Working Papers

Technical Change and Entrepreneurship

Abstract. In this paper, I show that the proportion of entrepreneurs among US households has declined substantially over the last three decades. I also show that this decline is mostly accounted for by a drop in the share of entrepreneurs among the college graduates. Then, using an otherwise standard entrepreneurial choice model with two skill groups of individuals, I argue that the decline in entrepreneurship is the equilibrium outcome of two forces that have increased the returns to high skill labor: the skill-biased technical change and the decrease in the cost of capital goods. I find that these two technological forces jointly account for three-quarters of the decline in the share of entrepreneurs observed in the United States over the last 30 years. Paper

Skewed Business Cycles NBER Working Paper, December 2019
(with Fatih Guvenen and Nicholas Bloom)
Replication of Empirical Results

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, during recessions, they display a large left tail of negative growth rates (and during booms, a large right tail of positive growth rates). 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-agent 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

Heterogeneous Passthrough from TFP to Wages  
(with Mons Chan and Ming Xu)

Abstract. What is the impact of firms’ productivity shocks on workers’ labor earnings? To answer this question, we propose a new method to identify firms’ productivity shocks that combines a nonparametric production function estimation method with a set of two-way fixed effect regressions to control for differences in the quality of labor force within a firm. We apply this method on large matched employer-employee data that encompasses the entire population of workers and firms in Denmark. Our dataset allows us to separately study continuing and non-continuing workers, control for workers’ endogenous job mobility decisions, and to investigate how the passthrough from firms’ shocks to wages varies across narrow population groups. We find an elasticity of workers’ hourly wages to firms’ productivity of 0.08. This implies that a change of one standard deviation in firm-level TFP generates a change of $1,100 US dollars in annual wages for the average worker in Denmark. We also find that both persistent and transitory shocks to firms are passed on to workers’ wages and that there is a marked asymmetry between positive and negative productivity shocks. In fact, after controlling for selection, the elasticity of hourly wages to a negative productivity shock is twice that of a positive productivity shock of the same magnitude. This suggests that workers are more exposed to negative than to positive shocks to firms. Furthermore, we find that the changes in wages due to variation in firm productivity are quite persistent and do not dissipate even 5 years after the shock. By looking at the heterogeneity of passthrough within firms and workers groups we provide insights about the mechanisms that could explain the asymmetric passthrough from firms’ shocks to wages we observe in the data. Paper

The Great Micro Moderation 
(with Nicholas Bloom, Fatih Guvenen, Luigi Pistaferri, John Sabelhaus, and Jae Song)

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

Firm Productivity and Labor Quality 
(with Mons Chan and Ming Xu)

Individual Earnings Dynamics in Norway  
(with Elin Halvorsen and Serdar Ozkan)

Being prepared for the special issue of Quantitative Economics edited by Fatih Guvenen, Luigi Pistaferri, and Gianluca Violante

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.

Are Minimum Wages and Income Taxes Complements or Substitutes?
(with Shiv Dixit). 


Does the BIC Estimate and Forecast Better than the AIC? (with Carlos Medel).  Economic Analysis Review, 2013. Paper.