Three Essays on Macroeconomic Labour Search

Abstract Three Essays on Macroeconomic Labour Search Brian Tavares Doctor of Philosophy Graduate Department of Economics University of Toronto 2015 This thesis examines heterogeneous worker productivity in labour search models. In Chapter 1 I examine how involuntary part-time employment varies over the business cycle. It is known that the proportion of workers claiming to be involuntarily part-time employed increases during recessions and decreases during normal times and expansions, but the mechanism through which this occurs has been generally under-studied. A model incorporating heterogeneous worker productivity, on the job search and a firm’s ability to operate jobs part-time or full time is considered. The model is therefore similar to Menzio and Shi (2010) with the novel inclusion of worker specific productivity and the ability to operate jobs part-time. Three primary goals are considered: 1) to provide a framework for future research in not only involuntary part-time employment, 2) to determine the relative importance of worker specific and match specific productivity in determining involuntary part-time employment and 3) to determine the impact of involuntary part-time employment on the unemployment rate and the level of welfare in the economy. It is found that while match-specific productivity is important in explaining the fluctuations of involuntary part-time employment over the business cycle, such employment is concentrated among workers with fixed low productivity. The welfare effects of involuntary part-time employment are found to be modest for the economy as a whole but relatively important for the low fixed productivity workers. In Chapter 2, I examine the relationship between wage-tenure contracts and heterogeneous fixed productivity. As a proxy for this productivity, I use educational achievement. I then investigate the relationship between the wage profile for workers with less than high school, high school and college education, respectively. I consider a directed search model with on the job search similar to Shi (2009) with workers of heterogeneous fixed productivity. Following the model, I estimate a baseline wage profile which is the implied relationship between the current wage and future wage growth for a worker. I find that more educated workers do indeed enjoy a steeper wage-tenure profile.The model explains the steeper profile solely based on wage-tenure contracts, demonstrating that higher learning rates for more educated workers is not necessary to explain their steeper wage profile. The calibration exercise establishes this qualitatively, but not quantitatively, leading to the conclusion that differential learning rates are an important part of the steeper wage profiles. In Chapter 3, I examine the interaction of wage-tenure contracts and on the job learning. In combining these two effects I am able to deduce the relative importance of each of them in explaining tenure wage growth. The model is a directed search model with on the job search and wage-tenure contracts similar to Shi (2009), but workers learn on the job. A natural extension of this study is combining it with the second Chapter, in order to better identify the relative importance of learning on the job among workers with differing educational achievement.Ph.D