Above: Petra, Jordan, 2012.

Working Papers:

"Tarnishing the Golden State: Regulations and the US Slowdown," Joint with Lee E. Ohanian and Edward C. Prescott (R&R at JME).
(First Draft: April 2017) 

Abstract:  We study the impact of state-level housing and land restrictions on the recent slowdown in US economic activity relative to trend. We use a variety of state-level data sources, including the USDA, the Census and the BEA to develop a general equilibrium spatial model of the US states, to estimate a time series of land restrictions across states, and to analyze how changing these restrictions impact aggregate economic activity and the allocation of workers across states. We show that land regulations have tightened significantly over the last several decades, particularly in California and New York. Deregulating existing urban land from 2014 restriction levels back to 2000 restriction levels would increase US GDP growth by nearly .5% per annum from 2000 to 2014, bringing output and TFP growth roughly in line with their historical trends. The most significant expanding regions from these hypothetical deregulations are California, New York, and the Mid-Atlantic. However, general equilibrium congestion forces in the market for housing and land offset some of the gains from deregulation. 

"The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship," Joint with Gordon Phillips and Ethan Cohen-Cole (Submitted).
(First Draft: February 2016) 

Abstract:   How does consumer credit access impact job flows, earnings, and entrepreneurship? To answer this question, we build a new administrative dataset which links individual employment and entrepreneur tax records to TransUnion credit reports, and we exploit the discrete increase in consumer credit access following bankruptcy flag removal. After flag removal, individuals flow into self-employment. New entrants earn more, borrow significantly using unsecured and secured consumer credit, and are more likely to become an employer business. In addition, after flag removal, non-employed and self-employed individuals are more likely to find unemployment-insured ``formal'' jobs at larger firms that pay greater wages.  These estimates imply that firms believe previously bankrupt workers are 3.8% less productive than non-bankrupt workers, on average. These results suggest that consumer credit access matters for each stage of entrepreneurship and that credit-checks may be limiting formal sector employment opportunities. 

"How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output," Joint with Gordon Phillips and Ethan Cohen-Cole, 2016 (Submitted). 
(First Draft: March 2015)  

Abstract:   We empirically and theoretically examine the effect of consumer credit limits on employment outcomes of displaced workers. To do so, we construct the first dataset that links administrative employment histories to credit reports. We find that in response to an increase in credit limits equal to 10% of prior annual earnings, medium-tenure displaced mortgagors take .15 to 3 weeks longer to find a job and, conditional on finding a job, their earnings replacement rates are 0 to 1.7% greater. They are  also more likely to work at larger and more productive firms.  We construct a labor sorting model with credit to provide a structural estimate of the duration and earnings replacement rate elasticities, which we find to be .2 weeks and 1.8%, respectively. We use the model to assess what happens if consumer credit limits  contract during a recession.  We find that when credit limits tighten during a downturn, employment rises but both labor productivity and output exhibit weaker recoveries. The tension between  recovery speed and  recovery health is due to the fact that when limits tighten, low-asset, low-productivity job losers are unable to self-insure. Subsequently, they search less thoroughly and take relatively more accessible jobs at less productive firms. As a result, standard measures of sorting improve while welfare declines. 

"The Impact of Consumer Credit Access on Unemployment," Job Market Paper, 2015. (Revised and Resubmitted at RESTUD)
(First Draft: February 2013.  [Online Appendix])

Awarded UCLA Welton Prize, Best Paper in Macroeconomics, 2013-2014

Abstract:   Unemployed households' access to unsecured revolving credit (credit cards) nearly quadrupled from about 12 percent to about 45 percent over the last three decades. This paper analyzes how this large increase in revolving credit has impacted the business cycle. The paper develops a general equilibrium business cycle model with search in both the labor market and in the credit market. This generates a very rich and empirically plausible level of heterogeneity in work and credit histories while at the same time permitting a tractable model solution. Calibrating to the observed path of credit use between 1974 and 2012, I find that the large growth in credit access leads to deeper and longer recessions as well as moderately slower recoveries. Relative to an economy with credit fixed at 1970s levels, employment reaches its trough about 1 quarter later and remains depressed by up to .8 percentage points three years after the typical recession in this time period (e.g. employment is depressed by 2.8% rather than 2%). The mechanism is that when borrowing opportunities are easy to find, households optimally search for better-paying but harder-to-find jobs knowing that if the job search fails they can obtain credit to smooth consumption. Despite longer recessions and slower recoveries, increased credit card use enhances welfare by reducing consumption volatility and improving job-match quality. 

Notes: Previously titled and circulated as "The Supply Side of Jobless Recoveries"  

"The Impact of Foreclosure Delay on U.S. Employment," with Lee E. Ohanian.  NBER Working Paper No. 21532, 2015. (Submitted) 
(Retitled and previously circulated as "Foreclosure delay and US unemployment" Federal Reserve Bank of St. Louis Working Paper 2012-017A, First Draft: December, 2011.) [Washington Center for Equitable Growth, EconTalk]

Abstract:  This paper documents that the time required to initiate and complete a home foreclosure rose from about 9 months on average prior to the Great Recession to an average of 15 months during the Great Recession and afterward. We refer to these changes as foreclosure delay. We also document that many borrowers who are in foreclosure ultimately exit foreclosure and keep their homes by making up for missed mortgage payments. We analyze the impact of foreclosure delay on the U.S. labor market as an implicit credit line from a lender to a borrower (mortgagor) within a search model. In the model, foreclosure delay provides unemployed mortgagors with additional time to search for a high-paying job. We find that foreclosure delay decreases mortgagor employment by about 0.75 percentage points,   nearly doubles the stock of delinquent mortgages,  increases the rate of homeownership by about 0.3 percentage points, and increases job match quality, as mortgagors search longer.   Severe foreclosure delays, such as those observed in Florida and New Jersey, can depress mortgagor employment by up to 1.3 percentage points.  The model results are consistent with PSID and SCF data that show that employment rates rise for delinquent mortgagors once the mortgagor is in the foreclosure process. 

"Can't Pay or Won't Pay? Unemployment, Negative Equity, and Strategic Default,” with Kris Gerardi, Lee E. Ohanian, and Paul Willen,  NBER Working Paper No. 21630, 2015. (Accepted at the RFS) 
 (Retitled and Previously Circulated as Atlanta Fed Working Paper "Unemployment, negative equity, and strategic default" and Ziman Center Working Paper "What Actually Causes, Defaults, Redefaults, and Modifications." First Draft: February, 2012).  [VoxEUUrban InstituteCalculated Risk , AroundTheFedJournalistResource

Abstract: Previous research on mortgage default has been constrained by data limitations, including lack of data on mortgagor employment status.  This paper studies mortgage default using PSID data, which includes a richer set of covariates, including employment status, equity, and other assets. In sharp contrast to prior studies, we find that unemployment and other negative financial shocks are key default predictors. Using wealth data, we find a limited scope for strategic default, as only 1/3 of underwater defaulters have enough assets to pay their mortgage. We discuss the implications of these findings for theoretical default models and for loss mitigation policies.

"Informal Unemployment Insurance and Labor Market Dynamics,"  Federal Reserve Bank of St. Louis Working Paper 2012-057, First Draft: December, 2011. [Uses Equifax Data, Includes Partial Default Evidence and Theory]

Abstract:  How do job losers use default --- a phenomenon 6X more prevalent than bankruptcy --- as a type of ``informal'' unemployment insurance, and more importantly, what are the social costs and benefits of this behavior? To this end, I establish several new facts: (i) job loss is the main reason for default, not negative equity (ii) people default because they are credit constrained and cannot borrow more, and (iii) the value of debt payments is a significant fraction of a defaulter's earnings. Using these facts, I calibrate a general equilibrium model with a frictional labor market similar to  Menzio and Shi (2009, 2011) and  individually priced debt along the lines of Eaton and Gersovitz (1981) and Chatterjee et al. (2007). After proving the existence of a Block Recursive Equilibrium, I find that the extra self-insurance job losers obtain by defaulting  outweighs the subsequent increase in the cost of credit, and as a result, protectionist policies such as the Mortgage Servicer Settlement of 2012 or the CARD Act of 2009  improve overall welfare by .1%.  The side effect of the policies, however, is a .2-.5% higher unemployment rate during recessions that persists throughout the recovery.


"Labor Market Dysfunction During the Great Recession," with Lee E. Ohanian. Cato Papers on Public Policy, edited by Jeffrey Miron, Volume 1, 2011.[ Wall Street Journal Article, Economist Recommendation

Abstract: This paper documents the abnormally slow recovery in the labor market during the Great Recession, and analyzes how mortgage modification policies contributed to delayed recovery. By making modifications means-tested by reducing mortgage payments based on a borrower's current income, these programs change the incentive for households to relocate from a relatively poor labor market to a better labor market. We .find that modifications raise the unemployment rate by about 0.5 percentage points, and reduce output by about 1 percent, reflecting both lower employment and lower productivity, which is the result of individuals losing skills as unemployment duration is longer.

Why the U.S. Economy Has Failed to Recover and What Policies Will Promote Growth,” with Lee E. Ohanian, Government Policies and the Delayed Economic Recovery, edited by Lee E. Ohanian, John B. Taylor, and Ian Wright, 2012.

Abstract: This study examines the recovery from the 2008-2009 recession from the perspective of the neoclassical growth model, thus extending Ohanian's (2010) neoclassical analysis of the downturn phase of this recession. This paper documents the characteristics and features of the recovery, identifies the sources of economic weakness, discusses the possible impact of economic policies on the recovery, and provides an assessment of what types of policies may help accelerate the speed of the recovery and restore prosperity.

Discussion slides:

Discussion Slides for ``Business Cycles and Household Formation'' by Sebastian Dyrda, Greg Kaplan, Jose-Victor Rios-Rull.

Discussion Slides for ``Aggregate Recruiting Intensity'' by Alessandro Gavazza, Simon Mongey, Giovanni L. Violante.

Discussion Slides for  ``The Effect of Debt on Consumption and Delinquency: Evidence from Housing Policy in the Great Recession''  by Peter Ganong and Pascal Noel.