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Date of Award

1-1998

Degree Type

Thesis

Degree Name

Doctor of Philosophy (PhD)

Department

Economics / Economic Policy

Supervisor

Professor Peter Kuhn

Abstract

This thesis comprises three essays. The first two essays examines what inferences can be drawn about the structure of wages from the experiences of displaced workers using the Ontario Ministry of Labour Plant Closure Survey. The third essay examines the effect of unemployment benefits on household consumption during spells of unemployment, with a particular emphasis on durables purchases. It employs data from a second and new data source, the Canadian Out of Employment Panel. The first essay revisits the issues of what can be learned about wage tenure profiles from displaced worker data. The positive relationship between wages and tenure in cross section data is consistent with the accumulation of firm specific capital. Alternatively, it may be explained by unobserved heterogeniety across workers, or by endogenous mobility. Displaced worker data is quite helpful in correcting for the first possible bias, and less so for the second. The relationship between various estimation strategies in the literature is illustrated. Estimates that control for individual heterogeniety and endogenous mobility driven by systematic differences in the pay policies of firms are presented. In this data, 10 years of tenure appears to raise wages by about 7%. The second essay examines in intra-industry wage differentials. Even after conditioning on a rich set of worker and job characteristics, firm of employment is a significant determinant of wages. Estimates that employ the longitudinal nature of data demonstrate that sorting of workers across firms by unobserved ability can explain about half of the observed differentials. Firm wage differentials are observed within narrow industries, consistent across broad occupational groups, and robust to conditioning on differences in the mix of skills or job characteristics. Further "high wage" firms exhibit high average tenures suggesting that positive wage premia are associated with reduced mobility. These observations imply that compensating wage differentials are also a poor candidate explanation for the observed differentials. The results are more consistent with models based on rents or some firm monopsony power. The results also raise questions about the interpretation of wage regressions which ignore firm hetereogeneity, and about the sources of wages losses among displaced workers. The final essay examines how households smooth consumption over the income losses due to an unemployment spell. A model of "internal capital markets" is proposed, which suggests that households adjust the timing of the replacement of small durables to income flows. The plausibility of this model is investigated empirically, using a series of program changes in the Canadian unemployment insurance scheme for exogenous variation in transitory income. The data are consistent with the predictions of the "internal capital markets model" while rejecting both a standard life-cycle model and a "rule of thumb" model of household expenditure patterns.

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