Eran Hoffmann
Assistant Professor
Department of Economics
The Hebrew University of Jerusalem
Mount Scopus
Jerusalem, 91905 Israel
Working Papers
The Cyclical Composition of Startups [paper] [slides]
This paper proposes a new theory of business cycles based on the idea that financial uncertainty shocks change the nature of innovation. When investors become more risk tolerant, they fund riskier startups with greater growth potential. As these ambitious startups grow, the initial shock propagates and generates a boom in output and employment. I develop a heterogeneous firm industry model of the US business sector with countercyclical risk premia and innovation by startups and existing firms. The quantitative implementation of the model jointly matches time series properties of stock returns and macroeconomic aggregates, as well as micro evidence on firm cohort growth over the cycle.
Moving to Fluidity: Regional Growth and Labor Market Churn with Monika Piazzesi and Martin Schneider [paper] [slides]
This paper studies the connection between regional growth trends and labor market dynamics. New data on manufacturing worker flows for U.S. cities 1957-1981 show that growing cities see on average more new hires and more voluntary quits, but fewer forced layoffs. Moreover, recessions in growing cities are special in that hiring and quits are low, whereas their key feature in shrinking cities is a spike in layoffs. A model of migration and on-the-job search accounts for the common factor in growth, quits and layoffs in the cross section of cities. Its key feature is that jobs can become at risk: they have lower match surplus and are more likely to terminate. In growing cities, better prospects from on-the-job search lead workers to quit jobs at risk earlier, which reduces layoffs and misallocation.
Real-Estate Investors, House Prices and Rents: Evidence from Capital-Gains Tax Changes with Itai Ater and Yael Elster [paper] [slides]
We study the dual role of real-estate investors – households who own multiple housing units – in ownership and rental housing markets in Israel. Exploiting a series of capital-gains tax changes and rich administrative data, we first show that real-estate investors that were subject to an unexpected temporary capital-gains tax exemption increased their sales of housing units by 50%. Predominantly, the housing units sold by investors were purchased by single homeowners and were previously occupied by renters. Next, we exploit spatial variation in the share of the housing stock owned by investors across 360 local markets to examine how investors’ activity induced by the tax changes affected local house prices and local rents. We present evidence that a 1% increase in investors’ sales out of stock led house prices to fall by 9% and rents to increase by 4%. These effects are larger for smaller and older units, in which investors own a larger share of the stock of housing units. The results suggest that policies that encourage investors to sell can achieve their stated objective of reducing house prices, but also run the risk of restricting the supply of rental housing, and thus adversely affecting renters.
Published Papers
Must Agreements Be Kept? Residential Leases during Covid-19 with Itai Ater, Yael Elster, and David Genesove [paper][appendix]
Accepted for publication, Economic Journal
We study residential lease payments during the COVID-19 pandemic. A survey of Israeli renters shows that nearly one-in-eight did not pay full rent during the first lockdown in March-April 2020. These households held back two-thirds of their contractually due rent on average. Financially fragile households with large income cuts withheld a greater share. Both formal and relational aspects of the landlord-tenant relationship affected payments: tenants paid more of their rent if their leases included formal provisions against non-payment, and less if they had strong relationships with their landlords. We use bargaining and relational contracts theories to explain our findings.
Earnings Dynamics and Labor Market Reforms: The Italian Case with Davide Malacrino and Luigi Pistaferri [paper]
Accepted for publication, Quantitative Economics
This paper summarizes statistics on the key aspects of the distribution of earnings levels and earnings changes using administrative (social security) data from Italy between 1985 and 2016. During the time covered by our data, earnings inequality and earnings volatility increased, while earnings mobility did not change significantly. We connect these trends with some salient facts about the Italian labor market, in particular the labor market reforms of the 1990s and 2000s which induced a substantial rise in fixed-term and part-time employment. The rise in part-time work explains much of the rise in earnings inequality, while the rise in fixed-term contracts explains much of the rise in volatility. Both these trends affect the earnings distribution through hours worked: part-time jobs reduce hours worked within a week, while fixed-term contracts reduce the number of weeks worked during the year as well as increase their volatility. We find weak evidence that fixed-term contracts represent a "stepping-stone" to permanent employment. Finally, we offer suggestive evidence that the labor market reforms contributed to the slowdown in labor productivity in Italy by delaying human capital accumulation (in the form of general and firm-specific experience) of recent cohorts.
Employment Time and the Cyclicality of Earnings Growth, with Davide Malacrino [paper]
Journal of Public Economics, 169, 160-171 (2019)
We study how the distribution of earnings growth evolves over the business cycle in Italy. We distinguish between two sources of annual earnings growth: changes in employment time (number of weeks of employment within a year) and changes in weekly earnings. Changes in employment time generate the tails of the earnings growth distribution, and account for the its procyclical skewness. In contrast, the distribution of weekly earnings growth is close to symmetric and stable over the cycle. This suggests that the employment margin should be carefully modeled to avoid erroneous conclusions on the nature of risks underlying the individual earnings. We show that the combination of simple employment and wage processes is enough to capture the complex features of the earnings growth distribution.