Good jobs versus bad jobs : theory and some evidence

66 Pages·1996·1.4 MB·English

by  Acemoglu, Daron

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working paper
department
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GOODJOBS VERSUSBADJOBS:
THEORYANDSOMEEVIDENCE
DaronAcemoglu
96-33 October, 1996
massachusetts
institute of
technology
50 memorial drive
Cambridge, mass. 02139

GOODJOBS VERSUSBADJOBS:
THEORYANDSOMEEVIDENCE
DaronAcemoglu
96-33 October, 1996
M
FEB 23
Good Jobs versus Bad Jobs:
Theory and Some Evidence*
Dfiron Acemoglu^
October 23, 1996
Keywords: Job Composition, Minimum Wages, Search, Unemployment Insur-
ance, Wage Differentials.
JEL Classification: D83, J24, J31.
*I am grateful to Annette Vissing-Jorgensen for excellent research assistance, to Jonathan
Gruberforprovidingmewiththesimulationprogramforthestatelevelunemployment insurance
system,andtoMadelineZvodnyforthedataonminimumwages. IalsothankOlivierBlanchard,
Peter Diamond, Jonathan Gruber, Steve Pischke and Jaume Ventura for useful comments and
suggestions. Financial support from the World Economic Laboratory at MIT and the National
Science Foundation Grant SBR-9602116 are gratefully acknowledged.
^Department of Economics, E52-371, Massachusetts Institute of Technology, Cambridge,
MA
02139. E-mail: DaronOmit edu
.
Good Jobs versus Bad Jobs:
Theory and Some Evidence
October 23, 1996
Abstract
This paper offers a model of the interaction between composition of
jobs and labor market regulation. Ex post rent-sharing due to search fric-
tions implies that 'good' jobs which have higher creation costs must pay
higher wages. This wage differential distorts the composition ofjobs, and
in the unregulated equiUbrium there are too many badjobs relative to the
nimiber of good jobs. Minimum wages and unemployment insiirance en-
courage workers to wait for higher wages, and therefore induce firms to
shift the composition of employment towards good jobs. As a result, such
regulations, even though they wiU often increase unemployment, will in-
crease average labor productivity and may improve welfare. The paper
then briefly investigates the empirical importance of this interaction us-
ing data from U.S. states. The results suggest that the composition of
jobs improves considerably in response to higher minimum wages and more
generous unemployment benefits.
Keywords: Job Composition, Minimum Wages, Search, Unemployment
Insurance, Wage Differentials.
JEL Classification: D83, J24, J31.