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Sydnee Caldwell, Oren Danieli, Outside Options in the Labour Market, The Review of Economic Studies, Volume 91, Issue 6, November 2024, Pages 3286–3315, https://doi.org/10.1093/restud/rdae006
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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.
