Labor supply dynamics, unemployment and experience in the labor market

In the last decades, OECD labor markets faced important labor supply changes with the arrival of women and the cohorts of the baby-boom. Using a survey where workers declare their true employment experience, this paper argues that these supply trends imply more inexperienced workers. It then investigates the consequences of this fact on the skill composition of the labor force, between-groups wage inequality and the level of unemployment. The main result is that a labor market with wage rigidities may not recover from such a temporary labor supply shock : with a younger and less experienced labor force, there is higher unemployment among low-experience workers, they do not accumulate enough on-the-job human capital, this reduces in the long-run the supply of skilled (experienced) workers and the demand for unskilled workers. This intertemporal multiplication of supply shocks generates multiple equilibria, and the rigid economy is stuck to the bad equilibrium even after the shock. In a competitive labor market, in contrast, wage inequality and notably, the wage return to expérience becomes higher but there is no persistence of the supply shock.Wage inequality, Education, Experience

Can Labour Supply Explain the Rise in Unemployment and Intergroup Wage Inequality in the OECD?

This paper investigates how labour supply trends might have affected the OECD labour markets in the last decades. It is argued that changes in supply cannot be considered as homogenous: they involve more young and more adult female workers, who are complements with skilled men and substitutes with low-wage groups (young, unskilled). Such labour supply trends since the '50s may have increased competition between women, young workers and low skilled workers in some segments of the labour force. These mechanisms are described by a model and an empirical strategy is undertaken to test its predictions. Disaggregation by gender is necessary. Endogeneity of participation levels with respect to unemployment is treated in two ways, by instrumental variables estimators, and with time series techniques. Significant causal relations between participation and unemployment cannot be rejected.

Housing Regulation, Statistical Discrimination, and the Recourse to Agencies.

Housing and labor markets exhibit many similarities. First, information is imperfect. Tenant quality, like worker quality, is unobserved. Second, separation is costly and time consuming. The laws and regulation typically complicate or slow down the termination process of the contractual relationship and make it more costly for firms and landlords to fire an employee /evict a tenant. And finally, there are rigidities in nominal wages and rents. Adapting tools from labor theory, we attempt to understand how landlords wish to screen and possibly statistically discriminate against potential tenants. They do so when housing regulations are more stringent. If they have a “taste against discrimination” (the opposite of Becker’s “taste for discrimination”), they are more likely to have recourse to agencies in order to outsource screening. Preliminary descriptive evidence of cross-country differences in housing regulations and housing market functioning is provided.

Equilibrium Search Unemployment with Explicit Spatial Frictions

Assuming that job search efficiency decreases with distance to jobs, workers' location in a city depends on spatial elements such as commuting costs and land prices and on labour elements such as wages and the matching technology. In the absence of moving costs, we show that there exists a unique equilibrium in which employed and unemployed workers are perfectly segregated but move at each employment transition. We investigate the interactions between the land and the labour market equilibrium and show under which condition they are interdependent. When relocation costs become positive, a new zone appears in which both the employed and the unemployed co-exist and are not mobile. We demonstrate that the size of this area goes continuously to zero when moving costs vanish. Finally, we endogeneize search effort, show that it negatively depends on distance to jobs and that long and short-term unemployed workers coexist and locate in different areas of the city.Local Labour Markets; Relocation Costs; Search Effort; Job Matching

Higher Education Levels, Firms' Outside Options and the Wage Structure

We analyze the consequences of an increase in the supply of highly educated workers on relative and real wages in a search model where wages are set by Nash-bargaining. The key insight is that an increase in the supply of highly educated workers improves the firms' outside option. As a consequence, the real wage of all workers decreases in the short-run. Since this decline is more pronounced for less educated workers, wage inequality increases. In the long-run a better educated work force induces firms to invest more in physical capital. Wage inequality and real wages of highly educated workers increase while real wages of less educated workers may decrease. These results are consistent with the U.S. experience in the 70s and 80s. Based upon differences in legal employment protection we also provide an explanation for the diverging evolution of real and relative wages in Continental Europe.Wage Inequality; Matching; Creation Costs; Firing Costs.

Macroeconomics of Credit and Labor Markets Imperfections.

Credit market imperfections influence the labor market and aggregate economic activity. In turn, macroeconomic factors have an impact on the credit sector. To assess these effects in a tractable general-equilibrium framework, we introduce endogenous search frictions, in the spirit of Peter Diamond (1990), in both credit and labor markets. We demonstrate that credit frictions amplify macroeconomic volatility through a financial accelerator. The magnitude of this general-equilibrium accelerator is proportional to the credit gap, defined as the deviation of actual output from its perfect credit market level. We explore various extensions, notably endogenous wages.

Equilibrium Employment and Labor Markets Imperfections: Matching vs. Participation costs. UQAM-CIRPEE Conference on Labor Market Frictions and Macroeconomic Dynamics, October 3-4 2003.

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Labor Markets with Imperfect Housing Markets. Seventh IZA/SOLE Transatlantic Meeting of Labor Economists, Buch-Ammersee, May 22-25, 2008.

A model is developed that allows for interaction between the labor market and the housing market. A job location has an associated commuting time that may affect the job acceptance decision. Obstacles to mobility, such as regulations in the housing market will affect the reservation strategy of workers. Thus, aggregate unemployment will depend, at least partly, on the functioning of the housing market. Data from the U.S. and E.U. reveals that individuals in the U.S. are about three times more likely to experience a change in residence within a given year. At the same time, unemployment in the E.U. is roughly twice that in the U.S. This paper seeks to understand, both qualitatively and quantitatively, how housing market frictions might affect the functioning of the labor market.

Equilibrium EMployment in a Model of IMperfect Labour Market

This paper presents a simple model of imperfect labor markets with endogenous labor market participation and home production. We show that a two-sector economy (home and market) implies a three-state labor market when labor market imperfections take the form of an irreversible entry cost incurred by workers. This simple framework brings several results. First, it delivers an expression for the employment rate and as side-products, a measure of the unemployment rate and the size of the labor force. Second, it rationalizes several empirical works on the definition of unemployment in labor force surveys. Third, it derives endogenously all flows between three labor market states. Fourth, a calibration of the model rationalizes differences in employment rates: in the U.S., we find a market productivity premium of +30% and market frictions of -15% compared to France. Finally, the model is a very simple reduced form of search models with which it is fully consistent: the irreversible entry cost is the opportunity cost of search and depends on aggregate conditionsemployment, non-employment, labor market participation, frictions

Layoff Costs and Efficiency with Asymmetric Information

Wage determination under asymmetric information generates inefficiencies due to excess turnover. Severance pay and layoff taxes can improve efficiency. We show that inefficient separations can even be fully removed with fixed separation taxes in the case where the relevant private information is exponentially distributed.bargaining, asymmetric information, employment protection legislation, inefficient job separations