Economics 248: Labor Economics III

Important information
• Instructor: Isaac Sorkin (sorkin@stanford.edu)

• Course meeting times: Monday and Wednesday: 9:30 - 11:20, in Landau 106

• Office hours: by appointment.

• Date of this version: March 31, 2019

What this course is about

This is the third quarter of a three-quarter sequence in labor economics. The course focuses on
basic facts and frameworks for thinking about labor markets. The goals of the class are to:

• Present a set of facts about labor markets: in particular, about patterns of earnings and
mobility.

• Present a set of models and intuitions that economists have developed to think about labor
markets.

You will not emerge from this course with an answer to the question: how does the labor market
work? But you will have a sense of the often imperfect, incomplete and mutually inconsistent
answers economists have given to this question, the various ways that these core ideas have been
brought to the data, and some of the policy questions where these matter. While imperfect and
incomplete, the various ideas recur again and again when economists set out to answer topical
questions. So having a sense of the landscape will be useful if your work even tangentially touches
on labor markets.
Relationship to labor economics field: This course is complementary to 246 and 247. The
courses are self-contained. There will be some overlap with topics covered by 246 and 247, but they
will covered from a different perspective.

Course requirements and grading

The grade for the course will be based on:

1. Research proposal/term paper (paper): This can be either a continuation of a project from
246/247 or something new. If it is a continuation, then you must show me what you turned
in for 246/247 and get approval that the incremental work is sufficient.
The paper should state a question, have an idea of how to answer it, and take a first stab
at answering it. This could be the “first-pass” regressions of a reduced-form empirical paper,
the “toy” example in a theoretical model, the “calibrated” version of a structural model that
you hope to estimate (though you should show that it is feasible to estimate). It could also
be a replication of a paper that you think is closely related to work that you want to do (this
is a good way to learn some “fancier” techniques, or become familiar with a dataset.)

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 Two pages due Wednesday April 24 before class (I’ll set up meetings on Thursday April
25 to discuss); due: Monday June 10 at 5 pm.
The final draft should be terse (< 10 pages) and polished: table and figure footnotes, proof-
read, etc. Show it to your classmates before showing it to me! It can be empirical or theo-
retical. If it’s theory, you should find a way to make it accessible/interesting to an “applied”
person (such as me). Due date: Monday June 10 at 5 pm.

2. Research proposal/term paper (presentation): On the last day of class (Wednesday June
5 everyone will give a brief presentation on their final project. Given current enrollment, this
will be a 7 minute presentation. You should imagine having 3 slides that highlight: 1) the
question; 2) the idea; 3) some results.

3. Research ideas (authoring I): Each week you will submit a couple (possibly short) paragraphs
about a research idea (loosely) related to the course content. The hope is that this research
idea will be related to whatever is going on in the course—so you should think about this as
a way of thinking about how you can “use” the ideas in the course to turn into research.
The idea is to get you in the habit of being a producer (rather than consumer) of research.
Part of this process is getting in the habit of taking lots of draws from the distribution of your
own ideas. These are not expected to be polished, or even particularly good. Many (all?) of
the ideas in my research idea folder are terrible. The hope is that these ideas have something
“sharp” and “insightful” at the core.
These should consist of 2 to 3 paragraphs which: 1) state the research question; 2) state an
idea for how to answer it; 3) sketch how might go about answering it (i.e., what data, what
regression, what model ingredient, etc.). Points 2 and 3 might be hard to separate. These
are due each Friday by 5 pm. The first one will be due on April 5, and the last one will be
due on May 31 (for a total of 9).

4. Research ideas (authoring II): At the end of the quarter, I want you to pick your favorite
research idea from the quarter and I’ll provide feedback on this idea as well. This selection
will be due on June 5.

5. Research ideas (discussing): Research ideas will be posted in a discussion forum on Canvas.
You will be assigned to one person each week to discuss. Since the assumption is that each
research idea will be pretty bad, simply pointing out that it is bad is not particularly helpful.
The idea is instead to try to be constructive and try to figure out what would be the good
or creative or insightful paper based on this idea. What aspect of the idea do you find most
interesting? If you were writing the paper, what issues do you think you’d want to think
harder about (it’s not enough to say, “data” or “framing,” but say something like data set
X would have this strength, and dataset Y would have that strength)? Are there papers you
know that are related to the idea (though be somewhat specific here)? The idea is that you
would write maybe 4 or 5 sentences. (This is due on the Sundays).

6. Paper summaries: some classes will have a “main” paper. When this happens, I will warn
you. By midnight before each class you should send me an e-mail with a summary. These
paper summaries might be good fodder for the research ideas. The paper summaries should
have the following form:

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 • The first couple sentences should explain what question the paper is asking and the
answer the paper is trying to convince you of. “This paper asks the question [X, Y or
Z]. It wants to convince me that the answer is [is trying to convince me of [X, Y or Z]”
(where X could be some claim about the world, or some claim about the theory).
• The next couple sentences should explain how it goes about it (i.e., what methods it
uses). “To do so, the paper [writes down a model, estimates a regression, collects new
data, etc.]”
• The next couple sentences should explain the key things in what the paper does that
supports what it is trying to do. For example, in an empirical paper, there is typically
one regression (and one coefficient from that regression) that is the main punchline of
the paper, with the rest of the work supporting that result. In a theory paper, there is
typically one key theorem/proposition/intuition that the paper is trying to convey.
• The next few sentences are harder. These should explain what you think you learned
from the paper and why. In an empirical paper, the first-level is asking the question: “do
you believe the main empirical result?” The key thing to do is to explain why. You should
provide specific reason why (especially if the answer is no). I.e., what omitted variable
would bias the regression, and in what way. What “smells funny” about the results?
The second-level is asking: “how did this paper cause me to update my worldview?” (I.e,
even if you believe the regression, it might not change your mind about the question
the answer to the question the paper is about...). In a more theory oriented paper this
is asking: 1) are the results correct; 2) how general or robust are the results? Can you
think of specific things that the model abstracts from that would change the results? (It
is not enough to observe that the model abstracts from things...all models abstract!).

7. Positive referee report: pick an unpublished paper (and one without an R&R) and make the
case that it should be published. 1-2 paragraphs of factual description of what the paper
does and what you learn from it. 1-2 paragraphs of “evaluation”; i.e., what you like/don’t
like about it, and why it is important. Then a sequence of numbered comments either
sorted in order of importance, or else chunked into sections of importance. (Paper pick due
by Wednesday May 1 before class (I have to approve it); and report is due Wednesday
May 15).

8. Coffee: I would like to get to know each of you. By 5 pm on Wednesday April 3rd e-mail
me your availability at 8:45 on M/W and 9 on Tuesday/Thursday/Friday for the quarter. I
will schedule one coffee (or “coffee”) with each of you. We can chat about labor economics
or grad school more generally.

Students with documented disabilities

Students who may need an academic accommodation based on the impact of a disability must
initiate the request with the Office of Accessible Education (OAE). Professional staff will evalu-
ate the request with required documentation, recommend reasonable accommodations, and pre-
pare an Accommodation Letter for faculty dated in the current quarter in which the request is
made. Students should contact the OAE as soon as possible since timely notice is needed to co-
ordinate accommodations. The OAE is located at 563 Salvatierra Walk (phone: 723-1066, URL:
http://studentaffairs.stanford.edu/oae).

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Course outline (preliminary)
1. Some backgrounds facts (1 class)
• Published tabulations of U.S. Census and BLS surveys.

2. Roy/Comparative advantage (≈ 2 classes)

• French, Eric and Christopher Taber. “Identification of Models of the Labor Market.” (2011).
Handbook of Labor Economics.

• Willis, Robert and Sherwin Rosen. “Education and Self-Selection.” (1979). Journal of
Political Economy.

• Kirkeboen, Lars J., Edwin Leuven and Magne Mogstad. “Field of Study, Earnings and Self-
Selection.” (2016). Quarterly Journal of Economics.

3. Human capital (≈ 3 classes)

• Card, David. “Estimating the Return to Schooling: Progress on Some Persistent Econometric
Problems.” (2001). Econometrica.

• Heckman, James J., Lance J. Lochner and Petra Todd. “Earnings Functions, Rates of Re-
turn and Treatment Effects: The Mincer Equation and Beyond.” (2007). Handbook of the
Economics of Education.

• Topel, Robert. “Specific Capital, Mobility and Wages: Wages Rise with Job Seniority.”
(1991). Journal of Political Economy.

• Jacobson, Louis S., Robert J. LaLonde and Daniel G. Sullivan. “Earnings Losses of Displaced
Workers.” (1993). American Economic Review.

• Neal, Derek. “Industry-Specific Human Capital: Evidence from Displaced Workers.” (1995).
Journal of Labor Economics.

• Kambourov, Gueorgui and Iourri Manovskii. “Occupational Specificity of Human Capital.”

(2009). International Economic Review.

• Gathmann, Christina and Uta Schonberg. “How General Is Human Capital? A Task-Based
Approach.” (2010). Journal of Labor Economics.

• Artuc, Erhan, Shubham Chaudhuri, and John McLaren. “Trade Shocks and Labor Adjust-
ment: A Structural Empirical Approach.” (2010). American Economic Review.

• Dix-Carneiro, Rafael. “Trade Liberalization and Labor Market Dynamics.” (2014). Econo-
metrica.

• Traiberman, Sharon. “Occupations and Import Competition: Evidence from Denmark.”

(2017). R&R American Economic Review.

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4. Searching (≈ 2.5 classes)
• Burdett, Kenneth and Dale T. Mortensen. “Wage Differentials, Employer Size, and Unem-
ployment.” (1998). International Economic Review.

• Postel-Vinay, Fabien and Jean-Marc Robin. “The Distribution of Earnings in an Equilib-

rium Search Model with State-Dependent Offers and Counteroffers.” (2002). International
Economic Review.

• Hall, Robert E. and Alan B. Krueger. “Evidence on the Incidence of Wage Posting, Wage
Bargaining, and On-the-Job Search.” (2012). American Economic Journal: Macroeconomics.

• Hornstein, Andreas and Per Krusell and Giovanni Violante. “Frictional Wage Dispersion in
Search Models: A Quantitative Assessment.” (2011). American Economic Review.

• Crepon, Bruno, Esther Duflo, Marc Gurgand, Roland Rathelot and Philippe Zamora. “Do
Labor Market Policies have Displacement Effects? Evidence from a Clustered Randomized
Experiment.” (2013). Quarterly Journal of Economics.

• Sahin, Aysegul, Joseph Song, Giorgio Topa and Giovanni Violante. “Mismatch unemploy-
ment.” (2014). American Economic Review.

5. Sorting (≈ 2 classes)
• Kremer, Michael and Eric Maskin. “Wage Inequality and Segregation by Skill.” (1996).
Working Paper.

• Card, David, Joerg Heining and Patrick Kline. “Workplace Heterogeneity and the Rise of
West German Wage Inequality.” (2013). Quarterly Journal of Economics.

• Eeckhout, Jan and Philipp Kircher. “Identifying Sorting—In Theory.” (2011). Review of
Economic Studies.

• Gibbons, Robert, Lawrence F. Katz, Thomas Lemieux and Daniel Parent. “Comparative Ad-
vantage, Learning, and Sectoral Wage Determination.” (2005). Journal of Labor Economics.

• Some econometrics of AKM, TBD.

6. Learning (≈ 3 classes)
• Jovanovic, Boyan. “Job Matching and the Theory of Turnover.” (1979). Journal of Political
Economy.

• Farber, Henry and Robert Gibbons. “Learning and Wage Dynamics.” (1996). Quarterly
Journal of Economics.

• Neal, Derek. “The Complexity of Job Mobility among Young Men.” (1999). Journal of Labor
Economics.

• Tervio, Marko. “Superstars and Mediocrities: Market Failure in the Discovery of Talent.”
(2009). Review of Economic Studies.

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 • Pallais, Amanda. “Inefficient Hiring in Entry-level Labor Markes.” (2014). American Eco-
nomic Review.

• Fredriksson, Peter, Lena Hensvik and Oskar Nordstrom Skans. “Mismatch of Talent: Evi-
dence on Match Quality: Entry Wages, and Job Mobility.” (Forthcoming). American Eco-
nomic Review.

• Kahn, Lisa and Fabian Lange. “Employer Learning, Productivity, and the Earnings Distri-
bution: Evidence from Performance Measures.” (2014). Review of Economic Studies.

7. Equalizing differences/compensating differentials (≈ 2 classes)

• Rosen, Sherwin. “The Theory of Equalizing Differences.” (1986). Handbook of Labor Eco-
nomics.

• Brown, Charles. “Equalizing Differences in the Labor Market.” (1980). Quarterly Journal of
Economics.

• Piece, Brooks. “Compensation Inequality” (2001). Quarterly Journal of Economics.

• Stern, Scott. “Do Scientists Pay to Be Scientists?” (2004). Management Science.

• Sorkin, Isaac. “Ranking Firms Using Revealed Preference.” (2018). Quarterly Journal of
Economics.

8. Discrimination (≈ 1.5 class)

• Charles, Kerwin Kofi and Jonathan Guryan. “Prejudice and Wages: An Empirical Assess-
ment of Becker’s The Economics of Discrimination.” (2008). Journal of Political Economy.

• Altonji, Joseph G. and Charles R. Pierret. “Employer Learning and Statistical Discrimina-
tion.” (2001). Quarterly Journal of Economics.

• Bohrenn, J. Aislinn, Alex Imas and Michael Rosenberg. “Dynamics of Discrimination.”

(2017). R&R American Economic Review.

• Glover, Dylan, Amanda Pallais and William Pariente. “Discrimination as a Self-Fulfilling

Prophecy: Evidence from French Grocery Stores.” (2017). Quarterly Journal of Economics.