Studies in Labor Market Dynamics: Proceedings of a Workshop on Labor Market Dynamics Held at Sandbjerg, Denmark August 24 – 28, 1982 PDF
Preview Studies in Labor Market Dynamics: Proceedings of a Workshop on Labor Market Dynamics Held at Sandbjerg, Denmark August 24 – 28, 1982
Studies in Contemporary Economics Studies in Labor Market Dynamics Proceedings of a Workshop on Labor Market Dynamics Held at Sandbjerg, Denmark August 24 - 28, 1982 Edited by G.R. Neumann and N.C. Westergard-Nielsen Springer-Verlag Berlin Heidelberg New York Tokyo 1984 Editorial Board D. Bos G. Bombach B. Gahlen K.w. Rothschild Editors Prof. George R. Neumann Northwestern University, Department of Economics Evanston, Illinois, USA Prof. Niels C. Westergc'ird-Nielsen Aarhus School of Economics and Business Administration Fuglesangs Aile 4, DK-8210 Aarhus V., Denmark ISBN-l3: 978-3-540-l3942-3 e-ISBN-l3: 978-3-642-88315-6 DOl: 10.1007/978-3-642-88315-6 This work is subject to copyright. All rights are reserved, whether the whole or part of the matenal is concerned, specifically those of translation, reprinting. re-use of illustrations, broadcasting, reproduction by photocopying machine or similar means, and storage in data banks. Further, storage or utilization of the described programms on data processing installations is forbidden without the written permission of the author. Under § 54 of the German Copyright Law where copies are made for other than private use, a fee is payable to "Verwertungs· gesellschaft Wort", Munich. ~ by Springer-Verlag Berlin Heidelberg 1984 2142/3140 -54 3 21 0 EDITORS INTRODUCTION This volume consists of papers presented at a conference on labor mar ket theory held in August 1982 at Sandbjerg - a manor house situated in S0nderjylland owned by University of Aarhus. The conference was ar ranged to mark the start of a labor market research project utilizing the first Danish longitudinal data set. The conference was meant to present a survey of the recent developments within labor market theory where unemployment at a given time is seen as a result of flows of in dividuals between the various labor market states. Consequently, al most all papers deal with aspects of transitions on the labor market. The first paper by Andersen discusses from a statisticians point of view how it is possible to analyze longitudinal data on labor market dynamics using statistical models for multivariate counting processes. Models including general calendar time specific intensities and models specifying the distribution of spell lengths as well as their combina tions are included. Finally it is demonstrated how the effect of exo genous, endogenous, and other time dependent variables can be model led. This paper does also contain an example of the application of the model. The second paper by Lancaster and Chesher discusses the econometric problems that arise when using observations on current job search and their elapsed duration of search. The purpose is to investigate inter individual and intertemporal differences in search policy and on the probability of leaving unemployment. In particular the implica tions of sampling the stock and the flow of unemployed people are studied. The theory is illustrated by using data on "actual" reserva tion wages and elapsed durations reported by two samples of British unemployed people. The empirical analysis shows that people can quote a reservation wage which appears to affect unemployment duration in versely as search theory implies. It is generally the case that the nature of data constrains the models. The paper by Ridder shows that single spell duration data can be very rich. A crucial assumption in estimating single-spell models is a di stributional theory for single spell durations which tells how these durations are generated by an underlying stochastic process. This is accomplished in the paper by Ridder by embedding the duration time in a general stochastic process describing individual behavior over time. The sample selection bias phenomenon and the way this affects the esti mation procedure is discussed in this context. The theory is finally applied in formulating appropriate likelihood functions. Where most of the search literature look exclusively at the flows from unemployment to employment the study by Burdett, Kiefer, Mortensen and Neumann deals also with the flow into unemployment and nonparticipa tion. In the first part of this study a framework is developed in which an individual's intertemporal discrete choice decisions may be analyzed. Restrictions are imposed so that the individual's choices through time can be described by a continous time Markov Chain. This framework is then used to analyze the intertemporal labor market status decisions of workers. The next step is to use the theoretical results to estimate and interpret the determinants of the transition rates between the three labor market states using data from the Denver Income Maintenance Experiment. Finally, it is shown how the steady state proportions in each state change as the expected wage changes. It is also shown how the natural rate of unemployment and nonparticipation for the different race groups differ. In the following paper Mortensen and Neumann go one step further in trying to separate the effects of choice and chance. To make a choice is here a dichotomous decision made by the individual from time to ti me to be in one of the possible states. The time between decision dates is a random interval which is the waiting time required for news to arrive that affects preferences over states. Chance is then the deter minant of when state choices are made. In general the probability of observing a person in a particular state depends upon both the arrival rate and the choice probability. When analyzing the effects of a wage increase one assumes that the choice of perticipation is more likely but it may at the same time be the case that the probability of get ting a chance decreases. The net effect is therefore uncertain. The paper shows under which conditions the separate effects of choice and chance may be disentangled. One of the methods discussed is ap plied to data from the Denver Income Maintenance Experiment. The esti- IV mates here did indicate that the effects of higher wages were concen trated in the arrival rates rather that the choice probabilities or put in a different way: demand matters. In the following paper Weiner applies a similar three state model to the question why blacks and whites exhibit different flow probabili ties. Like the previously mentioned paper Weiner also uses the data from the Denver Income Maintenance Experiment. The utilized three state model allows for estimating the effects of observed individual effects on the rate of transition from one state to another. It also makes it possible to investigate the amount of duration dependence on the various rates of transitions. The results show that there is no duration dependence in the transition from unemployed to employed for white men but that the dependence is significantly negative for black men, though this result may be due to unobserved heterogeneity. This is consistent to an approval of the scar effect for black men. Simi larly, support is found for the discouraged worker hypothesis in the transition rates from unemployment to nonparticipation. It is further more found that the differences in transition rates between whites and blacks are not due to differences in observed background variables but can only be ascribed to the racial issue. The aim of Jovanovic's paper is to model why the so-called poorly matched are most likely to sepa rate from their jobs when demand declines. The paper offers a simple parametrization of a job matching model which can be tested against a model in which no job-matching takes place. A simple likelihood func tion that identifies all the parameters is shown to require no numeri cal integration in the absence of unmeasured permanent differences in the behavior of different workers. The usual pattern in job search models is that the individual is given the central role in the explanation of the labor market behavior. Dal barade develops in his paper a model that describes the hiring, inter nal promotions, and lay offs as decisions solely made by firms. Insti tutional structures are the only elements defending the workers. These are introduced in the model as hiring, training and firing cost paid by the employer. Leighton and Gustafsson review in their paper Swedish labor market pro grams concentrating on the shifts in the early 1970's away from tradi tionally mobility increasing programs towards measures saving existing v jobs. A data set consisting of persons interviewed in 1968 and 1974 is used to investigate if the structure of the unemployed has changed between these two points of time. The empirical analysis shows that the Swedish labor market policy has succeeded in reducing the open, aggregate unemployment rate with a possible deterioration for those groups not directly covered by the programs i.e. the youth and those having temporary jobs. The results show that these groups seem to be more likely to become unemployed in the observed period though the du ration of their unemployment periods is not affected. It is concluded that many of the changes observed are consistent with a hypothesis of higher fixed costs of workers. One of the crucial points in many labor market studies is whether unem ployment represents a quantity constraint on the supply of labor (de mand for leisure) or is entirely voluntary. The paper by Lundberg ana lyzes the household responses to unemployment in the context of joint utility maximization. Matched sets of constrained and unconstrained demands were estimated from longitudinal data on low income families in the Denver Income Maintenance Experiment. Lundberg shows that when members of a household are unemployed other demands are affected in a way that is consistent with the household's reaction to a quantity constraint. The following paper by Holmlund deals with transitions between jobs, i.e. transitions that do not trigger unemployment. First, the role of expected wage gains for mobility decisions are explored. Secondly, the effects of mobility on subsequent earnings are investigated. The de rived model takes account of selectivity bias between stayers and mo vers and takes account of the interdependence between wage growth and mo bili~y. The subsequent empirical analysis shows that actual job movers obtain higher real wage growth compared to a situation when they had decided not to move. Furthermore, potential mobility gains are decrea sing over the life cycle. The last two papers deal with the Danish longitudinal data set. The paper by Spieker describes how the longitudinal data set have been con structed by merging various public registers, all of which have admini strative purposes. This makes the data highly reliable but it also has the disadvantage that the data are not constructed with an analytical purpose in mind. VI The data themselves and the modifications necessary to overcome the above mentioned difficulties are briefly described in the last paper by westergard-Nielsen. Special emphasis is here laid on describing the unemployment figures and on how these data are used to construct event histories. The conference received highly appreciated financial support from the following funds: Social Science Research Council, Th. B.Thrige Founda tion, Knud H0jgaard Foundation, E. & o. Hede Foundation, The Research Fund of University of Aarhus, and the Danish Departments of Labor and Education. Henning Bunzel acted as the everpresent organizer of the conference assisted by Helle Maris and Kirsten Stentoft. At the time of the conference the research project utilizing the lon gitudinal data was physically located at the Institute of Economics, University of Aarhus. Later it has been moved to the Aarhus School of Economics and Busine3s Administration. The results of the research is currently beeing published in a series of working papers. August 1984 George Neumann and Niels westergard-Nielsen Northwestern University and Aarhus School of Economics and Business Administration VII CON TEN T S George R. Neumann and Niels westergard-Nielsen Edi tors Introduction •...••••••.••••.•.•••••...•.•••••••.••••.••• III Per Kragh Andersen The Counting Process Approach to the statistical Analysis of La- bour Force Dynamics .....•.....•••..•.....•...•..•••••••.•.••.••• 1 Tony Lancaster and Andrew Chesher Simultaneous Equations with Endogenous Hazards •...•...•...•..••• 16 Geert Ridder The Distribution of Single-spell Duration Data ...•..••.••...•.•. 45 Kenneth Burdett, Nicholas M. Kiefer, Dale T. Mortensen and George R. Neumann Steady States as Natural Rates in a Dynamic Discrete Choice Model of Labor Supply ••••.••.....••..••...•.•.•.•...•.•.•...•..••..••• 74 Dale T. Mortensen and George R. Neumann Choice or Chance? A Structural Interpretation of Individual Labor Market Histories .••••••.•••••••.••..••.••••••••••••.•••••.•••... 98 Stuart E. Weiner A Survival Analysis of Adult Male Black/White Labor Market Flows. 132 Boyan Jovanovic Wages and Turnover: A Parametrization of the Job-Matching Model. 158 Jean Marcel Dalbarade A Dynamic Model of Labor Management .•..••••••••.•••••••••••••••• 168 Linda Leighton and Siv Gustafsson Labor Market Policies and Differential Patterns of Unemployment in Sweden •.•••••..•.•••...•••••••••••••••.•••••••••••••••••••••• 187 Shelly Lundberg Household Labor Supply with Quantity Constraints ....... ......... 219 Bertil Holmlund Job Mobility and Wage Growth: A Study of Selection Rules and Re- wards ........................................................... 238 Finn Spieker Employment-Related Classifications in a Register Based Statisti- cal System ...................................................... 261 Niels Westergard-Nielsen A Danish Longitudinal Data Base ................................. 267 x THE COUNTING PROCESS APPROACH TO THE STATISTICAL ANALYSIS OF LABOUR FORCE DYNA.I'UCS Per Kragh Andersen Statistical Research Unit Danish Medical and Social Science Research Councils Universitetsparken 5 DK-2l00 Copenhagen 0 Denmark It is discussed how it is possible to analyse longitudinal data on la bour market dynamics using statistical models for multivariate counting processes. These include models with general calendar time specific in tensities and models specifying the distribution of spell lengths as well as combinations of the two. It is demonstrated how the effect of (observable) exogenous and endogeneous variables can be modelled. 1. Introduction In this paper a survey is given on how the statistical theory of multi variate counting processes can be useful when studying labour market dynamics. We shall consider a sample S of individuals taken at a fixed calendar time to from the three states 0: "unemployed", 1: "employed" and 2: "out of labour force", and followed continously on the calendar = = time interval I [to,tll. The number of individuals in state i (i 0,1,2) at time t- (tEl) is denoted Yi(t) and since the individuals are assumed to be followed continuously, for each individual v€S and for each time tEl the state to which v belongs at t will then be known and thus YO(t), Yl(t) and Y2(t) and also the numbers Nij(t) of direct tran sitions from i to j before t will be known. These stochastic processes Nij(t) counting the transitions between the states are the basic obser vations and in the rest of this paper statistical models for these coun ting processes will be discussed. In the presentation only references to the statistical literature where these methods have been developed will be given and an example from another field of application will be
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