New: The Gender Division of Work Across Countries
with Charles Gottlieb (Aix-Marseille School of Economics), Cheryl Doss and Douglas Gollin (both Tufts University)
IZA Discussion Paper 16896.
Figure 1: Average hours of market, domestic and care work
First version: Skill Supply, Firm Size, and Economic Development
with Charles Gottlieb (Aix-Marseille School of Economics) and Michael Tueting (University of St. Gallen)
This is a background paper for the World Bank's 2024 WDR. Updates to follow.
Selection and Absolute Advantage in Farming and Entrepreneurship: Microeconomic Evidence and Macroeconomic Implications
with Francisco Alvarez-Cuadrado and Francesco Amodio (both McGill University)
R&R, JPE Macro
[slides]
Progressive consumption tax reforms
with David Leung (National Taiwan University)
Macro-labor:
Labor market transitions, chapter for the Handbook of Labor Economics (with Rui Castro and Fabian Lange)
Labor market types and differences in labor market outcomes across countries
with Charles Gottlieb (Aix-Marseille School of Economics), Rui Castro and Fabian Lange (both McGill University)
[abstract]
What determines labor market types?
with Rui Castro, Jiyoung Kim, Fabian Lange and Jérôme Larivière (all McGill University)
Macro-development:
Skill Supply, Firm Size, and Economic Development
with Charles Gottlieb (Aix-Marseille School of Economics) and Michael Tueting (University of St. Gallen)
Labor market types and differences in labor market outcomes across countries
with Charles Gottlieb (Aix-Marseille School of Economics), Rui Castro and Fabian Lange (both McGill University)
[abstract]
Gender, Work and Structural Transformation
with Charles Gottlieb (Aix-Marseille School of Economics), Cheryl Doss and Douglas Gollin (both Tufts University)
Firm dynamics and entrepreneurship:
Top productivity dynamics
The Cyclical Dynamics of Entrepreneurship and Self-Employment
with Raquel Fonseca, Alain Delacroix and Pavel Ševčik (all Université du Québec à Montréal)
Inequality and taxation:
The macroeconomic and distributional effects of progressive wealth taxes
(A quantitative analysis of Thomas Piketty's wealth tax proposals)
with Barış Kaymak (Federal Reserve Bank of Cleveland)
[draft available upon request]
Accounting for wealth concentration in the US
with Barış Kaymak (Federal Reserve Bank of Cleveland) and David Leung (National Taiwan University)
AEJ Macro, conditionally accepted
[slides] [abstract]
Wage employment, unemployment and self-employment across countries
Journal of Monetary Economics, accepted.
[abstract][link to journal]
Lockdown accounting
with Charles Gottlieb (University of St Gallen), Jan Grobovšek (University of Edinburgh) and Fernando Saltiel (McGill University)
B.E. Journal of Macroeconomics, 22(1), 2022, 197-210.
[abstract]
Use our Lockdown simulator to simulate the effect of any sectoral lockdown across 85 countries.
Read these related pieces: VoxEU, Economics Observatory.
Working from Home in Developing Countries
with Charles Gottlieb (University of St Gallen), Jan Grobovšek (University of Edinburgh) and Fernando Saltiel (McGill University)
European Economic Review, 133, April 2021.
[abstract][link to journal]
Use our Work from Home simulator to see potential work from home employment by demographic group across 85 countries.
Read this related piece: VoxEU.
These two papers extend Working from home across countries and Lockdown accounting (Covid Economics)
Working from home: Implications for developing countries
with Charles Gottlieb (University of St Gallen), Jan Grobovšek (University of Edinburgh) and Fernando Saltiel (Duke University)
in: COVID-19 in Developing Economies, edited by Simeon Djankov and Ugo Panizza, CEPR Press, London, UK, 2020.
Understanding Severance Pay Determination: Mandates, Bargaining, and Unions
with Stéphane Auray and Samuel Danthine (both CREST-Ensai)
Scandinavian Journal of Economics, 122(3), July 2020, 1073-1111.
[abstract][link to journal]
The firm size distribution across countries and skill-biased change in entrepreneurial technology
American Economic Journal: Macroeconomics, 10(3), July 2018, 1-41.
AEJ Macro Best Paper Award 2018.
[abstract] [link to journal]
Capital-labour substitution, structural change and the labor income share
with Francisco Alvarez-Cuadrado and Ngo Van Long (both McGill University)
Journal of Economic Dynamics and Control, 87, February 2018, 206-231.
[abstract] [link to journal]
Capital-labour substitution, structural change and growth
with Francisco Alvarez-Cuadrado and Ngo Van Long (both McGill University)
Theoretical Economics, 12(3), Sep 2017, 1229-1266.
Working paper version with more proofs: CESifo Working Paper 5928.
[abstract]
The evolution of wealth inequality over half a century: the role of taxes, transfers and technology
with Barış Kaymak (Université de Montréal).
Journal of Monetary Economics 78, April 2016. [abstract] [link to journal] [related piece at voxeu.org]
Old title: "The Macroeconomic Implications of Cuts in Top Income Tax Rates: 1960-2010".
Transitional dynamics and the optimal progressivity of income redistribution
with Ozan Bakış (Sabanci University) and Barış Kaymak (Université de Montréal)
Review of Economic Dynamics 18(3), July 2015, 679-693. [abstract] [link to journal]
Experimentation by Firms, Distortions, and Aggregate Productivity
with Alain Gabler (Swiss National Bank)
Review of Economic Dynamics, 16(1), January 2013, 26-38. [abstract] [link to journal]
Who Becomes an Entrepreneur? Labor Market Prospects and Occupational Choice
Journal of Economic Dynamics and Control, 37(3), March 2013, 693-710.
[abstract] [link to journal]
"Entrepreneurs out of necessity": a snapshot
Applied Economics Letters 20(7), 2013, 658-663. [abstract] [link to journal] [Apr 1020 IZA DP version]
Trust and the Choice Between Housing and Financial Assets: Evidence from Spanish Households
with Mayssun El-Attar (McGill University)
Review of Finance, 15(4), October 2011, 727-756. [abstract] [link to journal] [Sep 2010 version]
Structural Change out of Agriculture: Labor Push versus Labor Pull
with Francisco Alvarez-Cuadrado (McGill University)
American Economic Journal: Macroeconomics, 3(3), July 2011, 127-158. [abstract] [link to journal] [July 2010 version]
The regulation of entry and aggregate productivity
Economic Journal, 120(549), December 2010, 1175-1200. [abstract] [link to journal] [May 2009 version] [related piece at voxeu.org]
Employment Protection, Firm Selection and Growth
Journal of Monetary Economics, 56(8), November 2009, 1074-1085. [abstract] [link to journal] [Sep 2009 version]
Review of The World Economy: Growth or Stagnation? edited by Dale W. Jorgenson, Kyoji Fukao, and Marcel P. Timmer. Journal of Economic Literature, 55(4), December 2017.
The labour market, the decision to become an entrepreneur, and the firm size distribution
CIREQ Working Paper 11-2012, Aug 2012. [abstract]
The decision to become an entrepreneur and the firm size distribution: a unifying framework for policy analysis
IZA Discussion Paper 7757, Nov 2013. [abstract]
Wage employment, unemployment and self-employment across countries
Journal of Monetary Economics, accepted.
[back up]
Poor countries have low wage employment and high self-employment. This paper shows that they also have high unemployment relative to wage employment, and that self-employment increases with this ratio. To understand the sources of these patterns, I build a search and matching model with choice between job search and self-employment and with learning about matches, and calibrate it to match all transition rates between wage employment, unemployment and self-employment as well as separation hazards by job duration, separately for all 37 countries with available data. Quantitative analysis of the model shows that labor market frictions affect self-employment as much as unemployment. Labor market frictions also reduce aggregate output, not only by raising unemployment, but also by worsening the average quality of both wage employment matches and active self-employment projects.
Working from Home in Developing Countries
with Charles Gottlieb (University of St Gallen), Jan Grobovšek (University of Edinburgh) and Fernando Saltiel (McGill University),
European Economic Review, accepted.
[back up]
We use worker-level data on the task content of jobs to measure the ability to work-from-home (WFH) in developing countries. We show that the ability to WFH is low in developing countries and document significant heterogeneity across and within occupations, and across worker characteristics. Our measure suggests that educated workers, wage employees and women have a higher ability to WFH. Using data from Brazil, Costa Rica and Peru, we show that our measure is predictive of actual WFH both in terms of overall levels and variation with occupation and individual characteristics, as well as employment outcomes. Our measure can thus be used to predict WFH outcomes in developing countries.
Lockdown Accounting
with Charles Gottlieb (University of St Gallen), Jan Grobovšek (University of Edinburgh) and Fernando Saltiel (McGill University)
B.E. Journal of Macroeconomics, accepted.
[back up]
We use an accounting framework to evaluate the aggregate impact of a common lockdown policy for 85 countries. We find that poorer countries devote more labor to essential activities that are unaffected by the lockdown, while richer countries can more easily substitute non-essential employment with work from home. The lockdown generates an employment response that is U-shaped in income: it drops by 32% in the poorest quintile of the distribution, by 36% in the middle quintile, and by 31% in the richest quintile. Annualized GDP declines by 39% in the bottom three quintiles and by 31% in the richest quintile. Agriculture, an essential sector, is key in sustaining employment and economic activity in poorer countries.
Accounting for wealth concentration in the US [slides (Sep 2019 version)]
with Barış Kaymak (Université de Montréal) and David Leung (National Taiwan University)
[back up]
The recent literature has argued for high concentration of earnings, differences in rates of return on assets and bequests as potential determinants of the high level of wealth concentration in the US. Analyzing the joint distribution of earnings, capital income and net worth, we find evidence for excess returns on investment among the highest income groups. Nonetheless, concentration of labor earnings is the primary source of wealth concentration in the US. This finding reflects the high correlation between earnings and wealth in the data, as well as the fact that earnings are a major source of income for top income and wealth groups.
Capital-labour substitution, structural change and the labor income share
with Francisco Alvarez-Cuadrado and Ngo Van Long (both McGill University)
Journal of Economic Dynamics and Control, accepted. [back up]
Recent work has documented declines in the labor income share in the United States and beyond. This paper documents that these trends differ between manufacturing and services in the U.S. and in a broad set of other industrialized economies, and shows that a model where the degree of capital-labor substitutability differs across sectors is consistent with these trends. We calibrate the model exploiting additional information on the pace of structural change from manufacturing to services, on which the model also has predictions. We then conduct a decomposition to establish the relative importance of several potential drivers of changes in factor income shares and structural change that have been proposed in the literature. This exercise reveals that differences in productivity growth across sectors, combined with differences in substitution possibilities, have been the main driver of both changes in the labor income share and structural change.
Capital-labour substitution, structural change and growth
with Francisco Alvarez-Cuadrado and Ngo Van Long (both McGill University)
Theoretical Economics 12(3), September 2017. [back up] [link to journal]
There is growing interest in multisector models that combine aggregate balanced growth, consistent with the well known Kaldor facts, with systematic changes in the sectoral allocation of resources, consistent with the Kuznets facts. Although variations in the income elasticity of demand across goods play an important role in initial approaches, recent models stress the role of supply-side factors in this process of structural change, in particular sector-specific technical change and sectoral differences in factor proportions. We explore a general framework that features an additional supply-side mechanism and also encompasses these two known mechanisms. Our model shows that sectoral differences in the degree of capital-labor substitutability — a new mechanism — are a driving force for structural change. When the flexibility to combine capital and labor differs across sectors, a factor rebalancing effect is operative. It tends to make production in the more flexible sector more intensive in the input that becomes more abundant. As a result, growth rates of sectoral capital–labor ratios can differ and, if this effect dominates, shares of each factor used in a given sector can move in different directions. We identify conditions under which this occurs and analyze the dynamics of such a case. We also provide some suggestive evidence consistent with this new mechanism. A quantitative analysis suggests that this channel was an important contributor to structural change out of agriculture in the United States.
The evolution of wealth inequality over half a century: the role of taxes, transfers and technology
with Bariş Kaymak (Université de Montréal)
Journal of Monetary Economics 78, April 2016. [back up] [link to journal]
Old title: "The Macroeconomic Implications of Cuts in Top Income Tax Rates: 1960-2010"
Over the last 50 years the US tax system went through a striking transformation that reduced the effective tax rates for top income groups and raised transfers to seniors. This paper investigates the macroeconomic repercussions of this change in policy, particularly for the distributions of income, wealth and consumption. Changes in taxes and transfers account for nearly half of the rise in wealth concentration. Nonetheless, their impact on the distributions of income and consumption has been minor due to changes in equilibrium prices and the offsetting effects of tax cuts and transfers on the dispersion of consumption. Results highlight the role of increasing wage dispersion during this period as the main driver of trends in inequality.
The firm size distribution across countries and skill-biased change in entrepreneurial technology
American Economic Journal: Macroeconomics, accepted.
[back up]
Development is associated with systematic changes in the firm size distribution. I document that the mean and dispersion of firm size are larger in rich countries, and increased over time for U.S. firms. To analyze the firm size-development link, I construct a frictionless general equilibrium model of occupational choice with skill-biased change in entrepreneurial technology (i.e., technical progress favors better entrepreneurs). The model accounts for key aspects of the U.S. experience with only changes in aggregate technology. It attributes half the variation in mean and dispersion of firm size across countries to technical change. Distortions also affect the size distribution.
Understanding Severance Pay Determination: Mandates, Bargaining, and Unions The labour market, the decision to become an entrepreneur, and the firm size distribution The Decision to Become an Entrepreneur and the Firm Size Distribution: a Unifying Framework On the Optimality of Progressive Income Redistribution Experimentation by Firms, Distortions, and Aggregate Productivity Who Becomes an Entrepreneur? Labor Market Prospects and Occupational Choice "Entrepreneurs out of necessity": a snapshot Trust and the Choice Between Housing and Financial Assets: Evidence from Spanish Households Structural Change out of Agriculture: Labor Push versus Labor Pull Employment Protection, Firm Selection and Growth The regulation of entry and aggregate productivity
with Stéphane Auray and Samuel Danthine (both CREST-Ensai)
IZA Discussion Paper 8422.
[back up]
While most of the literature on employment protection has focused on government-mandated severance pay, it has recently been documented that a substantial share of severance payments derives from private contracts or collective agreements. This paper studies the determination of these payments. We analyze the problem of joint bargaining over wages and severance payments and examine the impact of unions on these choices. To do so, we use a search and matching model with risk averse workers, in which we assume that workers may be unionized and that bargaining is over wages and severance pay. Bargaining results in levels of severance pay providing full insurance, which depend on the generosity of unemployment benefits and on the job finding rate. Unions opt for higher levels of severance pay given that their higher wage demands imply reduced job creation. Calibrated to 8 European economies, the model predicts bargained levels of severance pay which are close to those found in reality.
CIREQ Working Paper 11-2012. [back up]
Why do some people become entrepreneurs, how do institutions affect this choice, and how does this affect the firm size distribution and aggregate productivity? This paper addresses this question using a matching model with occupational choice and heterogeneity in both ability as a worker and ex ante unknown productivity of firm start-ups. This rich setting allows to address effects of heterogeneity and diverse types of institutions, like labor market institutions, entry restrictions, taxes, which can possibly differ by firm size and thereby allow addressing informality. Importantly, the model allows for a comparatively flexible lower tail of the firm size distribution and can explain the existence and persistence of small, low-productivity firms with low profits: their owners have low outside options in the labor market. Key effects from a preliminary analysis are the following: labor market conditions affect incentives to start firms differently for workers and the unemployed, with repercussions on aggregate productivity; and they affect the expected value of firm creation due to the possibility of failure. Labor market frictions can have a new effect here: they shape prospective entrepreneurs’ value of failure. Given that failure of new projects is common, they can strongly affect not only entry rates, but also the type of firms that enter.
IZA Discussion Paper 7757.
[back up]
Developing and emerging economies have high entrepreneurship rates and relatively many small firms. There is enormous heterogeneity among these firms and entrepreneurs. This paper presents a simple occupational choice model that captures motives for entrepreneurship at both edges of the size distribution. The model is then used to analyse the effects of productivity growth, distortions, financial and labor market frictions, and risk. Capturing entrepreneurship across the size distribution allows for different reactions of high- and low-ability entrepreneurs to changes in policies and the environment. These may result in powerful general equilibrium effects. In particular, policies affecting high-ability entrepreneurs potentially running large firms can indirectly have a strong effect on entry by low-ability entrepreneurs and thus on the prevalence of small firms.
with Ozan Bakış (Sabanci University) and Barış Kaymak (Université de Montréal)
Review of Economic Dynamics, accepted. [back up] [link to journal]
We compute the optimal non-linear tax policy for a dynastic economy with uninsurable risk, where generations are linked by dynastic wealth accumulation and correlated incomes. Unlike earlier studies, we take full account of the welfare distribution along the transition to the new steady state following a once-and-for-all change in the tax system. Findings show that accounting for transitional dynamics leads to a more progressive optimal tax system than one would obtain by only comparing steady states. Starting at the U.S. status quo, the optimal tax reform is a slight to moderate reduction in the progressivity of the tax system, depending on how much the policy maker cares about future generations.
with Alain Gabler (Swiss National Bank)
Review of Economic Dynamics, 16(1), January 2013, 26-38. [back up] [link to journal]
Recent empirical research has documented that distortions of allocative efficiency among heterogeneous firms can have large aggregate consequences. This paper evaluates the size of these effects when distortions affect not only resource allocation but also the evolution of firm-level productivity itself. To this end, we partially endogenize the evolution of firm-level productivity in a standard heterogeneous firm model by allowing firms to engage in costly, purposeful experimentation: Firms can engage in risky experiments, which take the form of productivity shocks. Results from failed experiments can be discarded. We then show that endogenous productivity implies up to twice as large effects of productivity-dependent distortions on aggregate consumption.
August 2012 version.
Journal of Economic Dynamics and Control, 37(3), March 2013, 693-710. [back up] [link to journal]
Why do some people become entrepreneurs (and others don’t)? Why are firms so heterogeneous, and many firms so small? To start, the paper briefly documents evidence from the empirical literature that the relationship between entrepreneurship and education is U-shaped; that many entrepreneurs start a firm “out of necessity”; that most firms are small, remain so, yet persist in the market; and that returns to entrepreneurship have a much larger cross-sectional variance than returns to wage work. Popular models of firm heterogeneity cannot easily account for the U-shape or for the persistence of low-productivity firms. The paper shows that these facts can be explained in a dynamic model of occupational choice between wage work and entrepreneurship where agents are heterogeneous in their ability as workers, and starting entrepreneurs face uncertainty about their project’s productivity. Then, under weak conditions, the most and the least able individuals choose to become entrepreneurs. This sorting is due to heterogeneous outside options in the labor market. Because of their low opportunity cost, low-ability agents optimally spend more time searching for a good project. This also makes them more likely to abandon an unsatisfactory project for a new one. Data from the National Longitudinal Survey of Youth (NLSY79) give support to these two predictions. Individuals with relatively high or low ability are more likely to be entrepreneurs or to become entrepreneurs, and spend more time in entrepreneurship. Low-ability entrepreneurs are more likely to abandon a project after only a year.
Applied Economics Letters 20(7), 2013, 658-663.
[back up] [link to journal] [Apr 1020 IZA DP version]
“Entrepreneurs out of necessity” as identified by the Global Entrepreneurship Monitor (GEM) survey are a sizeable group across countries. This paper documents that they tend to have low education, run smaller firms, expect their firms to grow less, but are likely to stay in the market. This evidence matters for policy supporting small businesses. It is a challenge for existing theories of heterogeneous firms and points to the importance of heterogeneous outside options.
with Mayssun El-Attar (McGill University)
Review of Finance 15(4), October 2011, 727-756. [back up] [link to journal] [Sep 2010 version]
Trusting behavior has been shown to affect households’ portfolio choice between risky and risk-free financial assets. We extend the analysis to include the dominant component of households’ portfolios, real estate. Using data from the European Social Survey, we estimate individual-level trust by applying a hierarchical item response model. Combining these estimates with data on Spanish households’ financial decisions from the Survey of Household Finances (EFF), we show that households with less trust invest more in housing and less in financial assets, in particular risky ones. Trust thus may drive not only (limited) stock market participation, but financial development more generally.
with Francisco Alvarez-Cuadrado (McGill University)
American Economic Journal: Macroeconomics 3(3), July 2011, 127-158. [back up] [link to journal] [July 2010 vesion]
A declining agricultural employment share is a key feature of economic development. Its main drivers are: improvements in agricultural technology combined with Engel’s law release resources from agriculture (“labor push”), and improvements in industrial technology attract labor out of agriculture (“labor pull”). We present a model with both channels and evaluate the importance using data on 12 industrialized countries since the nineteenth century. Results suggest that the “pull” channel dominated until 1920 and the “push” channel dominated after 1960. The “pull” channel mattered more in countries in early stages of the structural transformation. This contrasts with modeling choices in recent literature.
Journal of Monetary Economics 56(8), November 2009, 1074-1085. [back up] [link to journal] [Sep 2009 version]
How do firing costs affect aggregate productivity growth? To address this question, a model of endogenous growth through selection and imitation is developed. It is consistent with recent evidence on firm dynamics and on the importance of reallocation for productivity growth. In the model, growth is driven by selection among heterogeneous incumbent firms and is sustained as entrants imitate the best incumbents. In this framework, firing costs not only induce misallocation of labor, but also affect growth by affecting firms’ exit decisions. Importantly, charging firing costs only to continuing firms raises growth by promoting selection. Also charging them to exiting firms is akin to an exit tax, hampers selection, and reduces growth—by 0.1 percentage points in a calibrated version of the model. With job turnover very similar in the two settings, this implies that the treatment of exiting firms matters for growth. In addition, the impact on growth rates is larger in sectors where firms face larger idiosyncratic shocks, as in services. This fits evidence that recent EU–U.S. growth rate differences are largest in these sectors and implies that firing costs can play a role here.
Economic Journal 120(549), December 2010, 1175-1200. [back up] [link to journal] [May 2009 version]
Euro Area economies have lower total factor and labour productivity than the United States. I argue that differences in entry cost contribute to this by affecting firms’ technology choice. Introducing technology choice into a standard heterogeneous- firm model, small differences in administrative entry cost can explain around one third of TFP differences. The productivity difference arises because entry costs reduce com- petition and the incentive to adopt more advanced technologies. Firm heterogeneity, technology choice, and the competition channel all contribute to strengthening results compared to previous studies. The effects of entry costs are even larger when the labour market is not competitive.