Hysteresis via Endogenous Rigidity in Participation and Wages* (with David Lopez-Salido)
    full text (updated April 17, 2017) slides (updated May 9, 2017) FEDS 2017-044
        Abstract: We model hysteresis in the labor market as resulting from a strategic complementarity in firms' wage setting and workers' job search strategies. Strategic complementarity results in a continuum of possible equilibria with higher-wage equilibria welfare dominating lower-wage equilibria. Further, we specify a protocol for revelation of the new equilibria following shocks such that the model exhibits (1) periods of endogenous rigidity in wages and participation, (2) persistent changes in wages, participation, and output in response to transitory movements in labor productivity, (3) sluggish recoveries including both a "jobless" phase and a "wageless" phase. Furthermore, regardless of the history, expansions are insuffciently robust in the sense that misallocation remains even during expansions
    * Formerly circulated as "Labor Demand Management in Search Equilibrium"


Wage Contracts, Inequality and Labor Share
    (first draft coming soon)

        Abstract: Since the mid-1970s Germany and other developed countries have experienced an increasing income inequality (Card, Heining and Kline, 2013; Lemieux, 2008) and a decreasing share of output paid as labor compensation (Karabarbounis and Neiman, 2014; Elsby, Hobijn and Sahin, 2013). I study these trends in the context of an on-the-job search model with heterogeneous wage contracts. In the context of this model, a secular shift toward employment contracts with upwardly-renegotiable wages is consistent with the observed shifts in inequality and the share of output paid to labor. I infer changes in the propensity for labor contracts to feature upward-renegotiability in wages from from changes in the propensity for upward wage-revisions for German workers 1975-2010 in a two percent random sample of social security records: the Integrated Labor Market Biographies (SIAB). I find a secular trend toward upwardly flexible wage contracts which accelerates in the 2000's. This matches well with inequality and labor share trends in Germany over the same horizon. Further, I show that industries in which the incidence of upward wage revisions increases most also experience larger increases in inequality and larger declines in labor share.


Wage dispersion with heterogeneous wage contracts
    (revised draft coming soon) FEDS 2015-023
        Abstract: I study a labor market in which identical workers search on- and off-the-job and heterogeneous firms employ using either a posted wage or a wage contract contingent on outside options. Firm level costs for contingent contracts generate a separating equilibrium in which less productive firms post wages. The model with heterogeneous contracts can achieve wage dispersion, labor share, employment transitions, and flow value of unemployment that are simultaneously consistent with empirical observations even when most firms post wages. Using German employee-level administrative data, I estimate roughly 70 percent of firms post wages and employ nearly 50 percent of workers under such contracts.


Dead-end and career jobs: skill specific earnings profiles with heterogeneous wage contracts 
        Abstract: I include differential skill levels on the part of workers in an on-the-job search equilibrium which features heterogeneous wage contracts. Firms choose between posting a non-negotiable contract or hiring under contingent pay which matches the value of a workers best-to-date outside offer. I give conditions under which the market decomposes into parallel skill-specific sub-markets in each of which a separating equilibrium arises where only low productivity firms offer non-negotiable contracts. Even when skill-specific sub-markets are ex-ante identical, differences arise ex-post. More skilled workers are more likely to receive negotiable wage offers. Consequently, high skilled workers experience lower rates of unemployment, more wage dispersion, and higher returns to experience than low skilled workers.

Unemployment insurance and posted wage offers
        Abstract: In the literature on optimal unemployment insurance it is common to assume that unemployment increases when in the generosity of unemployment insurance benefits increases. This assumption is substantiated in a model of labor search in which wage offers are drawn from an exogenous distribution. However, in a model where wage-posting firms maximize profits subject to workers' optimal strategy, it need not be the case that increasing benefits increases expected unemployment. Trade-offs can be substantially impacted by public policy that manipulates the dispersion of insurance benefits. I examine the efficiency of the design of unemployment insurance policy in the United States. Design can be described by policy changes which induce greater heterogeneity -- e.g. the statutory replacement rate -- and which decrease heterogeneity -- e.g. the maximum benefit cap. I give evidence that policy changes which reduce heterogeneity also reduce unemployment.