COMPETITION, TASKS AND EARNINGS INEQUALITY
Since 2000 developed countries like the US have seen a polarization of earnings. This paper explores a novel mechanism that can explain these recent trends in earnings inequality. I build a tractable general equilibrium model which differentiates three different types of tasks: manual, routine and cognitive. Workers are heterogeneous in skill and self select into the type of task they perform. Those doing cognitive tasks perform a managerial job and are susceptible to a superstar phenomenon. I use this model to look at the effects on labour composition and the earnings structure of an increase in competition between varieties, brought by participating in a more globalized economy. I find that this increases top income inequality due to a superstar effect. At the same time, there is a trickle down effect, increasing the number of manual jobs and reducing those of cognitive tasks, which then produces a polarization of earnings.
I am a macroeconomist working in international trade and labour markets
I have taught International Trade at SAIS John Hopkins, in Bologna
I am from Spain, but have lived most of my live outside of it. I consider the UK, where I moved at the age of ten, my second home
I am a PhD Candidate in Economics at the European University Institute (EUI)
My main research interests are international trade and macroeconomics
I am also interested in labour economics and computational economics
My current research focuses on the effects of trade on earnings inequality and types of jobs
My Job Market Paper is: Competition, Tasks and Earnings Inequality
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by Pablo Forero
by Nicolas Aragon and Pablo Forero
This paper develops a simple model of heterogeneous firms and households. Households finance firm's working capital, and firms are credit constrained and differ in their debt levels. When there is an aggregate shock, less productive firms go bankrupt. This directly decreases the demand for labor and the wage receipts for households and indirectly decreases income from the defaulted loans to firms. The main result of the paper is that there is an optimal haircut for deposits such that both firms and families are better off. Moreover, there is a tension between maximizing welfare and maximizing output. This provides a rationale for the Cyprus, Greek and Argentinean experience. We extend the model to an open economy and show an equivalence result. The model is also extended to infinite horizon to perform a quantitative exercise for the Argentinean devaluation episode of 2001.
SENIORITY BEFORE HOMOGENEITY
by Pablo Forero
In most labour markets the cost of firing a worker increases with the years of seniority the worker has in the firm. But the heterogeneity of workers in this dimension is often ignored by the literature. But many labour markets, especially dual labour markets, seem to have large and discontinuous jumps in the firing costs with seniority. This can lead to changes in the hiring and firing behavior of firms as they fire workers before the large increase of firing costs, which then affects the seniority structure of the labour market. This paper studies the effects of non-continuous changes in firing costs with respect to seniority and its effects on the labour market. For this I create a partial equilibrium dynamic problem for a firm who can fire its current workers or hire new ones with seniority zero. Each period staying workers increase their seniority by one. I show that small non-continuous changes for firing costs in the seniority dimension can have large effects on the probabilities of being fired before the increase. This creates a labour market similar to dual labour markets. But the overall effects on employment can also be positive for the labour market.