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The Minimum Wage and Occupational Mobility

Job market paper - [draft] [slides]

This paper quantifies the effect of the minimum wage on workers’ occupational mobility. I construct a search-and-matching model with heterogeneous occupations and workers and highlight two channels by which the minimum wage decreases occupational mobility. First, it decreases vacancy posting and hence job arrival rate. Second, it compresses wages and therefore reduces the gain from switching, leading to an increase in mismatch. I show empirical evidence that the minimum wage decreases occupational mobility and increases mismatch. I calibrate the model to the US economy. The results suggest that a $15 minimum wage can damp aggregate output by as much as 0.4 percent, of which the wage compression channel accounts for 80 percent. My work shows a novel channel by which the minimum wage can decrease aggregate output, even if employment does not decrease.

Optimal Taxation with Observable Labor Market Entry Shocks and Limited Educational Resources

[draft]

I study optimal taxation and educational policy with limited educational resource and observable labor market entry shocks that persist through life-cycle. Human capital accumulation is unobservable which makes labor decision non-separable. In the optimal policy, educational fee increases with good entry shocks and there are both within- and across-cohort subsidization. The optimal taxation is shown to be implemented by an age- and income-contingent labor tax system and an income-contingent student loan repayment design with interest rates indexed to labor market entry shocks. The result emphasizes the need to take into consideration persistent labor market entry shocks in student loan design.

The Effect of the Minimum Wage on Employment Growth

with Chang Hyung Lee

We demonstrate by a general equilibrium model that after a minimum wage increase, labor-capital substitution decreases employment growth while monopsony power increases employment growth. We construct a measure of exposure to the minimum wage at the county level based on the model. The event-study regression shows that a higher exposure to the minimum wage substantially decreases employment growth even four years after the minimum wage increase. The negative long-run effect biases the estimates in a two-way fixed effect regression or a panel DiD regression towards zero. The long-run decline is more severe for industries with a moderate fraction of minimum wage workers, suggesting that capital-labor substitution is likely to dominate in the long run.

Optimal Student Loan Design with Labor Market Entry Shocks

While returns to educational investment in the form of lifetime wage income crucially depend on labor market entry conditions, current student loan design does not take it into consideration. I study student loan design with observable labor market entry shocks. The optimal policy balances student loan repayment in the face of default with individual welfare. The implied student loan interest rate depends on labor market entry shocks. This suggests that in addition to within-cohort insurance, the student loan interest rate should be indexed to labor market entry conditions to provide across-cohort insurance.

Optimal Student Loan Design and Human Capital Policies over the Life Cycle

I study student loan design and human capital policy with observable labor market entry shocks. In the optimal contract, the planner needs to balance incentive provision, future loan repayment clearance, and human capital subsidy. I derive the formula of a dynamic risk and loan adjusted human capital subsidy. I show that the optimal student loan design involves a flexible repayment system and depends on human capital stock.

The Minimum Wage and Occupational Mobility

Job market paper - [draft] [slides]

This paper quantifies the effect of the minimum wage on workers’ occupational mobility. I construct a search-and-matching model with heterogeneous occupations and workers and highlight two channels by which the minimum wage decreases occupational mobility. First, it decreases vacancy posting and hence job arrival rate. Second, it compresses wages and therefore reduces the gain from switching, leading to an increase in mismatch. I show empirical evidence that the minimum wage decreases occupational mobility and increases mismatch. I calibrate the model to the US economy. The results suggest that a $15 minimum wage can damp aggregate output by as much as 0.4 percent, of which the wage compression channel accounts for 80 percent. My work shows a novel channel by which the minimum wage can decrease aggregate output, even if employment does not decrease.

Optimal Taxation with Observable Labor Market Entry Shocks and Limited Educational Resources

[draft]

I study optimal taxation and educational policy with limited educational resource and observable labor market entry shocks that persist through life-cycle. Human capital accumulation is unobservable which makes labor decision non-separable. In the optimal policy, educational fee increases with good entry shocks and there are both within- and across-cohort subsidization. The optimal taxation is shown to be implemented by an age- and income-contingent labor tax system and an income-contingent student loan repayment design with interest rates indexed to labor market entry shocks. The result emphasizes the need to take into consideration persistent labor market entry shocks in student loan design.

The Effect of the Minimum Wage on Employment Growth

with Chang Hyung Lee

We demonstrate by a general equilibrium model that after a minimum wage increase, labor-capital substitution decreases employment growth while monopsony power increases employment growth. We construct a measure of exposure to the minimum wage at the county level based on the model. The event-study regression shows that a higher exposure to the minimum wage substantially decreases employment growth even four years after the minimum wage increase. The negative long-run effect biases the estimates in a two-way fixed effect regression or a panel DiD regression towards zero. The long-run decline is more severe for industries with a moderate fraction of minimum wage workers, suggesting that capital-labor substitution is likely to dominate in the long run.

Optimal Student Loan Design with Labor Market Entry Shocks

While returns to educational investment in the form of lifetime wage income crucially depend on labor market entry conditions, current student loan design does not take it into consideration. I study student loan design with observable labor market entry shocks. The optimal policy balances student loan repayment in the face of default with individual welfare. The implied student loan interest rate depends on labor market entry shocks. This suggests that in addition to within-cohort insurance, the student loan interest rate should be indexed to labor market entry conditions to provide across-cohort insurance.

Optimal Student Loan Design and Human Capital Policies over the Life Cycle

I study student loan design and human capital policy with observable labor market entry shocks. In the optimal contract, the planner needs to balance incentive provision, future loan repayment clearance, and human capital subsidy. I derive the formula of a dynamic risk and loan adjusted human capital subsidy. I show that the optimal student loan design involves a flexible repayment system and depends on human capital stock.