Working Papers

"The Micro Incidence of Macroeconomic Shocks: A Budget Set Approach" (2022) [draft coming soon]

with Felipe del Canto, Eric Qian and Conor Walsh


Abstract: This paper studies aggregate labor market dynamics when workers have heterogeneous skills for tasks which are subject to non-uniform labor demand shocks. When workers have different skills, movements in aggregate wages partly reflect a reallocation of different workers across tasks and into employment. This ensures that there nearly always exists some combination of task-specific demand shocks that induce aggregate employment and wages to negatively comove even in a frictionless economy. Furthermore, such reallocation effects would be interpreted either as a labor wedge or as a shift in an aggregate labor supply curve in representative agent economies. Developing a method to estimate the multidimensional skill distribution, I show that a frictionless model with realistic heterogeneity can replicate the mean wage increase and employment collapse of the Great Recession. Reduced-form composition-adjustment methods recover positive comovements between employment and wages in recent periods suggesting an increasing role for composition effects through time, which the model rationalizes through changes in the skill distribution and composition of sectoral shocks.

"Searching for Approval" [New Draft: May 2022]

with Sumit Agarwal, Ali Hortaçsu, Gregor Matvos, Amit Seru, and Vincent Yao (2022)

Revise and Resubmit, Econometrica

NBER Working Paper #27341 (2020)

Abstract: We study the interaction of search and application approval in credit markets. We combine a unique dataset, which details search behavior for a large sample of mortgage borrowers, with loan application and rejection decisions. Our data reveal substantial dispersion in mortgage rates and search intensity, conditional on observables. However, in contrast to predictions of standard search models, we find a novel non-monotonic relationship between search and realized prices: borrowers, who search a lot, obtain more expensive mortgages than borrowers' with less frequent search. The evidence suggests that this occurs because lenders screen borrowers' creditworthiness, rejecting unworthy borrowers, which differentiates consumer credit markets from other search markets. Based on these insights, we build a model that combines search and screening in presence of asymmetric information. Risky borrowers internalize the probability that their application is rejected, and behave as if they had higher search costs. The model rationalizes the positive relationship between search and interest rates, and highlights the tight link between credit standards and pricing. We estimate the parameters of the model and study several counterfactuals. The model suggests that "overpayment" may be a poor proxy for consumer unsophistication since it partly represents rational search in presence of rejections. Moreover, the development of improved screening technologies from an abundance of data endogenously leads to more severe adverse selection in credit markets. Finally, place based policies, such as the Community Reinvestment Act, may affect equilibrium prices through endogenous search responses rather than increased credit risk.

Abstract: We examine the golden age of U.S. innovation by undertaking a major data collection exercise linking historical U.S. patents to state and county-level aggregates and matching inventors to Federal Censuses between 1880 and 1940. We identify a causal relationship between patented inventions and long-run economic growth and outline a basic framework for analyzing key macro and micro-level determinants. We find a positive relationship between innovation and drivers of regional performance including population density, financial development and geographic connectedness. We also explore the impact of social structure measured by slavery and religion. We then profile the characteristics of inventors and their life cycle finding that inventors were highly educated, positively selected through exit early in their careers, made time allocation decisions such as delayed marriage, and tended to migrate to places that were conducive to innovation. Father's income was positively correlated with becoming an inventor, though not when controlling for the child's education. We show there were strong financial returns to technological development. Finally, we document an inverted-U shaped relationship between inequality and innovation but also show that innovative places tended to be more socially mobile. Our new data help to address important questions related to innovation and long-run growth dynamics.

Publications (incl. Forthcoming)

with Ufuk Akcigit, Tom Nicholas and Stefanie Stantcheva

Quarterly Journal of Economics 137 (1) (2022): 329-385 Online Appendix

NBER Working Paper #24982 (2018). Old Version

Coverage: Cato Institute, NBER Reporter, Vox EU

Abstract: This paper studies the effect of corporate and personal taxes on innovation in the United States over the twentieth century. We build a panel of the universe of inventors who patent since 1920, and a historical state-level corporate tax database with corporate tax rates and tax base information, which we link to existing data on state-level personal income taxes and on other economic outcomes. Our analysis focuses on the impact of personal and corporate income taxes on individual inventors (the micro level) and on states (the macro level), considering the quantity and quality of innovation, its location, and the share produced by the corporate rather than the non-corporate sector. We propose several identification strategies, all of which yield consistent results. We nd that higher taxes negatively impact the quantity and the location of innovation, but not average innovation quality. The state-level elasticities to taxes are large and consistent with the aggregation of the individual level responses of innovation produced and cross-state mobility. Corporate taxes tend to especially affect corporate inventors' innovation production and cross-state mobility. Personal income taxes significantly affect the quantity of innovation overall and the mobility of inventors.

Abstract: Using administrative payroll data from the largest U.S. payroll processing company, we measure the extent of nominal wage rigidity in the United States. The data allow us to define a worker's per-period base contract wage separately from other forms of compensation such as overtime premiums and bonuses. We provide evidence that firms use base wages to cyclically adjust the marginal cost of their workers. Nominal base wage declines are much rarer than previously thought with only 2% of job-stayers receiving a nominal base wage cut during a given year. Approximately 35% of workers receive no base wage change year over year. We document strong evidence of both time and state dependence in nominal base wage adjustments. In addition, we provide evidence that the flexibility of new hire base wages is similar to that of existing workers. Collectively, our results can be used to discipline models of nominal wage rigidity.

Abstract: In this paper we show that the Pandemic Recession has led to frequent cuts in nominal wages. Within three months in 2020, as many wage cuts had occurred as occurred throughout the Great Recession. Unlike employment declines, wage cuts were concentrated at the top of the wage distribution. However, these cuts have been relatively short-lived, particularly among high-earners. Finally, wage cuts have been concentrated in firms which have seen large employment declines. Wage cuts appear to not be a substitute for cutting employment, at least when the shock to labor demand is this large.

with Tomaz Cajner, Leland D. Crane, Ryan A. Decker, Adrian Hamins-Puertolas, Erik Hurst, Christopher Kurz, and Ahu Yildirmaz

Brookings Papers on Economic Activity (2020)

Coverage: Washington Post, NBER Digest, Politico, Associated Press

Abstract: Using weekly, anonymized administrative payroll data from the largest U.S. payroll processing company, we measure the evolution of the U.S. labor market during the first three months of the global COVID-19 pandemic. After aggregate employment fell by 21 percent through late-April, we highlight a modest employment rebound through late-May. The re-opening of temporarily shuttered businesses contributed significantly to the employment rebound, particularly for smaller businesses. We show that worker recall has been an important component of recent employment gains for both re-opening and continuing businesses. Employment losses have been concentrated disproportionately among lower wage workers; as of late May employment for workers in the lowest wage quintile was still 30 percent lower relative to mid-February levels. As a result, average base wages increased by over 5 percent between February and May, though this increase arose entirely through a composition effect. Finally, we document that businesses have cut nominal wages for about 10 percent of continuing employees while forgoing regularly scheduled wage increases for others.

with Ufuk Akcigit and Tom Nicholas

American Economic Review: Papers & Proceedings (2017) 107(5):327-331

Coverage: The Atlantic, Harvard Business Review, VoxEU, NBER Digest, BizEd, Les Echos

Abstract: This paper builds on the analysis in Akcigit, Grigsby, and Nicholas (2017) by using U.S. patent and Census data to examine macro and micro-level aspects of the relationship between immigration and innovation. We construct a measure of "foreign born expertise" and show that technology areas where immigrant inventors were prevalent between 1880 and 1940 experienced more patenting and citations between 1940 and 2000. We also show that immigrant inventors were more productive during their life cycle than native born inventors, although they received significantly lower levels of labor income than their native born counterparts. Overall, the contribution of foreign born inventors to US innovation was substantial, but we also find evidence of an immigrant inventor wage-gap that cannot be explained by differentials in productivity.

with Meta Brown, Wilbert van der Klaauw, Jaya Wen, and Basit Zafar

The Review of Financial Studies (2016)

Coverage: The Economist

Abstract: Young Americans are heavily reliant on debt and have clear financial literacy shortcomings. In this paper, we study the effects of exposure to financial training on debt outcomes in early adulthood among a large and representative sample of young Americans. Variation in exposure to financial training comes from statewide changes in high school graduation requirements. Using a flexible event study approach, we find that both mathematics and financial education, by and large, decrease reliance on nonstudent debt and improve repayment behavior. Economics training, on the other hand, increases both the likelihood of holding outstanding debt and the prevalence of repayment difficulties.