Labor market heterogeneity and the aggregate matching function

The matching function -a key building block in models of labor market frictions- impliesthat the job finding rate depends only on labor market tightness. We estimate such amatching function and find that the relation, although remarkably stable over 1967-2007,broke down spectacularly after 2007. We argue that labor market heterogeneities are notfully captured by the standard matching function, but that a generalized matching functionthat explicitly takes into account worker heterogeneity and market segmentation is fullyconsistent with the behavior of the job finding rate. The standard matching function canbreak down when, as in the Great Recession, the average characteristics of the unemployedchange too much, or when dispersion in labor market conditions -the extent to which somelabor markets fare worse than others- increases too much.

Regional heterogeneity in wage distributions. Evidence from Spain.

Regional differences in real wages have been shown to be both large and persistent in the U.S. and the U.K., as well as in the economies of other countries. Empirical evidence suggests that wage differentials adjusted for the cost of living cannot only be explained by the unequal spatial distribution of characteristics determining earnings. Rather, average wage gap decomposition reveals the important contribution made by regional heterogeneity in the price assigned to these characteristics. This paper proposes a method for assessing regional disparities in the entire wage distribution and for decomposing the effect of differences across regions in the endowments and prices of the characteristics. The hypothesis forwarded is that the results from previous studies obtained by comparing average regional wages may be partial and nonrobust. Empirical evidence from a matched employer-employee dataset for Spain confirms marked differences in wage distributions between regions, which do not result from worker and firm characteristics but from the increasing role of regional differences in the return to human capital.

Labour market frictions, social policies, and barriers to technology adoption

Barriers to technological changes have recently been shown to be a key element in explaining differences in output per worker across countries. This study examines the role that labour market features and institutions have in explaining barriers to technology adoption. I build a model that includes labour market frictions, capital market imperfections and heterogeneity in workers' skills. I found that the unemployment rate together with the welfare losses that workers experiment after displacement are key factors in explaining the existence of barriers to technology adoption. Moreover, I found that none of these factors alone is sufficient to build these barriers. The theory also suggests that welfare policies like the unemployment insurance system may enhance these kinds of barriers while policies like a severance payment system financed by an income tax seem to be more effective in eliminating them.

Does bounded rationality lead to individual heterogeneity? The impact of the experimentation process and of memory constraints

In this paper we explore the effect of bounded rationality on the convergence of individual behavior toward equilibrium. In the context of a Cournot game with a unique and symmetric Nash equilibrium, firms are modeled as adaptive economic agents through a genetic algorithm. Computational experiments show that (1) there is remarkable heterogeneity across identical but boundedly rational agents; (2) such individual heterogeneity is not simply a consequence of the random elements contained in the genetic algorithm; (3) the more rational agents are in terms of memory abilities and pre-play evaluation of strategies, the less heterogeneous they are in their actions. At the limit case of full rationality, the outcome converges to the standard result of uniform individual behavior.

Information networks and worker recruitment

This paper studies experimentally how the existence of social information networks affects the ways in which firms recruit new personnel. Through such networks firms learn about prospective employees' performance in previous jobs. Assuming individualistic preferences social networks are predicted not to affect overall labor market behavior, while with social preferences the prediction is that when bilaterally negotiated: (i) wages will be higher and (ii) that workers in jobs with incomplete contracts will respond with higher effort. Our experimental results are consistent with the social preferences view, both for the case of excess demand and excess supply of labor. In particular, the presence of information networks leads to more efficient allocations.

The Monetary policy rules in Europe: heterogeneity and common patters

The objective of this study is the empirical identification of the monetary policy rules pursued in individual countries of EU before and after the launch of European Monetary Union. In particular, we have employed an estimation of the augmented version of the Taylor rule (TR) for 25 countries of the EU in two periods (1992-1998, 1999-2006). While uniequational estimation methods have been used to identify the policy rules of individual central banks, for the rule of the European Central Bank has been employed a dynamic panel setting. We have found that most central banks really followed some interest rate rule but its form was usually different from the original TR (proposing that domestic interest rate responds only to domestic inflation rate and output gap). Crucial features of policy rules in many countries have been the presence of interest rate smoothing as well as response to foreign interest rate. Any response to domestic macroeconomic variables have been missing in the rules of countries with inflexible exchange rate regimes and the rules consisted in mimicking of the foreign interest rates. While we have found response to long-term interest rates and exchange rate in rules of some countries, the importance of monetary growth and asset prices has been generally negligible. The Taylor principle (the response of interest rates to domestic inflation rate must be more than unity as a necessary condition for achieving the price stability) has been confirmed only in large economies and economies troubled with unsustainable inflation rates. Finally, the deviation of the actual interest rate from the rule-implied target rate can be interpreted as policy shocks (these deviation often coincided with actual turbulent periods).

Selection bias and unobservable heterogeneity applied at the wage equation of European married women

This paper utilizes a panel data sample selection model to correct the selection in the analysis of longitudinal labor market data for married women in European countries. We estimate the female wage equation in a framework of unbalanced panel data models with sample selection. The wage equations of females have several potential sources of.

Heterogeneity across immigrants in the Spanish labour

The purpose of this paper is to analyze the diferences that immigrants have in the Spanish labour market. Immigrants in Spain come from a diversity of continents (Africa, South America, Eastern Europe, Asia, etc.), and there are substantial diferences in characteristics not only among continents but also among countries in each continent. Using a quantile regression method of decomposition we estimate these diferences that are reflected in the labour market and in particular are mirrored in the wage, so some immigrants are more discriminated or segregated that others because they have less advantage. For example Argentineans and Peruvians have the same origin and culture but we can find diferences in the wage that they receive in the Spanish labor market, or for example Moroccans have a advantage with respect to the Rest of Africans, due to the geographical proximity to Spain. So when we study the pay gap and the gender pay gap we need to take into consideration the origin of immigrants. We also want to study how the integration of immigrants evolved across years, whether the wage gap that we find in the first episode of work between immigrants and natives disappears or continues to be present in the Spain labour market.

CO2 emissions and economic activity: heterogeneity across countries and non stationary series

This paper explores the homogeneity of the functional form, the parameters, and the turning point, when appropriate, of the relationship between CO2 emissions and economic activity for 31 countries (28 OECD, Brazil, China, and India) during the period 1950 to 2006 using cointegration analysis. With a sample highly overlapped over time between countries, the result reveals that the homogeneity across countries is rejected, both in functional form and in the parameters of long term relationship. This confirms the relevance of considering the heterogeneity in exploring the relationship between air pollution and economic activity to avoid spurious parameter estimates and infer a wrong behavior of the functional form, which could lead to induce that the relationship is reversed when in fact it is direct.

Heterogeneity as a coordination device

A model of directed search with a finite number of buyers and sellers is considered, where sellers compete in direct mechanisms. Buyer heterogeneity and Nash equilibrium results in perfect sorting. The restriction to complementary inputs, that the match value function Q is supermodular, in addition coordinates the sellers strategies. In that case, equilibrium implements positive assortative matching, which is efficient and consistent with the stable (cooperative equilibrium) outcome. This provides a non-cooperative and decentralizedsolution for the Assignment Game. Conversely, if buyers are identical, no such coordination is possible, and there is a continuum of equilibria, one of which exhibits price posting, another yields competition in auctions.

On the distribution of income and worker assignment under intra-firm spillovers, with an application to ideas and networks

We study the earnings structure and the equilibrium assignment of workers when workers exert intra-firm spillovers on each other.We allow for arbitrary spillovers provided output depends on some aggregate index of workers' skill. Despite the possibility of increasing returns to skills, equilibrium typically exists. We show that equilibrium will typically be segregated; that the skill space can be partitioned into a set of segments and any firm hires from only one segment. Next, we apply the model to analyze the effect of information technology on segmentation and the distribution of income. There are two types of human capital, productivity and creativity, i.e. the ability to produce ideas that may be duplicated over a network. Under plausible assumptions, inequality rises and then falls when network size increases, and the poorest workers cannot lose. We also analyze the impact of an improvement in worker quality and of an increased international mobility of ideas.

On payoff heterogeneity in games with strategic complementarities

Payoff heterogeneity weakens positive feedback in binary choice models intwo ways. First, heterogeneity drives individuals to corners where theyare unaffected by strategic complementarities. Second, aggregate behaviouris smoother than individual behaviour when individuals are heterogeneous.However, this smoothing does not necessarily eliminate positive feedbackor guarantee a unique equilibrium. In games with an unbounded, continuouschoice space, heterogeneity may either weaken or strengthen positive feedback,depending on a simple convexity/concavity condition. We conclude that positivefeedback phenomena derived in representative agent models will often be robustto heterogeneity.

Caution, children crossing: Heterogeneity of victim's cost of care and negligence rule

The paper deals with a bilateral accident situation in which victims haveheterogeneous costs of care. With perfect information,efficient care bythe injurer raises with the victim's cost. When the injurer cannot observeat all the victim's type, and this fact can be verified by Courts, first-bestcannot be implemented with the use of a negligence rule based on thefirst-best levels of care. Second-best leads the injurer to intermediate care,and the two types of victims to choose the best response to it. This second-bestsolution can be easily implemented by a negligence rule with second-best as duecare. We explore imperfect observation of the victim's type, characterizing theoptimal solution and examining the different legal alternatives when Courts cannotverify the injurers' statements. Counterintuitively, we show that there is nodifference at all between the use by Courts of a rule of complete trust and arule of complete distrust towards the injurers' statements. We then relate thefindings of the model to existing rules and doctrines in Common Law and Civil Lawlegal systems.

Unobserved heterogeneity and censoring in the demand for health care

This paper analyses the demand for private health care by Spanishhouseholds using a micro budget survey. The methodology used takescare of the three part decision process involved in this type ofbehaviour, namely the decision to use private health care, howoften to do so and how much to spend each time and also the effectsof unobserved heterogeneity. Since the theoretical frameworkcorresponds to the Grossman model of health investment, the resultsalso provide a test of the theory when these issues are considered.Finally, the obtained evidence also suggest that the current systemof tax deductions for private health care expenditures is regressive.