International Journal of Finance and Economics, (2018) vol. 23, no. 2, pp. 257-282, joint with Annalisa Ferrando
(previous version appeared as ECB working paper 2015 n.1823)
Media Coverage: 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
GEP Discussion Paper 19/15 (new version coming soon)
In this paper I study how labor market institutions at the time of a trade reform determine the post-reform dynamics of unemployment. I first document that for a large group of developing countries (1) unemployment increases on average following a trade reform, (2) there are significant cross-country differences in unemployment response, and (3) cross-country variation in the labor market institutions in place at the time of the reform can account for the observed unemployment changes. I interpret this evidence through the lens of a model of international trade, featuring heterogeneous firms, endogenous industry dynamics and search and matching frictions in the labor market. I estimate the model to match the pre-liberalization firm dynamics in Colombia and Mexico, two countries that differed by the labor regulations in place at the time of trade liberalization, and I characterize numerically the full transition path towards the new steady state. I show that the dynamic response of unemployment to a reduction in trade costs is non-linear across different combinations of labor market institutions in place at the time of the reform. Consistent with the cross-country evidence, the response is stronger and more persistent when the firing costs are lower and the statutory minimum wage and unemployment benefits are larger. These three institutions can account for up to 46 percent of the average unemployment response in the case of Mexico, and up to 41 percent in the case of Colombia.
KEYWORDS: Trade reform, labor market institutions, unemployment, transitional dynamics, gains from trade
JEL CODES: E24, F12, F16, L11
CFCM working paper 21/01, joint with Nezih Guner
For a large set of countries with different GDP per capita levels, we document how the distribution of labor earnings varies by development. Data reveals that the distribution of earnings changes with development in a particular way: while the standard deviation of log earnings increases with development, 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 correlated with firm productivity and reductions in the labor market's ability to match unemployed workers and open vacancies. These distortions lead to the misallocation of resources and reduce employment and the GDP per capita. But they also affect how much firms are willing to pay to workers, how well higher skilled workers are matched with firms with higher productivity, and how much training workers receive. The model is consistent with a host of factors on how firm size distribution, firms' training decisions, and workers' life-cycle earnings profiles change with development and generates the observed patterns of changes in earnings distribution with development.
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
CEPR Covid Economics 20/29, joint with Jake Bradley and Adam H. Spencer
Revise and resubmit at the European Economic Review
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 at 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 degrees of severity of lockdown. We use these insights to make a labor market policy prescription to be used in conjunction with lockdown measures. Finally we find that, while the pandemic and ensuing policies impact the majority of the population negatively, consistent with recent studies, the costs are not borne equally. While the old face the highest health risks, it is the young low wage workers who suffer the most income and employment risk.
KEYWORDS: Sir Model, Search and Matching model, Lockdown Policies, Income Risk, Employment Risk
JEL CODES: I1, I3, J1, J6