Technical Change and Entrepreneurship (July 2020, R&R AER)
Abstract. I document a significant decline in the share of entrepreneurs among US households over the last three decades. Most of this decline is accounted for by a drop in the share of entrepreneurs among college graduates. Using a standard entrepreneurial choice model with two skill groups—high- and low-skill individuals—I then argue that the decline is the outcome of two technological forces that have increased the returns to high-skill labor: the skill-biased technical change and the decrease in the price of capital. I find that these two forces account for three-quarters of the decline in the share of entrepreneurs. Paper
Abstract. Using firm-level panel data from the US Census Bureau and almost fifty other countries, we show that the skewness of the growth rates of employment, sales, and productivity is procyclical. In particular, these distributions display a large left tail of negative growth rates during recessions and a large right tail of positive growth rates during booms. We find similar results at the industry level: industries with falling growth rates see more left-skewed growth rates of firm sales, employment, and productivity. We then build a heterogeneous-agents model in which entrepreneurs face shocks with time-varying skewness that matches the firm-level distributions we document for the United States. Our quantitative results show that a negative shock to the skewness of firms’ productivity growth (keeping the mean and variance constant) generates a persistent drop in output, investment, hiring, and consumption. This suggests the rising risk of large negative firm-level shocks could be an important factor driving recessions. Paper
Abstract. We examine the transmission of firms’ idiosyncratic productivity shocks to workers’ wages using matched employer-employee data from Denmark. Our novel method controls for productivity differences across firms due to unobserved differences in labor quality and for workers’ endogenous job mobility decisions. We find an average elasticity of workers’ hourly wages to firms’ productivity of 0.08. This implies that a productivity shock of one standard deviation generates a change of $1,100 US dollars in annual wages for the average worker in Denmark. The passthrough of firm shocks to wages is strongly asymmetric, in that workers’ wages are twice as responsive to negative shocks as positive shocks. Failing to control for endogenous worker mobility dramatically underestimates the passthrough of negative shocks and reverses the direction of asymmetry. Our results also indicate significant heterogeneity across firm and worker characteristics. We show that a simple model where firms with labor market power interact strategically can rationalize our findings. Through the lens of this model, our estimates imply an average firm-level labor supply elasticity of 5.7 and average wage markdowns of 15%. Paper
Earnings Dynamics Its Intergenerational Transmission: Evidence from Norway (February 2021)
(with Elin Halvorsen and Serdar Ozkan)
As part of a cross-country research consortium, in the first part we use administrative data from Norway between 1993 and 2017 to present stylized facts about individual earnings dynamics. Some of our key findings are as follows. (i) Norway has not been immune to the recent increase in top income inequality observed in other countries. (ii) Earnings dispersion below the 90th percentile declines sharply over the life cycle but increases significantly for those in the top 10%. (iii) The earnings growth distribution is left-skewed and leptokurtic, the extent of which varies with age and past earnings. (iv) Finally, earnings in the top 1% are highly persistent even relative to those in the top 2% or 5%. In the second part, we exploit a longer panel dating back to 1967 to investigate the intergenerational transmission of income dynamics. First, we find that children of high-income and high-wealth fathers enjoy steeper income growth over the life cycle and face more volatile but more positively skewed income changes, suggesting that they are more likely to pursue high-return and high-risk careers. Second, the income dynamics of fathers and children are strongly correlated. In particular, the children of fathers with steeper life-cycle income growth, more volatile incomes, or higher downside risk also have income streams of similar properties. These findings shed light on the determinants of intergenerational mobility. Paper
Part of the Global Income Dynamics Project, which aims to produce a harmonized cross-country database containing detailed and relevant statistics on individual- and household-level wages, earnings, and related labor market measures. The STATA code used to produce the harmonized statistics in all countries was prepared by Serdar Ozkan and myself.
Abstract. This paper documents that individual income volatility in the United States has declined in an almost secular fashion since 1980—a phenomenon that we call the “Great Micro Moderation.” This finding contrasts with the conventional wisdom, based on studies using survey data, that income volatility—a simple measure of uncertainty—has increased substantially during the same period. The finding of declining volatility is consistent with a handful of recent papers that use administrative data. We substantially extend the existing empirical findings of declining volatility using data from both administrative and survey-based data sets. A key contribution of our paper is to link patterns of income volatility on the worker side to outcomes (and volatility) on the firm/employer side. With the information revealed by these linkages, we investigate several potential drivers of this trend to understand if declining volatility represents a broadly positive development—declining income risk and uncertainty—or a negative one, i.e., declining business dynamism. Paper
Work in Progress
Work Before PhD
Does the BIC Estimate and Forecast Better than the AIC? (with Carlos Medel). Economic Analysis Review, 2013. Paper.