How Does Boosting Workers' Outside Options Affect Job Mobility and Wage Setting? Quasi-Experimental Evidence from Administrative Data

Project Outcomes Statement

This project has studied the causal effects of boosting workers’ outside options in the labor market. The research has implemented difference-in-differences designs that study unemployment insurance (UI) benefit generosity as a source of empirical variation in workers’ outside options. This variation stems from reforms to the UI benefit schedule in Austria, where in addition to powerful reforms, labor market panel data are available to study consequences for workers’ labor market outcomes. The research has shown that workers’ wages do not respond as much to UI-based shifts in outside options as predicted by standard models of wage setting that build on Nash bargaining between an employer and an employee. Moreover, the researchers have documented that such boosts in outside options leads some workers to quit their jobs. Specifically, they have found that such UI-induced quits appear inefficient, as the workers appear to leave jobs that in principle both the employee and the employer would have preferred to continue if only they had been able to flexibly rebargain the wage. The researchers interpret these findings as consistent with theories of wage rigidity, whereby wages do not respond enough to shifts in the economic environment and to job-specific conditions, and whereby job separations can be inefficient. Both research projects have been published in top general interest peer-reviewed economics journals. The researchers have involved doctoral and predoctoral research assistants, including as coauthors. This research has also led to follow-up research as part of the PIs’ joint research agenda.