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Publications
Wealth and Consumption After Job Displacement
[ Macroeconomic Dynamics, 2021]
Income drops permanently after an involuntary job displacement, but it has never been clear what happens to long run wealth in the United States. Upon displacement, wealth falls 14% relative to workers of the same age and similar education from the PSID. Their wealth is still 18% lower 12 years after the event. A standard life cycle model calibrated to US data with permanent decreases in income after displacement behaves differently than these findings. The agents in the model also experience a large drop in wealth but they recover. The biggest culprit for these differences is small and statistically insignificant changes to consumption in the PSID whereas agents in the model decrease their consumption considerably. Extending the model to include habit formation reconciles some of these differences by generating similar long run effects on wealth. This allows for the examination of wealth at death through the lens of the model.
Puzzlingly Divergent Trends in Household Wealth and Business Formation
with Andrew Glover
[Economic Review, 2021]
Justin Barnette and Andrew Glover use data from the Panel Study of Income Dynamics from 1989 to 2015 to estimate the effect of wealth on the probability of a household starting a business while taking other observable characteristics into account. They find a puzzling divergence: business formation declined over the past three decades even as household wealth increased. However, they find no evidence that the relationship between business formation and household wealth has changed in the cross section. Instead, changes in other characteristics—most notably, previous entrepreneurial experience—likely explain the decline. Their findings suggest a dynamic relationship between wealth accumulation, past experience, and new business formation that deserves further study.
Changes Over Time in the Cost of Job Loss for Young Men and Women
with Kennedy Odongo and C. Lockwood Reynolds
[The B.E. Journal of Economic Analysis & Policy, 2021]
Using data from the two cohorts of the NLSY, we examine whether income losses due to involuntary job separations have changed over time. We find that wage losses among men are similar between the two cohorts. However, women in the 1979 cohort show little evidence of wage losses while women in the 1997 cohort experience wage losses similar to those of men. We present evidence that changes in occupations across cohorts help explain these results.
Skill Overshooting in Job Training with the Trade Adjustment Assistance Program
with Jooyoun Park
[Economic Development Quarterly, 2021]
Online Appendix for Skill Overshooting
We investigate the training choices made by workers entering the Trade Adjustment Assistance (TAA) program and their post-exit outcomes. This is important as more workers enter these types of programs due to technological change and globalization. We show that workers that choose a training occupation beyond their skill level (skill overshooting) achieve higher earnings ($615 annually) and wage replacement rates (2.0 percentage points) at the cost of lower reemployment rates (-1.9 percentage points) immediately following program exit. An investigation of subsamples shows that skill overshooting is especially beneficial to females and those living in rural areas with earnings gains of $1,443 and $1,080, respectively, without hurting their chances of reemployment.
Increases in Local Unemployment and the Delivery of Trade Adjustment Assistance Services
with Jooyoun Park
[Economic Development Quarterly, 2017]
This paper investigates how service delivery of employment-related federal programs changes as local unemployment increases and the impact of such changes on labor market outcomes for participants of the Trade Adjustment Assistance (TAA) program. We find that the demand for TAA services increases substantially during high unemployment growth periods. An increase in the number of locally unemployed workers of at least 5% raises training enrollment through the TAA program by over 16 percentage points and increases participation duration by over 9 weeks. Our results do not support the concern that a sudden rise in the number of participants and the demand for services might deteriorate the quality of service delivery. In fact, while increases in local unemployment are generally harmful to displaced workers, occupational training during this time is effective at reducing the size of wage loss by more than half.
Working Papers
The Wage and Productivity Gap After a Recession
[Revisions Requested, Macroeconomic Dynamics]
This paper contributes to the understanding of recessions by examining the divide between the cost to workers due to a recession and the benefit to remaining firms. This is done through the development of a dynamic coordination friction model for the labor market. An unexpected increase in the rate at which firms shut down leads to a redistribution of income with wages paid to new hires dropping 8.6% leading to a drop of 3.0% in aggregate wages while aggregate productivity experiences slight increases. This is also found in the Bureau of Labor Statistics where a one percent increase in the unemployment rate from four quarters past increases the gap between productivity and total compensation by 1.23%. The model suggests that lower wages offered during the recession are the cause of this divergence as opposed to the resorting of workers.
Long-Term Impacts of Short-Term Income Replacement Ratios After Job Loss
How does the first job after displacement affect workers’ later income growth? This paper answers this by examining how short-term income replacement ratios after job loss affect a worker’s ability to recover long-term. This paper shows that displaced workers replace 133% of their hourly income within two years of displacement but this is not enough to catch up to those with the same age and similar education. For workers with an income replacement ratio between 120% and 150% of their pre-displacement hourly income, this income is still 5% below their peers. Changes in these short-term ratios have small impacts on the long-term whereby an increase of 10% in the ratio increases long-term income by 0.3%. These results persist through robustness checks and align with a labor income process calibrated to the PSID. However, 35% of all displaced workers recover as defined in this paper. Being male or being white each increases the probability of recovering by about 20%.
Wage Scars and Human Capital Theory
with Amanda Michaud
A large literature shows workers who are involuntarily separated experience wage scars: their hourly earnings fall initially by an average of 15.4% and remain much lower than their non-separated counterparts more than 20 years later. We find that this reduces average life-cycle wage growth by 14.7% and increases cross-sectional wage dispersion by 17.8%. We research variants of human capital theory capable of replicating scars, highlighting a tension in producing large, persistent wage scars alongside average life-cycle wage dynamics. An examination of labor market and demographic characteristics of workers who never recover suggests many theories of wage scars are operational, but on different groups of workers.
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