Abstract: For nearly four decades in the post-War United States, average labour productivity and total factor productivity remained procyclical — falling during recessions and rising in booms. During the mid-1980s this procyclicality of productivity suddenly started to vanish. I argue that increased labour market flexibility, as manifest in rapid de-unionization, can explain this puzzle. I show that U.S. states and industries with a larger drop in union density experienced a deeper fall in the productivity correlations. Falling costs of hiring and firing workers, due to the decline in union power, prompted firms to rely more on employment adjustment (extensive margin) instead of changing workers’ effort through labour hoarding (intensive margin). High dependence on labour hoarding explains productivity’s historical procyclicality, and reduced importance of labour hoarding in recent decades explains why productivity is now less procyclical. Changes in the responses of the aggregate U.S. economy to technology and demand shocks also bear out this mechanism. Greater reliance on hiring and firing of workers also implied a rise in the relative volatility of employment. Allowing the hiring cost to decline between pre and post-1980s in an otherwise standard New Keynesian model with endogenous effort is shown to match almost all the fall in cyclical productivity correlations and more than half of the rise in the relative volatility of employment.
Presentations: Delhi School of Economics Winter School, The Econometric Society (New Delhi, 2019); Bank of Canada Graduate Student Paper Award Workshop (Ottawa, 2019); Western Economic Association Annual Conference (San Francisco, 2019); CIREQ PhD Students’ Symposium (Montreal, 2019)
Abstract: We characterize the joint evolution of cross-sectional inequality in permanent income and consumption among parents and children in the U.S. We use a model of intra-family persistence across generations to estimate the parameters determining inequality of consumption and of income within a generation. We find that idiosyncratic heterogeneity is quantitatively more important than inherited family characteristics in accounting for cross-sectional dispersion. This suggests that parents provide limited insurance against idiosyncratic life-cycle risk, even though the levels of permanent income and consumption exhibit persistence across generations.
Award: Best 2nd Year PhD Research Paper (2016) at the Vancouver School of Economics for a single-authored earlier version
Presentations: (* indicates co-author presentation) *Barcelona Graduate School of Economics Summer Forum Workshop on ‘Income Dynamics and the Family’ (Barcelona, 2019); Bank of Canada session at Canadian Economic Association Conference (Banff, 2019); International Conference on Household Finance, Deutsche Bundesbank (Eltville, 2018); *NBER Summer Institute (Boston, 2017); *SED Annual Meeting (Edinburgh, 2017)
WORK IN PROGRESS
- The Missing Great Moderation for Hours
Abstract: Around the mid-1980s, the U.S. economy experienced the Great Moderation – a sharp decline in the cyclical volatility of key macroeconomic variables. While total hours worked also experienced this fall in volatility for conventional business cycle frequencies (between 6 and 32 quarters), I show that the volatility of hours increased sharply for low frequencies (between 32 and 60 quarters) from the mid-1960s till the mid-1990s. This paper argues that rising female labour force participation can account for much of this missing Great Moderation for hours. Increase in the proportion of households with secondary earners increases family labour supply elasticity that in turn leads to the rising volatility of hours.
- Inclusive Growth: Economics as if People Mattered, Global Business Review, 2018 (with Debasmita Das)
Abstract: This article provides a holistic working definition of inclusive growth. We measure inclusive growth through a newly proposed index, named as the Inclusive Growth Index (IGI), based on 24 developmental indicator variables (categorized into expansion, sustainability, equity in access, and efficiency of economic activities and institutions) as its components. We have employed two kinds of weighting schemes in constructing the index: an ad hoc weighting scheme and a weighting scheme based on principal component analysis (PCA), performed differently on variables under each dimension. This index helps one to rank countries or regions according to their respective inclusive growth achievements and to potentially track the time trend of a particular country. In our study, we have calculated IGI for 16 Asian countries and compared the IGI scores across the nations.