Felix Wellschmied

U.S. male residual wage inequality rose, and the employment rate fell between 1983-2013. Using a structural labor market model, we show that rising idiosyncratic wage risk and lower taxes at the bottom of the earnings distribution are the main forces behind rising wage inequality. The former contributes to the falling employment rate. Falling real wages and rising disability risk further depressed employment of workers without a college degree and rising exogenous job destruction depressed employment of workers with a college degree. Higher idiosyncratic risk entails large welfare losses with the largest losses among workers without a college degree.

We examine the impact of furlough schemes in scenarios where aggregate risk has a sector-specific component and workers have sector-specific human capital. In particular, we investigate the distinct responses of the Spanish labor market to the Great Recession and the Great Contagion as both downturns have been triggered by such shocks. However, the COVID-19 episode involves much less job destruction than the previous recession, possibly due to firms' widespread adoption of furlough schemes (ERTEs) which had been seldom activated earlier. There is consensus that these policies help stabilize the unemployment rate by keeping matches alive in those sectors hardest hit by a crisis. However, under their current design, we argue both empirically and theoretically that ERTEs: (i) crowd out labor hoarding by employers in the absence of those schemes, (ii) increase the volatility of effective working rates and output, and (iii) hinder worker reallocation, especially in short recessions.

This paper studies the savings and employment effects of the asset means-test in US income support programs using a structural life-cycle model with productivity, disability, and unemployment risk. An asset means-test incentivizes low-income households to hold few financial assets making them vulnerable to predictable and unpredictable income changes. Moreover, it incentivizes relatively productive households that happen to have few financial assets to leave the labor force. However, it allows for relative generous transfers to households in most need. Moreover, it counteracts relatively productive households leaving the labor force after the age of 50. In terms of the welfare of an unborn household, the asset means-test that optimally trades-off these effects is $150000, and abolishing it is close to optimal.

Worker churn is procyclical in the German labor market. We study the plant-level connection of churn and employment growth using the new Administrative Wage and Labor Market Flow Panel from 1975 to 2014. Churn is V-shaped in employment growth. Through analyzing this pattern by worker skill, age, and tenure, we establish that churn is unlikely to result from plant reorganization but from uncertainty about match quality. In a dynamic labor demand framework with a time-to-hire friction, churn can be interpreted as manifestations of idiosyncratically stochastic separation shocks. These shocks become larger and more predictable during booms leading to procyclical churn.

US entrepreneurs typically work long hours in their firms and these hours form a large part of the firms' labor input. This paper studies the role of endogenous owner hours in shaping the wealth distribution among entrepreneurs. We introduce owners' endogenous labor supply into a model of entrepreneurial choice and financial frictions. The model fits well the levels and the dispersion of wealth among entrepreneurs. Long owner hours incentivize poor, highly productive individuals to be owners and help the most productive owners to accumulate large quantities of wealth. On net, owners working long hours decreases the median owner wealth and increase wealth dispersion among owners. Differently, the ability to work sufficiently short hours incentivizes owners to run low productivity firms with high wealth to income ratios. Finally, alternative calibrations ignoring the endogenous labor supply of owners lead to owners that are much richer than in the data and overstate the effect of financial frictions in the economy.

We estimate explicit age-varying distributions of idiosyncratic persistent and transitory earnings shocks over workers' life-cycles using a German administrative data set. Large positive shocks, both transitory and persistent, are characteristic for the first eight years of the working life. After the age of 50, large negative shocks become a major source of earnings risk. Between the ages of 30 and 50, most shocks are small and transitory. Large persistent positive shocks that occur early in the working life help to rationalize large wealth and consumption shares of the top one percent in an incomplete markets model.

We empirically establish that one third of job transitions lead to wage losses. Using a quantitative on the job search model we find that 60 percent of them are movements down the job ladder. Accounting for them, our baseline calibration matches the large residual wage inequality in US data while attributing only 13.7 percent of overall wage inequality to the presence of search frictions in the labor market. We can trace the difference between ours and previous much higher estimates to our explicit modeling of non-value improving job to job transitions.

When employers face a trade-off between being large and paying low wages-and in this sense have monopsony power-some productive employers decide against building large business networks, forgo sales, and remain small. These decisions have adverse consequences for aggregate labor productivity. Using high-quality administrative data from Germany, we document that East German plants (compared to West German ones) face steeper size-wage curves, invest less in their business networks, remain smaller, and are less productive. A model with labor market monopsony, product market power, and business network investments matching these features of the data predicts a ten percent lower aggregate labor productivity in East Germany.

The size of the public sector in terms of employment and the compensation it pays to its workers have a strong life-cycle dimension in the United States, United Kingdom, France and Spain. We establish a quantitative partial-equilibrium life-cycle model with incomplete markets, with a private and public sectors and risk-averse workers. We analyse the role of public-sector employment in shaping workers labour market outcomes over their life cycle, both in terms of employment choice and savings. We use the model to: (i) calculate the public-sector wage, pension, and job-security premia, and (ii) quantify the effects of harmonizing the public and private sector. We find that the job-security and pension's premia are important forms of compensation to public-sector workers, and are valued differently over the life cycle. Harmonizing the characteristic of the public-sector employment, with those of the private, would lower unemployment rate and reduce government costs.

When locations differ in the opportunities they offer their residents and mobility between them is frictional, a person's economic well-being is partially determined by her place of birth. Using a life cycle model of mobility, we find that differences in opportunities across locations in Spain result mainly from (a) differences in the speed of skill accumulation, (b) differences in job stability and job opportunities, and (c) possibilities for geographic mobility. Search frictions are the main impairment to the mobility of young people while fixed mobility costs are the main impairment for the elderly. Paying transfers to people in distressed economic locations decreases welfare dispersion across urban areas without large adverse effects on mobility. In contrast, several policies that encourage people to move to low-unemployment locations increase welfare dispersion and fail to meaningfully increase mobility towards these more successful locations.

Online food delivery platforms typically operate through a controversial business model that relies on subcontracting self-employed workers, known as riders. Using a search and matching model, we quantify the labor-market effects of the Spanish Riders' Law in 2021 that establishes the presumption of dependent employment for riders. Riders with heterogeneous preferences for leisure trade off work flexibility and easier employability as self-employed against enjoying higher wages as employees. Our main finding is that the reform succeeded in increasing the share of employees but failed to fully absorb the large outflows from self-employment and decreased riders' wages, resulting in welfare losses. However, complementing the reform with a payroll tax cut for platforms hiring employees preserves employment levels and increases substantially riders' welfare.