Tsu-ting Tim Lin

Contact Information

Education

Ph.D., Economics, Northwestern University, 2012

B.S., Economics, Mathematics, and Statistics, Iowa State University, 2003

Teaching

Spring 2013

ECON 104, Section B: Principles of Macroeconomics

TuTh 8:30AM in Glatfelter 301

ECON 420: Honors Research Seminar

Tu 6:15PM in Glatfelter 104

Working Papers

The Role of Uncertainty in Jobless Recoveries

Tsu-ting Tim Lin
[▾ abstract] [download]

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.

Working Capital Requirement and the Unemployment Volatility Puzzle

Tsu-ting Tim Lin
[▾ 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 Effects of Severance Payment on Mortensen-Pissarides Model with On-the-job Search

Tsu-ting Tim Lin
[▾ abstract] [updated version coming soon]

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.