Working Papers

Most new firms are founded by former employees of existing firms - spinouts. This paper studies the relationship between employer size and spinout entry, size and growth. Using micro-data from Mexico, we document a negative relationship between employer size and spinout entry. That is, employees from small firms are more likely to form spinouts than those from large firms. Second, we uncover a positive relationship between employer size and spinout size both at entry and over the lifecycle. Spinouts from large employers start at a larger scale and grow faster than spinouts from small employers. Although a qualitatively similar relationship is observed in data from the U.S., there are large quantitative differences in the levels of spinout formation. To understand the impact of these differences on aggregate outcomes, we build a model of occupational choice and firm dynamics in which workers can learn from and adopt the productivity of their employers to form their own firms. In this framework, differences in the rates of spinout formation between Mexico and the U.S. are driven by differences in the efficiency with which employees learn from their employers. We interpret this efficiency as representing a form of managerial quality. The model, calibrated to match spinout entry rates across the two countries, can account for 13 and 19% of the cross-country variation in output per worker and firm growth respectively. These findings highlight the relevance of spinouts for aggregate outcomes, and the potential for managerial quality to not only impact incumbent firms but also future entrants.

The U.S. is undergoing a long-term decline in the rate of firm startups. We find that this slowdown in entrepreneurship is more pronounced for skilled individuals. In particular, between 1983 and 2006 the entry rate into entrepreneurship declined by 11% for those with at least a college degree and increased by 18% for those with at most a high school degree. We posit that this skill biased entrepreneurial decline is a response to the changing income structure of workers and entrepreneurs that occurred over the same period. We show that entrepreneurial income grew more slowly than worker's income for skilled individuals while for unskilled individuals both incomes grew at relatively similar rates. To quantify the impact of income structure on entrepreneurial entry we present a simple, heterogeneous agent occupational choice model and take as given a rising worker skill premium; driven by skill biased technical change. In the model, the rising skill premium can account for around two-thirds of the changes in entry among skilled and unskilled individuals between 1983 and 2006. This paper contributes to understanding the forces behind the broader decline in business dynamism in the U.S. and suggests an integral role of the rising income inequality in driving this phenomenon.

"Financial Market Liberalization and Inequality" with Alexander Monge-Naranjo, Alexander Ludwig and Ctirad Slavik

Using data on financial deregulation across US states we document that financial market liberalization led to an increase of top and a decrease of bottom income inequality. We investigate whether there are important spill overs from the financial sector to the real economy. First, financial market liberalization leads to an increased demand for high skilled  labor. This increases wages of employees in the financial sector and of employees that have a high probability of alternative employment in the financial sector. It also induces relative shortage of low skilled  workers, suppressing inequality in the left tail of the distribution. Second, as financial market liberalization reduces capital costs, if there exists capital skill complementarities in production then wages of employees with strong complementarities to capital increase disproportionately. We provide evidence for these mechanisms.

Federal Reserve Bank Publications
"Many Countries Sink or Swim on Commodity Prices—and on Orders from China"with Alexander Monge-NaranjoThe Regional Economist, April 2016.
"The Unemployment and Participation Rates for Aggregate Human Capital", with Alexander Monge-NaranjoEconomic Synopses, December 2015, No. 27.
"Age and Gender Differences in Long-Term Unemployment: Before and After the Great Recession", with Alexander Monge-NaranjoEconomic Synopses, November 2015, No. 26. Coverage:[NYT]
"The Composition of Long-Term Unemployment Is Changing toward Older Workers", with Alexander Monge-Naranjo. The Regional Economist, October 2015.