Abstract: How quickly producers can adjust their workforce with changing demand is important for aggregate productivity. Labor outsourcing allows quick adjustments but potentially exposes sensitive information to outsiders, which may deter producers from outsourcing if the legal system does not adequately protect secret information. I quantify the impact of trade secret protection on labor outsourcing, and consequently, on aggregate productivity. First, using event studies and differences-in-differences around the staggered adoption of the Uniform Trade Secrets Act, I show that better trade secret protection leads to increased outsourcing. Second, to quantify the resulting gains in productivity, I build a structural model of outsourcing and multi-industry dynamics and estimate it with data from the U.S. manufacturing sector. I decompose the cross-state differences in labor outsourcing into differences in firing cost, industry composition, demand volatility, and trade secret protection. Strengthening trade secret protection for all states to match the state with the strictest protection would increase the outsourcing employment by 29% and aggregate output by 0.8%.
An earlier version was presented at: St. Louis Fed (2020), EEA-ESEM (2019), Annual Meeting of the Society for Economic Dynamics (2019), GCER Alumni Conference (2019), Midwest Macroeconomics Meetings, (2019), 3rd GW Student Research Conference in Economics (2019), XII. Winter Workshop (2018), Young Economists Symposium (2018), and Mack Institute Fast Takes (2018, 2019) under the title “Intellectual Property Rights, Professional Business Services and Earnings Inequality”.
Abstract: Recessions are characterized by slow input reallocation and increased measures of misallocation. A usual suspect is declining information quality about new investment opportunities. We study the role of information frictions by measuring how the informativeness of the stock prices changes with business cycles. We first build a stock market model in which both the information content and the noise in prices respond to changes in economic activity, affecting how well those prices reflect firm's performance. Then we incorporate this module in a dynamic model with heterogeneous firms to characterize how stock price informativeness and capital misallocation interact with one another. An increase in liquidity concerns of traders can simultaneously boost information production, decrease stock price informativeness, and increase capital misallocation in the economy.
Presented at: 14th Macro Finance Society Workshop (2019-Poster Session), MFM Summer Session for Young Scholars (2018-Poster Session)
Abstract: Recent empirical work shows a strong positive correlation between job-to-job transition rates and nominal wage growth in the U.S. First, using time series regressions, structural monetary policy shocks, and survey data on search effort we provide evidence that inflationary shocks cause higher job-to-job transitions in the subsequent years. Second, to understand the aggregate implications, we build a structural model with aggregate shocks and competitive on-the-job search in which wages react sluggishly to inflation. In periods with high inflation, the decline in real wages incentivizes the employees to search on-the-job more actively, to negotiate a new contract, but also to be less selective in their search behavior. This creates a fundamental trade-off: increased search effort leads to more job-to-job transitions while being less selective reduces the expected efficiency gain in each transition. Therefore, the effect on output becomes ambiguous. Third, we calibrate the model to the U.S. economy and confirm that the output response to inflation shock is non-monotonic. Importantly, our paper highlights a novel role for inflation: the monetary authority can stimulate productivity with an inflationary shock through job-to-job transitions.
Presented at: Macro Lunch Talk at UPenn (2018, 2019)
“Products and Politics: Comparative Advertising and Competitive Positioning” (with Jerath, K. and Yildirim, P.) Submitted
Abstract: Comparative advertising promotes a product through a comparison with competitors' products, often highlighting the weaknesses of the latter. We study comparative advertising with a focus on how it impacts product positioning for profit maximizing firms. We find that factors such as the negative spillover of comparative advertising and heterogeneity in consumer tastes are important determinants of how firms position themselves in the market and whether they engage in comparative advertising. In certain settings, the threat of comparative advertising can result in lower positional differentiation along with positive advertising. We derive welfare implications of comparative advertising; for instance, allowing comparative advertising, as the FTC does, may lead to lower innovation by firms and lower consumer welfare, without comparative advertising being actually used in equilibrium. We also study the context of political competition, where a candidate's objective is winning by plurality. We find that, due to this difference in objective (compared to profit-maximizing firms), the equilibrium outcome supports high positional differentiation along with comparative advertising. This can help to explain the often observed polarization in political campaigns.