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Working Paper
Growing old together: firm survival and employee turnover
Labor market outcomes such as turnover and earnings are correlated with employer characteristics, even after controlling for observable differences in worker characteristics. We argue that this systematic relationship constitutes strong evidence in favor of models where workers choose how much to invest in future productivity. Because employer characteristics are correlated with firm survival, returns to these investments vary across firm types. We describe a dynamic general equilibrium model where workers employed in firms more likely to survive choose to devote more time to productivity ...
Journal Article
Inequality and growth: challenges to the old orthodoxy
Discussions of how best to alleviate poverty often center on the relative merits of policies that boost growth and those that promote redistribution. If greater inequality allows economies to expand faster, or if it?s an inevitable consequence of pro-growth measures, the two principles seem incompatible. Under such a scenario, societies seeking rapid growth rates have to forgo redistribution from rich to poor. Conversely, choosing a high degree of redistribution implies the decision to accept lower growth rates.
Working Paper
Financial Engineering and Economic Development
The vast literature on financial development focuses mostly on the causal impact of the quantity of financial intermediation on economic development and productivity. This paper, instead, focuses on the role of the financial sector in creating securities that cater to the needs of heterogeneous investors. We describe a dynamic extension of Allen and Gale (1989)?s optimal security design model in which producers can tranche the stochastic cash flows they generate at a cost. Lowering security creation costs in that environment leads to more financial investment, but it has ambiguous effects on ...
Journal Article
The real impact of financial crises
Output falls precipitously in most emerging nations that experience financial crises. The authors conjecture that a significant part of the real impact of financial crises is due to the fact that during turbulent times firms choose to leave a large fraction of productive resources idle until business conditions improve. In the case of Mexicos 199495 crisis, they calculate that capital utilization could account for as much as half the drop in standard measures of total factor productivity. Capital utilization matters much more during financial crises than during other periods, they argue, ...
Journal Article
Mexico's financial vulnerability: then and now
Financial turmoil dots Mexico?s recent economic history. Between 1975 and 1995, the nation experienced recurrent currency, debt and banking crises with devastating effects on real economic activity. ; In Mexico, election years often heighten the risk of financial instability. Debt defaults or massive devaluations?or both?have accompanied three of the past five presidential elections. Given that history, it?s not surprising that questions about Mexico?s financial vulnerability have arisen with the approach of July?s presidential election. ; While the concerns may be understandable, Mexico has ...
Working Paper
The implications of capital-skill complementarity in economies with large informal sectors
In most developing nations, formal workers tend to be more experienced, more educated, and earn more than informal workers. These facts are often interpreted as evidence that low-skill workers face barriers to entry into the formal sector. Yet, there exists little direct evidence that such barriers are important. This paper describes a model where significant differences arise between formal and informal workers even though labor markets are perfectly competitive. In equilibrium, the informal sector emphasizes low-skill work because informal managers have access to less outside financing, and ...
Working Paper
The poor, the rich and the enforcer: institutional choice and growth
We study economies where improving the quality of institutions ? modeled as improving contract enforcement ? requires resources, but enables trade that raises output by reducing the dispersion of marginal products of capital. We find that in this type of environment it is optimal to combine institutional building with endowment redistribution, and that more ex-ante dispersion in marginal products increases the incentives to invest in enforcement. In addition, we show that institutional investments lead over time to a progressive reduction in inequality. Finally, the framework we describe ...
Working Paper
A New Perspective on the Finance-Development Nexus
The existing literature on financial development focuses mostly on the causal impact of the quantity of financial intermediation on economic development. This paper, instead, focuses on the role of the financial sector in creating securities that cater to the needs of heterogeneous investors. To that end, we describe a dynamic extension of Allen and Gale (1989)?s optimal security design model in which producers can tranche the stochastic cash flows they generate at a cost. Lower tranching costs in that environment lead to capital deepening and raise aggregate output. The implications of lower ...
Journal Article
Labor markets in turbulent times: some evidence from Mexico
Financial shocks increase the need to shift workers among employers, industries and occupations. These disruptions, in turn, can have adverse impacts on productivity.
Journal Article
Is Mexico ready to roar?