Job Market Paper
Abstract. Wage inequality is increasingly a between-firm phenomenon. I propose, validate, and quantify a model of the firm as a ``team assembly technology” to explain this fact. Firms hire in frictional markets and assign tasks to workers with varying talent (i.e., absolute advantage) and task-specific skills. I show analytically that skill specialization, besides necessitating division of labor, endogenously generates coworker complementarity: the productivity gain from better colleagues is greatest for workers who are themselves talented. Competition for talent therefore leads to assortative matching in equilibrium, and firms with superstar teams pull away in terms of average pay. Additionally, complementarities make frictional coworker talent mismatch more costly in terms of aggregate productivity. Using administrative panel micro data and task surveys, I measure coworker complementarities and validate key model mechanisms. Complementarities have doubled from the mid-1980s to the 2010s, mirroring a shift away from routine toward complex tasks. According to quantitative model exercises, this explains around 40\% of the empirically observed increase in the between-firm share of wage inequality in Germany.
Short companion note describing an extension to communication costs: [preliminary draft| August 2023]
Related OECD policy paper documenting empirical results for Portugal (with C. Criscuolo and P. Gal): coming soon
The Risk-Premium Channel of Uncertainty: Implications for Unemployment and Inflation, with H. Lee and P. Rendahl
Review of Economic Dynamics, forthcoming
Abstract. This paper studies the role of macroeconomic uncertainty in a search-and-matching framework with risk-averse households. Heightened uncertainty about future productivity reduces current economic activity even in the absence of nominal rigidities. A risk-premium mechanism accounts for this result. As future asset prices become more volatile and covary more positively with aggregate consumption, the risk premium rises in the present. The associated downward pressure on current asset values lowers firm entry, making it harder for workers to find jobs and reducing supply. With nominal rigidities the recession is exacerbated, as a more uncertain future reinforces households’ precautionary behavior, which causes demand to contract. Counterfactual analyses using a calibrated model imply that unemployment would rise by less than half as much absent the risk-premium channel. The presence of this mechanism implies that uncertainty shocks are less deflationary than regular demand shocks, nor can they be fully neutralized by monetary policy.
Volatile Hiring: Uncertainty in Search and Matching Models, with W. Den Haan and P. Rendahl
Journal of Monetary Economics, Vol. 123 pp. 1-18 (2021)
Abstract. In search-and-matching models, the nonlinear nature of search frictions increases average unemployment rates during periods with higher volatility. These frictions are not, however, by themselves sufficient to raise unemployment following an increase in perceived uncertainty; though they may do so in conjunction with the common assumption of wages being determined by Nash bargaining. Importantly, option-value considerations play no role in the standard model with free entry. In contrast, when the mass of entrepreneurs is finite and there is heterogeneity in firm-specific productivity, a rise in perceived uncertainty robustly increases the option value of waiting and reduces job creation.
Workers, Capitalists, and the Government: Fiscal Policy and Income (Re)Distribution, with C. Cantore
Journal of Monetary Economics, Vol. 119 pp. 58-74 (2021)
Abstract. We propose a novel two-agent New Keynesian model to study the interaction of fiscal policy and household heterogeneity in a tractable environment. Workers can save in bonds subject to portfolio adjustment costs; firm ownership is concentrated among capitalists who do not supply labor. The model is consistent with micro data on empirical intertemporal marginal propensities to consume, and it avoids implausible profit income effects on labor supply. Relative to the traditional two-agent model, these features imply, respectively, a lower sensitivity of consumption to the composition of public financing; and smaller fiscal multipliers alongside pronounced redistributive effects.