IV. Labor Demand

1. Motivation: Income Inequality

2. Technology and Markets

3. Elasticities and Duality

4. Functional Form (tricks)

5. Estimation and Identification Griliches, Altonji-Card, Friedberg

6. Dual Labor Markets

7. Dynamics

1. Motivation: Income Inequality

What’s going on?

Norms? Executive compensation? Increased trade.

Technological Change?

The Top Percentile Income Share,

1917-2008 IRS data (Saez, 2010, elsa.berkeley.edu/~saez/saez-UStopincomes-2008.pdf)

Emmanuel Saez,

Berkeley Economics

Percentile

threshold

Income

threshold

Income

Groups

Number of tax

units

Average

income

in each

group

(1) (2) (3) (4) (5)

Full

Populatio

n 143,982,000 $44,334

Median $26,171 Bottom 90% 129,583,800 $28,023

Top 10% $91,308 Top 10-5% 7,199,100 $105,647

Top 5% $124,796 Top 5-1% 5,759,280 $167,548

Top 1% $282,361 Top 1-0.5% 719,910 $332,414

IRS Tax Returns, 2004

What changed?

Salaries and Business Income

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1917

1922

1927

1932

1937

1942

1947

1952

1957

1962

1967

1972

1977

1982

1987

1992

1997

2002

Salaries Business Income

Capital Income Capital Gains

Top 0.1% Income Share 1917-2004

Share of top .01%,

Labor supply shifted? Institutions shifted? Labor demand shifted?

How do these techniques help? 2. Technology and

Markets

3. Elasticities and Duality

4. Functional Form (tricks)

Find exogenous variation

in x or instrument for x

Put that x on the right

hand side

Use duality to provide an

appropriate functional

form

Interpret estimate in

context of form (e.g., an

elasticity of substitution

from a translog cost

function)

5. Estimation and Identification: Capital-

skill complementarity

Griliches

(1969)

estimated

two factor

model

rejected CES

in favor of

K-skill

comlemen-

tarity

Griliches: K-skill

complementarity

(again)

These are not the best data, so you might be

skeptical, but the result has been repeatedly

replicated..

…pushes us to more flexible functional forms

than Cobb-Douglas and CES.

Immigration:

Altonji-Card

Endogenous

immigration?

Cross-section, within and IV

Friedberg 01: Migration to Israel

The instrument – occupation abroad

The result ??

The result

Individual level results

Dual Labor

Markets:

Dickens & Lang

(1985)

Labor as Quasi-fixed

Oi (1962)

Labor as Quasi-fixed

Oi (1962)