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Working Paper
Can't Pay or Won't Pay? Unemployment, Negative Equity, and Strategic Default
This paper exploits matched data from the PSID on borrower mortgages with income and demographic data to quantify the relative importance of negative equity, versus lack of ability to pay, as affecting default between 2009 and 2013. These data allow us to construct household budgets sets that provide better measures of ability to pay. We use instrumental variables to quantify the impact of ability to pay, including job loss and disability, versus negative equity. Changes in ability to pay have the largest estimated effects. Job loss has an equivalent effect on default likelihood as a 35 ...
Working Paper
Can't pay or won't pay?: unemployment, negative equity, and strategic default
The authors exploit new data from the Panel Study of Income Dynamics (PSID) to provide a more systematic and detailed analysis of household-level employment, income, and expense shocks to mortgage default decisions than has been possible before. These new data provide very different answers regarding the importance of employment and financial factors in the decision to default on a mortgage than have been found in previous studies that were based on crude proxies for household-level financial variables.
Working Paper
Informal unemployment insurance and labor market dynamics
How do job losers use default -- a phenomenon 6x more prevalent than bankruptcy --as a type of "informal" unemployment insurance, and more importantly, what are the social costs and benefits of this behavior? To this end, I establish several new facts: (i) job loss is the main reason for default, not negative equity (ii) people default because they are credit constrained and cannot borrow more, and (iii) the value of debt payments is a significant fraction of a defaulter's earnings. Using these facts, I calibrate a general equilibrium model with a frictional labor market similar to Burdett ...
Working Paper
Foreclosure delay and U.S. unemployment
Through a purely positive lens, we study and document the growing trend of mortgagors who skip mortgage payments as an extra source of "informal" unemployment insurance during the 2007 recession and the subsequent recovery. In a dynamic model, we capture this behavior by treating both delinquency and foreclosure not as one period events, but rather as protracted and potentially reversible episodes that influence job search behavior and wage acceptance decisions. With a relatively conservative parameterization, we find that the observed foreclosure delays increase the unemployment rate by an ...
Discussion Paper
Foreclosure Delay and the U.S. Labor Market
The time required to complete a home foreclosure rose substantially during the Great Recession, due both to lender bottlenecks in processing foreclosures and to government policies intended to slow the foreclosure process. This paper shows that foreclosure delay had the unintentional benefit of giving unemployed homeowners additional time to search for high-paying jobs. {{p}} Our economic model analyzes foreclosure delay as equivalent to extending additional credit to unemployed homeowners that is paid back if the homeowners find jobs and fulfill their delinquent mortgage obligations before ...
Working Paper
Labor Market Power
To measure labor market power in the US economy, we develop a tractable quantitative, general equilibrium, oligopsony model of the labor market. We estimate key model parameters by matching the firm-level relationship between labor market share and employment size and wage responses to state corporate tax changes. The model quantitatively replicates quasi-experimental evidence on (i) imperfect productivity-wage pass-through, (ii) strategic behavior of dominant employers, and (iii) the local labor market impact of mergers. We then measure welfare losses relative to the efficient allocation. ...
Working Paper
Changing Income Risk across the US Skill Distribution: Evidence from a Generalized Kalman Filter
For whom has earnings risk changed, and why? To answer these questions, we develop a filtering method that estimates parameters of an income process and recovers persistent and temporary earnings for every individual at every point in time. Our estimation flexibly allows for first and second moments of shocks to depend upon observables as well as spells of zero earnings (i.e., unemployment) and easily integrates into theoretical models. We apply our filter to a unique linkage of 23.5m SSA-CPS records. We first demonstrate that our earnings-based filter successfully captures observable shocks ...
Working Paper
Minimum Wages, Efficiency and Welfare
It has long been argued that a minimum wage could alleviate efficiency losses from monopsony power. In a general equilibrium framework that quantitatively replicates results from recent empirical studies, we find higher minimum wages can improve welfare, but most welfare gains stem from redistribution rather than efficiency. Our model features oligopsonistic labor markets with heterogeneous workers and firms and yields analytical expressions that characterize the mechanisms by which minimum wages can improve efficiency, and how these deteriorate at higher minimum wages. We provide a method to ...
Report
Labor Market Power with Worker and Firm Heterogeneity
How do firms set wages? How should governments set income taxes? If labor supply is inelastic to wages, firms can pay workers less than their marginal products, and governments can increase taxes without eroding the base. However, the structure of labor supply elasticities in the economy is complex. Recent empirics document variation across workers, firms, and margins (which firm to work at versus how many hours to work). To account for this rich structure of labor supply elasticities we extend the neoclassical model to include a discrete choice over which firm to work at, production ...
Report
An SEIR Infectious Disease Model with Testing and Conditional Quarantine
We extend the baseline Susceptible-Exposed-Infectious-Recovered (SEIR) infectious disease epidemiology model to understand the role of testing and case-dependent quarantine. Our model nests the SEIR model. During a period of asymptomatic infection, testing can reveal infection that otherwise would only be revealed later when symptoms develop. Along with those displaying symptoms, such individuals are deemed known positive cases. Quarantine policy is case-dependent in that it can depend on whether a case is unknown, known positive, known negative, or recovered. Testing therefore makes possible ...