Zentler-Munro, David; (2019) Essays on frictional labour markets in the presence of capital skill complementarity. Doctoral thesis (Ph.D), UCL (University College London).

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Abstract

The first paper of this thesis considers the impact of minimum wages when search frictions are present and firms can substitute away from low skilled workers to both higher skilled workers and to capital. This represents a contribution to the search literature, which typically assumes labour is the only input of production and perfect substitution between labour inputs. I examine whether the model I develop features significant nonlinearities in the impact of the minimum wage on unemployment. I find that the theoretical contribution of this paper, i.e. allowing for search frictions and imperfect substitutability of factor inputs, is quantitatively significant. Specifically, the nonlinear unemployment response in my model does not occur if I use the typical assumptions of the search literature. In my second paper, I develop a structural model that can help to quantify the relative importance of institutions, labour market frictions and technology in explaining wage inequality. This contribution is a complement to the empirical literature on wage inequality, which tends to emphasise either technological explanations or institutional ones but rarely considers the two jointly. I take my model to the data to test whether estimates of capital skill complementarity in \citet{krusellohanianriosrull} are robust to the inclusion of search frictions. I find this is indeed the case: parameter estimates change very little when allowing for search frictions. My final paper returns to the minimum wage model of my first paper and considers how allowing for asset accumulation by workers changes the model's predictions regarding the relationship between the minimum wage and consumption inequality. I find that allowing for asset accumulation by workers suggests the minimum wage is more successful at reducing consumption inequality than models without asset accumulation would indicate.

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