Journal of Economic Dynamics and Control 77(in progress), April 2017, 48-69 | With Sanchez
abstract (+) Gertler and Gilchrist (1994) provide seminal evidence for the prevailing view that adverse shocks are propagated via credit constraints: small firms are affected more during tight credit periods than large firms. Under this view, the deep recession that followed the 2008 financial crisis is often interpreted as the propagation of the initial “credit shock.” Following Gertler and Gilchrist (1994)’s methodology, we study the behavior of small and large firms during episodes of credit disruption and extend the analysis to the 2008 financial crisis and NBER-dated recessions. We find that large firms’ short-term debt and sales contracted relatively more than those of small firms during the 2008 financial crisis and during most recessions since 1969. The results are robust to changes in the business cycle dating procedure. Using Compustat, we also find that during 2007–09 low financially dependent firms suffered more than high financially dependent firms. These results favor the view that a tightening of a financial or collateral constraint might not be a good representation of the 2007-09 crisis.
Data update web page, Federal Reserve Bank of Richmond, November 2016 | With Hornstein and Lange
FRB Chicago Economic Perspectives 40(1) , May 2016 | With Faberman
abstract (+) This article finds that in 2011, online job search was much more prevalent and significantly more effective in helping job seekers gain employment than about a decade earlier. Moreover, it shows that online job search data generally capture the aggregate patterns of the U.S. labor market. The authors discuss the advantages and disadvantages of using these data for research, and summarize related studies.
FRB Richmond Economic Quarterly 101(3), May 2016, 225-244
abstract (+) Aggregate wage growth has remained flat during the 2007-09 recession and its aftermath while unemployment has exhibited substantial swings. Does the low real aggregate wage growth during the recovery indicate a weak labor market beyond what is measured by the official unemployment rate? Aggregate wage growth reflects actual changes of workers’ wages, changes in the composition of workers, and changes in the composition of jobs. Some of these changes are related to underlying structural trends in the economy while others constitute the economy’s response to the business cycle shocks and are more indicative of cyclical resource utilization in the labor market. Consequently, it is important to look beyond the aggregate statistics to understand the behavior of real wages and its relation to the health of the labor market. In this article, we review recent literature that studies the changes in the components of the aggregate wage over time and, specifically, after the 2007-09 recession.
Journal of Money, Credit and Banking 48(7), 2016, 1495-1513 | With Debbaut and Ghent
abstract (+) We study a new law that restricts credit to individuals under age 21. We first use a
difference-in-difference approach to estimate the effect of the law on credit card availability.
Following the passage of the law, individuals under age 21 are 8 percentage points (15 percent) less likely to have a credit card, have fewer cards, and, conditional on having a card at all, are 35 percent more likely to have a cosigned card. We then
use data from before the passage of the law to identify the characteristics of those individuals most likely to be affected by the Act.
The Regional Economist, October 2015, 12-13 | With Reed and Canon
FRB Richmond Economic Quarterly 101(3), Q3 2015, 225-244
abstract (+) Aggregate wage growth has remained flat during the 2007-09 recession and its aftermath while unemployment has exhibited substantial swings. Does the low real aggregate wage growth during the recovery indicate a weak labor market beyond what is measured by the official unemployment rate? Aggregate wage growth reflects actual changes of workers’ wages, changes in the composition of workers, and changes in the composition of jobs. Some of these changes are related to underlying structural trends in the economy while others constitute the economy’s response to the business cycle shocks and are more indicative of cyclical resource utilization in the labor market. Consequently, it is important to look beyond the aggregate statistics to understand the behavior of real wages and its relation to the health of the labor market. In this article, we review recent literature that studies the changes in the components of the aggregate wage over time and, specifically, after the 2007-09 recession.
Journal of Monetary Economics 68, November 2014, 53-67
abstract (+) The user cost of labor is the expected difference between the present discounted value of wages paid to a worker hired in the current period and that paid to a worker hired in the next period. Analogous to the price of any long-term asset, the user cost, not wage, is the relevant price for a firm that is considering adding a worker. I construct its counterpart in the data and estimate that it is substantially more procyclical than average wages or wages of newly hired workers. I demonstrate an application of the finding using the textbook search and matching model.
Journal of Economic Dynamics and Control 47, October 2014, 39-53 | With Fuller and Lkhagvasuren
abstract (+) We construct a multi-sector search and matching model where the unemployed receives idiosyncratic productivity shocks that make working in certain sectors more productive than in the others. Agents must decide which sector to search in and face moving costs when leaving their current sector for another. In this environment, unemployment is associated with an additional risk: low future wages if mobility costs preclude search in the appropriate sector. This introduces a new role for unemployment benefits – productivity insurance while unemployed. For plausible parameterizations unemployment benefits increase per-worker productivity. In addition, the welfare-maximizing benefit level decreases as moving costs increase.
FRB Richmond Economic Quarterly 100(2), Q2 2014, 87-111 | With Canon, Luo, and Reed
abstract (+) Using counterfactual exercises for the transition probabilities between full-time employment, part-time employment for economic reasons (PTER), part-time employment for noneconomic reasons (PTNER), unemployment, and out-of-the-labor-force similar to Shimer (2012), we find that, ceteris paribus, changes in the transition probabilities to and from PTER in the aftermath of the 2007-09 recession were mainly associated with changes in the composition of employment (full- versus part time, and PTER versus PTNER) instead of with changes in the distribution of individuals between employment and non-employment. Consequently, policymakers’ attention to PTER implies a broader definition of resource underutilization in the labor market than a simple extensive employment margin as captured by the standard unemployment rate. It brings attention to the intensive employment margin and the quality of employment. Since PTER workers’ share is highest in non-routine manual (typically, low-wage) occupations and given recent works on job polarization, it is a challenging task to disentangle cyclical versus structural factors behind an increased number of PTER workers after the 2007-09 recession.
FRB Richmond Economic Quarterly 100(1), Q1 2014, 1-21 | With Hornstein and Lange
abstract (+) In the U.S. labor market unemployed individuals that are actively looking for work are more than three times as likely to become employed as those individuals that are not actively looking for work and are considered to be out of the labor force (OLF). Yet, on average, every month twice as many people make the transition from OLF to employment than do from unemployment to employment. These observations on labor market transitions suggest that the standard unemployment rate and its extensions proposed by the Bureau of Labor Statistics are both too coarse and too narrow as measures of resource utilization in the labor market. These measures are too narrow since they exclude a large part of the population that is potentially employable, and they are too coarse since they assume the same labor force attachment for all nonemployed individuals. We construct a measure of resource utilization in the labor market, a nonemployment index, that is both comprehensive and accounts for differences in labor force attachment. Prior to 2007, the standard unemployment rate was highly correlated with our nonemployment index but, during the recession of 2007–09 and its aftermath, the standard unemployment rate overstated the extent of underutilization in the labor market.
FRB Richmond Economic Quarterly 99(1), Q1 2013, 25-43
abstract (+) We estimate a trend in the aggregate labor force participation rate using the age-gender and the birth cohort effects in the labor force participation rates of different demographic groups and the actual demographic composition of the population. We find that, in 2012, the aggregate labor force participation rate is close to its trend.
FRB Richmond Economic Quarterly 98(3), Q3 2012, 185-207
abstract (+) We provide an explanation of how inflation of the price of housing services is measured by the Bureau of Labor Statistics and describe alternative approaches. We then describe the contribution of inflation of the price of housing services to inflation in the consumer price index during the Great Recession and its aftermath. Finally, we examine new data series that provide additional information about the rental market for housing services and use this information to evaluate the direction of the pressure on housing services price inflation.
FRB Richmond Economic Quarterly 97(4), Q4 2011, 359-387 | With Lubik and Tompkins
abstract (+) We conduct an accounting exercise of the changes in aggregate employment, unemployment, and out of labor force (OLF) among 25–64-year-old men from 1968–2010. We decompose the observed changes in these labor market outcomes into changes in the sociodemographic composition of the population and changes in the labor market outcomes of different sociodemographic groups. Using the results of the decomposition, we predict that the OLF-to-population ratio for men will increase to 16 percent in 2015, up from 14.7 percent in 2010.
Review of Financial Studies 20 (9), September 2011, 3139-3186 | With Ghent
abstract (+) We quantify the effect of recourse on default and find that recourse affects default by lowering the borrower’s sensitivity to negative equity. At the mean value of the default option for defaulted loans, borrowers are 30% more likely to default in non-recourse states. Furthermore, for homes appraised at $500,000 to $750,000, borrowers are twice as likely to default in non-recourse states. We also find that defaults are more likely to occur through a lender-friendly procedure, such as a deed in lieu, in states that allow deficiency judgments. We find no evidence that mortgage interest rates are lower in recourse states.
FRB Richmond Economic Quarterly 96(2), Q2 2010, 179-199
abstract (+) Search models of the labor market suggest that a significant determinant of job creation decisions by firms is the expected value of the initial and future real wages that firms have to pay to workers in newly formed employment relationships. Until recently, the focus of the empirical literature has been on the cyclical behavior of the current wage, but not on the cyclical behavior of the expected present discounted value of future wages within a match. This article reviews the empirical literature on the cyclicality of real wages of workers in continuing employment relationships, wages of newly hired workers, and a measure of wages that takes into account future wages within employment relationships. The existing evidence suggests that the real wage most relevant for job creation decisions appears to be quite flexible over the business cycle. Thus, the wage data do not support the rigidity necessary to generate the empirical volatility of unemployment in the standard search and matching model.
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