Research

Working Papers:
 

“Borrowing Constraints, Search, and Life-Cycle Inequality,” revised version Oct. 2019:  

Abstract: I develop a model with human capital accumulation and an endogenous income process, and estimate it using information on the joint dynamics of earnings and job search over the life-cycle. I use this model to study how job ladders, employment risk, and wealth inequality interact to affect human capital accumulation and earnings inequality. In the model, borrowing constraints prevent low-wealth workers from smoothing consumption, which causes worse placement on the job ladder following a separation. As a precaution, low-wealth workers accumulate savings instead of human capital. This causes persistent earnings inequality as a result of differences in wealth at labor market entry. I show that for bottom quintile workers, wealth is as important as human capital for life-cycle earnings inequality. I also show that nearly all of the effects of wealth inequality are absent in competitive models of the labor market.
Note: Previously circulated under the title “Wealth Effects, Search, and Life-Cycle Inequality”

“Testing the Independence of Job Arrival Rates and Wage Offers in Models of Job Search,” joint with Christine Braun, Bryan Engelhardt, and Peter Rupert (R&R Labour Economics):

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.

Note: Previously circulated under the title “Do Workers Direct their Search?”

“Part-Time Employment and the Labor Market Volatility,” joint with Pedro Gomis-Porqueras:

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.

“Precautionary Search and Human Capital over the Business Cycle,” joint with Stan Rabinovich [PDF available upon request]:

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.

 
Works in Progress:
 

“Public Education Spending and Intergenerational Mobility”:

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.

“The Effects of Wealth on Search and Training”

“Labor Market Frictions, Wealth Effects, and Portfolio Allocation,” joint with Gaston Chaumont
 
“Student Debt and the College Premium,” Joint with Lancelot Henry de Frahan