration, workers who accept jobs after exhausting their initial entitlements earn 4 to 8 percent lower wages than they would have absent the reform. Averaging across completed durations, and accounting for offsetting wage gains due to shorter spells, I conclude that UI reform had at most a  slight impact on mean reemployment wages: my estimates allow me to rule out wage declines exceeding 1.5 percent or increases exceeding 1.8 percent. Hartz IV diverted claimants from low-paid “mini-jobs” that often supplement UI receipt: net employment gains are driven by full-time jobs. Hartz IV’s direct effects on individual job-finding—if not offset by general equilibrium force  may have lowered Germany’s steady-state unemployment rate by 0.9 percentage points.

Aug 28 | 3:45 pm to 4:00 pm


Aug 28 | 4:00 pm to 5:00 pm

Trade and Informality in the Presence of Labor Market Frictions and Regulations

Presented by: Rafael Dix-Carneiro (Duke University)
Co-Author(s): Pinelopi Goldberg (Yale University), Costas Menhir (Yale University) and Gabriel Ulysses (University of Oxford)

Motivated by recent work on the labor market eects of trade, we build a model of trade with labor market frictions and regulations that are not perfectly enforced by the government. Heterogeneous rms decide whether to operate formally or informally, allowing for a link between globalization, informality and unemployment. We estimate the model using several data sources from Brazil, including matched employer-employee data from formal and informal rms and workers. We perform counterfactual analyses to understand how increasing trade openness aects informality, unemployment and welfare under dierent scenarios of labor market regulations and levels of enforcement. Our results suggest that domestic policies leading to a reduction in informality have the potential to strongly increase aggregate productivity and welfare, at the expense of modest increases in unemployment. These policies have a much larger eect on welfare relative to policies aiming to reduce international trade costs. The informal sector works as a buer in the event of negative economic shocks. However, the welfare gains from eradicating informality are so signicant that it is hard to justify lenience toward the informal sector on the basis that it works as a buer following negative economic shocks.

Aug 28 | 6:00 pm

BBQ Dinner

Aug 29 | 8:30 am to 9:00 am

Check-in | Breakfast

Aug 29 | 9:00 am to 10:00 am

Unbundling Labor

Presented by: Chris Edmond (University of Melbourne)
Co-Author(s): Simon Mongey (University of Chicago)

In this paper we provide a theory for the role of technological change in the relative substitutability of workers in the economy. We show the theory to be useful for understanding new trends that we identify in the wages paid to workers. We extend Rosen (1983) to study when the bundled talents of workers that define their comparative advantage lead them to earn rents, and when these talents may be unbundled such that workers are more substitutable and rents are competed away. Allowing firms to choose their technology as in Caselli and Coleman (2006) endogenizes this substitutability. When technologies are adapted to labor supply, an unbundled economy is more likely, rents to workers shrink, and workers get paid more similarly. We provide empirical evidence consistent with the theory. In the U.S., workers in low skill occupations are paid more similarly now than in the 1980s. Over-time premia, part-time penalties and experience premia have disappeared.

Aug 29 | 10:00 am to 10:15 am


Aug 29 | 10:15 am to 11:15 am

An Empirical Framework for Matching with Imperfect Competition

Presented by: Kory Kroft (University of Toronto)
Co-Author(s): Ismael Mourifie (University of Toronto) and Mons Chan (University of Toronto)

This papers considers a static, many-to-one matching model of the labor market. Firms face inelastic labor supply curves and hence charge a markdown below marginal product. We assume that firms operate in an oligopsony labor market and thus allow for strategic interactions in wage setting. We provide a tractable characterization of the equilibrium and demonstrate existence and uniqueness. This characterization of the model equilibrium allows us to derive a rich set of comparative statics and then to gauge the relative contributions of worker skill, preference for amenities and imperfect competition on equilibrium wage inequality. We also illustrate identification of structural parameters and the estimation of complementarity between workers and firms using matched employer employee data on the population of Danish workers.

Aug 29 | 11:15 am to 11:30 am


Aug 29 | 11:30 am to 12:30 pm

Concentration in U.S. Local Labor Markets: Evidence from Vacancy and Employment Data

Presented by: Claudia Macaluso (UIUC)
Co-Author(s): Chen Yeh (UIUC) and Brad Hershbein (W E Upjohn Institute)

This paper characterizes the cross-sectional and time-series properties of concentration in employment, job creation, and vacancy flows across U.S. local labor markets. We proceed in three steps: first, we derive conditions for indices of labor market concentration to be appropriate proxies for monopsony power. Then, we compute HerfindahlHirschman Indices at the local labor market level using data on the universe of online vacancies (BGT) and the universe of employers (LBD). Finally, we document that labor market monopsony does not manifest itself only through a negative effect on the level of wages, but also through a positive effect on the demand for skills. We find that (i) in the last decade, at most 5% of new U.S. jobs are in moderately concentrated local markets; (ii) local labor market concentration decreased by at least 25% since 1976. We reconcile our findings to previous studies on increasing national concentration by showing that spatial dispersion in the labor market has increased over time. When it comes to the effects of monopsony, we find that a 1% increase in local labor market concentration is associated with a 0.14% decrease in average hourly wages and an increase in the number of jobs requiring cognitive and social skills  equal to 10-13% of the mean (“upskilling”). We conclude that our evidence is consistent with the presence of employers’ market power and discuss how upskilling constitutes a policy challenge not readily addressed by increases in the minimum wage.

Aug 29 | 12:30 pm to 1:30 pm


Aug 29 | 1:30 pm to 2:30 pm

Productivity Dispersion, Between-Firm Competition, and the Labor Share

Presented by: Emilien Gouin-Bonenfant (University of California San Diego)

I propose a tractable model of the labor share that emphasizes the interaction between labor market imperfections and productivity dispersion. I bring the model to the data using an administrative dataset covering the universe of firms in Canada. As in the data, most firms have a high labor share, yet the aggregate labor share is low due to the disproportionate effect of a small fraction of large, extremely productive “superstar firms”. I find that a rise in the dispersion of firm productivity leads to a decline of the aggregate labor share in favor of firm profit. The mechanism is that productivity dispersion effectively shields high productivity firms from wage competition. Reduced-form evidence from cross-country and cross-industry data supports both the prediction and the mechanism. Through the lens of the model, rising productivity dispersion has caused the U.S. labor share to decline starting around 1990.

Aug 29 | 2:30 pm to 2:45 pm


Aug 29 | 2:45 pm to 3:45 pm

Heterogeneous Passthrough from TFP to Wages

Presented by: Mons Chan (University of Toronto)
Co-Author(s): Sergio Salgado (The Wharton School, University of Pennsylvania) and Ming Xu (Queen's University)

We use matched employer-employee data from Denmark to analyze the extent to which firms’ productivity shocks are passed to workers’ wages. The richness of our dataset allows us to separately study continuing and non-continuing workers, to correct for selection, and to investigate how the passthrough varies across narrow population groups. Our results show a much larger degree of passthrough from firms’ shocks to workers’ wages than reported in previous research. On average, an increase of one standard deviation in firm-level TFP commands an increase of 3.0% in annual wages ($1,500 USD for the average worker). Furthermore, we find that the effect of
productivity shocks on wage growth for workers who switch firms is larger relative to workers that stay within the same firm. Finally, we find large differences in the passthrough for workers of different income levels, ages, industries, and firms of different productivity levels. In the second part of our paper, we estimate a stochastic process of income that captures the salient features the data. We then embed the estimated stochastic process into a life-cycle consumption savings model to evaluate the welfare and distributional implications of the passthrough from firms’ TFP shocks to workers’ wages.

Aug 29 | 3:45 pm to 4:00 pm


Aug 29 | 4:00 pm to 5:00 pm

Outside Options, Bargaining & Wages: Evidence from Coworker Networks

Presented by: Sydnee Caldwell (MIT/Microsoft Research/UC Berkeley)
Co-Author(s): Nikolaj Harmon (University of Copenhagen)

This paper analyzes the link between wages and outside employment opportunities. To overcome the fact that factors that affect a worker’s outside options may also impact her productivity at her current job, we develop a strategy that isolates changes in a worker’s information about her outside options. This strategy relies on the fact that individuals often learn about jobs through social networks, including former coworkers. We implement this strategy using employer-employee data from Denmark that contain monthly information on wages and detailed measures of worker skills. We find that increases in labor demand at former coworkers’ current firms lead to job-to-job mobility and wage growth. Consistent with theory, larger changes are necessary to induce a job-to-job transition than to induce a wage gain. Specification tests leveraging alternative sources of variation suggest these responses are indeed due to information rather than unobserved demand shocks. Impacts on earnings are concentrated among workers in the top half of the skill distribution. Finally, we use our reduced-form estimates to identify a structural model that allows us to estimate bargaining parameters and investigate the relevance of wage posting and bargaining across different skill groups.