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Assisting Firms during a Crisis: Benefits and Costs
Public and private efforts to reduce COVID-19 infection levels have led to a sharp drop in economic activity around the world. In an attempt to mitigate the damage to businesses, governments around the world have implemented a variety of financial programs to help firms. These programs have been criticized as interfering with markets, providing bailouts, and creating adverse incentives. In this article, I review both the rationale for government-provided assistance and the costs of providing that assistance from the perspective of how that aid effects the likely level and volatility of ...
Employment Dynamics in a Signaling Model with Workers' Incentives
Many firms adjust employment in a "lumpy" manner -- infrequently and in large bursts. In this paper, I show that lumpy adjustments can arise from concerns about the incentives of remaining workers. Specifically, I develop a model in which a firm's productivity depends on its workers' effort and workers' income prospects depend on the firm's profitability. I use this model to analyze the consequences of demand shocks that are observed by the firm but not by its workers, who can only try to infer the firm's profitability from its employment decisions. I show that the resulting signaling model ...
Back-of-the-Envelope Estimates of Next Quarter’s Unemployment Rate
Layoffs are certainly one of the effects of battling COVID-19. What sort of unemployment rate might we see in the second quarter of 2020?
All Layoffs Are Not Created Equal
More layoffs are intended to be temporary than conventional measures would suggest. Shigeru Fujita explains how this undercounting occurs and its surprising implications for today's problem of long-term unemployment.