|Office:||339 Carlisle Room 117|
|Mailing address:||Department of Economics|
300 N Washington St, Box 391
Gettysburg, PA 17325-1400
- Ph.D., Economics; Northwestern University, 2012
- B.S., with Honors and Distinction, Economics, Mathematics, and Statistics; Iowa State University, 2003
- Phi Beta Kappa
- Working Capital Requirement and the Unemployment Volatility Puzzle
- Journal of Macroeconomics, 46, December 2015, pp. 201-217.
- [▾ abstract] [download]
Shimer (2005) argues that a search-and-matching model of labor market in which wage is determined by Nash bargaining cannot generate the observed volatility in unemployment and vacancy in response to reasonable labor productivity shocks. This paper examines how monopolistically competitive firms with a working capital requirement (in which firms borrow funds to pay their wage bills) improves the ability of search models to match empirical fluctuations in unemployment and vacancy without resorting to an alternative wage setting mechanism. The monetary authority follows an interest rate rule in the model. A positive labor productivity shock lowers the real marginal cost of production and lowers inflation. In response to price level changes, the monetary authority reduces the nominal interest rate. The lower interest rate reduces the cost of financing and partially offsets the increase in labor cost from higher productivity. Reduced labor costs imply firms retain a greater portion of the gain from a productivity shock which gives them greater incentives to create vacancies. Simulations show that working capital requirement does indeed improve the ability of the model to generate fluctuations in the labor market variables to better match the U.S. data.
- The Role of Uncertainty in Jobless Recoveries
- [▾ abstract] [download]
- The Effects of Severance Payment on Mortensen-Pissarides Model with On-the-job Search
- [▾ abstract] [updated version coming soon]
The three most recent downturns, in contrast with other post-war recessions, are characterized by slow recoveries in employment despite positive economic growth. I find that recent recoveries coincide with high uncertainty about economy-wide corporate profits at a time when output begins to rebound, a pattern that was not observed in the earlier recessions. To examine the role of uncertainty in jobless recoveries, I develop a dynamic stochastic general equilibrium model with search and matching frictions in the labor market and an intensive labor margin. The model is driven by productivity and time-varying volatility shocks. The uncertainty agents face is captured by time-varying volatility. Labor market search frictions generate costly labor adjustment. When an uncertainty shock hits the economy, firms reduce the number of vacancies posted because they are reluctant to make costly adjustments along the extensive margin. Instead, firms require more effort from their employees. This, along with positive productivity shocks, can result in jobless recoveries. I calibrate the model and show that, with the addition of uncertainty shocks, this model can replicate recent episodes of jobless recoveries.
Saint-Paul (1995) argues that severance payments could generate multiple equilibria in the labor market. This paper seeks to examine the effect of severance payment in a richer environment: a Mortensen-Pissarides model with on-the-job search. Severance pay affects steady-state equilibrium outcome by distorting firms' threat point in the rent sharing condition for the on-going matches. The equilibrium outcome of severance payment, including the existence of multiple equilibria, is analytically ambiguous when one does not place stronger assumptions beyond homogeneous matching function and fixed rent sharing rule. However, the numerical solutions of the model under a wide range of parameter values show that the inclusion of severance pay decreases market tightness and reservation productivity, as one would expect. There is no evidence for multiple equilibria. I also find that while unemployment rate falls with severance pay, the society's welfare does not necessarily increase.
Work in Progress
- A New Keynesian Model with Robots: Implications for Business Cycles and Monetary Policy
(with Charles L. Weise)
In the standard New Keynesian model capital is 'labor-augmenting' in the sense that capital deepening increases the marginal product of labor and therefore demand for labor and the real wage. Recent research suggests that an alternative to the 'canonical' production function, one embodying labor-displacing capital, is needed to explain recent labor market phenomena including declining real wages for segments of the labor force and the reduction in labor's share of national income. We explore the implications of labor-displacing capital for the business cycle by extending the standard New Keynesian model to include labor-displacing capital (robots) alongside labor-augmenting capital. We show that a positive shock to the efficiency of robots reduces employment and wages in the steady state and increases the share of profits in national income. When a fraction of workers lives 'hand-to-mouth'--sets consumption spending equal to labor income each period--increased efficiency of robots depresses aggregate demand and increases the frequency of zero bound episodes. Reducing interest rates during a recession may have a smaller expansionary effect than in conventional models because a low interest rate stimulates demand for robots and displaces human labor. We examine the implications for monetary policy.