Econ 8503 Wages and Employment Spring 2013

José-Víctor Ríos-Rull:,

  • Department of Economics, University of Minnesota, Minneapolis, MN 55455.
  • Tue and Th 12:10 pm to 13:50. In Hanson Hall, 4-170. Off Hours: Before and after class and by appointment., email:, Phone-(612) 625-0941 Fax: (612) 624-0209 Fed Phone (612) 204-5528
  • The web page to sign up for homework presentations is ready. Click here

  • What are we doing? A class by class ex-post diary and a forecast of next class.

    1. Mar 26.

      We talked about the class and what it is about. We discussed what are the possible topics to cover (see below). We discussed every student's interests in labor and how they may relate to the class.

    2. Mar 28.

      We talked about wages. We started by discussing wages over the life cycle which are hump-shaped. We talked about 3 theories. Exogenous wages, learning by doing and learning by not doing (Ben Porath). We wrote the dynamic problem associated to the latter two. I derived the FOC and argued that to solve them going to the last period and realization that there is not capital value to learning then is the key insight. I ask for homeworks to this part which are due April and are labeled Second homework bath. We also looked at a simple human capital accummulation model were the value function is homogenous of degree 1. In it, agents die every period with probability λ. I asked as a homework (Batch 1 due April 3) to compute mean and variance of earnings. We started to talk about the evolution of the skill premium.

    3. April 2.

      Rocio started presenting HW 1. She will finish Tue Ap 9. Thanks Rocio. We finished studying the determinants of the the skill premium. We talked about the Mortensen-Pissarides model of labor determination, on our way to see the Shimer vs Hagedorn-Manovski discussion and the new contribution by Christiano et al.

    4. April 4.

      We went to Fatih's seminar. It was a great one. Then we went over in class with the problems in the homework and discussed them.

    5. April 9.

      I discussed competitive search in the context of the lucas tree with search and household effort moving productivity.

    6. April 11.

      There is no class. As the classes are typically longer than the scheduled 1:25min, we may or may not recover it.

    7. April 16.

      Arun presented the solution to the savings problem. Thanks Arun. Gero presented a modelization of the earnings process consistent with the findings of Guvenen et al (2013). I then went over the problem of the determination of the price in Nash bargaining environments.

    8. April 18.

      Gero updated his presentation of the representation of labor earnings. There is still a bit to go. Thanks Gero. I then complemented the issue by talking about the cross-sectional properties of hours worked (and theories to explain it) and of the variance of hours worked and how it relates to Fatih's findings. I referenced two some very old papers of mine (this one and this one). We then finally started talking about what is a household as different from a person. We looked at the various issues it raises. How to allocate goods within it, how to set who marries whom and how

    9. April 23.

      We talked about how to think of a person grown up and what are the decisions that it takes (how hard to work, whether to engage in sex, when to leave the parental home). We then posed a simple model of household formation where the fraction of young people leaving with their parents in endogenous and we applied to the determination of aggregate hours worked. In doing so we talked about the Frisch elasticity of labor.

    10. April 25.

      We went to Bils seminar. We discussed what was good about it. Then Radek presented homework 3. Thanks Radek.

    11. April 30.

      Martin presented "Labor Market Search in Emerging Economies". Thank Martin. He showed very nicely that the Shimer puzzle can come as an asset in certain contexts. I then talked about how to model an evolving family composition in the context of a saving problem a la Aiyagari. Think of Families as Shocks. I invited to present this paper by Blundell et al.

    12. May 2.

      Hazal presented "Divorce, Remarriage and Welfare: A General Equilibrium Approach". Thanks Hazal. That allows us to discuss how to think of marriage. Why people do it. We also discussed the relevance of increasing returns of the matching function. Daniela then presented this paper by Blundell et al. We learned how to pose the joint problem of acquiring education, and choosing whether to work or not in the context of a model related to the families as shocks were all relevant decision making problems are subsumed by letting the woman be the decision maker.

    13. May 7.

      We talked about models with endogenous household formation. We used the first half some of these slides.

    14. May 9.

      We will finish talking about endogenous household formation. We will talk about occupations and maybe also credit scores. We may add another class. More soon.

    List of Homeworks Organized by batchs.

  • First Homework batch. Do it by April 3.

    1. A Ben Porath problem.

    2. 1.A In the last model of human capital investment that we saw in class ( agents die every period with probability λ and are replaced. The newborns are born with measure x0 over h. Assume further that x0 puts positive measure only over a finite number of values hi of h. The evolution of human capital is h'=h(1+y ε) and income is given by h(1-α y2/2). Calculate a formula for the long run value of average income.

      1.B Give another formula for the long run variance of income.

      1.C State the problem with a progressive income tax and lump sum redistribution. Comment it.

      1.D Change the functional form for income so that whether effort or luck matters is a function of one parameter. Comment it.

  • Second Homework batch. Do it by April 10.

    1. A life cycle problem.

    2. 2.A Solve for the assets and consumption of the houeholds in an economy where they live 90 years (assume they are born at 16) and have the wage profile and of American persons. (Find it from somewhere in the literature, later we will compute it from data). Let the agents have standard per period preferences over consumption with risk aversion coefficient of 2, discount rate of 1. and interest rate of 3\%. Plot them. You should use the three methods we discussed in class to solve this problem (if you want you can solve in five year intervals, for which you have to adjust the interest and discount rates). These methods were forward and backward iterations that transform the problem into one equation and one unknown and brute force.

      2.B Now make changes in preferences so that the induced profiles for consumption are inversed U-shaped. Plot them too.

      2.C Briefly explain the computational logic that you followed. (I will talk a bit in class for this but start now).

    3. A more complicated life cycle problem.

    4. 3.A Choose a learning-by-doing technology (explain how you did so) and solve for the optimal paths of consumption, savings hours worked, productive hours worked and wages. Plot them. Do they match the data?

      3.B Choose a Ben-Porath learning-by-not-doing technology (explain how you did so) and solve for the optimal paths of consumption, savings hours worked, productive hours worked and wages. Plot them. Do they match the data?

      3.C Specify a model with both a learning-by-doing and a learning-by-not-doing technology (explain how you did so) and solve for the optimal paths of consumption, savings hours worked, productive hours worked and wages. Plot them. Do they match the data?

      3.D Discuss your findings

    Course Description

    This course should be thought of as a Labor course with a close link to Macro that should be of interest to people that care about both areas. Its main purpose is to link models and data i.e. to answer quantitative questions that we are interested in (in the process of doing so, some interesting theoretical questions arise). We will develop tools by stating general questions, and then discussing how to approach its answer.

    This is a Ph.D. course not a Masters course. We are not here to learn about existing work but to learn about how to do work, and, therefore, it requires to do some things.

  • Format. Every class except the first one we will devote the first twenty minutes or so to students presentations of homeworks. I expect professional competence in this regard.

  • Relation to 8501. This course complements 8501. We will overlap a bit, but there are enough differences to make them all worthwhile to the enthusiast.

  • Content. This year, I want to change the course a bit to taylor students' particular interests. In terms of possible content here is a list of some of the issues that we may also cover. In the end we will do a combo of both things depending on interest, energy, and mood.
    1. Wage formation. Over ages, education, sexes, occupation, marital status, states, cities, what not.

    2. Household Types. Single, cohabitating, married, with children, with other adults, with elderly, sharing dwellings. How does it shape people?

    3. Household Formation. How does it change? How is it chosen? Both children and spouses.

    4. Time Allocation. What do we do with our time? Is labor/leisure useful?

    5. Engagement in the labor market. Female labor force participation, choices of hours, retirement. Really?

    6. The Frisch elasticity of labor and how the macro and the micro relate to each other.

    7. Occupational Choice. What career to choose (in a parallel sense). This includes entrepreneurship, and even which legal status to choose.

    8. Crime. We will think of it in part as a form of occupational choice (for property crime). But we will also talk in terms of murder. How could we think of it.

    9. Savings and borrowing. With special emphasis on the particular set of U.S. laws that guarantee the right to bankruptcy.

    10. Death and Health. Death is unequal why people die? Does health care matter? Really?

    11. Aggregate Search Models. We will look at how to build protoypical search models with flows of workers entering and exiting the labor force.

    12. Aggregate Fluctuations and Macro in general. Are any of these things changing over time?

    Course Requirements

    Students will place the solution to the homeworks and to other requirements in electronic form.

    You should have a subdirectory with your id name and the write to read an write in /pkg/8503-13

    If you do not have such a directory, please email asking for one.

    There are various types of requirements that are a necessary part of the course, all of which have to be fulfilled.
    • Regular Homeworks.The ones posted here. Full credit only if on time. Partial credit otherwise.

    • Class Presentations Every student will make at least two class presentations with at least one being of a subset of a homework. The first presentation should take no more than 15 minutes and it will be absolutely professional. Every second wasted, every statement not planned, every bad thing will be highlighted. The second presentation (that will depend on class size and interests) maybe on a paper or on another homework.

    • Referee Report. I will assign a paper to each of you as we go along to write a referee report and perhaps also to present the paper in no more than 20 minutes. The refere report should be no longer than five pages and should contain a clear and concise exposition of the main points of the article as well as a critical evaluation of the article's contributions. In addition, you should write a letter to the editor with your personal recommendations. If very good, I will use them, anonymously.

    • Wikipedia Article. Optional, but excellent training. This is something that should be done by the end of the course. The moment you post it email me and place a copy in your directory. Think of a topic of the course no matter how silly.

    This course believes drastically in Learning by Doing. To learn the material that we cover requires that students do all the homeworks in a timely manner. Given the way to collect the homeworks, timeliness is automatically recorded. I will look at what is done weekly.

    Grading Rules and Registration.

    To do superbly in the course, registered students have to do all the requirements well.

    For those that do not register but take the course, I recommend that they do the homeworks. We learn to solve problems by facing them. Learning jointly with others greatly speeds the process.

    In any case, the University is to help you learn and become a great economist not to issue grades, so use the course in the way you say it is best for you. If all equal, register so that there is evidence that the course is useful.

    What about the prelim?

    The prelim will consist on some problem or question or discussion of something that has been at the core of the course. Take a look at the last two prelims (from Kara, I think) and the homepages of the courses of previous years (via my homepage) for clues.