Working Paper: NBER ID: w18719
Authors: Jeremy Lise; Costas Meghir; Jean-Marc Robin
Abstract: We develop an empirical search-matching model which is suitable for analyzing the wage, employment and welfare impact of regulation in a labor market with heterogeneous workers and jobs. To achieve this we develop an equilibrium model of wage determination and employment which extends the current literature on equilibrium wage determination with matching and provides a bridge between some of the most prominent macro models and microeconometric research. The model incorporates productivity shocks, long-term contracts, on-the-job search and counter-offers. Importantly, the model allows for the possibility of assortative matching between workers and jobs due to complementarities between worker and job characteristics. We use the model to estimate the potential gain from optimal regulation and we consider the potential gains and redistributive impacts from optimal unemployment insurance policy. Here optimal policy is defined as that which maximizes total output and home production, accounting for the various constraints that arise from search frictions. The model is estimated on the NLSY using the method of moments.
Keywords: wage dynamics; search-matching model; labor market regulation; unemployment insurance; mismatch
JEL Codes: C15; C63; D04; J08; J63; J64; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| mismatched job-worker pairs (J69) | welfare losses in the labor market (J68) |
| complementarities in production (D10) | welfare losses (D69) |
| optimal unemployment insurance (J65) | total output (E23) |
| optimal unemployment insurance (J65) | welfare (I38) |
| unemployment insurance (J65) | selectivity of workers (J79) |
| unemployment insurance (J65) | unemployment spells (J64) |
| degree of sorting (C69) | cost of mismatch (C78) |
| cost of mismatch (C78) | skill level of labor market (J24) |