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Displaced workers, early leavers, and re-employment wages
November 2002
Working Paper Number:
tp-2002-18
In this paper, we lay out a search model that takes explicitly into account the
information flow prior to a mass layoff. Using universal wage data files that allow
us to identify individuals working with healthy and displacing firms both at
the time of displacement as well as any other time period, we test the predictions
of the model on re-employment wage differentials. Workers leaving a "distressed"
firm have higher re-employment wages than workers who stay with the
distressed firm until displacement. This result is robust to the inclusion of controls
for worker quality and unobservable firm characteristics.
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Agent Heterogeneity and Learning: An Application to Labor Markets
October 2002
Working Paper Number:
tp-2002-20
I develop a matching model with heterogeneous workers, rms, and worker-firm
matches, and apply it to longitudinal linked data on employers and employees. Workers
vary in their marginal product when employed and their value of leisure when unemployed.
Firms vary in their marginal product and cost of maintaining a vacancy. The
marginal product of a worker-firm match also depends on a match-specific interaction
between worker and rm that I call match quality. Agents have complete information
about worker and rm heterogeneity, and symmetric but incomplete information about
match quality. They learn its value slowly by observing production outcomes. There
are two key results. First, under a Nash bargain, the equilibrium wage is linear in a
person-specific component, a firm-specific component, and the posterior mean of beliefs
about match quality. Second, in each period the separation decision depends only on
the posterior mean of beliefs and person and rm characteristics. These results have
several implications for an empirical model of earnings with person and rm e ects.
The rst implies that residuals within a worker-firm match are a martingale; the second
implies the distribution of earnings is truncated.
I test predictions from the matching model using data from the Longitudinal
Employer-Household Dynamics (LEHD) Program at the US Census Bureau. I present
both xed and mixed model specifications of the equilibrium wage function, taking
account of structural aspects implied by the learning process. In the most general
specification, earnings residuals have a completely unstructured covariance within a
worker-firm match. I estimate and test a variety of more parsimonious error structures,
including the martingale structure implied by the learning process. I nd considerable
support for the matching model in these data.
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The Sensitivity of Economic Statistics to Coding Errors in Personal Identifiers
October 2002
Working Paper Number:
tp-2002-17
In this paper, we describe the sensitivity of small-cell flow statistics
to coding errors in the identity of the underlying entities. Specifically,
we present results based on a comparison of the U.S. Census Bureau's
Quarterly Workforce Indicators (QWI) before and after correcting for
such errors in SSN-based identifiers in the underlying individual wage
records. The correction used involves a novel application of existing
statistical matching techniques. It is found that even a very conservative
correction procedure has a sizable impact on the statistics. The
average bias ranges from 0.25 percent up to 15 percent for flow statistics,
and up to 5 percent for payroll aggregates.
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Estimating Measurement Error in SIPP Annual Job Earnings: A Comparison of Census Survey and SSA Administrative Data
September 2002
Working Paper Number:
tp-2002-24
The third chapter investigates measurement error in SIPP annual job
earnings data linked to SSA administrative earnings data. The multiple
earnings measures provided by the survey and administrative data enable
the identification of components of true variation and variation due to
measurement error. We find that 18% of the variation in SIPP annual job
earnings can be attributed to measurement error. We also find that in
both the SIPP and the DER, measurement error is persistent over time.
A lower level of auto-correlation in the SIPP measurement error than in
the economic error component leads to a lower reliability ratio of .62 for
first-differenced earnings.
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Estimating the Relationship between Employer-Provided Health Insurance, Worker Mobility, and Wages
September 2002
Working Paper Number:
tp-2002-23
In this paper, a joint model of wages, hazard of a job ending, and
probability of holding employer-provided health insurance is estimated,
taking account of unobservable person and job characteristics. A unique
data source, the 1990 and 1996 SIPP Panels linked to SSA administrative
job histories, enables the identification of random person and job effects
and the correlation of these effects across the three equations. The explicit
modeling of this correlation produces consistent estimates of the
effect of tenure on wages and the effect of health insurance on mobility.
Substantial levels of job-lock and significant annual returns to seniority
are found. Increasing the job-specific probability of obtaining employerprovided
health insurance from 60% to 63%, or increasing the job-specific
hourly wage rate by $.80, are both associated with an equivalent decrease
in the hazard of the job ending. However, the dollar value of the wage
benefit is substantially higher.
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The interactions of workers and firms in the low-wage labor market
August 2002
Working Paper Number:
tp-2002-12
This paper presents an analysis of workers who persistently have low earnings in
the labor market over a period of three or more years. Some of these workers manage to
escape from this low-earning status over subsequent years, while many do not. Using
data from the Longitudinal Employer Household Dynamics (LEHD) project at the U.S.
Census Bureau, we analyze the characteristics of persons and especially of their firms and
jobs that enable some to improve their earnings status over time.
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Abandoning the Sinking Ship: The Composition of Worker Flows Prior to Displacement
August 2002
Working Paper Number:
tp-2002-11
declines experienced by workers several years before displacement occurs. Little attention, however,
has been paid to other changes in compensation and employment in firms prior to the actual
displacement event. This paper examines changes in the composition of job and worker flows
before displacement, and compares the "quality" distribution of workers leaving distressed firms to
that of all movers in general.
More specifically, we exploit a unique dataset that contains observations on all workers over
an extended period of time in a number of US states, combined with survey data, to decompose
different jobflow statistics according to skill group and number of periods before displacement.
Furthermore, we use quantile regression techniques to analyze changes in the skill profile of workers
leaving distressed firms. Throughout the paper, our measure for worker skill is derived from
person fixed effects estimated using the wage regression techniques pioneered by Abowd, Kramarz,
and Margolis (1999) in conjunction with the standard specification for displaced worker studies
(Jacobson, LaLonde, and Sullivan 1993).
We find that there are significant changes to all measures of job and worker flows prior to
displacement. In particular, churning rates increase for all skill groups, but retention rates drop
for high-skilled workers. The quantile regressions reveal a right-shift in the distribution of worker
quality at the time of displacement as compared to average firm exit flows. In the periods prior
to displacement, the patterns are consistent with both discouraged high-skilled workers leaving the
firm, and management actions to layoff low-skilled workers.
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The Creation of the Employment Dynamics Estimates
July 2002
Working Paper Number:
tp-2002-13
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Is it Who You Are, Where You Work, or With Whom You Work? Reassessing the Relationship Between Skill Segregation and Wage Inequality
June 2002
Working Paper Number:
tp-2002-10
In a recent paper, Kremer & Maskin (QJE, forthcoming) develop an assignment model in
which increases in the dispersion and mean of the skill distribution can lead simultaneously
to increases in wage inequality and skill segregation. They then present evidence that,
concurrent with rising wage inequality, wage segregation increased for production workers in
the United States between 1975 and 1986. My paper argues that relying on wages as a proxy
for skill may be problematic. Using a newly developed longitudinal dataset linking virtually
the entire universe of workers in the state of Illinois to their employers, I decompose wages
into components due, not only to person and firm heterogeneity, but also to the characteristics
of their co-workers. Such "co-worker effects" capture the impact of a weighted sum of the
characteristics of all workers in a firm on each individual employee's wage. While rising wage
segregation can result from greater skill segregation, it may also be due to changes in the
variance of co-worker effects in the economy, or to changes in the covariance between the
person, firm, and co-worker components of wages.
Due to the limited availability of demographic information on workers, I rely on the
person specific component of wages to proxy for co-worker "skills." Because these person
effects are unknown ex ante, I implement an iterative estimation approach where they are
first obtained from a preliminary regression that excludes any role for co-workers. Because
virtually all person and firm effects are identified, the approach yields consistent estimates
of the co-worker parameters. My estimates imply that a one standard deviation increase
in both a firm's average person effect and experience level is associated, on average, with
wage increases of 3% to 5%. Firms that increase the wage premia they pay workers appear
to do so in conjunction with upgrading worker quality. Interestingly, the average effect
masks considerable variation in the relative importance of co-workers across industries. After
allowing the co-worker parameters to vary across 2 digit industries, I find that industry
average co-worker effects explain 26% of observed inter-industry wage differentials. Finally,
I decompose the overall distribution of wages into components due to persons, firms, and coworkers.
While co-worker effects do indeed serve to exacerbate wage inequality, the tendency
for high and low skilled workers to sort non-randomly into firms plays a considerably more
prominent role.
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Estimating the Hidden Costs of Environmental Regulation
May 2002
Working Paper Number:
CES-02-10
This paper examines whether accounting systems identify all the costs of environmental regulation. We estimate the relation between the 'visible' cost of regulatory compliance, i.e., costs that are correctly classified in firms' accounting systems, and 'hidden' costs i.e., costs that are embedded in other accounts. We use plant-level data from 55 steel mills to estimate hidden costs, and we follow up with structured interviews of corporate-level managers and plant-level accountants. Empirical results show that a $1 increase in the visible cost of environmental regulation is associated with an increase in total cost (at the margin) of $10-11, of which $9-10 are hidden in other accounts. The findings suggest that inappropriate identification and accumulation of the costs of environmental compliance are likely to lead to distorted costs in firms subject to environmental regulation.
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