Job Market Paper

"The Great Divergence under Frictional Labor Markets"

[Working Paper][Slides]

Abstract: High wage and high rent cities have become increasingly concentrated with high-skill workers, however, little is known about the role that friction in the labor market plays in such regional divergence. I present stylized facts to show that within skill groups, unemployment rates vary widely across locations. To understand the effects frictional labor markets have on the geographic pattern of high- and low-skill workers and hence the implications for welfare inequality, this paper develops a spatial equilibrium model in a frictional labor market with workers of different skill levels who share a common housing market. The model generates an equilibrium where locations with higher wages feature lower unemployment rates. I calibrate the model to the US economy between 2005-2019 and find that labor force is inefficiently small in productive locations and the share of high-skill workers in those places is inefficiently high. The inefficiencies arises from the “foregone output ” externality and “overloading” externality. Taking the model to its frictionless limit suggests that the divergence would be overstated in a model without labor market friction.

Working Papers

"Inflation, Skill Loss During Unemployment, and TFP in the Long Run"

 (with Paul Jackson) [Working Paper] [Slides] 

Abstract: We develop a search model with frictional goods and labor markets to study the long run relationship between inflation, unemployment, and TFP when workers lose skills during unemployment. As inflation increases, fewer jobs are created, workers experience longer unemployment durations and their skills deteriorate, causing TFP to decline. Our calibrated results show that transitioning from the Friedman rule to 10% annual inflation lowers TFP by 4.3%. A stochastic version of the model demonstrates that prolonged periods of inflation, such as the 1970s in the US, can have lasting negative effects on productivity.

"Information Barriers and Housing Tenure Choice: Do Local Ties Matter?" 

(with Jae Hong Kim) [Working Paper] 

Abstract: This paper explores the extent to which ties to migration destination affect housing tenure decisions for movers in the US, in particular, long distance (LD) movers.1 Using American Community Survey from 2012 to 2019, we show that LD movers are less likely to own their next home compared to short distance (SD) movers by 5.1 percentage points. We explore how various channels of local ties affect LD movers’ housing tenure choices. We find that, among LD movers, the lack of geographic proximity reduces the likelihood to own their next home, while social connectedness can mitigate this effect substantially. This result is robust across different empirical specifications. Our analysis also shows that these local ties bear very different significance for SD movers’ housing tenure choices compared to LD movers.

 Work in Progress

"Rent and Growth Control in a Housing Search Model: Theory and Evidence" 

Abstract: I document that rent control policies and stringent land-use regulation often go hand-in-hand in Californian cities. The interaction between these two well-intended sets of policies for the rental housing market could create unintended negative outcomes in the rental market. This project develops a model of the rental housing market with search friction, productivity growth, rent control shocks, and land-use regulation to study how the interaction between rent control and land use regulation shapes rental market outcomes for developers, landlords and tenants. Incorporating both types of policies, my model suggests that the welfare implications for rent control largely depend on the stringency of land-use regulation. In the absence of stringent land use regulation, the supply of new housing is elastic and rent control deters developers from entering the market, therefore tenants who are not in rent controlled units face a high rental price and low welfare. However, if land use regulation is draconian and therefore it is very costly for developers to enter the rental market to begin with, then rent control would barely suppress housing supply and developer entry, while still benefiting renters who are in those units.