University of Guelph
College of Social and Applied Human Sciences
DEPARTMENT OF ECONOMICS
ECON*6610 Topics in Labour Economics
Winter Semester 2004
Instructor: Miana Plesca, Rm. 742, Ext. 53524
E-Mail: miplesca@uoguelph.ca
Office Hours: Mon., Wed., 3:00 – 4:00 and by appointment
It is your responsibility as a student to be aware of and to abide by the University’s
policies regarding academic misconduct, e-mail communication, maintaining copies of
out-of class assignments, what to do when you cannot meet a course requirement and the
drop date for this semester. To better understand these policies, visit:
http://www.economics.uoguelph.ca/econ/toc/courses.asp
COURSE OUTLINE
This course will cover topics in micro and macro labour economics. While it is primarily
designed for Ph.D. students looking to start research in labour economics, interested
Masters’ students can benefit from the course as well.
The course will consist of three parts:
I.
Econometric evaluation;
II.
Search and matching models;
III.
Further topics (time allowing).
COURSE REQUIREMENTS
30%: Presentation and in-class participation
Each student will be required to do one in-class presentation of any of the papers
suggested as readings. The presentation is worth 20% of the grade, while active class
participation (discussion, questions and comments) is worth another 10%. The
presentation schedule shall be finalized by the end of the third week.
30%: Computer assignment
There will be one computer assignment worth 30% of the grade. I will give you the
questions and data sets you need to complete the assignment. The assignment is due back
in class in the first week after the break.
I strongly recommend that you use the statistical package STATA in solving the
computer assignment. STATA is a very friendly yet powerful tool for empirical analysis.
Especially for Masters’ students, STATA knowledge will be a useful asset when looking
for a job as an economist. If you insist on using another software package, I will accept
your output, but I only provide assistance with STATA questions and code.
40%: Proposal
40% of the final grade will come from a proposal you need to submit by the last day of
class. The proposal needs to contain an original question addressing labour issues, the
relevant literature review, a detailed description of how you would address the question,
and the data sources you need to complete the project. For Ph.D. students, some
preliminary analysis would be desirable as well.
TOPICS
I. Econometric program evaluation
-- Weeks 1 to 6
Main readings:
(*) Heckman, James, Robert LaLonde and Jeffrey Smith [HLS] (1999) "The Economics
and Econometrics of Active Labor Market Programs." In Orley Ashenfelter and David
Card, eds., Handbook of Labor Economics, Volume 3A. Amsterdam: North-Holland.
1865-2097.
(*) Angrist, Joshua and Alan Krueger [AK] (1999) "Empirical Strategies in Labor
Economics," in Orley Ashenfelter and David Card, eds. Handbook of Labor Economics,
Volume 3A. Amsterdam: North-Holland. 1277-1366.
(*) indicates reserve readings
I.1: Introduction to Evaluation and Social Experiments
HLS, Sections 1-5.
Also:
(*) Heckman, James and Jeffrey Smith (1995) "Assessing the Case for Social Experiments."
Journal of Economic Perspectives. 9(2): 85-100.
Heckman, James, Jeffrey Smith and Nancy Clements (1997) "Making the Most Out of
Programme Evaluations and Social Experiments: Accounting for Heterogeneity in Programme
Impacts." Review of Economic Studies. 64(4): 487-535.
(*) Heckman, James, Neil Hohmann, Jeffrey Smith and Michael Khoo (2000) "Substitution and
Drop Out Bias in Social Experiments: A Study of an Influential Social Experiment." Quarterly
Journal of Economics. 115(2): 651-694.
I.2: Selection on Observables and Matching Estimators
HLS, in particular Sections 7.4 and 8.2.
AK, in particular Sections 2.3 and 2.4.
Also:
Smith, Jeffrey (2000) "A Critical Survey of Empirical Methods for Evaluating Active Labor
Market Policies."Swiss Journal for Economics and Statistics. 136(3): 1-22.
Hahn, Jinyong (1998) "On the Role of the Propensity Score in Efficient Semiparametric
Estimation of Average Treatment Effects." Econometrica. 66: 315-331.
Hirano, Keisuke, Guido Imbens, and Geert Ridder (2000) "Efficient Estimation of Average
Treatment Effects Using the Estimated Propensity Score." NBER Technical Working Paper No.
251.
Heckman, James, Hidehiko Ichimura and Petra Todd (1997) "Matching as an Econometric
Evaluation Estimator: Evidence from Evaluating a Job Training Program." The Review of
Economic Studies. 64: 605-654.
(*) Dehejia, Rajeev and Sadek Wahba (1999) "Causal Effects in Non-experimental Studies:
Reevaluating the Evaluation of Training Programs." Journal of the American Statistical
Association. 94: 1053-1062.
(*) Smith, Jeffrey and Petra Todd (2004) "Does Matching Overcome LaLonde’s Critique of
Nonexperimental Estimators?" Journal of Econometrics.
Lechner, Michael (2001) "A note on the common support problem in applied evaluation studies."
Discussion Paper 2001-01, Department of Economics, University of St. Gallen.
Lechner, Michael (2001) "Identification and Estimation of Causal Effects of Multiple Treatments
Under the Conditional Independence Assumption." In Michael Lechner and Friedhelm Pfeiffer,
eds., Econometric Evaluation of Active Labour Market Policies. Heidelberg: Physica, 43-58.
Froelich, Markus (2004) “Finite sample properties of Propensity-score Matching and Weighting
Estimators”. Forthcoming in the Review of Economics and Statistics.
I. 3: Selection on Unobservables: Instrumental Variables and Related Methods
HLS, Section 7 (especially Section 7.4).
AK, Section 4.
Also:
Björklund, Anders and Robert Moffitt (1987) "The Estimation of Wage Gains and Welfare Gains
in Self-Selection Models." Review of Economics and Statistics. 69(1). 42-49.
Angrist, Joshua, Guido Imbens and Donald Rubin. (1996). "Identification of Causal Effects Using
Instrumental Variables [with discussion]." Journal of the American Statistical Association.
91(434). 444-472.
Heckman, James (1997) "Instrumental Variables: A Study of Implicit Behavioral Assumptions
Used in Making Program Evaluations." Journal of Human Resources. 32(3). 441-452.
(*) Heckman, James and Edward Vytlacil (2001) "Policy-Relevant Treatment Effects." American
Economic Review. 91(2). 107-111.
I. 4 Selection on Unobservables: Longitudinal Methods
HLS, Section 7 (especially Section 7.6).
Also:
(*) Heckman, James, Hidehiko Ichimura, Jeffrey Smith, and Petra Todd. “Characterizing
Selection Bias Using Experimental Data,” Econometrica, 66(5), 1998: 1017-1098.
Heckman, James and V. Joseph Hotz (1989) "Choosing Among Alternative Nonexperimental
Methods for Estimating the Impact of Social Programs: The Case of Manpower Training."
Journal of the American Statistical Association. 84: 862-880 (includes comments by Holland and
Moffitt).
Moffitt, Robert (1991) "Program Evaluation with Nonexperimental Data." Evaluation Review.
15(3). 291-314.
Meyer, Bruce (1995) "Natural and Quasi-Experiments in Economics." Journal of Business and
Economic Statistics. 13: 151-161.
(*) Manski, Charles (1989) "The Anatomy of the Selection Problem." Journal of Human
Ressources. 24: 343-360.
(*) Manski, Charles (1990) "Nonparametric Bounds on Treatment Effects." American Economic
Review, Papers and Proceedings. 80: 319-323.
Manski, Charles (1997) "Monotone Treatment Response." Econometrica. 65: 1311-1334.
I. 5 Comparing Alternative Estimators
HLS, Sections 8.3 and 8.4.
Also:
(*) LaLonde, Robert (1986) "Evaluating the Econometric Evaluations of Training Programs with
Experimental Data." American Economic Review. 76(4): 604-620.
Heckman, James and V. Joseph Hotz (1989) "Choosing Among Alternative Nonexperimental
Methods for Estimating the Impact of Social Programs: The Case of Manpower Training."
Journal of the American Statistical Association. 84(408): 862-874 (includes comments by
Holland and Moffitt).
(*) Friendlander, Daniel and Phil Robbins (1995) "Evaluating Program Evaluations: New
Evidence on Commonly Used Nonexperimental Methods." American Economic Review. 85(4):
923-937.
(*) Glazerman, Steven, Dan Levy and David Meyers (2002) “Nonexperimental Replications of
Social Experiments: A Systematic Review.” Mathematica Policy Research Working Paper No.
8813-300.
I. 6 General Equilibrium Effects
Heckman, Lochner, Taber (1998) “General Equilibrium Treatment Effects: a study of a tuition
policy”, American Economic Review
(*) Gilles St. Paul (2000) “The Political Economy of Employment Protection”, Journal of Public
Economics
(*) Lise, Jeremy, Shannon Seitz and Jeffrey Smith. 2003. “Equilibrium Policy Experiments and
the Evaluation of Social Programs.” MIMEO, University of Maryland
(*) Blundell et al. (2003) “Evaluating the employment impact of a mandatory job search
program”, MIMEO, UCL
Davidson and Woodbury (1993) “The Displacement Effect of Reemployment Bonus Programs”,
Journal of Labour Economics 11(4), 575,605.
II. Search and Matching models -- Weeks 7 to 10
Main readings
(*) Cristopher Pissarides (2000), “Equilibrium Unemployment Theory”, 2nd Edition, MIT
Press.
(*) Dale Mortensen and Christopher Pissarides (1999), “New Developments in Models of
Search in the Labour Market”, Ch. 39 in Orley Ashenfelter and David Card, eds.
Handbook of Labor Economics, Volume 3A. Amsterdam: North-Holland.
(*) Dale Mortensen and Christopher Pissarides (1999), “Job Reallocation, Employment
Fluctuations and Unemployment”, Ch. 18 in Taylor and Woodford eds. Handbook of
Macroeconomics, Volume 1B. Amsterdam: North-Holland.
Optional:
Lars Ljumquist and Thomas Sargent (2000), “Recursive Macroeconomic Theory”, MIT
Press, Chapters 5 and 19.
II.1 Facts
Murphy and Topel (1997) “Unemployment and Nonemployment”, American Economic Review.
Shimer (1998) “Why is the U.S. unemployment rate so much lower?” NBER Macroeconomics
Annual.
(*) Van den Berg and Van Ours (1996) “Unemployment dynamics and duration dependence”,
Journal of Labor Economics.
II.2 Equilibrium Search and Wage Posting Models
(*) Burdett and Mortensen (1998) “Wage Differentials, employer size and unemployment”,
International Economic Review
Also:
Albrecht and Axell (1984) “An equilibrium model of search unemployment”, Journal of
Political Economy.
Eckstein and Wolkpin (1990) “Estimating a market equilibrium search model from panel data on
individuals”, Econometrica
(*) Van den Berg and Ridder (1998) “An empirical equilibrium search model of the labor
market”, Econometrica.
(*) Van den Berg (1999) “Empirical inference with equilibrium search models of the labor
market”, Economic Journal
Wolpin (1987) “Estimating a Structural Search Model: The Transition from School to Work”
Econometrica 55(4), 801-817
II.3 Matching models
Pissarides book (especially Ch. 1 and 2)
Mortensen and Pissarides Handbook chapters
Also:
(*) Petrongolo and Pissarides (2002) “Looking into the black box: a survey of the matching
function”, Journal of Economic Literature.
(*) Albrecht and Vroman (2002) “A matching model with endogenous skill requirements”
International Economic Review
(*) Cole and Rogerson (1999) “Can the Mortensen-Pissarides matching model match the business
cycle facts?” International Economic Review, 40(4) 933-59.
II.4 Matching models with wage posting
(*) Acemoglu and Shimer (2000), “Wage and Technology Dispersion” Review of Economic
Studies, 67(4) 585-607.
(*) Dale Mortensen (1998) “Equilibrium unemployment with wage posting: Burdett-Mortensen
meet Pissarides”, MIMEO, Northwestern University
II.5 More policy applications
Alvarez and Veracierto (1999) “Labor Market policies in an equilibrium search model”, NBER
macroeconomics annual.
Bruce Meyer (1995) “Lessons from the U.S. unemployment insurance experiments”, Journal of
Economic Literature
Bertola and Rogerson (1997) “Institutions and labour reallocation”, European Economic Review
III. Further topics (as time allows)
III.1 Labour markets and wage inequality
Juhn C., K. Murphy, and B. Pierce (1993), "Wage Inequality and the Rise in Returns to Skill."
Journal of Political Economy 101: 410-442.
Katz, L. and K. Murphy (1992), "Changes in Relative Wages, 1963-1987: Supply and Demand
Factors." Quarterly Journal of Economics 107: 35-78.
Gottschalk, Peter. (1997). "Inequality, Income Growth, and Mobility: The Basic Facts." Journal
of Economic Perspectives, Volume 11 Number 2, pp. 21-40.
Gottschalk, Peter and Timothy M. Smeeding (1997). "Cross-National Comparisons of Earnings
and Income Inequality." Journal of Economic Literature, Volume 35, pp. 633-87.
Krusel, Ohannian, Rios-Rull, Violante (2000) Capital-Skill Complementarity and Inequality: A
Macroeconomic Analysis”, Econometrica 68(5) 1029-53
Audra Bowlus and Jean-Marc Robin (forthcoming) "Twenty Years of Rising Inequality in US
Lifetime Labor Values," Review of Economic Studies
III.2 Returns to education
Card, D (1999) “The causal effect of education on earnings” in Orley Ashenfelter and David
Card, eds. Handbook of Labor Economics, Volume 3A
Heckman, James, Justin Tobias and Edward Vytlacil (2000) "Simple Estimators for Treatment
Parameters in a Latent Variable Framework with an Application to Estimating the Returns to
Schooling." NBER Working Paper No. 7950.
Manski, Charles and John Pepper (2000) "Monotone instrumental variables: with an application
to the returns to schooling." Econometrica. 68: 997-1010.
Wolpin, K. “Wage Equations and Education Policy,” PIER Working Paper 01-017, 2001.
Vaillancourt, F. (1995), "The Private and Total Returns to Education in Canada, 1985," Canadian
Journal of Economics 28(3), 532-554.
III.3 Discrimination and wage differentials
Altonji J. G., and R. Blank “Race and Gender in the Labor Market” in in O. Ashenfelter and D.
Card, Handbook of Labor Economics, Vol. 3, North Holland, 1999.
Heckman, J.J. “Detecting Discrimination” Journal of Economic Perspectives 12 (1998): 101-116.
Audra Bowlus and Zvi Eckstein (2002) “Discrimination and Skill Differences in an Equilibrium
Search Model," International Economic Review, 43(4): 1309-1345
III.4 Unions
Card, D. “The Effect of Unions on the Structure of Wages: A Longitudinal Analysis,”
Econometrica 64 (1996): 957-979.
MacDonald, G. and C. Robinson, “Unionism in a Competitive Industry,” Journal of Labor
Economics 10 (1992): 33- 54.
Robinson, C. (1989), “The Joint Determination of Union Status and Union Wage Effects: Some
Tests of Alternative Models,” Journal of Political Economy 97: 639-667.
III.5 Immigration
Borjas, G.J. (1999) “The Economic Analysis of Immigration” in O. Ashenfelter and D. Card,
Handbook of Labor Economics, Vol. 3, North Holland.
Baker M. and D. Benjamin (1994) “The Performance of Immigrants in the Canadian Labor
Market” Journal of Labor Economics 12: 369-405.
III.6 Labour markets and crime
Burdett, Ken, Ricardo Lagos and Randall Wright (2003), "Crime, Inequality, and Unemployment,
Second Version" (September 2003). PIER Working Paper No. 03-029.
http://ssrn.com/abstract=470922
Antonio Merlo and Peter Rupert (2003), "What Accounts for the Decline in Crime"? UWO
Working Paper.