Published/Accepted Papers

The responsiveness of job creation to shocks is procyclical, while the responsiveness of job destruction is countercyclical. This new finding can be explained by a heterogeneous-firm model in which hiring costs lead to lumpy employment adjustment. The model predicts that policies that aim to stimulate employment by targeting the job creation margin, such as hiring subsidies, are significantly less effective in recessions: These are times when few firms are near their hiring threshold and many firms are near their firing threshold. Policies that target the job destruction margin, such as employment protection subsidies, are particularly effective at such times.

Unemployment Insurance Financing as a Uniform Payroll Tax (with Jonathon Hazell, Walker Lewis and Christina Patterson)

[AEA Papers and Proceedings, May 2022]

In the United States, unemployment insurance is financed by taxes levied on employers. We develop a model to decompose UI taxes into a firing tax component, levied on firms that layoff workers, and a uniform payroll tax component, levied on all firms regardless of their layoffs. We develop a novel methodology to measure the two components and document a number of facts about the uniform payroll tax component: it is large, accounting for just under half of UI taxes, it rises significantly after recessions, and it is more cyclical in states with poorly funded UI system.

Working Papers

Does Unemployment Risk Affect Business Cycle Dynamics?

[Revise & Resubmit, AEJ: Macroeconomics]

In this paper, I show that the decline in household consumption during unemployment spells depends on both liquid and illiquid asset holdings. I also provide evidence that unemployment predicts illiquid asset withdrawal, particularly when households have few liquid assets. Motivated by these findings, I embed endogenous unemployment risk in a two-asset heterogeneous-agent New Keynesian model. The model is consistent with the evidence and suggests that aggregate shocks are amplified by a flight-to-liquidity that occurs when unemployment risk rises. This mechanism implies that unemployment insurance plays an important role as an automatic stabilizer, particularly when monetary policy is constrained.

The Inflationary Effects of Sectoral Reallocation (with Francesco Ferrante and Matteo Iacoviello)

The COVID-19 pandemic has led to an unprecedented shift in consumption expenditures from services to goods. This paper studies the effect of this demand reallocation in a multi- sector New Keynesian model featuring input-output linkages and costs to reallocating labor across sectors. These costs inhibit the increase in the supply of goods, causing inflationary pressures that propagate through the production network. The inflationary effects of this shock are amplified by the fact that goods prices are more flexible than those of services. We estimate the model allowing for a demand reallocation shock, sectoral productivity shocks, and an aggregate labor supply shock. The demand reallocation shock can account for a large portion of the rise in U.S. inflation in the aftermath of the pandemic.

Work in Progress

The Effect of Social Security Reform on Labor Supply Elasticities (with Victoria Gregory, Lars Ljungqvist, and Thomas Sargent)

The design of the social security system has large effects on labor supply, particularly relating to retirement decisions. In this paper, we embed an endogenous retirement decision in the classic framework of Heckman, Lochner, and Taber (1998). If the social security system is such that delaying retirement means forgoing social security benefits, then there is a strong incentive to retire at the official retirement age, and labor supply elasticities are low. If all individuals receive benefits after the official retirement age, regardless of their work status, labor supply elasticities are significantly higher. In recent years, the US social security system has become more actuarially fair with respect to the decision to delay social security benefits; our model suggests that such reforms will have raised the aggregate elasticity of labor supply.

The Labor Supply Channel of Monetary Policy (with Christopher Huckfeldt and Eric Swanson)

Computational Notes

This paper outlines a new method for solving the agent’s problem in models where agents trade two assets. This method involves splitting the two-dimensional maximization problem into two sequential one-dimensional problems. I show that this approach is fast, can be used in settings when an endogenous grid method cannot be applied, and is simple to implement.