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Working Paper
Wage Setting Under Targeted Search
When setting initial compensation, some firms set a fixed, non-negotiable wage while others bargain. In this paper we propose a parsimonious search and matching model with two sided heterogeneity, where the choice of wage-setting protocol, wages, search intensity, and degree of randomness in matching are endogenous. We find that posting and bargaining coexist as wage-setting protocols if there is sufficient heterogeneity in match quality, search costs, or market tightness and that labor market tightness and relative costs of search play a key role in the choice of the wage-setting mechanism. ...
Working Paper
The Ways the Cookie Crumbles: Education and the Margins of Cyclical Adjustment in the Labor Market
I document that less educated workers experience higher and more cyclically sensitive job separation rates. Meanwhile, workers with a bachelor's degree or more exhibit pro-cyclical wages while workers without a high school degree exhibit no statistically discernible cyclical pattern. Differences in the sensitivity are most stark when measurement of labor costs accounts for the value of the persistent effects of current macroeconomic conditions on future remitted wages. These findings suggest optimally differential implementation of self-enforcing implicit wage contracts in which educated ...
Working Paper
Training and Search on the Job
The paper studies human capital accumulation over workers? careers in an on the job search setting with heterogenous firms. In renegotiation proof employment con- tracts, more productive firms provide more training. Both general and specific training induce higher wages within jobs, and with future employers, even conditional on the future employer type. Because matches do not internalize the specific capital loss from employer changes, specific human capital can be over-accumulated, more so in low type firms. While validating the Acemoglu and Pischke (1999) mechanisms, the analysis ...
Working Paper
Do Greasy Wheels Curb Inequality?
I document a disparity in the cyclicality of the allocative wage-the labor costs considered when deciding to form or dissolve an employment relationship-across levels of educational attainment. Specifically, workers with a bachelors degree or more exhibit an allocative wage that is highly pro-cyclical while high school dropouts exhibit no statistically discernible cyclical pattern. I also assess the response to monetary policy shocks of both employment and allocative wages across education groups. The less educated respond to monetary policy shocks on the employment margin while the more ...
Working Paper
High Discounts and Low Fundamental Surplus: An Equivalence Result for Unemployment Fluctuations
Ljungqvist and Sargent (2017) (LS) show that unemployment fluctuations can be understoodin terms of a quantity they call the “fundamental surplus.” However, their analysis ignores riskpremia, a force that Hall (2017) shows is important in understanding unemployment fluctuations. Weshow how the LS framework can be adapted to incorporate risk premia. We derive an equivalenceresult that relates parameters in economies with risk premia to those of an artificial economy withoutrisk premia. We show how to use properties of the artificial economy to deduce how risk premia affectunemployment ...
Working Paper
Can Reputation Discipline the Gig Economy? Experimental Evidence from an Online Labor Market
Just as employers face uncertainty when hiring workers, workers also face uncertainty when accepting employment, and bad employers may opportunistically depart from expectations, norms, and laws. However, prior research in economics and information sciences has focused sharply on the employer?s problem of identifying good workers rather than vice versa. This issue is especially pronounced in markets for gig work, including online labor markets, where platforms are developing strategies to help workers identify good employers. We build a theoretical model for the value of such reputation ...
Working Paper
Interlocked Executives and Insider Board Members: An Empirical Analysis
This paper asked the question of whether the behavior and compensation of interlocked executives and non-independent board of directors are consistent with the hypothesis of governance problem or whether this problem is mitigated by implicit and market incentives. It then analyzes the role of independent board of directors. Empirically, we cannot reject the hypothesis that executives in companies with a large number of non-independent directors on the board receive the same expected compensation as other executives. In our model, every executive has an incentive to work. Placing more of ...
Working Paper
Breaking the Implicit Contract: Using Pension Freezes to Study Lifetime Labor Supply
This paper studies the elimination of traditional pensions and subsequent adoption of 401(k) plans by U.S. employers. Using thousands of firm-level natural experiments, it shows that unexpected losses in future compensation engendered by pension plan transitions induce premature retirement for some workers and delayed retirement for others. Observed heterogeneity in retirement behavior is indicative of differences in wealth and in preferences for leisure. Using credibly identified treatment effects as estimation targets, it fits a structural model of retirement and uses the model to evaluate ...
Working Paper
Wage Setting Under Targeted Search
When setting initial compensation, some firms set a fixed, non-negotiable wage while others bargain. In this paper we propose a parsimonious search and matching model with two sided heterogeneity, where the choice of wage-setting protocol, wages, search intensity, and degree of randomness in matching are endogenous. We find that posting and bargaining coexist as wage-setting protocols if there is sufficient heterogeneity in match quality, search costs, or market tightness and that labor market tightness and relative costs of search play a key role in the choice of the wage-setting mechanism. ...
Working Paper
The Quality-Adjusted Cyclical Price of Labor
Typical measures of wages, such as average hourly earnings, fail to capture cyclicality in the effective cost of labor in the presence of (i) cyclical fluctuations in the quality of worker-firm matches, or (ii) wages being smoothed within employment matches. To address both concerns, we estimate cyclicality in labor’s user cost exploiting the longrun wage in a match to control for match quality. Using NLSY data for 1980 to 2019, we identify three channels by which hiring in a recession affects user cost: It lowers the new-hire wage; it lowers wages going forward in the match; but it also ...