Working papers
Understanding the Decline in Occupational Mobility [Paper] [Appendix]
The process of workers switching from occupation to occupation is a vital part of career development and self-discovery. Using the CPS and SIPP, I show that occupational switching rates have declined significantly over the past 25 years. This decline has been robust for each consecutive cohort and is more pronounced for younger workers than older workers. The decline could imply that it is becoming more difficult and costly for workers to find better jobs (due to increases in switching costs), leaving people increasingly stuck in poorly matched and unfulfilling careers. Paradoxically, it could also mean that finding better jobs is becoming easier (thanks to advances in ICT), since workers with good job matches are less likely to switch. This paper develops a dynamic discrete choice life-cycle model to separately identify and quantify how changes in switching costs and information over time contribute to the observed declines in occupation switching. The result is that increased switching costs drive about 72% of the decline, while better information drives about 8%. The increases in switching costs have led to less productive occupational matches for workers and thus significant welfare losses. On average, workers have lost 3% of their total lifetime income from increases in switching costs over this period.
Heterogeneous Passthrough from TFP to Wages [Paper]
with Mons Chan and Sergio Salgado
What is the impact of firms' productivity shocks on workers' labor earnings? To answer this question, we propose a new method to identify firms' productivity shocks that combines a nonparametric production function estimation method with a set of two-way fixed effect regressions to control for differences in the quality of labor force within a firm. We apply this method on large matched employer-employee data that encompasses the entire population of workers and firms in Denmark. Our dataset allows us to separately study continuing and non-continuing workers and to investigate how the passthrough from firms' shocks to wages varies across narrow population groups while correcting for the selection bias arising from endogenous worker mobility. We find an elasticity of workers' hourly wages to firms' productivity of 0.08. This implies that a change of one standard deviation in firm-level TFP generates a change of $1,100 US dollars in annual wages for the average worker in Denmark. We also find that both persistent and transitory shocks to firms are passed on to workers' wages and that there is a marked asymmetry between positive and negative productivity shocks. In fact, after controlling for selection, the elasticity of hourly wages to a negative productivity shock is twice that of a positive productivity shock of the same magnitude. This suggests that workers are more exposed to negative than to positive shocks to firms. Furthermore, we find that the changes in wages due to variation in firm productivity are quite persistent and do not dissipate even 5 years after the shock. By looking at the heterogeneity of passthrough within firms and workers groups we provide insights about the mechanisms that could explain the asymmetric passthrough from firms' shocks to wages we observe in the data.
Firm Productivity and Labor Quality [Draft coming soon]
with Mons Chan and Sergio Salgado
In this paper we argue that a large fraction of the observed dispersion in firm productivity can be accounted for by differences in labor quality. In order to investigate this claim, we propose an estimation method that combines a non parametric production function estimation with a series of two-way fixed effect wage regressions with time-varying firm fixed effects which allow us to control for differences in labor quality across firms and time. We implement this method on a large employer-employee matched panel dataset from Denmark and find that around 60% of the dispersion in productivity can be explained by cross-sectional differences in the quality of labor. A similar fraction of the dispersion in idiosyncratic shocks to firm productivity can be attributed to changes in the quality of the labor force hired by the firm. Using these labor quality-adjusted measures of productivity, we find a significant degree of positive assortative matching between high ability workers and high productivity firms. High productivity firms also tend to pay higher wages per unit of ability than low productivity firms. We also find that firms react to productivity shocks by adjusting both the quantity and quality of their labor force. We then discuss the degree to which cross-sectional wage inequality may be driven by dispersion in firm productivity.
Occupational Licensing and Labor Market Fluidity [Draft coming soon]
with Morris Kleiner
This paper investigates the relationship between occupational licensing and labor market outcomes using both public individual survey data from the Current Population Survey (CPS) and the Survey of Income and Program Participation (SIPP), as well as a unique newly constructed data set on licensing requirements. We show that occupational licensing requirements/costs have increased significantly for most occupations over time. Using propensity score matching, we compare the occupational switching patterns and wage changes for those in licensed vs. unlicensed occupations. The preliminary findings show that occupational licensure has significant negative effects on occupational mobility, both for switching in to and out of licensed occupations. After controlling for observable heterogeneity, including occupational skills, workers switching into a licensed occupation experience higher wage gains. We also find that licensing presents less of a barrier to entry for the unemployed relative to employed workers, possibly due to differences in the opportunity cost of time between the two groups.
Works in Progress
Trade, Occupation Sorting, and Inequality [Draft available upon request]
with Mons Chan
Firms react to changes in factor prices with intensive and extensive-margin employment adjustments at the occupational-level. We study the distributional and aggregate consequences of this make-or-buy dynamic by developing a novel network model of heterogeneous firm-to-firm trade where the boundary of each firm depends on factor prices and firm-occupation comparative advantage in input-production. We show that the model can be easily aggregated and taken to industry-level data, and use the calibrated model to examine recent trends in employment, wages and trade in the USA. We use public OES and CPS data to show empirical evidence that a significant fraction of the growth in wage inequality in the USA is due to changes in firm/industry specialization and occupation sorting. To understand and measure the underlying causes of these trends, we calibrate the model to occupation and industry data from the OES and input-output tables. The results suggest that 1/3rd of the increases in wage inequality stem from decreases in inter-industry trade frictions with the remaining 2/3rds stemming from changes in technology and labor supply. Falling trade frictions are also responsible for all of the increases in occupational sorting and concentration. Had trade frictions been held at their 2002 level, productivity growth would have led to an increase in vertical integration, rather than the decrease observed in the data.
Student Loans and Early Employment Outcomes [Draft available upon request]
with Emily Moschini
In this paper I investigate the link between student debt and post-graduation job market outcomes. Using a combination of survey and administrative data on graduates in two cohorts, I show that there is a significant negative correlation between the amount of debt upon graduation and the probability of finding a job which matches your education. I use evidence from Equifax to motivate a model of job search and long-term debt where the cost of consumer credit depends on your student loan balance. I successfully calibrate the model to the data and show that this debt constraint mainly binds for high and medium human capital graduates, as it affects the amount of time they are able to spend searching for a good job. I then show that alternative repayment and interest rate policies would have improved labor market outcomes for graduates in 07/08 by allowing extended search times, increasing match quality and possibly lifetime productivity.
MPC Heterogeneity and Firm Level Shocks
with Mons Chan and Sergio Salgado
In this paper, we use firm-level shocks estimated using an employer-employee matched panel dataset from Denmark to provide new and precise estimates of the Marginal Propensity to Consume (MPC). Firm productivity shocks – estimated using a structural model – are especially useful to study MPC as they are, by construction, unexpected from the perspective of the worker and generate sizable changes in workers' labor income. Using these firm shocks as instruments to control for the endogeneity of wages in the consumption decision, we find that an unexpected increase in wages of one dollar leads to an increase in consumption of 30 cents on average. We also find sizable variations in MPC for positive and negative income shocks and across the age and income distributions.
Frictions in the College Application Portfolio Decision
with Peter McHenry and Emily Moschini
In the United States, there is documented misallocation for high-skill students who come from poor families when they enroll in college (Hoxby Avery 2012). In this project, we examine the college application and enrollment patterns of high school students in the United States, and build a model to examine the effects of policy aimed at mitigating this misallocation. Using the High School Longitudinal Study, 2009 (HSLS:09) from the US Department of Education, we document the relationship between neighborhood composition, location, and student skill and college application and enrollment outcomes of the student. We build a model where students who are heterogeneous in neighborhood, family income and skill decide to search for college admittance in different submarkets. Each submarket is a different quality college, and has a fixed cost with both an information and a geographic component indexed to the student. We apply matching techniques developed by Fox (2018) and Agarwal (2015) in a many-to-one matching market using observed matches to study how the characteristics of college and students jointly determine the match value and the match patterns. Here, each student can apply to several colleges, and the HSLS:09 contains information on this choice and the attributes of each student, while college characteristics are publicly available. We then use this model to examine what would happen if policy changed the fixed costs faced by different students, by affecting its geographic component, the information component, or both.
Understanding the Decline in Occupational Mobility [Paper] [Appendix]
The process of workers switching from occupation to occupation is a vital part of career development and self-discovery. Using the CPS and SIPP, I show that occupational switching rates have declined significantly over the past 25 years. This decline has been robust for each consecutive cohort and is more pronounced for younger workers than older workers. The decline could imply that it is becoming more difficult and costly for workers to find better jobs (due to increases in switching costs), leaving people increasingly stuck in poorly matched and unfulfilling careers. Paradoxically, it could also mean that finding better jobs is becoming easier (thanks to advances in ICT), since workers with good job matches are less likely to switch. This paper develops a dynamic discrete choice life-cycle model to separately identify and quantify how changes in switching costs and information over time contribute to the observed declines in occupation switching. The result is that increased switching costs drive about 72% of the decline, while better information drives about 8%. The increases in switching costs have led to less productive occupational matches for workers and thus significant welfare losses. On average, workers have lost 3% of their total lifetime income from increases in switching costs over this period.
Heterogeneous Passthrough from TFP to Wages [Paper]
with Mons Chan and Sergio Salgado
What is the impact of firms' productivity shocks on workers' labor earnings? To answer this question, we propose a new method to identify firms' productivity shocks that combines a nonparametric production function estimation method with a set of two-way fixed effect regressions to control for differences in the quality of labor force within a firm. We apply this method on large matched employer-employee data that encompasses the entire population of workers and firms in Denmark. Our dataset allows us to separately study continuing and non-continuing workers and to investigate how the passthrough from firms' shocks to wages varies across narrow population groups while correcting for the selection bias arising from endogenous worker mobility. We find an elasticity of workers' hourly wages to firms' productivity of 0.08. This implies that a change of one standard deviation in firm-level TFP generates a change of $1,100 US dollars in annual wages for the average worker in Denmark. We also find that both persistent and transitory shocks to firms are passed on to workers' wages and that there is a marked asymmetry between positive and negative productivity shocks. In fact, after controlling for selection, the elasticity of hourly wages to a negative productivity shock is twice that of a positive productivity shock of the same magnitude. This suggests that workers are more exposed to negative than to positive shocks to firms. Furthermore, we find that the changes in wages due to variation in firm productivity are quite persistent and do not dissipate even 5 years after the shock. By looking at the heterogeneity of passthrough within firms and workers groups we provide insights about the mechanisms that could explain the asymmetric passthrough from firms' shocks to wages we observe in the data.
Firm Productivity and Labor Quality [Draft coming soon]
with Mons Chan and Sergio Salgado
In this paper we argue that a large fraction of the observed dispersion in firm productivity can be accounted for by differences in labor quality. In order to investigate this claim, we propose an estimation method that combines a non parametric production function estimation with a series of two-way fixed effect wage regressions with time-varying firm fixed effects which allow us to control for differences in labor quality across firms and time. We implement this method on a large employer-employee matched panel dataset from Denmark and find that around 60% of the dispersion in productivity can be explained by cross-sectional differences in the quality of labor. A similar fraction of the dispersion in idiosyncratic shocks to firm productivity can be attributed to changes in the quality of the labor force hired by the firm. Using these labor quality-adjusted measures of productivity, we find a significant degree of positive assortative matching between high ability workers and high productivity firms. High productivity firms also tend to pay higher wages per unit of ability than low productivity firms. We also find that firms react to productivity shocks by adjusting both the quantity and quality of their labor force. We then discuss the degree to which cross-sectional wage inequality may be driven by dispersion in firm productivity.
Occupational Licensing and Labor Market Fluidity [Draft coming soon]
with Morris Kleiner
This paper investigates the relationship between occupational licensing and labor market outcomes using both public individual survey data from the Current Population Survey (CPS) and the Survey of Income and Program Participation (SIPP), as well as a unique newly constructed data set on licensing requirements. We show that occupational licensing requirements/costs have increased significantly for most occupations over time. Using propensity score matching, we compare the occupational switching patterns and wage changes for those in licensed vs. unlicensed occupations. The preliminary findings show that occupational licensure has significant negative effects on occupational mobility, both for switching in to and out of licensed occupations. After controlling for observable heterogeneity, including occupational skills, workers switching into a licensed occupation experience higher wage gains. We also find that licensing presents less of a barrier to entry for the unemployed relative to employed workers, possibly due to differences in the opportunity cost of time between the two groups.
Works in Progress
Trade, Occupation Sorting, and Inequality [Draft available upon request]
with Mons Chan
Firms react to changes in factor prices with intensive and extensive-margin employment adjustments at the occupational-level. We study the distributional and aggregate consequences of this make-or-buy dynamic by developing a novel network model of heterogeneous firm-to-firm trade where the boundary of each firm depends on factor prices and firm-occupation comparative advantage in input-production. We show that the model can be easily aggregated and taken to industry-level data, and use the calibrated model to examine recent trends in employment, wages and trade in the USA. We use public OES and CPS data to show empirical evidence that a significant fraction of the growth in wage inequality in the USA is due to changes in firm/industry specialization and occupation sorting. To understand and measure the underlying causes of these trends, we calibrate the model to occupation and industry data from the OES and input-output tables. The results suggest that 1/3rd of the increases in wage inequality stem from decreases in inter-industry trade frictions with the remaining 2/3rds stemming from changes in technology and labor supply. Falling trade frictions are also responsible for all of the increases in occupational sorting and concentration. Had trade frictions been held at their 2002 level, productivity growth would have led to an increase in vertical integration, rather than the decrease observed in the data.
Student Loans and Early Employment Outcomes [Draft available upon request]
with Emily Moschini
In this paper I investigate the link between student debt and post-graduation job market outcomes. Using a combination of survey and administrative data on graduates in two cohorts, I show that there is a significant negative correlation between the amount of debt upon graduation and the probability of finding a job which matches your education. I use evidence from Equifax to motivate a model of job search and long-term debt where the cost of consumer credit depends on your student loan balance. I successfully calibrate the model to the data and show that this debt constraint mainly binds for high and medium human capital graduates, as it affects the amount of time they are able to spend searching for a good job. I then show that alternative repayment and interest rate policies would have improved labor market outcomes for graduates in 07/08 by allowing extended search times, increasing match quality and possibly lifetime productivity.
MPC Heterogeneity and Firm Level Shocks
with Mons Chan and Sergio Salgado
In this paper, we use firm-level shocks estimated using an employer-employee matched panel dataset from Denmark to provide new and precise estimates of the Marginal Propensity to Consume (MPC). Firm productivity shocks – estimated using a structural model – are especially useful to study MPC as they are, by construction, unexpected from the perspective of the worker and generate sizable changes in workers' labor income. Using these firm shocks as instruments to control for the endogeneity of wages in the consumption decision, we find that an unexpected increase in wages of one dollar leads to an increase in consumption of 30 cents on average. We also find sizable variations in MPC for positive and negative income shocks and across the age and income distributions.
Frictions in the College Application Portfolio Decision
with Peter McHenry and Emily Moschini
In the United States, there is documented misallocation for high-skill students who come from poor families when they enroll in college (Hoxby Avery 2012). In this project, we examine the college application and enrollment patterns of high school students in the United States, and build a model to examine the effects of policy aimed at mitigating this misallocation. Using the High School Longitudinal Study, 2009 (HSLS:09) from the US Department of Education, we document the relationship between neighborhood composition, location, and student skill and college application and enrollment outcomes of the student. We build a model where students who are heterogeneous in neighborhood, family income and skill decide to search for college admittance in different submarkets. Each submarket is a different quality college, and has a fixed cost with both an information and a geographic component indexed to the student. We apply matching techniques developed by Fox (2018) and Agarwal (2015) in a many-to-one matching market using observed matches to study how the characteristics of college and students jointly determine the match value and the match patterns. Here, each student can apply to several colleges, and the HSLS:09 contains information on this choice and the attributes of each student, while college characteristics are publicly available. We then use this model to examine what would happen if policy changed the fixed costs faced by different students, by affecting its geographic component, the information component, or both.