Evidence on wage cyclicality shows job changers have more procyclical wages than job stayers. Previous work argued this arises because workers gain greater access to jobs in sectors such as manufacturing that offer high wages. This article argues that workers who switch jobs in booms enter temporary jobs with unemployment risk and are merely compensated for subsequent losses. I demonstrate that the two explanations can be distinguished using the relationship between unemployment insurance and wage cyclicality among job changers. The evidence supports the compensation hypothesis; that is, that job changers might not experience real gains from higher‐paying jobs in booms.

This paper shows how record-value theory, a branch of statistics that deals with the timing and magnitude of extreme values in sequences of random variables, can be used to nonparametrically identify the offer distribution of wages workers face.Using NLSY wage data, I show that the data supports the hypothesis that the wage offer distribution is Pareto but rejects that it is lognormal.In addition, I show that my approach can be used to construct a bound on the return to job-specific human capital.Using the same NLSY data, I find that job-specific human capital plays only a minor role in the wage growth of the workers in my sample.Instead, wage growth among the young workers in my sample appears to be driven primarily by the accumulation of general human capital as well as on-the-job search.

Previous work has established that recessions involve a “cleansing” effect, so that in downturns, only high productivity jobs remain. But empirical evidence suggests job quality is procyclical: jobs created in recessions are likely to be low-paying and temporary. This paper modifies previous models by adding on-the-job search, which leads to an additional “sullying” effect. Calibration of the model suggests this offsetting sullying effect is likely to be much larger than the cleansing effect, and can account for the procyclical match quality we observe in the data.

Economists have recently argued recessions play a useful role in fostering growth. Yet a major source of growth, R&D, is procyclical. This paper argues one reason for procyclical R&D is a dynamic externality inherent in R&D that makes entrepreneurs short-sighted and concentrate their innovation in booms, even when it is optimal to concentrate it in recessions. Additional forces may imply that procyclical R&D is desirable, but equilibrium R&D is likely to be too procyclical, and macroeconomic shocks are likely to have overly persistent effects on output and make growth more costly than in the absence of such shocks.

Robert E. Lucas, Jr. argued that the welfare gains from reducing aggregate consumption volatility are negligible. Subsequent work that revisited his calculation continued to find small welfare benefits, further reinforcing the perception that business cycles do not matter. This paper argues instead that fluctuations can affect welfare, by affecting the growth rate of consumption. I show that fluctuations can reduce growth starting from a given initial consumption, which can imply substantial welfare effects as Lucas himself observed. Empirical evidence suggests the welfare effects are likely to be substantial, about two orders of magnitude greater than Lucas' original estimates.

In many professional service firms, new associates work long hours while competing in up-or-out promotion contests. Our model explains why. We argue that the productivity of skilled partners in professional service firms (e.g., law, consulting, investment banking, and public accounting) is quite large relative to the productivity of their peers who are competent and experienced but not well suited to the partner role. Therefore, these firms adopt personnel policies that facilitate the identification of new partners. In our model, both heavy workloads and up-or-out rules serve this purpose.

Previous work on information and financial markets has focused on a special set of assumptions: agents have exponential utility, and random variables are normally distributed. These assumptions are often necessary to obtain closed-form solutions. We present an example with alternative assumptions, and demonstrate that some of the conclusions from previous literature fail to hold. In particular, we show that in our example, as more agents acquire information, prices do not necessarily become more informative, and agents may have greater incentive to acquire information. Learning can therefore be a strategic complement, allowing for the possibility of multiple equilibria.

We propose an incentive scheme for educators that links compensation to the ranks of their students within comparison sets. Under certain conditions, this scheme induces teachers to allocate socially optimal levels of effort. Moreover, because this scheme employs only ordinal information, it allows education authorities to employ completely new assessments at each testing date without ever having to equate various assessments. This removes incentives for teachers to teach to a particular assessment form and eliminates opportunities to influence reward pay by corrupting assessment scales. Education authorities can employ separate no-stakes assessment systems to track trends in scaled measures of student achievement.

Galí (2014) showed that a monetary policy rule that raises rates when bubbles exceed some steady-state benchmark can paradoxically lead to larger deviations from steady state. Nevertheless, this comment shows that a central bank can always dampen a bubble by setting a higher-than-expected rate, although it may have to raise the rate aggressively. This is a different point from the Miao, Shen, and Wang (2019) comment on Galí (2014). They showed that when the central bank targets a different steady state than Galí considered, raising rates when bubbles exceed this alternative benchmark leads to smaller deviations from steady state.