College of Behavioral & Social Sciences
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Item Essays on Frictions and Economic Fluctuations(2019) Yu, Hsuan; Shea, John; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)I study how information frictions, in the forms of limited information capacity or asymmetric information, affects the firm's production and physical capital accumulation decisions, and how it can help a dynamic general equilibrium model to account for selected empirical characteristics over business cycle frequencies. In the first chapter, I explore how limited information capacity affects fished-good inventory accumulation by firms. I use rational inattention to understand the responses of inflation and output inventories after nominal shocks. In the data, output inventories move less than sales in the U.S. manufacturing and trade sectors. To reconcile the model with the data, some studies have suggested that variation in price markups, rather than cost rigidities, must account for the bulk of the real effects of nominal shocks. I propose that this conclusion does not necessarily hold when the firm’s decisions are affected by an information capacity constraint. In my model, firms observe aggregate conditions with idiosyncratic noise. Paying more attention helps a decision maker to reduce the noise, but also incurs information costs. Firms allocate their attention between pricing and production decisions, and their decision rules deviate from the first-best rules. This friction serves as a force to hinder drastic movements in production and inventory accumulation. I show that inventories can move less than sales even when the marginal cost of production is rigid. Numerical results suggest that inattention on the firm side can qualitatively match empirical impulse responses and business cycle moments. The fit with data is better than a staggered pricing model with elastic cost pressure, in terms of both matching impulse responses and simulated moments. In the second chapter, I study how information asymmetry about the quality of used capital affects capital reallocation. Empirical studies of business cycle dynamics indicate that the reallocation of capital, or the movement of capital input from less productive firms to more efficient firms, is procyclical, whereas the dispersion of marginal product of capital is countercyclical. I build a model of endogenous partial capital irreversibility, which stems from both capital specificity and information asymmetry in the market for used capital. The resale price and average quality of used capital in the market vary with aggregate productivity shocks. In the model, imperfect substitution between new and used capital and information asymmetry interact to generate procyclical reallocation. Preliminary numerical results show procyclical reallocation and countercyclical dispersion of capital returns.Item ESSAYS ON DISPLACED WORKERS AND RESIDENTIAL MIGRATION(2016) Ueda, Ken Masahiro; Hellerstein, Judith; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)In this dissertation, I explore how workers’ human capital, local industry composition, and business cycles affect employment outcomes and residential migration for job losers and other workers. I first examine whether the poor employment outcomes of job losers are due to a lack of jobs that require their human capital within their local labor market. I answer this question by analyzing the extent to which the industry composition in the job loser’s local labor market affects employment outcomes when job loss occurs during expansions and during recessions. I find that if job losers reside in an area with a high employment concentration of their original industry of employment, they are 2.1-2.8 percent more likely to be re-employed at another job if job loss occurs during an expansion; I find an insignificant relationship in most specifications when job loss occurs during a recession, and in some specifications I even find a negative relationship between industry concentration and employment. I conclude that the industry composition within an area matters for job losers, since firms are more willing to hire workers from within their own industry, as these workers have more relevant accumulated human capital. However, firms are less likely to hire during a recession, making job losers’ human capital less important for job finding. Next, Erika McEntarfer, Henry Hyatt, and I examine whether the business cycle affects earnings changes for job losers, and the factors that explain these differences across time. We find that job losers who lost their job during the Great Recession have earnings changes that are 10 percent more negative relative to other job losers from other periods. This result is driven primarily by longer nonemployment lengths and worse subsequent job matches. Finally, Erika McEntarfer, Henry Hyatt, Alexandria Zhang, and I explore the extent to which residential migration is driven by job opportunities. We use four databases and find that changes in job moves explain some of the changes in residential migration, but the relationship is not as strong as previously documented. We find that migration patterns differ across databases, with some databases documenting steeper declines and more cyclicality.Item Essays in Labor and Political Economics(2011) Tuzemen, Didem; Haltiwanger, John; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation consists of three chapters. The first chapter provides an overview of the dissertation by summarizing the two papers presented in the following chapters. The paper in the second chapter contributes to the labor-macro literature. More specifically, I develop a general equilibrium model with labor market search and matching frictions, endogenous labor force participation and on-the-job search, which can replicate the labor market dynamics observed in the U.S. data. Most existing real business cycle models with labor market frictions assume that all agents in the economy are part of the labor force, therefore these models allow for only two possible labor market states: employment and unemployment. This is a highly problematic and unrealistic assumption. Studies that extend the basic model by incorporating being out of the labor force as a third state, through allowing for a work-home production (or leisure) decision, find that the model generates counterfactual business cycle statistics: labor force participation is very volatile, while unemployment is weakly procyclical or acyclical, and has a high positive correlation with vacancies. The failure of this three-state model to replicate the labor market dynamics observed in the U.S. data is mainly due to the excessive responsiveness of labor force participation to labor market conditions determined by aggregate shocks to productivity. In order to dampen the movements along the labor market participation margin in the simple three-state model, I introduce an on-the-job search mechanism that serves as a second margin along which the household's labor market adjustments can take place. The proposed model successfully generates countercyclical unemployment and the Beveridge Curve relationship between unemployment and vacancies. Additionally, the business cycle statistics reproduced by the modified model are quantitatively more in line with their empirical counterparts. The third chapter presents a joint study with Mauricio Cardenas. We analyze the determinants of the government's decision to invest in fiscal state capacity, which refers to the state's power to raise tax revenue. Using a model we highlight some political and economic dimensions of this decision, and conclude that political stability, democracy, income inequality, as well as the valuation of public goods relative to private goods, are all important variables to consider. We then test the main predictions of the model using cross-country data and find that fiscal state capacity is higher in more stable and equal societies, both in economic and political terms, and in countries where the chances of fighting an external war are high, which is a proxy for the value of public goods.Item Job Competition over the Business Cycle(2005-12-04) Chasamboulli, Andri N.; Haltiwanger, John; Smith, Jeffrey; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)My thesis explores the following question: how workers of different skill are allocated across jobs and unemployment over the business cycle. I am interested in understanding the "over-qualification" of workers that occurs during periods of high unemployment, as increased congestion in the labor market hinders workers from finding a suitable match. I focus on the skill mismatch that takes the form of high-skilled workers transitorily accepting low-skill jobs, thereby influencing the labor market prospects of low-skilled workers. In the first chapter, I develop a business cycle matching model with heterogeneous workers and jobs, which helps understand the role of over-qualification on labor productivity and across-skill unemployment dynamics. I capture the across-skill search externalities and spillover effects that arise when low- and high-skilled workers compete for low-skill jobs, by relaxing the common assumption that all workers qualify for any type of vacancy. I show that the skill mix of vacancies changes over the cycle, thus altering the allocation of workers of different skill across jobs and unemployment. In addition, my model explains observed differences in labor market outcomes of different skill groups, including the higher sensitivity of low-skilled unemployment to changes in economic activity. In the second chapter, I test the empirical relevance of over-qualification. I ask whether the risk of unemployment induces high-skilled workers to accept transitorily low-skill jobs until a better job comes along. To this end, I study the mismatch rates and job level dynamics of high-skilled workers. Unlike existing studies that only examine how the business cycle affects job level probabilities, I adopt dynamic panel data estimation methods, in which the worker's lagged state (i.e., whether unemployed or mismatched) enters the model as an explanatory variable. I find evidence suggestive of the existence of over-qualification. The mismatch rates of higher educational groups are higher and exhibit more cyclical variation. Moreover, I find that high-skilled workers are more likely to move into lower job levels when they are unemployed and the unemployment rate is high. In addition, my results point to the existence of an upgrading in the job levels of mismatched high-skilled workers when the unemployment rate is low.