Data and Code for: Productivity Shocks, Long-Term Contracts and Earnings Dynamics

Principal Investigator(s): View help for Principal Investigator(s) Neele Balke, University of Chicago; Thibaut Lamadon, University of Chicago

Version: View help for Version V1

Name	File Type	Size	Last Modified
balke-lamadon			06/24/2022 05:14:PM

Project Citation:

Balke, Neele , and Lamadon, Thibaut. Data and Code for: Productivity Shocks, Long-Term Contracts and Earnings Dynamics. Nashville, TN: American Economic Association [publisher], 2022. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2022-07-06. https://doi.org/10.3886/E163542V1

Project Description

Summary: This paper examines how employer- and worker-specific productivity shocks transmit to earnings and employment in an economy with search frictions and firm commitment. We develop an equilibrium search model with worker and firm shocks and characterize the optimal contract offered by competing firms to attract and retain workers. In equilibrium, risk-neutral firms provide only partial insurance against shocks to risk-averse workers and offer contingent contracts, where payments are backloaded in good times and frontloaded in bad times. We prove that there exists a unique spot target wage, which serves as an attraction point for smooth wage adjustments. The structural model is estimated on matched employer-employee data from Sweden. The estimates indicate that firms absorb persistent worker and firm shocks, with respective passthrough values of 26% and 10%. Permanent worker differences, however, are a big contributor (31%) to variations in wages. A large share of the earnings growth variance can be attributed to job mobility, which interacts with productivity shocks. We evaluate the effects of redistributive policies and find that almost one third of government-provided insurance is undone by crowding out firm-provided insurance.

Funding Sources: NSF (SES-1658920)

Scope of Project

Subject Terms: labor contracts

JEL Classification:
      J01 Labor Economics: General
      J41 Labor Contracts
      J64 Unemployment: Models, Duration, Incidence, and Job Search

Data Type(s): program source code

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V1 [2022-07-06]

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