Working Papers

A Quantitative Theory of Domestic Outsourcing: The Role of Wage-Proportional Staffing Fees

Abstract: Domestic labor outsourcing allows individuals to work under the management of a user firm while legally remaining employees of a staffing agency. These staffing agencies provide fast matches while continually charging fees proportional to workers' wages. I explore the trade-offs associated with these jobs in a directed search model with endogenous human capital investment and endogenous sorting into outsourced and non-outsourced jobs. In addition to selection on worker characteristics, jobs differ in terms of their separation risk, and high-separation rate jobs are endogenously more likely to involve outsourcing, consistent with empirical observations. I then show that the staffing fee structure amplifies existing frictions caused by incomplete contracts. Workers in outsourced jobs under-invest in human capital relative to those in non-outsourced jobs, as the staffing fee lowers the return to human capital investment. Despite this under-investment, total utility is higher in an economy with unrestricted outsourcing than without outsourcing, demonstrating that the ability to avoid search frictions via outsourcing outweighs the associated human capital investment disincentives.

Labor Participation, Human Capital Accumulation, and the Business Cycle, with Zhifeng Cai

Abstract: We explore labor force participation in a directed search model where overlapping generations make endogenous education decisions and experience on-the-job human capital growth. Our model closely matches U.S. labor force participation and its response to GDP growth across different age groups and education levels. We find that subsidizing job search may lower welfare, as it discourages college enrollment and negatively impacts skill development in the long run. However, an age-based subsidy can raise overall welfare.

Alternative Work Arrangements: Business and Life Cycle Implications (Revise and Resubmit - AEJ Macro)

Abstract: Many countries have employment protections that create two-tiered labor markets in which some jobs are more secure than others. I model the selection of younger workers into more precarious jobs, as documented empirically. I then estimate the effects of changes to employment protection legislation. By including human capital accumulation in employment and human capital loss during unemployment, the effects of reducing employment protections differ qualitatively from previous work, which ignores the human capital channel. Reducing employment protections boosts the job-finding rate among younger workers while reducing average GDP and employment. This outcome stems from lower average human capital in the economy without employment protections. There is a sizable gap in how such a policy change impacts workers of different ages both in the steady state and over the business cycle. While the economy with reduced employment protections is more responsive to aggregate shocks as a whole, the unemployment response of new entrants is less responsive.

Making the Most of General Purpose Technologies, with Cici McNamara

Abstract: Certain technologies drive the growth of whole eras and entire sectors, and improvements in such technologies benefit the whole economy. The past few years have seen increasing interest in using regulatory power to internalize the benefits of one such technology: broadband internet. This interest has often manifested itself in a discussion as to what relative weights should be placed on increasing access to broadband versus increasing competition in broadband markets. We develop a framework to study how competition among providers of such technologies affects firm and household decisions to use that technology and subsequent macroeconomic outcomes. Using a novel data set on broadband availability, speed, and prices, we estimate a structural model of broadband provider entry and product choices. We use the estimated results of this first stage model to relate prices to market structure. These pricing results are then used in a model of household and firm decisions. We find that the presence of an additional provider is most effective in terms of boosting firm profitability in markets with relatively educated populations that previously had few to no providers. In terms of increasing household adoption of broadband, an additional provider of either type is most effective in relatively well-populated areas, with the effect of an additional low-speed provider being greatest where median household income is well below average, and the effect of an additional high-speed provider being greatest in markets with no high-speed and few low-speed providers.

Work In Progress

Domestic Outsourcing and its Relation to Firm Size, with Jingnan (Jane) Liu

Overview: Recent studies have found growing concentration across OECD countries, as workers and sales are concentrated into fewer firms. The pace of this concentration varies across industries, and recent work provides evidence that growing concentration may motivate changes in the traditional boundaries of many firms. More specifically, growing concentration is related to the use of domestic outsourcing, where separate domestic companies are hired that provide labor and perform services once handled directly by the firm. Changing use of domestic outsourcing has important implications regarding wage inequality, labor force participation, and job security. Using German IAB data on the use of indirectly-hired workers we investigate the relationship between the use of domestic outsourcing and firm size, and how this relationship varies across occupations and industries. Furthermore, we investigate the mechanism driving the observed relationship with an extension of Jarosch, Nimczik, and Sorkin (2021) where firms exert market power by eliminating their own vacancies from the other party's set of outside options. This exertion of market power has a greater effect when larger firms negotiate with a staffing agency wishing to fill multiple vacancies than with an individual worker aiming to fill only one vacancy.

 Media Citations

An Averaging Index of State Business Climate Rankings. 2016. Inside INdiana Business with Dick Heupel

Abstract: Ranking states' business climates has become something of a cottage industry. Forbes, CNBC, Tax Foundation, George Mason University, Chief Executive Magazine, Institute for Legal Reform, and Pollina Corporate Real Estate each produce their own state business climate rankings using their own methods. Not surprisingly, the seven organizations' work yielded widely different results. State rankings have often been criticized for their lack of consistency and relevance with important economic data. In order to provide a more reliable state business climate ranking based on data from seven distinct sources, we create a mean ranking system that combines the rankings from our different sources. The relation of our mean ranking system with state output and employment is then tested and compared to that of the individual rankings that it utilizes. We find that our mean ranking system is more closely tied to these two variables than all but two of the distinct rankings that it utilizes.