“Testing the Independence of Job Arrival Rates and Wage Offers,” joint with Christine Braun, Bryan Engelhardt, and Peter Rupert (Labour Economics, vol 63, April 2020)
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”
“Search and the Sources of Life-Cycle Inequality,” (forthcoming at International Economic Review)
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: This paper explores a participation externality that emerges in low-wage labor markets and how well a minimum wage can address it. Workers, who are heterogeneous with respect to their abilities, search for homogeneous jobs. A low ability worker’s market entry acts to suppress vacancy creation which the worker does not internalize. Match-specific productivity is incorporated to capture the fact that lower wage earners are over represented among the unemployed. The Planner sets an ability cut-off for participation, a match-specific productivity threshold for each ability level, and controls vacancy creation. A binding minimum wage can exclude low ability workers but, depending on the dispersion of the match-specific productivity shocks, can also excessively prevent matching by higher ability workers. The model is calibrated to CPS data for prime age high school drop-outs. Quantitatively, while the externality is shown to be important, the minimum wage is not a particularly effective means of addressing it.
“Part and Full-Time Employment over the Business Cycle,” joint with Pedro Gomis-Porqueras (submitted)
Abstract: We develop a model that allows us to understand the cyclicality of part and full-time employment. In the model, idiosyncratic match quality determines a jointly optimal choice of part or full-time work. This choice is based on the surplus generated by each type of employment. Because of higher fixed costs, the surplus from full-time employment is more procyclical than part-time employment. As a result, inflows from full-time employment outweigh outflows to unemployment and cause part-time employment to be countercyclical, as observed in the data. We show that this composition effect accounts for the majority of the cyclical properties of part and full-time employment. We also show that subsidizing part-time employment during a recession is far more effective at limiting a downturn in the economy than an equally expensive unemployment insurance expansion.
“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.
“Wealth, 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.
Note: Previously circulated under the title “Precautionary Search and Human Capital over the Business Cycle”
“The Effect of Unemployment Insurance Eligibility in Equilibrium,” joint with Ying H. Chao and David Wiczer
Abstract: In the U.S., workers whose past earnings were below a threshold are ineligible to receive unemployment insurance (UI). This creates a discontinuous jump in their value of unemployment should they separate. We exploit this jump with a regression discontinuity design using administrative panel data on earnings to estimate the effect of UI receipt on earnings. We find a sizable local effect from UI eligibility on earnings in the next employer, around \$300 or roughly 10\% of quarterly earnings. However, this understates the causal effect of UI receipt, because not every unemployed worker claims UI. We present an equilibrium directed search model that relates the reduced form estimates to causal effects on welfare, earnings and unemployment duration.
“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.