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)
