Essays on non-search unemployment and monetary policy

This doctoral dissertation explores the role that institutions and policies can have in shaping aggregate economic outcomes. The thesis is comprised of an introductory chapter and three independent essays. All essays set up a clear structure that specifies how economic agents react to a changing environment. That is, each essay builds on the general equilibrium modeling of Macroeconomics. The first essay examines the equilibrium effects of occupational human capital protection during mass layoffs in a setup where human capital can depreciate during unemployment spells and commitment problems prevent markets from allocating layoffs optimally. As the consequences of the policy are tightly related to occupational mobility, the paper focuses on modeling reallocation incentives of heterogeneous workers. In a calibrated model, a policy that concentrates involuntary unemployment incidences to inexperienced workers, decreases workers’ incentives to reallocate, compared to an equilibrium where everyone faces an identical unemployment risk, leading also to a decrease in aggregate unemployment. Moreover, this policy change increases the market output and on average does not harm the inexperienced workers. The second essay explores the effects of unionization in an island model of Lucas and Prescott (1974) with different union structures. When a model with competitive labor markets is set to match the empirical fact that a large number of unemployment spells ends with recalls, an introduction of a large labor union, that represents all workers and sets a common economy-wide minimum wage, increases unemployment substantially. Moreover, the whole increase is about non-search unemployment as search unemployment actually reduces marginally. If the same degree of unionization is generated by a continuum of small unions, the aggregate unemployment reaction is somewhat smaller. However, the increase in non-search unemployment is still considerable. The workings of a large union are also explored when the union is assumed to bargain over the minimum wage with an employers’ organization. This environment leads to a considerably lower increase in aggregate unemployment. Yet again, the search intensity of unemployed workers drops significantly. In the third essay we show that the cancellation of income and substitution effect implied by King-Plosser-Rebelo (1988) preferences breaks tight coeff- cient restriction between the slope of the Phillips curve and the elasticity of consumption with respect to real interest rate in a sticky price macro model. This facilitates the estimation of intertemporal elasticity of substitution using full information Bayesian Maximum Likelihood techniques within a structural model. The US data from the period 1984–2007 supports low intertemporal elasticity of substitution and strongly rejects a logarithmic and an additively separable utility specification commonly applied in the New Keynesian literature.Tämä väitöskirja tarkastelee instituutioiden ja politiikkatoimenpiteiden vaikutuksia koko talouden tulemien kannalta, keskittyen erityisesti työmarkkinoihin. Työ koostuu johdannosta ja kolmesta itsenäisestä esseestä. Tarkastelu pohjautuu yleisen tasapainon malleihin. Ensimmäinen essee tutkii ammatillisen osaamisen suojelun vaikutuksia irtisanomistilanteissa, kun inhimillinen pääoma voi rapautua työttömyysjaksojen aikana ja epätäydellisistä sopimuksista johtuen markkinat eivät kohdista irtisanomisia tehokkaasti. Koska politiikkamuutoksen seuraukset ovat läheisesti sidoksissa ammatilliseen liikkuvuuteen, essee keskittyy heterogeenisten työntekijöiden uranvaihtojen mallintamiseen. Kalibroituun malliin pohjautuvat tulokset indikoivat, että irtisanomissääntö, joka kohdistaa työttömyysjaksot ensisijassa kokemattomiin työntekijöihin, laskee ammattien välistä liikkuvuutta verrattuna tilanteeseen, jossa kaikki työntekijät kohtaavat saman työttömyysriskin. Toisaalta talouden työttömyys on pienempää ja tuotanto suurempaa, kun irtisanomiset kohdistuvat kokemattomiin työntekijöihin. Väitöskirjan toinen luku tarkastelee erilaisten ammattiliittorakenteiden merkitystä Lucasin ja Prescottin (1974) mallin avulla. Kun kalibroinnissa huomioidaan, että suuri osa työttömyysjaksoista päättyy paluuseen samalle työnantajalle, suuren ja kaikkia työntekijöitä edustavan ammattiliiton vaikutus minipalkkaan ja työttömyyteen on merkittävä. Lisäksi koko työttömyyden lisäys on työnhaun poissulkevaa työttömyyttä. Jos vastaava järjestäytymisaste saavutetaan monien ammattiliittojen toimesta, työttömyyden ja minimipalkan reaktiot ovat pienempiä. Kuitenkin myös tässä tapauksessa työnhaun poissulkevan työttömyyden kasvu on huomattavaa. Tutkimuksessa tarkastellaan myös tilannetta, jossa suuri ammattiliitto neuvottelee minimipalkasta työnantajajärjestön kanssa. Tässä tapauksessa työttömyyden reaktiot ovat selvästi maltillisempia. Kolmannessa esseessä tarkastellaan uuskeynesiläistä mallia, jossa työn tarjonnan tulo- ja substituutiovaikutus kumoavat toisensa, kun taloudenpitäjien preferenssejä kuvataan tasaisen kasvun mukaisilla ns. King–Plosser–Rebelopreferensseillä (1988). Tällöin talouden inflaatiodynamiikkaa kuvaavan Phillips-käyrän kulmakertoimen – inflaation kustannusherkkyyden – ja kulutuksen korkojouston välinen tiivis yhteys rikkoontuu. Tämä ominaisuus helpottaa kulutuksen kasvuvauhdin korkoherkkyyttä mittaavan parametrin eli intertemporaalisen substituutiojouston estimointia rakenteellisissa malleissa, kun estimoinneissa käytetään täyden informaation bayesilaista suurimman uskottavuuden estimointimenetelmää. Yhdysvalloista kerätyssä, ajanjakson 1984–2007 kattavassa aineistossa intertemporaalisen substituutiojouston arvo estimoituu pieneksi

Role Based Hedonic Games

In the hedonic coalition formation game model Roles Based Hedonic Games (RBHG), agents view teams as compositions of available roles. An agent\u27s utility for a partition is based upon which role she fulfills within the coalition and which additional roles are being fulfilled within the coalition. I consider optimization and stability problems for settings with variable power on the part of the central authority and on the part of the agents. I prove several of these problems to be NP-complete or coNP-complete. I introduce heuristic methods for approximating solutions for a variety of these hard problems. I validate heuristics on real-world data scraped from League of Legends games

Why were FIFA World Cup Tickets so cheap?

We examine the pricing decision of a multi-product monopolist in a two-sided market where the type structure of buyers on one side of the market is an important determinant of profit on the other side. In this situation it might be optimal to set prices below the maximum sellout price and to ration demand by a random mechanism in the first market to reach a type distribution more favorable for sales in the other market. The model establishes demand quality as an alternative link between markets in addition to standard quantitative effects and explains frequently observed underpricing, e.g. in the (sports) entertainment industry. It also provides an explanation for the effort a monopolist incurs to deter from resale

Estimating Compensating Wage Differentials with Endogenous Job Mobility

We demonstrate a strategy for using matched employer-employee data to correct endogenous job mobility bias when estimating compensating wage differentials. Applied to fatality rates in the census of formal-sector jobs in Brazil between 2003-2010, we show why common approaches to eliminating ability bias can greatly amplify endogenous job mobility bias. By extending the search-theoretic hedonic wage framework, we establish conditions necessary to interpret our estimates as preferences. We present empirical analyses supporting the predictions of the model and identifying conditions, demonstrating that the standard models are misspecified, and that our proposed model eliminates latent ability and endogenous mobility biase

On the Evaluation of Economic Mobility

This paper provides an explicit welfare basis for evaluating economic mobility. Our social welfare function can be seen as a natural dynamic extension of the static social welfare function presented in Atkinson and Bourguignon (1982). Unlike Atkinson and Bourguignon, we use social preferences a la Kreps-Porteus, for which the timing of resolution of uncertainty may matter. Within this generalized framework, we show that welfare evaluation of mobility depends on the interplay between aversion to inequality, risk aversion, and aversion to intertemporal fluctuations. This framework allows us to provide a welfare analysis not only of "reversal" (which has been the focus of much of the literature) but also of "origin independence" (which has not received an explicit welfare foundation in the literature). We use our framework to develop welfare measures of mobility, and apply these measures to intergenerational mobility in the United States using PSID data. We show that the value of origin independence is quantitatively important. We also show that different subpopulations experience different mobility patterns: reversal is more important than origin independence for blacks but the opposite is true for non-blacks.mobility

The Econometrics of Matching Models

In October 2012 the Nobel prize was attributed to Al Roth and Lloyd Shapley for their work on matching. Both the seminal Gale-Shapley (1962) paper and most of Roth’s work were concerned with allocation mechanisms when prices or other transfers cannot be used—what we will call non-transferable utility (NTU) in this survey. Gale and Shapley used college admissions, marriage, and roommate assignments as examples; and Roth’s fundamental work in market design has led to major improvements in the National Resident Matching Program (Roth and Peranson 1999) and to the creation of a mechanism for kidney exchange (Roth, Sönmez and Ünver 2004.) The resulting insights have been applied to a host of issues, including the allocation of students to schools, the marriage market with unbalanced gender distributions, the role of marital prospects in human capital investment decisions, the social impact of improved birth control technologies and many others. The econometrics of matching models have recently been reconsidered, from different and equally innovative perspectives. The goal of the present project will be to survey these methodological advances. We shall describe the main difficulties at stake, the various answers provided so far, and the issues that remain open

Identification of sources of variation in poverty outcomes

The international community has declared poverty reduction one of the fundamental objectives of development, and therefore a metric for assessing the effectiveness of development interventions. This creates the need for a sound understanding of the fundamental factors that account for observed variations in poverty outcomes either over time or across space. Consistent with the view that such an understanding entails deeper micro empirical work on growth and distributional change, this paper reviews existing decomposition methods that can be used to identify sources of variation in poverty. The maintained hypothesis is that the living standard of an individual is a pay-off from her participation in the life of society. In that sense, individual outcomes depend on endowments, behavior and the circumstances that determine the returns to those endowments in any social transaction. To identify the contribution of each of these factors to changes in poverty, the statistical and structural methods reviewed in this paper all rely on the notion of ceteris paribus variation. This entails the comparison of an observed outcome distribution to a counterfactual obtained by changing one factor at a time while holding all the other factors constant.Economic Theory&Research,Labor Policies,Markets and Market Access,Environmental Economics&Policies,Poverty Monitoring&Analysis

Why were FIFA World Cup Tickets so cheap?

We examine the pricing decision of a multi-product monopolist in a two-sided market where the type structure of buyers on one side of the market is an important determinant of profit on the other side. In this situation it might be optimal to set prices below the maximum sellout price and to ration demand by a random mechanism in the first market to reach a type distribution more favorable for sales in the other market. The model establishes demand quality as an alternative link between markets in addition to standard quantitative effects and explains frequently observed underpricing, e.g. in the (sports) entertainment industry. It also provides an explanation for the effort a monopolist incurs to deter from resale.Underpricing; Demand Rationing; Resale Deterrence

Non-pecuniary Value of Employment and Individual Labor Supply

Recognizing that people value employment not only to earn income to satisfy their consumption needs but also as a means of community involvement that provides socio-psychological (non-pecuniary) benefits, we show that once the non-pecuniary benefits of employment are incorporated in the standard individual’s utility function, then at very low income levels employment can be a source of utility, inducing individuals to supply labor to the extent possible. We also show the conditions under which a greater non-pecuniary effect of employment generates a larger individual labor supply.Non-pecuniary effects, Employment value, Labor supply