Abstract: This paper explores the role of minimum wage in counteracting the labor force participation decline and mitigating the consumer demand contraction. An increase in income inequality generally does not have a quantitative impact on aggregate consumption. However, following an economic downturn, it is associated with a significantly larger and more persistent contraction in consumption. The significant rise in inequality in the bottom half of the male labor earnings distribution in the US is attributable primarily to declining participation rate. Labor force participation declines heavily in recessions, and it does not recover in subsequent expansions. I provide empirical evidence that the increase in federal minimum wage during the Great Recession in the U.S. had a positive and substantial impact on labor force participation of prime-aged men. I also show that the minimum wage increase helped raise consumer demand, mitigating the overall decline during the Great Recession, which is confirmed with a theoretical model.  

Abstract:  Trends in demographics and income inequality have been considered as explanations for the drift in the natural rate of interest. The conclusion reached so far is that, while time-series evidence is not decisive, microeconomic evidence challenges demographics (Mian, Straub, and Sufi, 2021). We confirm, via cointegration analysis and estimation of interest rate rules, the difficulties of finding decisive evidence in a time-series approach. However, further consideration of the microeconomic evidence not only does not challenge the demographic interpretation of the trend, but also suggests that the rise in income inequality is partially explained by demographics

Abstract: During downturns, rigid average wages squeeze firms’ cash flows forcing them to cut investment and hiring, due to financial constraints (Schoefer, 2021). Given a significant increase in the use of broad-based equity-compensation schemes, the question arises whether these effects of wage rigidity could be moderated by equity-based pay. Namely, could the ability to adjust the part of the total labor compensation paid in  the form of future equity claims during downturns make employment more stable while making wages livable in the future? Using hand-collected data for 2000 firms from 2008 to 2020, I find that adjusting equity-pay can indeed moderate the financial effects of wage rigidity. The moderating role of equity pay is more significant when wages are more rigid, as I also show with a theoretical model.