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Mismatch, Sorting and Wage Dynamics

We develop 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. To achieve this we develop an equilibrium model of wage determination and employment which extends the current literature on equilibrium wage determination with matching and provides a bridge between some of the most prominent macro models and microeconometric research. The model incorporates productivity shocks, long-term contracts, on-the-job search and counter-offers. Importantly, the model allows for the possibility of assortative matching between workers and jobs due to complementarities between worker and job characteristics. We use the model to estimate the potential gain from optimal regulation and we consider the potential gains and redistributive impacts from optimal unemployment insurance policy. The model is estimated on the NLSY using the method of moments.

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File URL: http://cowles.yale.edu/sites/default/files/files/pub/d18/d1886.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1886.

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Length: 44 pages
Date of creation: Jan 2013
Date of revision:
Publication status: Published in Review of Economic Dynamics – Volume in honor of Dale Mortensene (January 2016), 19: 63-87
Handle: RePEc:cwl:cwldpp:1886
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Web page: http://cowles.yale.edu/

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