Dynamic Marriage Matching: An Empirical Framework

This paper develops a new model for empirically analyzing dynamic matching in the marriage market and then applies that model to recent changes in the U.S. marriage distribution. Its primary objective is to estimate gains by age from being married today (till death of at least one spouse) relative to remaining single for that same time period. An empirical methodology that relies on the model's equilibrium outcomes identifies the marriage gains using a single cross‐section of observed aggregate matches. This behavioral dynamic model rationalizes a new marriage matching function. The model also solves the inverse problem of computing the vector of aggregate marriages, given a new distribution of available single individuals and estimated preferences. Finally, this paper develops a simple test of the model's empirical validity. Using aggregate data of new marriages and available single men and women in the United States over two decades from 1970 to 1990, I investigate the changes in marriage gains over this period.     

Identifying Equilibrium Models of Labor Market Sorting

We assess the empirical content of equilibrium models of labor market sorting based on unobserved (to economists) characteristics. In particular, we show theoretically that all parameters of the classic model of sorting based on absolute advantage in Becker, 1973 with search frictions can be nonparametrically identified using only matched employer–employee data on wages and labor market transitions. In particular, these data are sufficient to nonparametrically estimate the output of any individual worker with any given firm. Our identification proof is constructive and we provide computational algorithms that implement our identification strategy given the limitations of the available data sets. Finally, we add on‐the‐job search to the model, extend the identification strategy, and apply it to a large German matched employer–employee data set to describe detailed patterns of sorting and properties of the production function.     

Female Labor Supply,Human Capital,and Welfare Reform

We estimate a dynamic model of employment, human capital accumulation—including education, and savings for women in the United Kingdom, exploiting tax and benefit reforms, and use it to analyze the effects of welfare policy. We find substantial elasticities for labor supply and particularly for lone mothers. Returns to experience, which are important in determining the longer‐term effects of policy, increase with education, but experience mainly accumulates when in full‐time employment. Tax credits are welfare improving in the U.K., increase lone‐mother labor supply and marginally reduce educational attainment, but the employment effects do not extend beyond the period of eligibility. Marginal increases in tax credits improve welfare more than equally costly increases in income support or tax cuts.     

Promotion,Turnover, and Compensation in the Executive Labor Market

This paper develops a generalized Roy model with human capital accumulation, moral hazard, and career concerns. We identify and estimate the model with a large panel that matches data on publicly listed firms to information on their executives. The structural estimates obtained are used to decompose the firm‐size pay gap. We find that although total compensation and incentive pay increase with firm size, certainty‐equivalent pay decreases with firm size. In larger firms, and for more highly ranked executives, weaker signal quality about effort results in higher risk premiums. This risk premium accounts for roughly 80 percent of the firm‐size gap in total compensation. Larger firms are also willing to pay more than smaller ones to attract executives. Finally, the estimated coefficients on human capital accumulation from formal education and experience gained from different firms are individually significant, but their collective effect on firm‐size pay differentials nets out.     

Farms,Families, and Markets: New Evidence on Completeness of Markets in Agricultural Settings

The farm household model has played a central role in improving the understanding of small‐scale agricultural households and non‐farm enterprises. Under the assumptions that all current and future markets exist and that farmers treat all prices as given, the model simplifies households' simultaneous production and consumption decisions into a recursive form in which production can be treated as independent of preferences of household members. These assumptions, which are the foundation of a large literature in labor and development, have been tested and not rejected in several important studies including Benjamin (1992). Using multiple waves of longitudinal survey data from Central Java, Indonesia, this paper tests a key prediction of the recursive model: demand for farm labor is unrelated to the demographic composition of the farm household. The prediction is unambiguously rejected. The rejection cannot be explained by contamination due to unobserved heterogeneity that is fixed at the farm level, local area shocks, or farm‐specific shocks that affect changes in household composition and farm labor demand. We conclude that the recursive form of the farm household model is not consistent with the data. Developing empirically tractable models of farm households when markets are incomplete remains an important challenge.     

Why Do Women's Wages Increase So Slowly Throughout Their Career? A Dynamic Model of Statistical Discrimination

Abstract. The aim of this paper is to explain the growing wage differentials between men and women during their working careers. We provide a dynamic model of statistical discrimination, which integrates specific human capital decisions: on‐the‐job training investment and wages are endogenously determined. We reveal a small wage differential at the beginning of women's career, but women's wages increase more slowly; this is partly due to a lower level of human capital investment by women and partly because firms smooth training costs between different periods.     

Large Matching Markets as Two‐Sided Demand Systems

This paper studies two‐sided matching markets with non‐transferable utility when the number of market participants grows large. We consider a model in which each agent has a random preference ordering over individual potential matching partners, and agents' types are only partially observed by the econometrician. We show that in a large market, the inclusive value is a sufficient statistic for an agent's endogenous choice set with respect to the probability of being matched to a spouse of a given observable type. Furthermore, while the number of pairwise stable matchings for a typical realization of random utilities grows at a fast rate as the number of market participants increases, the inclusive values resulting from any stable matching converge to a unique deterministic limit. We can therefore characterize the limiting distribution of the matching market as the unique solution to a fixed‐point condition on the inclusive values. Finally we analyze identification and estimation of payoff parameters from the asymptotic distribution of observable characteristics at the level of pairs resulting from a stable matching.     

First‐Price Auctions With General Information Structures: Implications for Bidding and Revenue

We explore the impact of private information in sealed‐bid first‐price auctions. For a given symmetric and arbitrarily correlated prior distribution over values, we characterize the lowest winning‐bid distribution that can arise across all information structures and equilibria. The information and equilibrium attaining this minimum leave bidders indifferent between their equilibrium bids and all higher bids. Our results provide lower bounds for bids and revenue with asymmetric distributions over values. We also report further characterizations of revenue and bidder surplus including upper bounds on revenue. Our work has implications for the identification of value distributions from data on winning bids and for the informationally robust comparison of alternative auction mechanisms.     

Direct and Indirect Links Between Organizational Work–Home Culture and Employee Well‐being

The extent to which an organization's culture exhibits support for its employees' efforts to balance work and personal responsibilities has been shown to influence a number of work‐ and home‐related outcomes. This study tests a model with a mix of mediated and moderated relationships to investigate direct and indirect routes by which work–home culture may affect employee well‐being. Sex differences in these relationships are also explored. Data collected from public sector employees in the UK indicate that a supportive work–home culture is significantly associated with lower levels of psychosomatic strain among employees. For women, this relationship is mediated by reduced levels of work–home interference. Different types of support demonstrate different effects for men and for women: managerial support has a more beneficial impact on women's well‐being, and organizational time demands have a more detrimental impact on men's well‐being. Recommendations for managers to boost employee well‐being include shifting the focus away from presenteeism and toward work outputs in order to reduce gender stereotypes and improve attitudes toward those using flexible work practices and family‐friendly initiatives, incorporating work–home supportiveness into the managerial performance appraisal process, and compensating or otherwise recognizing employees taking on absent colleagues' workloads.     

Supply Chain Inventory Replenishment: The Debiasing Effect of Declarative Knowledge

Previous experimental research demonstrates that inefficient replenishment decision making in the supply chain can be caused by specific judgment and decision biases. Based on the literature we use controlled experiments involving both student subjects and supply chain managers to test debiasing interventions that provide declarative knowledge, which is theorized to enhance the acquisition of procedural knowledge. We first investigate the effects of three debiasing components in a single‐echelon setting: knowledge of bullwhip, inventory position (IP), and use of a target order‐up‐to quantity. Experiment 1 (N = 1,608 decisions by 67 student subjects) using a 2 × 2 × 2 factorial design for the three components finds that the conceptual understanding of IP is salient for efficient replenishment decisions. We next examine the effects of the components in a simulated, multi‐echelon, serial supply chain, which introduces the additional complexity of coordination risk. Experiment 2 (N = 3,072 decisions by 128 student subjects) using a 2 × 2 × 2 factorial design finds that although subjects benefit from training components, there is evidence of cognitive overload with an increased quantity of information. Finally we test whether these debiasing components may be an effective training program for practicing supply chain managers who can be expected to have higher levels of procedural knowledge through experience gained in the field. Experiment 3 (N = 864 decisions by 36 supply chain managers) using a 2 × 1 design investigates the effects of an instructional training intervention which includes all three debiasing components and finds the intervention to reduce costs by 14%. We provide avenues for future research and successful practice.     

Employment Decisions of Married Women: Evidence and Explanations

Aggregate evidence has revealed a significant increase in women’s labour market participation (especially among married women) and a decline in male participation, both in Italy and in all the other OECD countries. This paper empirically tests the relationship between the education and employment status of husbands and wives using the Bank of Italy Survey (1995). The results of our analysis show that employed women are likely to be married to employed men with a higher level of education and higher income. The estimates of the labour supply decisions of wives show that the effect of the unemployment status of husbands is mediated by other factors associated with the family’s view of wives working outside home. The response to a husband’s unemployment depends significantly on the employment decisions of parents (mothers and mothers‐in‐law), a proxy for the couple’s attitude towards women’s work.     

Fusion Product Planning: A Market Offering Perspective*

Devices that integrate multiple functions together are popular in consumer electronic markets. We describe these multifunction devices as fusion products as they fuse together products that traditionally stand alone in the marketplace. In this article, we investigate the manufacturer's fusion product planning decision, adopting a market offering perspective that allows us to address the design and product portfolio decisions simultaneously. The general approach adopted is to develop and analyze a profit‐maximizing model for a single firm that integrates product substitution effects in identifying an optimal market offering. In the general model, we demonstrate that the product design and portfolio decisions are analytically difficult to characterize because the number of possible portfolios can be extremely large. The managerial insight from a stylized all‐in‐one model and numerical analysis is that the manufacturer should, in most cases, select only a subset of fusion and single‐function products to satisfy the market's multidimension needs. This may explain why the function compositions available in certain product markets are limited. In particular, one of the key factors driving the product portfolio decision is the margin associated with the fusion products. If a single all‐in‐one fusion product has relatively high margins, then this product likely dominates the product portfolio. Also, the congruency of the constituent single‐function products is an important factor. When substitution effects are relatively high (i.e., the product set is more congruent), a portfolio containing a smaller number of products is more likely to be optimal.     

Sign Restrictions,Structural Vector Autoregressions,and Useful Prior Information

This paper makes the following original contributions to the literature. (i) We develop a simpler analytical characterization and numerical algorithm for Bayesian inference in structural vector autoregressions (VARs) that can be used for models that are overidentified, just‐identified, or underidentified. (ii) We analyze the asymptotic properties of Bayesian inference and show that in the underidentified case, the asymptotic posterior distribution of contemporaneous coefficients in an n‐variable VAR is confined to the set of values that orthogonalize the population variance–covariance matrix of ordinary least squares residuals, with the height of the posterior proportional to the height of the prior at any point within that set. For example, in a bivariate VAR for supply and demand identified solely by sign restrictions, if the population correlation between the VAR residuals is positive, then even if one has available an infinite sample of data, any inference about the demand elasticity is coming exclusively from the prior distribution. (iii) We provide analytical characterizations of the informative prior distributions for impulse‐response functions that are implicit in the traditional sign‐restriction approach to VARs, and we note, as a special case of result (ii), that the influence of these priors does not vanish asymptotically. (iv) We illustrate how Bayesian inference with informative priors can be both a strict generalization and an unambiguous improvement over frequentist inference in just‐identified models. (v) We propose that researchers need to explicitly acknowledge and defend the role of prior beliefs in influencing structural conclusions and we illustrate how this could be done using a simple model of the U.S. labor market.     

Wage Expectations for Higher Education Students in Spain

We assess students' ability to forecast future earnings by using data on expected wages self‐reported by college students with different graduation horizons. We find a significant gender gap, by which wage expectations are systematically lower for women than for men. However, women do not fully account for the gender gap in their future earnings. We also find that student performance, degree type, and graduation horizon play a relevant role in wage forecasts. In any case, students' expectations do not conform market wages but become more realistic as they approach graduation.     

Formal Infrastructure and Ethical Decision Making: An Empirical Investigation and Implications for Supply Management

Building on Rest's (1986) conceptual model of ethical decision making, we derive and empirically test a model that links an organization's formal ethical infrastructure to individuals’ moral awareness of ethical situations, moral judgment, and moral intention. We contribute to the literature by shedding light on the importance of a multifaceted formal ethical infrastructure—consisting of formal communication, recurrent communication, formal surveillance, and formal sanctions—as a crucial antecedent of moral awareness. In so doing, we discern how these four elements of a formal ethical infrastructure combine to collectively influence moral awareness based on a second‐order factor structure using structural equation modeling. We test our model based on survey data from 805 respondents with significant work experience across three separate ethical scenarios. Our results across the three scenarios provide overall support for our model. We found that a second‐order factor structure for the formal ethical infrastructure explains the variance among the four infrastructure elements and that a multifaceted formal ethical infrastructure significantly increases moral awareness. Our results further suggest a strong positive effect of moral awareness on moral judgment, which in turn was found to have a positive impact on moral intention. These results were substantiated when taking several individual and contextual control variables into account, such as gender, age, religiosity, work satisfaction, and a de facto ethical climate. Implications for theory, practice, and supply management are discussed.     

Unemployment and Business Cycles

We develop and estimate a general equilibrium search and matching model that accounts for key business cycle properties of macroeconomic aggregates, including labor market variables. In sharp contrast to leading New Keynesian models, we do not impose wage inertia. Instead we derive wage inertia from our specification of how firms and workers negotiate wages. Our model outperforms a variant of the standard New Keynesian Calvo sticky wage model. According to our estimated model, there is a critical interaction between the degree of price stickiness, monetary policy, and the duration of an increase in unemployment benefits.     

Modes of Entrance by Gender and Wage Differential in the French Labour Market

Abstract. This paper explores the gender wage differential after the exit from school in France. Using survey longitudinal data on young men and women leaving the French school system in 1998, we show that the residual entrance‐level wage differential by gender may be explained by the expected gender differential of access to job opportunities. A hierarchical classification is used to estimate the probability to obtain easy access to non‐subsidized jobs. After control for hours worked and hierarchical levels, and for the predicted values of this previous estimation, we find no significant impact of gender on entrance‐level wages.     

Human Capital,Wages and Family Interactions

The majority of studies of the returns to human capital investment have generally considered the relationship among wages and individuals’ investment in education. However, among factors which increase individuals’ stocks of human capital and affect their labour market performances there are variables linked to the relevant social environment, such as the family. This paper takes into consideration intra‐generational relations which form between spouses through marriage, as well as inter‐generational relationships between parents and their sons/daughters. The empirical work investigates the effects of some family background variables on individuals’ economic performances, using data drawn from the 1995 survey of household income and wealth conducted by the Bank of Italy. The results of the analysis show that individuals’ wages do not depend only on their own human capital endowment, but also on that of other family members (parents and partners).     

A Theory of Intergenerational Altruism

Modeling intergenerational altruism is crucial to evaluate the long‐term consequences of current decisions, and requires a set of principles guiding such altruism. We axiomatically develop a theory of pure, direct altruism: Altruism is pure if it concerns the total utility (rather than the mere consumption utility) of future generations, and direct if it directly incorporates the utility of all future generations. Our axioms deliver a new class of altruistic, forward‐looking preferences, whose weight put on the consumption of a future generation generally depends on the consumption of other generations. The only preferences lacking this dependence correspond to the quasi‐hyperbolic discounting model, which our theory characterizes. Our approach provides a framework to analyze welfare in the presence of altruistic preferences and addresses technical challenges stemming from the interdependent nature of such preferences.     

Time‐Varying Risk Premium in Large Cross‐Sectional Equity Data Sets

We develop an econometric methodology to infer the path of risk premia from a large unbalanced panel of individual stock returns. We estimate the time‐varying risk premia implied by conditional linear asset pricing models where the conditioning includes both instruments common to all assets and asset‐specific instruments. The estimator uses simple weighted two‐pass cross‐sectional regressions, and we show its consistency and asymptotic normality under increasing cross‐sectional and time series dimensions. We address consistent estimation of the asymptotic variance by hard thresholding, and testing for asset pricing restrictions induced by the no‐arbitrage assumption. We derive the restrictions given by a continuum of assets in a multi‐period economy under an approximate factor structure robust to asset repackaging. The empirical analysis on returns for about ten thousand U.S. stocks from July 1964 to December 2009 shows that risk premia are large and volatile in crisis periods. They exhibit large positive and negative strays from time‐invariant estimates, follow the macroeconomic cycles, and do not match risk premia estimates on standard sets of portfolios. The asset pricing restrictions are rejected for a conditional four‐factor model capturing market, size, value, and momentum effects.