1. Human Capital and the Business Cycle Effects on the Postgraduate Wage Premium, R&R Review of Economic Dynamics, IFS Working Paper WP19/26
(The previous title of this paper is “Specific Capital, Firm Insurance, and the Dynamics of the Postgraduate Wage Premium”)
Postgraduate degree holders experience lower cyclical variation in real wages than those with undergraduate degrees. Moreover, postgraduate jobs require more specific human capital and take longer to adapt to. Using an equilibrium search model with dynamic incentive contracts, this paper attributes the cyclicality of the postgraduate-undergraduate wage gap to the differences in specific capital. Greater specific capital leads to lower mobility, thereby improving risk-sharing between workers and firms. The estimates of the model reveal that specific capital can explain the differences both in labour turnover and in real wage cyclicality between education groups.
2. Durables and Lemons: Private Information and the Market for Cars, with Richard Blundell, Hamish Low, Soren Leth-Petersen, and Costas Meghir, R&R Quantitative Economics, NBER Working Paper w26281
We quantify the aggregate implications and distributional consequences of asymmetric information, focusing on the car market. Private information introduces a lemons penalty, a wedge between the sale price and average quality in the population. We estimate an equilibrium model of car ownership with private information using Danish linked registry data on car ownership, income and wealth. In the first year of ownership, the lemons penalty is 11% of the price. The penalty declines sharply with the length of ownership. The penalty leads to large reductions in transaction volumes and in the rate of turnover of cars. But the market does not collapse: income shocks induce individuals to sell their cars, even if of good quality, and this limits the lemons problem. The size of the lemons penalty declines when income uncertainty in the economy increases, as happens in recessions.
3. The Gender Gap in Household Bargaining Power: A Portfolio-Choice Approach, with Cameron Peng and Weilong Zhang, New version March 2021!, IFS Working Paper WP21/11
We quantify how bargaining power is distributed when spouses make financial decisions together. We build a model in which each spouse has a risk preference and must bargain with each other to make asset decisions for the household. By structurally estimating the model with longitudinal data from Australian households, we show that the average household’s asset allocation reflects the husband’s risk preference 44% more than the wife’s. This gap in bargaining power is partially explained by gender differences in income and employment status, but is also due to gender effects. We provide further evidence that links the distribution of bargaining power to views on gender norms in the cross-section.