Borrowing Constraints, Search, and Life-Cycle Inequality [PDF]:
Abstract: Is the arrival rate of a job independent of the wage that it pays? We answer this question by testing how, and to what extent, unemployment insurance changes the hazard rate of leaving unemployment across the wage distribution using a Mixed Proportional Hazard Competing Risk Model and data from the 1997 National Longitudinal Survey of Youth. Controlling for worker characteristics we reject that job arrival rates are independent of the wages offered. We apply the results to several prominent job-search models and interpret how our findings are key to determining the efficacy of unemployment insurance.
Part-Time Employment and the Labor Market Volatility (joint with Pedro Gomis-Porqueras) [PDF]:
Abstract: We develop a model of part and full-time employment and use it to assess the volatility of the labor market. A number of papers have sought to assess the viability of the Diamond-Mortensen-Pissarides model as a vehicle for understanding unemployment and vacancy dynamics during the US business cycle. Shimer (2005) argues that for reasonable calibrations, a wide range of canonical search models cannot match the volatility of these two series in the data. We show that a modest extension of the Mortensen and Pissarides (1994) framework is able to bridge both of these gaps. Our model endogenously generates part and full-time employment as a result of acyclical fixed costs assessed on firms. We show that this generates a large increase in the volatility of vacancies, unemployment, and labor market tightness. We also explore the impact of benefits policies on employment and find that both mandatory healthcare for full-time workers and increases in unemployment benefits depress employment and increase volatility.
What do Worker Flows Say about the Wage Gains from Unemployment Insurance (joint with Stan Rabinovich) [PDF available upon request]:
Abstract: How large are the effects of unemployment insurance on re-employment wages? Search theory holds that UI increases accepted wages by making workers more selective about the jobs they accept. We show that the standard search model puts strong testable restrictions on the magnitude of this selectivity effect, given observed worker flows. A simple formula links the effect of UI on wages to its effect on job-finding hazard and to the size of frictional wage dispersion. Given the model-implied magnitude of the latter, the implied wage gain from UI cannot be very large. Our own empirical analysis using SIPP shows that, for high-wealth workers, the effects of UI on both duration and wages are close to zero, consistent with the model’s predictions. However, for liquidity-constrained workers, the estimated wage effect of UI is substantially larger than what a standard search model implies given its estimated effect on the job-finding hazard. We conclude that large estimated wage gains from UI are likely not due to selectivity alone.
Public Education Spending and Intergenerational Mobility [PDF available upon request]:
Abstract: This paper explores the interaction between wealth, search, and firm-sponsored human capital accumulation. Recent work has shown that earnings losses are negatively skewed, and concentrated among low-income workers. I demonstrate that when firms choose both the type and intensity of human capital accumulation, low-income workers are more likely to receive firm-specific training and thus subject to larger consumption risk in the event of job loss. This is because when workers are risk-averse and face borrowing constraints, low-income, low-wealth workers apply for more easily attainable jobs. For the firm, this creates a moral hazard problem in which costs of general human capital training cannot be recouped. To minimize this moral hazard, firms employing workers of this type offer firm-specific training, making lateral movements in the job market more costly for the worker. This is consistent with the data on earnings losses, as well as the finding that once unemployed, longer durations have a larger effect on high-income households.