Search Results
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
Commodity Prices and Labour Market Dynamics in Small Open Economies
We investigate the connection between commodity price shocks and unemployment in advanced resource-rich small open economies from an empirical and theoretical perspective. Shocks to commodity prices are shown to influence labour market conditions primarily through the real exchange rate. The empirical impact of commodity price shocks is obtained from estimating a panel vector autoregression; a positive price shock is found to expand the components of GDP, to cause the real exchange rate to appreciate, and to improve labour market conditions. For every one percent increase in commodity prices, ...
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 propriety, county-level vacancy data from the Conference Board’s Help Wanted Online database. 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 2005-2018 period have led to substantial declines in vacancy postings in at-risk occupations, occupations with a larger share of ...
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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
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
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 ...
Working Paper
Unemployment Insurance during a Pandemic
The CARES Act implemented in response to the COVID-19 crisis dramatically increases the generosity of unemployment insurance (UI) benefits, triggering concerns about its substantial impact on unemployment. This paper combines a labor market search-matching model with the SIR-type infection dynamics to study the effects of CARES UI on both unemployment and infection. More generous UI policies create work disincentives and lead to higher unemployment, but they also reduce infection and save lives. Shutdown policies and infection risk further amplify these effects of UI policies. Quantitatively, ...
Working Paper
Real Estate Commissions and Homebuying
We construct a model of home search and buying in the U.S. housing market and evaluate the commission paid to homebuyers' agents. In the model, as in reality, homebuyers enjoy free house showings without having to pay their agents out of pocket. Buyers' agents receive a commission equal to 3% of the house price only after a home is purchased. We show this compensation structure deviates from cost basis and may lead to elevated home prices, overused agent services, and prolonged home searches. Based on the model, we discuss policy interventions that may improve housing search efficiency and ...
Working Paper
Unemployment Insurance during a Pandemic
The CARES Act implemented in response to the COVID-19 crisis dramatically increases the generosity of unemployment insurance (UI) benefits, triggering concerns about its substantial impact on unemployment. This paper combines a labor market search-matching model with the SIR-type infection dynamics to study the effects of CARES UI on both unemployment and infection. More generous UI policies create work disincentives and lead to higher unemployment, but they also reduce infection and save lives. Economic shutdown policies further amplify these effects of UI policies. Quantitatively, the CARES ...
Working Paper
Employment, Wages and Optimal Monetary Policy
We study optimal monetary policy when the empirical evidence leaves the policymaker uncertain whether the true data-generating process is given by a model with sticky wages or a model with search and matching frictions in the labor market. Unless the policymaker is almost certain about the search and matching model being the correct data-generating process, the policymaker chooses to stabilize wage inflation at the expense of price inflation, a policy resembling the policy that is optimal in the sticky wage model, regardless of the true model. This finding reflects the greater sensitivity of ...