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Household Search or Individual Search: Does It Matter? Evidence from Lifetime Inequality Estimates

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Abstract

We develop and estimate an household search model to evaluate if ignoring that labor market decisions are taken at the household level - as usually done in search models of the labor market - has relevant empirical consequences. We evaluate the impact of this potential mispecification error by comparing parameters estimates under different specifications, by running a specification test, and by generating simulations to compute cross-sectional and lifetime inequality measures. We build on previous literature (Dey and Flinn (2008) and Guler, Guvenen and Violante (2011)) to propose a novel identification strategy of the risk aversion parameters. We find that ignoring the household as the actual unit of decision-making leads to estimate gender differentials in average wage offers two and a half times larger and to erroneously conclude that women experience higher inequality in wages and earnings than men.

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Bibliographic Info

Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~12-12-03.

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Date of creation: 03 Jan 2012
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Handle: RePEc:geo:guwopa:gueconwpa~12-12-03

Contact details of provider:
Postal: Georgetown University Department of Economics Washington, DC 20057-1036
Phone: 202-687-6074
Fax: 202-687-6102
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Web page: http://econ.georgetown.edu/

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Postal: Marcia Suss Administrative Officer Georgetown University Department of Economics Washington, DC 20057-1036
Email:
Web: http://econ.georgetown.edu/

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Keywords: Household Search; Inequality; Structural Estimation JEL Classification: J64; D63; C63;

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References

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  3. Flabbi, Luca & Leonardi, Marco, 2010. "Sources of earnings inequality: Estimates from an on-the-job search model of the US labor market," European Economic Review, Elsevier, vol. 54(6), pages 832-854, August.
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Citations

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Cited by:
  1. Guler, Bulent & Guvenen, Fatih & Violante, Giovanni L., 2012. "Joint-search theory: New opportunities and new frictions," Journal of Monetary Economics, Elsevier, vol. 59(4), pages 352-369.
  2. Zaharieva, Anna, 2013. "Social welfare and wage inequality in search equilibrium with personal contacts," Labour Economics, Elsevier, vol. 23(C), pages 107-121.

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