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

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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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
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  14. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2009. "Unequal we stand: an empirical analysis of economic inequality in the United States, 1967-2006," Staff Report 436, Federal Reserve Bank of Minneapolis.
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  28. Andrés Erosa & Luisa Fuster & Diego Restuccia, 2005. "A General Equilibrium Analysis of Parental Leave Policies," Working Papers tecipa-197, University of Toronto, Department of Economics.
  29. Christopher J. Flinn, 2002. "Labour Market Structure and Inequality: A Comparison of Italy and the U.S," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 611-645.
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