European Economic Review, (2021) 138: 103828, joint with Jake Bradley and Adam H. Spencer
awarded British Academy Special Research Grant: Covid-19
This paper develops a choice-theoretic equilibrium model of the labor market in the presence of a pandemic. It includes heterogeneity in productivity, age and the ability to work from home. Worker and firm behavior changes in the presence of the virus, which itself has equilibrium consequences for the infection rate. The model is calibrated to the UK and counterfactual lockdown measures are evaluated. We find a different response in both the evolution of the virus and the labor market with different lockdown policies. A laissez-faire approach results in lives lost and acts as negative shock to the economy. A lockdown policy, absent any other intervention, will reduce the lives lost but increase the economic burden. Consistent with recent evidence, we find that the economic costs from lockdown are most felt by those earning the least. Finally, we introduce a job retention scheme as implemented by the UK Government and find that it spreads the economic hardship more equitably.
KEYWORDS: Covid-19, SIR model, search and matching, lockdown, furlough
JEL CODES: I1, I3, J1, J6
joint with Nezih Guner
For a large set of countries, we document how the distribution of labor earnings varies by development. Data reveals that changes in earning distributions are not trivial: while the standard deviation of log earnings increases with GDP per capita, the mean-to-median ratio declines. We interpret this fact within a model economy with heterogeneous workers and firms, featuring industry dynamics, labor market frictions, skill accumulation of workers with learning-by-doing and on-the-job training, and earnings inequality across firms and workers. The benchmark economy is calibrated to the UK. We study how the earnings distribution changes as we introduce two distortions in the benchmark economy: wedges on firms' output that are correlated with firm productivity and reductions in the labor market's ability to match unemployed workers and open vacancies. These distortions lead to resources misallocation and reduce employment, average firm size and GDP per capita. They also affect how much firms are willing to pay to workers, how well the skilled workers are matched with high-productivity firms, and how much training workers receive. The model is consistent with a host of facts on changes in firm size distribution, firms' training decisions, and workers' life-cycle earnings profiles along development. It also delivers changes in earnings distribution in line with the data.
KEYWORDS: labor market frictions, correlated distortions, productivity, establishment size, human capital accumulation, job training, life-cycle wage profile, inequality, development
JEL CODES: E23, E24, O11, O47
IZA Discussion Paper N. 14596, joint with Jose Garcia-Louzao and Laura Hospido
In this paper we study human capital accumulation and wage trajectories of young workers in a dual labor market. Using rich administrative data for Spain, we show that returns to experience accumulated in fixed-term contracts are on average lower than the returns to experience acquired in permanent jobs. The gap in returns widens along the skill and the experience distributions, where workers in the upper tail have the largest difference in returns. Ultimately, heterogeneous returns to experience translate into significant changes in the position of workers along the distribution of wage growth after 15 years in the labor market.
KEYWORDS: human capital, labor market duality, earnings dynamics, inequality
JEL CODES: J30, J41, J63
How do labor market policies interact with trade reforms? I answer this question using a model of international trade that links endogenous industry dynamics to search frictions and labor market institutions. Calibrated to replicate major trade reforms in Colombia and Mexico, counterfactual experiments imply that lower firing costs and higher minimum wage enhance firm selection following a trade liberalization, fostering short- and long-run welfare gains at the expense of higher between- and within-industry job reallocation, and higher unemployment. A strong efficiency-equity trade-off arises as an economy reduces employment rigidities in favor of stronger downward wage rigidities.
KEYWORDS: Trade reform, labor market institutions, unemployment, transitional dynamics, gains from trade
JEL CODES: E24, F12, F16, L11
Work in Progress
International Journal of Finance and Economics, (2018) vol. 23, no. 2, pp. 257-282, joint with Annalisa Ferrando
Media: centralbanking.com, elMon.cat
Using firm‐level data from the Bureau van Dijk‐Amadeus database, we study the relation between firms' financial structure, access to external finance, and total factor productivity in several euro area countries along the period 1995–2011. To do so, we build a synthetic indicator of financial constraints using an a priori classification based on specific firm characteristics and measures of financial pressure, and we embed it into a production equation, which controls for the endogenous relation between labour decisions and productivity innovations. We find a negative and significant estimate for the elasticity of total factor productivity with financial constraints of −18%. This effect significantly amplifies in small, young, and private companies, it is likely to persist over time, and it increased during the recent financial crisis. A counterfactual exercise shows that peripheral countries are likely to gain between 19% and 22% of their average total factor productivity from free access to finance. Results are robust to several robustness checks.
KEYWORDS: Financial constraints, productivity, sectoral analysis, SMEs
JEL CODES: D24, G32, O16