Research

Welfare implications of job retention schemes (with John Bluedorn, Ippei Shibata, and Marina M. Tavares)

This paper examines the welfare implications of job retention schemes, where governments subsidize employers to preserve jobs during downturns. We build a search-and-matching model with occupational choice, calibrated to the United Kingdom during the global financial and sovereign debt crises. Simulations show that a retention policy scheme aimed at reducing the unemployment rate by nearly 1 percentage point would have been both welfare-enhancing and cost-effective. Average welfare would have increased by 0.06 percent in consumption-equivalent terms, with low-income workers benefiting more than twice as much as the median worker by avoiding costly job switches and unemployment spells, without compromising efficiency given the temporary nature of the shock and nominal rigidities.

The green future: Labor market implications for men and women (with Naomi-Rose Alexander, Longji Li, Sahar Priano, Marina M. Tavares) 

This study examines the green transition's effects on labor markets using a task-based framework to identify jobs with tasks that contribute, or with the potential to contribute, to the green transition. Analyzing data from Brazil, Colombia, South Africa, the United Kingdom, and the United States, we find that the proportion of workers in green jobs is similar across AEs and EMs, albeit with distinct occupational patterns: AE green job holders typically have higher education levels, whereas in EMs, they tend to have lower education levels. Despite these disparities, the distribution of green jobs across genders is similar across countries, with men occupying over two-thirds of these positions. Furthermore, green jobs are characterized by a wage premium and a narrower gender pay gap. Our research further studies the implications of AI for the expansion of green employment opportunities. This research advances our understanding of the interplay between green jobs, gender equity, and AI and provides valuable insights for promoting a more inclusive green transition. 

Choosing the right apple to bite: Optimal foreign currency debt denomination 

The Original Sin Hypothesis states that emerging economies are restricted to issue external debt in foreign currencies. However, little attention has been given to the question: Which foreign currency should external debt be issued? In this paper, I study external debt in foreign currency by emerging economies and its link to default risk. I document empirically that as default risk increases, the share of external debt issued in the foreign currency linked to trade falls. I build a real sovereign default model where a small open economy issues debt in two different foreign currencies and faces fluctuations to the real exchange rates associated with them. Theoretically and quantitatively, the model replicates the negative relationship between spreads and the share of debt issued in the foreign currency linked to trade. Lastly, the model matches the fluctuations in share of foreign currency sovereign external debt issued in US dollars by Argentina from  2010 to 2020.

Terms of trade and unemployment in the business cycle - [Revise and Resubmit - MD]

The standard notion regarding terms of trade is that when their movements deteriorate, small open economies are negatively affected in their real GDP. In this paper, I document that the business cycles correlation between terms of trade and real GDP varies widely between positive and negative values across countries even if separated by income groups. This raises the question, why do countries react differently towards terms of trade innovations? I show evidence that how countries react towards terms of trade movements is tightly linked to their labor market. I build a real business cycles model with a small open economy experiencing terms of trade uncertainty and real wage rigidity. I find that real wage rigidity is not only able to account for a negative correlation between terms of trade and real GDP innovations, but also a positive one.

​Sovereign spread movements in emerging economics:  Terms of trade matter (with Sora Lee)

We propose a stochastic general equilibrium model of sovereign default with endogenous default risk in order to explain the interest rate behavior in emerging economies. We incorporate two types of shocks to cover foreign and domestic uncertainty. We define the domestic and the foreign uncertainty, GDP, and terms of trade shock, respectively. The model is able to successfully increase the dispersion of sovereign interest rates when GDP shocks are above the trend. This result seems to suggest that terms of trade are a good candidate to explain the volatility of interest rates in small open economies when they are not under recessions or crises. 

Automation, education, and labor income inequality (with Andrea Pescatori) - Slides

The US has experienced a steep increase in labor income inequality in the last decades. Among many reasons for this, automation is known to be the main driver by increasing the wage gap between high-skill and low-skill workers. In addition to this, college education costs have also soared in the last decades, making it difficult to become a high-skill worker. We propose an endogenous skill choice life-cycle model to study how automation and the increase in higher education costs affect labor income inequality. We find that higher education costs amplify labor income inequality induced by automation. We then conduct a counterfactual experiment where we fix college education costs. We find that labor income inequality would have increased by just a third of what data shows in the US.

Monetary independence and rollover crises (with Javier Bianchi) - [The Region Summary]

Quarterly Journal of Economics, February 2022

This paper shows that the inability to use monetary policy for macroeconomic stabilization leaves a government more vulnerable to a rollover crisis. We study a sovereign default model with self-fulfilling rollover crises, foreign currency debt, and nominal rigidities. When the government lacks monetary autonomy, lenders anticipate that the government would face a severe recession in the event of a liquidity crisis,  and are therefore more prone to run on government bonds. In a quantitative application to the Eurozone debt crisis, we find that the lack of monetary autonomy played a central role in making Spain vulnerable to a rollover crisis. Finally, we argue that a lender of last resort can go a long way towards reducing the costs of giving up monetary independence.

Green jobs and the future of work for women and men (with Naomi-Rose Alexander, Mauro Cazzaniga, Stefania Fabrizio, Florence Jaumotte, Longji Li, Sahar Priano, and Marina M. Tavares) - [IMFBlog]

IMF Staff Discussion Notes, September 2024

The transition to a sustainable and green economy requires workers to move out of carbon-intensive jobs and workers to move into green jobs. The pace and effectiveness of the transition hinge not only on climate policies but also on the skills and adaptability of workers. Evidence suggests that economies with a robust supply of STEM-educated workers and a more equal treatment of women are better placed to transition faster and at a lower cost to a green economy, even after controlling for other country characteristics, because these economies generate more green innovation and face lower bottlenecks in expanding the green workforce. Altogether, climate policies, particularly energy taxes, in these economies are associated with emission reductions that are 2 to 4 percentage points larger than in economies with a less inclusive and educated workforce. While green jobs have been growing worldwide, men currently hold close to two-thirds of these positions and women only one-third. Green jobs are associated with a 7 percent premium for men and an even higher premium of 12 percent for women, suggesting that men’s and women’s labor supply may not meet demand. These findings highlight the critical need for educational and labor policies that promote skill enhancement and gender inclusivity, to ensure a sufficient supply of workers for the green economy and that all workers can benefit from the green transition. Finally, AI could be beneficial for workers in green jobs. 

Recessions and Recoveries in Labor Markets: Patterns, Policies, and Responses to the COVID-19 Shock (with John Bluedorn, Francesca Caselli, Wenjie Chen, Niels-Jakob Hansen, Ippei Shibata, and Marina M. Tavares) - [IMFBlog Summary][Chart of the Week]

IMF World Economic Outlook, April 2021 (Chapter 3)

The labor market fallout from the COVID-19 pandemic shock continues, with young and lower-skilled workers particularly hard-hit. Preexisting employment trends favoring a shift away from jobs that are more vulnerable to automation are accelerating. Policy support for job retention is extremely powerful at reducing scarring and mitigating the unequal impacts from the acute pandemic shock. As the pandemic subsides and the recovery normalizes, a switch toward worker reallocation support measures could help reduce unemployment more quickly and ease the adjustment to the permanent effects of the COVID-19 shock on the labor market.