Technical change that improves economies of scale can generate fast income growth among top earners at the expense of everyone else. I test this classic Rosen "superstar model" in the labor market for entertainers where the historic roll-out of television led to a natural experiment in scale-related technological change. The launch of a local TV station multiplied audiences of top entertainers nearly fourfold and resulted in a 50% increase of the top percentile’s income share, a more right skewed income distribution and significant income losses for lower-ranked entertainers. The results confirm the predictions of the "superstar model" and are at odds with canonical models of skill-biased technological change.
- Reservation Wages and the Wage Flexibility Puzzle (joint with Alan Manning and Barbara Petrongolo)
Wages are only mildly cyclical, implying that shocks to labour demand have a large short-run impact on unemployment, at odds with the quantitative predictions of the canonical search model. We emphasise the role of reservation wages in wage cyclicality and argue that reference-dependence in reservation wages can reconcile model predictions and empirical evidence on the cyclicality of both wages and reservation wages. We provide evidence that reservation wages significantly respond to backward-looking reference points, as proxied by rents earned in previous jobs. We also argue that other proposed solutions to the unemployment volatility and wage flexibility puzzle that hinge on alterations to the wage setting mechanism only work for parameter values outside the range typically estimated.
- Labor Supply and Innovation in Entertainment: Evidence from TV (joint with George Fenton)
We test the effect of innovation in entertainment on labor supply. To identify the effect, we track TV signal during the introduction in the US and exploit variation from a regulated roll-out and terrain interference. Social security records show that the introduction of TV significantly reduced labor supply. The effects are largest for older workers. This confirms descriptive evidence that better leisure activities contributed to changes in retirement habits over the twentieth century. GDP relevant spending on free-to-use services like TV is notoriously low and likely understates the value added of such technology. We apply our estimates to quantify forgone earnings due to TV and find that the value of such time-investment is at least as large as the monetary expenditure on TV.
- Can Helping the Sick Hurt the Able? Incentives, Information and Disruption in a Welfare Reform (joint with Nitika Bagaria, Barbara Petrongolo, John van Reenen)
Featured in OUP blog
The UK Jobcentre Plus reform sharpened bureaucratic incentives to help disability benefit recipients (relative to unemployment insurance recipients) into jobs. In the long-run, the policy raised disability exits by 10% and left unemployment outflows roughly unchanged, consistent with beneficial reorganisation effects for both groups, while bureaucrats shifted job-brokering efforts from the unemployed to disability benefit recipients. We account for about 30% of the decline in the disability rolls from 2003-2008. In the short-run, we detect a reduction in unemployment exits and no effect on disability exits, suggesting important disruption effects, and highlighting the difficulty of welfare reform for myopic policymakers.
Work in Progress
- Importing Inequality: Globalisation and Top Income Growth (joint with Arun Advani, Lorenzo Pessina, Andrew Summers)