Information and Inequality in the Time of a Pandemic
We introduce two types of agent heterogeneity in a calibrated epidemiological search model. First, some agents cannot afford to stay home to minimize virus exposure. Our results show that poor agents bear most of the epidemic’s health costs. Furthermore, we show that when a larger share of agents fail to change their behavior during the epidemic, a deeper recession is possible. Second, agents develop symptoms heterogeneously. We show that for diseases with a higher share of asymptomatic cases, even when less lethal, health and economic outcomes are worse. Public policies such as testing, ...
Do Foreign-Born Workers Cause Native-Born Workers to Move or Leave the Labor Force?
This Commentary discusses how the presence of foreign-born workers in a local labor market affects the decisions of native-born workers to leave the labor force or move to another state. We analyze short panels obtained through the Current Population Survey and find that, in the short run, less-educated native-born workers react to a larger stock of foreign-born workers by either moving to a different state or dropping out of the labor force. In terms of magnitude, the effect is small but not insignificant.
Wage Growth after the Great Recession
Nominal wage growth since the Great Recession has been sluggish. We show that the sluggishness is due mostly to weak growth in labor productivity, as well as lower-than-expected inflation. We also find that wage growth since late 2014 has actually been above what would be consistent with realized labor-productivity growth and inflation, and this trend in wages reflects an increase in labor?s share of income. We show evidence that this increase in the labor share may be due to a reversal of the trend to replace labor with capital.
The 1918 Flu and COVID-19 Pandemics: Different Patients, Different Economy
Many observers seeking historical precedent for COVID-19 draw on the 1918 influenza pandemic. In this Commentary, we highlight the differences between the 1918 flu and COVID-19 pandemics in terms of the most significantly affected populations. We also show key differences in the US economy in the late 1910s and now. Not only did the 1918 influenza virus primarily affect significantly younger cohorts, but the US economy’s industry and geographic distributions were notably different at the time compared to today’s. Consequently, caution is needed when using the 1918 influenza pandemic as a ...
The Evolution of the Labor Share across Developed Countries
In most developed countries, the share of output accruing to labor has declined over the last 20 years. However, the underlying reasons for the decrease may have differed in the United States and other developed countries. In this Commentary, we examine some of the explanations economists have proposed for the decline in the labor share and discuss how well these explanations account for the decline across developed countries.
Dotcom Price Spiral
We show that during the bubble implied growth rates coming from the underpricing of IPO market explains short term returns on the NASDAQ index. This result remains even if we replace actual underprice for others different instruments for underpricing that are based on predetermined variables and not correlated to market returns. We also do placebo tests to assess the relation between underpricing and NASDAQ returns over other periods. We show that growth proxies that are not contaminated by the booms and busts of the stock market are uncorrelated with the returns on the NASDAQ index in ...
Organizations, Skills, and Wage Inequality
We extend an on-the-job search framework in order to allow firms to hire workers with different skills and skills to interact with firms? total factor productivity (TFP). Our model implies that more productive firms are larger, pay higher wages, and hire more workers at all skill levels and proportionately more at higher skill types, matching key stylized facts. We calibrate the model using five educational attainment levels as proxies for skills and estimate nonparametrically firm-skill output from the wage distributions for different educational levels. We consider two periods in time (1985 ...
Dotcom Extreme Underpricing
We conjecture that the Dotcom abnormal underpricing resulted from the emergence a large cohort of firms racing for market leadership/survivorship. Fundamentals pricing at the IPO was part of their strategy. Consistent with our conjecture, firms? strategic goals and characteristics fully explain the abnormal underpricing. Contrary to alternatives explanations, underpricing was not associated with top underwriting; there was no deterioration of issuers? quality; and top underwriters and analysts became more selective.
Information Production, Misconduct Effort, and the Duration of Corporate Fraud
We develop and test a model linking the duration of financial fraud to information produced by auditors and analysts and efforts by managers to conceal the fraud. Our empirical results suggest fraud termination is more likely in the quarter following the release of audited financial statements, especially when reports contain explanatory language, indicating auditors? observable signals reduce fraud duration. Analyst attention increases the likelihood of fraud termination, but the marginal effect beyond the first analyst is negative, possibly due to free riding and herding behavior impairing ...
Competitors' Stock Price Reaction to Mass Layoff Announcements
Using data on layoff announcements by S&P 500 firms, we show that layoff announcements mostly contain industrywide news. Competitors? stock price reactions are positively correlated with the announcer?s returns. This contagion effect is stronger for competitors whose values depend on growth opportunities. When layoff announcements induce positive stock returns to announcers, competitors with positive R&D see a 1.15% increase in their returns. Conversely, when announcements induce negative reactions to announcers, competitors with high sales growth see a reduction of 1.09% in returns. Our ...