We estimate cyclicality in labor's user cost allowing for cyclical fluctuations in the quality of worker-firm matches and wages that are smoothed within employment matches. To do so, we exploit a match's long-run wage to control for its quality. Using NLSY data for 1980 to 2019, we identify three channels by which recessions affect user cost: It lowers the new-hire wage; it lowers wages going forward in the match; but it also results in higher subsequent separations. All totaled, we find that labor's user cost is highly procyclical, increasing by more than 4% for a 1 pp decline in unemployment.

Recent business-cycle theories have relied on countercyclical increases in risk premiums to generate realistic cyclical fluctuations in unemployment. I propose a method to identify the sources of this variation in risk premiums by estimating firm-specific discount rates using establishment-level panel data. My method relies on two steps. First, I use Euler equations to estimate firms' discount rates from their observable employment flows. Second, I identify predictable patterns between movements of the estimated discount factor and observable firm characteristics. Different mechanisms predict that different firms will display movements in discount factors, which allows the identification of the sources of cyclical fluctuations in risk premiums. I will implement my method using restricted-use microdata from the Census Bureau. In particular, I will combine employer-employee information from the Longitudinal Employer-Household Dynamics (LEHD) and Longitudinal Business Database (LBD) with cost information from the Economic Census and annual surveys and balance sheet data from the Quarterly Financial Reports (QFR).

Parents face a tradeoff: not to work and invest time in their children’s human capital, or to work and invest in market inputs, such as childcare or schooling. Unemployment impacts the time versus income trade-off, implying that parents can spend more time at home but earn less income. This can potentially have long-term consequences for children. We study the long-term effects of maternal unemployment on children’s labor market outcomes. Using NLSY 79, we find that the more time a mother is unemployed during her child’s formative years, the lower the wage of the child in the future. The results are significant, even when controlling for family income. This suggests that maternal unemployment has scarring effects beyond lower income, and that the increase in available hours does not compensate for the detrimental effects of unemployment. Currently, we are working on a quantitative model to distinguish between possible mechanisms that generate these scarring effects.

I show that a combination of job search and job-specific human capital is needed to quantitatively account for the behavior of the hours’ profile, especially during workers’ early years in the labor market. In the data, the hours' profile grows steeper and peaks before the wage profile, which has been seen as evidence favoring on-the-job human capital accumulation. I show, however, that a model with only general human capital overpredicts the labor supply at early ages, while a model with job-specific human capital and job search can better account for the empirical evidence. Together, both forces lower the incentive to work since workers are likely to change jobs and lose the accumulated specific human capital. As a validation test, I show that, as the model predicts, worked hours are positively associated with proxies for better match quality during a worker’s first three years in the labor market. Currently, I am working on the quantitative model to perform a counterfactual exercise of decomposing life-cycle wage growth into contributions of human capital and job search.