Search Results
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 ...
Working Paper
Disincentive Effects of Unemployment Insurance Benefits
Unemployment insurance (UI) acts both as a disincentive for labor supply and as a demand stimulus which may explain why empirical studies often find limited effects of UI on employment. This paper provides independent estimates of the disincentive effects arising from the largest expansion of UI in U.S. history, the pandemic unemployment benefits. Using high-frequency data on small restaurants and retailers from Homebase, we control for local demand effects by comparing neighboring businesses that largely share the positive impact of UI stimulus. We find that employment in low-wage businesses ...
Briefing
How Did Pandemic UI Benefits Affect Employment Recovery in Local Industry Markets?
We analyze the employment recovery of low-wage establishments relative to the employment recovery of high-wage establishments within local labor markets, and we find a slower recovery in low-wage establishments. We associate the difference with the expanded generosity of pandemic unemployment insurance (UI) supplements, which have a larger negative effect on the job-filling rate of low-paying establishments. We use a model of labor search to translate our establishment-level observations into a disincentive effect of pandemic UI benefits at the worker level.
Working Paper
Regional Consumption Responses and the Aggregate Fiscal Multiplier
We use regional variation in the American Recovery and Reinvestment Act (2009-2012) to analyze the effect of government spending on consumer spending. Our consumption data come from household-level retail purchases in Nielsen and auto purchases from Equifax credit balances. We estimate that a $1 increase in county-level government spending increases consumer spending by $0.18. We translate the regional consumption responses to an aggregate fiscal multiplier using a multi-region, New Keynesian model with heterogeneous agents and incomplete markets. Our model successfully generates the ...
Working Paper
Heterogeneity in labor supply elasticity and optimal taxation
Standard public finance principles imply that workers with more elastic labor supply should face smaller tax distortions. This paper quantitatively tests the potential of such an idea within a life-cycle model with heterogeneous two-member households. I find that younger and older-wealthier households have a larger labor supply elasticity than middle-aged households. The same is true for household members who are not the sole financial provider in the unit relative to primary breadwinners. To decrease inefficient distortions I study a tax system that uses information on the age, assets, and ...
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 ...
Briefing
How Can We Make a Progressive Tax System More Efficient?
In the U.S., income tax rates rise as households earn more. However, such a system means workers have a reduced incentive to increase their earnings. In this article, I discuss a finding from one of my papers that explores the possible effects of targeting tax rates on additional characteristics besides income.
Briefing
How Female Labor Supply Shapes Aggregate Labor Market Dynamics
In this article, we detail key aspects of female labor supply and how it shapes aggregate labor market dynamics. We start by documenting several important features of female labor supply including labor market participation, business cycle volatility, responsiveness to the underlying economic environment and its role for insurance within the household. For this article, we relied on Michele Tertilt and Matthias Doepke's excellent survey "Families in Macroeconomics."
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 ...
Briefing
How Much Do Labor Costs Affect Prices in Recessions and in Expansions?
Inflation had been quite low in the decade following the Great Recession but surged following the COVID-19 recession. Can labor costs explain this change in the dynamics of inflation? According to recent research, the relatively stable inflation in the last decade indicates a weaker pass-through of labor costs to wages, especially in the goods sector of the economy. The current inflationary episode, however, suggests that the wage-price pass-through may have regained its strength.