31E00700

Labor Economics
Fall 2012

Lecturers
Tuomas Pekkarinen
Matti Sarvimäki

This course provides an overview of the modern microeconomic approaches that economists use to
analyze the labor markets. We will emphasize the interplay between theory and empirics and cover
topics such as welfare programs, immigration, minimum wage laws, technological change,
education and training, inequality, and discrimination.

Course prerequisites
You should be comfortable with intermediate microeconomics using calculus and with basic
concepts covered in Empirical Methods for Economists (31C01200). If you have already taken
Applied Microeconometrics (31E00900), you will see many familiar empirical approaches in
action. Skills learned in that or a similar course will also benefit you in the empirical exercises
where you will use statistical software such as Stata or R. However, as 31E00900 is not a formal
prerequisite of the course, we will also review the empirical methods in class and provide handouts
that help you get started with Stata.

Grading
There will be three graded problem sets and a final exam. Each problem set counts for 10 points and
the final for 70 points.

Required Text and Readings

1. Articles in the reading list
2. Borjas, George J., Labor Economics, 5th edition, McGraw-Hill, 2009.

We will also cover articles outside of the reading list that you are expected to learn to the extent
discussed in the lecture handouts. All material will be posted to the Course Web Page at

https://noppa.aalto.fi/noppa/kurssi/31E00700/
READING LIST

Introduction; Basics of Static Labor Supply

Borjas (chapters 1 and 2)
Imbens, Guido W., Donald B. Rubin, Bruce Sacerdote (2001): “Estimating the Effect of Unearned
Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery
Players,” American Economic Review 91: 778-94

Static Labor Supply: Welfare Programs

Borjas (chapter 2)
Eissa, Nada, and Jeffery B. Liebman (1996); “Labor Supply Response to the Earned Income Tax
Credit,” Quarterly Journal of Economics, 111: 605-37.

Intertemporal Labor Supply

Borjas (chapter 2)
Fehr, Ernst and Lorenz Goette (2007): “Do Workers Work More if Wages Are High? Evidence
from a Randomized Field Experiment,” American Economic Review 97(1): 298-317

Labor Demand: Work-Sharing

Borjas (chapter 4)
Hunt, Jennifer (1999): “Has Work-Sharing Worked In Germany?” Quarterly Journal of Economics
114(1): 117-148

Labor Market Equilibrium: Immigration

Borjas (chapter 5)
Friedberg, Rachel M. (2001): "The Impact of Mass Migration on the Israeli Labor Market,"
Quarterly Journal of Economics 116(4): 1373–1408.

Labor Market Equilibrium: Minimum Wages

Borjas (chapters 3-10 and 4-9)
Card, David and Alan B. Krueger (1994): Minimum Wages and Employment: A Case Study of the
Fast-Food Industry in New Jersey and Pennsylvania, American Economic Review 84(4): 772-793.
Bhaskar, V., Alan Manning and Ted To (2002): “Oligopsony and Monopsonistic Competition in
Labor Markets,” The Journal of Economic Perspectives 16(2): 155-174

Labor Market Equilibrium: Technological Change

Autor, David and David Dorn (forthcoming): The Growth of Low-Skill Service Jobs and the
Polarization of the U.S. Labor Market. American Economic Review
Human Capital
Borjas (chapter 7)
Card, D. (2001): Estimating the returns to schooling: Progress on some persistent econometric
problems, Econometrica, 69, 1127-60.
Angrist, J. D. and A. B. Krueger: “Does compulsory school attendance affect schooling and
earnings?” Quarterly Journal of Economics, 106 (November 1991), 979-1014.

Job Market Signalling

Borjas (chapter 7)

School Quality
Borjas (chapter 8)
Lazear, E.P. (2001): Educational production, Quarterly Journal of Economics, 116, 681-704.
Krueger, A.B. (1999): Experimental estimates of education production function, Quarterly Journal
of Economics, 114, 497-532.
Angrist, J. and V.Lavy, (1999): Using Maimonides’ rule to estimate the effect of class size on
scholastic achievement, Quarterly Journal of Economics, 114, 533-575.

On-the-job training
Borjas (chapter 8)
Acemoglu, D. and J-S. Pischke, (1999): “Beyond Becker: Training in Imperfect Labour Markets”,
Economic Journal, 109, 112-142.
Prendergast, C., (1993): “The Role of Promotion in Inducing Specific Human Capital Acquisition”,
Quarterly Journal of Economics, 523-534.
Jacobson, L.S, R.J. LaLonde, and D.G. Sullivan, (1993): “Earnings Losses of Displaced Workers”,
American Economic Review, 687-709.

Intergenerational Mobility
Borjas (chapter 7)
Solon, G. (2004): “A model of intergenerational mobility variation over time and place” in M.
Corak (ed): Generational Income Mobility in North America and Europe, Cambridge, Cambridge
University Press.

Labor Mobility
Borjas (chapter 8)
Borjas, George J., “Self-Selection and the Earnings of Immigrants,” American Economic Review,
Volume 77, September 1987, pp531-553.

Discrimination
Borjas (chapter 9)
Neal, D. A. and W.R. Johnson (1996): The role of premarket factors in black-white wage
differences, The Journal of Political Economy, 104, 869-895
Bertrand, M. and S. Mullainathan (2004): Are Emily and Greg more employable than Lakisha and
Jamal? A field experiment on labor market discrimination, American Economic Review, 94, 991-
1013.
Goldin, C. and C. Rouse (2000): Orchestrating impartiality: The impact of "blind" auditions on
female musicians, American Economic Review, 90, 715-741.

COURSE SCHEDULE
Please note that the dates on which material will be covered are approximate. Topics may take more
or less time than we anticipate, and we may decide to change the order in which we address various
topics. Exams will cover material that has been covered in the actual lectures regardless of whether
we are ahead of or behind the projected schedule.

Lectures
Sarvimäki  10/30  Introduction; Basics of Static Labor Supply 
11/1  Static Labor Supply: Welfare Programs 
11/6  Intertemporal Labor Supply 
11/8  Labor Demand 
11/13  Labor Market Equilibrium: Immigration 
11/15  Labor Market Equilibrium: Minimum Wages 
   11/20  Labor Market Equilibrium: Technological Change 
Pekkarinen  11/22  Human capital & Signaling 
11/27  School Quality 
11/29  On The Job Training 
12/4  Turnover/Matching 
12/6  The Wage Structure 
12/11  Labor Market Discrimination 
12/13  Gender discrimination 

Exercises
TBA

Final Exam
Wed 09 Jan 13 09:00-13:00

Retake
Thu 07 Mar 13 14:00-18:00
Fri 24 May 13 14:00-18:00