Improving Estimation of Labor Market Disequilibrium Using Shortage Indicators, with an Application to the Market for Anesthesiologists

41 Pages Posted: 21 May 2019

See all articles by Matthew Baird

Matthew Baird

RAND Corporation

Lindsay Daugherty

RAND Corporation

Krishna Kumar

RAND Corporation - Labor and Population

Abstract

While economic studies often assume that labor markets are in equilibrium, there may be specialized labor markets that are likely in disequilibrium. We develop a new methodology to improve the estimation of a reduced form disequilibrium model from the existing models by incorporating survey-based shortage indicators into the model and estimation. Our shortage-indicator informed disequilibrium model includes as a special case the foundational model of Maddala and Nelson (1974). We demonstrate the gains in information provided by our methodology. We show how the model can be implemented by applying it to the market for anesthesiologists, a profession susceptible to disequilibrium. In this application, we find that our new disequilibrium model informed by a shortage indicator fits the data better than the Maddala-Nelson model, and has better out-of-sample predictive power.

Keywords: disequilibrium, labor demand, labor supply, shortage, maximum likelihood, health providers

JEL Classification: J20, J44, I11, C18

Suggested Citation

Baird, Matthew and Daugherty, Lindsay and Kumar, Krishna, Improving Estimation of Labor Market Disequilibrium Using Shortage Indicators, with an Application to the Market for Anesthesiologists. IZA Discussion Paper No. 12129. Available at SSRN: https://ssrn.com/abstract=3390116

Matthew Baird (Contact Author)

RAND Corporation ( email )

1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States

Lindsay Daugherty

RAND Corporation ( email )

1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States

Krishna Kumar

RAND Corporation - Labor and Population ( email )

United States

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