Research

Published Papers:

Abstract: In this paper, I study how initial wealth affects lifetime earnings inequality when labor markets are frictional. To do this, I construct a model life-cycle model with search frictions, incomplete markets, and endogenous human capital accumulation. In the model incomplete markets prevent low-wealth workers from smoothing consumption, which causes them to accept low pay jobs while unemployed. In anticipation, they build savings rather than human capital while employed. This amplifies the importance of initial wealth for life-cycle inequality. Using this model, I find that differences in initial wealth cause larger differences in lifetime earnings than either initial human capital or ability.
Note: Previously circulated under the titles “Borrowing Constraints, Search, and Life-Cycle Inequality” and “Wealth Effects, Search, and Life-Cycle Inequality”

Abstract: A participation externality occurs when vacancy creation depends on workforce composition. As marginal workers enter the labor market, they lower the average quality of the workforce. This suppresses vacancy creation but is not internalized by the new entrants. This paper studies how this externality interacts with search externalities and the efficacy of policies at addressing it. These externalities interact because either party may retain an inefficient share of the surplus and workforce composition affects the expected surplus. We show that when chosen optimally, minimum wages and unemployment insurance partially address both externalities, but minimum wages primarily affect participation, while unemployment insurance primarily affects search externalities.

Abstract: Is the arrival rate of a job independent of the wage that it pays? We answer this question by testing whether unemployment insurance alters the job finding rate differentially across the wage distribution. To do this, we use a Mixed Proportional Hazard Competing Risk Model in which we classify quantiles of the wage distribution as competing risks faced by searching unemployed workers. Allowing for flexible unobserved heterogeneity across spells, we find that unemployment insurance increases the likelihood that a searcher matches to higher paying jobs relative to low or medium paying jobs, rejecting the notion that wage offers and job arrival rates are independent. We show that dependence between wages and job offer arrival rates explains 9% of the increase in the duration of unemployment associated with unemployment insurance.
Note: Previously circulated under the title “Do Workers Direct their Search?” and “Testing the Independence of Job Arrival Rates and Wage Offers in Model of Job Search”

Abstract: By making workers more selective, unemployment insurance (UI) increases re-employment wages and thereby generates a positive fiscal externality. We provide a sufficient-statistics formula for evaluating the size of this fiscal externality and argue theoretically that it is likely to be small. In a standard sequential search model, the effect of UI on wages is proportional to its effect on the job-finding hazard; the slope of the relation-ship between these elasticities depends on a small number of estimable statistics, key among them observed worker flows. Plausible calibrations of the model imply that the magnitude of the wage elasticity is small relative to the job-finding elasticity. Although ignoring the wage effect of UI would over-estimate its fiscal cost and under-estimate its welfare benefit, the model predicts the magnitude of this bias to be small.

Working Papers:

Abstract: This paper studies how finite duration Unemployment Insurance (UI) benefit payments affect wage dispersion. It also provides a quantification of the implied re-entitlement effect. In a directed on-the-job search model, benefit duration is determined by recent employment history while benefit generosity is a function of a worker’s prior wage. As workers approach the expiry of their benefits, they lower their asking wages for two reasons: the impending drop in income makes them eager to get hired and, getting rehired puts them back on the path of benefit re-entitlement. Quantitative exercises evidence a strong interaction between the UI system and on-the-job search in generating wage dispersion. Loss of benefit plays a more important role than re-entitlement per se in the determination of the re-entitlement effect.; that part-time employment is countercyclical, while full-time employment is pro-cyclical; and that the cyclical behavior of part-time employment is largely driven by movements in and out of part-time employment within a job spell. Using this framework, we evaluate and compare the effects of job subsidy and unemployment insurance schemes in response to economic downturns. Part-time job subsidies dampen the fall in total employment, but also distort the intensive-margin choice between full-time and part-time employment. The latter unintended effect is particularly important in long recessions, resulting in output and welfare losses when compared to unemployment insurance schemes.

Abstract: We extend a canonical equilibrium search model with endogenous separations to incorporate a choice between part-time and full-time employment. Aggregate productivity and idiosyncratic match quality determine when a worker-firm match separates and, if it continues, whether it operates as full-time or part-time. This simple extension is able to generate predictions consistent with the cyclical behavior of part-time employment in the US. In particular, it is consistent with the fact that part-time employment matches separate more often; that part-time employment is countercyclical, while full-time employment is pro-cyclical; and that the cyclical behavior of part-time employment is largely driven by movements in and out of part-time employment within a job spell. Using this framework, we evaluate and compare the effects of job subsidy and unemployment insurance schemes in response to economic downturns. Part-time job subsidies dampen the fall in total employment, but also distort the intensive-margin choice between full-time and part-time employment. The latter unintended effect is particularly important in long recessions, resulting in output and welfare losses when compared to unemployment insurance schemes.

Abstract: We develop a partial equilibrium search model to show how initial labor market conditions can not only have a persistent effect on beliefs but can cause economy-wide average beliefs to deviate from their fundamental. When returns to the labor market are group-specific but unknown, individuals base their search decision on both their private information and the actions of others, the latter of which is encapsulated in a noisy public signal. The informativeness of the public signal depends on the aggregate action. When individuals are overly-optimistic or pessimistic, the degree of participation reduces the informational content of the signal, causing individuals to learn slowly and for beliefs to become entrenched.

Abstract: We study Affirmative Action in a model where Black workers underperform in the labor market and are unable to distinguish between taste-based or statistical discrimination. Absent any policy, pessimism causes underinvestment in human capital, amplifying statistical discrimination in the hiring process even when most firms are not taste-discriminators, and propagating to future cohorts who again observe underperformance. In this setting, Affirmative Action may cause firms to hire underqualified Black workers and reinforce statistical discrimination in the short-run. However, because taste-discriminators are unwilling to hire Black workers, a large improvement in employment outcomes reveals that most firms have no racial animus. As a result, subsequent cohorts of Black workers realize that most discrimination is statistical and human capital investment will prove fruitful even in the absence of Affirmative Action. This reverses the propagation and leads to a permanent increase in Black human capital.

Abstract: In the U.S., workers whose past earnings were below a threshold are ineligible to receive unemployment insurance (UI), which creates a discontinuous jump in their value of being unemployed. Exploiting this in a regression discontinuity design using administrative panel data, we estimate a sizable local effect from UI eligibility on earnings in the next employer, around $300 or roughly 10% of quarterly earnings. This evidence of a UI treatment effect on re-employment outcomes, however, understates UI’s causal effect and does not distinguish between underlying
reasons, either a higher share of production or more productive matches. With both a tractable equilibrium and calibrate quantitative model, we interpret the quasi-experimental estimates in the context of endogenous non-compliance and search direction choices. The empirical estimates understate the true causal effect by 4.4% and this high pass-through of UI to earnings implies a low trade-off of between wage and finding rate, essentially very low bargaining power.

Abstract: We assess how an economy’s wealth distribution shapes its labor market dynamics. We answer this question in a quantitative model featuring directed search, incomplete markets, aggregate shocks, and endogenous on-the-job human capital accumulation. On the individual level, poorer workers apply for lower-wage jobs when unemployed and under-accumulate human capital when employed to self-insure against unemployment risk. These differences in behavior by wealth are intensified in recessions when jobs are scarce and unemployment risk is high. On the aggregate level, an economy entering a recession with more wealth dispersion suffers a greater reduction in human capital and hence more persistent earnings and output losses. We calibrate the model and use it to evaluate the importance of the wealth distribution for the impact of the Great Recession.
Note: Previously circulated under the title “Precautionary Search and Human Capital over the Business Cycle”

Abstract: This paper seeks to understand the role that spending on public education plays in determining the persistence of income across generations. It shows that indeed, increases in public education spending increase intergenerational mobility among the least wealthy in the economy. Unlike previous literature, I employ an instrument for government spending in order to assess the effect of public spending on education in changing persistence and use the canonical empirical model of intergenerational elasticity (Solon, 1992). In particular, I incorporate exogenous changes in spending on public education caused by court-mandated school-finance reform, following Jackson et al. (2015). Overall, I find that an increase in government spending on education significantly decreases the extent to which parents’ income matters in determining their child’s income.