Simon Mongey is a research economist at the Federal Reserve Bank of Minneapolis. He will join the University of Chicago as an assistant professor in the summer of 2018. Simon received his Ph.D. in economics from New York University and a B.A. in economics from the University of Melbourne. His latest research focuses on understanding the role of market structure for business cycle dynamics and the empirical relationship between market concentration and inflation. Simon also works on the effects of student debt on job choice and the role of firms’ recruiting effort in the dynamics of labor markets.
Canonical macroeconomic models of pricing under nominal rigidities assume markets consist of atomistic firms. Most US retail markets are dominated by a few large firms. To bridge this gap, I extend an equilibrium menu cost model to allow for a continuum of sectors with two large firms in each sector. Compared to a model with monopolistically competitive markets, and calibrated to the same good-level data on price adjustment, the duopoly model generates output responses to monetary shocks that are more than twice as large. Firm-level prices respond equally to idiosyncratic shocks, but less to aggregate shocks in the calibrated duopoly model. In a duopoly, the response of low priced firms to an increase in money is dampened: a falling real price at its competitor weakens both the incentive to increase prices, and price conditional on adjustment. The dynamic duopoly model also implies (i) large first order welfare losses from nominal rigidities, (ii) lower menu costs, (iii) a U-shaped relationship between market concentration and price flexibility, for which I find strong evidence in the data, (iv) markup estimates inverted from static oligopoly models are downward biased.
We develop a model of firm dynamics with random search in the labor market where hiring firms exert recruiting effort by spending resources to fill vacancies faster. Consistent with micro evidence, in the model fast-growing firms invest more in recruiting activities and achieve higher job-filling rates. In equilibrium, individual recruiting decisions of hiring firms aggregate into an index of economy-wide recruiting intensity. We use the model to study how aggregate shocks transmit to recruiting intensity, and whether this channel can account for the dynamics of aggregate matching efficiency around the Great Recession. We find that (i) productivity and financial shocks lead to sizable pro-cyclical fluctuations in matching efficiency through recruiting effort, (ii) quantitatively, the main mechanism is that firms attain their employment targets by adjusting their recruitment effort as labor market tightness varies, (iii) shifts in sectoral composition can have a sizable impact on aggregate recruiting intensity, (iv) selection effects imply that despite their large contribution to aggregate job and vacancy creation, fluctuations in new-firm entry have a negligible impact.
Higher college debt causes individuals to take jobs with (i) higher wages, (ii) lower job satisfaction, and (iii) search more on the job. Our results derive from an IV scheme estimated on representative cohorts of college students—NCES Baccalaureate and Beyond Study—in which within college changes in grant policies generate exogenous variation in student debt. This behavior is rationalized by a Lise (2013) search model with incomplete markets augmented with non-pecuniary features of jobs. In this environment, lower assets tilts job acceptance policies towards higher wage, lower satisfaction jobs. We extend this model to a quantitative framework with costly on-the-job search, institutional student loan policies and realistic borrowing constraints. Our data provides novel observables that are leveraged when estimating the model by indirect inference. In particular we use variation in the rate of search across wages and job satisfaction to identify the utility associated with different levels of job satisfaction and their frequency in the offer distribution. We find that (i) job satisfaction has a large impact on individual decisions, (ii) a free move from low to high satisfaction positions is valued at 2% of lifetime consumption, (iii) an income based repayment scheme (as proposed in the US) is valued more (less) by high (low) debt students and on average increases welfare, (iv) 35% of welfare gains come from students choosing higher satisfaction jobs, (v) welfare measured only in terms of present value of wages neglects the job satisfaction trade-off and mistakenly implies that an income based repayment scheme is worse for graduates.
Are fluctuations in firm-level dispersion a cause or effect of business cycles? To answer this question, we estimate general equilibrium model rich enough to jointly explain characteristics of the firm distribution and the dynamics of macroeconomic aggregates. The model includes frictions that generate movements in dispersion following standard macroeconomic shocks such as aggregate productivity, as well as a direct shock to the dispersion of firm level productivity growth. This type of general equilibrium model with heterogeneous agents and aggregate shocks is computationally difficult to solve, which typically keeps likelihood-based estimation out of reach. We exploit recent advances in solution techniques to obtain a characterization for which estimation is feasible. To answer our question we estimate the model using time series of both macroeconomic aggregates and newly constructed cross-sectional time series, which reflect movements in the firm distribution over time. Now able to account for firm dispersion and the business cycle, we find that (i) standard macroeconomic aggregate shocks explain almost all of the variation in macroeconomic aggregates, (ii) an uncertainty shock explains almost all of the variation in firm-level dispersion.