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Labor Market Risk and Skill Diversity: Implications for Efficiency, Policy, and Estimation

Objective

Labor market risk and skill diversity are central features of the labor market. Arguably, employment risk is one of the biggest sources of uncertainty most individuals face in their life time. Likewise, exploiting the synergies and complementarities between differentially skilled workers is amongst the greatest challenges to firms' hiring decisions. The objective is to analyze the efficiency properties and as a consequence evaluate the role for policy. In order to establish the implications of the mechanisms that govern risk and diversity, I elaborate on concrete applications and discuss estimation in different labor market settings.
In the presence of Labor Market Risk I address the question how asset holdings exacerbate wage inequality. Workers are exposed to the risk of unemployment, and workers with few assets will trade off the lower riskiness of a job against lower wages. Different asset holdings translate into different wages, thus amplifying inequality due to assets with wage inequality. The proposed analysis of unemployment risk can solve for an equilibrium model that incorporates the distribution of assets, while at the same time allowing for heterogeneity in skills. There is no doubt that fully understanding the asset-skill tradeoff is of primary importance for labor market policy. I then study a different angle of labor market risk, namely risk that is due to matching stochastic types, which introduces ex post mismatch. Ex ante, agents match based on the distribution of possible realizations of ex post types. This model is conducive to identification of complementarities between workers and the value of risk sharing.
Skill Diversity, or the allocation of differentially skilled workers across firms of different productivity, is a central feature of the labor market. The aim of this research is to embed the optimal worker composition within firms into standard macro environments to study technological change, information aggregation and spatial diversity.

Field of science

  • /social sciences/economics and business/business and management/commerce
  • /social sciences/economics and business/business and management/employment
  • /social sciences/economics and business/economics/production economics/productivity

Call for proposal

ERC-2013-ADG
See other projects for this call

Funding Scheme

ERC-AG - ERC Advanced Grant

Host institution

UNIVERSIDAD POMPEU FABRA
Address
Placa De La Merce, 10-12
08002 Barcelona
Spain
Activity type
Higher or Secondary Education Establishments
EU contribution
€ 1 866 975,83
Principal investigator
Jan Eeckhout (Dr.)
Administrative Contact
Eva Martin (Ms.)

Beneficiaries (2)

UNIVERSIDAD POMPEU FABRA
Spain
EU contribution
€ 1 866 975,83
Address
Placa De La Merce, 10-12
08002 Barcelona
Activity type
Higher or Secondary Education Establishments
Principal investigator
Jan Eeckhout (Dr.)
Administrative Contact
Eva Martin (Ms.)
University College London
United Kingdom
EU contribution
€ 249 995,17
Address
Gower Street
WC1E 6BT London
Activity type
Higher or Secondary Education Establishments
Administrative Contact
Kolasinska Kamila (Ms.)