Research
Working Papers
Changing Jobs to Fight Inflation: Labor Market Reactions to Inflationary Shocks
with Görkem Bostancı , Sergio Villalvazo
In this paper, we investigate how the employed respond to inflationary shocks. Using structural monetary policy and oil shocks, and survey data on search effort, we show that a 1 p.p. increase in inflation causes a 3%-4% increase in J2J transition rates, and a one std increase in inflation expectations is associated with 4% higher likelihood of search and 16% more offers in the next month among searchers. To understand the aggregate implications, we build a model with competitive on-the-job search in which wages react sluggishly to inflation. When inflation is higher than expected, the decline in real wages incentivizes employees to search for jobs more actively and be less selective in their search behavior. Increased search effort leads to more job-to-job transitions while being less selective reduces the expected efficiency gain in each transition. Therefore, the effect on output becomes ambiguous. Last, we calibrate the model to the U.S. economy and show that the output response to an inflationary shock is non-monotonic. A 2% inflationary shock brings a short-run output increase, while a 10% inflationary shock leads to a short-run output decline.
Automation and Top Income Inequality
R&R at the Journal of Economic Theory
This paper develops a theory connecting automation technology to the Pareto parameter of income distribution, which influences top income inequality. Using a task-based production model with convex labor adjustment costs, we demonstrate how automation enables entrepreneurs to mitigate diseconomies of scale by substituting labor with capital. This mechanism amplifies income inequality among top earners as firms with higher automation intensity expand their market dominance. Empirical analyses across industries and countries support the model’s predictions, revealing that increases in capital intensity and automation correlate with a thicker income distribution tail. Our findings also suggest broader impacts of automation-driven inequality on CEO compensation and firm size, with significant economic and social implications.
Automation and Top Wealth Inequality
Submitted
This paper studies the impact of automation on wealth concentration in the United States using a dynamic model with a task-based framework and collateral-constrained entrepreneurs. Automation is shown to increase wealth inequality by boosting income concentration and widening capital return dispersion. The calibrated model explains about one-third of the observed rise in the top 1% wealth share. Welfare analysis shows automation raised worker welfare by 5% and entrepreneur welfare by 8%, underscoring its role in expanding wealth inequality through increased capital and entrepreneurial returns.
Technology Adoption by Firms and Distribution of Factor Income
This paper examines how a decrease in capital costs affects factor income distribution through its varied impact across firms. Using a directed search model with convex vacancy posting costs, I explore how firms manage vacancy expenses by either raising wages to improve hiring rates or increasing automation to reduce labor needs. The model shows that more productive firms tend to automate more, and as capital prices fall, automation rises, leading to a lower labor share, a higher wage premium for non-routine workers, and increased residual wage dispersion. Quantitatively, the model suggests that the aggregate decrease in labor share is balanced by an increase in capital share, resulting in a net seven percentage point decline. Additionally, unemployment risk creates inefficiencies, which can be mitigated through progressive taxation and capital subsidies, enhancing the welfare of the new generation.
Work in Progress
Optimal City Level Progressive Taxation