Aggregate Reallocation Shocks, Occupational Employment and Distance
A unique general equilibrium model featuring many occupations and aggregate shocks is created to study occupational employment dynamics by imposing a correlated TFP structure across occupations along with distance between occupations. Productivity processes across occupations are correlated with similar occupations experiencing similar fluctuations. Mobility frictions and the correlated-productivity structure produce a systematic relationship between occupational employment correlations and occupational distance that does not arise when productivity processes are independent. Using employment data and measures of task-distance between occupations from the U.S. economy, a negative relationship between the correlation of occupational employment and task-distance separating occupation-pairs is uncovered.
In this paper, equilibrium prices and economic aggregates partially inform firms about realized economic fundamentals and fully inform them of the state-contingent uncertainty they face in making economic decisions based solely on public signals. Learning about the realization of economic fundamentals is a costly endeavour and lower probability events are accompanied by higher failure rates of information acquisition effort. By reflecting the relative composition of input demands between informed and uninformed firms, endogenous public signals link realizations of economic fundamentals to posterior belief variance. Absent the informational role of public signals, the majority of firms would not recognize the realized payoff uncertainty inherent in their economic actions. Thus a simple theory of uncertainty shocks is formed in which learning from endogenous public signals results in state-dependent posterior belief variance. The competitive equilibrium is informationally constrained efficient.
Wage Posting Without Commitment
(with Matthew Doyle, Review of Economic Dynamics, 2013 vol. 16, p.231-252)
This paper provides a theory of how a firm's inability to commit to pay exactly its advertised wage along with its inability to communicate the number of workers who have applied to each of its applicants may result in wage negotiations. Wage posting models of job search typically assume that firms can commit to paying workers exactly the posted wage. We relax this assumption and impose ``downward'' commitment; firms can commit only to paying at least their advertised wage. As each firm can only commit to pay at least their advertised wage, workers may demand that the firm pay more than the advertised wage. Competition across workers then determines their optimal wage demand strategies. In labour markets with a finite number of workers and firms, the strategic interaction between firms makes it costly for firms to provide applicants the incentive not to demand wages in excess of the advertised wage. In equilibrium, firms may settle for running job auctions at the cost of losing control of the number of applicants that they can attract. When this strategic interaction between firms vanishes, workers never choose to demand more than the advertised wage and there is no negotiation so a wage posting outcome obtains.
Information Acquisition, Dissemination and Transparency of Monetary Policy
(Canadian Journal of Economics, 2008 vol. 41, no. 1, p. 46-79)
A chief difficulty faced by central banks is to obtain an accurate measure of underlying macroeconomic conditions through observations of private sector economic behaviour and to simultaneously signal these conditions to imperfectly informed members of the private sector. This paper examines the role of transparency in a benevolent monetary authority's policies. Private sector agents may individually incur a cost of acquiring private information about the state of the economy and this private information may be incorporated into their actions. The policy authority attempts to infer the state of the economy from a noisy measure of aggregate private sector actions and makes a public announcement to inform the private sector of this inference. The policy authority faces a trade-off between informing the private sector of the state of the economy, and gathering information about the state of the economy. When the policy announcement is of very high quality, private sector agents have an incentive not to gather private information and to base their actions solely on information contained in the policy announcement. However, this makes the observed actions of the private sector less informative to the policy authority. The monetary authority should be vague about what it believes to be the state of the economy when doing so pushes a sizeable fraction of private sector agents into gathering information thereby making the policy signal more informative to those for whom it is relatively more costly to gather private information.
Relationships that Last: Job Creation vs Job Duration (with Britta Gehrke)
Aggregate Reallocation Shocks and the Dynamics of Occupational Mobility and Wage Inequality (Currently Dormant)
A theory of the joint dynamics between occupational mobility rates and wage inequality between the late 1970s through the early 2000s is proposed. The argument is based upon the timing of innovations to relative occupational total factor productivity and the costly reallocation of labour. It is proposed that major shocks occurred in the 1980s that resulted in an increase in wage inequality across the wage distribution along with a rise in the occupational mobility rate. The wage polarization phenomenon that was accompanied by a decrease in occupational mobility rates during the 1990s is argued to be the natural dynamics resulting from general equilibrium forces associated with continued labour reallocation due to the shocks of the 1980s.