Essays on labor economics.

Doctor of Philosophy in subject of Economics

This thesis studies three different aspects of the labor market functioning. In the first chapter I investigate how the unemployment insurance (UI) system affects match quality. The argument is that UI enables workers to sort themselves into bet­ ter jobs. I present a model of job-search that predicts procyclical match quality and that higher UI reduces mismatch over the cycle. Using data from the NLSY I find that a higher level of UI increases duration of postunemployment matches started in both phases of the cycle, and that this effect is larger in recessions, decreasing the cyclical sensitivity of match quality. These results point out to a beneficial effect of the UI system often neglected in policy debates. The second chapter studies the wage setting process. I present a simple matching model that predicts a decrease in wage sensitivity to the labor market stance as the employment relationship evolves. The worker appropriates a portion of the value of the match-specific human capital she is accumulating, thereby gradually becoming shielded from the vagaries of the labor market. I present empirical evidence supporting this prediction: the elastic­ ity of wages to the unemployment rate decreases with tenure. This result is robust to different specifications that allow for job heterogeneity, and it contributes to the interpretation of recent evidence of changes in the effect of the business cycle on wages. The third chapter discusses the role for self-employment in a highly reg­ ulated labor market with low unemployment rate. Self-employment can be better characterized as a host of jobs, close substitute to salaried work, being the way the market tries to work around the government intervention of firing costs. The Por­ tuguese case is considered. Using worker level data I characterize transitions into and out of self-employment. The typical worker entering self-employment after losing a salaried job does not experience unemployment, enters self-employment in growing industries, and does not have a high-school diploma. These results are con­ sistent with self-employment matches having the flexibility characteristics of low quality jobs, allowing less skilled workers to find alternative jobs.