Research 

Publications

Declining Search Frictions, Unemployment and Growth  (with Guido Menzio)

Journal of Political Economy (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.

Revisiting the Hypothesis of High Discounts and High Unemployment (with Guido Menzio and Ludo Visschers)

The Economic Journal

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.

Jacks of All Trades and Masters of One: Declining Search Frictions and Unequal Growth  (with Guido Menzio)

American Economic Review: Insights

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.

The Global Distribution of College Graduate Quality (with Todd Schoellman and Jason Sockin) Data on Graduate Quality by College

Journal of Political Economy

Abstract: We measure college graduate quality — the average human capital of a college’s graduates — using the average earnings of its graduates adjusted to a common labor market. Our implementation uses the database of the website Glassdoor, which has the necessary information on earnings and education for non-migrants and migrants who graduate from roughly 3,300 colleges in 66 countries. Graduates of colleges in the richest countries have 50 percent more human capital than graduates of colleges in the poorest countries. Migration reinforces these differences. Poorer countries not only lose a higher share of their skilled workers, but their emigrants are highly positively selected on human capital. Finally, we show that these stocks and flows matter for growth and development by showing that college graduate quality predicts the share of a college’s students that become inventors, engage in entrepreneurship, and become top executives, both within and across countries.

Working Papers

On the Spatial Determinants of Educational Access (with Francesco Agostinelli and Margaux Luflade) 

R&R at Journal of Political Economy

Abstract: We define educational access as the component of a neighborhood’s value that is determined by the set of schools available to its residents. This paper studies the extent to which educational access is determined by sorting based on heterogeneous preferences over school attributes, or local institutions that constrain residential location and school choice—such as school catchment areas and housing regulation. We develop a spatial equilibrium model of residential sorting and school choice, estimated using data from a large school district in the United States. The model replicates the responses of house prices and school enrollment to quasi-experimental variation in school peer composition and school transportation provision. We find that low-income families prioritize proximity to schools while high-income families and families with high-skilled children place more value on school peer composition. We use the model to evaluate how the geography of neighborhood sorting influences the aggregate and distributional outcomes of a school-choice expansion (place-based) and a housing voucher (people-based) policy. We find that both policies result in net welfare losses, with only marginal improvements in school peer composition for the average low-income family. Although eligible families benefit from these policies, the negative impact falls on families who currently invest in their children’s education by residing in expensive neighborhoods. Under both policies, higher-income families are less exposed to the inflow of low-income children into their schools, either because of their longer distance from target neighborhoods or because of the cost imposed by residential zoning regulation on voucher recipients.

Local Labor Markets and Aggregate Productivity, Online Appendix 

R&R at Journal of Political Economy: Macro

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 regulation 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. Failing to account for the impact of housing policy on local productivity would lead to overstating the magnitude of equilibrium income gains by a factor of 3.

Long-Term Contracts, Commitment, and Optimal Information Disclosure  (with Alessandro Dovis)

Abstract: This paper studies optimal information disclosure in dynamic insurance economies with income risk in which an incumbent firm acquires more information about a consumer’s persistent type than the rest of the market does. We find that if the incumbent can commit to long-term contracts but the consumer can walk away, the optimal disclosure prescribes no information revelation to maximize cross-subsidization. However, if the incumbent lacks commitment, no cross-subsidization of low-income consumers is feasible for any public information disclosure because of adverse selection. We show that partial information disclosure is typically optimal and it aims at implementing intertemporal consumption smoothing between the first period and the high-state in the second period, generating an inverse of the back-loading result in Harris and Holmstrom (1982). Lastly, we show that, without commitment, banning long-term relations can be beneficial to consumers. Our results can be used to analyze the consequences of policy proposals such as open banking and consumer data ownership.

Capital Reallocation and Private Firm Dynamics  (with Anmol Bhandari and Ellen McGrattan)

Abstract: We develop a new theory of firm dynamics and capital reallocation in private firms and use it to study the taxation of business income, capital, and capital gains. Central to our theory is the fact that certain intangible assets—like customer-bases and trade names—are specific to a business and thus not available in rental markets. Owners grow their businesses by investing in these assets themselves or by purchasing a group of assets that constitute an existing business. Given the nature of this exchange, capital is gradually transferred to owners with higher marginal product. Despite the gradual reallocation and the consequent dispersion in marginal product, the equilibrium we analyze is efficient. The theory is disciplined with U.S. administrative tax filings of privately-held S corporations. A unique feature of our data is that it includes the price and the counterparties involved in asset acquisitions. This data allows us to calibrate the production and investment technologies for otherwise unobservable intangible capital. Introducing business taxation, we study the implications for firm entry, investment, and capital transfers. We find taxes on capital gains to be highly distortive when compared to other business taxes, primarily because of the impact on business entry, and taxes on income to be the least distortive.

A Delegation Approach to Regulating Hiring Discrimination  (with Guido Menzio)

Abstract: We approach the design of anti-discriminatory labor market regulation as a delegation problem. A private firm (the agent) is repeatedly faced with the opportunity of hiring one among several applicants to fill its vacancies. The firm is biased against applicants from some demographic group, and it is neutral towards applicants from some other group. Applicants differ not only with respect to their demographic characteristics, but also with respect to the idiosyncratic quality of their match with firm. A benevolent and unbiased labor market authority (the principal) enacts a hiring regulation (a direct-revelation mechanism without transfers) in order to reduce the impact of the firm's bias on its hiring behavior. The hiring regulation is constrained by the fact that the quality of the match between any particular applicant and the firm is privately observed by the firm. We characterize the optimal mechanism.