Taxes and international risk sharing

We extend a standard model of international risk sharing to include an empirically plausible distortion: Taxes. The tax-inclusive theory implies, even under full risk sharing, a predictable relationship between consumption growth and the consumption and capital income tax rates, both within and across countries. We find strong empirical evidence in favor of this relationship. While idiosyncratic output fluctuations account for substantially more of cross-country consumption growth variability than do taxes, trends in tax differentials are found to be informative about the dynamic evolution of international risk sharing. In particular, adjusting for capital taxes reveals a marked improvement in risk sharing over the last three decades that is absent in baseline measures. This improvement has been driven by the convergence of average tax rates on capital income across OECD countries toward the United States average capital tax rate

Labor Force Participation Dynamics

It is well known that the U.S. labor force participation rate (LFP) is procyclical. I highlight that, in contrast, LFP is negatively correlated with labor productivity even though GDP and productivity are positively correlated. I show that these opposite correlations are explained by the differential dynamic adjustment of LFP given exoge- nous shocks to, alternatively, GDP and productivity. My analysis is guided by the theoretical underpinnings of the benchmark model of equilibrium unemployment. This guidance is important, as it helps reveal that the cyclical behavior of job vacancies explains a considerable fraction of the cyclical behavior of LFP

Labor Force Participation Dynamics

It is well known that the U.S. labor force participation rate (LFP) is procyclical. I highlight that, in contrast, LFP is negatively correlated with labor productivity even though GDP and productivity are positively correlated. I show that these opposite correlations are explained by the differential dynamic adjustment of LFP given exoge- nous shocks to, alternatively, GDP and productivity. My analysis is guided by the theoretical underpinnings of the benchmark model of equilibrium unemployment. This guidance is important, as it helps reveal that the cyclical behavior of job vacancies explains a considerable fraction of the cyclical behavior of LFP

Trends in aggregate employment, hours worked per worker, and the long-run labor wedge

Hours worked are fundamentally important for aggregate economic activity, yet canonical macroeconomic models fail dramatically at tracking its long-run trends. We develop an intuitive and tractable extension of the canonical model that decomposes trend hours into extensive and intensive margins via household-side employment-attainment costs and firm-side employment adjustment costs. Its predictions track very well the trend behavior of hours, and its two underlying margins, in the United States and a host of OECD countries. Our framework is relevant for analyzing the long run labor-market effects of a number of factors such as productivity growth, and tax or labor-market reforms

Trends in aggregate employment, hours worked per worker, and the long-run labor wedge

Hours worked are fundamentally important for aggregate economic activity, yet canonical macroeconomic models fail dramatically at tracking its long-run trends. We develop an intuitive and tractable extension of the canonical model that decomposes trend hours into extensive and intensive margins via household-side employment-attainment costs and firm-side employment adjustment costs. Its predictions track very well the trend behavior of hours, and its two underlying margins, in the United States and a host of OECD countries. Our framework is relevant for analyzing the long run labor-market effects of a number of factors such as productivity growth, and tax or labor-market reforms

Offshoring, Mismatch, and Labor Market Outcomes

We study the role of labor market mismatch in the adjustment to a trade liberalization that results in the offshoring of high-tech production. Our model features two-sided heterogeneity in the labor market: high- and low-skilled workers are matched in a frictional labor market with high- and low-tech frms. Mismatch employment occurs when high-skilled workers choose to accept a less desirable job in the low-tech industry. The main result is that this type of job displacement is actually benefcial for the labor market in the country doing the o¤shoring. The reason is that mismatch allows this economy to reallocate domestic high-skilled labor across both high- and low-tech industries. In doing so, this reallocation dampens both the increase in the aggregate unemployment rate and the decline in aggregate wages that come as a consequence of shifting domestic production abroad. From a policy perspective, this result is perhaps counter-intuitive because it suggests that some degree of job dislocation is actually desirable as it helps facilitate adjustment in the labor market following a trade liberalization

Financial Development, Unemployment Volatility, and Sectoral Dynamics

We document a negative and significant relationship between domestic financial de- velopment and unemployment volatility in developing and emerging economies (DEMEs). However, there is no significant relationship between these variables in advanced economies (AEs). A labor-search model with production heterogeneity, sectoral financial frictions, and interfirm input credit can rationalize these differential cross-country results. Un- employment volatility is decreasing in financial development, but the quantitative relevance of this relationship is increasing in the extent to which input credit is prevalent in an economy. This insight is consistent with the fact that, empirically, input credit is much more prominent in DEMEs compared to AEs

Banking and Financial Participation Reforms, Labor Markets, and Financial Shocks

The degree of bank competition as well as firms’ and households’ participation in the domestic banking system differ considerably in emerging economies (EMEs) relative to advanced economies (AEs). We build a small-open-economy model with endogenous firm entry, monopolistic banks, household and firm heterogeneity in par- ticipation in the banking system, and labor search to analyze the labor market and aggregate consequences of financial participation and banking reforms in EMEs. We find that there is a pre-reform threshold of firm participation in the banking system below which reform implementation leads to sharper unemployment and aggregate fluctuations amid foreign interest rate and aggregate productivity shocks. Our find- ings suggest that comprehensive banking reforms that foster household participation and bank competition in tandem can reduce labor market and aggregate volatility, but only under a high-enough pre-reform level of firm participation in the banking system and a non-negligible increase in bank competition

Discordant Population Structure Among Rhizobium Divided Genomes and Their Legume Hosts

Symbiosis often occurs between partners with distinct life history characteristics and dispersal mechanisms. Many bacterial symbionts have genomes comprising multiple replicons with distinct rates of evolution and horizontal transmission. Such differences might drive differences in population structure between hosts and symbionts and among the elements of the divided genomes of bacterial symbionts. These differences might, in turn, shape the evolution of symbiotic interactions and bacterial evolution. Here we use whole genome resequencing of a hierarchically structured sample of 191 strains of Sinorhizobium meliloti collected from 21 locations in southern Europe to characterize population structures of this bacterial symbiont, which forms a root nodule symbiosis with the host plant Medicago truncatula. S. meliloti genomes showed high local (within-site) variation and little isolation by distance. This was particularly true for the two symbiosis elements, pSymA and pSymB, which have population structures that are similar to each other, but distinct from both the bacterial chromosome and the host plant. Given limited recombination on the chromosome, compared to the symbiosis elements, distinct population structures may result from differences in effective gene flow. Alternatively, positive or purifying selection, with little recombination, may explain distinct geographical patterns at the chromosome. Discordant population structure between hosts and symbionts indicates that geographically and genetically distinct host populations in different parts of the range might interact with genetically similar symbionts, potentially minimizing local specialization

Global Financial Risk, Domestic Financial Access, and Unemployment Dynamics

We empirically show that after an increase in global financial risk, the response of unemployment is markedly more subdued in emerging economies (EMEs) relative to small open advanced economies (SOAEs), while the differential response of GDP and investment across the two country groups is noticeably smaller, if at all, in EMEs. A model with banking frictions, frictional unemployment, and household and firm heterogeneity in financial inclusion can help rationalize these facts. Limited financial inclusion among households is central to explaining the differ- ential response of unemployment in EMEs amid global financial risk shocks