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.
Trade, Occupation Sorting, and Inequality
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
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.
Occupational Licensing and Labor Market Fluidity
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
Heterogeneous Passthrough from TFP to Wages
with Mons Chan and Sergio Salgado
We use matched employer-employee data from Denmark to analyze the extent to which firms’ productivity shocks are passed to workers' wages. The richness of our dataset allows us to separately study continuing and non-continuing workers, to correct for selection, and to investigate how the passthrough varies across narrow population groups. Our results show a much larger degree of passthrough from firms’ shocks to workers’ wages than reported in previous research. On average, an increase of one standard deviation in firm-level TFP commands an increase of 3.0% in annual wages ($1,500 USD for the average worker). Furthermore, we find that the effect of productivity shocks on wage growth for workers who switch firms is larger relative to workers that stay within the same firm. Finally, we find large differences in the passthrough for workers of different income levels, ages, industries, and firms of different productivity levels. In the second part of our paper, we estimate a stochastic process of income that captures the salient features the data. We then embed the estimated stochastic process into a life-cycle consumption savings model to evaluate the welfare and distributional implications of the passthrough from firms' TFP shocks to workers' wages.
A Characterization of the Distribution of Firm Productivity Shocks
with Mons Chan and Sergio Salgado
In this paper, we characterize the distribution firm-level productivity shocks using a large employer-employee matched panel dataset for the entire Danish economy. Relative to other more standard methods, our estimation relies on a nonparametric structural model which we use to distinguish between persistent and transitory shocks. Furthermore, we use detailed individual-level data from the employer/employee matched panel to control for differences in workforce productivity within and across firms. Our estimates show that the distribution of productivity shocks largely differs from the standard Gaussian assumption, showing negative skewness and large kurtosis. Controlling for labor productivity dramatically reduces the variance of firm shocks and overall total factor productivity. We also unveil substantial differences across firm types defined by size, age, and productivity level. We then estimate a stochastic process that matches our main empirical results and we incorporate it to an otherwise standard model of firm dynamics.
Frictions in the College Application Portfolio Decision
with 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.
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.
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.
Trade, Occupation Sorting, and Inequality
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
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.
Occupational Licensing and Labor Market Fluidity
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
Heterogeneous Passthrough from TFP to Wages
with Mons Chan and Sergio Salgado
We use matched employer-employee data from Denmark to analyze the extent to which firms’ productivity shocks are passed to workers' wages. The richness of our dataset allows us to separately study continuing and non-continuing workers, to correct for selection, and to investigate how the passthrough varies across narrow population groups. Our results show a much larger degree of passthrough from firms’ shocks to workers’ wages than reported in previous research. On average, an increase of one standard deviation in firm-level TFP commands an increase of 3.0% in annual wages ($1,500 USD for the average worker). Furthermore, we find that the effect of productivity shocks on wage growth for workers who switch firms is larger relative to workers that stay within the same firm. Finally, we find large differences in the passthrough for workers of different income levels, ages, industries, and firms of different productivity levels. In the second part of our paper, we estimate a stochastic process of income that captures the salient features the data. We then embed the estimated stochastic process into a life-cycle consumption savings model to evaluate the welfare and distributional implications of the passthrough from firms' TFP shocks to workers' wages.
A Characterization of the Distribution of Firm Productivity Shocks
with Mons Chan and Sergio Salgado
In this paper, we characterize the distribution firm-level productivity shocks using a large employer-employee matched panel dataset for the entire Danish economy. Relative to other more standard methods, our estimation relies on a nonparametric structural model which we use to distinguish between persistent and transitory shocks. Furthermore, we use detailed individual-level data from the employer/employee matched panel to control for differences in workforce productivity within and across firms. Our estimates show that the distribution of productivity shocks largely differs from the standard Gaussian assumption, showing negative skewness and large kurtosis. Controlling for labor productivity dramatically reduces the variance of firm shocks and overall total factor productivity. We also unveil substantial differences across firm types defined by size, age, and productivity level. We then estimate a stochastic process that matches our main empirical results and we incorporate it to an otherwise standard model of firm dynamics.
Frictions in the College Application Portfolio Decision
with 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.
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.