Working Papers
Monopsony with Recruiting
with Birthe Larsen and Anders Yding (2024)
We develop a tractable model of monopsony where firms use wages and recruiting expenditures to attract workers. The model predicts that firms’ labor supply curves are elastic in the long run, consistent with evidence that firms pay higher wages while growing, but the wage premium at large firms is small. We confirm these predictions using the effect of export demand shocks on the wage growth of job switchers in Denmark. Our results imply that monopsony rents are dissipated by recruiting costs, which can reconcile existing estimates of monopsony power with the profit share of national income in rich countries.
(Past Version: "When do Firms Profit From Wage Setting Power?")
Firm Wage Setting and On-the-Job Search Limit Wage-Price Spirals
with Seung Joo Lee and Jacob Weber (2024)
Revision Requested
We develop a novel, tractable New Keynesian model where firms post wages and workers search on the job, motivated by microeconomic evidence on wage setting. Because firms set wages to avoid costly turnover, the rate that workers quit their jobs features prominently in the model's wage Phillips curve, matching U.S. empirical evidence. We then examine the response of wages to cost-of-living shocks, i.e., shocks that raise the price of household's consumption goods but do not affect the marginal product of labor. Such shocks pass through to wages only to the extent that higher cost of living improves workers' outside options, such as competing jobs or unemployment, relative to their current job. However, higher cost of living lowers real wages at all jobs evenly, and unemployment is rarely a credible outside option. We conclude that wage posting and on-the-job search limit the scope for pass-through from prices to wages.
Which Workers Earn More at Productive Firms? Position Specific Skills and Individual Worker Hold-up Power
with Birthe Larsen and Bledi Taska (2022)
We argue that productive firms share rents with workers only in occupations where workers have individual hold-up power. Workers have this power if the output of positions is individually complementary and workers acquire position-specific skills on the job. We estimate individual worker hold-up power by occupation using the effect of worker deaths on firm profits in Denmark and a measure of task differentiation from US job postings. High hold-up occupations exhibit higher wage levels and higher long-run passthrough of permanent firm productivity innovations to wages. We examine inequality implications for the gender wage gap and the effect of superstar firms.
Congestion in Onboarding Workers and Sticky R&D
with Jacob Weber (2023)
Revision Submitted
R&D investment spending exhibits a delayed and hump-shaped response to shocks. We show in a simple partial equilibrium model that rapidly adjusting R&D investment is costly if the probability of converting new hires into productive R&D workers (“onboarding”) is decreasing in the number of new hires (“congestion”). Congestion thus causes R&D producing firms to slowly hire new workers in response to good shocks and hoard workers in response to bad shocks, providing a microfoundation for convex adjustment costs in R&D investment. Using novel, high-frequency productivity data on individual software developers collected from GitHub, a popular online collaboration platform, we provide quantitative evidence for such congestion. Calibrated to this evidence, a sticky-wage new Keynesian model with heterogeneous investment-producing firms subject to congestion in onboarding and no other frictions yields hump-shaped responses of R&D investment to monetary policy shocks.
Structural Changes in Investment and the Waning Power of Monetary Policy
with Jacob Weber (2021)
We argue that secular change in both the production and composition of investment goods has weakened private investment's role in the transmission of monetary policy to labor earnings and consumption. We show analytically that fluctuations in the production of investment goods amplify the response of consumption to monetary policy shocks by varying labor income for hand-to-mouth agents. We document three secular changes that weaken this channel: (i) labor's share of value added in investment goods production has declined, (ii) the import share of investment goods has risen, and (iii) the composition of investment has shifted towards components that are less responsive to monetary policy. A small open economy, two agent New Keynesian model calibrated to match these facts implies a 38% and 26% weaker response of labor income and aggregate consumption, respectively, to real interest rate shocks in a 2010's economy relative to a 1960's economy.
Federal Reserve Publications
The Effect of Winter Weather on US Economic Activity
with Francois Gourio, Economic Perspectives, 2015, 39:1-20.