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

  • Flabbi, Luca


    (Inter-American Development Bank)

  • Mabli, James


    (Mathematica Policy Research)

Search Models of the labor market are widespread and influential but they usually ignore that labor market decisions are frequently taken at the household level. We fill this gap by developing and estimating an household search model with on-the-job search and labor supply. We build on previous work (Dey and Flinn (2008) and Guler, Guvenen and Violante (2011)) to propose a novel identification strategy of the risk aversion parameters and a specification test. We find that ignoring the household as unit of decision-making has relevant empirical consequences. In estimation, the individual search specification implies gender wage offers differentials 200% larger than the household search specification. In the application, the individual search specification implies gender differentials in lifetime utility inequality 74% larger. The results of our policy experiments emphasize the importance of looking at lifetime utility inequality measures as opposed to simply cross-sectional wage inequality measures.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6908.

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Length: 63 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6908
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  2. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2010. "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States: 1967-2006," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 15-51, January.
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  6. Andrés Erosa & Luisa Fuster & Diego Restuccia, 2002. "Fertility Decisions and Gender Differences in Labor Turnover, Employment, and Wages," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 856-891, October.
  7. Silvio Rendón, 2002. "Job Search And Asset Accumulation Under Borrowing Constraints," Economics Working Papers we025219, Universidad Carlos III, Departamento de Economía.
  8. Joseph Altonji & Christina Paxson, 1987. "Labor Supply Preferences, Hours Constraints, and Hours-Wage Tradeoffs," Working Papers 594, Princeton University, Department of Economics, Industrial Relations Section..
  9. Flabbi, Luca & Moro, Andrea, 2012. "The effect of job flexibility on female labor market outcomes: Estimates from a search and bargaining model," Journal of Econometrics, Elsevier, vol. 168(1), pages 81-95.
  10. Rasmus Lentz & Torben Tranas, 2005. "Job Search and Savings: Wealth Effects and Duration Dependence," Journal of Labor Economics, University of Chicago Press, vol. 23(3), pages 467-490, July.
  11. Luca Flabbi, 2004. "Gender Discrimination Estimation in a Search Model with Matching and Bargaining," 2004 Meeting Papers 367, Society for Economic Dynamics.
  12. 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.
  13. Bowlus, A.J., 1995. "A Search Interpretation of Male-Female Wage Differentials," UWO Department of Economics Working Papers 9504, University of Western Ontario, Department of Economics.
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  15. Bulent Guler & Fatih Guvenen & Giovanni L. Violante, 2009. "Joint-Search Theory: New Opportunities and New Frictions," NBER Working Papers 15011, National Bureau of Economic Research, Inc.
  16. Olivier Compte & Philippe Jehiel, 2010. "Bargaining and Majority Rules: A collective search Perspective," Post-Print halshs-00754459, HAL.
  17. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
  18. Shintaro Yamaguchi, 2007. "Job Search, Bargaining, and Wage Dynamics," Department of Economics Working Papers 2007-03, McMaster University.
  19. Nicolas Jacquemet & Jean-Marc Robin, 2011. "Marriage with Labor Supply," Sciences Po publications info:hdl:2441/eu4vqp9ompq, Sciences Po.
  20. Albrecht, James & Anderson, Axel & Vroman, Susan, 2010. "Search by committee," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1386-1407, July.
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