Pecos Wilderness, NM
I'm an Assistant Professor of Economics in the School of Economics at Drexel University.
I'm interested in empirical and theoretical aspects of macroeconomics and labor. My recent research focuses primarily on (i) understanding the causes and consequences of unemployment (micro and macro), (ii) the role of information, expectations, and beliefs in labor markets, and (iii) the effects of labor market policies.
Research Interests
Search, macroeconomics, labor
Contact Information
(215) 895-2540
tristan.l.potter [at] drexel.edu
I'm interested in empirical and theoretical aspects of macroeconomics and labor. My recent research focuses primarily on (i) understanding the causes and consequences of unemployment (micro and macro), (ii) the role of information, expectations, and beliefs in labor markets, and (iii) the effects of labor market policies.
Research Interests
Search, macroeconomics, labor
Contact Information
(215) 895-2540
tristan.l.potter [at] drexel.edu
Current research
Anticipated Productivity and the Labor Market (w/ R. Chahrour and S. Chugh)
R&R, Quantitative Economics
We identify the main shock driving comovement of the labor market with output. The shock induces business cycle patterns in output, consumption, investment, hours, and stock prices and is orthogonal to business cycle fluctuations in TFP. Yet, the shock is associated with future TFP fluctuations, consistent with theories of technology news. A labor search model in which wages are determined by a cash flow sharing rule, rather than the present value of match surplus, matches the observed responses to TFP news. The response of the wage implied by this rule is consistent with a broad panel of wage series.
Destabilizing Search Technology
Modern search technologies enable workers to monitor—and thus quickly apply to—newly posted jobs. I study how monitoring technologies affect search decisions and equilibrium labor market dynamics. The central insight is that monitoring technologies give rise to a matching process in which workers who choose to actively monitor the arrival of vacancies directly crowd out those who do not, all of whom compete for a depleted stock of remaining jobs. This dynamic implies increasing returns to monitoring and thus potentially destabilizing multiplicity. I first illustrate the source of multiplicity in a stylized monitoring game in which unemployed workers compete for vacancies, and then embed the game in a quantitative dynamic model of the labor market. With a plausibly elastic job creation process (i.e., away from the free-entry limit), the quantitative model provides: (i) a theory of belief-driven fluctuations in labor supply that can permanently alter the path of the economy, (ii) a mechanism through which transitory demand shocks can permanently affect labor supply, and (iii) a parsimonious account of the recovery from the Great Recession, during which an historically tight labor market coexisted with weak wage growth—observations difficult to reconcile with traditional models. I document two facts that are suggestive of the model and its implications.
On the Inefficiency of Non-Competes in Low Wage Labor Markets (w/ B. Hobijn and A. Kurmann)
We study the efficiency of non-compete agreements (NCAs) in an equilibrium model of labor turnover. The model is consistent with empirical studies showing that NCAs reduce turnover, average wages, and wage dispersion for low-wage workers. But the model also predicts that NCAs, by reducing turnover, raise recruitment and employment. We show that optimal NCA policy: (i) is characterized by a Hosios-like condition that balances the benefits of higher employment against the costs of inefficient congestion and poaching; (ii) depends critically on the minimum wage, such that enforcing NCAs can be efficient with a sufficiently high minimum wage; and (iii) alone cannot always achieve efficiency, also true of a minimum wage—yet with both instruments efficiency is always attainable. To guide policy makers, we derive a sufficient statistic in the form of an easily computed employment threshold above which NCAs are necessarily inefficiently restrictive, and show that employment levels in current low-wage U.S. labor markets are typically above this threshold. Finally, we calibrate the model to show that Oregon’s 2008 ban of NCAs for low-wage workers increased welfare, albeit modestly (by roughly 0.1%), and that if policy makers had also raised the minimum wage to its optimal level (a 30% increase), welfare would have increased more substantially—by over 1%.
Unemployed Need Not Apply: A Text Analysis of Employment-Status Discrimination in Help-Wanted Ads (w/ K. Kamyar)
The Effects of NCAs on Low-Wage Workers: Evidence from Recent State-Level NCA Bans (w/ B. Hobijn and A. Kurmann)
R&R, Quantitative Economics
We identify the main shock driving comovement of the labor market with output. The shock induces business cycle patterns in output, consumption, investment, hours, and stock prices and is orthogonal to business cycle fluctuations in TFP. Yet, the shock is associated with future TFP fluctuations, consistent with theories of technology news. A labor search model in which wages are determined by a cash flow sharing rule, rather than the present value of match surplus, matches the observed responses to TFP news. The response of the wage implied by this rule is consistent with a broad panel of wage series.
Destabilizing Search Technology
Modern search technologies enable workers to monitor—and thus quickly apply to—newly posted jobs. I study how monitoring technologies affect search decisions and equilibrium labor market dynamics. The central insight is that monitoring technologies give rise to a matching process in which workers who choose to actively monitor the arrival of vacancies directly crowd out those who do not, all of whom compete for a depleted stock of remaining jobs. This dynamic implies increasing returns to monitoring and thus potentially destabilizing multiplicity. I first illustrate the source of multiplicity in a stylized monitoring game in which unemployed workers compete for vacancies, and then embed the game in a quantitative dynamic model of the labor market. With a plausibly elastic job creation process (i.e., away from the free-entry limit), the quantitative model provides: (i) a theory of belief-driven fluctuations in labor supply that can permanently alter the path of the economy, (ii) a mechanism through which transitory demand shocks can permanently affect labor supply, and (iii) a parsimonious account of the recovery from the Great Recession, during which an historically tight labor market coexisted with weak wage growth—observations difficult to reconcile with traditional models. I document two facts that are suggestive of the model and its implications.
On the Inefficiency of Non-Competes in Low Wage Labor Markets (w/ B. Hobijn and A. Kurmann)
We study the efficiency of non-compete agreements (NCAs) in an equilibrium model of labor turnover. The model is consistent with empirical studies showing that NCAs reduce turnover, average wages, and wage dispersion for low-wage workers. But the model also predicts that NCAs, by reducing turnover, raise recruitment and employment. We show that optimal NCA policy: (i) is characterized by a Hosios-like condition that balances the benefits of higher employment against the costs of inefficient congestion and poaching; (ii) depends critically on the minimum wage, such that enforcing NCAs can be efficient with a sufficiently high minimum wage; and (iii) alone cannot always achieve efficiency, also true of a minimum wage—yet with both instruments efficiency is always attainable. To guide policy makers, we derive a sufficient statistic in the form of an easily computed employment threshold above which NCAs are necessarily inefficiently restrictive, and show that employment levels in current low-wage U.S. labor markets are typically above this threshold. Finally, we calibrate the model to show that Oregon’s 2008 ban of NCAs for low-wage workers increased welfare, albeit modestly (by roughly 0.1%), and that if policy makers had also raised the minimum wage to its optimal level (a 30% increase), welfare would have increased more substantially—by over 1%.
Unemployed Need Not Apply: A Text Analysis of Employment-Status Discrimination in Help-Wanted Ads (w/ K. Kamyar)
The Effects of NCAs on Low-Wage Workers: Evidence from Recent State-Level NCA Bans (w/ B. Hobijn and A. Kurmann)
Publications
Down the Rabbit Hole: Habit-formation in Internet Use among Unemployed Workers
Economics Letters (2022)
This paper tests for habit-formation in leisure-related internet use (LIU) using time-diary data from a panel of unemployed workers. Drawing on insights from the consumption-habit literature, I use a model of intertemporal time allocation to derive a test for habit-formation in leisure activities. The data reveal strong evidence of habit-formation in LIU among the Generation-X age cohort. With the exception of reading, I find no evidence of habit-formation in offline leisure.
Wage Offers and On-the-job Search (w/ D. Bernhardt)
Canadian Journal of Economics (2022)
We study the wage-setting problem of an employer with private information about demand for its product when workers can engage in costly on-the-job search. Employers understand that low wage offers may convey bad news that induces workers to search. The unique perfect sequential equilibrium wage strategy is characterized by: (i) pooling by intermediate-revenue employers on a common wage that just deters search; (ii) discontinuously lower revealing offers by low-revenue employers for whom the benefit of deterring search fails to warrant the required high pooling wage; and (iii) high revealing offers by high-revenue employers seeking to deter aggressive raiders.
The Discouragement Rate: An Index of Discouragement-Induced Hardship [ungated]
Applied Economics Letters (2021)
In 1979, the Levitan Commission identified discouragement as one of three main sources of economic hardship, and recommended the development of an index to measure the extent of the problem. Over 40 years later, no such index exists. This letter proposes a simple index of discouragement-induced hardship and documents its evolution over time and across demographic groups. Using the index, I document several novel empirical phenomena: (i) the existence of a large and persistent racial discouragement gap, (ii) a secular decline in discouragement among women, (iii) a large and seemingly permanent rise in discouragement among men following the Great Recession, and (iv) a secular rise in discouragement among high-school graduates.
Learning and Job Search Dynamics during the Great Recession [ungated]
Journal of Monetary Economics (2021)
Krueger and Mueller (2011) document that search effort declined with unemployment duration during the Great Recession. I show that variation in past effort explains this decline. Furthermore, job offers increase subsequent effort. These facts are inconsistent with standard models of search. I introduce a model of sequential search in which workers are uncertain about the offer arrival process and learn through search. Evolving beliefs influence search through two competing channels: the opportunity cost of leisure and the option value of unemployment. Estimation of the model indicates that learning provides a strong account of job search dynamics during the Great Recession.
Misallocation and Productivity Effects of the Smoot-Hawley Tariff (w/ E. Bond, M. Crucini and J. Rodrigue)
Review of Economic Dynamics (2013)
Using a newly created microeconomic archive of US imports at the tariff line level for 1930–1933, we construct industry-level tariff wedges incorporating the input–output structure of US economy and the heterogeneous role of imports across sectors of the economy. We use these wedges to show that the average tariff rate of 46% in 1933 substantially understated the true impact of the Smoot–Hawley (SH) tariff structure, which we estimate to be equivalent to a uniform tariff rate of 70%. We use these wedges to calculate the impact of the Smoot–Hawley tariffs on total factor productivity and welfare. In our benchmark parameterization, we find that tariff protection reduced TFP by 1.2% relative to free trade prior to the Smoot–Hawley legislation. TFP fell by an additional 0.5% between 1930 and 1933 due to Smoot–Hawley. We also conduct counterfactual policy exercises and examine the sensitivity of our results to changes in the elasticity of substitution and the import share. A doubling of the substitution elasticities yields a TFP decline of almost 5% relative to free trade, with an additional reduction due to SH of 0.4%.
Economics Letters (2022)
This paper tests for habit-formation in leisure-related internet use (LIU) using time-diary data from a panel of unemployed workers. Drawing on insights from the consumption-habit literature, I use a model of intertemporal time allocation to derive a test for habit-formation in leisure activities. The data reveal strong evidence of habit-formation in LIU among the Generation-X age cohort. With the exception of reading, I find no evidence of habit-formation in offline leisure.
Wage Offers and On-the-job Search (w/ D. Bernhardt)
Canadian Journal of Economics (2022)
We study the wage-setting problem of an employer with private information about demand for its product when workers can engage in costly on-the-job search. Employers understand that low wage offers may convey bad news that induces workers to search. The unique perfect sequential equilibrium wage strategy is characterized by: (i) pooling by intermediate-revenue employers on a common wage that just deters search; (ii) discontinuously lower revealing offers by low-revenue employers for whom the benefit of deterring search fails to warrant the required high pooling wage; and (iii) high revealing offers by high-revenue employers seeking to deter aggressive raiders.
The Discouragement Rate: An Index of Discouragement-Induced Hardship [ungated]
Applied Economics Letters (2021)
In 1979, the Levitan Commission identified discouragement as one of three main sources of economic hardship, and recommended the development of an index to measure the extent of the problem. Over 40 years later, no such index exists. This letter proposes a simple index of discouragement-induced hardship and documents its evolution over time and across demographic groups. Using the index, I document several novel empirical phenomena: (i) the existence of a large and persistent racial discouragement gap, (ii) a secular decline in discouragement among women, (iii) a large and seemingly permanent rise in discouragement among men following the Great Recession, and (iv) a secular rise in discouragement among high-school graduates.
Learning and Job Search Dynamics during the Great Recession [ungated]
Journal of Monetary Economics (2021)
Krueger and Mueller (2011) document that search effort declined with unemployment duration during the Great Recession. I show that variation in past effort explains this decline. Furthermore, job offers increase subsequent effort. These facts are inconsistent with standard models of search. I introduce a model of sequential search in which workers are uncertain about the offer arrival process and learn through search. Evolving beliefs influence search through two competing channels: the opportunity cost of leisure and the option value of unemployment. Estimation of the model indicates that learning provides a strong account of job search dynamics during the Great Recession.
Misallocation and Productivity Effects of the Smoot-Hawley Tariff (w/ E. Bond, M. Crucini and J. Rodrigue)
Review of Economic Dynamics (2013)
Using a newly created microeconomic archive of US imports at the tariff line level for 1930–1933, we construct industry-level tariff wedges incorporating the input–output structure of US economy and the heterogeneous role of imports across sectors of the economy. We use these wedges to show that the average tariff rate of 46% in 1933 substantially understated the true impact of the Smoot–Hawley (SH) tariff structure, which we estimate to be equivalent to a uniform tariff rate of 70%. We use these wedges to calculate the impact of the Smoot–Hawley tariffs on total factor productivity and welfare. In our benchmark parameterization, we find that tariff protection reduced TFP by 1.2% relative to free trade prior to the Smoot–Hawley legislation. TFP fell by an additional 0.5% between 1930 and 1933 due to Smoot–Hawley. We also conduct counterfactual policy exercises and examine the sensitivity of our results to changes in the elasticity of substitution and the import share. A doubling of the substitution elasticities yields a TFP decline of almost 5% relative to free trade, with an additional reduction due to SH of 0.4%.