Research

We study the role of strategic interactions between firms in wage setting and their implications for aggregate wage adjustment. Building on recent developments in the estimation of peer effects and utilizing granular administrative employee-employer data from Colombia, we identify the strategic interactions through a network-based approach. Our findings reveal that external shocks can significantly influence firms’ wage adjustments, even when firms are not directly exposed to these shocks. First, firms adjust their wages by approximately 1% in response to a 10% change in the wages of their competitors, controlling for external shocks. Second, firms respond to external shocks faced by their competitors, lowering wages by 6% in response to a 10% decline in the value added by their competing firms. The strategic interactions contribute to sluggish aggregate wage adjustment following negative external shocks. Aggregate wages in labor markets affected by external shocks could be approximately 2 percentage points lower over a two-year horizon due to the strategic interactions in wage setting and network effects. Furthermore, our firm-to-firm network estimation shows that firms down the job ladder compete with those above. Thus, external shocks originating at the top to propagate throughout the entire job ladder. We also find that firm networks exhibit a substantial degree of homophily in terms of the quality of workers and their observable characteristics.

Inequality response to the Russian ruble depreciation

Non-linear Impulse Responses of Monetary Policy Shocks, with Guido Kuersteiner 

Financial Repression and Public Finance in Calibrated General Equilibrium Model, working paper, with Sergey Pekarski (Higher School of Economics)