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Young Europeans experience high unemployment rates, job instability, and late emancipation. Meanwhile, they do not support reforms weakening protection on long-term contracts. In this paper, we suggest a possible rationale for such reform distaste. When the rental market is strongly regulated, landlords screen applicants with regard to their ability to pay the rent. Protecting regular jobs offers a second-best technology to sort workers, thereby increasing the rental market size. We provide a model where nonemployed workers demand protected jobs despite unemployment and the share of short-term jobs increases, whereas the individual risk of dismissal is unaffected. Our theory can be extended to alternative risks and markets involving correlated risks and commitment under imperfect information.
This paper describes a novel concept of customer discrimination in the housing market, neighbor discrimination. We develop a matching model with ethnic externalities in which landlords differ in the number of apartments they own within the same building. Larger landlords are more likely to discriminate only if some tenants are prejudiced against the minority group. Observing that minority tenants are less likely than majority group tenants to live in a building with a single large landlord is thus evidence of neighbor discrimination. We show empirically that African immigrants in France are significantly less likely to live in a building owned by a single landlord. This increases the probability that African immigrants live in public housing in localities with more single-landlord private apartment blocks.
Searching for partners involves informational persistence that reduces future traders’ matching probability. In this article, traders who are no longer available but who left tracks on the market are called phantoms. We examine a dynamic matching market in which phantoms are a by-product of search activity, no coordination frictions are assumed, and non-phantom traders may lose time trying to match with phantoms. The resulting aggregate matching technology features increasing returns to scale in the short run, but has constant returns to scale in the long run. We embed a generalized version of this matching function in the canonical continuous-time equilibrium search unemployment model. Long-run constant returns to scale imply there is a unique steady state, whereas short-run increasing returns generate excess volatility in the short run and endogenous fluctuations based on self-fulfilling prophecies.
This paper questions the ability of the standard HOS (Heckscher-Ohlin-Samuelson) model to explain changes in the labor shares (LS) of income in OECD countries. We use the Davis (1998) version of the HOS model with wage rigidity in a sub-group of countries. We show that trade openness with developing countries reduces LS in rigid wage countries and does not affect LS in free wage countries. This pattern is induced by factor reallocation towards capital-intensive sectors in rigid wage countries. Using the KLEMS dataset for 8 OECD countries over the period 1970–2005, we show that the weight of capital-intensive sectors substantially increased in continental European countries, while it did not change or even decreased in the US and the UK. Fixed effects regressions suggest that trade intensity with China explains between 50% (IV estimates) and 80% (OLS estimates) of the observed differential labor share change between Continental Europe and Anglo-Saxon countries.
The paper investigates the link between the over-exposure of African immigrants to unemployment in France and their under-representation in jobs in contact with customers. We build a two-sector matching model with ethnic sectorspecifc preferences, economy-wide employer discrimination, and customer discrimination in jobs in contact with customers. The outcomes of the model allow us to build a test of ethnic discrimination in general and customer discrimination in particular. We run the test on French individual data in a cross-section of local labor markets (Employment Areas). Our results show that there is both ethnic and customer discrimination in the French labor market.
We address the effects of FDI on the labor share in developing countries. Our theory relies on the impacts of FDI on wage and labor productivity in a frictional labor market. FDI has two opposite effects on the labor share: a negative force originated by technological advance, and a positive force due to increased labor market competition between .rms. We test this theory on aggregate panel data through fixed effects and IV estimates. We examine the relationship between the labor share in the manufacturing sector and the ratio of FDI stock to GDP. We show that FDI has decreased the labor share in the host countries of our dataset. This impact amounts to between 10% to 20% of the mean labor share in our sample.
This paper examines the impact of labor market institutions covering the risk of unemployment on the nature of educational investment. We offer a matching model of unemployment in which individuals of a given education determine the scope (or adaptability) and intensity (or productivity) of their human capital before entering the labor market. Our model features an increasing relationship between match surplus and the return to adaptability skills. This relationship explains why matching frictions promote adaptability skills instead of productivity skills, and why unemployment benefits and job protection create the incentive for productivity skill acquisition.
We build and calibrate a model of simultaneous transitions on the housing and the labor market in order to account for the residual unemployment gap between African immigrants and non-immigrants in France. Our framework allows us to distinguish between the impact of ethnic-specific geographic preferences and ethnic-specific barriers to these two markets. The labor market accounts for about 85% of the residual unemployment gap, whereas the housing market accounts for about 75% of the ethnic differences in geographic location. Geographic preferences do not substantially impact the unemployment gap and account for about 25% of differences in residential location.
Canada exhibits no correlation between income and victimization, rich neighborhoods are less exposed to property crime, rich households are more victimized than their neighbors, and rich households and neighborhoods invest more in protection. We provide a theory consistent with these facts. Criminals within city choose a neighborhood and pay a search cost to compare potential victims, whereas households invest in self-protection. As criminals' return to search increases with neighborhood income, households in rich neighborhoods are likelier to enter a race to greater protection driving criminals toward poorer areas. A calibration reproduces the Canadian victimization and protection pattern by household/neighborhood income.