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Wage Dynamics, Sorting Patterns in Labour Markets and Policy Evaluation

GoTriple's project summary

WASP is aimed at developing realistic empirical equilibrium search models of the labour market, with heterogeneous agents and long-term self-enforcing contracts, that• Can help better understand rent sharing mechanisms in labour markets, • Allow for multiple sources of productivity dynamics, including deterministic human capital accumulation and idiosyncratic productivity shocks, • Do not rule out sorting by assumption, nor the possibility of mismatch – as in perfectly competitive Beckerian marriage models, • Can fit linked employer-employee data in all three dimensions: across workers, firms and time, • Can be used for policy evaluation.These research questions will be addressed within six different sub-projects:1.Understanding tenure effects. Human capital accumulation and productivity shocks are introduced in a search-matching framework to explain the difference between tenure and experience effects.2.Employment protection policies, wage dynamics and sorting. A search-matching model with productivity shocks is estimated on worker data and used to discuss the optimal design of employment protection policies.3.Large firms, sorting and linked employer-employee data. Firms post more than one job offer. The model permits the use of linked employer-employee data for estimation.4.Risk-aversion, savings and risk sharing. Risk-averse workers, subject to productivity shocks, are matched with risk-neutral employers. The model is used to measure the relative importance of self-insurance vis-à-vis insurance provided by the employer.5.Unemployment, wage inequality and business cycle. Allowing for aggregate productivity shocks in a search-matching model with worker heterogeneity can explain the unemployment volatility puzzle and the effect of business cycles on the wage distribution.6.Marriage, search and welfare policy. The intra-household resource allocation process is endogenised in a search model of marriage.

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