Abstract:  For whom has earnings risk changed and why? To answer these questions, we develop a filtering method which estimates parameters of an income process and recovers persistent and temporary earnings for every individual at every point in time. Our estimation flexibly allows for first and second moments of shocks to depend upon observables as well as spells of zero earnings (i.e. unemployment) and easily integrates into theoretical models. We apply our filter to a unique linkage of 23.5m SSA-CPS records. We first demonstrate that our earnings-based filter successfully captures observable shocks in the SSA-CPS data such as job switching and layoffs. We then show that despite a decline in overall earnings risk since the 1980s, persistent earnings risk has risen for both employed and unemployed workers, while temporary earnings risk declined. Furthermore, the size of persistent earnings losses associated with full year unemployment has increased by 50%. Using geography, education, and occupation information in the SSA-CPS records, we refute hypotheses related to declining employment and wages among routine workers, declining employment prospects for low-skill workers, as well as geographically concentrated increases in risk around the Rust-Belt. Instead, we provide evidence that the rise in persistent earnings risk is a high skill worker phenomenon.  Lastly, we find that rising persistent earnings risk while employed (unemployed) leads to welfare losses equivalent to 1.8% (0.7%) of lifetime consumption, and larger persistent earnings losses while unemployed leads to a 3.3% welfare loss.

Abstract:  We show that unemployed individuals maintain significant access to credit. Following job loss, the unconstrained borrow, while the constrained default and delever. Both defaulters and borrowers are using credit to smooth consumption. We quantitatively show that long-term credit relationships and credit-registries allow the unemployed to partially offset income losses using credit. We estimate the model and find that the optimal provision of public insurance is unambiguously lower with greater credit access. Using a utilitarian welfare criterion, the optimal steady-state policy is to lower the replacement rate of public insurance from the current US policy of 41.2% to 38.3%. Moreover, lowering the replacement rate to 38.3% yields welfare gains to the majority of workers along the transition path.

Abstract:  How do consumer credit markets affect the allocation of workers to firms? To answer this question, we integrate risk aversion and borrowing into a model with worker and firm heterogeneity. We use the model to estimate the impact of credit limits on job search behavior, and then we validate our model predictions using a new panel dataset linking consumer credit to individual job outcomes. We then assess the effects of credit expansion between 1964 and 2004 on sorting and welfare. Credit expansions let low human capital workers, who are typically constrained, find more capital intensive jobs. Consequently, sorting declines (`bad' workers get `good' jobs). However, output, productivity and welfare improve.

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.

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.Discussion Slides for ``Granular Search, Market Structure, and Wages'' by Gregor Jarosch, Jan Nimczik, Isaac Sorkin

Discussion Slides for ``The Cyclicality of Hiring and Separations'' by Alice Nakamura, Emi Nakamura, Kyle Phong, and Jon Steinsson

Discussion Slides for ``Time Consistent Fiscal Policy in a Debt Crisis'' by Neele Balke and Morten Ravn

Discussion Slides for ``Bad Credit, No Problem? Credit and Labor Market Consequences of Bad Credit Reports" by Dobbie, Goldsmith-Pinkham, Mahoney, Song.

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.

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

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