The Earnings Distribution and Sectoral Switching Over The Business Cycle

Transcription

1 The Earnings Distribution and Sectoral Switching Over The Business Cycle Carlos Carrillo-Tudela Ludo Visschers David Wiczer University of Essex University of Edinburgh FRB St. Louis Preliminary The views expressed herein do not reflect those of the Federal Reserve Bank of St. Louis or the Federal Reserve System C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 1 / 40

2 Intro Introduction C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 2 / 40

3 Intro The link between earnings changes and labor dynamics This paper is motivated by two observations (SIPP): The probability of an occupational switch is high and falls in recessions. Table The distribution of earnings changes shifts down in recessions. Graph C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 3 / 40

4 Intro The link between earnings changes and labor dynamics This paper is motivated by two observations (SIPP): The probability of an occupational switch is high and falls in recessions. Table The distribution of earnings changes shifts down in recessions. Graph Objective Document the statistical relationship between occ. switching and earnings changes over the business cycles. Develop and quantitatively assess a model for understanding the earnings change distribution [in progress]. C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 3 / 40

5 Intro The link between earnings changes and labor dynamics Main results (data) Occ. switching increase the workers earnings risk (earnings mobility). Recessions come with increased earnings loss and decreased earnings gains associated with occupational switching. Increase in the downside earnings mobility comes mainly through job loss. Decrease in the upside earnings mobility is in part due to less likely high returns to switching, particularly through EE transitions. C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 4 / 40

6 Intro The link between earnings changes and labor dynamics Main results (data) Occ. switching increase the workers earnings risk (earnings mobility). Recessions come with increased earnings loss and decreased earnings gains associated with occupational switching. Increase in the downside earnings mobility comes mainly through job loss. Decrease in the upside earnings mobility is in part due to less likely high returns to switching, particularly through EE transitions. Literature Cyclicality of occupational mobility: Kambourov and Manovskii (2008), Moscarini and Thompson (2007), Carrillo-Tudela et al. (2015), among many others. Cyclicality of earnings inequality: Güvenen et al. (2014), among others. C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 4 / 40

7 Intro Teaser : Earnings Distributions Earnings mobility increases with the disruption of the transition: 10% 25% 50% 75% 90% Full sample Job Changers Occupation Stayers Occupation Switchers Table : Month-to-Month Earnings Changes C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 5 / 40

8 Intro Teaser : Earnings Distributions Earnings mobility increases with the disruption of the transition: 10% 25% 50% 75% 90% Full sample Job Changers Occupation Stayers Occupation Switchers Table : Month-to-Month Earnings Changes Flows are important to earnings dynamics The propensity and return to a transition change over the cycle C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 5 / 40

9 Data sample Data sample C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 6 / 40

10 Data sample Constructing our sample We use the SIPP panels Occupations: SOC 2-digit with the homogenized codes (using IPUMS, similar to Autor and Dorn, 2013) Table Unemployment defined strictly: Excludes workers on temporary layoff (see Fujita and Moscarini, 2012) Layoff workers never switch occupation or job Switches are counted at separation Minimizes downward bias to the effect of recession on EUE switches Wage changes are measured at re-employment and deflated by the PCE (using FRED for monthly frequency) C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 7 / 40

11 Switching and cycles Switching probability statistics C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 8 / 40

12 Switching and cycles The probability of occupational switching Switching increases with: The cycle During expansions, with lower residual earnings Unemployment duration C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 9 / 40

13 Switching and cycles Probit estimates Table : Probit for occupational switching All E E E U E Unemp Rate Age Age Unemp Indic Unemp Duration Non-white Univ LT HS Female Observations 132, ,873 12,018 Akaike Inf. Crit. 178, , , Note: p<0.1; p<0.05; p<0.01 C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 10 / 40

14 Switching and cycles The unconditional prob. of switching Unconditional P(Switching) by Wage Percentile P(Switching) Wage percentile within two digit SOC occupation Consistent with a job ladder with occ. switching: the switching probability is declining in relative wages. C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 11 / 40

15 Switching and cycles Who switches: conditional probability of switching P(Switching Job change) by Earnings Percentile 0.65 P(Switching) Earnings percentile within two digit SOC occupation Conditional on switching jobs, the probability of an occ switch is non-monotonic. Switchers tend to be those with below expected wages. Similar to Groes, Kircher and Manovskii (2014), though second part of U-shape not as pronounced. C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 12 / 40

16 Switching and cycles Probability of switching : through unemployment 0.75 P(Switching EUE job change) by Wage Percentile P(Switching) Wage percentile within two digit SOC occupation The pattern breaks down Higher probability than EE switchers C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 13 / 40

17 Switching and cycles Probability of switching: recessions P(Switching Job change & Rec) by Earnings Percentile 0.6 P(Switching) Earnings percentile within two digit SOC occupation The low residual earnings have marginally higher rates The line is slightly flatter for the top Lower probability than expansions at all quantiles C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 14 / 40

18 Switching earnings mobility How is switching related to earnings mobility? C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 15 / 40

19 Switching earnings mobility Switching (jobs and occupations) and wages All job switches Occ Switch No Occ switch Mean th th th Non-monotonicity: If a job change involves a earnings increase, then switchers gain more. If a job change involves a earnings decrease, then switchers lose more. Switching comes with more earnings mobility of workers. This occurs for both EE and EUE switchers. C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 16 / 40

20 Switching earnings mobility Switching and wages - EE All EE Occ Switch No Occ switch Mean th th th At the mean we observe that positive earnings changes accompany EE transitions. Non-monotonicity: At the quartiles we can see that does workers that switch either gain more or lose more relative to stayers. Switching increases the earnings mobility of EE workers. C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 17 / 40

21 Switching earnings mobility Switching and wages - EUE All EUE Occ Switch No occ switch Mean th th th At the mean we observe re-employment earnings losses accompany EUE transitions. EUE transitions involve larger earnings losses (downside risk) for all workers relative to EE transitions. Non-monotonicity: At the quartiles we can see that does workers that switch either gain more or lose more relative to stayers. Switching through EUE increases even more the earnings risk of workers. C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 18 / 40

22 Switching earnings mobility Earnings risk, condition on previous earnings Plots F 1 (w t+1 occ), F 1 (w t occ) for all job changers 45 deg is no-relative-mobility : the ordering of wages tends to be preserved C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 19 / 40

23 Switching earnings mobility Earnings dynamics, through unemployment The expected earnings line is lower and flatter Loses are highest at the top end compared to average (coral) C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 20 / 40

24 Switching earnings mobility Earnings dynamics, occupation switchers Expected earnings line is flatter compared to average (coral) Occupation switching implies greater earnings churn C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 21 / 40

25 Switching and cycles wages What do switching and the business cycle jointly do to wages? C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 22 / 40

26 Switching and cycles wages Regressions We consider the change in wages: w = β s I sw + β u u t + β UE I U E + ɛ (1) C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 23 / 40

27 Switching and cycles wages Regressions We consider the change in wages: w = β s I sw + β u u t + β UE I U E + ɛ (1) Or at various quantiles τ of this distribution F 1 w (τ) = β s(τ)i sw + β u (τ)u t + β UE (τ)i U E (2) C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 23 / 40

28 Switching and cycles wages Quantile regression for earnings changes Dependent variable: Earnings Change OLS Quant Reg 10% 25% 50% 75% 90% Occup Sw (0.01) (0.01) (0.01) (0.004) (0.01) (0.01) Unemp Rate (0.001) (0.003) (0.002) (0.001) (0.002) (0.003) Unemp Indic (0.01) (0.02) (0.01) (0.01) (0.01) (0.02) Const (0.01) (0.02) (0.01) (0.01) (0.01) (0.02) Obs 135, , , , , ,028 Res SE Note: p<0.1; p<0.05; p<0.01 Switching increase earnings risk and this is an upwardly skewed risk. Earnings gains are mitigated in recessions. Job mobility through unemployment adds extra risk. With Occupation Dummies C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 24 / 40

29 Switching and cycles wages Regression results for EE workers Table : Earnings change quantile regression, Job-job Dependent variable: Earnings Change OLS Quant Reg 10% 25% 50% 75% 90% Occup Sw (0.01) (0.01) (0.01) (0.004) (0.01) (0.01) Unemp Rate (0.002) (0.004) (0.002) (0.001) (0.002) (0.004) Const (0.01) (0.02) (0.01) (0.01) (0.01) (0.02) Obs 111, , , , , ,745 Res SE Note: p<0.1; p<0.05; p<0.01 Switching increase earnings risk, but less of an upwardly skewed risk. Strong mitigation of earnings gains in recessions. With Occupation Dummies C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 25 / 40

30 Switching and cycles wages Regression results for EUE workers Table : Earnings change quantile regression, through unemp Dependent variable: Earnings Change OLS Quant Reg 10% 25% 50% 75% 90% Occup Sw (0.02) (0.03) (0.02) (0.01) (0.02) (0.03) Unemp Rate (0.004) (0.01) (0.01) (0.004) (0.01) (0.01) Const (0.03) (0.06) (0.04) (0.03) (0.03) (0.06) Obs 23,283 23,283 23,283 23,283 23,283 23,283 Res SE Note: p<0.1; p<0.05; p<0.01 Unemployment is generally greater downside risk Occupation switching mitigates some downside risk With Occupation Dummies C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 26 / 40

31 Switching and cycles wages A simple decomposition We take our quantile regression F 1 w (τ) = β s(τ)i sw + β ue (τ)i U E + β 0 (τ) (3) And run this in expansions and recession F 1 w (τ R) = βr s (τ)i sw + βue(τ)i R U E + β0 R (τ) (4) F 1 w (τ E) = βe s (τ)i sw + βue(τ)i E U E + β0 E (τ) (5) Decompose F 1 1 w (τ R) F w (τ E) from Flows: Pr[I sw R], Pr[I U E R] Pr[I sw E], Pr[I U E E] Returns: β R s (τ), β R ue(τ), β R 0 (τ) βe s (τ), β E ue(τ), β E 0 (τ) C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 27 / 40

32 Switching and cycles wages The results during expansions and recessions Expansions Recessions Const Occ Sw I U E Const Occ Sw I U E Table : Earnings change quantile regression coefficients The return to occupation switching is greater in expansions the penalty to unemployment is quite similar C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 28 / 40

33 Switching and cycles wages The coefficient on switching 0.3 Effect of Occupation Switching Wage Change Effect Quantile Recessions (Red) have a lower premium for switching Test stats (Qu 2008): Jointly: P < 0.000, point-wise: P = (0.156, 0.016, 0.04, 0.03, 0.304) C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 29 / 40

34 Switching and cycles wages The coefficient on EUE Effect of EUE 0.0 Wage Change Effect Quantile the same penalty for transitioning from unemployed in recessions (Red) C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 30 / 40

35 Switching and cycles wages Decomposition Results The change in EUE and switching flows has its largest impact at the bottom of the distribution. On average these changes in flows explain 10 percent. Holding fixed the EUE constant at their expansion levels, the return to switching is quite important at the top end of the distibution. Exercise To get the contribution of switching flows, we fixed the rate EUE flows and the βs at their expansion level and use the switching flows at their recession level. To get the contribution of total flows, we fixed the βs at their expansion level and use the flows at the recession level. C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 31 / 40

36 Switching and cycles wages The contribution of change in I sw Change in distributions due to changed switching probabilities 0.3 Switch flows contribution Wage Change Holding constant EUE, the importance of the switching probability is greatest at the top of the earnings change distribution. C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 32 / 40

37 Switching and cycles wages The contribution of change in I sw & I E U E The change in distributions due to changed worker flows Flows contribution Wage Change At the low end, changes in EUE flows seem to play a larger role. C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 33 / 40

38 Switching and cycles wages Take-away Why does the earnings change distribution drops over the business cycle? Expansion Recession Mean th th Median th th Job loss seems to be explaining a large proportion of the downside earnings risk. A significant proportion of the decrease in the upside risk seems to be coming from a lower occupational switching probability. C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 34 / 40

39 Theoretical Framework Theoretical Framework C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 35 / 40

40 Theoretical Framework Why a model? The propensity to switch is not exogenous: Workers choosing to switch consider the expected return The risk-reward changes over the cycle Cannot isolate the change in covariates from coefficients Uncover some underlying change in return and contact rate Observed transitions and returns are endogenous C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 36 / 40

41 Theoretical Framework Theoretical Framework Population Infinite horizon and discrete time, t. A continuum of risk neutral agents populate the economy and discount the future with discount factor β. The economy is divided into different occupations, o = 1,..., O. Production Agg. productivity: p t, follows first-order stationary Markov process, where p t [p, p], p > 0 and p <. Worker-occupation productivity: z t, such that F(z t+1 z t ) denotes its transition law and z t, z t+1 [z, z], z > 0 and z <. Worker-firm productivity: x is constant over the duration of the match. Total output, y(p t, z t, x): cont. diff. and strictly increasing. C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 37 / 40

42 Theoretical Framework Theoretical Framework Search within an occupation When a meeting takes place the pair draws a x from G such that x [x, x], x > 0 and x < ; and decide whether to undertake production or not. OJS implies that employed workers can improve their job-matches over time. Search across occupations Searching across occupations implies drawing a new z from F(.) at a cost of c. If the worker is employed, then he draws a new x from G(.). The new occupation, õ, is drawn independently of z and x with prob γõ. The worker must decide whether to search outside his occupation before drawing these elements. C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 38 / 40

43 Theoretical Framework Theoretical Framework Block Recursive Equilibrium It is convenient to divide each occupation into a continuum of sub-markets each populated by homogenous workers. In each sub-market: Each firm has one job, free-entry, meetings are govern by a CRS matching function. For employed workers sub-markets are defined by the pair {z, x}, while for the unemployed by z. A period is divided into four stages: (i) separations, (ii) reallocation, (iii) search and matching, and (iv) production. VF The solution is characterised by productivity cut-off rules that depend on aggregate productivity: z productivities for job separation, z productivities for reallocations and x productivities for job acceptance. C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 39 / 40

44 Theoretical Framework Theoretical Framework Implications Searching for jobs across occupations is a risky investment: ex-post workers can improve (or not) their z and x. New occupations and jobs in those occupations can be thought as experience goods, while jobs within the worker s current occupation can be thought as inspection goods. Are recessions time to reallocate? The key force is the waiting decisions of workers. This framework can generate three types of unemployment: rest, search and reallocation. C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 40 / 40

45 Appendix Appendix C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 41 / 40

46 Appendix Extent and cyclicality of occupational switching Average occupational switching (2-digit level) is Accounting for measurement error can reduce this number by a third (see Mellow and Sider, 1993, and Lynn and Sala, 2006). The marginal effects when estimating a Probit: (1) (2) Unemp Rate *** Recession *** E U E *** *** Non-white College *** *** < HS *** *** Female * * Age *** *** Significant levels: 0.1%; 1%; 5% See also Kambourov and Manovskii (2008), Moscarini and Vella (2008), Carrillo-Tudela and Visschers (2014), Carrillo-Tudela, Hobjin, She and Visschers (2015), among many others. Back C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 42 / 40

47 Appendix The change in the earnings distribution No EU C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 43 / 40

48 Appendix The change in the earnings distribution No EU This is related to Güvenen, Ozkan, Song (2014). Back C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 44 / 40

49 Appendix The change in the earnings distribution Back C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 45 / 40

50 Appendix The change in the earnings distribution Back C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 46 / 40

51 Appendix Occupational Category Classification Occupational Groups: 2000 SOC - 2 digits Management Food Preparation and Serving Related Business and Financial Operations Building and Grounds Cleaning and Maint. Computer and Mathematical Personal Care and Service Architecture and Engineering Sales and Related Life, Physical, and Social Science Office and Administrative Support Community and Social Services Farming, Fishing, and Forestry Legal Construction and Extraction Education, Training, and Library Installation, Maintenance, and Repair Arts, Design, Entret., Sports, and Media Production Healthcare Practitioners and Technical Transportation and Material Moving Healthcare Support Military Specific Protective Service Back C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 47 / 40

52 Appendix Quantile regression for earnings changes Table : Earnings change quantile regression Dependent variable: Earnings Change OLS Quant Reg 10% 25% 50% 75% 90% Occup Sw (0.01) (0.01) (0.01) (0.003) (0.01) (0.01) Unemp Rate (0.001) (0.003) (0.002) (0.001) (0.002) (0.003) Unep Indic (0.01) (0.02) (0.01) (0.01) (0.01) (0.02) Const (0.02) (0.04) (0.02) (0.01) (0.02) (0.04) Next/Last Occupation Dummies Yes Yes Yes Yes Yes Yes Obs 135, , , , , ,016 Res SE Note: p<0.1; p<0.05; p<0.01 Back C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 48 / 40

53 Appendix Regression results for EE workers Table : Earnings change quantile regression, Job-job Dependent variable: Earnings Change OLS Quant Reg 10% 25% 50% 75% Occup Sw (0.01) (0.01) (0.01) (0.003) (0.01) Unemp Rate (0.002) (0.004) (0.002) (0.001) (0.002) Const (0.02) (0.04) (0.02) (0.01) (0.02) Next/Last Occupation Dummies Yes Yes Yes Yes Yes Obs 111, , , , ,737 Res SE Note: p<0.1; p<0.05 Back C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 49 / 40

54 Appendix Regression results for EUE workers Table : Earnings change quantile regression, through unemp Dependent variable: Earnings Change OLS Quant Reg 10% 25% 50% 75% Occup Sw (0.02) (0.03) (0.02) (0.01) (0.02) Unemp Rate (0.004) (0.01) (0.01) (0.004) (0.004) Const (0.06) (0.11) (0.06) (0.06) (0.08) Next/Last Occupation Dummies Yes Yes Yes Yes Yes Obs 23,279 23,279 23,279 23,279 23,279 Res SE Note: p<0.1; p<0.05; Back C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 50 / 40

55 Plotting the coefficients Appendix C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 51 / 40

56 Appendix Plotting the effect of occupational switching The EE switchers (green) fare slightly worse among gainers and losers, relative to EUE switchers (purple). C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 52 / 40

57 Appendix Plotting the effect of unemployment At high unemployment the EE switchers (green) gain much less, relative to EUE switchers (purple). Back C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 53 / 40

58 Plotting the coefficients Appendix Back C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 54 / 40

59 Theoretical Framework Appendix Unemployed worker z [ { { } W U (p, z) = b + βe p,z max λ(θ(p, z ))E x max W E (p, z, x ), W U (p, z ) + (1 λ(θ(p, z ))W U (p, z )), R U (p )} ], where R U (p) = c + E z W U (p, z) and λ(θ(p, z)) is the job meeting probability. C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 55 / 40

60 Theoretical Framework Employed Workers (z, x) Appendix [ ] W E (p, z, x) = w(p, z, x) + βe p,z max{v E (p, z, x), W U (p, z )}, where V E (p, z, x) denotes the value of staying employed during the period { { } V E (p, z, x) = max λ(θ(p, z, x))e x max W E (p, z, x ), W E (p, z, x) ]} } + (1 λ(θ(p, z, x))w E (p, z, x)), R E (p, z, x) and R E (p, z, x) denotes the net returns to reallocation [ { } R E (p, z, x) = c + E o, z λ(θ(p, z, x))e x max W E (p, z, x ), W E (p, z, x) ] + (1 λ(θ(p, z, x))w E (p, z, x) C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 56 / 40

61 Theoretical Framework Filled Job Appendix W F (p, z, x) = y(p, z, x) w(p, z, x) + βe p,z [ max{v F (p, z, x), W V (p, z )} where V F (p, z, x) denotes the continuation value of the job taking into account that the worker might reallocate of get make an employer to employer transition. Vacant Job W V (p, z) = k + q(θ(p, z))j(p, z) + (1 q(θ(p, z, x h )))V (p, z, x h ), where q(.) denotes firms probability of finding an unemployed worker and J(p, z, x h ) denotes the expected value of a filled job. Free entry implies that V (p, z, x h ) = 0 for all those triples (p, z, x h ) that yield a θ(p, z, x h ) > 0, and V (p, z, x h ) 0 for all those (p, z, x h ) that yield a θ(p, z, x h ) 0. Back C & V & W (Essex, Edinburgh, FRB StL) Wages & Reallocation Preliminary 57 / 40