Paolo Martellini

I am a Junior Scholar at the Federal Reserve Bank of Minneapolis.

In Fall 2021, I will join the Department of Economics at the University of Wisconsin-Madison.

I received my PhD in Economics from the University of Pennsylvania.

My research focuses on Macro, Labor, and Urban Economics.

You can download my CV here.



Publications (including forthcoming)

Declining Search Frictions, Unemployment and Growth (with Guido Menzio), Journal of Political Economy, 2020, vol. 128, no. 12, 4387–4437 (Lead Article)

Abstract: For a search-theoretic model of the labor market, we seek conditions for the existence of a Balanced Growth Path (BGP), an equilibrium in which unemployment, vacancy, and workers' transition rates remain constant in the face of improvements in the production and search technologies. A BGP exists iff firm-worker matches are inspection goods, and the idiosyncratic component of productivity of a match is drawn from a Pareto distribution. Declining search frictions contribute to the growth of the economy with an intensity that depends on the tail coefficient of the Pareto distribution. A corollary of the theory is that market size does not affect unemployment, vacancy and workers' transition rates even with non-constant returns to scale in search. We develop a strategy to measure the rate of decline of search frictions, the returns to scale in search, and their contribution to growth.

Abstract: We revisit the hypothesis that labor market fluctuations are driven by shocks to the discount rate. Using a model in which the UE and the EU rates are endogenous, we show that an increase in the discount rate leads to a decline in both the UE and the EU rates. In the data, though, the UE and EU rates move against each other at business cycle frequency. Using a lifecycle model with human capital accumulation on the job, we show that an increase in the discount rate does indeed lead to a decline in the aggregate UE rate and to an increase in the aggregate EU rate. However, the decline in the UE rate is larger for younger workers than for older workers and the EU rate increases only for younger workers. In the data, fluctuations in the UE and EU rates at the business cycle frequency are nearly identical across age groups.

Abstract: Declining search frictions generate productivity growth by allowing workers to locate more quickly jobs for which they are well-suited. The return of declining search frictions on productivity varies across different types of workers. For workers who are jacks of all trades—in the sense that their productivity is nearly independent from the distance between their skills and the requirements of their job—declining search frictions lead to minimal productivity growth. For workers who are masters of one trade—in the sense that their productivity is very sensitive to the gap between their individual skills and the requirements of their job–declining search frictions lead to fast productivity growth. As predicted by this view, we find that workers in routine occupations have low wage dispersion and growth, while workers in non-routine occupations have high wage dispersion and growth.

Working Papers

Previously circulated as "The City-Size Wage Premium: Origins and Aggregate Implications"

Abstract: I propose a dynamic spatial equilibrium model that accounts for the heterogeneous labor market experience of workers across US cities. Productivity differentials between large and small cities emerge as an equilibrium outcome due to spatial sorting, increasing returns to scale in job search, and knowledge diffusion through local peer effects. The model delivers testable predictions with respect to selection into and returns to migration, which are supported by the data. I use this framework to quantify the aggregate implications of relaxing zoning regulations in large cities. I show how the resulting relocation of workers affects the size and composition of cities, the return from local interactions, and the spatial distribution of productivity. An alternative scenario in which local productivity was invariant to zoning policy would overstate the magnitude of the equilibrium income gains by a factor of 3.

Work in Progress

The Geography of Opportunity: Sorting, Commuting, and School Choice (with Francesco Agostinelli and Margaux Luflade)