Studies in Labor Market Dynamics: Proceedings of a Workshop on Labor Market Dynamics Held at Sandbjerg, Denmark August 24 – 28, 1982

296 Pages·1984·5.69 MB·English

by  Per Kragh Andersen (auth.)

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
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~ 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