Libertad Gonzalez and Thijs van Rens
Universitat
Pompeu Fabra
Graduate Program in Economics
Labor
Economics
Winter 2007
Course
objectives
Labor
economics, the study of labor markets, is a field
populated by both micro- and macroeconomists. Broadly speaking, the questions
we try to answer are "What determines differences in wages or labor supply between different people?" or "What
determines differences in wages and labor supply
between recessions and booms?". Traditionally, these questions have been
approached with very different methods: largely data-driven (non-structural) microeconometrics on the one hand, and theory or
model-based estimation on the other. But these differences are getting smaller
and as a labor economist you need to be (somewhat)
familiar with both views.
In this course, we try to
give you an overview of the field of labor economics,
with a strong emphasis on theoretically motivated empirics or data-driven
theory. We also tried to select topics that are at the edge of current research
interests, so that you can start thinking about your own research topics. Since
this is a second year Ph.D. course, the aim is not only to introduce you to the
field, but also to prepare you to do your own research. For that reason, you
will be evaluated not only in an exam, but also based on a research project that
you present in class and write up as a paper (proposal).
Grading
In order to give you time to work
on your project, we will try to concentrate the 'learning' part of the course
in the first five weeks. This is reflected in the grading scheme. The first
half will be concluded with a midterm exam, which counts for 40% of your final
grade. The second half is evaluated on the basis of a shorter final exam early
in the exam period (20%) and your project, due at the end of the exam period
(40%). The grade for the project will be determined by your presentation in the
last week of class as well as the final draft. Depending on the topic, your
project is graded by Libertad or Thijs,
but of course we will make sure that you neither benefit nor suffer from your
choice.
Research
project
Your project may be either a
critical evaluation of an existing paper related to the material covered in
class or a research proposal for a paper of your own. In the first case, the
paper should consist of a detailed summary of the article you are discussing, a
critical evaluation of that article in the style of a referee report, plus a
replication or extension of the results. If you decide to write a research
proposal, you need to describe the contribution of your paper with respect to
the literature, provide a detailed and precise description of the question you
are planning to answer, plus show some preliminary results. In either case, the
results may be empirical (cross-tabs, regressions) or theoretical (simulations,
proofs). You will present your project in the last week of class, so that we
can give you feedback on your idea.
Contacts
Libertad,
room 20.1E78, libertad.gonzalez@upf.edu, www.econ.upf.edu/~gonzalez/
Thijs,
room 20.1E32, thijs.vanrens@upf.edu, http://www.crei.cat/~vanrens/
This syllabus and other relevant
information will be posted on web at http://www.crei.cat/~vanrens/labor.
Reading List
1. Introduction (Lecture 1)
* Cahuc &
Zylberberg, Labour Economics, 2004 (Introduction).
Ehrenberg
& Smith, Modern Labor Economics, 2003 (Chapters 1 & 2).
Thomson, A
Guide for the Young Economist, 2001 (Chapter 1).
Wooldridge, Introductory
Econometrics, 2003 (Chapter 19).
2. The Roy Model (Lectures 2,
3)
* A. Roy,
“Some Thoughts on the Distribution of Earnings.”
* J.
Heckman and B. Honore, “The Empirical Content of the
Roy Model.” Econometrica, 58, pp. 1121-49,
1990.
J. Heckman
and G. Sedlacek, “Heterogeneity, Aggregation, and
Market Wage Fluctuations: An Empirical Model of Self-Selection in the Labor Force,” JPE 1985.
G. Borjas, “Self-Selection and the Earnings of Immigrants.” American
Economic Review, 77.4 (September), 5531-53, 1987.
G. Borjas, “The Wage Structure and the Sorting of Workers into
the Public Sector.” NBER Working Paper, No. 9313, 2000.
D. Neal
and S. Rosen, “Theories of Labor Earnings” in the Handbook
of Income Distribution, A.B. Atkinson and F. Bourguignon, eds.
G. Borjas, “The Economics of Immigration.” Journal of
Economic Literature, Vol. 32.4 (December), 1667-1717, 1994.
R.
Friedberg, “You Can´t Take It With You? Immigrant
Assimilation and the Portability of Human Capital.” Journal of Labor Economics, 18.2, 221-251, 2000.
3. Compensating Differentials
(Lectures
4, 5)
(*) Cahuc & Zylberberg (2004)
Labor Economics, Chapter 5.
(*)
Ehrenberg & Smith (2003) Modern Labor
Economics, Chapter 8.
* S. Rosen
(1986). “The Theory of Equalizing Differences” in the Handbook of Labor Economics, vol. 1, pp 641-92.
S. Rosen
(1974). “Hedonic Prices and Implicit Markets: Product Differentiation in Pure
Competition” Journal of Political Economy, Vol. 82.1 (January-February),
34-55.
* J. Roback (1982) “Wages, Rent and the Quality of Life”. Journal
of Political Economy. Vol. 90.6 (December) 1257-78.
* T.
Bergstrom (1986) "Soldiers of Fortune?" in W. Heller, R. Starr, and
D. Starrett (eds.), Equilibrium Analysis: Essays
in Honor of K. J. Arrow, Vol
II.
J. Abowd and O. Ashenfelter (1981)
“Temporary Layoffs, Anticipated Unemployment and Compensating Wage
Differentials” in
D. Autor, J. Donohue, and S. Schwab (2002). “The Cost of
Wrongful-Discharge Laws” NBER Working Paper No. 9425.
M.
Bertrand, E. Duflo, and S. Mullainathan
(2002). “How Much Should We Trust Differences-in Differences Estimates?” NBER
Working Paper No. 8841.
C. Brown
(1980). “Equalizing Differences in the Labor Market.”
Quarterly Journal of Economics, vol. 1, pp 641-92.
G. Duncan
and B. Holmlund (1983) “Was Adam Smith Right After
All? Another Test of the Theory of Compensating Differentials.” Journal of Labor Economics Vol. 1.4 (October) 366-79.
I. Ekeland, J. Heckman, and L. Nesheim
(2003). “Identification and Estimation of Hedonic Models.” NBER Working Paper
No. 9910.
P. Fishback and S. Kantor (1995).
“Did Workers Pay for the Passage of Workers´ Compensation Laws?” Quarterly
Journal of Economics, Vol. 110.3 (August), 713-42.
J. Gruber
(1994). “The Incidence of Mandated Maternity Benefits.” American Economic
Review, Vol. 84.3 (June), 622-41.
J. Gyourko and J. Tracy (1989) "The Importance of Local
Fiscal Conditions in Analyzing Local Labor Market
Conditions." Journal of Political Economy, pp.1208-31.
D. Hammermesh (1999). “Changing Inequality in Markets for
Workplace Amenities” Quarterly Journal of Economics, 114.4 (November),
1085-1123.
S. Kahn
and K. Lang (1988). “Efficiency Estimation of Structural Hedonic Systems” International
Economic Review, Vol. 29.1 (February), 157-66.
M. R. Killingsworth (1987) "Heterogeneous Preferences,
Compensating Wage Differentials, and Comparable Worth." Quarterly
Journal of Economics, Nov.: 727-742.
K. Murphy
and R. Topel (1987). “Unemployment, Risk, and
Earnings: Testing for Equalizing Differences in the Labor
Market” in K. Lang and J. Leonard eds., Unemployment and the Structure of Labor Markets.
R. Smith
(1979) "Compensating Wage Differentials and Public Policy: A Review."
Industrial and Labor Relations Review, April
1979, pp. 339-353.
J. Stiglitz (1987) "The Causes and Consequences of the
Dependence of Quality on Price," Journal of Economic Literature.
Thaler,
R. and
Topel,
R. (1984) "Equilibrium Earnings, Turnover, and Unemployment: New
Evidence." Journal of Labor Economics,
pp. 500-22.
E. Villanueva
(2005). "Compensating
Wage Differentials and Voluntary Job Changes: Evidence from Germany."
Mimeo, Universitat Pompeu
Fabra.
Viscusi,
W. Kip and Michael J. Moore (1987) "Workers' Compensation: Wage Effects,
Benefit Inadequacies, and the Value of Health Losses", The Review of
Economics and Statistics, 69:249-261.
S.
Woodbury (1983) "Substitution Between Wage and Nonwage
Benefits." American Economic Review.
4. Discrimination (Lecture 6 and
7)
(*) Cahuc & Zylberberg (2004) Labor Economics, Chapter 5 (sections 2.1,
3.2, 4.2)
(*)
Ehrenberg & Smith (2003) Modern Labor
Economics, Chapter 12.
* J. Altonji and R. Blank (1999) “Race and Gender in the Labor Market” in O. Ashenfelter
and D. Card, eds. Handbook of Labor Economics,
vol. 3C
* J. Altonji and C. R. Pierret (2001)
“Employer Learning and Statistical Discrimination” QJE 116(1): 313-350.
K. Arrow
(1972) "Models of Discrimination," and "Some Mathematical Models
of Race in the Labor Market," in A.H. Pascal
(ed.), Racial Discrimination in Economic Life.
Ashenfelter,
O. and
(*) G.
Becker, The Economics of Discrimination, 1971.
(*) M.
Bertrand and
G. Borjas and S. G. Bronars,
"Consumer Discrimination and Self-Employment", JPE 97 no. 3 (June
1989): 581-605.
G. Cain
(1987) "The Economic Analysis of Labor Market
Discrimination: A Survey", in Handbook of Labor
Economics. 1987, vol. 1, pages 693-781.
G. Cain
and D Ainger (1977) “Statistical Theories of
Discrimination” Industrial and Labor Relations
Review,
M. Killingsworth (1990) The Economics of Comparable Worth
(Upjohn Institute).
(*) S. Levitt (2004) "Testing Theories Of Discrimination:
Evidence From Weakest Link." Journal of Law and Economics 47(2).
Lundberg,
S. and R. Startz (1983) "Private Discrimination
and Social Intervention in Competitive Labor
Markets," American Economic Review, June.
P. Riach and J. Rich (2002) “Field Experiments of
Discrimination in the Market Place” Economic Journal, 112 (November)
F480-F518.
J. Smith
and F. Welch (1986) Closing the Gap, Rand Corp.
Black/White
Differences
J. Donohue
and J. Heckman (1991) “Continuous Versus Episodic Change: The Impact of Civil
Rights Policy on the Economic Status of Blacks” JEL (December), 1603-42.
C. Juhn, K. M. Murphy, and B. Pierce (1989) "Accounting
for the Slowdown in Black-White Wage Convergence", in Workers and Their
Wages, Marvin Kosters, Ed.
G. Loury (2003) “Racial Stigma : Toward a New Paradigm for
Discrimination Theory” AER (May) 334-7.
D. Neal
and W. Johnson (1996) “The Role of Premarket Factors
in Black-White Wage Differences” Journal of Political Economy 104
(October), 869-95.
J. O'Neill
(1990) "The Role of Human Capital in Earnings Diferences
Between Black and White Men", Joural of Economic
Perspectives, 4(4): 25-45.
Evaluating
Anti-Discrimination Policies
S. Coate and G. Loury (1993)
"Will Affirmative-Action Policies Eliminate Negative Stereotypes?", AER
83(5): 1220-1240.
R.
Ehrenberg (1989) "Econometric Analyses of the Empirical Consequences of
Comparable Worth: What have we learned?", in Comparable Worth: Analyses
and Evidence. (eds.) M. A. Hill and M. R. Killingsworth,
pp. 90-107, ILR Press.
(*) R.
Fryer and G. Loury (2005) “Affirmative Action and Its
Mythology” Journal of Economic Perspectives, Summer 2005.
H. Holzer and D. Newmark (2000),
“Assessing Affirmative Action” JEL 38 (Sept) 483-568.
G. Johnson
and G. Solon (1986) "Estimates of the Direct
Effects of Comparable Worth Policy", AER
J. Leonard
(1984) “The Impact of Affirmative Action on Employment” JOLE 2
(October).
Male/Female
Differences
F. Blau and L. Kahn, "The Gender Earnings Gap: Some
International Evidence", NBER 4224 (December 1992)
F. Blau and L. Kahn (2000), “Gender Differences in Pay” JEP
14 (Fall) 75-99.
C. Goldin (1986) “Monitoring Costs and Occupational
Segregation by the Sexes: An Historical Analysis”, Journal of Labor Economics.
C. Goldin (1990) Understanding the Gender Gap.
C. Goldin and L. Katz (2002) “The Power of the Pill: Oral
Contraceptives and Women´s Career and Marriage
Decisions”, Journal of Political Economy 110 (August 730-70.
(*) C. Goldin and C. Rouse (2000) “Orchestrating Impartiality: The
impact of ‘blind’ auditions on female musicians” AER 90: 715-736.
J. O’Neil
(2003) “The Gender Gap in Wages, circa 2000” AER 93 (May), 309-14.
5. Employment fluctuations (lectures 8 – 12)
* Richard Rogerson, Robert Shimer and
Randall Wright (2005). Search Theoretic Models of the Labor
Market. Journal of Economic Literature, 43
(4): 959-988.
Christopher
Pissarides (2000). Equilibrium Unemployment Theory, 2nd edition.
* Steven
J. Davis, John C. Haltiwanger, and Scott Schuh (1997). Basic Facts about Job Creation and
Destruction, chapter 2 in Job Creation
and Destruction,
Davis and Haltiwanger (1990). Gross Job Creation and Destruction:
Microeconomic Evidence and Macroeconomic Implications, NBER Macro annual.
Davis and Haltiwanger (1992). Gross Job Creation, Gross Job
Destruction and Employment Reallocation, Quarterly
Journal of Economics.
Steven J.
Davis and John Haltiwanger (1999). On the Driving
Forces behind Cyclical Movements in Employment and Job Reallocation, American Economic Review, vol. 89(5),
pp.1234-1258.
*
Mortensen, Dale T. and Christopher A. Pissarides
(1994). Job Creation and Job Destruction in the Theory of Unemployment, Review of Economic Studies, 61(3),
pp.397-415.
* Cole,
Harold L. and Richard Rogerson (1999). Can the
Mortensen-Pissarides Matching Model Match the
Business-Cycle Facts? International
Economic Review, 40(4), pp.933-959.
Pissarides
(1992). Loss of Skill During Unemployment and the Persistence of Employment
Shocks, Quarterly Journal of Economics, 107(4),
pp. 1371-1391.
Hall,
Robert E. (1995). Lost Jobs. Brookings
Papers on Economic Activity, 1995(1), pp.221-256.
Michael J.
Pries (2004). Persistence of Employment Fluctuations: A Model of Recurring Job
Loss, Review of Economic Studies, 71
(1), 193–215.
* Shimer (2006). Reassessing the Ins and Outs of
Unemployment, mimeo,
* Robert Shimer (2005). The Cyclical Behavior
of Equilibrium Unemployment and Vacancies, American
Economic Review, 95(1): 25-49.
Shigeru
Fujita and Garey Ramey (2006). The Cyclicality of Job
Loss and Hiring,
Shigeru
Fujita and Garey Ramey (2007). Reassessing the Shimer Facts,
Robert E.
Hall (2005). Job Loss, job Finding, and Unemployment in the U.S. Economy over
the Past Fifty Years, NBER Macro Annual.
Steve J.
Davis (2005). Comments on “Job Loss, job Finding, and Unemployment in the U.S.
Economy over the Past Fifty Years” by Robert E. Hall, NBER Macro Annual.
* Robert
E. Hall (2005). Employment Fluctuations with Equilibrium Wage Stickiness, American Economic Review, vol. 95(1),
pp.50-65.
* Shimer (2004). The Consequences of Rigid Wages in Search
Models, Journal of the European Economic
Association.
6. Earnings inequality I:
skill-biased technological change (Lectures 13, 14)
* Cahuc & Zylberberg, Chapter
10.2.
*
Ehrenberg & Smith, Chapter 14.
Acemoglu, D.,
“Technical change, inequality, and the labor market.” Journal of Economic
Literature, 2002.
(*) Autor, D., L. Katz, and A. Krueger, “Computing Inequality:
Have Computers Changed the Labor Market?” QJE
1998.
Autor,
D., L. Katz, and M. Kearney, “The Polarization of the US Labor
Market”, presented at the 2006 ASSA Meetings,
Berman,
E., J. Bound and S. Machin, “Implications of
skill-biased technological change: International evidence” QJE 1998.
J. Bound
and G. Johnson, "Changes in the Structure of Wages During the 1980's: An
Evaluation of Alternative Explanations.” AER, 1992.
(*) Card,
D. and J. DiNardo, “Skill biased technological change
and rising wage inequality: Some problems and puzzles” Journal of Labor Economics, vol. 20, 2002.
DiNardo,
Fortin and Lemieux, “Labor
Market Institutions and the Distributions of Wages, 1973-1991: A Semiparametric Approach” Econometrica,
1996.
DiNardo,
J. and S. Pischke, “The Returns to Computer Use
Revisited: Have Pencils Changed the Wage Structure too?” Quarterly Journal
of Economics, 1997.
Gottschalk,
P. and T. Smeeding, “Cross national comparisons of
earnings and income inequality” Journal of Economic Literature,
1997.
* C. Juhn, K. Murphy, and B. Pierce, "Wage Inequality and
the Rise in Returns to Skill.," JPE 1993.
* L. Katz
and D. Autor, “Changes in the Wage Structure and
Earnings Inequality,” Handbook of Labor Economics,
1999.
* L. Katz
and K. Murphy, "Changes in Relative Wages, 1963-87: Supply and Demand
Factors," QJE 1992.
Krueger,
A., “How Computers have Changed the Wage Structure? Evidence from Micro Data.” Quarterly
Journal of Economics, 1993.
Levy, F.
and R. Murnane, “
Machin,
S. and J. Van Reenen, “Technology and changes in
skill structure: Evidence from seven OECD countries” QJE 1998.
7. Earnings inequality II:
transitory inequality, consumption and welfare (Lectures 15, 16)
*
Gottschalk, Peter and Robert Moffitt (1994). The Growth of Earnings Instability
in the
Moffitt,
Robert A. and Peter Gottschalk (1995). Trends in the Autocovariance
Struc- ture of Earnings in
the
* Moffitt,
Robert A. and Peter Gottschalk (2002). Trends in the Transitory Variance of
Earnings in the
* Angus
Deaton and Christina Paxson (1994). Intertemporal Choice and Inequality, Journal of
Political Economy, 102(3), pp. 437-467.
* Richard
Blundell and Ian Preston (1998). Consumption
Inequality and Income Uncertainty, Quarterly Journal of Economics, 113(2),
pp.603-40.
Heathcote,
Jonathan, Kjetil Storesletten
and Gianluca Violante
(2005). Two Views of Inequality Over the Life-Cycle. Journal of the European
Economic Association, 3(2-3), pp.765-775.
Orazio
Attanasio (2004). What Really Happened to Consumption
Inequality in the US? NBER Working Paper No. 10338.
Krueger,
Dirk and Fabrizio Perri
(2002). Does Income Inequality Lead to Consumption Inequality? Evidence and
Theory. NBER Working Paper 9202.
Blundell,
Richard, Luigi Pistaferri and Ian Preston (2005).
Consumption Inequality and Partial Insurance. mimeo UCL-IFS/Stanford.
Guvenen,
Fatih (2005a). Learning Your Earning: Are Labor Income Shocks Really Very Persistent. mimeo,
Guvenen,
Fatih (2005b). An Empirical Investigation of Labor Income Processes. mimeo,
Primiceri,
Giorgio and Thijs van Rens (2006). Predictable
Life-Cycle Shocks, Income Risk and Consumption Inequality.
Huggett,
Mark, Gustavo Ventura and Amir Yaron
(2006). Sources of Lifetime Inequality.
Cunha, Flavio, James Heckman and Salvador Navarro
(2005). Separating Uncertainty from Heterogeneity in Life
Cycle Earnings.
8. Human capital and the
return to schooling (Lectures 17, 18)
Gary S.
Becker (1967). Human Capital and the
Personal Distribution of Income, Woytinski
Lecture No.1
Gary S.
Becker (1975). Human Capital.
Jacob Mincer (1958). Investment in Human Capital and Personal
Income Distribution, Journal of Political
Economy, 66(4), pp.281-302.
Zvi
Grilliches (1977). Estimating the Returns to
Schooling: Some Econometric Problems, Econometrica,
45(1), pp.1-22.
* David
Card (1999). The Causal Effect of Education on Earnings. Chapter 30 in the Handbook of Labor Economics,
volume 3, Orley Ashenfelter
and David Card (eds). Elsevier.
Joshua D.
Angrist and Alan B. Krueger (1991). Does
John Bound
and David A. Jaeger (1996). On the Validity of Season of Birth as an Instrument
in Wage Equations: A Comment on Angrist &
Krueger's "Does Compulsory School Attendance Affect Schooling and
Earnings?" NBER WP 5835
Orley
Ashenfelter and Cecilia Rouse (1998). Income, Schooling,
and Ability: Evidence from a New Sample of Identical Twins, Quarterly Journal of Economics, 113(1),
pp.253-284.
Eric A. Hanushek (1986). The Economics of Schooling: Production and
Efficiency in Public Schools, Journal of
Economic Literature, 24(3), pp.1141-1177.
David Card
and Alan B. Krueger (1992). Does School Quality Matter? Returns to Education
and the Characteristics of Public Schools in the United States, Journal of Political Economy, 100(1),
p.1-40.
David Card
and Alan B. Krueger (1996). School Resources and Student Outcomes: An Overview
of the Literature and New Evidence from North and South Carolina, Journal of Economic Perspectives, 10(4),
pp.31-50.
9. Project presentations (Lectures 19,
20)
Not covered:
Employment fluctuations II:
Real Business Cycles
Kydland,
Finn E. and Edward C. Prescott (1982). Time to Build and Aggregate
Fluctuations. Econometrica, 50(6), pp.1345-1370.
King,
Robert G. and Sergio T. Rebelo (1999). Resuscitating
Real Business Cycles. In: John B. Taylor and Michael Woodford (eds), Handbook of Macroeconomics, volume 1B, pp.927-1007.
Backus,
David K., Patrick J. Kehoe and Finn E. Kydland
(1995). International Business Cycles: Theory and Evidence. In: Thomas F.
Cooley (ed), Frontiers of Business Cycle Research, chapter 11.
Hall,
Robert E. (1997). Macroeconomic Fluctuations and the Allocation of Time.
Journal of Labor Economics, 15(1), pp.S223-S250.
Hansen,
Gary D. (1985). Indivisible Labor and the Business
Cycle. Journal of Monetary Economics, 16(3), pp.309-327,
Benhabib,
Jess, Richard Rogerson and Randall Wright (1991).
Homework in Macroeconomics: Household Production and Aggregate Fluctuations.
Journal of Political Economy, 99(6), pp.1166-1187.
Cho,
Jang-Ok and Thomas F. Cooley (1994). Employment and Hours over the Business
Cycle. Journal of Economic Dynamics and Control, 18(2), pp.411-432.
Human Capital:
International evidence and the social return
George Psacharopoulos
(1994). Returns to Education: A Global Update, World Development, 22(9), pp.1325-1343.
Heckman,
James J. and Peter J. Klenow (1997). Human Capital
Policy. mimeo,
Acemoglu,
Daron and Joshua Angrist
(1999). How large are Social Returns to Education? Evidence from Compulsory
Schooling Laws. NBER WP 7444.
Moretti,
Enrico (2004).Workers’ Education, Spillovers, and
Productivity: Evidence from Plant-Level Production Functions. American Economic Review, 94(3),
pp.656-690.
* Alan B.
Krueger and Mikael Lindahl
(2001). Education for Growth: Why and for Whom? Journal of Economic Literature, 39(4), pp.1101-1136.
Coen N.
Teulings and Thijs van Rens (2007). Education, Growth and Income Inequality. Review of Economics and Statistics,
forthcoming.
Ciccone, Antonio
and Giovanni Peri (2006). Identifying Human-Capital Externalities: Theory with
Applications. Review of Economic Studies,
73, pp. 381-412.
Further topics
·
Firing costs, European unemployment and labor
hoarding
·
Wage rigidity
·
Wage posting (competitive search)
·
Participation and the decision to be out of the labor
force
·
Program evaluation
·
Residual wage dispersion (search models with heterogeneity)
·
Search frictions in an RBC model
·
Regulated labor markets: professional
licensing on the market for lawyers