Home » Essays in the macroeconomics of frictional labor markets. by Tamas Karoly Papp
Essays in the macroeconomics of frictional labor markets. Tamas Karoly Papp

Essays in the macroeconomics of frictional labor markets.

Tamas Karoly Papp

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ISBN : 9781109252965
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186 pages
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This dissertation examines the role of labor market frictions on wage dispersion and the business cycle properties of the labor market.-The first chapter tries to explain the amount of frictional wage dispersion. Matching the magnitude of frictionalMoreThis dissertation examines the role of labor market frictions on wage dispersion and the business cycle properties of the labor market.-The first chapter tries to explain the amount of frictional wage dispersion. Matching the magnitude of frictional wage dispersion has been difficult for most frictional search models of the labor market- only 1/3--1/4 of the frictional wage dispersion observed in the data can be accounted for using realistic calibrations. In this chapter, I develop a general equilibrium model with ex ante homogeneous workers but heterogeneous firm productivities that accounts much better for the magnitude of frictional wage dispersion. The key ingredient that makes this model different from wage posting models is the bargaining and the wage determination structure. When a firm meets an employed worker, the new firm and the incumbent firm engage in Bertrand competition in the workers share of the match surplus- consequently the current wage of the worker depends not only on the firms productivity, but also on the history of previous offers. I demonstrate that the latter generates about 3/4 of the frictional wage dispersion, and that standard wage posting models cannot achieve similar magnitudes of frictional wage dispersion with the calibration used in the chapter. In contrast to the structural estimation literature, the parametrization of the model is very parsimonious. The model is calibrated to match the worker flows, the standard deviation of log productivity and the replacement ratio, and it delivers frictional wage dispersion that matches the data very closely.-In the second chapter, I go one step further and attempt to get closer to the source of the firms productivity dispersion by introducing embodied technological growth, which generates an endogenous productivity distribution among firms. I show that this model also generates large wage dispersion. Comparative statics indicate that wage dispersion is increasing in embodied technological growth- the model also predicts a procyclical wage dispersion with an elasticity of &ap-3 with respect to changes in aggregate productivity.-Finally, in the third chapter I analyze a model with frictional labor market with costs of firm entry instead of vacancy posting costs. One type of cost is an upfront investment in capital. The latter allows the introduction of technical change into the model, which comes partly through the price of investment capital: investment specific technological change (ISTC). The other entry cost is a sunk cost which needs to be paid when a match is formed, and may correspond to training or negotiation costs. Parametrizing the calibration of the model in terms of the share of total entry costs borne by capital, as opposed to the sunk cost, I explore the performance of the model in a benchmark calibration that corresponds to US data. I find that it is possible to choose a parametrization where both sunk costs and ISTC have a large effect on the labor market tightness, extending the results of Hornstein et al. (2007b) and Pissarides (2009). I consider parametrizations with counterfactual persistences of various shocks, and find that for the volatility of labor market tightness (and consequently the job finding rate and unemployment), (1) the persistence of labor productivity (which corresponds to TFP in the model) shocks has only a small effect, (2) persistence of ISTC shocks has a very large effect, (3) persistence of change in sunk costs has a large effect only if sunk costs represent a large share in the cost of creating a job.