Since employment dynamics are persistent, a central bank's dual mandate to promote maximum employment and price stability naturally generates history dependence in monetary policy. This history dependence under a dual mandate flattens the reduced-form Phillips curve, reduces the volatility of inflation in response to demand shocks, and improves outcomes at the zero lower bound. Moreover, we show that a dual mandate can be observationally equivalent to average inflation targeting following a demand shock. However, this equivalence breaks down in the presence of supply shocks. We first illustrate these findings analytically and then examine their quantitative importance in a model with nominal rigidities and labor search frictions calibrated to match U.S. business-cycle moments. An employment mandate can naturally provide the benefits associated with history-dependent policy frameworks.
Do Vibes Predict Recessions? Evidence from a Big-Data Forecasting Framework
Nicolas Petrosky-Nadeau, Yeji Sung, Daniel J. Wilson
Measures of beliefs, sentiment, and narratives often send recession signals that differ from those in hard data, defined as conventional economic and financial indicators. Using a real-time forecasting framework, we compare how soft and hard data predict recessions from one to twelve months ahead. Forecasts based on soft data are more responsive to rising recession risk: they identify more downturns, but also produce more false alarms. Even with far fewer inputs, soft-data forecasts remain competitive with hard-data forecasts out of sample, especially at shorter horizons. Combining hard and soft data often improves forecast performance, suggesting that the two types of information are useful complements.
Evaluating Macroeconomic Outcomes Under Asymmetries: Expectations Matter
Brent Bundick, Isabel Cairo, Nicolas Petrosky-Nadeau
Asymmetries play an important role in many macroeconomic models. We show that assumptions on household and firm expectations play a key role in determining the effects of these asymmetries on macroeconomic outcomes. If households and firms have perfect foresight and hence do not account for the possibility of future shocks, then the implied longer-run averages and distributions for unemployment and inflation can differ significantly from their rational expectations counterparts. We first derive this result analytically under either an asymmetric monetary policy rule or a nonlinear Phillips curve before numerically examining some of the key nonlinearities featured in the recent literature.
Firm Search in the Labor Market: Evidence from Help-Wanted Advertisements
H. Bi, N. Traum, G. Woodward, Nicolas Petrosky-Nadeau
We construct new monthly city-level and national measures of firm search for workers from 1900 to 1938, drawing on approximately 5 million scanned help-wanted advertisements from five U.S. newspapers, with breakdowns by gender. We document four main findings: (1) firm search effort is procyclical, declining sharply at the onset of recessions; (2) posting costs affect advertising behavior, but the effect is modest, with an elasticity of $-0.09$; (3) the U.S. Beveridge curve has been stable for the past 125 years, with matching elasticities of 0.57 pre-WWII and 0.55 post-WWII; and (4) help-wanted advertisements for women are more responsive than those for men to both posting costs and the business cycle.
When Hosios meets Phillips: Connecting efficiency and stability to demand shocks
Etienne Wasmer, Philippe Weil, Nicolas Petrosky-Nadeau
In an economy with frictional goods and labor markets there exist a price and a wage that implement the constrained efficient allocation. This price maximizes the marginal revenue of labor, balancing a price and a trading effect on firm revenue, and this wage trades off the benefits of job creation against the cost of turnover in the labor market. We show under bargaining over prices and wages that a double Hosios condition: (i) implements the constrained efficient allocation; (ii) also minimizes the elasticity of labor market tightness and job creation to a demand shock, and; (iii) that the relative response of wages to that of unemployment to changes in demand flattens as workers lose bargaining power, and it is steepest when there is efficient rent sharing in the goods market between consumers and producers, thereby relating changes in the slope of a wage Phillips curve to the constrained efficiency of allocations.
Published Papers
From Deviations to Shortfalls: The Effects of the FOMC's New Employment Objective
We analyze the effects of a monetary policy that stabilizes "shortfalls" rather than "deviations" of employment from its maximum level. A shortfalls-stabilization rule leads to expectations of more accommodative policy in expansions, raising average inflation and nominal rates. These effects are significantly amplified by incorporating history dependence in labor markets, a feature in labor-search frameworks. In a calibrated model of labor-search frictions and nominal rigidities, the adoption of a shortfalls rule raises average inflation and nominal policy rates by 90 basis points, reduces the likelihood of a binding zero lower bound, and implies a steeper and nonlinear Phillips curve.
UI Generosity and Job Acceptance: Effects of the 2020 CARES Act
We assess labor market effects of the Coronavirus Aid, Relief, and Economic Security (CARES) Act $600 weekly unemployment insurance (UI) supplement. We analyze labor force transitions using monthly Current Population Survey microdata and imputed UI benefits. The results show moderate disincentive effects of the supplement on job finding. We rationalize this result in a dynamic model of job acceptance decisions that yields a reservation level of UI benefits at which a recipient is indifferent between unemployment and employment at their prior wage. Calculations based on the model are consistent with the empirical analysis in regard to the moderate fraction of UI recipients who were likely to reject job offers.
An equilibrium search model with credible bargaining, when calibrated to the mean and volatility of postwar unemployment rates, is a good start to understanding the unemployment crisis in the Great Depression. Drawing from rarely used data sources, this paper compiles historical monthly time series of U.S. unemployment rates, vacancy rates, and labor productivity, some of which date back to 1890. The frequency, persistence, and severity of the unemployment crises in the model are quantitatively consistent with those in the historical data.
Unemployment Rate Benchmarks
R. K. Crump, C. J. Nekarda, Nicolas Petrosky-Nadeau
This paper discusses various concepts of unemployment rate benchmarks that are frequently used by policymakers for assessing the current state of the economy as it relates to the pursuit of both price stability and maximum employment. In particular, we propose two broad categories of unemployment rate benchmarks: (1) a longer-run unemployment rate expected to prevail after adjusting to business cycle shocks and (2) a stable-price unemployment rate tied to inflationary pressures. We describes how various existing measures used as benchmark rates fit within this taxonomy with the goal of facilitating the use of a common set of terms for assessments of the current state of the economy and deliberations among policymakers.
Replicating and Projecting the Path of COVID-19 with a Model-Implied Reproduction Number
S. Buckman, R. Glick, K. Lansing, Nicolas Petrosky-Nadeau, L. Seitelman
We demonstrate a methodology for replicating and projecting the path of COVID-19 using a simple epidemiology model. We fit the model to daily data on the number of infected cases in China, Italy, the United States, and Brazil. These four countries can be viewed as representing different stages, from later to earlier, of a COVID-19 epidemic cycle. We solve for a model-implied effective reproduction number ℛ𝑡 each day so that the model closely replicates the daily number of currently infected cases in each country. For out-of-sample projections, we fit a behavioral function to the in-sample data that allows for the endogenous response of ℛ𝑡 to movements in the lagged number of infected cases. We show that declines in measures of population mobility tend to precede declines in the model-implied reproduction numbers for each country. This pattern suggests that mandatory and voluntary stay-at-home behavior and social distancing during the early stages of the epidemic worked to reduce the effective reproduction number and mitigate the spread of COVID-19.
Market economies are intrinsically unstable. The standard search model of equilibrium unemployment, once solved accurately with a globally nonlinear algorithm, gives rise endogenously to rare disasters. During periods of cumulative negative shocks, wage rigidity keeps compensation relatively elevated while profits decline. This combination prevents hiring costs from falling proportionally to profits, as trading externalities in the matching process create downward friction. Together, these forces constrain job creation, pushing the economy into disaster cycles.
Disentangling Goods, Labor and Credit Market Frictions in Three European Economies
T. Brzustowski, Nicolas Petrosky-Nadeau, Etienne Wasmer
We build a flexible model with search frictions in three markets: credit, labor, and goods markets. We then apply this model (called CLG) to three different economies: a flexible, finance-driven economy (the UK), an economy with wage moderation (Germany), and an economy with structural rigidities (Spain). In these three countries, goods and credit market frictions play a dominant role in entry costs and account for 75% to 85% of the total entry costs. In the goods market, adverse supply shocks are amplified through their propagation to the demand side, as they also imply income losses for consumers. This adds up to, at most, an additional 15% to 25% to the impact of the shocks. Finally, the speed of matching in the goods market and the credit market accounts for a small fraction of unemployment: most variation in unemployment comes from the speed of matching in the labor market.
Solving the Diamond-Mortensen-Pissarides Model Accurately
An accurate global projection algorithm is critical for quantifying the basic moments of the Diamond–Mortensen–Pissarides model. Log linearization understates the mean and volatility of unemployment, but overstates the volatility of labor market tightness and the magnitude of the unemployment–vacancy correlation. Log linearization also understates the impulse responses in unemployment in recessions, but overstates the responses in the market tightness in booms. Finally, the second-order perturbation in logs can induce severe Euler equation errors, which are often much larger than those from log linearization.
There is a renewed interest in macroeconomic theories of search frictions in the goods market that help solve quantitative puzzles on amplification and persistence of GDP, sales, inventory and advertisement. This requires a deeper understanding of the cyclical properties of the intensive margins of search in this market. Using the American Time Use Survey we construct an indicator of shopping time. It includes both searching and purchasing goods and is based on 25 time use categories (out of more than 400 categories). We find that average time spent shopping declined in the aggregate over the period 2008–2010 compared to 2005–2007. The decline was largest for the unemployed who went from spending more time shopping for goods than the employed to roughly the same, or even less, time. Cross-state and individual regressions indicate pro-cyclical consumer shopping time in the goods market. This evidence poses a challenge for models in which price comparisons are a driver of business cycles.
Financial Frictions, the Housing Markets and Unemployment
We develop a two-sector search-matching model of the labor market with imperfect mobility of workers, augmented to incorporate a housing market and a frictional goods market. Homeowners use home equity as collateral to finance idiosyncratic consumption opportunities. A financial innovation that raises the acceptability of homes as collateral raises house prices and reduces unemployment. It also triggers a reallocation of workers, with the direction of the change depending on firms' market power in the goods market. A calibrated version of the model under adaptive learning can account for house prices, sectoral labor flows, and unemployment rate changes over 1996–2010.
Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions
Goods market frictions drastically change the dynamics of the labor market, both in terms of persistence and volatility. In a model with three imperfect markets – goods, labor, and credit – we find that credit and goods market imperfections are substitutable in raising volatility. Goods market frictions are unique in generating persistence. Two key mechanisms in the goods market generate large hump-shaped responses to productivity shocks: countercyclical goods market tightness and prices alter future profit flows and raise persistence; procyclical search effort of consumers and firms raises amplification. Goods market frictions are thus key in understanding labor market dynamics.
Propagation in equilibrium models of search unemployment is altered when vacancy costs require some external financing on frictional credit markets. The easing of financing constraints during an expansion as firms accumulate net worth reduces the opportunity cost for resources allocated to job creation. The dynamics of market tightness are affected by (i) a cost channel, increasing the incentive to recruit for a given benefit from a new hire, and (ii) a wage channel, whereby firms' improved bargaining position limits the upward pressure of market tightness on wages. Agency related credit frictions endogenously generate persistence in the dynamics of labor-market tightness, and have a moderate endogenous effect on amplification.
The financial crisis of 2008 was followed by sharp contractions in aggregate output and employment and an unusual increase in aggregate total factor productivity (TFP). This paper attempts to explain these facts by modeling the creation and destruction of jobs in the presence of heterogeneity in firm productivity and frictional credit and labor markets. The aggregate level of TFP is determined by both the underlying distribution of firm productivity and the structures of the credit and labor markets. Adverse shocks to credit markets destroy the least productive jobs and slow job creation, thus raising aggregate TFP and unemployment, and reducing output.
The Cyclical Volatility of Labor Markets under Frictional Financial Market
We provide a dynamic extension of an economy with search on credit and labor markets (Wasmer and Weil 2004). Financial frictions create volatility. They add an additional, almost acyclical, entry cost to procyclical job creation costs, thus increasing the elasticity of labor market tightness to productivity shocks by a factor of five to eight, compared to a matching economy with perfect financial markets. We characterize a dynamic financial multiplier that is increasing in total financial costs and minimized under a credit market Hosios-Pissarides rule. Financial frictions are an element of the solution to the volatility puzzle.
Conference Organization
The Micro-Macro Labor Economics Conference is an annual one-day conference at the Federal Reserve Bank of San Francisco, co-organized since 2017. It features research in labor economics from both micro and macro perspectives, with five to six papers, two discussants each, a lunch keynote since 2024, and a day-ahead workshop for junior scholars. In the programs below the presenting author is shown in bold, and papers that have since appeared in a journal name it.
2025 · December 12
Keynote: Luigi Pistaferri, Stanford University
5 papers, 10 discussants
Parental Leave Policies, Fertility, and Labor Supply
Daisoon Kim, Minchul YumDiscussants: Kevin Milligan, Fang Yang
College Access and Intergenerational Mobility
Lutz Hendricks, Tatyana Koreshkova, Oksana LeukhinaDiscussants: Jesse Rothstein, Ivan Vidangos
Union and Firm Labor Market Power
Miren Azkarate-Askasua, Miguel ZereceroDiscussants: Ioana Marinescu, Monica Morlacco
Organizational Technology Ladders: Remote Work and Generative AI Adoption
Gregor SchubertDiscussants: Nicholas Bloom, Alexander Bick
Earnings Instability
Peter Ganong, Pascal Noel, Christina Patterson, Joseph Vavra, Alexander WeinbergDiscussants: Serdar Ozkan, Isaac Sorkin
Organizers: Nicolas Petrosky-Nadeau, Lindsey Uniat, Rob Valletta
2024 · December 6
Keynote: Magne Mogstad, University of Chicago
5 papers, 10 discussants
Path Dependence in the Labor Market: The Long-run Effects of Early Career Occupational Experience
Jesse Bruhn, Jacob Fabian, Luke Gallagher, Matthew Gudgeon, Adam Isen, Aaron PhippsDiscussants: Lisa Kahn, Chris Taber
How replaceable is a low-wage job?
Evan K. Rose, Yotam Shem-TovDiscussants: Marta Lachowska, Chris Huckfeldt
Misallocative Growth
Niklas EngbomDiscussants: Chris Tonetti, Rasmus Lentz
Assortative Matching and Wages: The Role of Selection
Katarina Borovickova, Robert ShimerDiscussants: Costas Meghir, Philipp Kircher
Why do workers dislike Inflation? Wage Erosion and Conflict Costs
Joao Guerreiro, Jonathon Hazell, Chen Lian, Christina PattersonDiscussants: Gizem Kosar, Hassan Afrouzi
Organizers: Joan Monras, Nicolas Petrosky-Nadeau, Na'ama Shenhav
2023 · December 1
6 papers, 12 discussants
Dynamic Monopsony with Large Firms and an Application to Non-Competes
Axel Gottfries, Gregor JaroschDiscussants: Simon Mongey, Liyan Shi
Earnings Inequality in Production Networks
Federico Huneeus, Kory Kroft, Kevin LimDiscussants: Sydnee Caldwell, Swapnika Rachapalli
Scaling Up the American Dream: A Dynamic Analysis
Alessandra Fogli, Veronica Guerrieri, Mark Ponder, Marta PratoDiscussants: Alvin Murphy, Jesse Gregory
Expansionary and Contractionary Supply-Side Effects of Health Insurance
Eilidh Geddes, Molly SchnellDiscussants: Martin Hackmann, Naoki Aizawa
The Effects of the Legal Minimum Working Time on Workers, Firms and the Labor Market
Pauline CarryDiscussants: Melanie Wasserman, Lukas Nord
Wage Insurance for Displaced Workers
Benjamin Hyman, Brian Kovak, Adam LeiveDiscussants: Amanda Michaud, Nathanael Vellekoop
2022 · October 21
6 papers, 12 discussants
Disincentive Effects of Pandemic Unemployment Benefits
Andreas Hornstein, Marios Karabarbounis, André Kurmann, Etienne Lalé, Lien TaDiscussants: Pascal Noel, Cynthia DonigerPublished as “Disincentive effects of unemployment insurance benefits,” Journal of Monetary Economics, 2026
Where is Standard of Living the Highest? Local Prices and the Geography of Consumption
Rebecca Diamond, Enrico MorettiDiscussants: Joan Monras, Alessandra Fogli
The Distributional Impact of the Minimum Wage in the Short and Long Run
Erik Hurst, Patrick Kehoe, Elena Pastorino, Thomas WinberryDiscussants: Thomas Lemieux, Richard Rogerson
Task Inequality and Racial Mobility over the Long Twentieth Century
Rowena Gray, Siobhan O'Keefe, Sarah Quincy, Zachary WardDiscussants: Erin Wolcott, Henry SiuPublished as “Tasks and Black-white Inequality over the Long Twentieth Century,” Journal of Human Resources, 2025
Is Software Eating the World?
Sangmin Aum, Yongseok ShinDiscussants: Salome Baslandze, Bart Hobijn
Stimulus through Insurance: The Marginal Propensity to Repay Debt
Gizem Kosar, Davide Melcangi, Laura Pilossoph, David WiczerDiscussants: Igor Livshits, Felicia Ionescu
Organizers: Marianna Kudlyak, Nicolas Petrosky-Nadeau, Na'ama Shenhav, Rob Valletta
2019 · November 22
5 papers, 10 discussants
Declining Worker Turnover: the Role of Short Duration Employment Spells
Michael J. Pries, Richard RogersonDiscussants: Andreas Hornstein, John HaltiwangerPublished inAmerican Economic Journal: Macroeconomics, 2022
Jobs at Risk, Regional Growth, and Labor Market Flows
Eran B. Hoffmann, Monika Piazzesi, Martin SchneiderDiscussants: Katarina Borovičková, Ryan Michaels
Automation, Globalization and Vanishing Jobs: A Labor Market Sorting View
Ester Faia, Sebastien Laffitte, Gianmarco Ottaviano, Maximilian MayerDiscussants: Erik Hurst, Chris Tonetti
How Important Is Health Inequality for Lifetime Earnings Inequality?
Roozbeh Hosseini, Karen Kopecky, Kai ZhaoDiscussants: David Wiczer, Hannes SchwandtPublished inReview of Economic Studies, 2026
Estimating Who Benefits From Productivity Growth: Direct and Indirect Effects of City Manufacturing TFP Growth on Wages, Rents, and Inequality
Richard Hornbeck, Enrico MorettiDiscussants: Matthew Freedman, John MondragonPublished as “Estimating Who Benefits from Productivity Growth: Local and Distant Effects of City Productivity Growth on Wages, Rents, and Inequality,” Review of Economics and Statistics, 2024
Organizers: Régis Barnichon, Mary C. Daly, Marianna Kudlyak, Nicolas Petrosky-Nadeau, Rob Valletta
2018 · November 30
5 papers, 10 discussants
Aggregate Nominal Wage Adjustments: New Evidence from Administrative Payroll Data
John Grigsby, Erik Hurst, Ahu YildirmazDiscussants: Gary Solon, Susanto BasuPublished inAmerican Economic Review, 2021
Women, Wealth Effects, and Slow Recoveries
Masao Fukui, Emi Nakamura, Jon SteinssonDiscussants: Richard Rogerson, Bob HallPublished inAmerican Economic Journal: Macroeconomics, 2023
Firm and Worker Dynamics in a Frictional Labor Market
Adrien Bilal, Nik Engbom, Simon Mongey, Giovanni L. ViolanteDiscussants: Thibaut Lamadon, Cynthia DonigerPublished inEconometrica, 2022
Occupational Job Ladders and the Efficient Reallocation of Displaced Workers
Eliza ForsytheDiscussants: Gueorgui Kambourov, Bart Hobijn
Hours and Wages
Alexander Bick, Adam Blandin, Richard RogersonDiscussants: Aysegul Sahin, John KennanPublished inQuarterly Journal of Economics, 2022
Organizers: Régis Barnichon, Mary C. Daly, Marianna Kudlyak, Nicolas Petrosky-Nadeau, Rob Valletta
2017 · December 1
6 papers, 6 discussants
Worker Mobility and the Diffusion of Knowledge
Kyle Herkenhoff, Jeremy Lise, Guido Menzio, Gordon PhillipsDiscussant: Diego CominPublished as “Production and Learning in Teams,” Econometrica, 2024
The Great Micro Moderation
Nicholas Bloom, Fatih Guvenen, Luigi Pistaferri, John Sabelhaus, Sergio Salgado, Jae SongDiscussant: David Card
Aggregate Effects of Minimum Wage Regulation at the Zero Lower Bound
Andrew GloverDiscussant: Harald UhligPublished inJournal of Monetary Economics, 2019
High Wage Workers Work for High Wage Firms
Katarina Borovickova, Robert ShimerDiscussant: Rasmus Lentz
Rising Inequality and Trends in Leisure
Timo Boppart, L. Rachel NgaiDiscussant: Valerie RameyPublished inJournal of Economic Growth, 2021
Investment Opportunities and Economic Mobility: Who Benefits From College and the Stock Market?
Kartik Athreya, Felicia Ionescu, Urvi Neelakantan, Ivan VidangosDiscussant: Luigi Pistaferri
Organizers: Mary Daly, Rob Valletta, Régis Barnichon, Marianna Kudlyak, Nicolas Petrosky-Nadeau
Policy Papers & Other Work
Estimating Natural Rates of Unemployment: A Primer
B. Bok, R. Crump, C. Nekarda, Nicolas Petrosky-Nadeau
Before the pandemic, the U.S. unemployment rate reached a historic low that was close to estimates of its underlying longer-run value and the short-run level associated with an absence of inflationary pressures. After two turbulent years, unemployment returned to its pre-pandemic low, and the estimated underlying longer-run unemployment rate appeared largely unchanged. However, economic disruptions pushed up the short-run noninflationary rate substantially, as high as 6%. This primer examines these different measures of the natural rate of unemployment and discusses how they can provide useful insights for policymakers.
Parents in a Pandemic Labor Market
Olivia Lofton, Nicolas Petrosky-Nadeau, Lily Seitelman
Gender gaps in labor market outcomes during the pandemic are largely due to differences across parents: Employment and labor force participation fell much less for fathers as compared to women and non-parent men at the onset of the pandemic; the recovery has been more pronounced for men and women without children, and; the labor force participation rate of mothers has resumed declining following the start of the school year. The latter is partially offset in states with limited school re-openings. Evidence suggests flexibility in setting work schedules offsets some of the adverse impact of the pandemic on mothers' employment, while the ability to work from home does not.
The COVID-19 pandemic upended the U.S. economy and labor market. We explore potential paths for the official unemployment rate through 2021. Our analyses rely on historical patterns of monthly flows in and out of unemployment, adjusted for unique features of the virus economy. The possible unemployment trajectories vary widely, but absent sustained hiring activity on an unprecedented scale, unemployment could remain substantially elevated into 2021. After adjusting the unemployment rate for unique measurement challenges created by virus containment measures, we find that unemployment has followed a fast recovery track during the first six months of the pandemic.