Labor-Based Asset Pricing

with Yukun Liu (University of Rochester)

Abstract: Expected returns and future cash flows are linked to firms' labor search decisions. Using data on the near-universe of online job vacancy postings, we document that vacancy rates negatively predict returns and positively predict cash flows in the cross-section of firms and industries. Firm-specific labor market conditions play an important role in understanding asset prices, as these predictive relationships are stronger for firms operating in less favorable labor market environments. We build a general equilibrium, production-based asset pricing model with heterogeneous firms, search frictions, and idiosyncratic labor market conditions. The model, parameterized to fit the vacancy rate distribution, reproduces central U.S. business cycle and aggregate asset pricing moments, and accounts for our empirical findings.

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Direct and Indirect Taxes in Pollution Dynamics

with Aleh Tsyvinski (Yale) and Xi Wu (UC Berkeley)

[NBER Working Paper]

Abstract: Analyzing the universe of federal environmental regulations in the U.S., we construct a measure of regulations—direct taxes on pollution. Analyzing the universe of firms’ investor disclosures, we construct a measure of material environmental concerns—indirect taxes on pollution. These two empirical measures are new to the environmental regulations literature. Thirdly, we document an important new fact that the cross-sectional distribution of pollution changes is lumpy. We build a dynamic heterogeneous firm model with non-convex adjustment costs that fits the cross-sectional pollution evidence. The model explains half of the pollution decline in U.S. manufacturing over the last two decades due to direct and indirect taxes. We show that the dynamics of direct taxes (environmental regulations) and indirect taxes (environmental concerns), non-convex adjustment costs, and idiosyncratic productivity shocks are key determinants of pollution dynamics in U.S. manufacturing.

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Supply Chain Disruptions, Supplier Capital, and Financial Constraints

with Ernest Liu (Princeton), Yukun Liu (University of Rochester) and Aleh Tsyvinski (Yale)

Abstract: We study the impact of supply chain disruptions on U.S. firms based on the universe of seaborne shipment-level import transactions from 2013 to 2023. The granularity of  the data allows us to build an index of firm-level disruptions of international suppliers and introduce a comprehensive set of stylized facts for supply chain relationships in the cross-section of firms. We build a general equilibrium heterogeneous firms model with two types of capital stocks—physical and international supplier capitals. Accumulation of supplier capital is an important endogenous margin of adjustment, and limiting this ability substantially delays recovery, especially in financially constrained firms.

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Macroeconomic and Asset Pricing Effects of  Supply Chain Disasters 

with Aleh Tsyvinski (Yale)

[NBER Working Paper] [Supply Disruptions Index (US SDI)] [Blue Center Critical Supply Chain Monitor]

​Abstract: We build a general equilibrium production-based asset pricing model with heterogeneous firms that jointly accounts for firm-level and aggregate facts emphasized by the recent macroeconomic literature, and for important asset pricing moments. Using administrative firm-level data, we establish empirical properties of large negative idiosyncratic shocks and their evolution. We then demonstrate that these shocks play an important role for delivering both macroeconomic and asset pricing predictions. Finally, we combine our model with data on the universe of U.S. seaborne import since 2007, and establish the importance of supply chain disasters for the cross-section of asset prices.

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Returns to Scale, Firm Entry, and the Business Cycle - Journal of Monetary Economics, 2023

Abstract: I document that fewer firms with high returns to scale tend to get started in recessions, and that financial conditions at birth are critical for the formation of such businesses. A version of a firm dynamics model with financial frictions and the ability of potential entrepreneurs to choose their returns to scale can account for the data. In the estimated model, financial frictions slow the rate at which businesses with high returns to scale grow disproportionately; this discourages such firms from entering during recessions. The “missing generation” of firms with high returns to scale delays recoveries in the aftermath of economic crises.

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Cyclical Labor Income Risk 

with Makoto Nakajima (FRB of Philadelphia)

[Minneapolis Fed Working Paper]

Abstract: We investigate cyclicality of variance and skewness of household labor income risk using PSID data. There are five main findings. First, we find that head’s labor income exhibits countercyclical variance and procyclical skewness. Second, cyclicality of hourly wage is muted, suggesting that head’s labor income risk is mainly coming from volatility of hours. Third, younger households face stronger cyclicality of income volatility than older ones, although the level of volatility is lower for the younger ones. Fourth, while the second earner helps lowering the level of skewness, it does not mitigate the volatility of household labor income risk. Meanwhile, government taxes and transfers are found to mitigate the level and cyclicality of labor income risk volatility. Finally, among heads with strong labor market attachment, cyclicality of labor income volatility becomes weaker, while cyclicality of skewness remains.

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Shock Propagation within Multisector Firms - Journal of Money, Credit and Banking, 2025

with Jay Hyun (University of Alberta) and Ziho Park (National Taiwan University)

[Online Appendix]

Abstract: This paper studies the role of multi-sector firms in the cross-sectoral propagation of economic shocks. By leveraging an increase in import competition from China as a source of a negative economic shock, we show that employment of an establishment in a given industry is negatively affected by the shock that hits establishments operating in other industries within the same firm. We explore a range of explanations for our findings, emphasizing the role of within-firm input-output linkages and within-firm diversification across sectors. At the sectoral level, the shock that propagates through firms' internal networks has a sizable impact on industry-level employment dynamics.

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The Growing Importance of Universities for Patenting and Innovation 

with Todd Schoellman (FRB of Minneapolis)

Abstract: We document a growing link between university research and development expenditures and patenting activity in the surrounding metropolitan statistical areas (MSAs) since 1980. The gap in patents per capita between MSAs with and without a research university has doubled, while the elasticity of patents per capita with respect to university R&D has tripled. We establish that this trend reflects growing knowledge spillovers from university R&D by showing that it survives controlling for MSA and university characteristics; that it holds by research/patent field; and that it is stronger in areas where universities do more basic R&D. We show that a portion of this change can be linked to the passage of the Bayh-Dole Act, which was designed in part to improve knowledge flows between universities and firms. The growing importance of teams for leading scientific research and reduction in corporate basic research likely also play a role.