Wage Inequality and Occupation Polarization: A Dynamic Perspective. 2019.
[ Abstract | Draft ]
In this paper, I argue that job polarization, the disappearing of middle wage occupations, can have long lasting effects in the U.S. wage structure. I suggest that, by changing the cross-cohort occupational structure, polarization can impact returns to experience and future wages. Firstly, I document that polarization has different impact across workers of different ages and education. Young workers disproportionally moved to low and high wage occupations in comparison to old workers, with significant differences between educational groups. Secondly, I document substantial heterogeneity in the level and growth of the returns to experience by occupation. Using an overlapping generations model with endogenous education and occupational choice, I show that if there exist complementarities between young and old labor, job polarization can affect the returns to experience. Quantitatively, I use the model to estimate the effect of technological and demographic changes in the U.S. wage structure accounting for the transition dynamics. During the transition, because of cohort imbalances and occupation switching costs, inequality is higher: college premium can be almost 10% higher than in the steady state and the relative wage of the median with respect to the top occupation is 12% worse. This culminates in a clear policy recommendation: the decrease of occupation switching costs, accelerating the transition and increasing wages of vulnerable groups.
Trade-induced Local Labor Market Shocks and Asymmetrical Labor Income Risk, joint with Ursula Mello. 2020.
[ Abstract | Draft ]
This paper investigates the relationship between international trade and asymmetrical labor income risk. Using the case study of Brazil, we inspect how an increase in import penetration following the China shock impacted the distribution of idiosyncratic earnings changes across the country’s local labor markets, depending on the initial sectoral composition of each region. We find that an increase in import penetration leads to a more disperse and negatively skewed distribution and that these effects can partially be explained by an increase in the volatility of hours worked following job and industry transitions. Moreover, the effect on dispersion grows larger as the lags between periods increase, suggesting a rise in the permanent risk. Through the lens of an incomplete market model, an unborn individual would be willing to forgo up to 4.4% of consumption to avoid the riskier labor market. The welfare cost is half if the higher-order risk is ignored.
Public Financing with Financial Frictions and Underground Economy, joint with Andrés Erosa and Luisa Fuster. 2020.
[ Abstract | Draft ]
What are the aggregate effects of reducing informality in a financially constrained economy? This paper answers this question by developing and calibrating an entrepreneurship model to data on matched employer-employee from both formal and informal sectors in Brazil. The model distinguishes between informality on the business side (extensive margin) and the informal hiring by formal firms (intensive margin). We find that when informality is eliminated along both margins, aggregate output increases by 7.2%, capital by 13.7%, and TFP by 3.5%. The output and TFP increases would be a factor of 1.4 and 1.9 larger if informality were only eliminated on the extensive margin, a result that supports the view that, in an economy with financial frictions, the informal economy can play a positive role by diminishing the negative effects of costly regulations and institutions on the economy. Finally, we find dramatic differences in the cost of financing social security in our baseline model economy relative to an economy with no frictions.
Work in Progress
Occupation Mismatch and Wealth Inequality
[ Abstract ]
In this paper, I study the relationship between occupational mismatch and wealth inequality. Using the NLSY79 combined with occupational requirements from the ONET, I show that (i) there is a negative correlation between wealth and under match but no correlation for over match; (ii) this correlation is stronger for young individuals and (iii) under matched individuals have lower future earnings. I show that this is consistent with a life-cycle model with search and on-the-job human capital accumulation. Wealth-poor workers have shorter unemployment spells and accept jobs in mismatched occupations. Nevertheless, they have lower wage growth and lower lifetime income than their wealth-rich counterparts. This implies a trade-off between consumption insurance and higher future wage. Then, I discuss the implications of an increase in age-dependent unemployment benefits.
Road Infrastructure and Productivity: Evidence from Mexico, joint with Laura Jaramillo, Florian Misch and Christian Saborowski
Intergenerational Mobility in the “other America”: Evidence from Brazilian Surnames, joint with Ursula Mello