@workingpaper {622954,
	title = {Outside Options in the Labor Market},
	year = {Working Paper},
	abstract = {This paper develops a method to estimate the outside employment opportunities available to each worker, and to assess the impact of these outside options on wage inequality. We outline a matching model with two-sided heterogeneity, from which we derive a sufficient statistic, the {\textquotedblleft}outside options index{\textquotedblright} (OOI), that relates outside options to wages. This OOI uses the cross-sectional concentration of similar workers across job types to quantify the availability of outside options as a function of workers{\textquoteright} commuting or moving costs, preferences, and skills. We use administrative data from Germany to estimate the OOI for every worker in a representative sample of the German workforce. We estimate the elasticity between the OOI and wages using two sources of quasi-random variation: the introduction of high-speed commuter rail stations, and a shift-share ({\textquotedblleft}Bartik{\textquotedblright}) instrument. Using this elasticity and the observed distribution of options, we find that differences in options explain 30\% of the gender wage gap, 88\% of the citizen-non-citizen wage gap, and 25\% of the premium for higher education. Differences in options between genders and education groups are driven mostly by differences in commuting costs.},
	author = {Danieli, O. (Job Market Paper) and Caldwell, S.}
}
