Papers
Papers about the decline in labor's share of income:
Demographic Origins of the Decline in Labor's Share
with Jacob Short
*Updated 5/26/2017*
Previously circulated as "The Life-Cycle Distribution of Earnings and Decline in Labor's Share"
Labor's share of income has recently declined in many countries, coincident with an increase in average worker age. We develop a framework in which the age-distribution of earnings affects labor's share when wages differ from the static marginal product of labor. Using sectoral data, we estimate that worker capture a smaller share of their marginal product as they age: a sixty-five year old receives half of her marginal product relative to when she was in her twenties. Our estimates imply that aging can account for 49% of the decline in US labor's share since 1987 and 46% of the global decline since 1975.
with Jacob Short
*Updated 5/26/2017*
Previously circulated as "The Life-Cycle Distribution of Earnings and Decline in Labor's Share"
Labor's share of income has recently declined in many countries, coincident with an increase in average worker age. We develop a framework in which the age-distribution of earnings affects labor's share when wages differ from the static marginal product of labor. Using sectoral data, we estimate that worker capture a smaller share of their marginal product as they age: a sixty-five year old receives half of her marginal product relative to when she was in her twenties. Our estimates imply that aging can account for 49% of the decline in US labor's share since 1987 and 46% of the global decline since 1975.
Can Capital Deepening Explain the Global Decline in Labor's Share?
with Jacob Short
*Updated 5/17/2017*
(Submitted)
We estimate that a unitary aggregate elasticity of substitution between capital and labor is both economically and statistically consistent with cross-country data -- capital deepening cannot explain the global decline in labor's share. Our methodology derives from inter-steady-state transitions in the Neo Classical growth model. The elasticity of substitution is identified from growth in labor's share relative to investment prices and consumption growth. We show that previous cross-country estimates of this elasticity are likely biased upwards because they omitted consumption growth.
with Jacob Short
*Updated 5/17/2017*
(Submitted)
We estimate that a unitary aggregate elasticity of substitution between capital and labor is both economically and statistically consistent with cross-country data -- capital deepening cannot explain the global decline in labor's share. Our methodology derives from inter-steady-state transitions in the Neo Classical growth model. The elasticity of substitution is identified from growth in labor's share relative to investment prices and consumption growth. We show that previous cross-country estimates of this elasticity are likely biased upwards because they omitted consumption growth.
Papers about employer credit checks and policies that restrict this practice:
The Unintended Consequences of Employer Credit Check Bans on Labor and Credit Markets
with Kristle Cortés and Murat Tasci
*Updated 5/23/2017*
Lenders have traditionally used credit reports to measure a borrower’s default risk, but credit agencies also market reports to employers for use in hiring. Since the onset of the Great Recession, eleven states have restricted the use of credit reports in the labor market. We document that county-level job creation decline faster in states that restrict employer credit checks, although not in occupations exempt from the legislation. Furthermore, counties with more individuals with sub-prime credit experienced larger declines in vacancies than average. Deterioration in the unemployment rate, although significant, was temporary. We present evidence that negative effects of these bans extend beyond the labor market. Using data from individual credit reports, we find that subprime workers experience a significant decline in credit access and increase in delinquencies after a ban is enacted.
with Kristle Cortés and Murat Tasci
*Updated 5/23/2017*
Lenders have traditionally used credit reports to measure a borrower’s default risk, but credit agencies also market reports to employers for use in hiring. Since the onset of the Great Recession, eleven states have restricted the use of credit reports in the labor market. We document that county-level job creation decline faster in states that restrict employer credit checks, although not in occupations exempt from the legislation. Furthermore, counties with more individuals with sub-prime credit experienced larger declines in vacancies than average. Deterioration in the unemployment rate, although significant, was temporary. We present evidence that negative effects of these bans extend beyond the labor market. Using data from individual credit reports, we find that subprime workers experience a significant decline in credit access and increase in delinquencies after a ban is enacted.
Employer Credit Checks: Poverty Traps versus Matching Efficiency
(with Dean Corbae)
*Updated 5/19/2017*
According to a survey by the Society for Human Resource Management (2010), 60% of human resource representatives indicated that their companies ran credit checks on potential employees. Legislators have become concerned that these checks can create poverty traps and have therefore limited their use in hiring and wage negotiations. We build a model in which credit scores inform employers of a worker's expected productivity, in addition to information on the worker's default propensity to lenders. The model can generate a poverty trap in which households with bad credit scores receive low wages, which then makes them more likely to default, which reinforces low future credit scores. Our policy analysis highlights the general equilibrium effect of eliminating employer credit checks: doing so reduces repayment incentives for all households, thereby eroding credit market conditions.
(with Dean Corbae)
*Updated 5/19/2017*
According to a survey by the Society for Human Resource Management (2010), 60% of human resource representatives indicated that their companies ran credit checks on potential employees. Legislators have become concerned that these checks can create poverty traps and have therefore limited their use in hiring and wage negotiations. We build a model in which credit scores inform employers of a worker's expected productivity, in addition to information on the worker's default propensity to lenders. The model can generate a poverty trap in which households with bad credit scores receive low wages, which then makes them more likely to default, which reinforces low future credit scores. Our policy analysis highlights the general equilibrium effect of eliminating employer credit checks: doing so reduces repayment incentives for all households, thereby eroding credit market conditions.
Papers on other topics:
The Aggregate Effects of Minimum Wage Regulation at the Zero Lower Bound
(submitted)
The sticky-price New Keynesian model predicts rapid deflation and a deep recession when nominal interest rates are stuck at the zero lower bound. Introducing a simple and realistic form of downward nominal wage rigidity - a minimum wage law - drastically reshapes the economy’s response to a ZLB shock. The minimum wage protects against deflation, which dampens output losses during the ZLB episode. Theoretically, if the ZLB is sufficiently persistent then a binding minimum wage generates infinite aggregate output and inflation gains. In an economy calibrated to the United States, output losses are reduced by over half and the model’s disinflation predictions are in line with recent experiences. Increasing the minimum wage during a ZLB episode further improves aggregate outcomes.
(submitted)
The sticky-price New Keynesian model predicts rapid deflation and a deep recession when nominal interest rates are stuck at the zero lower bound. Introducing a simple and realistic form of downward nominal wage rigidity - a minimum wage law - drastically reshapes the economy’s response to a ZLB shock. The minimum wage protects against deflation, which dampens output losses during the ZLB episode. Theoretically, if the ZLB is sufficiently persistent then a binding minimum wage generates infinite aggregate output and inflation gains. In an economy calibrated to the United States, output losses are reduced by over half and the model’s disinflation predictions are in line with recent experiences. Increasing the minimum wage during a ZLB episode further improves aggregate outcomes.
Inter-generational Redistribution in the Great Recession
(with Jonathan Heathcote, Dirk Krueger, and Jose Victor Rios Rull) (R&R JPE) We construct stochastic overlapping-generations general equilibrium models in which households are subject to aggregate shocks that a ect both wages and asset prices. We use a calibrated version of the model to quantify how the welfare costs of severe recessions are distributed across di erent age groups. The model predicts that younger cohorts fare better than older cohorts when the equilibrium decline in asset prices is large relative to the decline in wages. Asset price declines hurt the old, who rely on asset sales to nance consumption, but bene t the young, who purchase assets at depressed prices. In our preferred calibration, asset prices decline more than twice as much as wages, consistently with the experience of the US economy in the Great Recession. A model recession is approximately welfare-neutral for households in the 20-29 age group, but translates into a large welfare loss of around 10 percent of lifetime consumption for households aged 70 and over. A Simple Dynamic Theory of Credit Scores Under Adverse Selection
(with Dean Corbae) We provide a simple dynamic environment with adverse selection to study how credit scores affect credit market allocations when credit contracts are rich enough to generate separation. This is achieved by constraining the low-risk household while subsidizing the interest rate for the high-risk household. A higher score (i.e. prior that the household is low risk) relaxes the constraint on low-risk households and increases the subsidization for high-risk, which increases utility for both types. We then consider the welfare consequences of differ- ent information regimes, which is especially compelling because credit allocations are intra-temporally constrained efficient in our model. A Quantitative Rat Race Theory of Labor Market Dynamics
(Under Revision) A fundamental puzzle for productivity driven business cycle theories is that labor productivity and hours are negatively correlated. I refine the empirical puzzle and provide a theory to account for it. I emphasize that hours per worker and individual hours relative to usual hours move counter to productivity. In the cross-section, I find that almost all workers increase their hours when productivity is low, except for low (residual) wage earners. Furthermore, low wage earners suffer larger wage losses when productivity falls. Based on these findings, I hypothesize that non-neutral movements in productivity exacerbate frictions due to adverse selection. I use recent advances in competitive search theory to imbed Akerlof's Rat Race into a Neo Classical growth model with search frictions. Firms bundle high earnings with long hours in order to separate more able and willing workers from the less productive. When low productivity workers fall (relatively) farther behind, the firm requires longer hours from everyone else; perversely, many workers work harder even as the market value of their time falls. A calibrated version of the model is used to measure the aggregate volatility generated by productivity shocks when labor markets are burdened by adverse selection. Bankruptcy, Incorporation, and The Nature of Entrepreneurial Risk (Under Revision)
(joint with Jake Short) Entrepreneurship is risky; entrepreneurs forgo wages and invest their time and resources into a business with large potential gains, but uninsurable risks. It is vital to know the extent of these risks, and the insurance available against them, in order to assess corporate tax and personal bankruptcy reforms. We document that incorporated entrepreneurs operate larger businesses, accumulate more wealth, and are on average more productive than unincorporated entrepreneurs. We embed the U.S. bankruptcy and incorporation legal systems in a quantitative macroeconomic theory of occupational, incorporation, and default choices that accounts for the cross-sectional facts. In the model, as in the U.S., incorporation provides insurance via limited liability beyond personal bankruptcy exemptions, at the expense of administrative burdens and an endogenous interest rate premium. Our model suggests that capital shocks are important entrepreneurial risks. A calibrated economy in which each unit of installed capital entails a small probability (0.6%) of a catastrophic shock (full destruction of capital) is able to account for the data along multiple untargeted dimensions. A counterfactual exercise is performed to see if reducing the costs of incorporation can account for an increase in wealth inequality in line with US data. | |||
