The Racial Wealth Gap: the Role of Entrepreneurship

with Daniel Albuquerque

Working paper version - including the online appendices: Most recent version Feb. 2023 (first version Aug. 2022

Slides (In progress version, from EWMES 2022)

The wealth distribution by race


The racial wealth gap is one of the most striking and persistent disparities between Black and

White households in the US. We study the determinants of this gap using a general equilibrium incomplete market model featuring dynamic discrete entrepreneurship choice and an empirically estimated income process. In the model, Black households face: (i) higher capital costs as entrepreneurs; (ii) a labour-income gap; and (iii) greater non-employment risk. We find that access to capital for Black entrepreneurs accounts for most of the racial wealth gap. Our model demonstrates that wealth transfers without social change cannot permanently address this gap and points towards addressing barriers faced by Black entrepreneurs as a key margin of intervention.

Time to Say Goodbye: The Macroeconomic implications of Termination Notice

Working paper version - including the online appendices: Most recent version August 2022 (first version Nov. 2020), Slides

Estimation results from Appendix E.3 - data

R&R AEJ:macro

The Monetary Value of Unemployment Insurance by Policy Instrument


Termination notice is a widely used form of labour market regulation that forces a delay upon the ending of employment relationships. I document stylised facts on termination notice and its monetary value in advanced market economies. Using a stylised model, I show that termination notice alters the bargaining situation of the firm and the worker and disincentivises job creation. I extend the stylised model into a general equilibrium heterogeneous agents model and calibrate it to moments of the Israeli labour market, which has both conventional unemployment insurance and termination notice. Next, I present how termination notice affects macroeconomic outcomes and decompose its impact on aggregate welfare. Finally, I find that the optimal policy is a combination of termination notice and conventional unemployment insurance measures. This result is due to a strong complementarity between the two policy devices in the presence of moral hazard.

Firing Restrictions and Economic Resilience: Protect and Survive? 

with Nadav Ben Zeev

Full paper , 3 slide highlights (old title) - from SOLE 2020, online appendix, replication codes

Review of Economic Dynamics, 2022

Impulse Responses to a One Standard Deviation Credit Supply Shock by Strictness of Employment Protection (EPL) - OECD economies


Firing restrictions are in use throughout the developed world but their role in the transmission of macroeconomic shocks into the real economy is mostly unstudied. We illustrate the theoretical role of these policies as amplifiers of macroeconomic shocks via labor-misallocation-induced output losses following an adverse shock. We use our model to derive an aggregation result which features a labor misallocation term and conduct a simulation exercise which demonstrates how misallocation can drive total factor productivity (TFP) down during recessions. We then perform a quasi-natural experiment which utilizes global credit supply shocks to study this amplifying role using a panel of 21 OECD economies. We show that strict firing restrictions are associated with a weaker initial response of the labor market, which is followed by a stronger and more persistent decline in real output as well as a slower return of real activity to pre-shock levels. The stronger output decline can be mostly explained by a stronger fall in aggregate TFP, which supports our theoretical predictions.

Works in Progress