This paper examines how employer and worker specific productivity shocks transmit to wages and employment. I characterize the optimal contract in an equilibrium directed-search model. I provide conditions for identification. I estimate the model on Swedish matched employer-employee data.
S. Bonhomme, T. Lamadon and E. Manresa
Updated June 2016
We propose a framework to estimate earnings distributions and worker and firm unobserved heterogeneity while allowing for complementarities and rich mobility and wage dynamics. We introduce two models: a static model that allows for interaction effects between workers and firms, and a dynamic model that allows in addition for Markovian earnings and mobility dynamics. We establish identification in short panels. We apply our method to Swedish matched employer-employee panel data and report estimated earnings functions, sorting patterns, and variance decompositions.
S. Bonhomme, T. Lamadon and E. Manresa Submitted April 2017[Web Appendix]
We develop two-step and iterative panel data estimators based on a discretization of unobserved heterogeneity. We view discrete estimators as approximations, and study their properties in environments where population heterogeneity is individual-specific and un- restricted, letting the number of types grow with the sample size. Bias reduction methods can improve the performance of discrete estimators. We study two applications: a structural dynamic discrete choice model of migration, and a model of wage determination with worker and firm heterogeneity. These applications to settings with continuous heterogeneity suggest computational and statistical advantages of the discrete methods that we advocate.
Matching, Sorting, and Wages
T. Lamadon, J. Lise, C. Meghir and J.M. Robin
This paper analyzes the allocation of workers to firms in an economy with search friction and sorting. We present a model with two sided heterogeneity, training costs, on-the-job search and vacancy creation. We provide a constructive proof for the non-parametric identification of the model, and evaluate the properties of the associated estimator with a Monte-Carlo simulation. Finally we estimate the model using GMM on the matched employer-employee data from Sweden to decompose the sources of income inequality and quantify the output loss due to search frictions.
Evaluation of the SSP program
T. Lamadon, J. Lise, S. Seitz and J. Smith
We develop an equilibrium search model with all the characteristics of the the Canadian welfare system and the Self Sufficiency Program. In this experiment, a group of lone mothers on income assistance for longer than 12 months are offered a wage premium if they find a full-time job within a year. Using the SSP experimental data and Labor Force Survey data we estimate a model with endogenous search effort, full time and part time work, heterogeneity in disutility of work and match heterogeneity. We extend the classical firm-worker wage bargaining problem to work in the presence of non-convex budget sets introduced by non-linear policies. The model is then used to quantify the crowding out effects associated with extending the SSP program to all women in the economy.
Guéron, Y., T. Lamadon and C.D. Thomas (2011), Games and Economic Behavior, vol. 73(1), pp. 287-295
Proving the folk theorem in a game with three or more players usually requires imposing
restrictions on the dimensionality of the stage-game payoffs. Fudenberg and Maskin (1986)
assume full dimensionality of payoffs, while Abreu et al. (1994) assume the weaker NEU
condition (“nonequivalent utilities”). In this note, we consider a class of n-player games
where each player receives the same stage-game payoff, either zero or one. The stagegame
payoffs therefore constitute a one-dimensional set, violating NEU. We show that if
all players have different discount factors, then for discount factors suﬃciently close to
one, any strictly individually rational payoff proﬁle can be obtained as the outcome of a
subgame-perfect equilibrium with public correlation.