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Matching under Inequality: Implications for Policy

Paper Session

Saturday, Jan. 4, 2020 8:00 AM - 10:00 AM (PDT)

Marriott Marquis, Grand Ballroom 4
Hosted By: American Economic Association
  • Chair: Scott Duke Kominers, Harvard Business School

Trade and Inequality across Local Labor Markets: The Margins of Adjustment

Ryan Kim
,
Johns Hopkins University
Jonathan Vogel
,
University of California-Los Angeles

Abstract

Empirical research has documented the importance of non-wage margins of adjustment in the response of local labor markets to trade shocks. To formalize this observation empirically, we decompose the differential impact of a trade shock across U.S. local labor markets (by labor group) on per capita labor income into wage, hours worked per employee, unemployment, and labor force participation margins of adjustment. Our results highlight the importance of heterogeneous treatment effects and quantify the relative importance of non-wage margins of adjustment. To understand the economic mechanisms generating observed effects of trade on regional inequality, we provide a unifying trade framework (featuring frictional unemployment and a labor/leisure tradeoff) and comparative static results across local labor markets by labor group and margin of adjustment. Our theory highlights the importance of heterogeneity in the elasticity of labor supply and the elasticity of matches to vacancies for understanding heterogeneous effects identified in empirical research. We recover these for each labor group by combining our empirical and theoretical results and show that our estimates are broadly in line with vast literatures in labor, public finance, and macroeconomics; where results differ, we suggest a path forward.

Redistribution in Matching Markets

Mohammad Akbarpour
,
Stanford University
Piotr Dworczak
,
Northwestern University
Scott Duke Kominers
,
Harvard Business School

Abstract

We consider policy design for matching markets with inequality. We use mechanism design to identify the optimal trade-off between efficiency and redistribution, uncovering how the structure of agents' preferences over partners affects the scope for aggregate welfare improvement. When participation costs are correlated with match values, a form of assortative matching mediated by rationing is optimal. Wealthier buyers often contribute to subsidies that help poorer buyers buy goods from poorer sellers. Our theory has implications for optimal college aid policies, as well as subsidy schemes in service marketplaces like rideshare.

Matching and Wealth (Effects)

Ravi Jagadeesan
,
Harvard Business School
Alexander Teytelboym
,
University of Oxford

Abstract

This paper develops and studies matching models with continuous transfers in which utility is imperfectly transferable between agents due to wealth effects. We provide sufficient conditions for the existence of competitive equilibria—and of stable matchings—that allow for gross complementarities between interactions. We also study how wealth effects change cooperative foundations for competitive equilibrium.
JEL Classifications
  • D4 - Market Structure, Pricing, and Design
  • H0 - General