Job Market Paper: Borrowing Constraints, Search, and Life-Cycle Inequality [PDF]:
Abstract: This paper quantifies the impact of borrowing constraints on life-cycle inequality through search frictions. I document a set of empirical regularities about the labor market behavior of borrowing constrained households using the Survey of Income and Program Participation (SIPP). Following unemployment spells, likely-constrained households match to jobs that pay 6 percent more per quarter when they receive a 10 percent increase in their unemployment insurance. I construct a life-cycle model of labor market search to assess the size and mechanisms through which borrowing constraints impact inequality. The model features risk averse workers who face borrowing constraints, accumulate human capital endogenously, and search both on and off the job. I use indirect inference to estimate the model, and show that borrowing constraints contribute to both placement into lower-paying jobs as well as slower human capital accumulation. Overall, I find that a standard deviation change in initial wealth is twice as important in determining life-cycle consumption and earnings inequality relative to a standard deviation change in initial human capital.
Note: Previously circulated under the title “Wealth Effects, Search, and Life-Cycle Inequality”
Do Workers Direct their Search? (joint with Christine Braun, Bryan Engelhardt, and Peter Rupert) [PDF]:
Abstract: Models of job search typically assume that search can either be described as random or competitive. However, there is scant empirical evidence to guide the choice between these frameworks. In this paper we show that the semi-elasticity of the hazard rate differs across the two models and test this implication using likelihood ratio tests. We find evidence against random search by showing that changes in the model-implied hazard rate are not consistent with those observed in the data.
Public Education Spending and Intergenerational Mobility [PDF]:
Abstract: This paper seeks to understand the role that spending on public education plays in determining the persistence of income across generations. It shows that indeed, increases in public education spending increase intergenerational mobility among the least wealthy in the economy. Unlike previous literature, I employ an instrument for government spending in order to assess the effect of public spending on education in changing persistence and use the canonical empirical model of intergenerational elasticity (Solon, 1992). In particular, I incorporate exogenous changes in spending on public education caused by court-mandated school-finance reform, following Jackson et al. (2015). Overall, I find that an increase in government spending on education significantly decreases the extent to which parents’ income matters in determining their child’s income.
Works in Progress:
Firm Bargaining Regimes and the Shimer Puzzle. (joint with Pedro Gomis-Porqueras):
The Effects of Wealth on Search and Training [Updated PDF Coming Soon]:
Abstract: This paper explores the interaction between wealth, search, and firm-sponsored human capital accumulation. Recent work has shown that earnings losses are negatively skewed, and concentrated among low-income workers. I demonstrate that when firms choose both the type and intensity of human capital accumulation, low-income workers are more likely to receive firm-specific training and thus subject to larger consumption risk in the event of job loss. This is because when workers are risk-averse and face borrowing constraints, low-income, low-wealth workers apply for more easily attainable jobs. For the firm, this creates a moral hazard problem in which costs of general human capital training cannot be recouped. To minimize this moral hazard, firms employing workers of this type offer firm-specific training, making lateral movements in the job market more costly for the worker. This is consistent with the data on earnings losses, as well as the finding that once unemployed, longer durations have a larger effect on high-income households.
Note: Previously circulated under the title “Household Wealth, and Life-Cycle Inequality”
Labor Market Frictions, Wealth Effects, and Portfolio Allocation (Joint with Gaston Chaumont)
Student Debt and the College Premium (Joint with Lancelot Henry de Frahan)