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Working Paper
Do technological improvements in the manufacturing sector raise or lower employment?
We find that technology's effect on employment varies greatly across manufacturing industries. Some industries exhibit a temporary reduction in employment in response to a permanent increase in TFP, whereas far more industries exhibit an employment increase in response to a permanent TFP shock. This raises serious questions about existing work that finds that a labor productivity shock has a strong negative effect on employment. There are tantalizing and interesting differences between TFP and labor productivity. We argue that TFP is a more natural measure of technology because labor ...
Working Paper
Non-stationary hours in a DSGE model
The time series fit of dynamic stochastic general equilibrium (DSGE) models often suffers from restrictions on the long-run dynamics that are at odds with the data. Relaxing these restrictions can close the gap between DSGE models and vector autoregressions. This paper modifies a simple stochastic growth model by incorporating permanent labor supply shocks that can generate a unit root in hours worked. Using Bayesian methods we estimate two versions of the DSGE model: the standard specification in which hours worked are stationary and the modified version with permanent labor supply shocks. ...
Briefing
Does Household Labor Supply Insure Against Income Shocks?
A household has various means for insuring against a primary income loss, including increasing the spouse's labor supply.However, increasing spousal labor supply does not apply across all incomes, and that is why it is difficult to detect in the data.Our recent working paper "Spousal Labor Response to Primary Income: Identification and Heterogeneity" isolates income shocks that are unexpected and uncorrelated among spouses, both of which are key properties for uncovering the true strength of the spousal labor supply mechanism.
Journal Article
On the aggregate labor supply
Journal Article
Labor-Market Wedge under Engel Curve Utility: Cyclical Substitution between Necessities and Luxuries
In booms, households substitute luxuries for necessities, e.g., food away from home for food at home. This cyclical pattern of composition changes in the consumption basket has the potential to reduce the volatility of measures of the labor-market wedge, the gap between the marginal rate of substitution and the real wage. Based on household expenditure patterns from the Consumer Expenditure Survey, we show that this composition bias has only a limited impact on the measured labor-market wedge, accounting for 6 percent to 16 percent of its cyclical volatility.
Working Paper
Spousal Labor Response to Primary Income: Identification and Heterogeneity
We present a new estimate for the elasticity of spousal labor supply in response to changes in the primary worker's income, the so-called "added worker effect." By leveraging firm-side information of the primary worker as an instrument, we isolate income changes that are uncorrelated with the spouse's productivity, addressing endogeneity bias. We find an economically meaningful role for the spousal labor supply, especially among young households with limited financial assets. We construct a heterogeneous agent model consistent with the estimated spousal employment response to design a ...
Working Paper
Home production
Studying the incentives and constraints in the non-market sector ? that is, home production ? enhances our understanding of economic behavior in the market. In particular, it helps us to understand (1) small variations of labor supply over the life cycle, (2) large variations of employment relative to wages over the business cycle, and (3) large income differences across countries.
Working Paper
Understanding how employment responds to productivity shocks in a model with inventories
Whether technological progress raises or lowers aggregate employment in the short run has been the subject of much debate in recent years. Using a simple model of industry employment, we show that cross-industry differences of inventory holding costs, demand elasticities, and price rigidities potentially all affect employment decisions in the face of productivity shocks. In particular, the employment response to a permanent productivity shock is more likely to be positive the less costly it is to hold inventories, the more elastic industry demand is, and the more flexible prices are. Using ...
Working Paper
Labor-Market Wedge under Engel Curve Utility: Cyclical Substitution between Necessities and Luxuries
In booms, households substitute luxuries for necessities, e.g., food away from home for food at home. Ignoring this cyclical pattern of composition changes in the consumption basket makes the labor-market wedge -- a measure of inefficiency that reflects the gap between the marginal rate of substitution and the real wage -- appear to be more volatile than it actually is. Based on the household expenditure pattern across 10 consumption categories in the Consumer Expenditure Survey, we show that taking into account these composition changes can explain 6-15% of the cyclicality in the measured ...
Working Paper
Labor-Market Uncertainty and Portfolio Choice Puzzles
The standard theory of household-portfolio choice is hard to reconcile with the following facts: (i) Households hold a small amount of equity despite the higher average rate of return. (ii) The share of risky assets increases with the age of the household. (iii) The share of risky assets is disproportionately larger for richer households. We develop a life-cycle model with age-dependent unemployment risk and gradual learning about the income profile that can address all three puzzles. Young workers, on average asset poor, face larger labor-market uncertainty because of high unemployment risk ...