Job mobility is risky, workers are risk averse, and insurance markets are incomplete. This paper studies how these features curb and distort job-to-job transitions by making workers excessively cautious, placing too much weight on job safety over wage and productivity gains. We demonstrate this tradeoff by eliciting employed workers' wage-safety indifference curves in a custom, representative survey. On average, employed U.S. workers require a 1.63 percent pay raise to accept each additional percentage point of annual unemployment risk in a new job. We assess the macroeconomic consequences of our mechanism by embedding it into a general equilibrium search model. Jobs differ in both wages (productivity) and unemployment risk, and risk-averse workers self-insure against unemployment risk through a non-state-contingent bond while searching on and off the job. We find that a complete markets counterfactual would boost job mobility by 12 percent and productivity by 0.19 percent. We also highlight a new role for unemployment insurance-encouraging employed workers to accept risky but highproductivity offers, thereby increasing productivity (by 1.3 percent) and job creation, as well as job loss and unemployment.

We revisit the employer size wage effect (ESWE)—arguably the most basic and influential departure from the law of one price for labor. Our main result is that this canonical fact disappears completely across establishments within the same firm, even though they operate in different local labor markets. We uncover and dissect this fact by including a firm fixed effect in otherwise standard cross-sectional regressions of wages on establishment size. We implement this demanding specification in population-wide triple-linked firm-establishment-employee data in Germany. This result is new in the ESWE literature (for which our paper also provides the first systematic meta-analysis). This wage-size decoupling is hard to square with the view that employment is determined along a finitely elastic employer-specific labor supply curve—i.e., employers pay exactly the minimum needed for the quantity of labor, but no more—the foundation of the monopsony view. By contrast, large multi-establishment firms (MEF) appear to hire off their labor supply curves (or those curves are very elastic), pay wage premia above the monopsonistic minimum, and leave excess labor supply. We find some evidence for a reemergence of the ESWE within low-premium MEFs. Overall, at least for the 25% of German employment in large firms for which the ESWE disappears, wage setting and employment determination may be better accounted for by alternative models, namely accommodating above-market-clearing wage premia and rationing of labor supply, such as efficiency wage theories. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

This paper explores a repositioning of Europe’s labor market institutions as potential drivers of the transatlantic gap in macroeconomic performance. Institutional diagnoses were prominent in times of high European unemployment in the 1980-90s. But interest waned as joblessness fell—even though the decline was uneven, precarious work arrangements have grown, and labor markets remain largely unreformed (unlike product and financial markets). Yet, rigid labor market institutions might continue to matter because they can stifle labor market and business dynamism: Europeans switch jobs much less frequently, and restructuring is much rarer. Recent research argues that such immobility impedes wage and productivity growth. Moreover, this low dynamism might contribute to Europe’s specific underperformance in tech, R&D, disruptive innovation, ICT adoption—where creative destruction requires fluid reallocation. This institutional labor market perspective on European competitiveness complements prevailing diagnoses focused on capital and product market fragmentation. Tight labor markets, lower unemployment, and shrinking labor supply might keep this nexus timely. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

We estimate the effects of worker voice on job quality and separations. We leverage the 1991 introduction of worker representation on boards of Finnish firms with at least 150 employees. In contrast to exit-voice theory, our difference-in-differences design reveals no effects on voluntary job separations, and at most small positive effects on other measures of job quality (job security, health, subjective job quality, and wages). Worker voice slightly raised firm survival, productivity, and capital intensity. A 2008 introduction of shop-floor representation had similarly limited effects. Interviews and surveys indicate that worker representation facilitates information sharing rather than boosting labor's power.

Why do cities differ so much in productivity? A long literature has sought out systematic sources, such as inherent productivity advantages, market access, agglomeration forces, or sorting. We document that up to three quarters of the measured regional productivity dispersion is spurious, reflecting the “luck of the draw” of finite counts of idiosyncratically heterogeneous plants that happen to operate in a given location. The patterns are even more pronounced for new plants, hold for alternative productivity measures, and broadly extend to European countries. This large role for individual plants suggests a smaller role for places in driving regional differences.

Standard labor market models assume that workers hold accurate beliefs about the external wage distribution, and hence their outside options with other employers.We test this assumption by comparing German workers' beliefs about outside options with objective benchmarks.First, we find that workers wrongly anchor their beliefs about outside options on their current wage: workers that would experience a 10%wage change if switching to their outside option only expect a 1% change.Second, workers in low-paying firms underestimate wages elsewhere.Third, in response to information about the wages of similar workers, respondents correct their beliefs about their outside options and change their job search and wage negotiation intentions.Finally, we analyze the consequences of anchoring in a simple equilibrium model.In the model, anchored beliefs keep overly pessimistic workers stuck in low-wage jobs, which gives rise to monopsony power and labor market segmentation.

We propose a theory of unemployment fluctuations in which new hires and incumbent workers are imperfect substitutes. Hence, attempts to hire away the unemployed during recessions diminish the marginal product of new hires, discouraging job creation. This single feature achieves a tenfold increase in the volatility of hiring in an otherwise standard search model, produces a realistic Beveridge curve despite countercyclical separations, and explains 30–40 percent of US unemployment fluctuations. Additionally, it explains the excess procyclicality of new hires’ wages, the cyclical labor wedge, countercyclical earnings losses from job displacement, and the limited steady-state effects of unemployment insurance. (JEL E24, E32, J22, J23, J31, J63)

We measure extensive-margin labor supply (employment) preferences in two representative surveys of the U.S. and German populations. We elicit reservation raises: the percent wage change that renders a given individual indifferent between employment and nonemployment. It is equal to her reservation wage divided by her actual, or potential, wage. The reservation raise distribution is the nonparametric aggregate labor supply curve. Locally, the curve exhibits large short-run elasticities above 3, consistent with business cycle evidence. For larger upward shifts, arc elasticities shrink towards 0.5, consistent with quasi-experimental evidence from tax holidays. Existing models fail to match this nonconstant, asymmetric curve.

We estimate how much firms differentiate pay premia between regular and outsourced workers in temp agency work arrangements. We leverage unique Argentinian administrative data that feature links between user firms (the workplaces where temp workers perform their labor) and temp agencies (their formal employers). We estimate that a high-wage user firm that pays a regular worker a 10% premium pays a temp worker on average only a 4.9% premium, compared to what these workers would earn in a low-wage user firm in their respective work arrangements. This 49% pass-through constitutes the midpoint between the benchmarks for insiders (one) and the competitive spot-labor market (zero).

We study the role of employment protection legislation (EPL) in boosting employment among older workers. Our analysis juxtaposes the quantitative employment gains with the qualitative “deadwood labor” problem that such gains entail. We do so by conducting a comprehensive analysis of the sharp and complete elimination of EPL that occurs at age 67 in Sweden, as well as reform-driven shifts in this age cutoff. First, focusing on direct separation effects, we find that 8% of jobs separate in response to the elimination of EPL. Effects stem from jobs with stronger initial EPL (long-tenure, firms subject to “last in, first out” rules), and those in the public sector. Separations appear involuntary to workers, with firms targeting plausibly unproductive (sick) workers. Second, we focus on effects of continuing jobs. While wages appear rigid to EPL, we uncover novel, sizable intensive-margin hours reductions among continuing jobs, and an 8% drop in earnings conditional on staying on the job. Third, we estimate total equilibrium effects at the cohort level, where separations fully pass through into employment to population rate effects, with no offsetting effect from hiring. On a per-capita basis, total earnings of older workers causally drop by 21.5% due to EPL elimination. We validate these local effects by leveraging a reform-driven shift in the age cutoff from 67 to 68.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

We present a sharp test for the efficiency of job separations. First, we document a dramatic increase in the separation rate – 11.2ppt (28%) over five years – in response to a quasi-experimental extension of UI benefit duration for older workers. Second, after the abolition of the policy, the "job survivors" in the formerly treated group exhibit exactly the same separation behavior as the control group. Juxtaposed, these facts reject the "Coasean" prediction of efficient separations, whereby the UI extensions should have extracted marginal (low-surplus) jobs and thereby rendered the remaining (high-surplus) jobs more resilient after its abolition. Third, we show that a formal model of predicted efficient separations implies a piece-wise linear function of the actual control group separations beyond the missing mass of marginal matches. A structural estimation reveals point estimates of the share of efficient separations below 4%, with confidence intervals rejecting shares above 13%. Fourth, to characterize the marginal jobs in the data, we extend complier analysis to difference-in-difference settings such as ours. The UI-indiced separators stemmed from declining firms, blue-collar jobs, with a high share of sick older workers, and firms more likely to have works councils – while their wages were similar to program survivors. The evidence is consistent with a "non-Coasean" framework building on wage frictions preventing efficient bargaining, and with formal or informal institutional constraints on selective separations.

We give an overview of the “German model” of industrial relations. We organize our review by focusing on the two pillars of the model: sectoral collective bargaining and firm-level codetermination. Relative to the United States, Germany outsources collective bargaining to the sectoral level, resulting in higher coverage and the avoidance of firm-level distributional conflict. Relative to other European countries, Germany makes it easy for employers to avoid coverage or use flexibility provisions to deviate downwards from collective agreements. The greater flexibility of the German system may reduce unemployment, but may also erode bargaining coverage and increase inequality. Meanwhile, firm-level codetermination through worker board representation and works councils creates cooperative dialogue between employers and workers. Board representation has few direct impacts owing to worker representatives’ minority vote share, but works councils, which hold a range of substantive powers, may be more impactful. Overall, the German model highlights tensions between efficiency-enhancing flexibility and equity-enhancing collective action.

How does codetermination—entitling workers to participate in firm governance, either through membership on company boards or the formation of works councils—affect worker welfare and corporate decision-making? We critically discuss the history and contemporary operation of European codetermination arrangements and review empirical evidence on their effects on firms and workers. Our review suggests that these arrangements are unlikely to significantly shift power in the workplace, but may mildly improve worker welfare and firm performance, in part by boosting information-sharing and cooperation and in part by slightly increasing worker influence.

The authors provide a comprehensive overview of codetermination, that is, worker representation in firms’ governance and management. The available micro evidence points to zero or small positive effects of codetermination on worker and firm outcomes and leaves room for moderate positive effects on productivity, wages, and job stability. The authors also present new country-level, general-equilibrium event studies of codetermination reforms between the 1960s and 2010s, finding no effects on aggregate economic outcomes or the quality of industrial relations. They offer three explanations for the institution’s limited impact. First, existing codetermination laws convey little authority to workers. Second, countries with codetermination laws have high baseline levels of informal worker voice. Third, codetermination laws may interact with other labor market institutions, such as union representation and collective bargaining. The article closes with a discussion of the implications for recent codetermination proposals in the United States.

We thank Nelson Mesker for excellent research assistance and Tommy O’Donnell for help with the draft. We thank the editor Lawrence Kahn, two referees, Elizabeth Anderson, David Autor, Gabriel Burdín, Markus Helfen, Andrew Linden, Ewan McGaughey, Steffen Müller, Robert Scholz, and Alan Yan for helpful comments. We thank Sjaak van der Velden for sharing compiled and digitized versions of the ILO data with us. Jäger thanks the MIT Policy Lab for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.