Marianna’s Research:

 

 

The Cyclicality of the User Cost of Labor with Search and Matching

(This version: November 2007)

 

Abstract: I investigate the cyclicality of the cost incentives for job creation in search and matching models distinguishing the user cost of labor from the wage payment. The user cost of labor includes the wage at the time of hiring as well as the expected effect of the economic conditions at the time of hiring on future wages. If wages are smoothed by implicit contracts, then a weak cyclicality of wages can conceal a substantial cyclicality of the user cost of labor incurred by firms. I calculate the cyclicality of the user cost and its components under alternative wage setting mechanisms. I find that in the presence of implicit contracts the wage component of the user cost is more cyclical than the wages of newly hired workers, which in turn are more cyclical than the wages of all workers. The cyclicality of the user cost across economies is approximately the same across settings; however, individual wage cyclicality varies significantly depending on the wage setting mechanism. Recent papers stress rigid wages as an amplification mechanism for the fluctuations in the vacancy-unemployment ratio (Shimer 2005, Hall 2005). This mechanism works by reducing cyclicality of labor’s user cost. As found in Kudlyak (2007), the wage component of the user cost is noticeably more procyclical than the individual wages. When the models are calibrated to match the empirical cyclicality of the wage component of the user cost, the models generate approximately half of the empirical volatility of the vacancy-unemployment ratio regardless of the wage setting mechanism.

 

(pdf)

 

The Cyclical Price of Labor When Wages Are Smoothed

(Current version: February 2009)

 

Abstract: I conduct an empirical investigation of the cyclicality of the price of labor. Firms employ workers up to the point where worker’s marginal revenue product equals the price of labor. If the labor market is a spot market, then the price of labor is the wage. But often workers are contracted for more than one period. The price of labor captures both the wage at the time of hiring and the impact of labor market conditions at the time of hiring on future wages. The price of labor and not wage is allocational for employment. Because it is not directly observed in the data, I construct the price of labor based on the behavior of individual wages and turnover. I find that smoothed wages within the employment relationship and a wedge between the cyclicality of wages of newly hired workers and job stayers generate substantial procyclicality of the price of labor. In particular, a one percentage point increase in unemployment generates more than 4.5% decrease in the price of labor. This cyclicality is three times higher than the cyclicality of individual wages and also noticeably higher than the cyclicality of the wages of newly hired workers. I conclude that the price of labor is very procyclical.

 

 

Recourse and Residential Mortgage Default: Theory and Evidence from U.S. States

joint with Andra Ghent (Zicklin School of Business, Baruch College, CUNY).

(Current version: July 2009, Richmond FED WP 09-10)

 

Abstract: We analyze the impact of lender recourse on mortgage defaults theoretically and empirically across U.S. states. We study the effect of state laws regarding deficiency judgments in a model where lenders can use the threat of a deficiency judgment to deter default or to shorten the default process. Empirically, we find that recourse de-creases the probability of default when there is a substantial likelihood that a borrower has negative home equity. We also find that, in states that allow deficiency judgments, defaults are more likely to occur through a lender-friendly procedure, such as a deed in lieu of foreclosure.

 

(pdf)

 

Other Research Material:

 

 

Research Statement on the Cyclicality of the User Cost of Labor

(This version: November 2007)

(pdf)