Search Results
Working Paper
Doves for the Rich, Hawks for the Poor? Distributional Consequences of Systematic Monetary Policy
We build a New Keynesian business-cycle model with rich household heterogeneity. In the model, systematic monetary stabilization policy affects the distribution of income, income risks, and the demand for funds and supply of assets: the demand, because matching frictions render idiosyncratic labor-market risk endogenous; the supply, because markups, adjustment costs, and the tax system mean that the average profitability of firms is endogenous. Disagreement about systematic monetary stabilization policy is pronounced. The wealth-rich or retired tend to favor inflation targeting. The ...
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Debt Constraints and Employment
During the Great Recession, regions of the United States that experienced the largest declines in household debt also experienced the largest drops in consumption, employment, and wages. Employment declines were larger in the nontradable sector and for firms that were facing the worst credit conditions. Motivated by these findings, we develop a search and matching model with credit frictions that affect both consumers and firms. In the model, tighter debt constraints raise the cost of investing in new job vacancies and thus reduce worker job finding rates and employment. Two key features of ...
Working Paper
Wage Setting Under Targeted Search
When setting initial compensation, some firms set a fixed, non-negotiable wage while others bargain. In this paper we propose a parsimonious search and matching model with two-sided heterogeneity, where the choice of wage-setting protocol, wages, search intensity and degree of randomness in matching are endogenous. We find that posting and bargaining coexist as wage-setting protocols if there is sufficient heterogeneity in match quality, search costs or market tightness and that labor market tightness and relative costs of search play a key role in the optimal choice of the wage-setting ...
Working Paper
Endogenous Bargaining Power and Declining Labor Compensation Share
Workhorse search and matching models assume constant bargaining weights, while recent evidence indicates that weights vary across time and in cross section. We endogenize bargaining weights in a life-cycle search and matching model by replacing a standard Cobb-Douglas (CD) matching function with a general constant elasticity of substitution (CES) matching function and study the implications for the long-term labor share and bargaining power in the U.S. The CES model explains 64 percent of the reported decline in the labor share since 1980, while the CD model explains only 28 percent of the ...
Working Paper
Offshoring, Mismatch, and Labor Market Outcomes
We study the role of labor market mismatch in the adjustment to a trade liberalization that results in the offshoring of high-tech production. Our model features two-sided heterogeneity in the labor market: high- and low-skilled workers are matched in a frictional labor market with high- and low-tech firms. Mismatch employment occurs when high-skilled workers choose to accept a less desirable job in the low-tech industry. The main result is that--perhaps counter-intuitively--this type of job displacement is actually beneficial for the labor market in the country doing the offshoring. Mismatch ...
Working Paper
Household's Balance Sheets and the Effect of Fiscal Policy
Using households' balance sheet composition in the Panel Survey of Income Dynamics, we identify six household types. Since 1999, there has been a decline in the share of patient households and an increase in the share of impatient households with negative wealth. Using a six-agent New Keynesian model with search and matching frictions, we explore how changes in households' shares affect the transmission of government spending shocks. We show that the relative share of households in the left tail of the wealth distribution plays a key role in the aggregate marginal propensity to consume, the ...
Working Paper
Worker flows and job flows: a quantitative investigation
This paper studies quantitative properties of a multiple-worker firm search/matching model and investigates how worker transition rates and job flow rates are interrelated. We show that allowing for job-to-job transitions in the model is essential to simultaneously account for the cyclical features of worker transition rates and job flow rates. Important to this result are the distinctions between the job creation rate and the hiring rate and between the job destruction rate and the layoff rate. In the model without job-to-job transitions, these distinctions essentially disappear, thus making ...
Working Paper
Minimum Wage Increases and Vacancies
We estimate the impact of minimum wage increases on the quantity of labor demanded as measured by firms’ vacancy postings. We use proprietary, county-level vacancy data from the Conference Board’s Help Wanted Online to analyze the effects of minimum wage increases on the quantity of labor demanded. Our identification relies on the disproportionate effects of minimum wage hikes on different occupations, as the wage distribution around the binding minimum wage differs by occupation. We find that minimum wage increases during the 2005–18 period led to substantial declines in vacancy ...
Working Paper
Endogenous Bargaining Power and Declining Labor Compensation Share
We document that the protracted decline in the labor share has been accompanied by a decline in the tightness rate defined as the number of vacancies per job seekers. We argue that these two trends are related. When vacancies and job seekers are complements in the matching process, a decline in the tightness rate reduces workers’ fundamental bargaining power as defined by Hosios (1990), which in turn reduces the labor share of income. We calibrate a search and matching model extended to allow for an endogenous determination of bargaining power. The model can rationalize the common trends in ...