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 considers how the structure of the UI system interacts with the observed profile of separations to generate “job-polarization” – wage and separation rate persistence. We extend a standard on-the-job labor search model to include an initial period of high separation rates until the job stochastically becomes more stable. Meanwhile a worker’s UI entitlement varies in generosity (based on their former wage) and duration (based on their employment history). The separation structure means that some workers have extended periods of frequent job loss. The UI system amplifies these effects because workers with low benefit eligibility apply for low wage jobs. Their subsequent applications then leave them more highly susceptible to future job loss. Our calibration suggests that this effect accounts for around 1% lower lifetime average wages.

Abstract: We assess how an economy’s wealth distribution shapes its labor market dynamics. We do so in a quantitative job-ladder model featuring directed search, incomplete markets, aggregate shocks, and endogenous on-the-job human capital accumulation. Poorer workers apply for lower-wage jobs when unemployed and under-accumulate human capital when employed to self-insure against unemployment risk. In response to an aggregate downturn, poorer workers reduce their human capital accumulation, all else equal, while richer workers increase it. The wealth distribution therefore matters for the response of aggregate human capital. In the calibrated model, we show that a negative aggregate productivity shock leads to a persistent decline in aggregate human capital, and a more dispersed wealth distribution would amplify this decline.
Note: Previously circulated under the title “Precautionary Search and Human Capital over the Business Cycle”

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). This 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 because of endogenous non-compliance and it does not distinguish between underlying reasons: either a higher share of production or more productive matches. We interpret the quasi-experimental estimates through a tractable equilibrium model and a calibrated quantitative one. The empirical estimates understate the true causal effect by 9.8\% and most of the effect comes from worker getting a larger share of production.

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.