Working Papers

Labor Market Monopsony in the New Keynesian Model: Theory and Evidence

Job Market Paper. November, 2021.

I assess the role of labor market monopsony—finitely-elastic firm-specific labor supply—in the context of a New Keynesian model. Previous work has theorized that this feature is a source of real rigidity, permitting New Keynesian models to feature flatter Phillips curves, and thus smaller (and more realistic) responses of inflation to demand shocks. First, I modify a basic New Keynesian model to include firm-specific labor, and calibrate the labor supply elasticities to micro-empirical estimates.Consistent with this mechanism serving as a source of real rigidity, firm-specific labor substantially reduces the slope of the Phillips curve relative to the perfectly competitive labor market benchmark. However, this depends strongly on the elasticity chosen, and requires distinguishing the firm-specific and aggregate labor supply elasticities, which previous work often fails to do. Second, I provide a cross-sectional empirical test for this mechanism. I estimate the firm-specific labor supply elasticity by industry in the Survey of Income and Program Participation using a dynamic monopsony model. I then estimate industry responses to monetary policy shocks. Contrary to the New Keynesian model, I find no evidence that industry differences in firm-specific labor supply elasticities lead to different industry price responses to monetary policy shocks. My results do not support the theory that firm-specific labor is a source of real rigidity.

Reservation Raises: The Aggregate Labor Supply Curve at the Extensive Margin

with Benjamin Schoefer.

Revise & Resubmit at The Review of Economic Studies. April, 2021.

We measure extensive-margin labor supply (employment) preferences in two representative surveys of the U.S. and German populations. We elicit reservation raises: the percent wage change that renders a given individual indifferent between employment and nonemployment. It is equal to her reservation wage divided by her actual, or potential, wage. The reservation raise distribution is the nonparametric aggregate labor supply curve. Locally, the curve exhibits large short-run elasticities above 3, consistent with business cycle evidence. For larger upward shifts, arc elasticities shrink towards 0.5, consistent with quasi-experimental evidence from tax holidays. Existing models fail to match this nonconstant, asymmetric curve.


Unemployment Effects of Stay-at-Home Orders: Evidence from High Frequency Claims Data

with Chaewon Baek, Peter McCrory, and Todd Messer.

published at The Review of Economics and Statistics. December, 2021.

We use the high-frequency, decentralized implementation of Stay-at-Home orders in the U.S. to disentangle the labor market effects of SAH orders from the general economic disruption wrought by the COVID-19 pandemic. We find that each week of SAH exposure increased a state's weekly initial unemployment insurance (UI) claims by 1.9% of its employment level relative to other states. A back-of-the-envelope calculation implies that, of the 17 million UI claims between March 14 and April 4, only 4 million were attributable to SAH orders. We present a currency union model to provide conditions for mapping this estimate to aggregate employment losses.

Replication Data. VoxEU.


A Vacant Metric: Why Job Openings Are So Unreliable

Employ America. August, 2022.

The Federal Reserve has given job vacancy data center stage in assessing the strength of the labor market. The theoretical and empirical issues with vacancies data show that this is a mistake.

Proceed With Caution! Comparing Inflation Across Countries is Complicated

Employ America. July, 2022.

In this first piece of a series, we’re going to walk through an overview of the ways inflation statistics can diverge between countries and demonstrate just how difficult it is to establish apples-to-apples comparisons between aggregate inflation measures in different countries.

Inflation Expectations: Three Stories in Search of Evidence

Employ America. September, 2021.

Inflation expectations play a key role in many influential macroeconomic models. Commentators and policymakers often use the results of, or structures from, these models without delving too far into the underlying methodology. However, on closer examination, it becomes clear that the standard models of “inflation expectations” are sharply at odds with the underlying data. As such, great caution should be exercised when making policy recommendations in response to reports of elevated “inflation expectations.” An unthinking reliance on these models may lead one to prefer tighter monetary policy than would be optimal for securing a robust labor market recovery.