Econ 8503 Wages and Employment Spring 2015

José-Víctor Ríos-Rull:,

  • Department of Economics, University of Minnesota, Minneapolis, MN 55455.
  • Tue and Th 12:20 pm to 13:50. In Hanson Hall, 4-168. 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 Use the days where there is class. The page is shared with the labor workshop.

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

    1. Mar 25.

      We talked about the class and what it is about. We discuss 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 covering interesting issues for each of those interests. I asked for somebody to start talking about labor leisure choice presenting the details that can be found in Per Krusell's Chapter 8 of his new macroeconomic textbook.

    2. Mar 27.

      Gabriel Zucman's seminar at the Fed. This was food for thought. Can we think of reasons, this is, real models that could deliver such wild oscillations in capital and wealth to output ratios?
    3. Apr 1.

      Ming volunteered to describe chapter 8 of Per's book. She did a great job. Thanks Ming. She told us what restrictions are imposed on preferences by a balanced growth path. She went over the proofs. I then argued that maybe balanced growth path preferences in an unwarranted requirement based on the logic of socialization. We then talked about wages over the life cycle which are hump-shaped. We started talking about 3 theories. Exogenous wages, learning by doing and learning by not doing (Ben Porath).

    4. Apr 3.

      We wrote the dynamic problem associated to the learning by doing and to the Ben Porath models. We discussed what are their differences and showed that to solve the implied problems we had to take advantage of the end period conditions. We also discussed to what extent can the problem be separated between income maximization and consumption allocation. Mons then presented some ideas of how to integrate both models simultaneously and how to let data tell them apart. Thanks Mons. There are some homeworks that ask you to solve these problems. I then talked about issues of matching from AIDS to assortative matching, and what kind of explanations may be behind its increase.
    5. April 8.

      I ended up discussing the problem of an impatient firm manager that faces a time inconsistent problem described here. This type of problem shows up in many contexts including family contexts.

    6. April 10.

      I talked about the Skill premium in wages using this paper and Sergio talked about this paper on the characterization of the changes in distributions of a variable with many associated characteristics.
    7. April 15.

      We discussed how decisions are made within families and how families shapes preferences. We went Families as Shocks to argue that families matter.
    8. April 17.

      We discussed how to use family models to measure how family type shapes preferences using using this paper.
    9. April 22.

      We started with a theory of household formation using this paper as an example.
    10. April 24.

      We looked at the allocation of people across occupations across groups (sex race) and time using Hsieh, Hurst, Jones, and Klenow (2013) that I saw the previous weekend. I used these slides or maybe these if there is passion for details. Differences in allocations over time across groups tells us something about how increases in productivity over time. We may need to learn what are Frechet Distributions. A good place to understand why distributions matter is this paper by Keith Head.
    11. April 29.

      I will finish the discussion of Hsieh et al. We will look at College attendance of women and perhaps at Living arrangements of elderly widows. We will also talk about risk and households using Kaplan's Moving Back Home: Insurance Against Labor Market Risk. or our business cycle project.
    12. May 1.

      Joaquin will talked about the Shimer puzzle. Thanks Joaquin. We then discussed the shortcomings of standard theory in accounting for the volatility of labor and of how macro models handle the issue.
    13. May 6.

      We talked about health and death and its very heterogenous distribution and also about how to tease out how health shape peoples consumption using Health Heterogeneity and Preferences.
    14. May 8.

      We talked about wealth heterogeneity. Dirk presented Piketty and Zucman's recent paper using these slides. Thanks Dirk. I also talked about the stuff on Piketty's book. This finished the course. Thanks to all.

    List of Homeworks Organized by batchs.

  • First Homework batch. Do it by April 8.

    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.

      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.

    3. 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.

    4. 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.

    5. 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.