Labor Market Performance and Heterogeneity

Labor market performance varies greatly across countries while, within countries, individuals have very different labor market experiences. The purpose of this dissertation is to document these features and propose a modelling framework that can help us understand the observations. In Chapter one, labor market indicators of performance and of institutions for OECD countries are described. They lead to the view that labor market stylized facts are richer and more complex than usually argued. In particular, cross-country differences in labor market performance change when different age groups, different gender groups, different educational groups, and different measures of performance are examined. Furthermore, cross-country differences in institutions greatly vary across countries, and not always in the same direction as our preconceptions suggest. Agent heterogeneity and market frictions are necessary to account for these facts. Chapter two introduces a two-sided search model with ex-ante heterogeneity that generates within-skill wage differences and skill-related unemployment The result is a rich description of equilibrium where labor policies have implications that go beyond their effects on the level of current unemployment and aggregate output. In this model, policies, institutions and individual characteristics may result in more or less unemployment as well as in better or worse sorting of skills. Consequently, the size of the pie - the level of aggregate output - but also the way it is distributed - the degree of wage inequality - are affected in non trivial and interesting ways. Finally, it is shown in Chapter three that the model introduced in Chapter two, augmented with three features, can qualitatively explain differences in GDP per hour and GDP per capita, differences in employment, and differences in the proportion of part-time work between the US, France and the Netherlands. The three elements grafted to the model are labor/leisure choices, with the assumption that firms and workers bargain over both wages and hours, frictions in the bargaining process - firms and workers that are engaged in a match cannot always renegotiate - and cross-country differences in labor income taxation.