Essays in Labor Economics

Abstract

The first essay investigates what role the interaction of firm turnover on the one hand and costly union organizing on the other might play in explaining the wide variation of unionization outcomes in the US both across sectors and states as well as over time. The paper develops a model that combines an entry-exit framework of monopolistically competing firms with costly union organizing. The model is analyzed both for the case of an "efficiently" bargaining and a wage-setting union.

Firm turnover is a crucial determinant of the unionization rate in the US because entering firms are typically born as non-union and have to first be organized by unions. Moreover, the union's firm share usually diminishes only through exit of unionized firms. In the model, the unionization rate also depends on the equilibrium interaction of firm entry with the union's organizing decision: Higher union organizing deters firm entry, and higher entry lowers the incentives for organizing.

The results show that the steady state unionization rate is higher if (1) firm entry costs are higher, (2) exit rates are lower, and (3) organizing costs are lower. Further, the transition dynamics of the model support two explanations of the long-term union decline in the US: First, an increase in the cost of organizing, and secondly, deregulation understood as a decrease in the cost of firm entry.

The second essay analyzes investment in specific, non-substitutable skills under demand uncertainty as a channel of labor market mismatch that doesn't rely on a matching function. Education in specific skills such as a college program is an investment with delay. When deciding about what skill to invest in the worker has to predict the demand prevailing at the time of degree. A model with exogenous demand and exogenous wages is constructed that features labor market rationing due to demand uncertainty, the investment lag, and the assumption of non-substitutability between skills. Both an individual choice problem and an equilibrium version with endogenous entry into education types are studied. The results indicate that longer duration of degree programs as well as lower demand persistence increases labor market mismatch.