Using establishments’ occupational data, we quantify the role of entrants, exiters, and incumbents in driving the decline in the share of routine occupations (R-share) in the U.S. First, entrants have a higher R-share than incumbents, casting doubt on a “creative destruction” mechanism whereby entrants drive this decline. Second, exiters have a higher R-share than their peers, supporting a “positive selection” mechanism. Finally, as incumbents age, they experience a fall in their R-share, which is not due to their size, consistent with the “technology adoption” mechanism. Quantitatively, we show that incumbents are the primary drivers of the aggregate decline in R-share.

We examine the mechanisms driving the aggregate and distributional impacts of Universal Basic Income (UBI) through model analysis of various UBI programs and financing schemes. The main adverse effect is the distortionary tax increase to fund UBI, reducing labor force participation. Secondary channels are a decline in demand for self-insurance, depressing aggregate capital, and a positive income effect that further deters labor force participation. Due to these channels, introducing UBI alongside existing social programs reduces output and average welfare. Partially substituting existing programs with UBI mitigates the adverse effects, increases average welfare, but does not deliver a Pareto improvement.

Economies routinely experience a variety of sector-specific supply and demand shifts.Yet, the distributional welfare consequences of these shifts are not well understood.We address this gap by developing an analytical framework that jointly integrates supply-side and demand-side heterogeneity without imposing specific functional forms on consumption and production.This enables us to identify the key forces that shape the distributional welfare impact of sector-specific supply and demand shifts-in terms of consumer preferences and sectoral production functions.We estimate key parameters and quantify the heterogeneous welfare effects of sectoral shifts, revealing significant variation in their impact.

Exploiting data on tens of millions of housing transactions, we show that (1) house prices grew by less in manufacturing-heavy US regions, (2) this pattern is especially present for the lowest-value homes and that (3) price declines coincided with worse labour market outcomes, consistent with an income channel. Counterfactual accounting exercises reveal that regional differences in the growth of these lowest-value homes are an important driver of the changes in overall house price inequality. Hence, the economic decline in manufacturing-heavy areas extends far beyond income and employment flows to house prices.

Heterogeneous firm models are ubiquitous in modern macroeconomics.We revisit a central feature of these models: the idiosyncratic shock process faced by firms.Using a large representative firm-level dataset, we document nonparametrically that the common assumption, a Gaussian AR(1) shock process, is at odds in important ways with observed fat-tailed firm dynamics.We embed these findings within a standard quantitative general equilibrium heterogeneous firm dynamics model and show that the nature of firm-level shocks has a sizable quantitative effect on the economy's responsiveness to aggregate shifts.

We document that, since 1980, higher-paying occupations in the United States have experienced increases in the importance of tasks requiring social skills compared to lower-paying ones. Economic theory indicates that the occupational sorting of workers depends on their comparative advantage in performing occupational tasks. Hence, changes in the relative importance of tasks across occupations change sorting. We document that the increasing relative importance of social tasks in high-paying occupations can account for an important fraction of the increased sorting of women relative to men towards these occupations in recent decades.

In recent years, various OECD countries have implemented reforms targeting work incentives directed at older workers.1 So understanding how such reforms affect the labor market is crucial. I see this interesting and important paper by Richard Rogerson and Johanna Walleniusas as a first step in an exciting new research agenda. In this paper, the authors investigate the link between the labor market policy reforms targeting older workers and these workers’ employment rates. The paper presents an extremely useful synthesis that brings together findings from different countries, and it suggests an important avenue for further research. The paper contains numerous insights, and below I discuss the main argument. First, the authors document that the employment rate of men aged 55-64 has displayed a U-shaped pattern over the last four decades. Interestingly (and somewhat surprisingly), this pattern is common across many advanced economies, hinting that a common explanation could be responsible for it. At the same time, the reversal’s magnitude varies across countries. The explanation the authors put forth is based on three steps. First, the authors argue for the importance of "institutions" that gave rise to provisions that favored a reduction in employment rate of this older age group in many countries in the 1970s and 1980s. Second, they suggest there was a mean-reverting aggregate shock which led to a recovery in the employment rate. Third,

The U.S. economy has experienced a significant drop in the fraction of the population employed in middle wage, "routine task-intensive" occupations. Applying machine learning techniques, we identify characteristics of those who used to be employed in such occupations and show they are now less likely to work in routine occupations. Instead, they are either non-participants in the labor force or working at occupations that tend to occupy the bottom of the wage distribution. We then develop a quantitative, heterogeneous agent, general equilibrium model of labor force participation, occupational choice, and capital investment. This allows us to quantify the role of advancement in automation technology in accounting for these labor market changes. We then use this framework as a laboratory to evaluate various public policies aimed at addressing the disappearance of routine employment and its consequent impacts on inequality.

We use matched individual-level CPS data to study the decline in middle-wage routine occupations during the last 40 years, and determine how the associated labor market flows have evolved. The decline in employment in these occupations can be primarily accounted for by changes in transition rates from non-participation and unemployment to routine employment. We study how these transition rates have changed since the mid-1970s, and find that changes are primarily due to the propensity of individuals to make such transitions, whereas relatively little is due to demographic changes. We also find that changes in the propensity to transition into routine occupations account for a substantial proportion of the rise in non-participation observed in the U.S. in recent decades.

We develop a search-and-matching model where the magnitude of unemployment insurance benefits affects the likelihood that unemployed actually engage in active job search. To quan- titively discipline this relation we use administrative data of unemployed search audits. We use the model to quantify the effects of unemployment reforms. For small benefits' increases, the policymaker faces a trade-off between an uptick in the measure of unemployed actually searching and a fall in the unemployment exit-rate conditional on searching. For larger bene- fits' increases, an active search margin magnifies the benefits' disincentives, leading to a bigger drop in the employment rate than previously thought.

We study the impact on the skill premium of increases in the quality of goods consumed by households ("trading up"). Our empirical work shows that high-quality goods are more intensive in skilled labor than low-quality goods and that household spending on high-quality goods rises with income. We propose a model consistent with these facts. This model accounts for the past rise in the skill premium with more plausible rates of skill-biased technical change than those required by the canonical model. It also implies that an expansion of the skilled labor force reduces the skill premium by much less than in the canonical model.

There is by now a huge literature on the increase in the college premium and other dimensions of inequality in the United States and many other Western nations (see Acemoglu and Autor, 2011, for an overview of this literature). As I discuss below, the focal explanation in this literature is that technological changes of the last four decades have increased the demand for skills and have pushed up premia to different kinds of skills, college education among them (though other factors including globalization and changes in labor market institutions have also contributed to these trends). The paper by Jaimovich, Rebelo, Wong and Zhang tackles an important topic and develops a relatively underresearched line of inquiry within this broad literature. The main idea is that a major contributor to the increase in the demand for skills has been “trading up”(the authors’term) by households to higher-quality products as they have become richer. Higher-quality products are argued to be more intensive in skilled labor. As a result, this process has naturally brought a higher demand for skills as a byproduct of economic growth. This is an important idea, and one I sympathize with a lot. The paper also has a noteworthy original contribution in providing compelling motivating evidence. It estimates product quality from a variety of sources, links these to establishment-level demand for skills from the microdata of the Occupational Employment Statistics (OES) dataset of the Bureau of Labor Statistics, and verifies that higher-quality products are more skill intensive. This empirical work alone is worth more than the price of admission. But the paper does not fully deliver on this very promising research agenda. The reason why it fails to do that is interesting and instructive. It is because it follows a methodology I will call quantitative Friedmanite modeling. This approach combines Friedman’s (1953) famous methodological dictum that realism of assumptions does not matter (sometimes called the “as if”hypothesis) with an emphasis on developing quantitative evaluations of macro models calibrated with some plausible choice of parameters. This methodology has some obvious shortcomings at the best of times (replicating some moments in the data based on microeconomic parameter choices does not

Progress in automation and information technologies has meant that industrialized economies have experienced a significant drop in the fraction of their population employed in middle wage, “routine task intensive” occupations. Applying machine learning techniques, we identify the types of individuals who would otherwise, if not for technological progress, be employed in such occupations and track their labor market outcomes. Based on these findings, we develop a quantitative, heterogeneous agent, general equilibrium model of labor force participation, occupational choice, and capital investment to study the aggregate and distributional effects of advances in automation. We use this framework as a laboratory to evaluate various public policies aimed at addressing the disappearance of routine employment and its consequent impacts on inequality.

In the last two decades, the Israeli economy has matured and stabilized along various macroeconomic dimensions, conquering inflation and eliminating current account imbalances. Yet, perhaps as expected, this new economic phase has been characterized by new challenges and opportunities. This fascinating book provides a dual service. It reviews the evolution of the Israeli economy during this period, while also identifying the key challenges that Israel will face going forward. In this brief review of the book, I intend to discuss what I consider the work’s key messages. Naturally, it is impossible for a short review like this to do justice to the wealth of information, analysis, and insights provided in the book. Rather, I decided to concentrate the discussion around five topics that, in my view, are central to the future success of the Israeli economy: (i) the evolution of public sector expenditures, (ii) the various (or, in some cases, lack of) market reforms, (iii) the labor market, (iv) productivity, and (v) the evolution of inequality within the Israeli economy. In what follows, I briefly discuss the main lessons I took from this work with respect to these issues

We propose uncertainty shocks as a new shock that drives business cycles.First, we demonstrate that microeconomic uncertainty is robustly countercyclical, rising sharply during recessions, particularly during the Great Recession of 2007-2009.Second, we quantify the impact of time-varying uncertainty on the economy in a dynamic stochastic general equilibrium model with heterogeneous firms.We find that reasonably calibrated uncertainty shocks can explain drops and rebounds in GDP of around 3%.Moreover, we show that increased uncertainty alters the relative impact of government policies, making them initially less effective and then subsequently more effective.

We investigate the role of uncertainty in business cycles. First, we demonstrate that microeconomic uncertainty rises sharply during recessions, including during the Great Recession of 2007–2009. Second, we show that uncertainty shocks can generate drops in gross domestic product of around 2.5% in a dynamic stochastic general equilibrium model with heterogeneous firms. However, we also find that uncertainty shocks need to be supplemented by first‐moment shocks to fit consumption over the cycle. So our data and simulations suggest recessions are best modelled as being driven by shocks with a negative first moment and a positive second moment. Finally, we show that increased uncertainty can make first‐moment policies, like wage subsidies, temporarily less effective because firms become more cautious in responding to price changes. DOI: https://doi.org/10.3982/ECTA10927 Posted at the Zurich Open Repository and Archive, University of Zurich ZORA URL: https://doi.org/10.5167/uzh-151988 Journal Article Published Version Originally published at: Bloom, Nicholas; Floetotto, Max; Jaimovich, Nir; Saporta-Eksten, Itay; Terry, Stephen J (2018). Really uncertain business cycles. Econometrica, 86(3):1031-1065. DOI: https://doi.org/10.3982/ECTA10927 Econometrica, Vol. 86, No. 3 (May, 2018), 1031–1065 REALLY UNCERTAIN BUSINESS CYCLES NICHOLAS BLOOM Dept. of Economics, Stanford University MAX FLOETOTTO McKinsey & Company NIR JAIMOVICH Dept. of Economics, University of Zurich ITAY SAPORTA-EKSTEN Dept. of Economics, Tel Aviv University and Dept. Economics, University College London STEPHEN J. TERRY Dept. of Economics, Boston University We investigate the role of uncertainty in business cycles. First, we demonstrate that microeconomic uncertainty rises sharply during recessions, including during the Great Recession of 2007–2009. Second, we show that uncertainty shocks can generate drops in gross domestic product of around 2.5% in a dynamic stochastic general equilibrium model with heterogeneous firms. However, we also find that uncertainty shocks need to be supplemented by first-moment shocks to fit consumption over the cycle. So our data and simulations suggest recessions are best modelled as being driven by shocks with a negative first moment and a positive second moment. Finally, we show that increased uncertainty can make first-moment policies, like wage subsidies, temporarily less effective because firms become more cautious in responding to price changes.

We document a new finding regarding changes in labor market outcomes for high-skilled men and women in the US.Since 1980, conditional on being a college-educated man, the probability of working in a cognitive/high-wage occupation has fallen.This contrasts starkly with the experience for college-educated women: their probability of working in these occupations rose, despite a much larger increase in the supply of educated women relative to men.We show that one key channel capable of rationalizing these findings is a greater increase in the demand for female-oriented skills in cognitive/high-wage occupations relative to other occupations.Using occupation-level data, we find evidence that this relative increase in the demand for female skills is due to an increasing importance of social skills within such occupations.Evidence from both male and female wages is also indicative of an increase in the demand for social skills.Finally, we document how these patterns change across the early and latter portions of the period.

Demand for high-skilled workers who perform cognitive tasks has increased dramatically in the United States over the past four decades, with the biggest change between 1980 and 2000. This policy brief shows that the increase in demand was not experienced equally by both genders: despite rapid growth in employment in high-paying occupations, the probability that a college-educated man was employed in such a job fell, while the prospects for college-educated women improved. The key driver seems to be growing demand for social skills, such as empathy, communication, emotion recognition and verbal expression, in which evidence from psychological research indicates that women have a comparative advantage.

We implement a new approach for the identification of news shocks about future technology. In a VAR featuring a measure of aggregate technology and several forward-looking variables, we identify the news shock as the shock orthogonal to technology innovations that best explains future variation in technology. In the data, news shocks account for the bulk of low frequency variation in technology. News shocks are positively correlated with consumption, stock price, and consumer confidence innovations, and negatively correlated with inflation innovations. The disinflationary nature of news shocks is consistent with the implications of sensibly modified versions of a New Keynesian model.<br><br>Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at <a href=http://www.nber.org/papers/w15312 TARGET=_blank>www.nber.org.</a><br>