Job Market Paper
Best Paper Award, Royal Economics Society Junior Symposium
This paper uses a natural experiment to test the superstar explanation for top income growth. A lack of data has made testing the superstar theory difficult. I use newly collected data from the entertainment sector to test whether expansion in market reach of workers leads to superstar effects. The roll-out of television resulted in a sharp rise in market reach of entertainers and a natural experiment in local filming identifies the effects on local entertainer labor markets. In line with the superstar theory, I find that top incomes grow substantially, the income share of the top 1% of earners doubles. The superstar effect predicts further changes in the labor market that distinguish the model from conventional models of labor demand. Taking those predictions to the data, I find that pay differences among top earners grow, mid paying jobs disappear and overall employment falls, at odds with conventional theories of labor demand. Moreover, I find that the top income growth is driven by intensifying competition for talent, while a lack of competition mutes the effects. I use an IV strategy to estimate the key elasticity of the superstar model and find that a doubling in market reach causes 17% wage growth at the top percentile.
- 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 emphasize 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)
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.