Cornell Cornell University

Christopher Huckfeldt | Papers

Working papers

Understanding the Scarring Effect of Recessions [pdf]
Revise and resubmit, American Economic Review

This paper documents that the earnings cost of job loss is concentrated among workers who find reemployment in lower-paying occupations, and that the incidence of such occupation displacement is higher for workers who lose their job during a recession. I propose a model where hiring is endogenously more selective during recessions, forcing some unemployed workers to search for lower-skill jobs. In accounting for the cost and cyclical incidence of occupation displacement, the model accounts for existing estimates of the present value cost of job loss during expansions and recessions, and the cost of entering the labor market during a recession.

Unemployment Fluctuations, Match Quality, and the Wage Cyclicality of New Hires (joint with Mark Gertler and Antonella Trigari), NBER Working Paper No. 22341 [pdf]
Revise and resubmit, The Review of Economic Studies

Macroeconomic models often incorporate some form of wage stickiness to help account for employment fluctuations. However, a recent literature calls in to question this approach, citing evidence of new hire wage cyclicality from panel data studies as evidence for contractual wage flexibility for new hires, which is the relevant margin for employment volatility. We analyze data from the SIPP and find that the wages for new hires coming from unemployment are no more cyclical than those of existing workers, suggesting wages are sticky at the relevant margin. The new hire wage cyclicality found in earlier studies instead appears to reflect cyclical average wage gains of workers making job-to-job transitions, which we interpret as evidence of procyclical match quality for new hires from employment. We then develop a quantitative general equilibrium model with sticky wages via staggered contracting, on-the-job search, and variable match quality, and show that it can account for both the panel data evidence and aggregate labor market regularities. An additional implication of the model is that a sullying effect of recessions emerges, along the lines originally suggested by Barlevy (2002).