Research
Working Papers
This paper theoretically and empirically explores the notion that minimum wages affect low-skill workers asymmetrically due to productivity differences. I develop a search model of unemployment with worker heterogeneity, endogenous search intensity, and moral hazard, that predicts asymmetries in the effects of a minimum wage across the labor force. A rising minimum wage lowers the employment and labor force participation of low-productivity workers by pricing them out of the market, while it increases the employment, participation, and wages of more productive workers that remain hirable. Using Current Population Survey micro data, I find empirical evidence of the model’s predictions. Within the labor market for low-education (high school or lower) workers, increments in the minimum wage have diametrically opposed effects: they reduce the employment and labor force participation of teenagers with less than high school education, while increasing the employment and labor force participation of mature workers with high school educational attainment. A calibrated version of the model targeting the low-education labor market shows that, despite its opposite effects across the labor force, an increase in the minimum wage negatively impacts aggregate employment, labor force participation, and social welfare.
This paper presents a simple model for exchange rate dynamics featuring traders with heterogeneous expectations. The model is based on the asset pricing model in Brock and Hommes (1998) and introduces the Brown–von Neumann–Nash (BNN) dynamic to the literature of nonlinear exchange rate models. I show that this simple setting can generate very complex and even chaotic exchange rate dynamics due to the strategic interaction of agents. The model helps to explain why the nominal and real exchange rates present excessive volatility and detachment from the macroeconomic fundamentals.