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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]
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
Labor Market Power and Development, joint with t. armangué-jubert and n. guner
Imperfect competition in labor markets can lead to efficiency losses and lower aggregate output. In this paper, we study whether differences in competitiveness of labor markets can help explain differences in GDP per capita across countries. We structurally estimate a model of oligopsony with free entry for countries at different stages of development and show that the labor supply elasticity, which determines the extent of firms’ labor market power, is increasing with GDP per capita. Wage mark-downs range from 55 percent among low-income countries to around 23 percent among the richest. Output per capita in poorer countries would increase by up to 68 percent if their labor markets were as competitive as in countries at the top of the development ladder.
Labor Market Competition and Inequality, joint with j. garcia-louzao
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 firm-specific wage components has been the main source of the decline in inequality over the last 20 years. Therefore, we leverage variation across sectors and over time to estimate the firm labor supply elasticity and use a semi-structural approach to show that a 10 percentage point increase in labor market competition leads to a 0.6 percentage point reduction in the variance of firm fixed effects. A counterfactual exercise using our preferred estimates suggests that the increase in labor market competition can explain about 15 percent of the observed decline in overall wage inequality.
Unlucky Migrants: Scarring Effect of Recessions on the Assimilation of the Foreign Born, joint with g. lucchetti
This paper studies how aggregate labor market conditions affect the intragenerational assimilation of immigrants in the hosting country. Using data from the American Community Survey, we leverage variation in the national unemployment rates in the U.S. at the time of arrival of different cohorts of immigrants to identify short- and long-run effects of recessions on their careers. We document that immigrants who enter the U.S. when the labor market is slack face large and persistent earnings reductions: a 1 p.p. rise in the unemployment rate at the time of migration reduces annual earnings by 4.9 percent on impact and 0.7 percent after 12 years since migration, relative to the average U.S. native. Change in the employment composition across occupations with different skill contents is the key driver: were occupational attainment during periods of high unemployment unchanged for immigrants, assimilation in annual earnings would slow down on average by only 3 years, instead of 12. Slower assimilation costs between 1.7 and 2.4 percent of lifetime earnings to immigrants entering the U.S. labor market when unemployment is high.
Firms, Policies, Informality, and the Labor Market, joint with c. cisneros-acevedo
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 two simulated reforms: a reduction in corporate income tax and an equivalent reduction in payroll taxes. We find that contracting corporate income taxes can achieve 0.9% higher output gains, 1 p.p. higher formal employment, and a 1.3 p.p. lower unemployment rate. A cut in payroll taxes generates instead lower and more unequally distributed output gains. A revenue budget-neutral welfare-maximizing policy shifts the burden from corporate income to payroll taxes, reducing informality by 2.2 p.p. and increasing output per capita by 2.4%.
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
Revise 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.
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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