Assistant Professor of Economics
2018/19: on sabbatical visiting Stanford University.
Conference: Workshop on Firms, Jobs, and Inequality, December 2018
- Econ 236B: Macroeconomics (second-year field course)
- Econ 202B: Macroeconomic Theory (mandatory first-year PhD course)
- Econ 237: Macroeconomics Research Seminar
- Econ 101B: Intermediate Macroeconomics (Honors)
- Jobs and Matches: Quits, Replacement Hiring, and Vacancy Chains (with Yusuf Mercan, updated January 2019)
- Marginal Jobs and Job Surplus: A Test of the Efficiency of Separations (working paper, updated December 2018; with Simon Jaeger and Josef Zweimueller)
- Wages and the Value of Nonemployment
- with Simon Jaeger, Samuel Young and Josef Zweimueller
- Revise and Resubmit: Quarterly Journal of Economics
- Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence from a Young Workers Tax Cut in Sweden
- with Emmanuel Saez and David Seim)
- American Economic Review, forthcoming
- The Short-Run Aggregate Labor Supply Curve with Long-Term Jobs (working paper, 2018; with Preston Mui)
- A Price-Theoretical Framework for Fluctuations in Matching Models (2017; with Yusuf Mercan)
- The Financial Channel of Wage Rigidity (working paper, 2016)
- Regulation and taxation: A complementarity.” Journal of Comparative Economics 38.4 (2010): 381-94.
Abstract: In the canonical DMP model of job openings, all job openings stem from new job creation. Jobs denote worker-firm matches, which are destroyed following worker quits. Yet, employers classify 56% of vacancy postings as quit-driven replacement hiring into old jobs, which evidently outlived their previous matches. Accordingly, aggregate and firm-level hiring tightly tracks quits. We augment the DMP model with longer-lived jobs arising from sunk job creation costs and replacement hiring. Quits trigger vacancies, which beget vacancies through replacement hiring. This vacancy chain can raise total job openings and net employment. The procyclicality of quits can thereby amplify business cycles.
Abstract: We present a sharp test for the efficiency of job separations. First, we document a dramatic increase in the separation rate – 11.2ppt (28%) over five years – in response to a quasi-experimental extension of UI benefit duration for older workers. Second, after the abolition of the policy, the “job survivors” in the formerly treated group exhibit exactly the same separation behavior as the control group. Juxtaposed, these facts reject the “Coasean” prediction of efficient separations, whereby the UI extensions should have extracted marginal (low-surplus) jobs and thereby rendered the remaining (high-surplus) jobs more resilient after its abolition. Third, we show that a formal model of predicted efficient separations implies a piece-wise linear function of the actual control group separations beyond the missing mass of marginal matches. A structural estimation reveals point estimates of the share of efficient separations below 4%, with confidence intervals rejecting shares above 13%. Fourth, to characterize the marginal jobs in the data, we extend complier analysis to difference-in- difference settings such as ours. The UI-indiced separators stemmed from declining firms, blue-collar jobs, with a high share of sick older workers, and firms more likely to have works councils – while their wages were similar to program survivors. The evidence is consistent with a “non-Coasean” framework building on wage frictions preventing efficient bargaining, and with formal or informal institutional constraints on selective separations.
Abstract: Nonemployment is often posited as a worker’s outside option in wage setting models such as bargaining and wage posting. The value of this state is therefore a fundamental determinant of wages and, in turn, labor supply and job creation. We measure the effect of changes in the value of nonemployment on wages in existing jobs and among job switchers. Our quasi-experimental variation in nonemployment values arises from four large reforms of unemployment insurance (UI) benefit levels in Austria. We document that wages are insensitive to UI benefit levels: point estimates imply a wage response of less than $0.01 per $1.00 UI benefit increase, and we can reject sensitivities larger than 0.03. In contrast, a calibrated Nash bargaining model predicts a sensitivity of 0.39 – more than ten times larger. The empirical insensitivity holds even among workers with a priori low bargaining power, with low labor force attachment, with high predicted unemployment duration, among job switchers and recently unemployed workers, in areas of high unemployment, in firms with flexible pay policies, and when considering firm-level bargaining. The insensitivity of wages to the nonemployment value we document presents a puzzle to widely used wage setting protocols, and implies that nonemployment may not constitute workers’ relevant threat point. Our evidence supports wage-setting mechanisms that insulate wages from the value of nonemployment.
Abstract: This paper uses administrative data to analyze a large and long-lasting employer payroll tax rate cut from 31% down to 15% for young workers (aged 26 or less) in Sweden. We find a zero effect on net-of-tax wages of young treated workers relative to slightly older untreated workers, even in the medium run (after six years). Simple graphical cohort analysis shows compelling positive effects on the employment rate of the treated young workers, of about 2–3 percentage points, which arise primarily from fewer separations (rather than more hiring). These employment effects are larger in places with initially higher youth unemployment rates. We also analyze the firm-level effects of the tax cut. We sort firms by the size of the tax windfall and trace out graphically the time series of firm outcomes. We proxy a firm’s windfall with its share of treated young workers just before the reform. First, heavily treated firms expand after the reform: employment, capital, sales, value added, and profits all increase. These effects appear stronger in credit-constrained firms, consistent with liquidity effects. Second, heavily treated firms increase the wages of all their workers – young as well as old – collectively, perhaps through rent sharing. Wages of low paid workers rise more in percentage terms. Rather than canonical market- level adjustment, we uncover a crucial role of firm-level mechanisms in the transmission of payroll tax cuts.
Abstract: The macroeconomic narrative of recessions driving households off their labor supply curve derives its empirical support from the gap between acyclical average wages and the decline in households’ marginal rate of substitution. The underlying theoretical framework of this result relies on single-period, spot-market jobs. By contrast, taking into account long-term jobs implies that the extensive-margin of labor supply is driven by the present value of wage contracts in new jobs. In the data, wages in new jobs are more procyclical than average wages; smooth average wages largely reflect sticky legacy wage contracts no longer available to new hires. When considering this procyclical time series of allocative new wage contracts, households’ implied desired labor supply aligns more closely with observed employment fluctuations, even with small, microempirically consistent Frisch labor supply elasticities. An alternative interpretation of this finding is that excess labor supply is in fact countercyclical, but the model underlying the short-run aggregate labor supply curve remains misspecified for other reasons.
Abstract: We formulate a price-theoretical comparative static that characterizes labor market fluctuations of a broad spectrum of matching model variants. Our conceptual framework is simple, intuitive, transparent and general – and thereby complements the (heavily parametric and model-specific) “fundamental surplus” approach by Ljungqvist and Sargent (2016). Exactly four reduced-form amplification factors fully determine the elasticity of labor market tightness to a driving force such as the canonical productivity shocks: (1) The numerator captures the partial effect of the shock on the payoff from hiring, net of direct, bargaining-driven wage effects. The denominator captures the slope of total labor costs with regards to the response of labor market tightness, and consists of two components. (2) The (steep) recruitment cost curve, which arises from congestion in the matching process. (3) The (typically flat) wage curve, which arises from bargaining and labor supply. (4) These two cost curves are weighted by the share of recruitment costs in total labor costs. Matching amplification arises whenever the cost curves are flat or when the pass-through of the shock into the payoff is large. We conduct a meta study of leading matching model variants in the literature, and decompose each model’s cyclical behavior into these four reduced-form amplification factors, despite their vastly different structural features. In that realm, the framework also provides new insights. For example, we find that the smaller the recruitment-cost share is – i.e. the “less important” matching frictions loom in a firm’s cost structure –, the more amplification is predicted by the model. This surprising result arises from the fact that the wage curve is typically calibrated to be flatter than the recruitment cost curve. We confirm this prediction by measuring cross-industry variation in the recruitment cost share and relating it to the estimated industry-level employment elasticity to productivity shocks. Also, our framework clarifies why exclusively in the Nash bargaining case the “fundamental surplus” of Ljungqvist and Sargent (2016) appears to singularly drive amplification: In the Nash case, it happens to determine both the recruitment cost share and the wage curve. Finally, by being empirically tangible, our four reduced-form amplification factors are useful joint calibration targets, complementing the standard parameter-by-parameter approach.
Abstract: Why do firms cut hiring so sharply in recessions? I propose that wage rigidity among incumbent workers forces firms to reduce hiring by squeezing their internal funds. Incumbents' wage rigidity is an irrelevant fixed cost in standard macroeconomic models, which instead rely on wage rigidity among new hires. But much empirical evidence indicates that the wages of new hires, unlike those of incumbents, display little rigidity. I integrate financial constraints and incumbents' wage rigidity -- but flexible wages among new hires -- into the Diamond-Mortensen-Pissarides matching model. The interaction between these two frictions helps the calibrated model account for more than half of hiring fluctuations in the U.S. data. My empirical analyses support the financial channel of wage rigidity. I present new firm-level evidence that employment responds to cash flow shocks, and that internal funds help firms stabilize employment during recessions. Moreover, I calculate that a slight increase in incumbents' wage procyclicality could smooth aggregate profits and internal funds.
Abstract: I show how quantity regulation can lower elasticities and thereby increase optimal tax rates. Such regulation imposes regulatory incentives for particular choice quantities. Their strength varies between zero (laissez faire) and infinite (command economy). In the latter case, regulation effectively eliminates any intensive behavioral responses to taxes; a previously distortionary tax becomes a lump sum. For intermediate regulation (where some deviation is feasible), intensive behavioral responses are still weaker than under zero regulation, and so quantity regulation reduces elasticities, thereby facilitating subsequent taxation. I apply this mechanism to labor supply and present correlational evidence for this complementarity: hours worked in high-regulation countries are compressed, and these countries tax labor at higher rates.