Labor Market Polarization and Inequality: A Roy Model Perspective, 2025 (with Luisa Fuster, Gueorgui Kambourov, and Richard Rogerson). NBER working paper 33687 Link
Abstract:
We study the forces driving polarization and higher wage inequality since 1980 using a structural model of occupation choice in the tradition of Roy. In our model, changes in relative occupational skill prices proxy for changes in relative demand for occupational labor services. Our analysis yields three main findings. First, although changes in skill prices have quantitatively important effects on employment shares and mean wages, they play essentially no role in accounting for the sharp rise in wage inequality. Second, changes in relative wages are driven by changes in higher order moments and do not reflect changes in relative demand. Third, changes in the variance of idiosyncratic within occupation productivity are the dominant factor behind the sharp rise in inequality.
Labor Supply and Occupational Choice, 2022 (with Luisa Fuster, Gueorgui Kambourov, and Richard Rogerson). NBER Working Paper 30492. Link
Abstract: We document a robust negative relationship between mean annual hours in an occupation and the dispersion of annual hours within that occupation. We study a unified model of occupational choice and labor supply that features heterogeneity across occupations in the return to working additional hours and show that it can match the key features of the data both qualitatively and quantitatively. Occupational choice in our model is shaped both by selection on comparative advantage and selection on tastes for leisure. Our quantitative work finds that the dominant source of differences in hours across occupations is selection on tastes for leisure.
Occupations, Life Cycle Wage Growth, and Inequality, with Luisa Fuster, Gueorgui Kambourov, and Richard Rogerson.
Abstract. Two robust empirical facts are that mean wages and cross-sectional wage dispersion both increase over the life cycle. We study how these two changes vary across occupations and document a strong positive correlation: occupations with high mean wage growth over the life cycle also exhibit greater increases in cross-sectional wage dispersion. We develop a novel dynamic Roy model that features both static and dynamic comparative advantage and show that it can account for the variation in life cycle wage distributions across high and low wage occupations. Dynamic comparative advantage reflects individual heterogeneity in occupation specific learning abilities, and is the dominant force that shapes occupation choice in our model. We highlight several important implications of dynamic comparative advantage and show that our model captures the data better than a benchmark model that features persistent shocks.
Public Financing with Financial Frictions and Underground Economy, 2021 (with Luisa Fuster and Tomás R. Martinez). Working Paper 32495, Universidad Carlos III de Madrid. Link NEW VERSION
Abstract: What are the aggregate effects of informality in a financially constrained economy? We develop and calibrate an entrepreneurship model to data on matched employer-employee from both formal and informal sectors in Brazil. The model distinguishes between informality on the business side (extensive margin) and the informal hiring by formal firms (intensive margin). We find that when informality is eliminated along both margins, aggregate output increases 9.3%, capital 14.7%, TFP 5.4%, and tax revenue 37%. The output and TFP increases would be much larger if informality were only eliminated on the extensive margin, a result that supports the view that the informal economy can play a positive role in an economy with financial frictions. Finally, we find that the output cost of financing social security in our baseline model is about twice as large as the one in an economy with no frictions.
Hours, Occupations, and Gender Differences in Labor Market Outcomes, 2017 (with Luisa Fuster, Gueorgui Kambourov, and Richard Rogerson). NBER working paper 23636. Link
Abstract: We document a robust negative relationship between the log of mean annual hours in an occupation and the standard deviation of log annual hours within that occupation. We develop a unified model of occupational choice and labor supply that features heterogeneity across occupations in the return to working additional hours and show that it can match the key features of the data both qualitatively and quantitatively. We use the model to shed light on gender differences in labor market outcomes that arise because of gender asymmetries in home production responsibilities. Our model generates large gender gaps in hours of work, occupational choices, and wages. In particular, an exogenous difference in time devoted to home production of ten hours per week increases the observed gender wage gap by roughly eleven percentage points and decreases the share of females in high hours occupations by fourteen percentage points. The implied misallocation of talent across occupations has significant aggregate effects on productivity and welfare.
Dual Employment Protection Legislation and the Size Distribution of Firms, with Roman Fonsati and Matthias Kredler.
Household Risk, and Insurance over the Life cycle, with Luisa Fuster, Gueorgui Kambourov and Richard Rogerson.
The Optimal Propagation of Real Shocks in a CIA Economy, with Ricardo Cavalcanti.