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Keynes Fund

 

Project Summary

Dr. Jake Bradley and Axel Gottfries - Theoretical and Empirical Assessments of Worker's Employment Opportunities (JHON).

Our project aims to contribute to a better understanding of the workers search behaviour as well as the impact modelling of a richer search behaviour for workers has for our understanding of income risk and inequality. We have developed a theoretical model that nests the standard models of the search process of workers while remaining analytically tractable. In the paper, we also extend the theoretical model to account for worker and firm heterogeneity. We structurally estimate the model with stochastic employment opportunities and endogenous wage determination using detailed micro data. We then use our model to examine the ability of search models to generate frictional wage dispersion and we find that once a more realistic search process of workers are included, the model can easily match the observed wage dispersion in the data. The model has also a large number of auxiliary implications which are broadly consistent with the data. We have finished one paper which has also been presented at numerous conferences and is currently under submission process.

Project Activities and Outputs

A Job Ladder Model with Stochastic Employment Opportunities, Jake Bradley and Axel Gottfries, Working Paper, 8th February 2019

Abstract: We set up a model with on-the-job search in which firms infrequently post vacancies for which workers occasionally apply. The model nests the standard job ladder and stock-fl ow models as special cases while remaining analytically tractable and easy to estimate from standard panel data sets. Structurally estimating the model, the parameters are significantly different from the stock- ow or the job ladder model. Further, the estimated parameters governing workers search behavior are found to be consistent with recent survey evidence documented in Faberman et al. (2016). The search behavior implied by the standard job ladder model significantly understates the search option associated with employment (and thus underestimates the replacement ratio). Finally, the standard model is unable to generate the decline in the job finding rate and starting wage with duration of unemployment, both of which are present in our data.

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We are in the process of submitting the paper to academic journals. The paper has had a great deal of exposure particularly amongst the search and matching community. In addition to presentations at the University of Cambridge we have presented at:

  • the annual European search and matching conference;
  • EEA-ESEM;
  • Dale T Mortensen Conference on Markets with Search Frictions;
  • the Royal Economic Society;
  • the SAEe;
  • the European Association of Labour Economists;
  • IZA/SOLE Transatlantic Meeting;
  • the University of Bristol;
  • the University of Essex;
  • Oxford University;
  • the University of Nottingham