Resurrecting the Role of the Product Market Wedge in Recessions

By Mark Bils, Peter J. Klenow, and Benjamin A. Malin

American Economic Review, April 2018

Employment and hours are more cyclical than dictated by productivity and consumption. This intratemporal labor wedge can arise from product or labor market distortions. Based on employee wages, the literature has attributed the intratemporal wedge almost ...

A Macroeconomic Approach to Optimal Unemployment Insurance: Theory

By Camille Landais, Pascal Michaillat, and Emmanuel Saez

American Economic Journal: Economic Policy, May 2018

This paper develops a theory of optimal unemployment insurance (UI) in matching models. The optimal UI replacement rate is the conventional Baily-Chetty replacement rate, which solves the tradeoff between insurance and job-search incentives, plus a correc...

A Macroeconomic Approach to Optimal Unemployment Insurance: Applications

By Camille Landais, Pascal Michaillat, and Emmanuel Saez

American Economic Journal: Economic Policy, May 2018

In the United States, unemployment insurance (UI) is more generous when unemployment is high. This paper examines whether this policy is desirable. The optimal UI replacement rate is the Baily-Chetty replacement rate plus a correction term measuring the e...

New Perspectives on the Decline of US Manufacturing Employment

[Symposium: Does the US Really Gain From Trade?]

By Teresa C. Fort, Justin R. Pierce, and Peter K. Schott

Journal of Economic Perspectives, Spring 2018

We use relatively unexplored dimensions of US microdata to examine how US manufacturing employment has evolved across industries, firms, establishments, and regions. These data provide support for both trade- and technology-based explanations of the overa...

Economic Drivers of Populism

By Sergei Guriev

AEA Papers and Proceedings, May 2018

The recent wave of populism is different from the previous ones, thus generating the demand for noneconomic explanations, such as identity politics and cultural factors. In this paper, I discuss several pieces of evidence that show that economic factors, ...

Elasticity of Medicaid Access with Respect to State Financial Distress

By Victoria Perez, Joseph Benitez, and Eric Seiber

AEA Papers and Proceedings, May 2018

In 2016, total Medicaid spending, $574.2 billion, represented one-third of state budgets. Descriptive studies indicate that state policymakers adjust social welfare programs during times of financial distress, particularly Medicaid. The challenge of forma...

The Race between Man and Machine: Implications of Technology for Growth, Factor Shares, and Employment

By Daron Acemoglu and Pascual Restrepo

American Economic Review, June 2018

We examine the concerns that new technologies will render labor redundant in a framework in which tasks previously performed by labor can be automated and new versions of existing tasks, in which labor has a comparative advantage, can be created. In a s...

Real Exchange Rates and Sectoral Productivity in the Eurozone

By Martin Berka, Michael B. Devereux, and Charles Engel

American Economic Review, June 2018

We investigate the link between real exchange rates and sectoral TFP for eurozone countries. We show that real exchange rate variation, both cross-country and time-series, closely accords with an amended Balassa-Samuelson interpretation, incorporating sec...

Paying to Avoid Recession: Using Reenlistment to Estimate the Cost of Unemployment

By Mark Borgschulte and Paco Martorell

American Economic Journal: Applied Economics, July 2018

This paper provides revealed-preference estimates of the monetary value to workers of a lower unemployment rate at the time of job separation. By examining the decision between reenlisting and exiting the military, we find that service members would sacri...

Do Recessions Accelerate Routine-Biased Technological Change? Evidence from Vacancy Postings

By Brad Hershbein and Lisa B. Kahn

American Economic Review, July 2018

We show that skill requirements in job vacancy postings differentially increased in MSAs that were hit hard by the Great Recession, relative to less hard-hit areas. These increases persist through at least the end of 2015 and are correlated with increases...

The Twin Ds: Optimal Default and Devaluation

By Seunghoon Na, Stephanie Schmitt-Grohé, Martín Uribe, and Vivian Yue

American Economic Review, July 2018

A salient characteristic of sovereign defaults is that they are typically accompanied by large devaluations. This paper presents new evidence of this empirical regularity known as the Twin Ds and proposes a model that rationalizes it as an optimal policy ...

Mismatch Unemployment and the Geography of Job Search

By Ioana Marinescu and Roland Rathelot

American Economic Journal: Macroeconomics, July 2018

Could we significantly reduce US unemployment by helping job seekers move closer to jobs? Using data from the leading employment board CareerBuilder.com, we show that, indeed, workers dislike applying to distant jobs: job seekers are 35 percent less likel...

Do Job Destruction Shocks Matter in the Theory of Unemployment?

By Melvyn G. Coles and Ali Moghaddasi Kelishomi

American Economic Journal: Macroeconomics, July 2018

Because the data show that market tightness is not orthogonal to unemployment, this paper identifies the many empirical difficulties caused by adopting the free entry of vacancies assumption in the Diamond-Mortensen-Pissarides (DMP) framework. Relaxing th...

A Letter and Encouragement: Does Information Increase Postsecondary Enrollment of UI Recipients?

By Andrew Barr and Sarah Turner

American Economic Journal: Economic Policy, August 2018

For individuals who experience job loss, enrollment in postsecondary programs may provide an opportunity to improve future employment outcomes. However, decisions to enroll may be hampered by insufficient information about the benefits and costs and the n...

Aggregate Recruiting Intensity

By Alessandro Gavazza, Simon Mongey, and Giovanni L. Violante

American Economic Review, August 2018

We develop an equilibrium model of firm dynamics with random search in the labor market where hiring firms exert recruiting effort by spending resources to fill vacancies faster. Consistent with microevidence, fast-growing firms invest more in recruiting ...

Endogenous Disasters

By Nicolas Petrosky-Nadeau, Lu Zhang, and Lars-Alexander Kuehn

American Economic Review, August 2018

Market economies are intrinsically unstable. The standard search model of equilibrium unemployment, once solved accurately with a globally nonlinear algorithm, gives rise endogenously to rare disasters. Intuitively, in the presence of cumulatively large n...

What Happened: Financial Factors in the Great Recession

[Symposium: Macroeconomics a Decade after the Great Recession]

By Mark Gertler and Simon Gilchrist

Journal of Economic Perspectives, Summer 2018

At the onset of the recent global financial crisis, the workhorse macroeconomic models assumed frictionless financial markets. These frameworks were thus not able to anticipate the crisis, nor to analyze how the disruption of credit markets changed what i...

Evolution of Modern Business Cycle Models: Accounting for the Great Recession

[Symposium: Macroeconomics a Decade after the Great Recession]

By Patrick J. Kehoe, Virgiliu Midrigan, and Elena Pastorino

Journal of Economic Perspectives, Summer 2018

Modern business cycle theory focuses on the study of dynamic stochastic general equilibrium (DSGE) models that generate aggregate fluctuations similar to those experienced by actual economies. We discuss how these modern business cycle models have evolved...

Production and Welfare: Progress in Economic Measurement

By Dale W. Jorgenson

Journal of Economic Literature, September 2018

While the GDP was intended by its originators as a measure of production, the absence of a measure of welfare in the national accounts has led to widespread misuse of the GDP to proxy welfare. Measures of welfare are needed to appraise the outcomes of cha...

International Transmission with Heterogeneous Sectors

By Keyu Jin and Nan Li

American Economic Journal: Macroeconomics, October 2018

This paper documents new facts about the behavior of capital- and labor-intensive goods over the business cycle and also identifies a mechanism that generates international investment comovement through shifting compositional changes of production and tra...