Research

This paper relaxes the frequently adopted assumption of a frictionless market for robots. A frictional robot market renders the diffusion of automation relatively rigid and persistent and, thereby, weakens the labor displacement effect of automation.

To shed light on the causes and consequences of automation decisions, this paper introduces robots replacing workers in a small open economy model with search and matching frictions and capital, estimated for the Canadian economy. A technological factor, the automation-specific technology, drives the probability of a firm to automate and, thereby, generates productivity gains and influences the fluctuations in productivity, investment, and the labour income share. Such a technology triggers a pro-cyclical labour displacement effect that exceeds its job creation effect but the net result on unemployment is quantitatively small, rendering it a small contributing force to unemployment fluctuations. A model with automation decisions fits better the data than models without them, influences the relative importance of supply-side and labour-market sources of business cycles, yields wage rigidity, and amplifies the volatility of productivity.

This paper studies the implications of business cycle frictions for the diffusion of permanent changes in automation. Incorporating task-based production in different versions of the New Keynesian model reveals considerable short-run implications. Price-distorting nominal rigidities amplify the labor displacement and attenuate the productivity and welfare gains of automation during the transition to the new equilibrium. They exacerbate the falls in the labor income share, the job finding probability, the value of long-term contracts, and labor market tightness. The inflation response follows a J-curve. Frictions in capital supply and wage rigidities amplify the labor displacement and attenuate the productivity gains too.

To study the causes and consequences of cyclical fluctuations in labor and capital income inequality through structural lenses, I develop and estimate a TANK model featuring business and inequality cycles. Matching the top 10% compensation and capital income shares disciplines distributional implications of the model, and reveals aggregate implications of heterogeneity. In a setup with aggregate and agent-type specific forces, cycles in income inequality and top income shares are to a large extent the outcome of aggregate forces, operating via heterogeneity in skills, labor market institutions, and investment opportunities. Inequality influences the relative importance of aggregate forces in output cycles, links investment to labor market conditions, disaggregates labor market cycles, and amplifies the effect of shocks causing counter-cyclical inequality.

Contrary to the Great and other past US Recessions, the reduction in services consumption exceeds the decline in nondurables consumption during the COVID-19 pandemic. We study the drivers of this unprecedented phenomenon through the lens of a model that distinguishes between nondurables and services sectors. 

This paper studies the recurrent sources of unit-root unemployment fluctuations in Greece, Italy, Portugal, Spain, and the Euro Area by integrating wage markup and labor disutility shocks that exhibit permanent euro-area-wide shifts, country-specific trend developments, and stationary changes in an estimated DSGE model. In all economies, these labor market shocks account for a negligible share of unemployment cycles. Demand shocks explain about 40% of them, contribute to the pre-crisis convergence of unemployment rates, and shape the unemployment spikes during the Great Recession. Cross-country relative price distortions and supply factors account for about 40% and 20% of those cycles, respectively.

The causes and consequences of the 1964–2016 swings in the U.S. labor income share (LS) are parsed through the lens of a structural model. Where conventional models fall short, the present model yields a counter-cyclical LS in response to demand shocks. Automation shocks account for about half of LS fluctuations and generate a counter-cyclical labor response.

Can the rise of wealth–income ratios observed in rich economies be found in the case of Greece as well? This paper uses a generalization of a two-good wealth accumulation equation to estimate the evolution of the national wealth–income ratio, and finds that, similarly to the European evidence, the ratio rises from about 280 percent in the 1970s to about 500 percent on the eve of the current financial crisis. On average, during 1974–96, the saving-induced wealth growth cancels out the capital losses, whereas in the subsequent decade, 1997–2007, the balance changes considerably when the saving effect vanishes and the prolonged capital gains result in a rising wealth–income ratio. During the recession, income falls faster than wealth. The results remain robust to several alterations of the benchmark framework.