Working Papers

The Labor Market Consequences of Rapid Sectoral Shifts (with John Grigsby)

Abstract: Sectoral shifts require costly labor reallocation, fueling concerns about how quickly they occur. We study how the pace of these shifts affects workers at risk of displacement. We develop a life-cycle model with skill heterogeneity, directed search and job ladders in which labor demand gradually rises in one sector and declines in another. The model reveals three insights. First, workers’ lifetime earnings are strongly non-linear and even non-monotonic in the horizon over which the transition unfolds. Second, more workers benefit on the extensive margin as the transition accelerates further, but the tail of losses becomes thicker on the intensive margin. Third, labor market frictions are important to quantify these non-linearities. We apply our model to the climate transition and find substantial earnings losses from a transition ending in 2060. Completing the transition ten years earlier reduces average losses, but raises losses in the tail by around 20%.

Durables and the Marginal Propensity to Spend (with Martin Beraja)

Revise & Resubmit at American Economic Review

Abstract: Durables represent a large share of households’ marginal propensity to spend (MPX). We develop a quantitative model of spending that takes durables into account and matches a rich set of empirical regularities simultaneously. Durables are crucial for the level of the MPX, its distribution in the population, its persistence over time, and its cyclicality. “Scaling up” the response of non-durables provides a poor approximation of the total MPX. As an application, we study how the MPX varies with the size of stimulus checks and find that it declines more slowly compared to a model of purely non-durable spending.

Investment Dynamics and Cyclical Redistribution

Abstract: Demand for durable goods and residential investment is strongly pro-cyclical. Workers employed in durable industries are imperfectly insured against these fluctuations, leading to distributional consequences during booms and busts. This paper studies the interaction between the cyclicality of durable demand and redistribution of labor income. I explore this feedback loop within a heterogeneous agent New Keynesian (HANK) model with multiple sectors and lumpy durable adjustment. Income redistribution emerges endogenously when labor mobility between sectors is limited. Crucially, lumpy adjustment at the micro level generates non-linearities at the macro level: the average marginal propensity to spend (MPC) on durables varies with the size of income shocks. As a result, redistribution of labor incomes has aggregate effects. I find that the interaction between cyclical investment and redistribution amplifies the aggregate response of durable investment during booms and dampens it during recessions. The lumpy nature of durable adjustment entirely accounts for this non-linear effect.

Publications

Inefficient Automation (with Martin Beraja) [Published version]

The Review of Economic Studies

Abstract: How should the government respond to automation? We study this question in a heterogeneousagent model that takes worker displacement seriously. We recognize that displaced workers face two frictions in practice: reallocation is slow and borrowing is limited. We first show that these frictions result in inefficient automation. Firms are effectively too patient when they automate, and (partly) overlook the time it takes for workers to reallocate and for the benefits of automation to materialize. We then analyze a second best problem where the government can tax automation but lacks redistributive tools to fully overcome borrowing frictions. The equilibrium is (constrained) inefficient — automation and reallocation impose pecuniary externalities on workers. The government finds it optimal to tax automation while labor reallocates, even when it has no preference for redistribution. Using a quantitative version of our model, we find significant welfare gains from slowing down automation.