Essays On Labor Market Dynamics

Abstract

This dissertation consists of three chapters. The first chapter investigates the factors which drive workers' occupation switching decisions. The process of workers switching from occupation to occupation is a vital part of career development and self-discovery. Using the CPS and SIPP, I show that occupational switching rates have declined significantly over the past 25 years. This decline has been robust for each consecutive cohort and is more pronounced for younger workers than older workers. The decline could imply that it is becoming more difficult and costly for workers to find better jobs (due to increases in switching costs), leaving people increasingly stuck in poorly matched and unfulfilling careers. Paradoxically, it could also mean that finding better jobs is becoming easier (thanks to advances in ICT), since workers with good job matches are less likely to switch. This paper develops a dynamic discrete choice life-cycle model to separately identify and quantify how changes in switching costs and information over time contribute to the observed declines in occupation switching. The result is that increased switching costs drive about 72% of the decline, while better information drives about 8%. The increases in switching costs have led to less productive occupational matches for workers and thus significant welfare losses. On average, workers have lost 3% of their total lifetime income from increases in switching costs over this period. In the second chapter, my coauthor, Mons Chan, and I investigate how trade costs and firm make-or-buy decisions have an impact on the aggregate wage distribution. Firms react to changes in factor prices with intensive and extensive-margin employment adjustments at the occupational-level. We study the distributional and aggregate consequences of this make-or-buy dynamic by developing a novel network model of heterogeneous firm-to-firm trade where the boundary of each firm depends on factor prices and firm-occupation comparative advantage in input-production. We show that the model can be easily aggregated and taken to industry-level data, and use the calibrated model to examine recent trends in employment, wages and trade in the USA. We use public OES and CPS data to show empirical evidence that a significant fraction of the growth in wage inequality in the USA is due to changes in firm/industry specialization and occupation sorting. To understand and measure the underlying causes of these trends, we calibrate the model to occupation and industry data from the OES and input-output tables. The results suggest that 1/3rd of the increases in wage inequality stem from decreases in inter-industry trade frictions with the remaining 2/3rds stemming from changes in technology and labor supply. Falling trade frictions are also responsible for all of the increases in occupational sorting and concentration. Had trade frictions been held at their 2002 level, productivity growth would have led to an increase in vertical integration, rather than the decrease observed in the data. The third chapter investigates the link between student debt and post-graduation job market outcomes. Using a combination of survey and administrative data on graduates in two cohorts, I show that there is a significant negative correlation between the amount of debt upon graduation and the probability of finding a job which matches your education. I use evidence from Equifax to motivate a model of job search and long-term debt where the cost of consumer credit depends on your student loan balance. I successfully calibrate the model to the data and show that this debt constraint mainly binds for high and medium human capital graduates, as it affects the amount of time they are able to spend searching for a good job. I then show that alternative repayment and interest rate policies would have improved labor market outcomes for graduates in 07/08 by allowing extended search times, increasing match quality and possibly lifetime productivity.