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Wage Dynamics, Sorting Patterns in Labour Markets and Policy Evaluation

Final Report Summary - WASP (Wage Dynamics, Sorting Patterns in Labour Markets and Policy Evaluation)

The objectives of the research were to develop realistic empirical equilibrium models with heterogeneous agents and dynamic contracts that 1) can help better understand rent sharing mechanisms in labor markets, 2) enrich standard search-equilibrium models of wage distributions with more realistic descriptions of individual labor productivity, 3) augment equilibrium matching models with frictions in order to allow for mismatch (of workers and employers in labor markets, male and female spouses in marriage markets, etc.), 4) fit linked employer-employee data better, 5) can be used for policy evaluation.

WASP has been very productive. Ten papers have been published or are forthcoming, including 3 in a top-five economic journal and 2 in the best statistics journals. All sub-projects are I believe very important and will end up being very well cited as they are, in my opinion, significantly pushing the frontier of knowledge in labour economics. Most projects and sub-projects delivered positive outcomes.
• I have developed and estimated an equilibrium job search model of worker careers on Danish linked employer-employee data, allowing for human capital accumulation, employer heterogeneity and individual-level shocks.
• I have developed 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.
• I have improved our understanding of the identification and the non-parametric estimation of mixture models (statistical models with unobserved heterogeneity).
• I have developed an equilibrium wage-posting model with heterogeneous firms that decide to locate in different sectors such as a formal or an informal sector, and with workers who search randomly on and off the job.
• I have quantified the contribution of labor market reforms to unemployment dynamics in nine OECD countries.
• I have developed an equilibrium model of on-the-job search with ex-ante heterogeneous workers and firms, aggregate uncertainty and vacancy creation. The model produces rich dynamics in which the distributions of unemployed workers, vacancies and worker-firm matches evolve stochastically over time.
• I have developed a search-matching-and-bargaining model of marriage between men and women where individuals draw utility from private consumption and leisure, and from a non-market good that is produced in the home using non-market time. The model allows to evaluate how much of the gender division of labor results from gender wage and education differences, or gender differences in preferences and home production, or different family attitudes. We find that family attitudes is a dimension of preference heterogeneity that is nearly as powerful as gender-specific preferences in explaining the gender division of labor.

In order to disseminate this research I have organized four workshops, I have given six keynote lectures and 4 master classes.