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Research

Unlucky Migrants: Scarring Effect of Recessions on the Assimilation of the Foreign Born, joint with g. lucchetti 
accepted in Labour Economics, [pdf, online appendix, replication files, slides]
 

Labor Market Power and Development, joint with t. armangué-jubert and n. guner
Forthcoming at the American Economic Review: Insights, [pdf, replication files, slides]
 

Dual Returns to Experience, joint with j. garcia-louzao and l. hospido
Labour Economics, (2023) 80: 102290, [pdf, online appendix, replication files, journal link, slides]
awarded AEET Lluis Fina Runner-Up Award
 

Twin Peaks: Covid-19 and the Labor Market, joint with j. bradley and a. h. spencer 
European Economic Review, (2021) 138: 103828, [pdf, online appendix, replication files, journal link]
awarded British Academy Special Research Grant: Covid-19

Working Papers

Risk Sharing and Land Misallocation joint with d. pietrobon
[pdf, slides]
We study the impact of incomplete consumption risk-sharing on land misallocation in rural economies. We develop a general equilibrium model of land cultivation choices, where heterogeneous farmers face idiosyncratic output shocks and insure themselves by participating in a risk-sharing arrangement. Incomplete insurance dis-torts farmers’ choices, leading them away from maximizing expected incomes and resulting in land misallocation. Using the latest ICRISAT panel data from rural India, we quantify the losses attributable to limited risk-sharing. Completing insurance markets leads to output and welfare gains of 19% and 29%, respectively. Improving the functioning of consumption insurance markets within an otherwise undistorted economy can yield gains comparable to those achieved by removing distortions in factor markets.

 

Firm Dynamics, Monopsony, and Aggregate Productivity Differences, joint with t. armangue-jubert and t.rapone
[pdf]
This paper studies how labor market power affects firm dynamics and aggregate productivity. We build a dynamic model of neoclassical monopsony with occupational choice, firm growth, and investment in R&D. Labor market power lowers efficiency and leads to aggregate output losses by distorting the allocation of labor, entrepreneurship, and innovation decisions. The model is consistent with cross-country evidence of higher life-cycle firm growth and higher productivity investment in more competitive labor markets and can explain up to 42% of differences in income per capita across countries. We find that about one-third of the losses are attributable to a distorted selection of entrepreneurs and a lack of innovation, suggesting that efficiency losses may be greater than those estimated by previous studies.

 

Labor Market Competition and Inequality, joint with j. garcia-louzao 
Revise and Resubmit, European Economic Review, [pdf, slides]
Does competition in the labor market affect wage inequality? Standard textbook monopsony models predict that lower employer labor market power reduces wage dispersion. We test this hypothesis using Social Security data from Lithuania. We first fit a two-way fixed effects model to quantify the contribution of worker and firm heterogeneity to wage dispersion and document that the compression of dispersion in firm fixed effects has been the main source of the decline in inequality over the past 20 years. Using a theory-based relationship, we then leverage variation across sectors and over time to show that a 10 percentage point increase in labor market competition leads to a 0.77 percentage point reduction in the variance of firm-specific wage components. A counterfactual exercise using our preferred estimates suggests that the increase in labor market competition can explain at least 17 percent of the observed decline in overall wage inequality. 

 

Firms, Policies, Informality, and the Labor Market, joint with c. cisneros-acevedo
Revise and Resubmit, International Economic Review, [pdf, slides]
This paper studies how taxes and regulations affect firms and labor market outcomes in the developing world. We build a general equilibrium model of firm dynamics subject to search frictions, taxes, and imperfectly enforced legislation. This setup leads to informal employment along the intensive and extensive margin. Estimated to match firm and worker-level data from Peru, the model sheds light on the effect of corporate income tax on informality and unemployment. On the one hand, a reduction in corporate taxes concentrates employment in larger and more productive firms, increasing efficiency and reallocating workers to formal jobs. On the other hand, employment shifts to a smaller mass of firms creating higher unemployment duration and higher income inequality. Holding tax revenues constant, we compare a simulated reduction in corporate income tax to an equivalent reduction in payroll taxes. We find that cuts in corporate income taxes are more effective in reducing the informality rate and increasing real GDP per worker, while not generating as much unemployment as cuts in payroll taxes, +1.8 versus +3.3 percentage points. A revenue budget-neutral welfare-maximizing policy shifts the burden from corporate income to payroll taxes, reducing informality by 2.2 percentage points and increasing output per capita by 2.4 percent.

 

Misallocation and Inequality, joint with n. guner
Revise and Resubmit, American Economic Journal: Macroeconomics, [pdf. slides]
We document how inequality in wage and salary earnings varies with GDP per capita for a large set of countries. The mean-to-median ratio and the Gini coefficient decline as we move from poorer to richer countries. Yet, this decline masks divergent patterns: while inequality at the top of the earnings distribution falls, inequality at the bottom increases. We interpret these facts within a model economy with heterogeneous workers and firms, featuring industry dynamics, search frictions, and skill accumulation of workers through on-the-job learning and training. The benchmark economy is calibrated to the UK. We then study how the earnings distribution changes with distortions that penalize high-productivity firms and frictions that reduce match formation. Distortions and frictions reduce employment, average firm size, and GDP per capita. They also affect how much firms are willing to pay workers, how well high-skill workers are matched with high-productivity firms, and how much training workers receive. The model generates the observed cross-country relation between GDP per capita and earnings inequality and a host of cross-country facts on firm size distribution, firms’ training decisions, and workers’ life-cycle and job tenure earnings profiles.

 

Trade and Labor Market Institutions: A Tale of Two Liberalizations
Reject and Resubmit, Review of Economic Dynamics, [pdf, supplementary material, slides]
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. While selection fosters short- and long-run welfare gains, it also generates 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..

 

Policy Papers

Dynamic Early Warning and Action Model, joint with h. mueller and c. rauh
FCDO Technical Report, 2022
 

Financial Constraints and Productivity: Evidence from Euro Area Companies, joint with a. ferrando
ECB working paper, 2015, no. 1823
 

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