How Prevalent Is Downward Rigidity in Nominal Wages? International Evidence from Payroll Records and Pay Slips

By Michael W. L. Elsby and Gary Solon

Journal of Economic Perspectives, Summer 2019

For more than 80 years, many macroeconomic analyses have been premised on the assumption that workers' nominal wage rates cannot be cut. Contrary evidence from household surveys reasonably has been discounted on the grounds that the measurement of frequen...

Nominal Wage Rigidity in Village Labor Markets

By Supreet Kaur

American Economic Review, October 2019

This paper develops a new approach to test for downward wage rigidity by examining transitory shocks to labor demand (i.e., rainfall) across 600 Indian districts. Nominal wages rise during positive shocks but do not fall during droughts. In addition, tran...

Some Evidence on Secular Drivers of US Safe Real Rates

By Kurt G. Lunsford and Kenneth D. West

American Economic Journal: Macroeconomics, October 2019

We study long-run correlations between safe real interest rates in the United States and over 30 variables that have been hypothesized to influence real rates. The list of variables is motivated by an intertermporal IS equation, by models of aggregate s...

Unemployment Cycles

By Jan Eeckhout and Ilse Lindenlaub

American Economic Journal: Macroeconomics, October 2019

The labor market by itself can create cyclical outcomes, even in the absence of exogenous shocks. We propose a theory in which the search behavior of the employed has profound aggregate implications for the unemployed. There is a strategic complementarity...

Barriers to Reallocation and Economic Growth: The Effects of Firing Costs

By Toshihiko Mukoyama and Sophie Osotimehin

American Economic Journal: Macroeconomics, October 2019

We study how factors that hinder the reallocation of inputs across firms influence aggregate productivity growth. We extend Hopenhayn and Rogerson's (1993) firm-dynamics model to allow for endogenous innovation. We evaluate the effects of firing taxes on ...

Putting the Cycle Back into Business Cycle Analysis

By Paul Beaudry, Dana Galizia, and Franck Portier

American Economic Review, January 2020

Are business cycles mainly a response to persistent exogenous shocks, or do they instead reflect a strong endogenous mechanism which produces recurrent boom-bust phenomena? In this paper we present evidence in favor of the second interpretation and we hig...

Rational Inattention in Hiring Decisions

By Sushant Acharya and Shu Lin Wee

American Economic Journal: Macroeconomics, January 2020

We provide an information-based theory of matching efficiency fluctuations. Rationally inattentive firms have limited capacity to process information and cannot perfectly identify suitable applicants. During recessions, higher losses from hiring unsuitabl...

Multidimensional Skill Mismatch

By Fatih Guvenen, Burhan Kuruscu, Satoshi Tanaka, and David Wiczer

American Economic Journal: Macroeconomics, January 2020

What determines the earnings of a worker relative to his peers in the same occupation? What makes a worker fail in one occupation but succeed in another? More broadly, what are the factors that determine the productivity of a worker-occupation match? To...

The Weak Job Recovery in a Macro Model of Search and Recruiting Intensity

By Sylvain Leduc and Zheng Liu

American Economic Journal: Macroeconomics, January 2020

We show that cyclical fluctuations in search and recruiting intensity are quantitatively important for explaining the weak job recovery from the Great Recession. We demonstrate this result using an estimated labor search model that features endogenous sea...

Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach

By Kory Kroft, Kavan Kucko, Etienne Lehmann, and Johannes Schmieder

American Economic Journal: Economic Policy, February 2020

We derive a sufficient statistics tax formula in a model that incorporates unemployment and endogenous wages to study the shape of the optimal income tax. Key sufficient statistics are the macro employment response to taxation, the micro and macro partici...

Jobs and Matches: Quits, Replacement Hiring, and Vacancy Chains

By Yusuf Mercan and Benjamin Schoefer

American Economic Review: Insights, March 2020

In the canonical DMP model of job openings, all job openings stem from new job creation. Jobs denote worker-firm matches, which are destroyed following worker quits. Yet, employers classify 56 percent of vacancies as quit-driven replacement hiring into ol...

The Evolution of Work in the United States

By Enghin Atalay, Phai Phongthiengtham, Sebastian Sotelo, and Daniel Tannenbaum

American Economic Journal: Applied Economics, April 2020

Using the text from job ads, we introduce a new dataset to describe the evolution of work from 1950 to 2000. We show that the transformation of the US labor market away from routine cognitive and manual tasks and toward nonroutine interactive and analytic...

The Aging of the Baby Boomers: Demographics and Propagation of Tax Shocks

By Domenico Ferraro and Giuseppe Fiori

American Economic Journal: Macroeconomics, April 2020

We study how the changing demographic composition of the US labor force has affected the response of the unemployment rate to marginal tax rate shocks. Using narratively identified tax changes as proxies for structural shocks, we establish that the respon...

Implications of Labor Market Frictions for Risk Aversion and Risk Premia

By Eric T. Swanson

American Economic Journal: Macroeconomics, April 2020

A flexible labor margin allows households to absorb asset value shocks with changes in hours worked, altering the households' attitudes toward risk (Swanson 2012). This paper analyzes how frictional labor markets affect that analysis. Risk aversion is hig...

Uninsured Unemployment Risk and Optimal Monetary Policy in a Zero-Liquidity Economy

By Edouard Challe

American Economic Journal: Macroeconomics, April 2020

I study optimal monetary policy in a sticky-price economy wherein households precautionary-save against uninsured, endogenous unemployment risk. In this economy greater unemployment risk raises desired savings, causing aggregate demand to fall and feed ...

The Marginal Propensity to Consume over the Business Cycle

By Tal Gross, Matthew J. Notowidigdo, and Jialan Wang

American Economic Journal: Macroeconomics, April 2020

We estimate how the marginal propensity to consume (MPC) out of liquidity varies over the business cycle. Ten years after a Chapter 7 bankruptcy, the bankruptcy flag is removed from the filer's credit report, generating an increase in credit score. In the...

Revisiting the Effects of Unemployment Insurance Extensions on Unemployment: A Measurement-Error-Corrected Regression Discontinuity Approach

By Steven Dieterle, Otávio Bartalotti, and Quentin Brummet

American Economic Journal: Economic Policy, May 2020

This study documents two potential biases in recent analyses of UI benefit extensions using boundary-based identification: bias from using county-level aggregates and bias from across-border policy spillovers. To examine the first bias, the analysis uses ...

Unemployment Insurance and Means-Tested Program Interactions: Evidence from Administrative Data

By Pauline Leung and Christopher O'Leary

American Economic Journal: Economic Policy, May 2020

We study the ways in which unemployment insurance (UI) benefits interact with other elements of the social safety net around job losses. We exploit a cutoff for UI eligibility, based on a workers' highest quarterly earnings in the past year, to generate q...

Measuring the Macroeconomic Impact of Carbon Taxes

By Gilbert E. Metcalf and James H. Stock

AEA Papers and Proceedings, May 2020

Policymakers often express concern about the impact of carbon taxes on employment or GDP. Using a new dataset on carbon tax rates, we estimate the macroeconomic impacts of these taxes on GDP and employment growth rates for various specifications and sampl...

Automatic Stabilizers in a Low-Rate Environment

By Olivier J. Blanchard and Lawrence H. Summers

AEA Papers and Proceedings, May 2020

In a world where monetary policy cannot assume responsibility for stabilization policy, there is a strong need for fiscal policy to address stabilization issues. In this context, we argue for "semi-automatic stabilizers," aimed at reducing unemployment sl...