Job Market Paper

Labor reallocation during booms: The role of duration uncertainty

Temporary booms affect sectors as varied as commodities, construction, and tech. I study how uncertainty about the boom's duration shapes labor mobility across sectors. I build a model of sector-specific human capital accumulation and show that workers in booming sectors can exhibit risk-loving attitudes towards duration. Unlike in settings where uncertainty necessarily increases the value of waiting, human capital accumulation acts as a force in the opposite direction and leads to ambiguous effects of uncertainty on the margin. Then, I turn to an empirical investigation of the effects of duration uncertainty during the boom in mineral prices of 2011-2018, driven by a construction boom in China. I estimate the model using financial data and novel administrative micro-data from Australia, an exporter of mineral products to China. I use the quantified model to study a counterfactual perfect foresight economy in which the mining boom was temporary and duration known. I find that the share of employment in mining in Australia would have increased from 3.7% to 4.4%, and the relative wage in the sector would have been substantially lower, indicating that duration uncertainty deterred labor supply and contributed to the rise in wage inequality during this boom.

Publications

Macroprudential policy for internal financial dollarization (with Aleksei Oskolkov).

 Journal of International Economics, 2023, Volume 143.

We study macroprudential policy aimed at domestic debt denominated in different currencies. We model a small open economy with entrepreneurs and workers who save and borrow in domestic and foreign currency. Financial frictions make dollar debt on entrepreneurs' balance sheets especially disruptive when the exchange rate depreciates. Falling output causes additional depreciation; this amplification provides a rationale for de-dollarization. On the other hand, de-dollarization is costly because the dollar savings of domestic workers provide them with insurance. We characterize the social marginal benefits and costs of de-dollarization in this context. The social marginal costs are associated with a deterioration in risk-sharing and can be expressed in terms of the interest rate premium on domestic currency assets. We find that these costs are of second order around the unregulated equilibrium but play a role for optimal policy.

Work in progress

Teaching