Working Papers

Best Paper Award, Royal Economics Society Junior Symposium

"Superstar effects" generate large compensation differentials among similarly talented individuals. Are superstar effects amplified by technological innovations that extend the scale over which talent is deployed? I test this idea in the market for entertainers, using the roll-out of television as a natural experiment which provides clean variation in a scale-related technological change. The launch of a local TV station increases top entertainers' incomes, resulting in a twofold increase in top-percentile income share, while reducing employment and incomes of lower-level talents. These results show clear evidence of superstar effects and are inconsistent with canonical models of skill-biased technological change.

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.

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.

forthcoming at the Economic Journal

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)