Jan Tilly
Interests: Labor Economics, Industrial Organization

Job Market Paper

Employment and Welfare Effects of Short-Time Work

with Kilian Niedermayer
We study the employment and welfare effects of short-time work – a government program that subsidizes part-time work during economic downturns – in Germany during the Great Recession. Using novel administrative data, we document that take-up of short-time work is increasing in experience and tenure, almost all short-time workers eventually return to full-time work, and – in contrast to unemployment – short-time work is not associated with a long-term loss in earnings. We develop a theory of short-time work that is consistent with these facts. Our model features search frictions, aggregate and idiosyncratic shocks, long-term contracts, and general- and firm-specific human capital. Productivity shocks differ in duration and magnitude, and when hit by an adverse temporary productivity shock, firms can curtail their losses by reducing working hours. Firms' ability to adjust working hours is limited, because workers may quit. The main determinants of short-time take-up are worker’s human capital and the duration of productivity shocks. Using our estimated model, we find that short-time work was important in reducing job loss in the Great Recession. However, the welfare gains are modest, because workers who would have been laid off without short-time work are workers for whom the earnings loss associated with unemployment is low. (PDF)

Research

Minimum Wages and Policy Expectations

We provide evidence from the Current Population Survey to show that the employment effects associated with minimum wage increases depend on whether increases are anticipated and whether minimum wages are indexed to inflation. We develop an equilibrium search model that features a time-varying real minimum wage. Workers and firms form rational expectations with respect to the future evolution of the minimum wage. We use the model to quantify how policy expectations interact with the employment effects induced by minimum wage increases. (1) When minimum wages are not indexed to inflation, any disemployment effect disappears within a few years. (2) Anticipation effects can be so large that there is no detectable employment effect at the time of the actual increase. (3) When a minimum wage is indexed to inflation, disemployment effects can be more than twice as large compared to when minimum wages are set in nominal terms. (PDF)

Reputation Dynamics in a Market for Illicit Drugs

with Nick Janetos
We analyze reputation dynamics in an online market for illicit drugs using a novel dataset of prices and ratings. The market is a black market, and so contracts cannot be enforced. We study the role that reputation plays in alleviating adverse selection in this market. We document the following stylized facts: (i) There is a positive relationship between the price and the rating of a seller. This effect is increasing in the number of reviews left for a seller. A mature highly-rated seller charges a 20% higher price than a mature low-rated seller. (ii) Sellers with more reviews charge higher prices regardless of rating. (iii) Low-rated sellers are more likely to exit the market and make fewer sales. We show that these stylized facts are explained by a dynamic model of adverse selection, ratings, and exit, in which buyers form rational inferences about the quality of a seller jointly from his rating and number of sales. Sellers who receive low ratings initially charge the same price as highly-rated sellers since early reviews are less informative about quality. Bad sellers exit rather than face lower prices in the future. We provide conditions under which our model admits a unique equilibrium. We estimate the model, and use the result to compute the returns to reputation in the market. We find that the market would have collapsed due to adverse selection in the absence of a rating system. (PDF)

Very Simple Markov-Perfect Industry Dynamics: Theory

with Jaap Abbring, Jeff Campbell, Nan Yang
This paper develops a simple model of firm entry, competition, and exit in oligopolistic markets. It features toughness of competition, sunk entry costs, and market-level demand and cost shocks, but assumes that firms' expected payoffs are identical when entry and survival decisions are made. We prove that this model has an essentially unique symmetric Markov-perfect equilibrium, and we provide an algorithm for its computation. Because this algorithm only requires finding the fixed points of a finite sequence of contraction mappings, it is guaranteed to converge quickly.

Very Simple Markov-Perfect Industry Dynamics: Empirics

with Jaap Abbring, Jeff Campbell, Nan Yang
This paper develops an econometric model of firm entry, competition, and exit in oligopolistic markets. The model has an essentially unique symmetric Markov-perfect equilibrium, which can be computed very quickly. We show that its primitives are identified from market-level data on the number of active firms and demand shifters and implement a nested fixed point procedure for its estimation. We apply this procedure to County Business Patterns data on U.S.\ local cinema markets. The estimates point to tough local competition for film exhibition rights. Sunk costs make the industry's transition following a permanent demand shock last 10 to 15 years.