Abstracts

“The Anatomy of Sorting – Evidence from Danish Data” with Suphanit Piyapromdee and Jean-Marc Robin. 

In this paper, we formulate and estimate a flexible model of job mobility and wages with two-sided heterogeneity. The analysis extends the finite mixture approach of Bonhomme et al. (2019) and Abowd et al. (2019) to develop a new Classification Expectation-Maximization algorithm that ensures both worker and firm latent type identification using wage and mobility variations in the data. Workers receive job offers in worker type segmented labor markets. Offers are accepted ac- cording to a logit form that compares the value of the current job with that of the new job. In combination with flexibly estimated layoff and job finding rates, the analysis quantifies the four different sources of sorting: job preferences, segmentation, layoffs, and job finding. Job preferences are identified through job-to-job moves in a revealed preference argument. They are in the model structurally independent of the identified job wages, possibly as a reflection of the presence of amenities. We find evidence of a strong pecuniary motive in job preferences. While, the correlation between preferences and current job wages is positive, the net present value of the future earnings stream given the current job correlates much more strongly with preferences for it. This is more so for short- than long-tenure workers. In the analysis, we distinguish between type sorting and wage sorting. Type sorting is quantified by means of the mutual information index. Wage sorting is captured through correlation between identified wage types. While layoffs are less important than the other channels, we find all channels to contribute substantially to sorting. As workers age, job arrival processes are the key determinant of wage sorting, whereas the role of job preferences dictate type sorting. Over the life cycle, job preferences intensify, type sorting increases and pecuniary considerations wane.

“In Search of the True Greenium”

The greenium (the expected return of green securities relative to brown) is a central impact measure for ESG investors. Replicating the literature’s wide range of equity greenium estimates based on realized returns, we find that these are not robust to changing the greenness measure or time period. Instead, we propose a robust green score combined with forward-looking expected returns, yielding a more precisely estimated annual equity greenium of −25 basis points per standard deviation increase in greenness. The greenium is more negative in greener countries and over time. Finally, we provide greeniums for corporate bonds, weighted-average costs of capital, and sovereign bonds.

“Capacity Buffers: Explaining the Retreat and Return of the Phillips Curve”

Why did the Phillips curve gradually flatten since the 1960s, and what explained its sudden steepness in the goods sector during the COVID-19 pandemic? Firms face capacity constraints in production and hold excess capital to buffer against fluctuations in demand. The capacity buffer’s size influences both the pass-through of demand fluctuations into sales and the sensitivity of a firm’s pricing decisions to any realized changes in demand. Over the same time period as the flattening of the Phillips curve, firms’ variable cost shares declined, capacity buffers rose, and idiosyncratic volatility of sales rose. This paper argues that the reduction in firms’ variable cost shares induced firms to hold larger capacity buffers, which in turn increased the volatility of firm sales and flattened the Phillips Curve. The recent steepness of the Phillips curve in the goods sector arose from a collapse in the size of firms’ effective capacity buffers, which was the result of the health precautions that increased the demand for goods and restricted production capacity.

“Get up, Stand Up: Labor Unions and Wages in Brazil”

This paper estimates the union wage premium (UWP), also previously known as the “union relative wage effect,” for the case of Brazil, where evidence on the union wage premium remains scarce. In contrast to previous studies, we examine data for several decades jointly, so that we are able to examine the UWP for the entire period 2003-2015. We also incorporate the novel institutional aspects of the wage bargaining in Brazil explicitly in the estimations. The empirical strategy compares the (benchmark) OLS UWP with the results using quantile regressions, a more flexible estimator—where the latter allows for the UWP to differ across the conditional wage distribution. This is potentially particularly important for the application here, as a priori unions can be expected to be bargaining especially on behalf of the lower part of the wage  distribution. We find that the average UWP in the formal Brazilian labor market is substantial—-and relatively constant—at about 10-13 percent over the entire period 2003-2015, although exhibiting a slightly negative trend over time. This average UWP turns out to differ across the conditional wage distribution, however, in a way that is consistent with labor unions shifting their focus over this period from the workers at the lower end of the wage distribution to the workers at the higher end of the wage distribution. That is, these results are at odds with what one might otherwise plausibly expect it is that “unions do.”

“How Global is Predictability? The Power of Financial Transfer Learning”

We show that asset pricing has a strong global component in the sense that a common global model has stronger predictability of stock returns than local models estimated in each country—even when the global model is estimated without the use of local data. While locally estimated models add no value to a global model, asset pricing, nevertheless, has a small local component. To detect the local component, we develop a refined transfer learning model that gains power and precision by building off the global component, denoted the “generalized elastic net” (GENet). We estimate that the predictive parameters are 94% global.

“Electricity Prices and the Green Transition”

I propose a structural model of European electricity prices to define and identify causal policy effects of the green transition. The model is based on two properties of the price mechanism: Zonal prices are defined by the intersection of aggregate supply and demand curves, and trade flows across zones are determined by maximizing social welfare in spatial equilibrium. I validate the model empirically. The green transition is represented by three types of policy variables: Generation capacities cause a merit-order effect, consumption scaling causes an electrification effect, and interconnector capacities cause a coupling effect. Causal policy effects depend on the relative size and timing of these three effects which can be point identified given observable data and estimated with methods from functional data analysis. I report a policy simulation to quantify causal policy effects on price averages and variability in a hypothetical market with three zones of different sizes.

Assortative Matching in Job Search: Applicant pool size and quality

This project studies assortative matching between workers and firms at the vacancy-application stage. Using vacancy-specific applicant pools generated from data on applications sent by Danish UI recipients, I assess the dispersion in applicant pool size and quality across firms. I then investigate how much of the dispersion is due to firm heterogeneity and the degree to which assortative matching already happens at the application stage.

“The Incidence and Efficiency of Land Value Taxation”

We study the incidence and efficiency of land value taxation. Since land is fixed in supply, standard tax incidence models suggest that a land value tax is (1) non-distortionary, (2) fully capitalized into land prices, and (3) that the entire tax burden falls on incumbent landowners. We evaluate these predictions using persistent, quasi-experimental tax changes across Danish municipalities. We find a large and permanent price response, consistent with full capitalization and the tax burden falling entirely on landowners. We further show that a tax increase causes landowners to increase their labor supply and decrease land development. We provide a neoclassical model with land and buildings that can explain our findings through wealth effects. Land value taxation is non-distortionary in the model (there are no substitution effects). Nevertheless, if the tax is not fully compensated, landowners experience a windfall wealth loss when the tax is announced. As a result, they demand fewer buildings, and they work more due to wealth effects on labor supply.