Wage Dynamics and the Efficiency of Job Separations
Sunday, Jan. 5, 2020 10:15 AM - 12:15 PM (PDT)
- Chair: Steven J. Davis, University of Chicago
Sticky Wages on the Layoff Margin
AbstractWe design and field an innovative survey of unemployment insurance (UI) recipients that yields new insights about wage stickiness on the layoff margin. Most UI recipients express a willingness to accept wage cuts of 5-10 percent to save their lost jobs, and one-third are willing to take a 25 percent cut. Yet worker-employer discussions about cuts in pay, benefits, or hours in lieu of layoffs are exceedingly rare. When asked why such discussions don’t happen, most UI recipients don't know or doubt wage cuts would save their jobs. Sixteen percent say cuts would undermine morale or lead the best workers to quit. For lost union jobs, 45 percent say contractual restrictions prevent wage cuts. Adjusting for jobs that can’t be salvaged according to respondents, our results suggest that wage cuts acceptable to workers could prevent about 30 percent of layoffs that result in UI benefits. Among those who reject our hypothetical pay cuts, 45 percent say they have better outside options, 35 percent regard pay cuts as insulting, and 21 percent prefer unemployment to working at the proposed wage. We draw on our survey results and other evidence to assess (a) the role of sticky wages in layoffs and (b) worker-side willingness to accept wage cuts in lieu of job loss alongside the inability or unwillingness of employers to offer such deals.
Firm Wages in a Frictional Labor Market
AbstractThis paper studies a labor market with directed search, where multi-worker firms follow a firm wage policy: They pay equally productive workers the same. The policy reduces wages, due to the influence of firms’ existing workers on their wage setting problem, increasing the profitability of hiring. It also introduces a time-inconsistency into the dynamic firm problem, because firms face a less elastic labor supply in the short run. To consider outcomes when firms reoptimize each period, I study Markov perfect equilibria, proposing a tractable solution approach based on standard Euler equations. In two applications, I first show that firm wages dampen wage variation over the business cycle, amplifying that in unemployment, with quantitatively significant effects. Second, I show that firm wage firms may find it profitable to fix wages for a period of time, and that an equilibrium with fixed wages can be good for worker welfare, despite added volatility in the labor market.
Marginal Jobs and Job Surplus: A Test of the Efficiency of Separations
AbstractWe present a sharp test for the efficiency of job separations. First, we document a dramatic increase in the separation rate - 11.2ppt (28%) over five years - in response to a quasi-experimental extension of UI benefit duration for older workers. Second, after the abolition of the policy, the “job survivors” in the formerly treated group exhibit exactly the same separation behavior as the control group. Juxtaposed, these facts reject the “Coasean” prediction of efficient separations, whereby the UI extensions should have extracted marginal (low-surplus) jobs and thereby rendered the remaining (high-surplus) jobs more resilient after its abolition. Third, we show that a formal model of predicted efficient separations implies a piece-wise linear function of the actual control group separations beyond the missing mass of marginal matches. A structural estimation reveals point estimates of the share of efficient separations below 4%, with confidence intervals rejecting shares above 13%. Fourth, to characterize the marginal jobs in the data, we extend complier analysis to difference-in-difference settings such as ours. The UI-induced separators stemmed from declining firms, blue-collar jobs, with a high share of sick older workers, and firms more likely to have works councils - while their wages were similar to program survivors. The evidence is consistent with a “non-Coasean” framework building on wage frictions preventing efficient bargaining, and with formal or informal institutional constraints on selective separations.
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
- J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers