Dynamic coordination with timing frictions: theory and applications

We start by presenting the general model of dynamic coordination with timing frictions and some key theoretical results. We prove the model features a unique rationalizable equilibrium, present a method to solve the social planner problem and derive expressions for the equilibrium threshold in limiting cases. With this toolkit in hand, we get analytical results for a case with linear preferences and present several applications, ranging from network externalities to statistical discrimination and to macroeconomics. Besides generating insights for specific questions, the applications illustrate the potential of the model to accommodate a large set of economic problems. Last, we show extensions of the framework that allow for endogenous hazard rates, preemption motives and ex-ante heterogeneous agents

Estimating a Dynamic Adverse Selection Model: Labor Force Experience and the Changing Gender Earnings Gap 1968-93.

This paper addresses two questions: What accounts for the gender gap in labor-market outcomes? What are the driving forces behind the changes in the gender-labor-market out- comes over the period 1968–97? It formulates a dynamic general equilibrium model of labor supply, occupational sorting and human capital accumulation in which gender discrimination and an earnings gap arise endogenously. It uses this model to quantify the driving forces behind the decline in the gender earnings gap and the increase in women’s labor-force participation, professional-occupation representation and hours worked. It …nds that labor-market experience is the most important factor explaining the gender earnings gap. In addition, statistical dis- crimination accounts for a large fraction of the observed gender earnings gap and its decline. It also …nds that a large increase in aggregate productivity in professional occupations plays a major role in the increase in women’s labor-force participation, professional-occupation repre- sentation and hours worked. Although of less importance, demographic changes account for a substantial part of the increase in female labor-force participation and hours worked, whereas home-production technology shocks do not.

A Short-term Intervention for Long-term Fairness in the Labor Market

The persistence of racial inequality in the U.S. labor market against a general backdrop of formal equality of opportunity is a troubling phenomenon that has significant ramifications on the design of hiring policies. In this paper, we show that current group disparate outcomes may be immovable even when hiring decisions are bound by an input-output notion of "individual fairness." Instead, we construct a dynamic reputational model of the labor market that illustrates the reinforcing nature of asymmetric outcomes resulting from groups' divergent accesses to resources and as a result, investment choices. To address these disparities, we adopt a dual labor market composed of a Temporary Labor Market (TLM), in which firms' hiring strategies are constrained to ensure statistical parity of workers granted entry into the pipeline, and a Permanent Labor Market (PLM), in which firms hire top performers as desired. Individual worker reputations produce externalities for their group; the corresponding feedback loop raises the collective reputation of the initially disadvantaged group via a TLM fairness intervention that need not be permanent. We show that such a restriction on hiring practices induces an equilibrium that, under particular market conditions, Pareto-dominates those arising from strategies that statistically discriminate or employ a "group-blind" criterion. The enduring nature of equilibria that are both inequitable and Pareto suboptimal suggests that fairness interventions beyond procedural checks of hiring decisions will be of critical importance in a world where machines play a greater role in the employment process.Comment: 10 page

Affirmative Action: One Size Does Not Fit All

This paper identifies a new reason for giving preferences to the disadvantaged using a model of contests. There are two forces at work: the effort effect working against giving preferences and the selection e¤ect working for them. When education is costly and easy to obtain (as in the U.S.), the selection effect dominates. When education is heavily subsidized and limited in supply (as in India), preferences are welfare reducing. The model also shows that unequal treatment of identical agents can be welfare improving, providing insights into when the counterintuitive policy of rationing educational access to some subgroups is welfare improving

A Model of Occupational Licensing and Statistical Discrimination

We develop a model of statistical discrimination in occupational licensing. In the model, there is endogenous occupation selection and wage determination that depends on how costly it is to obtain the license and the productivity of the human capital that is bundled with the license. Under these assumptions, we find a unique equilibrium with sharp comparative statics for the licensing premiums. The key theoretical result in this paper is that the licensing premium is higher for workers who are members of demographic groups that face a higher cost of licensing. The intuition for this result is that the higher cost of licensing makes the license a more informative labor market signal. (This is a similar insight to Spence 1973). The predictions of the model can explain, for example, the empirical finding in the literature that occupational licenses that preclude felons close the racial wage gap among men by conferring a higher premium to black men than to white men (Blair and Chung 2018). Moreover, we show that in general the optimal cost of licensing is nonzero: an infinitely costly licenses screens out all workers, while a costless license is no screen at all

Job Characteristics and Labor Market Discrimination in Promotions: New Theory and Empirical Evidence

[Excerpt] We present new theory and the first empirical test of promotion discrimination models based on job assignment signaling. In our theory, promotions serve as signals of worker ability, and job hierarchies differ in the degree to which tasks vary across hierarchical levels. When tasks differ substantially across levels, the opportunity cost (in terms of foregone output) of not promoting qualified workers from a disadvantaged group (e.g. racial minorities or females) is large, so employers are less likely to (inefficiently) retain such workers in lower-level jobs. Thus, given performance in the pre-promotion job, the extent to which disadvantaged workers have lower promotion probabilities than advantaged workers should decrease when tasks vary more across hierarchical levels. Also, the difference between the favored and disfavored groups in the wage increase attached to promotion should diminish when tasks vary more across hierarchical levels. We test these implications empirically for the case of racial discrimination in promotions, using personnel data from a large U.S. firm and also data from the National Compensation Survey. We find strong empirical support for the theoretical model’s predictions concerning promotion probabilities, whereas empirical support is mixed for the model’s predictions concerning the wage growth attached to promotions

Why do women's wages increase so slowly throughout their career? A dynamic model of statistical discrimination

The aim of this paper is to explain the growing wage differentials between men and womenduring their working careers. We provide a dynamic model of statistical discrimination, whichintegrates specific human capital decisions: on-the-job training investment and wages areendogenously determined. We reveal a small wage differential at the beginning of women'scareer, followed by a larger wage differential; this is partly due to a lower level of human capitalinvestment by women and partly because firms smooth training costs between different periods.Statistical discrimination, careers, male/female differentials, gender wage gap, specific human capital.

Statistical Discrimination with Neighborhood Effects: Can Integration Eliminate Negative Stereotypes?

We introduce neighborhood effects in the costs of human capital acquisition into a model of statistical discrimination in labor markets. This creates a link between the level of segregation and the likelihood and extent of statistical discrimination. As long as negative stereotypes persist in the face of increasing integration, skill levels rise in the disadvantaged group and fall in the advantaged group. If integration proceeds beyond some threshold, however, there can be a qualitative change in the set of equilibria, with negative stereotypes becoming unsustainable and skill levels in both groups changing significantly. This change can work in either direction: skill levels may rise in both groups, or fall in both groups. Which of these outcomes arises depends on the population share of the disadvantaged group, and on the curvature of the relationship between neighborhood quality and the costs of human capital accumulation.Statistical discrimination, Neighborhood effects, Human capital spillovers