The Cyclicality of Earnings Growth Along the Distribution - Causes and Consequences

Earnings growth is more procyclical at the bottom of the income distribution than at the top. Using high-quality administrative data from Germany, I show that the heterogeneity is chiefly driven by transitions between employment and non-employment, specifically job-finding. I build a heterogeneous agent business cycle model that can rationalize these empirical findings. Agents in the model endogenously choose where to search for work in a labor market that features directed search. The model reproduces the heterogeneous procyclicality of earnings growth, as well as the contribution of job-finding, along the income distribution. I use this model to evaluate two policies aimed at reducing business cycle risk: countercyclical hiring subsidies and Universal Basic Income (UBI). The first policy proposal increases welfare relative to the baseline economy. Implementing UBI decreases the volatility of aggregate consumption but decreases welfare overall.

Monetary Policy and Liquidity Constraints: Evidence from the Euro Area

We quantify the relationship between the response of output to monetary policy shocks and the share of liquidity constrained households. We do so in the context of the euro area using a Local Projections Instrumental Variables estimation. We construct an instrument for changes in interest rates from changes in overnight indexed swap rates in a narrow time window around ECB announcements. Monetary policy shocks have heterogeneous effects on output across countries. Using micro data, we show that the elasticity of output to monetary policy is larger in countries that have a larger fraction of households that are liquidity constrained.

The Curious Incidence of Monetary Policy Across the Income Distribution

We use high-frequency administrative data from Germany to study the effects of monetary policy on incomes and employment prospects across the earnings distribution. Earnings growth at the bottom of the distribution is substantially more elastic to policy shocks. The unequal incidence is driven by differences in employment risk across the distribution - lower-earning households experience higher employment risk in response to contractionary shocks. Our empirical estimates imply significant amplification of the aggregate consumption response to shocks to future consumption and interest rates.

It Runs in the Family: Occupational Choice and the Allocation of Talent

Children frequently grow up to work in the same jobs as their parents. Using unique data on worker skills and personality traits, and administrative data on the labor market outcomes of Swedish men, we study occupational choice and its impact on the allocation of talent. We document that sons are disproportionately more likely to follow into the same occupation as their fathers, across all levels of skills and earnings. We estimate a general equilibrium Roy model with costly occupational choice and heterogeneous entry barriers depending on parental background. We find that these entry barriers lead to substantial misallocation. Equalizing entry costs across workers leads occupational following to fall by half. However, this reallocation of workers increases intergenerational mobility and aggregate income only modestly, because sons move to occupations that are similar to those of their fathers in income and skill requirements. Our findings are consistent with intergenerational persistence in occupations and incomes reflecting transmission of skills and sorting on comparative advantage.