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Empirical Labor Search: a Survey

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Empirical Labor Search: a Survey IZA DP No. 929 Empirical Labor Search: A Survey Zvi Eckstein Gerard J. van den Berg DISCUSSION PAPER SERIES DISCUSSION PAPER November 2003 Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor Empirical Labor Search: A Survey Zvi Eckstein Tel Aviv University, University of Minnesota, CEPR and IZA Bonn Gerard J. van den Berg Free University of Amsterdam, Tinbergen Institute, IFAU, CEPR and IZA Bonn Discussion Paper No. 929 November 2003 IZA P.O. Box 7240 D-53072 Bonn Germany Tel.: +49-228-3894-0 Fax: +49-228-3894-210 Email: [email protected] This Discussion Paper is issued within the framework of IZA’s research area Mobility and Flexibility of Labor. Any opinions expressed here are those of the author(s) and not those of the institute. Research disseminated by IZA may include views on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent, nonprofit limited liability company (Gesellschaft mit beschränkter Haftung) supported by Deutsche Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. The current research program deals with (1) mobility and flexibility of labor, (2) internationalization of labor markets, (3) welfare state and labor market, (4) labor markets in transition countries, (5) the future of labor, (6) evaluation of labor market policies and projects and (7) general labor economics. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available on the IZA website (www.iza.org) or directly from the author. IZA Discussion Paper No. 929 November 2003 ABSTRACT Empirical Labor Search: A Survey∗ This paper surveys the existing empirical research that uses search theory to empirically analyze labor supply questions in a structural framework, using data on individual labor market transitions and durations, wages, and individual characteristics. The starting points of the literature are the Mincerian earnings function, Heckman's classic selection model, and dynamic optimization theory. We develop a general framework for the labor market where the search for a job involves dynamic decision making under uncertainty. It can be specialized to be in agreement with most published research using labor search models. We discuss estimation, policy evaluation with the estimated model, equilibrium model versions, and the decomposition of wage variation into factors due to heterogeneity of various model determinants as well as search frictions themselves. We summarize the main empirical conclusions. JEL Classification: J6, J42, J41, J31, J21, D8, C4 Keywords: job search, mobility, unemployment, wages, durations Corresponding author: Gerard J. van den Berg Department of Economics Free University of Amsterdam De Boelelaan 1105 1081 HV Amsterdam The Netherlands Email: [email protected] ∗ Thanks to Aico van Vuuren, Annette Bergemann and Barbara Petrongolo for comments on preliminary versions. ½ ÁÒØÖÓ dÙcØiÓÒ Ìhi× ÔaÔ eÖ ×ÙÖÚeÝ× Øhe eÜi×ØiÒg eÑÔiÖicaÐ Öe×eaÖch ØhaØ Ù×e× ×eaÖch ØheÓÖÝ ØÓ eÑÔiÖicaÐÐÝ aÒaÐÝÞe Ðab ÓÖ ×ÙÔÔÐÝ ÕÙe×ØiÓÒ× iÒ a ×ØÖÙcØÙÖaÐ fÖaÑeÛÓÖk¸ Ù×iÒg daØa ÓÒ iÒdiÚidÙaÐ Ðab ÓÖ ÑaÖkeØ ØÖaÒ×iØiÓÒ× aÒd dÙÖaØiÓÒ׸ Ûage׸ aÒd iÒdiÚidÙaÐ chaÖacØeÖi×Øic׺ Ìhi× ÐiØeÖaØÙÖe ha× aÒaÐÝÞed ÚaÖieØÝ Óf i××Ùe׸ ×Ùch a× Øhe ÖeØÙÖÒ ØÓ ×chÓ ÓÐiÒg¸ Øhe iÒØeÖÔÖeØaØiÓÒ Óf Öace eaÖÒiÒg× di«eÖeÒØiaÐ׸ Øhe dÙÖaØiÓÒ Óf ÙÒeÑÔÐÓÝÑeÒØ aÒd Øhe Ûage di×Ô eÖ×iÓÒ fÓÖ hÓÑÓ¹ geÒeÓÙ× ÛÓÖkeÖ׸ Øhe e«ecØ Óf Øhe ÑiÒiÑÙÑ Ûage¸ aggÖegaØe Ðab ÓÖ ÑaÖkeØ ÙÒeÑÔÐÓÝÑeÒØ aÒd eaÖÒiÒg× iÒeÕÙaÐiØݺ Ìhe ÐiØeÖaØÙÖe¸ Ûhich ×ØaÖØed Ó« iÒ Øhe eaÖÐÝ ½98¼×¸ bÙiÐd× ÓÒ Øhe e×ØiÑaØiÓÒ Óf ÅiÒceÖiaÒ eaÖÒiÒg× fÙÒcØiÓÒ׸ ÀeckÑaÒ³× cÐa××ic ×eÐecØiÓÒ ÑÓ deи aÒd dÝÒaÑic ÓÔØiÑiÞaØiÓÒ ØheÓÖݺ EaÖÒiÒg× fÙÒcØiÓÒ× eÜÔÖe×× eaÖÒiÒg× iÒ ØeÖÑ× Óf ÚaÖiabÐe× ÐikeÛÓÖk eÜÔ eÖieÒce¸ ÛhichÑaÝ b e deØeÖÑiÒed ×iÑÙÐØaÒeÓÙ×ÐÝ ÛiØh eaÖÒiÒg׸ ×Ó ØhaØ ØheÝ aÖe Ô ÓØeÒØiaÐÐÝ eÒdÓgeÒÓÙ׺ Ìhe cÐa××ic ÀeckÑaÒ ×eÐecØiÓÒ ÑÓ deÐ ÔÖÓÚide× a fÖaÑeÛÓÖk ØÓ haÒdÐe Øhi× eÒdÓgeÒeiØÝ ÔÖÓbÐeÑ ½ iÒ a ×ØaØic ´ÓÖ ÐÓÒg ÖÙÒµ ×eØØiÒgº DÝÒaÑic ÓÔØiÑiÞaØiÓÒ ØheÓÖÝ ÔÖÓÚide× a ÙÒi¬ed fÖaÑeÛÓÖk ØÓ ×iÑÙÐØaÒeÓÙ×ÐÝ eÜÔÐaiÒ ×hÓÖØ ØeÖÑ aÒd ÐÓÒg ÖÙÒ ÓÙØcÓÑe× Óf eaÖÒiÒg׸ Ûage׸ aÒd ØiÑe ÓÙØ Óf ÛÓÖkº ËeaÖch ØheÓÖÝ iÒ ÔaÖØicÙÐaÖ i× Ù×efÙÐ fÓÖ Øhi× ÔÙÖÔ Ó×eº ÁØ bÙiÐd× ÓÒ Øhe ÔÖiÒciÔÐe ¾ ØhaØ iØ Øake× ØiÑe ØÓ di×cÓÚeÖ acceÔØabÐe ØÖadiÒg ÓÔÔ ÓÖØÙÒiØie× iÒ Øhe Ðab ÓÖ ÑaÖkeغ A ×ecÓÒd ÑÓØiÚaØiÓÒ fÓÖ Øhe ÐiØeÖaØÙÖe cÓÒceÖÒ× Øhe Ô eÖ×i×ØeÒØÐÝ high ÙÒeÑÔÐÓÝÑeÒØ ÐeÚeÐ× iÒ EÙÖÓÔ e aÒd eÐ×eÛheÖeº ÌÖadiØiÓÒaÐ ÒeÓ cÐa××icaÐ Ðab ÓÖ ÑaÖkeØ ÑÓ deÐ× aÖe ÙÒabÐe ØÓ eÜÔÐaiÒ ÐÓÒg ×Ô eÐÐ× Óf Ô Ó××ibÐÝ iÒÚÓÐÙÒØaÖÝ ÙÒeÑÔÐÓÝÑeÒغ ËeaÖch ÑÓ deÐ× haÚe ÔÖÓÚeÒ ØÓ b e fÖÙiØfÙÐ ØÓ ÓÐ× fÓÖ Øhe ÙÒdeÖ×ØaÒdiÒg Óf ÙÒeÑÔÐÓÝÑeÒØ dÙÖaØiÓÒ× aÒd Øhe e«ecØiÚeÒe×× Óf Ðab ÓÖ ÑaÖkeØ Ô ÓÐicie× aiÑed aØ bÖiÒgiÒg Øhe ÙÒeÑÔÐÓÝed back ØÓ ÛÓÖk ´×ee eºgº Øhe ×ÙÖÚeÝ bÝ ÅÓÖØeÒ×eÒ aÒd Èi××aÖide׸ ½999µº ËeaÖch ØheÓÖÝ Ô Ó×ØÙÐaØe× ØhaØ ceÖØaiÒ eÚeÒØ× ´ÐikeÛage Ó«eÖ×µ Ó ccÙÖ ÖaÒdÓÑÐÝ fÖÓÑ Øhe Ô ÓiÒØ Óf ÚieÛ Óf Øhe iÒdiÚidÙaк Ìhi× geÒeÖaØe× ÔÖÓbabiÐiØÝ di×ØÖibÙØiÓÒ× fÓÖ Ób×eÖÚed Ða¹ b ÓÖ ÑaÖkeØ ÓÙØcÓÑe× Ðike ÙÒeÑÔÐÓÝÑeÒØ aÒd jÓb dÙÖaØiÓÒ× aÒd Ûage׺ DaØa ÓÒ iÒdiÚidÙaÐ Ðab ÓÖ ÑaÖkeØ ÓÙØcÓÑe× caÒ ØheÒ be Ù×ed ØÓ e×ØiÑaØe Øhe ×ØÖÙcØÙÖaÐ ÔaÖaÑeØeÖ× Óf ×eaÖch ÑÓ deÐ׺ Ìhi× ×ÓÐÚe× Øhe dÝÒaÑic ×eÐecØiÓÒ e«ecØ׺ ÏhaØ i× ÑÓÖe¸ ÛiØh ×ØÖÙcØÙÖaÐ iÒfeÖeÒce¸ Øhe ÑÓ deÐ ØhaØ i× e×ØiÑaØed i× fÓÖÑaÐÐÝ cÓÒ×i×ØeÒØ ÛiØh Øhe ÙÒdeÖÐÝiÒg ecÓÒÓÑic \×ØÓÖÝ"¸ b ecaÙ×e ÓÒe e×ØiÑaØe× Øhe deØeÖÑiÒaÒØ× Óf Øhe ageÒØ׳ deci×iÓÒ ÔÖÓbÐeÑ׺ ËØÖÙcØÙÖaÐ eѹ ÔiÖicaÐ iÒfeÖeÒce aÐ×Ó eÒabÐe× a fÓÖÑaÐ Øe×Ø Óf Øhe adeÕÙacÝ Óf Øhe ØheÓÖݸ aÒd iØ aÐÐÓÛ× fÓÖ a caÖefÙÐ a××e××ÑeÒØ Óf Øhe e«ecØ× Óf Ô ÓÐicÝ chaÒge× ØhaØ i× ÒÓØ ×Ùb jecØ ØÓ Øhe ÄÙca× cÖiØiÕÙeº ½ ÊÓ×eÒÞÛeig aÒd ÏÓÐÔiÒ ´¾¼¼¼µ Ñake Øhe Ô ÓiÒØ ØhaØ ×iÒce aÐÐ Øhe ÚaÖiabÐe× iÒ Øhe ÅiÒceÖiaÒ eÕÙaØiÓÒ aÖe eÒdÓgeÒÓÙ× ÓÒe caÒÒÓØ hÓÔ e ØhaØ ØheÖe aÖe eÒÓÙgh iÒ×ØÖÙÑeÒØ× ØÓ cÓÒØÖÓÐ fÓÖ aÐÐ Øhe ×eÐecØiÓÒ bia׺ ¾ Ìhe iÑÔ eÖfecØ iÒfÓÖÑaØiÓÒ ØhaØ i× iÒÚÓÐÚed i× Ù×ÙaÐÐÝ deÒÓØed bÝ Øhe ÔhÖa×e \×eaÖch fÖicØiÓÒ×"º ¾ CÓÒØÖaÖÝ ØÓ ÑaÒÝ Ô ÓÔÙÐaÖ eÚaÐÙaØiÓÒ ÑeØhÓ d׸ iØ aÐÐÓÛ× fÓÖ aÒ eÚaÐÙaØiÓÒ Óf cÓÙÒØeÖfacØÙaÐ Ô ÓÐicie׸ ØhaØ i׸ Ô ÓÐicie× ØhaØ haÚe ÒÓØ b eeÒ iÑÔÐeÑeÒØed iÒ ÖeaÐiØݺ ÁÒ Øhi× ÔaÔ eÖ¸ Ûe ×ØaÖØ ÛiØh a geÒeÖaÐ fÖaÑeÛÓÖk fÓÖ Øhe Ðab ÓÖ ÑaÖkeØ ÛheÖe Øhe ×eaÖch fÓÖ a jÓb i× a ÖaÒdÓÑ ×eÕÙeÒØiaÐ ÔÖÓ ce×׺ FÓÐÐÓÛiÒg Øhe ×eaÖch ÐiØeÖaØÙÖe Ûe ×hÓÛ hÓÛ Øhe geÒeÖaÐ ÑÓ deÐ caÒ be ×Ô eciaÐiÞed ØÓ be iÒ agÖeeÑeÒØ ÛiØh ÑÓ×Ø ÔÙbÐi×hed Öe×eaÖch Ù×iÒg Ðab ÓÖ ×eaÖch ÑÓ deÐ׺ ËÔ eci¬caÐÐݸ Ûe ×hÓÛ hÓÛ Øhi× fÖaÑeÛÓÖk caÒ be Öe×ØÖicØed ØÓ iÒ¹ cÐÙde Øhe fÓÐÐÓÛiÒg ØheÓÖeØicaÐ ÑÓ deÐ×: Øhe ×ØaÒdaÖd \cÐa××icaÐ" ×eaÖch ÑÓ deÐ Óf ÅÓÖØeÒ×eÒ aÒd ÄiÔÔÑaÒ aÒd ÅcCaÐÐ; 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