Working Papers

Productivity-Enhancing Reallocation during the Great Recession: Evidence from Lithuania

with Jose Garcia-Louzao (Bank of Lithuania)

(December 2020)

Abstract: This paper studies the impact of the Great Recession on the relationship between reallocation and productivity dynamics in Lithuania. Relying on detailed micro-level data, we first document the aggregate contribution of firm exit and employment reallocation to productivity growth. Next, we estimate firm-level regressions to confirm the findings and to perform a heterogeneity analysis. Our analysis shows that productivity shielded firms from exit and this relationship became stronger during the Great Recession. Moreover, we also show that more productive firms experienced on average lower employment losses, more so during the economic slump. Taken together, our results suggest that reallocation was productivity enhancing during the Great Recession. However, our heterogeneity analysis suggests that its intensity varied with sector's dependence on external financing or international trade as well as market concentration.

Manuscript

Changes in income inequality in Lithuania: the role of policy, labour market structure, returns and demographics

with Nerijus Cerniauskas (Vilnius University), Denisa M. Sologon (LISER), Cathal O’Donoghue (The National University of Ireland, Galway), revision requested

(January 2020)

Abstract: We model the household disposable income distribution in Lithuania and explore the drivers of the increase in income inequality between 2007 and 2015. We quantify the contributions of four factors to changes in the disposable income distribution: (i) demographics; (ii) labour market structure; (ii) returns and prices; and (iv) tax-benefit system. Results show that the effects of the factors were substantial and reflected heterogeneous developments over two sub-periods: changes in the tax and benefit system successfully accommodated a rapid rise in market income inequality due to the global financial crisis during 2007-2011, but failed to do so during the subsequent years of economic expansion, when rising returns in the labour and capital markets significantly increased disposable income inequality. We also find that declining marriage rates contributed to the increase of income inequality in Lithuania.

Manuscript

The Life-cycle Profile of Worker Flows in Europe

with Etienne Lalé (UQAM, CIRANO and IZA)

(January 2020)

Abstract: This paper provides a comprehensive account of the relationship between cross-country differences in aggregate employment and disaggregated differences in worker flows along the life cycle. We use survey micro-data for 31 European countries, and estimate the life-cycle profiles of transition probabilities across employment, unemployment and nonparticipation for each country. We develop a decomposition measuring the contribution of these transition probabilities to aggregate employment differences. We show, first, that separations from employment play a larger role than entries into employment; and, second, that life-cycle variation in worker flows is more important that cross-country variation in explaining this pattern. To go beyond description, we develop a life-cycle model with search frictions, an operative labor-force participation margin, and labor market institutions (unemployment insurance benefits and employment protection legislation). Certain preference and technology parameters depend on workers’ age, allowing the model to reproduce the life-cycle profiles of transition probabilities across employment, unemployment and nonparticipation observed in the data. We quantify how much of the life-cycle variation of flows is coming from preferences, technology, and most notably from labor market institutions, which are age-independent but whose effects on worker flows vary substantially over the life cycle.

Manuscript

Master Thesis, Paris School of Economics, 2009 (email me for paper):

  • Capital in Matching Models with Credible Wage Bargaining.