Research
Publications
Rational Inattention in Hiring Decisions (with Sushant Acharya) American Economic Journal: Macroeconomics 12(1) 2020
We provide an information-based theory of match efficiency. Rationally inattentive firms have limited capacity to process information and cannot perfectly identify suitable applicants. As losses from hiring the wrong worker are amplified in a recession, firms seek to be more selective in their hiring. Inability to obtain sufficient information about applicants causes firms to err on the side of caution and accept fewer applicants in order to avoid hiring unsuitable workers. Pro-cyclical acceptance rates drive a wedge between meeting and hiring rates, driving fluctuations in match efficiency. Quantitatively, our model accounts for changes in measured match efficiency in the data.
Household Search and the Marital Wage Premium (with Laura Pilossoph) American Economic Journal: Macroeconomics 13(4) 2021
We develop a model in which selection into marriage and joint household search generate a marital wage premium. Absent selection, married individuals earn higher wages for two reasons. First, income pooling within a joint household raises risk-averse individuals' reservation wages. Second, married individuals endogenously climb the job ladder faster, as they internalize that a higher wage increases their partner's selectivity over offers. Specialization according to comparative advantage in search generates a premium that is also increasing in spousal education, as in the data. Estimating the model, we find that household search can explain between 30-70% of the observed wage premium
Slow Recoveries and Unemployment Traps: Monetary Policy in a Time of Hysteresis (with Sushant Acharya, Julien Bengui and Keshav Dogra) The Economic Journal, Vol. 132, Issue 646, August 2022
We analyze monetary policy in a model where temporary shocks can permanently scar the economy’s productive capacity. Workers lose skill while unemployed and are costly to retrain, generating multiple steady-state unemployment rates. Following a large shock, unless monetary policy acts aggressively and quickly enough to prevent a significant rise in unemployment, hiring falls to a point where the economy recovers slowly at best -- at worst, it falls into a permanent unemployment trap. Monetary policy can only avoid these outcomes if it commits in a timely manner to more accommodative policy in the future. Timely commitment is essential as the effectiveness of monetary policy is state dependent: once the recession has left substantial scars, monetary policy cannot speed up a slow recovery, or escape from an unemployment trap.
Job Applications and Labor Market Flows (with Serdar Birinci and Kurt See) (2023) Forthcoming, Review of Economic Studies
Job applications have risen over time yet job-finding rates remain unchanged. Meanwhile, separations have declined. We argue that increased applications raise the probability of a good match rather than the probability of job-finding. Using a search model with multiple applications and costly information, we show that when applications increase, firms invest in identifying good matches, reducing separations. Concurrently, increased congestion and selectivity over which offer to accept temper increases in job-finding rates. Our framework contains testable implications for changes in offers, acceptances, reservation wages, applicants per vacancy, and tenure, objects that enable it to generate the trends in unemployment flows.
Working Papers
On-the-job Search and the Productivity-Wage Gap (With Sushant Acharya) (2023)
We examine how worker and firm on-the-job search have differential impacts on the productivity-wage gap. While an increase in both worker and firm on-the-job search raise productivity, they have opposing effects on wages. Increased worker on-the-job search raises workers' outside options, allowing them to demand higher wages. Increased firm on-the-job search improves firms' bargaining position relative to workers' by raising job insecurity and the wedge between hiring and meeting rates, allowing firms to pass-through a smaller share of productivity to wages and enlarging the productivity-wage gap. Quantitatively, the model accounts for about a quarter of the observed divergence in the US productivity-wage gap between 1990 and 2017.
Assortative Matching and Income Inequality: A Structural Approach (with Laura Pilossoph) (2023)
We develop a model of educational investment, marriage, and household labor market search to quantify how changes in incentives to positively sort in marriage - summarized by changes in marital surplus - contributed to the rise in U.S. household income inequality. While there are always positive incentives to sort by skill and education, the former strengthened relative to the latter over time. These changes incentivized further educational attainment, especially for the high skilled. Unlike findings from previous studies, the resulting increase in like-education-skill marriages contributed to a significant rise in income equality.
Entrenched beliefs, slow learning and labor force participation (with Ben Griffy) (2023)
We develop a partial equilibrium search model to show how initial labor market conditions can not only have a persistent effect on beliefs but can cause economy-wide average beliefs to deviate from their fundamental. When returns to the labor market are group-specific but unknown, individuals base their search decision on both their private information and the actions of others, the latter of which is encapsulated in a noisy public signal. The informativeness of the public signal depends on the aggregate action. When individuals are overly-optimistic or pessimistic, the degree of participation reduces the informational content of the signal, causing individuals to learn slowly and for beliefs to become entrenched.
Optimal Unemployment Insurance With Multiple Applications (2024)
This paper examines how unemployment transfers should be allocated over the business cycle. When risk-averse workers can submit multiple applications, the optimal UI policy is countercyclical. In contrast, optimal policy in a standard search model featuring one-to-one matching is procyclical. In the latter, more generous UI during a downturn discourages search effort, dampening job creation. In the former, decreased search effort aids job creation. Because firms cannot coordinate and commit to not making the same worker an offer, lower search effort by reducing the number of applications sent mitigates this coordination friction. This in turn boosts job creation incentives, supporting employment outcomes.
Economic shocks in the early years of an individual's working life can give rise to persistent wage scars. Entering the job market during a recession hampers early career mobility which is crucial for learning about one's comparative advantage and accumulating human capital specific to one's ideal career. Lower wage growth results as individuals who choose to switch careers post-recession are forced to restart at lower wages due to their lack of `relevant' human capital and certainty over their aptitude. In the model, a wage gap of 5% persists post-recession and only fades 20 years after entry into the labor market
Works in Progress
Falling Down and Getting Back Up: Human Capital and Unemployment Duration (with Rebecca Lessem) (2016)