Labor market experience and worker flows

• Main Author: Gorry, Christopher Aspen
• Format: Dissertation
• Language: English
• Published: ProQuest Dissertations & Theses 01.01.2009
• Subjects: Economic theory; Economics; Expected values; Labor economics; Labor market; Studies; Tax rates; Taxation; Unemployment; Wages & salaries; Workers; Youth employment
• ISBN: 9781109208801; 1109208804

This dissertation is composed of the three papers that I have completed at the University of Chicago. The first paper, "Labor Market Experience and Worker Flows" presents a model of learning where labor market experience improves the accuracy of information about the quality of future job matches. The model can explain the decline in both job finding and separation rates with age found in the data. Beyond accounting for labor market flows, the model gives predictions that are consistent with observed empirical wage distributions. I evaluate the effects of minimum wages on labor outcomes and find that the endogenous decline in job finding rates is essential to understand high unemployment rates for young workers subjected to minimum wages. Finally, I examine the lasting consequences for workers who start their careers in a bad economy. The model generates sizable wage losses that last eight to ten years without lasting differences in unemployment. These findings are consistent with empirical studies. The second paper "Labor Market Connections, Minimum Wages, and Youth Employment," I construct a labor search model where individuals can be either connected or unconnected. Labor market connections are a novel form of human capital where connected workers get a higher rate of job offers when unemployed and are separated from their jobs at a lower rate than unconnected workers. Unconnected workers can become connected through employment. This model accounts for age patterns in employment data. By introducing minimum wages, the model explains empirical findings on the effects of minimum wage laws. Finally, the model shows that minimum wages account for much of the differences in youth employment between Europe and the United States. Finally, in my final paper "Optimal Taxation over the Life Cycle," co-authored with Ezra Oberfield, we derive the optimal labor income tax schedule for a life cycle model with deterministic productivity variation and complete asset markets. An individual chooses whether and how much to work at each date. The government must finance a given expenditure and does not have access to lump sum taxation. We develop a solution method that combines incentive constraints into a single implementability constraint. The average tax rate determines when an individual will work while the marginal tax rate determines how much she will work. The optimal tax schedule has an increasing average tax rate at low levels of income to encourage labor market participation, even in the absence of redistributive concerns. In contrast to the Mirrleesian optimal taxation literature, the marginal tax rate at the top is strictly positive.