Sebastian Buhai’s Research in Economics

Research Profile

I am primarily a Labor Economist and Microeconometrician, with further, eclectic interests in themes, as well as in theoretical and/ or empirical modeling tools, typical of (Applied) Microeconomics, (Empirical) Industrial Organization, Game Theory, and Social Networks. Thematically, most of my research to date has studied labor or industrial market-type questions revolving around, inter alia: human capital accumulation and dynamics of worker careers; bargaining, rent-sharing, and wage formation; persistent wage and employment inequality; incentive pay schemes; firm performance, investment in (in)tangibles, and employee outcomes. Methodologically, my research expertise is particularly developed in relation to: noncooperative game theory, real option theory, and search & matching theoryespecially applied in labor contexts; respectively, theoretical and applied dimensions of cross-sectional and panel-data econometrics. You may also want to check out my ORCID, ResearcherID, IDEAS.RePEc, or Scholar.Google profiles, but keep in mind that those are less clear/ complete/ correct than this webpage in terms of listing/ organizing my research production; as for automatic citation retrieval, Scholar.Google outperforms the alternatives—though it still underestimates my citation counts.

Research Output

Publications (peer-reviewed)

Returns to Tenure or Seniority? (with Miguel Portela, Coen Teulings and Aico van Vuuren), March 2014, Econometrica, 82 (2), pages 705–730, DOI: 10.3982/ECTA8688 . See also the corresponding Web Appendix or the old July 2009 version (includes theory framework).
Synopsis. This paper makes original contributions to the wage setting and internal labor markets literatures, conceptually and methodologically. We show that a worker’s tenure relative to her co-workers determines both her layoff probability and her wage, apart from other worker or firm (un)observables. We prove identification of this “seniority” effect in flexible duration and wage regression models, then estimate it on longitudinal LEED from Denmark and Portugal.
Keywords: wage dynamics, tenure, seniority, Last-In-First-Out
J31, J41, J63

Tenure Profiles and Efficient Separation in a Stochastic Productivity Model (with Coen Teulings), May 2014, Journal of Business and Economic Statistics, 32:2, pages 245-258, DOI:10.1080/07350015.2013.866568 . See also the corresponding Web Appendix or the accepted, non-gated, November 2013 version. Trivia: The paper has earlier had a 2nd R&R at the Review of Economic Studies (with a change of the editor-in-charge for the 2nd resubmission).
Synopsis. This paper makes a critical methodological contribution with substantive implications in the wage dynamics literature. We use real option theory to model the stochastic evolution of worker-firm productivity matches, given job specific investments and efficient separations. We identify the model’s structural parameters from individual job durations & wages, and estimate them on US panel data, informing the incessant debate on wage returns to tenure.
Keywords: random productivity growth, efficient bargaining, job tenure, inverse gaussian, wage-tenure profiles, option theory

JEL-codes: C33, C41, J31, J63

How Productive is Workplace Health and Safety? (with Elena Cottini and Niels Westergaard-Nielsen), forthcoming at the Scandinavian Journal of Economics (accepted in December 2015), DOI:10.1111/sjoe.12184. See also the corresponding Online Appendix. Trivia: Earlier working paper versions of this article were entitled “The Impact of Workplace Conditions on Firm Performance”.
Synopsis. This paper makes a novel empirical contribution to both literatures on work environment and determinants of firm productivity, extending earlier methodology in this process. We study the causal effect of workplace health & safety indicators on total factor productivity, estimating augmented production functions that account for simultaneity and unobservable inputs; we use unique data, merging panel LEED to cross-sectional surveys on workplace conditions.
Keywords: occupational health and safety, work environment, firm performance, production function estimation
JEL codes: C33, C36, D24, J28, L23

Downloadable working papers

A Social Network Analysis of Occupational Segregation (with Marco van der Leij); current stage: in revision, new version coming soon.
Synopsis. This paper contributes to the literature on persistent employment and wage inequality with a novel applied theory framework. We model occupational segregation between races or genders when referrals matter for jobs and there is positive group-homophily, then we calibrate and simulate this model in a social-welfare analysis. We show that the game-theoretical equilibria, and both the 1st and 2nd-best utilitarian optimal welfare policies entail partial segregation.
Keywords: Social Networks, Homophily, Occupational Segregation, Labor Market Inequality, Social Welfare
JEL codes: J24, J31, J70, Z13

Firm downsizing, public policy, and the age structure of employment adjustments (with Hans-Martin von Gaudecker); current stage: in revision.
Synopsis. This paper combines thematically the labor demand and early retirement literatures, by means of ingenuous theoretical and empirical frameworks. We show theoretically and check empirically that distressed firms will dismiss with predilection their low-skilled employees eligible to retire early, given existing publicly-financed retirement schemes. We devise empirical strategies at individual exit & aggregate worker outflow level, on Danish LEED covering the entire set of mass layoff events over 2 decades, accounting for a number of reforms to the early pension system.
Keywords: early retirement, labour demand, employment adjustment, mass layoffs, LEED
JEL-codes: H32, H55, J26, J65

Work in Progress (plus some temporarily abandoned projects)

  • Job Hazard Premia and Worker Risk Preferences (with Elena Cottini); stage: presentation mode; public draft available soon.

(Tentative) Abstract. We provide a fresh analysis of the theory of compensating wage differentials (CWD) using rich data on self-reported work environment conditions and worker risk attitudes, from a representative 5-wave (1990-2010, 5-year spaced) panel survey of workers, which we link to the Danish register, longitudinal, yearly, matched employer-employee data. Our study improves and extends previous CWD empirical analysis in several ways: a) in standard hedonic wage equations, we control for both individual and firm-specific time-invariant unobserved heterogeneity; we also report spell-first-difference estimates where workers report changes in work conditions within the same job spell; b) we account for worker heterogeneity in attitudes towards health/ safety risks, from information on workers’ smoking habits and their being parents of young children; c) we compare results in a) and b) with alternatives obtained by estimating the workers marginal willingness to pay for job amenities from job separation hazards. For a), we find that the work environment conditions compensated for by hourly wage premia, in the order of 4-6%, are related to flexibility in the working time (“shift premia”), namely “working in irregular shifts”, “working in the evening” and “working at night”. If we account for the selection of workers in hazardous jobs based on observed risk proxies and time-invariant unobservables, we find negative selection of risk-lovers into shift-jobs, with sizable hourly wage premia of 18-26%, while positive or no selection, and no compensation, in other types of hazard work. Finally, shift-jobs CWD estimates based on the worker’s employment history have magnitudes in between those at a) and b). We rationalize our results via a parsimonious model of job hazard premia and worker risk profiles.

  • Performance Pay, Wage Dispersion, and Job Separation (with Miguel Portela); stage: presentation mode; public draft available soon.

(Tentative) Abstract. We investigate the effects of performance pay (PP) on individual wage growth, within and between-firm earnings inequality, and worker-firm separation, using exhaustive Portuguese linked employer-employee longitudinal data for 1986-2007. This is the first economy-wide study in the incentive compensation literature attempting to account for the endogenous compensation policy of firms and for endogenous selection of workers across PP and non-PP firms. In our empirical analysis we are able to control for both unobserved worker and unobserved firm specific heterogeneity, and to proxy for the firm’s costs of switching across PP and non-PP regimes. Inter alia, emphasis is placed on the determinants, effects, and dynamics of managerial incentive pay and turnover. We rationalize our findings by means of an extended Lemieux, MacLeod and Parent (2009, QJE) model.

  • Worker-Firm Dynamics with Seniority Bargaining (with Coen Teulings and Miguel Portela); stage: presentation mode; public draft available soon.

(Tentative) Abstract. We provide microfoundations for worker seniority (a worker’s tenure relative to the tenure of all her co-workers at the firm) as natural bargaining device in large firms with stochastic product demand and irreversible firm-specific investments required for each newly hired worker. The firm and its workers simultaneously bargain for layoff order and wage schedule, whereupon infra-marginal senior workers get wage premia and layoff insurance. Buhai et al (2014, ECTA) have already shown empirically that wages increase and job exit hazard decreases with seniority, on exhaustive linked-employer-employee-data from Denmark and Portugal. Using the same data, and econometric methodology adapted from both Buhai and Teulings (2014, JBES) and Buhai et al (2014, ECTA), we argue that the seniority profile in wages is a proxy for the return to the extent of worker-firm specific investments.

  • Employee Wage, Employer Size and Stochastic Labour Demand; stage: presentation mode
  • A Real Options Theory of Labor Turnover
  • Business Cycles and the Age Structure of Labour Adjustments. Structural Framework and Empirical Assessment (with Hans-Martin von Gaudecker)
  • Disentangling Labor Adjustment Costs (with Miguel Portela)
  • Recovering wage offer and employee productivity distributions in search models: an empirical investigation using Danish data (with Jesper Bagger)
  • Estimation of an Equilibrium Model of Firm Dynamics (with Julien Prat)
  • On Labour Market Transitions under Efficient Bargaining and Idiosyncratic Productivity Shocks (with Dimitris Pavlopoulos)
  • Structural Estimation of a Two-Sided Matching Employer-Employee Model (with Daniele Condorelli)
  • Peer Group Effects and College Choice (with Marisa Hidalgo Hidalgo)
  • Experimental Evidence on Fairness among Workers (with Jens Grosser)

Published Dissertations & Scientific Reports

Essays on Labour Markets: Worker-Firm Dynamics, Occupational Segregation and Workplace Conditions (digital version accessible via the EUR online repository), PhD Thesis 2008, Erasmus University Rotterdam/ Tinbergen Institute, published as book by Thela Thesis -Academic Publishing Services, in the Tinbergen Institute Research Series (no. 431), Amsterdam, The Netherlands; November 2008

Wages, Seniority and Separation Rates in a Stochastic Productivity Model: A Comparative Perspective, MPhil Thesis 2003, Tinbergen Institute, published as monograph by the Lumen Publishing House (Editura Lumen), Iasi, Romania; February 2006

Quantile Regression: Overview and Selected Applications, Ad-Astra Journal (Young Romanian Scientists’ Journal), Vol. 4, 2005

Note on Panel Data Econometrics, Netherlands Network of Economics (NAKE) “Nieuws”, 15 (2), December 2003

Selected unpublished work from my graduate student days (surveys, reports, course papers, etc.)

On Risk in Educational Choice: Brief Overview and Research Note, December 2003

Investigating Reciprocal Motivation in Experimental Labor Markets, June 2003

Incomplete Contracts and the Theory of the Firm, January 2003

Job Search and Contact Networks, April 2002

For research publications/ working papers/ dissertations in other scientific fields/ disciplines than Economics, please see the corresponding section of my Curriculum Vitae page; for works often containing research bits/ partly based on research, but targeting a potentially wider audience, please see my Essays page; you can also check out the list of courses followed during my graduate education programs at the Tinbergen Institute, with (non-updated) links to their instructors’ webpages (for external summer schools and workshops, please see the corresponding section in my extended CV).