Outside Options in the Labour Market

Sydnee Caldwell and Oren Danieli

The Review of Economic Studies, 2024, vol. 91, issue 6, 3286-3315

Abstract: This paper develops a method to estimate workers’ outside employment opportunities. We outline a matching model with two-sided heterogeneity, from which we derive a sufficient statistic, the “outside options index” (OOI), for the effect of outside options on earnings, holding worker productivity constant. The OOI uses the cross-sectional concentration of similar workers across job types to quantify workers’ outside options as a function of workers’ commuting costs, preferences, and skills. Using German micro-data, we find that differences in options explain 20% of the gender earnings gap, and that gender gaps in options are mostly due to differences in the implicit costs of commuting and moving.

Keywords: Monopsony; Outside options; Wages (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:91:y:2024:i:6:p:3286-3315.

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