Research

Above: Petra, Jordan, 2012.

Working Papers:

"Intergenerational Mobility and Credit," joint with J. Carter Braxton, Nisha Chikhale, and Gordon Phillips. First draft: May, 2023.  (submitted)

Abstract: We combine the Decennial Census, credit reports, and administrative earnings to create the first panel dataset linking parent’s credit access to the labor market outcomes of children in the U.S. We find that a 10% increase in parent’s unused revolving credit during their children’s adolescence (13 to 18 years old) is associated with 0.28% to 0.37% greater labor earnings of their children during early adulthood (25 to 30 years old). Using these empirical elasticities, we estimate a dynastic, defaultable debt model to examine how the democratization of credit since the 1970s – modeled as both greater credit limits and more lenient bankruptcy – affected intergenerational mobility. Surprisingly, we find that the democratization of credit led to less intergenerational mobility and greater inequality. Two offsetting forces underlie this result: (1) greater credit limits raise mobility by facilitating borrowing and investment among low-income households; (2) however, more lenient bankruptcy policy lowers mobility since low-income households dissave, hit their constraints more often, and reduce investments in their children. Quantitatively, the democratization of credit is dominated by more lenient bankruptcy policy and so mobility declines between the 1970s and 2000s.

"The Impact of Commercial Real Estate Regulations on U.S. Output," joint with Fil Babalievsky, Lee E. Ohanian, and Edward C. Prescott, First draft: November, 2021. (submitted)

Abstract: Commercial real estate accounts for roughly 20% of the U.S. fixed asset stock, and commercial land use is highly regulated. However, little is known about the quantitative impact of these regulations on economic activity or consumer welfare. This paper develops a spatial general equilibrium model of the U.S. economy that includes commercial real estate regulations and congestion effects, the latter of which provide a rationale for such regulations. The model is tailored to exploit the near-universe of CoreLogic's commercial, parcel-level, property tax records to construct a quantitative index of commercial real estate regulations for nearly every commercial property. We use the model to evaluate the positive and normative impacts of commercial land use deregulations. Moderately relaxing commercial regulations across all U.S. cities yields large allocative efficiency effects, with output gains of about 3 percent to 6 percent and welfare gains of about 3 percent to 9 percent of lifetime consumption. We also find significant positive and normative gains from deregulation with 40 percent of the labor force working remotely.  

"Merger Guidelines for the Labor Market," joint with David Berger, Thomas Hasenzagl, Simon Mongey, and Eric Posner. First draft: April, 2023. (Revise & Resubmit, Journal of Monetary Economics)

Abstract: While the labor market implications of mergers have historically been ignored, recent actions by the Department of Justice (DOJ) place buyer market power (i.e., monopsony)  at the forefront of antitrust policy. We develop a theory of multi-plant ownership and monopsony to help guide this new policy focus.  We estimate the model using U.S. Census data and demonstrate the model's ability to replicate empirically documented paths of employment and wages following mergers. We then simulate a representative set of U.S. mergers in order to evaluate  merger review thresholds. Our main exercise applies the DOJ and FTC's product market concentration thresholds to local labor markets. Assuming mergers generate efficiency gains of 5 percent, our simulations suggest that workers are harmed, on average, under the enforcement of the more lenient 2010 merger guidelines and unharmed, on average, under enforcement of the more stringent 1982 merger guidelines. We also provide a framework for further research evaluating alternative concentration thresholds based on assumptions about the efficiency effects of mergers and the resource constraints of regulators. Finally, we provide guidance for using the Gross Downward Wage Pressure method for evaluating the impact of mergers on labor markets.

See our comments on the 2023 draft merger guidelines here: "Comments on the 2023 Draft Merger Guidelines: A Labor Market Perspective," joint with David Berger,  Thomas Hasenzagl, Simon Mongey, and Eric Posner. First draft: August, 2023. These were presented at the joint DOJ/FTC/UofC public workshop on the draft guidelines.

"Minimum wages, Efficiency and welfare,"  joint with David Berger and Simon Mongey, First Draft: July, 2021. (Revised & Resubmitted Econometrica, 2nd Round) (first draft July 2021, Earlier Draft)

Abstract:  Many argue that minimum wages can prevent efficiency losses from monopsony power.  We assess this argument in a general equilibrium model of oligopsonistic labor markets with heterogeneous workers and firms. We decompose welfare gains into an efficiency component that captures reductions in monopsony power and a redistributive component that captures the way minimum wages shift resources across people. The minimum wage that maximizes the efficiency component of welfare lies below $8.00 and yields gains worth less than 0.2% of lifetime consumption. When we add back in Utilitarian redistributive motives, the optimal minimum wage is $11 and redistribution accounts for 102.5% of the resulting welfare gains, implying offsetting efficiency losses of -2.5%. The reason a minimum wage struggles to deliver efficiency gains is that with realistic firm productivity dispersion, a minimum wage that eliminates monopsony power at one firm causes severe rationing at another. These results hold under an EITC and labor income taxes calibrated to the U.S. economy. 

"Changing income risk across the US skill distribution: Evidence from a generalized Kalman filter," Joint with J. Carter Braxton, Jonathan Rothbaum, and Lawrence Schmidt (Revise & Resubmit AER, 2nd Round)

(First draft: July 2021) [OIGI write-up, NBER WP, OIGI WP] 

Abstract:  For whom has earnings risk changed, and why? We answer these questions by combining the Kalman filter and EM-algorithm to estimate persistent and temporary earnings for every individual at every point in time. We apply our method to administrative earnings linked with survey data. We show that since the 1980s, persistent earnings risk rose by 20% for both employed and unemployed workers and the scarring effects of unemployment doubled. At the same time, temporary earnings risk declined. Using education and occupation codes, we show that rising persistent earnings risk is concentrated among high-skill workers and related to technology adoption.

"How to Fund Unemployment Insurance with Informality and False Claims: Evidence from Senegal," joint with Abdou Ndiaye, Abdou Cisse, Alessandro Dell'Acqua, and Aly Mbaye. First draft: August, 2023. [In preparation for Carnegie-Rochester-NYU special edition of JME, 2024]

Abstract: This paper studies the welfare effects of unemployment insurance (UI) in low-income countries characterized by high levels of informality, weak enforcement of UI claims, and job search frictions. Our analysis highlights the significance of the UI scheme design for workers' welfare and identifies potential funding constraints in implementing UI in imperfect labor markets. Using a custom labor force survey conducted in Senegal, we estimate the key parameters of an extended Chetty (2006) model incorporating an informal sector, and we evaluate the welfare implications of different UI schemes with varying degrees of enforcement and funding sources. Our results demonstrate that workers respond to UI benefits and that the welfare gains depend on the design of the UI system. Across payroll and consumption tax funded UI schemes, we estimate that an extra dollar of UI benefits in Senegal yields a consumption equivalent gain worth over 80 cents. This "dollar-on-dollar'' welfare gain from UI  exceeds comparable U.S. estimates by a factor of 20.

Publications and accepted articles:

"Who bears the welfare costs of monopoly? The case of the credit card industry," Joint with Gajendran Raveendranathan.  (accepted, Review of Economic Studies)

(First draft: January 2019, NBER Working Paper #26604, Earlier Draft, Non-technical summary and merger policy discussion)

Abstract: We measure the distribution of welfare losses from non-competitive behavior in the U.S. credit card industry during the 1970s and 1980s.  The early credit card industry was characterized by regional monopolies. Ensuing legal decisions led to competitive reforms that resulted in greater, but still limited, oligopolistic competition. We measure the distributional consequences of these reforms by developing and estimating a heterogeneous agent, defaultable debt framework with oligopolistic lenders. The transition from monopoly to oligopolistic competition yields welfare gains equivalent to a one-time transfer worth $3,600 (in 2016 dollars) for the bottom decile of earners (roughly 50% of their annual income) versus $1,200 for the top decile of earners. As the credit market expands, low-income households benefit more since they rely disproportionately on credit to smooth consumption. Greater competition also explains rising bankruptcies, chargeoffs, and credit to income ratios. Lastly, we bound the welfare gains from competition by computing a perfectly competitive benchmark. Aggregate welfare gains are 40% larger from perfect competition but distributed similarly to oligopolistic competition.

"Monopsony amplifies distortions from progressive taxes," Joint with David Berger, Simon Mongey, and Negin Mousavi. (NBER WP with abstract). AER papers & Proceedings, 2024.

Abstract: In this short paper we show that progressive income taxes distort hiring and wages when firms have labor market power. From a firm’s perspective, raising pre-tax wages increases employment by less when taxes are progressive as less of the pre-tax wage is paid to workers. Understanding this when setting wages leads to lower wages and employment at all firms. When firms differ in productivity, progressive taxes also distort the allocation of labor across firms. We characterize this novel monopsony cost of progressivity in a simple monopsony economy and derive efficiency wedges that depend on progressivity. A simple quantification of these wedges points to the possibility that the monopsony cost may be of similar magnitudes to redistribution and insurance benefits.

"Production and Learning in Teams," Joint with Jeremy Lise, Guido Menzio, and Gordon Phillips. (accepted, Econometrica)

[NBER Working Paper No. 25179 , Medium, WCEG, WSJ (blog), Bloomberg] (First draft: June 2017, previously titled "Knowledge Diffusion in the Workplace", "Knowledge Diffusion Within and Across Firms" and "Worker Mobility and the Diffusion of Knowledge") 

Abstract:  Using theory and data, we decompose learning on the job into a learning-by-doing component and a learning-from-coworkers component. The theory is a frictional model of the labor market, in which the productivity and the human capital growth of an individual depend on the average human capital of his coworkers. The data is a matched employer-employee dataset of US workers and firms. The measured production function is supermodular: The marginal product of a more knowledgeable individual is increasing in the human capital of his coworkers. The measured human capital accumulation function is convex: The human capital growth of an individual is increasing in the human capital of his coworkers if the individual is less knowledgeable than his coworkers, but it is independent of the coworkers' human capital if the individual is more knowledgeable than his coworkers. Learning from coworkers accounts for two thirds of the stock of human capital accumulated on the job. Technological changes that increase production supermodularity lead to labor market segregation and, by reducing the opportunities for low human capital workers to learn from better coworkers, lead to a decline in aggregate human capital and output.

"Can the Unemployed Borrow? Implications for Public Insurance," Joint with J. Carter Braxton, and Gordon Phillips. (accepted, Journal of Political Economy)

(First draft: January 2018) [Kalman Filtering to Recover Transitory and Permanent Shocks, NBER WP] 

Abstract:  We empirically establish that unemployed individuals maintain significant access to credit and that upon layoff, the unconstrained borrow, while the constrained default and delever. Motivated by these findings, we develop a theory of credit lines and labor income risk to analyze optimal transfers to the unemployed. Since the terms of credit lines are fixed, credit lines are unresponsive to job loss and provide greater consumption insurance relative to when debt is repriced period-by-period. Given U.S. levels of credit lines, the government optimally reduces transfers to the unemployed, whereas it is less able to reduce transfers when debt is re-priced period-by-period.

"How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output," Joint with Gordon Phillips and Ethan Cohen-Cole.  (The Review of Economic Studies, rdad104, https://doi.org/10.1093/restud/rdad104, published: 23 November 2023) 

(Earlier draft with sorting over the business cycle, First Draft: March 2015) [NBER Working Paper No. 22274, Bloomberg Article, Wall Street Journal Article, Huffington Post Article, The Atlantic Article, Equitable Growth Article] 

Abstract:  How do consumer credit markets affect the allocation of workers to firms, output, and labor productivity? We address this question in two steps.  First, we use new micro data to estimate empirical elasticities of job search patterns to credit. Second, we estimate our novel theory of sorting under risk aversion to match these elasticities, and then we conduct aggregate counterfactuals.   Empirically, we show that an increase in credit limits worth 10% of prior annual earnings allows individuals to take 0.33 weeks longer to find a job. Conditional on finding a job, they earn 1.85% more and work at higher paying firms.  We also find that young  and high-utilization individuals are more responsive to credit.  Theoretically, we integrate risk aversion and borrowing into a model with worker and firm heterogeneity. We estimate the model to match our new empirical elasticities, and we then measure how the credit expansion from 1964 to 2004 affected sorting and output. Sorting improves as credit expands since constrained workers -- in particular constrained, young, high human capital workers -- find more capital intensive jobs.

"An Anatomy of Monopsony: Search Frictions, Amenities and Bargaining in Concentrated Markets," joint with David Berger, Andreas Kostol, and Simon Mongey. First draft: June, 2021. (NBER Macroeconomics Annual 2023, volume 38)

[Previously titled "Labor market structure, wages, and inequality", "Dynamic Oligopsony and Inequality" and "Quantifying Sources of Labor Market Power"]

Abstract: We contribute a theory in which three channels interact to determine the degree of monopsony power and therefore the wedge between a worker's spot wage and her marginal product (henceforth, the wage markdown): (1) heterogeneity in worker-firm-specific preferences (nonwage amenities), (2) firm granularity, and (3) off- and on-the-job search frictions. We use Norwegian data to discipline each channel and then reproduce novel reduced-form empirical relationships between market concentration, job flows, wages and wage inequality. Our main exercise quantifies the contribution of each channel to income inequality and wage markdowns. The markdowns are 21 percent in our baseline estimation. Removing nonwage amenity dispersion narrows them by a third. Giving the next-lowest-ranked competitor a seat at the bargaining table narrows them by half. Removing search frictions narrows them by two-thirds. Each counterfactual shows decreased wage inequality and increased welfare.

"Patent Publication and Innovation," Joint with Deepak Hegde and Chenqi Zhu. (Journal of Political Economy, 2023 Volume 131, Number 7)

(First draft: January 2015, previously circulated as "Patent Publication and Technology Spillovers" and "Patent Disclosure" on SSRN)  [Patent & IP blog, Brad Delong's Blog, NBER WP]

Abstract: How does the publication of patents affect innovation? We answer this question by exploiting a large-scale natural experiment -- the passage of the American Inventor's Protection Act of 1999 (AIPA) -- that accelerated the public disclosure of most U.S. patents by two years. We obtain causal estimates by comparing U.S. patents subject to the law change with ``twin''  European patents which were not. After AIPA's enactment, U.S. patents receive more and faster follow-on citations, indicating an increase in technology diffusion. Technological overlap increases between distant but related patents and decreases between highly similar patents, and patent applications are less likely to be abandoned post-AIPA, suggesting a reduction in duplicative R&D. Firms exposed to one standard deviation longer patent grant delays increased their R\&D investment by 4% after AIPA. These findings are consistent with our theoretical framework in which AIPA provisions news shocks about related technologies to follow-on inventors and thus alters their innovation decisions. 

"Labor Market Power," Joint with David Berger and Simon Mongey. (American Economic Review, 2022  Vol. 112, No. 4, pp. 1147-93) 

(First presentation: July 2018, SED) [Marginal Revolution, Center for American Progress, Econfip, Minneapolis Fed]

Abstract: To measure labor market power in the US economy, we develop a tractable quantitative, general equilibrium, oligopsony model of the labor market. We estimate key model parameters by matching the firm-level relationship between labor market share and employment size and wage responses to state corporate tax changes. The model quantitatively replicates quasi-experimental evidence on (i) imperfect productivity-wage pass-through, (ii) strategic behavior of dominant employers, and (iii) the local labor market impact of mergers. We then measure welfare losses relative to the efficient allocation. Accounting for transition dynamics, we quantify welfare losses from labor market power relative to the efficient allocation as roughly 6 percent of lifetime consumption. An analytical decomposition attributes equal parts to dead-weight losses and misallocation. Lastly, we find that declining local concentration added 4 ppt to labor's share of income between 1977 and 2013.

"Testing and Reopening in an SEIR Model," joint with David Berger, Chengdai Huang, and Simon Mongey. (Review of Economic Dynamics, 2020, ISSN 1094-2025) 

Retitled from: “An SEIR Infectious Disease Model with Testing and Conditional Quarantine"

[Data, Codes, Interactive Python Simulations] [Telegraph, Marginal Revolution, BFI, NY Times, NYT 2, Minneapolis Fed, WCEG, HCEO]  

Abstract: We quantify how testing and targeted quarantine make it possible to reopen an economy in such a way that output increases while deaths are reduced. We augment a standard Susceptible-Exposed-Infectious-Recovered (SEIR) model with (i) virological testing, (ii) serological testing, (iii) permanently asymptomatic individuals, (iv) incomplete information, and (v) a reduced form behavioral response of reopening to changes in health risks. Virological testing allows for targeted quarantine of asymptotic spreaders. Serological testing allows for targeted release of recovered individuals. We fit our model to U.S. data. Virological tests every two weeks accommodate more aggressive reopening that more than halves output losses while keeping deaths below forecasts under the status quo. Serological tests are much less effective. Implementing testing against a fixed budget, low sensitivity tests that are cheap and used frequently, dominate perfect tests that are expensive and used less frequently.

"The Impact of Consumer Credit Access on Self-Employment and Entrepreneurship," Joint with Gordon Phillips and Ethan Cohen-Cole.  (Journal of Financial Economics, Volume 141, Issue 1, 2021, Pages 345-371)  

(First Draft: February 2016, previously circulated as "The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship", Online Appendix) 

[NBER Working Paper No. 22846]  

Abstract:  We examine how consumer credit affects entrepreneurship by linking three million earnings and pass-through tax records to credit reports.  In the cross-section, we show that self-employment without employees and employer firm ownership increase monotonically with credit limits and credit scores.  We then isolate individuals who have had discrete increases in credit limits after the exogenous removal of bankruptcy flags to measure the effects of personal credit on entrepreneurship. Following bankruptcy flag removal, individuals are more likely to start a new employer business and borrow extensively. Those who own businesses with employees borrow $40,000 more after bankruptcy flag removal, a 33% gain relative to the sample average.   

"The Impact of Consumer Credit Access on Unemployment,"  (The Review of Economic Studies, Volume, 86, Issue 6, 2019, pages 2605-2642) 

[NBER working paper No. 25187, CardRate] (First Draft: February 2013.  [Online Appendix]) [Codes and data]

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

Abstract:   Unemployed households' access to unsecured revolving credit more than tripled over the last three decades. This paper analyzes how both cyclical fluctuations and trend increases in credit access impact the business cycle. The main quantitative result is that credit expansions and contractions have contributed to moderately deeper and more protracted recessions over the last 40 years.  As more individuals obtained credit from 1977 to 2010, cyclical credit fluctuations affected a larger share of the population and became more important determinants of employment dynamics.  Even though business cycles are more volatile, newborns strictly prefer to live in the economy with growing, but fluctuating, access to credit markets.

"The Impact of Foreclosure Delay on U.S. Employment," with Lee E. Ohanian.  NBER Working Paper No. 21532, 2015. (Review of Economic Dynamics, Volume 31, January 2019, Pages 63-83)

(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, Minneapolis Fed] [Codes and data]

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. (The Review of Financial Studies, Volume 31, Issue 3, March 2018)

 (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).  [VoxEU, Urban Institute, Calculated Risk , AroundTheFed, JournalistResource] 

Additional Files: Online Appendix, and Replication Files: [Codes and Data] [Weights: PSID-CRISM mortgage weights.do, PSID-CRISM mortgage weights.dta]

Abstract: This paper uses new data from the PSID to quantify the relative importance of negative equity versus ability to pay, in driving mortgage defaults between 2009 and 2013. These data allow us to construct household budgets sets that provide better measures of ability to pay. Changes in ability to pay have large estimated effects. Job loss has an equivalent effect on the propensity to default as a 35 percent decline in equity. Strategic motives are also found to be quantitatively important, as we estimate more than 38 percent of households in default could make their mortgage payments without reducing consumption.

"Tarnishing the Golden and Empire States: Land-Use Regulations and the U.S. Economic Slowdown," Joint with Lee E. Ohanian and Edward C. Prescott (Journal of Monetary Economics, Volume 93, January 2018)

[NBER Working Paper No. 23790, Washington Post, Wall Street Journal, The Atlantic, NY Times, The Grumpy Economist, Marginal Revolution, John Hood, HHEI, Economist] [Codes and Data, Errata]

Abstract:  This paper studies the impact of state-level land-use restrictions on U.S. economic activity, focusing on how these restrictions have depressed macroeconomic activity since 2000. We use a variety of state-level data sources, together with a general equilibrium spatial model of the United States to systematically construct a panel dataset of state-level land-use restrictions between 1950 and 2014. We show that these restrictions have generally tightened over time, particularly in California and New York. We use the model to analyze how these restrictions affect economic activity and the allocation of workers and capital across states. Counterfactual experiments show that deregulating existing urban land from 2014 regulation levels back to 1980 levels would have increased US GDP and productivity roughly to their current trend levels. California, New York, and the Mid-Atlantic region expand the most in these counterfactuals, drawing population out of the South and the Rustbelt. General equilibrium effects, particularly the reallocation of capital across states, account for much of these gains.

"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 ``Heterogeneous Passthrough from TFP to Wages,'' by Mons Chan, Sergio Salgado, and Ming Xu

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.

Resting Papers:

"Informal Unemployment Insurance and Labor Market Dynamics,"  Federal Reserve Bank of St. Louis Working Paper 2012-057, First Draft: December, 2011. 

(Previously circulated as "The Role of Default (Not Bankruptcy) as Unemployment Insurance: New Facts 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.