Improving Estimation of Labor Market Disequilibrium Through Inclusion of Shortage Indicators

by Matthew D. Baird, Lindsay Daugherty, Krishna B. Kumar

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While economic studies often assume that labor markets are in equilibrium, there may be specialized labor markets likely in disequilibrium. We develop a new methodology to improve the estimation of a disequilibrium model that incorporates a survey-based shortage indicator into the model and estimation strategy. We demonstrate the gains in information provided by the methodology. We apply the model to the labor market of anesthesiologists, the outcomes of which would be of independent interest. We find improved accuracy in the estimation as well as useful information revealed by the expanded model.

This research was conducted by RAND Labor & Population.

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