Working Papers

Initial aggregate conditions and heterogeneity in firm-level markups

Abstract I explore the role of aggregate fluctuations as a persistent determinant of heterogeneity in firm-level markups. To analyze how business cycles generate dispersion in markups, I estimate the effects of aggregate conditions at key moments of firms' lives on the age profiles of markups for a sample of U.S. listed companies. Using the estimated markups, I calibrate a general equilibrium model that features heterogeneous product markets, customer base accumulation and firm dynamics. A novel feature of the model is that, in addition to making direct investments in customer acquisition, firms can accumulate customers by increasing sales, which is important to match the empirical findings. As the value of operating in each product market fluctuates endogenously with business cycles, aggregate conditions generate a selection on the product-market composition of firm cohorts that results in time-varying heterogeneity in product-market characteristics across active companies. This heterogeneity is persistent and can significantly affect both the response of the economy to future aggregate shocks and the co-movements of aggregate markups with output.

Defusing Leverage: Liquidity Management and Labor Contracts

Abstract Rigidities in firms' payroll structures are likely to increase the transmission of shocks to firms' cash flows and profitability. By using Italian administrative data on workers careers and firms’ balance sheets, we study how the use of permanent and fixed-term labor contracts affects this pass-through. We document how firms use the contract composition of their workforce to manage the risk determined by their labor-induced operating leverage. First, we confirm that a higher labor share is associated with more volatile cash flows following unexpected real shocks, a telling indication of operating leverage at work through labor costs. Second, we show that firms with a greater share of temporary contracts are characterized by a smoother time-series behavior of their cash-flows. In particular, the smoothing effect is stronger for firms with higher labor share related to the permanent workforce. We complement this analysis with the study of the 2001 labor market reform that lifted constraints on the employment of temporary contracts. Exploiting the staggered implementation of the reform across different collective bargaining agreements, we show that following the reform firms increased on average their share of temporary contracts and decreased average labor compensation. In particular, earlier transition to a more flexible workforce composition led to a 1 percentage point increase in profit margins (against a -1.6pp average variation around the event) and a 5 percent decrease in cross-sectional standard deviation of profits, but only among firms with an ex-ante more rigid labor cost structure.

A labor market sorting model of hysteresis and scarring

Abstract What are the long-run consequences of business cycle fluctuations for the skill distribution in the labor force? How is the sorting between firms and workers altered by aggregate fluctuations at different stages of the working life? And finally, what are the aggregate effects of changes in sorting for earnings dynamics, potential productivity and labor misallocation in the long run? We address these questions by proposing a tractable search equilibrium model of the labor market with aggregate risk, firm and worker heterogeneity, life-cycle dynamics and endogenous human capital accumulation. We show that sorting of workers to firms is a key factor in increasing the persistence of fluctuations, directly relating labor reallocation to economic hysteresis. We estimate the model on Italian administrative matched employer-employee data. Our estimates highlight the long term supply-side hysteresis effects of business cycle

Work in Progress

The public and private debt channel of monetary policy

Research notes

Free manuals and productivity

with Adrien Bussy and Friedrich Geiecke
[update soon; old draft available upon request]
Abstract This note considers the possible productivity effect of the vast amount of free answers to coding questions available online, a phenomenon we term manuals. Large parts of the manual production are the result of non-pecuniary motives, e.g. warm glow and social recognition. Developers take the time to answer detailed programming questions online and their answers are freely accessible. Different users than those who had originally asked the questions search and find the answers on a daily basis when they have to solve similar problems in their work. The re-use component of answers is very substantial. Up to 2018, there were around 17 million questions on today’s most popular website. These questions and their answers have been been viewed around 39 billion times over the same time span. Unlike patents or other measures of technological progress, most of such manuals has no proprietary rights or price. To motivate our analysis, we first establish that historical use of programming alone is a surprisingly competitive predictor of recent regional US economic growth, also when additionally controlling for historical IT investment or education. We then document the frequent use of manuals by programmers and look into the social norms which drive their wide-spread provision. A stylized model depicts manuals and new functionalities in programming languages as being close to perfect complements in a production function: The economy could not leverage the productivity of new programming functionalities close to as quickly without the widespread norms that generate the required manuals almost simultaneously.