Research

“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”

Abstract: I develop a model with search frictions, incomplete markets, and human capital accumulation, 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 search frictions and wealth interact, and how this interaction affects human capital accumulation and earnings. In the model incomplete markets prevent low-wealth workers from smoothing consumption, causing them to accept low pay jobs. In anticipation, they build savings rather than human capital. This amplifies the importance of initial wealth for life-cycle inequality. The model implies that differences in initial wealth cause larger differences in lifetime earnings than initial human capital or ability. I provide empirical evidence for these channels by showing that unemployment has a larger scarring effect for poor individuals and that employment risk has a scarring effect on the earnings of the poor even during continuous employment spells.
Note: Previously circulated under the titles “Borrowing Constraints, Search, and Life-Cycle Inequality” and “Wealth Effects, Search, and Life-Cycle Inequality”

“Labor Market Participation and Minimum Wage Policy,” joint with Adrian Masters (revise and resubmit at European Economic Review)

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

Abstract: We develop a model that allows us to understand the cyclicality of part and full-time employment. In the model, labor market frictions generate a surplus between workers and firms, who jointly decide whether their employment relationship is best suited for part or full-time work based on match quality shocks and the broader economic environment. Lower acyclical costs cause the surplus of part-time matches to vary less with the business cycle than the surplus of full-time matches. As a consequence, the model is able to generate procyclical full-time employment and countercyclical part-time employment as observed in the data. We also show that ignoring part-time employment understates the impact on employment and inequality of a recession and that subsidizing part-time work is far more effective than increasing unemployment insurance at preventing a labor market downturn.

“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”

“Public Education Spending and Intergenerational Mobility”