Research
Research
Job Market Paper:
Intergenerational Spillovers: The Impact of Labor Market Risk on the Housing Market [Link to paper]
Abstract: Unemployment leads to large and persistent earnings losses for workers. Higher unemployment in the labor market might therefore have spillover effects on the housing market. This paper studies such spillover effects taking on both empirical and theoretical perspectives. Using data from the Current Population Survey (CPS), I show that a 1 percentage point increase in unemployment rate leads to a 1.55% decline in housing prices. In theory, I develop an overlapping generations model with a housing market. The calibrated model replicates the empirically observed spillover effect for the U.S. economy. Higher income uncertainty is the main driver of the spillover effect, rather than actual income losses. The spillover effect transmits one-third of workers’ welfare losses due to higher unemployment in the labor market to older, retired households by reducing their housing wealth. Younger workers partially benefit from buying houses at depressed prices. The magnitude of the spillover effect is shaped by the demographic structure of the population and the specific age groups affected by unemployment shocks. I find that increasing the generosity of unemployment insurance stabilizes the housing market, although it only partially mitigates the spillover effect.
Optimal Progressive Pension Systems and Heterogeneous Labor Market Risk [Link to paper]
- Finalist for the European Central Bank Young Economist Prize 2022
- Best Paper Award at the RGS Doctoral Conference 2022
- Best Paper Award at the 6th QMUL Economics and Finance Workshop 2024
Abstract: Heterogeneity in job stability is a salient feature of the labor market, which is a well-documented fact by empirical research. Job stability is key for welfare of individuals as interrupted work histories and the consequent earnings losses reduce pension entitlements and impair workers’ ability to accumulate life-cycle savings. I study how a progressive pension system optimally considers heterogeneity in work histories and quantify welfare gains from implementing the optimal pension system. Pension progressivity provides insurance against the risk of interrupted work histories and mitigates lifetime earnings inequality caused by heterogeneity in job stability, but comes at the cost of distorting human capital investment and retirement decisions. Using a life-cycle model with heterogeneity in job stability, endogenous human capital accumulation, and retirement decision, I find that abolishing the Social Security cap and increasing pension progressivity relative to the current U.S. pension system is optimal. The optimal pension system leads to a welfare gain of 0.75% of lifetime consumption for labor market entrants. Following the observed macroeconomic shift in the job-stability distribution towards higher job stability since the 1990s, the optimal pension system becomes less progressive, but the welfare gain from implementing the optimal pension system remains sizeable.
Employment Stability, Earnings Dynamics, and Life-Cycle Savings [Link to paper]
(with Moritz Kuhn and Gašper Ploj)
Abstract: Labor markets are characterized by large heterogeneity in employment stability. Some workers hold lifetime jobs, whereas others cycle repeatedly in and out of employment. This paper explores the economic consequences of such heterogeneity. Using data from the Panel Study of Income Dynamics (PSID), we document a systematic positive relationship between employment stability, earnings growth, and wealth accumulation. Workers with more stable employment have higher earnings growth, and per dollar of income, they accumulate more wealth. We develop a life-cycle consumption-saving model with heterogeneity in job stability that is jointly consistent with empirical labor market mobility, earnings, and wealth dynamics. Using the structural model, we explore the consequences of heterogeneity in employment stability at the individual and macroeconomic level. We conclude that heterogeneity in employment stability is an important but so far largely ignored determinant of heterogeneity in savings behavior and wealth accumulation.
Poor in America 1950 - 2020 (with Moritz Kuhn)
Abstract: The United States face historical highs of income and wealth inequality, raising the question about whether the income distribution has symmetrically widened during times of rising inequality. While there is an extensive research documenting the rise of income and wealth shares at the top of the distribution, we know little about how households at the other end of the distribution have fared over time. In this paper, we provide a comprehensive analysis of the bottom of the U.S. income distribution, in short ``the Poor'', throughout the entire postwar U.S. history. We document a large shift from old retirees to younger and more diverse households in terms of age, gender, and education at the bottom of the income distribution. Despite the upsurge in income inequality, we find that the income and wealth of the income-poor evolved in a lockstep with the average U.S. household, while the middle class has stagnated. Income-poor households own a substantial amount of wealth and have participated in financial markets over the last seven decades. Importantly, we find a pattern of wealth polarization, with a larger growth of wealth for the bottom and top of the income distribution. Wealth has decoupled from income which is largely driven by the wealth growth of retired households entering income poverty.
Job Stability and Portfolio Choice (with Pavel Brendler and Moritz Kuhn)