Rising Inequality and Falling Labor Share: The Role of Wage Contracts
    draft (updated October 31, 2017) slides (updated December 8, 2017)
         Abstract: I study trends in labor share and earnings inequality in the context of an on the job search model featuring heterogeneous wage contracts. In the model, a shift toward employment contracts with upwardly-re-negotiable wages implies a decrease in labor share and an increase in inequality. Using the German social security register, I asses the ability of this mechanism to account for trends in inequality and labor share observed in that country. I proxy for changes in the propensity for labor contracts to feature re-negotiability using the propensity for employers to re-register employees at idiosyncratic times. I find a secular trend toward upwardly flexible wage contracts which accelerates in the 2000's matching the observed series for inequality and labor share 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.

Greasy Wheels Curb Inequality

        Abstract: It is well documented that less educated workers experience more cyclical employment and that wage rigidity is required to match aggregate employment fluctuations. However, in apparent contradiction, the wage measure commonly used in macroeconomic models—new hires’ wage—is more pro-cyclical for less educated workers. This paper proposes a solution to the puzzle. Using NLSY data, I document that, the appropriately measured allocative wage--Kudlyak’s (2014) user cost of labor--is less pro-cyclical for less educated workers. Taking into account the correctly measured allocative wage, an implication is that loose monetary policy--insofar as it leads to inflation--closes employment gaps.

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 insufficiently robust in the sense that misallocation remains even during expansions
    * Formerly circulated as "Labor Demand Management in Search Equilibrium"

Wage dispersion with heterogeneous wage contracts
    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.