Working Papers

We propose a theory that analyzes how a workers’ asset holdings affect their job productivity. In a labor market with uninsurable risk, workers choose to direct their search to jobs that trade off productivity and wages against unemployment risk. Workers with low asset holdings have a precautionary job search motive, they direct their search to low productivity jobs because those offer a low risk at the cost of low productivity and a low wage. We show that such sorting occurs under a condition closely related to Decreasing Relative Risk Aversion and that the presence of consumption smoothing can reconcile the directed search model with negative duration dependence on wages, a robust empirical regularity that the canonical directed search model cannot rationalize. We calibrate the infinite horizon economy and find that this mechanism is quantitatively important. We evaluate a tax financed unemployment insurance (UI) scheme and how it affects welfare. Aggregate welfare is inverted U-shaped in benefits: the insurance effect UI dominates the incentive effects for low levels of benefits and vice versa for high benefits. Also, when UI increases, total production falls in the economy while worker productivity increases. Finally, we compare a one-off severance payment with per period benefits and find that per period benefits generate superior welfare.

We combine information from the British Household Panel Study (BHPS) and the UK Longitudinal Household Study (UKHLS, a.k.a. Understanding Society) to construct consistent time series of aggregate worker stocks, worker flows and earnings in the UK over the 1992-2016 period for all workers as well as for two separate education groups. We propose a method to harmonise data be- tween the BHPS and UKHLS, which we validate by checking the consistency of some of our headline time series with equivalent series produced from other sources, notably by the ONS. In addition to drawing a detailed aggregate picture of the UK labour market over the past two and a half decades, we hope that our analysis will help demonstrate the usefulness of a combined BHPS/UKHLS data set for the analysis of UK labour markets.

This paper investigates the importance of credit market frictions on labour market outcomes. I build a tractable search and matching model of the labour market with firm dynamics and heterogeneity in productivity and size. Firms produce output using labour, which they hire in a frictional market modelled by a directed search approach, and capital which they rent period-by-period. First, I show that the interaction of search and financial frictions slows down the reallocation of labour and capital from low productivity to high productivity firms and therefore prolongs the recession following a financial shock. Second, I find that the credit tightening reduces the net employment of large and productive firms more than small and unproductive firms, consistent with recent empirical findings.Third, I find that the introduction of financial frictions enhances the ability of the model to explain the fluctuation and persistence observed in output and labour market flows during the great recession. In fact, the model can account for 50% of the increase in unemployment during the 2008-2010 recession.

  • Constrained Career Choice: The Trade-off between Assets and Skills (with Jan Eeckhout and Peter Spital)

Draft is available upon request, 

Working in Progress
  • Firm-Level Debt and Employment (with Mikael Carlsson and Oskar Skans)

  • Wealth and Inequality in Turbulent Labour Markets (with Isaac Baley, Ana Figueiredo and Cristiano Mantovani)

  • The Effect of Trade on Workers' Earnings: Role of Unemployment (with Konstantin Egorov)


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