This paper analyzes the link between wages and outside employment opportunities. To overcome the fact that factors that affect a worker’s outside options may also impact her pro- ductivity at her current job, we develop a strategy that isolates changes in a worker’s information about her outside options. This strategy relies on the fact that individuals often learn about jobs through social networks, including former coworkers. We implement this strategy using employer-employee data from Denmark that contain monthly information on wages and de- tailed measures of worker skills. We find that increases in labor demand at former coworkers’ current firms lead to job-to-job mobility and wage growth. Consistent with theory, larger changes are necessary to induce a job-to-job transition than to induce a wage gain. Specification tests leveraging alternative sources of variation suggest these responses are indeed due to information rather than unobserved demand shocks. Impacts on earnings are concentrated among workers in the top half of the skill distribution. Finally, we use our reduced-form estimates to identify a structural model that allows us to estimate bargaining parameters and investigate the relevance of wage posting and bargaining across different skill groups.
Are Workers Better Matched in Large Labor Markets?
Working Paper. First version: Nov. 2012, Latest version: Feb. 2015
Link to: Working Paper
This paper examines the relationship between labor market size and job search outcomes. Much research and many policy initiatives assume that larger labor markets lead to better job search outcomes because they give workers and firms more choice
in potential jobs or employees. The empirical finding that labor market size and job finding rates are uncorrelated, however, has led researchers to question this assumption. I show, theoretically and empirically, that large labor markets may
cause workers to find jobs that are better matches given their individual skills and characteristics, even if they do not cause workers to find jobs faster. I construct a unique new data set from Denmark that combines administrative data, an
online vacancy database and detailed geographical information. I show that workers in large labor markets find jobs for which they are a better match as measured by both previous industry experience and geographical location. They also find
jobs which pay higher wages and result in longer employment spells even after controlling for spatial productivity differences among firms. The estimated effects imply that labor market size explains 6.6% of the spatial variation in wage premia,
and also suggest a high rate of return on transport infrastructure projects that increase the effective size of labor markets by increasing workers' ability to commute to distant jobs.
A Formal Model of Corruption, Dishonesty and Selection into Public Service
(with S. Barfort, A. Leth Olsen and F. Hjorth)
Working Paper. First version: Sept. 2015
Link to: Working Paper
Recent empirical studies have found that in high corruption countries, inherently more dishonest individuals are more likely to want to enter into public service, while the reverse is true in low corruption countries. In this note, we provide
a simple formal model that rationalizes this empirical pattern as the result of countries being stuck in different self-sustaining equilibria where high levels of corruption and negative selection into public service are mutually reinforcing.
Fundamentals and Optimal Institutions:
The case of US sports leagues
(with Martin Gonzalez-Eyras and Martin Rossi)
Working Paper. First version: Jan. 2017, Latest version: Jan 2020
Link to: Working Paper
To shed light on the relation between fundamentals and adopted institutions we examine institutional choice across the ``Big Four'' US sports leagues. Despite having very similar business models and facing the same economic and legal environment, these leagues exhibit large differences in their use of regulatory institutions such as revenue sharing or salary caps. We show, theoretically and empirically, that these differences can in part be rationalized as optimal responses to differences in one fundamental characteristic of the sports being played: how strongly win probabilities respond to hired talent. Our results thus show evidence that in professional sports existing institutions are tailored to fundamentals.
Work in Progress:
Government Architecture and Political Selection
(with S. Barfort, D. Lassen and S. Serritzlew)
The Dynamics of Job Search in Unemployment
(with F. Fluchtmann, A. Glenny and J. Maibom )
Helping the Unemployed through Statistical Prediction?
(with R. Mahlstedt and M. Rasmussen)
Different Types of Peers
(with A. Bjerre-Nielsen and D. Lassen)