Subsidizing low-skilled jobs in a dual labor market

We introduce a matching model that allows for classical and frictional unemployment. The labor market is dual featuring low-skilled and high-skilled workers and simple and complex jobs. Simple jobs pay a minimum wage, while wages in the complex jobs are determined by Nash bargaining. Opportunities for low-skilled workers are limited to simple jobs; while high-skilled unemployed can apply for both types of jobs, and thereby can accept to be downgraded. We analyze the outcomes of simple job subsidy policies assuming that government budget is balanced through taxes on occupied workers. We first give conditions for the existence and uniqueness of a steady-state equilibrium and we then analyze the effects of different fiscal instruments. We show that in this set-up, increasing simple job subsidies does not necessarily reduce low-skilled unemployment or unemployment spells. By introducing heterogeneous skills and possible downgrading of the high-skilled workers, we show that the effectiveness of such policies in reducing the classical unemployment is decreasing. In fact, any additional classical unemployed re-entering the job market is accompanied by an increasing number of high-skilled workers downgrading to low-skilled jobs. We calibrate the model on French labor market data. It is found that for five low-skilled workers leaving classical unemployment, two high-skilled workers are downgraded.     

An evolutionary model of industry dynamics and firms’ institutional behavior with job search, bargaining and matching

By combining features from distinct theoretical approaches, namely the evolutionary and the job search, matching and bargaining literatures, we propose a model that captures the main dynamics of a world where heterogeneous firms and workers interact and co-evolve. Within a micro-meso framework, the model focuses on the influence of firms’ labour choices (“institutional settings”) on industry dynamics, taking into account the existence of employment adjustment costs. The consideration of endogenous matching and bargaining processes in the labour market results in significant frictions, such as the simultaneous coexistence of unfilled job vacancies and unemployment. In a setting where technological progress is not biased a stylized fact of industrialized world economies in the last few decades emerges, the increasing wage inequality. Additionally, turbulence in the industry increases after a negative demand shock. As expected, the negative demand shock causes a decrease in the number of vacancies and, consequently, unemployment rates increase considerably. Interestingly, and mimicking the recent experiences of countries such as US, Spain, Greece and Portugal, the rise in unemployment is matched by a rise in contractual wages. This outcome is explained by the lower ability of the firms to fill their posted vacancies, which results from friction in the interactions among agents.     

State dependency in youth unemployment: A lost generation?

Utilizing a job search framework and survey data on both completed and uncompleted spells of unemployment we present in this paper maximum likelihood estimates of the determinants of re-employment probabilities of young workers in Britain. The model used allows us to examine the importance of state dependency in youth unemployment as well as ethnicity, educational qualifications, and unemployment income. Results suggest that there is strong evidence of negative duration dependence in the transition from unemployment to employment for young workers in Britain.     

Optimal unemployment policy in a matching equilibrium

This paper considers optimal unemployment policy in a matching equilibrium with risk averse workers and unobserved job search effort. The Planner chooses unemployment benefits, taxes and job creation subsidies to maximise a Utilitarian welfare function. Optimal policy involves a trade-off between higher employment taxes (which finance more generous unemployment benefits) and greater market tightness (which reduces the average unemployment spell). Optimal UI implies the initial UI payment equals the wage, thus ensuring consumption is smooth across the job destruction shock, and UI payments then fall with duration.     

Immigrant wage profiles within and between establishments

Life cycle wages of immigrants from developing countries fall short of catching up with wages of natives. Using linked employer–employee data, we show that 40% of the native–immigrant wage gap is explained by differential sorting across establishments. We find that returns to experience and seniority are similar for immigrant and native workers, but that differences in job mobility and intermittent spells of unemployment are major sources of disparity in lifetime wage growth. The inferior wage growth of immigrants primarily results from failure to advance to higher paying establishments over time. These empirical patterns are consistent with signaling disadvantages of immigrant job seekers, but not with the explanation that low wage growth follows from inferior information about employers and job opportunities.     

Dynamics of worker flows and vacancies: evidence from the sign restriction approach

This paper establishes robust dynamic features of the worker reallocation process in the US labor market. I use structural VARs with sign restrictions, which take the form of restricting the short‐run negative relationship between vacancies and unemployment (i.e., Beveridge curve). Despite the ‘weakness’ of these restrictions, they reveal a clear, unambiguous pattern that, when unemployment increases and vacancies drop, (i) both the separation rate and gross separations rise quickly and remain persistently high, (ii) the job finding rate and vacancies drop in a hump‐shaped manner, and (iii) gross hires respond little initially, but eventually rise. These results point to the importance of job loss in understanding US labor market dynamics. This pattern also holds with respect to different kinds of shocks that induce the same Beveridge curve relationship. This paper also considers the ‘disaggregate model’, which uses data disaggregated into six demographic groups and incorporates transitions into and out of the labor force. I show that the separation rate continues to play a dominant role among prime‐age male workers, while, for other groups, changes in the job finding rate are more important. Copyright © 2009 John Wiley & Sons, Ltd.     

The cyclical pattern of regional unemployment flows in Poland

Using male unemployment benefit data across Polish regions during 1994–1996, we find that unemployment flows are pro-cyclical and increase with job reallocation, controlling for other factors. At the national level we observe that job reallocation and output are associated with stagnant unemployment flows, low inflows and long duration. This has heretofore been attributed to workers by-passing the unemployment benefit system as they move job to job. We show this to be a fallacy of aggregation. The cyclical behaviour of regional unemployment flows and their response to job reallocation suggests that workers use unemployment benefit system to facilitate transition.     

On-the-job search and cyclical unemployment: Crowding out vs. vacancy effects

Incorporating on-the-job search (OTJS) into a real business cycle model has been shown to increase the cyclical volatility of unemployment. Using a particularly simple model of OTJS, we show that the increased search of employed workers during expansions induces firms to open more vacancies, but also crowds out unemployed workers in the job search, resulting in an ambiguous overall effect on unemployment volatility. We show analytically and numerically that the difference between the employer׳s share of the match surplus with an employed versus an unemployed job seeker determines the degree to which OTJS increases unemployment volatility. We use this result to re-consider some related papers of OTJS and explain the amplification of volatility they obtain. Finally, we show that a plausible calibration of the OTJS model allows us to reproduce most significant features of the US labor data.     

Potential Unemployment Benefit Duration and Spell Length: Lessons from a Quasi-Experiment in Austria

The paper studies the effect of potential unemployment benefit duration on the length of unemployment spells in Austria. It takes advantage of a quasi-experimental situation, where potential benefit duration was extended in 1988 for elderly workers living in specific regions of the country. The empirical analysis shows that men react significantly to benefit duration whereas women generally do not. The quantitative impact is smaller than in comparable studies for the US and Germany. Furthermore, the impact of extended benefit duration is differentiated for short and long spells. Whereas for long spells higher impacts for men as well as for women are found, no unemployment-prolonging effects for short spells could be detected.     

The perceived probability of job loss and future labour market outcomes

Longitudinal survey data are used to test the degree to which worker expectations of future job loss are correlated with changes in labour market status. Three major findings are reported. First, perceived probabilities of expected job loss are only weakly related to both exogenous job separations and subsequent transitions to unemployment and inactivity. Second, while fears of job loss tend to persist across time and job spells, they do so at a highly diminishing rate. Third, quit intentions are strongly correlated with both voluntary separations and transitions to alternative employment, and do not diminish greatly across successive employment spells.     

The cyclical upgrading of labor and on-the-job search

This paper examines patterns of worker reallocation in the search and matching model of the labor market. We show that on-the-job search is crucial for explaining the observed cyclical upgrading of workers to better employment opportunities in booms. This is due to the rising availability of employed searchers which facilitates recruitment for newly created high-wage jobs. The standard model fails to exhibit such behavior. At the same time, the model is consistent with salient features of labor market dynamics, such as the volatility of vacancies and unemployment, and a highly procyclical rate of job-to-job transitions. This suggests an important channel for the reallocation of workers across jobs as well as the propagation of aggregate shocks.     

Durations in Panel Data Subject to Attrition: A Note on Estimation in the Case of a Stock Sample1

In the empirical analysis of unemployment durations or job durations, it is generally assumed that the stochastic processes underlying labour market behaviour and the behaviour concerning participation in a panel survey are independent. As a consequence, spells that are incomplete due to attrition can be treated as spells that are subjected to independent right censoring. However, if the assumption of independence is violated, i.e. if for example the probability of dropping out of the panel is related to the rate at which a job is found, then attrition may have to be modelled and estimated jointly with the unemployment duration distribution to avoid biased estimates of the rate at which individuals become employed. A way to model the joint dependence is by means of stochastically related unobserved determinants. We discuss some properties of these kinds of models and state conditions needed to estimate such models in the case of stock sampled duration data.     

Job search incentives and job match quality

We examine the impacts of time-limited unemployment insurance (UI) and active labor market programs (ALMP) on the duration and outcome of job search in Norway. We use a comprehensive simultaneous equations model accounting for i) the duration of unemployment spells; ii) their outcomes, iii) subsequent employment stability; and iv) the earnings level associated with the first job. We find that time invested in job search pays off in form of higher earnings once a job match is formed. ALMP raises the probability of eventually finding a job as well as expected earnings, but at the cost of lengthening job search.     

Market structure and spells of employment and unemployment: Evidence from the construction sector in Egypt

This paper investigates the links between market structure and spells of employment and unemployment in the construction sector in Egypt using an augmented job search framework. Two key features of the model are the reservation frontier which allows for a trade-off between wages and expected duration of employment, and the dependency of unemployment durations on expected employment durations and expected wages. These, as well as conjectures concerning the influence of demand-side forces obtained from the expressions for the transition rates out of employment and unemployment, are examined using Weibull, log-logistic and generalized gamma parameterizations of the hazard rate. The parametric assumptions are exploited to resolve problems associated with selectivity and use of generated regressors.     

A longitudinal analysis of search frictions and matching in the U.S. labor market

This paper takes a partial equilibrium on-the-job search model to a decade (1996–2006) of repeated cross-sections from the U.S. Current Population Survey. Each month, a set of parameters ruling worker mobility between labor market states and along the wage ladder is estimated using wage distributions and individual transitions. In particular, job-to-job mobility is decomposed into a voluntary component (on-the-job search) and an involuntary one (job reallocation). The resulting time series of transition parameters are first used in a longitudinal analysis of labor turnover and search frictions. Job reallocations are shown to be key in the acyclical behavior of the job separation rate, and in the procyclical behavior of the probability of changing job. Moreover, an index of search frictions is computed and shown to follow no cyclical pattern. The paper then turns to an estimation of the matching function with both unemployed and employed job seekers. The transition parameters from the job search model are used as weights in an aggregate indicator of labor supply. The inclusion of employed workers increases the estimates of the elasticities of the matching function with respect to its two inputs (labor supply and job vacancies).     

Incidence and duration of unemployment spells: Implications for the male–female wage differentials

We demonstrate in this paper that the incidence of unemployment and duration of unemployment spells affect the male–female gender wage differential. The results indicate that after controlling for sample selectivity bias in the wage equation, the incidence of unemployment and duration of unemployment spells account for about 14.2% and 39.6%, respectively, of the wage differential that exists between males and females. We observed that while the duration of unemployment accounts for a substantial portion of the wage differential in both the service (48.8%) and the manufacturing (17.0%) sectors, the impacts of the incidence of unemployment and duration of unemployment spells variables on the wage differential are rather small in the service (0.07%) and the manufacturing (1.6%) sectors. Also, high incidence of unemployments is associated with low wages for males and females in all samples. In contrast, longer durations of unemployment spells tend to increase males’ wages and decrease females’ wages in the full and service sector samples. At the macro level, the results seem to suggest that promotion of gender wage equality should be associated with policies that will minimize the female's incidence of unemployment and duration of unemployment spells.     

Ethnic Variation in Commuting Propensity and Unemployment Spells: Some U.K. Evidence

This paper uses 1987–88 U.K. survey data from the unemployment inflow to investigate the ability of ethnic variation in commuting willingness to account for longer non-white unemployment spells. The study is motivated by the possibility that ethnic minorities are at greater risk of spatial mismatch unemployment because they are more geographically restrictive in their job-seeking activities. Our findings support this hypothesis and indicate that lower commuting willingness explains about 20% of the differential between the average unemployment spells of ethnic minorities and whites.     

Technical skill bias as a response of firms to unemployment: A matching model with applicant ranking and endogenous skill requirements

This paper considers an economy with heterogeneous workers where identical firms optimally decide on the degree of complexity of jobs. Meetings are depicted by an urn-ball process where firms rank their applicants and pick the best one. We show that a general rise in unemployment induces an increase in the employment shares of high-skilled workers which, in turn, makes firms choose more complex jobs, leading then to a decrease in the output of low-skilled workers. The technical skill bias is therefore related to the usual explanations of unemployment. Next, we state that a decentralized equilibrium is efficient in terms of job complexity but inefficient in terms of job creation when firms internalize the usual congestion effect. We then extend the analysis to a dynamic model.     

Workforce location and equilibrium unemployment in a duocentric economy with matching frictions

This article examines unemployment disparities and efficiency in a duocentric city where workers are non-uniformly distributed between the two job centers. We introduce commuting costs and search-matching frictions to deal with the spatial mismatch between workers and firms. In a decentralized economy job-seekers do not internalize a composition externality they impose on all the unemployed. With symmetric job centers, a change in the distribution of the workforce can lead to asymmetric equilibrium outcomes. We calibrate the model for Los Angeles and Chicago Metropolitan Statistical Areas. Simulations suggest that changes in the workforce distribution have non-negligible effects on unemployment rates, wages, and net output, but cannot be the unique explanation of a substantial mismatch problem.     

Job Insecurity and the Difficulty of Regaining Employment: An Empirical Study of Unemployment Expectations

It is widely assumed that British workers have become more insecure over he last decade. This paper sets out to establish whether the popular assumption is correct. We examine changes in measures of workers' insecurity using direct measures of their unemployment expectations, using data colleted by the Social Change and Economic Life Initiative (SCELI) in 1986 and by the Skills Survey (SS) in 1997. The paper also investigates how closely subjective measures of insecurity are related to objective measures commonly used as proxies, and analyses how these expectations are determined. It finds that: i. In aggregate job insecurity, measured as the expected risk of job loss, has changed little, while the expected difficulty of regaining employment has fallen over the last decade. ii. Job insecurity has increased among non-manual workers, while it has fallen among non-manual workers, who were traditionally less secure in the first place. iii. Unemployment in the external labour market has a large impact onindividuals' expectations of unemployment and on their expectations of re-employment. vi. There is a strong positive association between a job being temporary and insecurity. It is valid, therefore, to see a possible problem of rising subjective insecurity if there is a rising proportion of temporary workers in the labour force. v. Job tenure and job insecurity follow a U-shaped relationship. vi. The fall in unemployment from 1986 to 1997 would have been predicted to induce a substantial fall in job insecurity, that this fall did not materialise suggests that there has been an upward shift in job nsecurity.