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Creator: Pastorino, Elena Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 482 Abstract:
In order to analyze careers both within and across firms, this paper proposes a matching model of the labor market that extends existing models of job assignment and learning about workers’ abilities. The model accounts for worker mobility across jobs and firms, for varying degrees of generality of ability, and for the possibility that firms affect the information they acquire about workers through job assignment. I characterize equilibrium assignment and wages, and show how, depending on how abilities and jobs are distributed across firms, equilibrium gives rise to widely varying patterns of job mobility within firms and turnover across firms, even if matching would be perfectly assortative in the absence of uncertainty. The implied job and wage dynamics display features that are consistent with a broad set of empirical findings on careers in firms and the labor market. In particular, workers can experience gradual promotions and wage increases following successful performance but few or no demotions when employed by the same firm. The model also produces turnover across firms and occupations after both successful and unsuccessful experiences, leading to wage increases or decreases following a firm or occupation change. Overall, the results in this paper provide a unified framework in which to interpret the dynamics of jobs and wages in firms and the labor market.
Palavra-chave: Careers in firms, Matching, Turnover, and Learning Sujeito: J31 - Wage Level and Structure; Wage Differentials, J62 - Job, Occupational, and Intergenerational Mobility; Promotion, and J24 - Human Capital; Skills; Occupational Choice; Labor Productivity
Creator: Camargo, Braz and Pastorino, Elena Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 475 Abstract:
We analyze commitment to employment in an environment in which an infinitely lived firm faces a sequence of finitely lived workers who differ in their ability to produce output. A worker’s ability is initially unknown to both the worker and the firm. A worker’s effort affects the information on ability conveyed by his performance. We characterize equilibria and show that they display commitment to employment only when effort has a persistent but delayed impact on output. In this case, by providing insurance against early termination, commitment to employment encourages workers to exert effort, thus improving the firm’s ability to identify workers’ talent. The incentive value of commitment to retention helps explain the use of probationary appointments in environments in which there is uncertainty about individual ability.
Palavra-chave: Career concerns, Commitment, Learning, and Retention Sujeito: D83 - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness, D21 - Firm Behavior: Theory, C73 - Stochastic and Dynamic Games; Evolutionary Games; Repeated Games, and J41 - Labor Contracts
Creator: Kehoe, Patrick J., Midrigan, Virgiliu, and Pastorino, Elena Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 566 Abstract:
Modern business cycle theory focuses on the study of dynamic stochastic general equilibrium models that generate aggregate fluctuations similar to those experienced by actual economies. We discuss how this theory has evolved from its roots in the early real business cycle models of the late 1970s through the turmoil of the Great Recession four decades later. We document the strikingly different pattern of comovements of macro aggregates during the Great Recession compared to other postwar recessions, especially the 1982 recession. We then show how two versions of the latest generation of real business cycle models can account, respectively, for the aggregate and the cross-regional fluctuations observed in the Great Recession in the United States.
Palavra-chave: New Keynesian models, Financial frictions, and External validation Sujeito: E52 - Monetary Policy, E13 - General Aggregative Models: Neoclassical, E32 - Business Fluctuations; Cycles, and E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Creator: Kehoe, Patrick J. and Pastorino, Elena Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 543 Abstract:
Before the advent of sophisticated international financial markets, a widely accepted belief was that within a monetary union, a union-wide authority orchestrating fiscal transfers between countries is necessary to provide adequate insurance against country-specific economic fluctuations. A natural question is then: Do sophisticated international financial markets obviate the need for such an active union-wide authority? We argue that they do. Specifically, we show that in a benchmark economy with no international financial markets, an activist union-wide authority is necessary to achieve desirable outcomes. With sophisticated financial markets, however, such an authority is unnecessary if its only goal is to provide cross-country insurance. Since restricting the set of policy instruments available to member countries does not create a fiscal externality across them, this result holds in a wide variety of settings. Finally, we establish that an activist union-wide authority concerned just with providing insurance across member countries is optimal only when individual countries are either unable or unwilling to pursue desirable policies
Palavra-chave: Optimal currency area, International financial markets, Cross-country insurance, International transfers, Cross-country externalities, Cross-country transfers, and Fiscal externalities Sujeito: F35 - Foreign Aid, E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General, G15 - International Financial Markets, G33 - Bankruptcy; Liquidation, F42 - International Policy Coordination and Transmission, G28 - Financial Institutions and Services: Government Policy and Regulation, F33 - International Monetary Arrangements and Institutions, E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination, and F38 - International Financial Policy: Financial Transactions Tax; Capital Controls
Creator: Pastorino, Elena Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 470 Abstract:
In this appendix I present details of the model and the empirical analysis, and results of counterfactual experiments omitted from the paper. In Section 1 I describe a simple example that illustrates how, even in the absence of human capital acquisition, productivity shocks, or separation shocks, the learning component of the model can naturally generate mobility between jobs within a firm and turnover between firms. I also include the proofs of Propositions 1 and 2 in the paper. In Section 2 I discuss model identification in detail, where, in particular, I prove that information in my data on the performance ratings of managers allows me to identify the learning process separately from the human capital process. In Section 3 I describe the original U.S. firm dataset of Baker, Gibbs, and Holmström (1994a,b), on which my work is based. In Section 4 I provide details about the estimation of the model, including the derivation of the likelihood function, a description of the numerical solution of the model, and a discussion of the results from a Monte Carlo exercise showing the identifiability of the model’s parameters in practice. There I also derive bounds on the informativeness of the jobs of the competitors of the firm in my data, based on the estimates of the parameters reported in the paper. Finally, in Section 5 I present estimation results based on a larger sample that includes entrants into the firm at levels higher than Level 1. Results of counterfactual experiments omitted from the paper are contained in Tables A.12–A.14.
Palavra-chave: Job Mobility, Careers, Wage Growth, Human Capital, Experimentation, and Bandit Sujeito: J31 - Wage Level and Structure; Wage Differentials, D83 - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness, J62 - Job, Occupational, and Intergenerational Mobility; Promotion, J44 - Professional Labor Markets; Occupational Licensing, D22 - Firm Behavior: Empirical Analysis, and J24 - Human Capital; Skills; Occupational Choice; Labor Productivity
Creator: Pastorino, Elena Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 469 Abstract:
This paper develops and structurally estimates a labor market model that integrates job assignment, learning, and human capital acquisition to account for the main patterns of careers in firms. A key innovation is that the model incorporates workers’ job mobility within and between firms, and the possibility that, through job assignment, firms affect the rate at which they acquire information about workers. The model is estimated using longitudinal administrative data on managers from one U.S. firm in a service industry (the data of Baker, Gibbs, and Holmström (1994a,b)) and fits the data remarkably well. The estimated model is used to assess both the direct effect of learning on wages and its indirect effect through its impact on the dynamics of job assignment. Consistent with the evidence in the literature on comparative advantage and learning, the estimated direct effect of learning on wages is found to be small. Unlike in previous work, by jointly estimating the dynamics of beliefs, jobs, and wages imposing all of the model restrictions, the impact of learning on job assignment can be uncovered and the indirect effect of learning on wages explicitly assessed. The key finding of the paper is that the indirect effect of learning on wages is substantial: overall learning accounts for one quarter of the cumulative wage growth on the job during the first seven years of tenure. Nearly all of the remaining growth is from human capital acquisition. A related novel finding is that the experimentation component of learning is a primary determinant of the timing of promotions and wage increases. Along with persistent uncertainty about ability, experimentation is responsible for substantially compressing wage growth at low tenures.
Palavra-chave: Job Mobility, Wage Growth, Human Capital, Careers, Experimentation, and Bandit Sujeito: J31 - Wage Level and Structure; Wage Differentials, D83 - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness, J62 - Job, Occupational, and Intergenerational Mobility; Promotion, J44 - Professional Labor Markets; Occupational Licensing, D22 - Firm Behavior: Empirical Analysis, and J24 - Human Capital; Skills; Occupational Choice; Labor Productivity
Creator: Kehoe, Patrick J., Midrigan, Virgiliu, and Pastorino, Elena Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 536 Abstract:
During the Great Recession, regions of the United States that experienced the largest declines in household debt also experienced the largest drops in consumption, employment, and wages. Employment declines were larger in the nontradable sector and for firms that were facing the worst credit conditions. Motivated by these findings, we develop a search and matching model with credit frictions that affect both consumers and firms. In the model, tighter debt constraints raise the cost of investing in new job vacancies and thus reduce worker job finding rates and employment. Two key features of our model, on-the-job human capital accumulation and consumer-side credit frictions, are critical to generating sizable drops in employment. On-the-job human capital accumulation makes the flows of benefits from posting vacancies long-lived and so greatly amplifies the sensitivity of such investments to credit frictions. Consumer-side credit frictions further magnify these effects by leading wages to fall only modestly. We show that the model reproduces well the salient cross-regional features of the U.S. data during the Great Recession.
Palavra-chave: Debt constraints, Human capital, Search and matching, and Employment Sujeito: J21 - Labor Force and Employment, Size, and Structure, E21 - Macroeconomics: Consumption; Saving; Wealth, J64 - Unemployment: Models, Duration, Incidence, and Job Search, E32 - Business Fluctuations; Cycles, and E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
Creator: Kehoe, Patrick J., Lopez, Pierlauro, Midrigan, Virgiliu, and Pastorino, Elena Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 591 Abstract:
Recent critiques have demonstrated that existing attempts to account for the unemployment volatility puzzle of search models are inconsistent with the procylicality of the opportunity cost of employment, the cyclicality of wages, and the volatility of risk-free rates. We propose a model that is immune to these critiques and solves this puzzle by allowing for preferences that generate time-varying risk over the cycle, and so account for observed asset pricing fluctuations, and for human capital accumulation on the job, consistent with existing estimates of returns to labor market experience. Our model reproduces the observed fluctuations in unemployment because hiring a worker is a risky investment with long-duration surplus flows. Intuitively, since the price of risk in our model sharply increases in recessions as observed in the data, the benefit from creating new matches greatly drops, leading to a large decline in job vacancies and an increase in unemployment of the same magnitude as in the data.
Palavra-chave: Unemployment volatility puzzle, Diamond-Mortenson-Pissarides model, Search and matching model, Shimer puzzle, and Search model Sujeito: E20 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data), J63 - Labor Turnover; Vacancies; Layoffs, E00 - Macroeconomics and Monetary Economics: General, J64 - Unemployment: Models, Duration, Incidence, and Job Search, E32 - Business Fluctuations; Cycles, E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity, and J60 - Mobility, Unemployment, Vacancies, and Immigrant Workers: General