Understanding the Gains from Wage Flexibility: The Exchange Rate Connection

By Jordi Galí and Tommaso Monacelli

American Economic Review, December 2016

We study the gains from increased wage flexibility using a small open economy model with staggered price and wage setting. Two results stand out: (i) the effectiveness of labor cost reductions as a means to stimulate employment is much smaller in a curren...

Worker Selection, Hiring, and Vacancies

By Ismail Baydur

American Economic Journal: Macroeconomics, January 2017

This paper incorporates worker selection into a random matching model with multi-worker firms. Unlike the standard Diamond-Mortensen-Pissarides (DMP) model, the extended model is compatible with cross-sectional behavior of vacancy yields, which rise with ...

Liquidity Traps and Jobless Recoveries

By Stephanie Schmitt-Grohé and Martín Uribe

American Economic Journal: Macroeconomics, January 2017

This paper proposes a model that explains the joint occurrence of liquidity traps and jobless growth recoveries. Its key elements are downward nominal wage rigidity, a Taylor-type interest rate feedback rule, the zero lower bound on nominal interest rates...

High Discounts and High Unemployment

By Robert E. Hall

American Economic Review, February 2017

Unemployment is high when financial discounts are high. In recessions, the stock market falls and all types of investment fall, including employers' investment in job creation. The discount rate implicit in the stock market rises, and discounts for other ...

In with the Big, Out with the Small: Removing Small-Scale Reservations in India

By Leslie A. Martin, Shanthi Nataraj, and Ann E. Harrison

American Economic Review, February 2017

An ongoing debate in employment policy is whether promoting small and medium enterprises creates jobs. We use the elimination of small-scale industry (SSI) promotion in India to address this question. For 60 years, SSI promotion in India focused on rese...

The Social Cost of Near-Rational Investment

By Tarek A. Hassan and Thomas M. Mertens

American Economic Review, April 2017

We show that the stock market may fail to aggregate information even if it appears to be efficient, and that the resulting decrease in the information content of prices may drastically reduce welfare. We solve a macroeconomic model in which information ab...

The Macrodynamics of Sorting between Workers and Firms

By Jeremy Lise and Jean-Marc Robin

American Economic Review, April 2017

We develop an equilibrium model of on-the-job search with ex ante heterogeneous workers and firms, aggregate uncertainty, and vacancy creation. The model produces rich dynamics in which the distributions of unemployed workers, vacancies, and worker-firm m...

Balanced Growth Despite Uzawa

By Gene M. Grossman, Elhanan Helpman, Ezra Oberfield, and Thomas Sampson

American Economic Review, April 2017

The evidence for the United States points to balanced growth despite falling investment good prices and a less-than-unitary elasticity of substitution between capital and labor. This is inconsistent with the Uzawa Growth Theorem. We extend Uzawa's theorem...

The Effects of the Real Oil Price on Regional Wage Dispersion

By Matthias Kehrig and Nicolas L. Ziebarth

American Economic Journal: Macroeconomics, April 2017

We find that oil supply shocks decrease average real wages, particularly skilled wages, and increase wage dispersion across regions, particularly unskilled wage dispersion. In a model with spatial energy intensity differences and nontradables, labor deman...

Is Modern Technology Responsible for Jobless Recoveries?

By Georg Graetz and Guy Michaels

American Economic Review, May 2017

Since the early 1990s, recoveries from recessions in the US have been plagued by weak employment growth. We investigate whether a similar problem afflicts other developed economies, and whether technology is a culprit. We study recoveries from 71 recessio...

Secular Stagnation? The Effect of Aging on Economic Growth in the Age of Automation

By Daron Acemoglu and Pascual Restrepo

American Economic Review, May 2017

Several recent theories emphasize the negative effects of an aging population on economic growth, either because of the lower labor force participation and productivity of older workers or because aging will create an excess of savings over desired invest...

Composition and Aggregate Real Wage Growth

By Mary C. Daly and Bart Hobijn

American Economic Review, May 2017

Aggregate real wages exhibit less procyclicality than most macroeconomic models predict. We use 35 years of Current Population Survey data to confirm that the puzzling behavior of wages largely owes to changes in the composition of the employed over the b...

Do Job-to-Job Transitions Drive Wage Fluctuations over the Business Cycle?

By Fatih Karahan, Ryan Michaels, Benjamin Pugsley, Ayşegül Şahin, and Rachel Schuh

American Economic Review, May 2017

We investigate the importance of job-to-job (JJ) transitions for cyclical wage dynamics. By exploiting cross-state variation, we find that wage growth is tightly linked to variation in the JJ transition probability, and conditional on this, the job findin...

Job-to-Job Flows and Earnings Growth

By Joyce K. Hahn, Henry R. Hyatt, Hubert P. Janicki, and Stephen R. Tibbets

American Economic Review, May 2017

The US workforce has had little change in real wages, income, or earnings since the year 2000. However, even when there is little change in the average rate at which workers are compensated, individual workers experienced a distribution of wage and earnin...

The Relative Power of Employment-to-Employment Reallocation and Unemployment Exits in Predicting Wage Growth

By Giuseppe Moscarini and Fabien Postel-Vinay

American Economic Review, May 2017

We study the cyclical comovement nominal wage growth (either monthly earnings or hourly wage rate) and labor market flows. We use microdata from the Survey of Income and Program Participation over 1996-2013 to purge composition effects in worker and job c...

Heterogeneous Scarring Effects of Full-Year Nonemployment

By Fatih Guvenen, Fatih Karahan, Serdar Ozkan, and Jae Song

American Economic Review, May 2017

Drawing on administrative data from the Social Security Administration, we find that individuals that go through a long period of non-employment suffer large and long-term earnings losses (around 35-40 percent) compared to individuals with similar age and...

The Role of Unemployment in the Rise in Alternative Work Arrangements

By Lawrence F. Katz and Alan B. Krueger

American Economic Review, May 2017

The share of U.S. workers in alternative work arrangements has increased substantially in recent decades. Micro longitudinal analyses show that unemployed workers are much more likely to transition into alternative work arrangements than other workers. Ma...

Liquidity: A New Monetarist Perspective

By Ricardo Lagos, Guillaume Rocheteau, and Randall Wright

Journal of Economic Literature, June 2017

This essay surveys the new monetarist approach to liquidity. Work in this literature strives for empirical and policy relevance, plus rigorous foundations. Questions include: What is liquidity? Is money essential in achieving desirable outcomes? Which obj...

Misallocation, Establishment Size, and Productivity

By Pedro Bento and Diego Restuccia

American Economic Journal: Macroeconomics, July 2017

We consider a model of heterogeneous production units with endogenous entry and productivity investment to assess the quantitative impact of policy distortions: when the productivity elasticity of distortions increases from 0.09 in the United States to 0....

Inspecting the Mechanism: Leverage and the Great Recession in the Eurozone

By Philippe Martin and Thomas Philippon

American Economic Review, July 2017

We provide a comprehensive account of the dynamics of eurozone countries from 2000 to 2012. We analyze private leverage, fiscal policy, labor costs, and spreads, and we propose a model and an identification strategy to separate the impact of credit cycles...