Federico S. Mandelman

Remittances and the Dutch Disease

Using data for El Salvador and Bayesian techniques, we develop and estimate a two-sector dynamic stochastic general equilibrium model to analyze the effects of remittances in emerging market economies. We focus our study on whether rising levels of remittances result in the Dutch disease phenomenon in recipient economies. We find that, whether altruistically motivated or otherwise, an increase in remittances flows leads to a decline in labor supply and an increase in consumption demand that is biased toward nontradables. The increase in demand for nontradables, coupled with higher production costs, results in an increase in the relative price of nontradables, which further causes the real exchange rate to appreciate. The higher nontradable prices serve as an incentive for an expansion of that sector, culminating in reallocation of labor away from the tradable sector. This resource reallocation effect eventually causes a contraction of the tradable sector. A vector autoregression analysis provides results that are consistent with the dynamics of the model.

Remittances, Exchange Rate Regimes, and the Dutch Disease: A Panel Data Analysis

Using disaggregated sectorial data, this study shows that rising levels of remittances have spending effects that lead to real exchange rate appreciation and resource movement effects that favor the nontradable sector at the expense of tradable goods production. These characteristics are two aspects of the phenomenon known as Dutch disease. The results further indicate that these effects operate more strongly under fixed nominal exchange rate regimes.

Immigration, Remittances, and Business Cycles

Using data on border enforcement and macroeconomic indicators from the U.S. and Mexico, we estimate a two-country business cycle model of labor migration and remittances. The model matches the cyclical dynamics of unskilled migration, and documents the insurance role of remittances in consumption smoothing. Over the cycle, immigration increases with the expected stream of future wage gains, but it is dampened by a sunk emigration cost. Migration barriers slow the adjustment of the stock of immigrant labor, enhancing the volatility of unskilled wages and remittances. Changes in border enforcement have asymmetric welfare implications for the skilled and unskilled households.

Flexible Prices, Labor Market Frictions, and the Response of Employment to Technology Shocks

Recent empirical evidence establishes that a positive technology shock leads to a decline in labor inputs. Can a flexible price model enriched with labor market frictions replicate this stylized fact? We develop and estimate a standard flexible price model using Bayesian methods that allows, but does not require, labor market frictions to generate a negative response of employment to a technology shock. We find that labor market frictions account for the fall in labor inputs.

Technology Shocks, Employment, and Labor Market Frictions

Recent empirical evidence suggests that a positive technology shock leads to a decline in labour inputs. However, the standard real business model fails to account for this empirical regularity. Can the presence of labour market frictions address this problem, without otherwise altering the functioning of the model? We develop and estimate a real business cycle model using Bayesian techniques that allows, but does not require, labour market frictions to generate a negative response of employment to a technology shock. The results of the estimation support the hypothesis that labour market frictions are the factor responsible for the negative response of employment.

Immigration and the Macroeconomy

We analyze the dynamics of labor migration and the insurance role of remittances in a two-country, real business cycle framework. Emigration increases with the expected stream of future wage gains but is dampened by the sunk cost reflecting border enforcement. During booms in the destination economy, the scarcity of established immigrants lessens capital accumulation, labor productivity, and the native wage. The welfare gain from the inflow of unskilled labor increases with the complementarity between skilled and unskilled labor and the share of the skilled among native labor. The model matches the cyclical dynamics of the unskilled immigration from Mexico.

Microentrepreneurship and the Business Cycle: Is Self-Employment a Desired Outcome?

This paper links employment dynamics to the business cycle in order to examine the voluntary nature of self-employment in Argentina. Our results suggest that the transition to self-employment is more common during recessions and that the likelihood of becoming self-employed increases with the length of the recession and the unemployment duration. We find that the majority of self-employed workers do not have employees and earn significantly less than salaried workers. Individuals in this sector are often young and less educated and have trouble obtaining a salaried position regardless of the macroeconomic conditions. Middle-aged, college-educated individuals also tend to enter self-employment as a temporary refuge when they encounter difficulties during a recession. Our results suggest, however, that for entrepreneurs who have employees, entry into self-employment is procyclical and voluntary and has characteristics similar to those predicted for highly skilled risk-taking entrepreneurs. Including idiosyncratic entrepreneurial abilities in a standard job search model allows us to predict such labor market segmentation and the cyclical pattern of entrance into self-employment.

Labor Market Polarization and International Macroeconomic Dynamics

During the last thirty years, labor markets in advanced economies were characterized by their remarkable polarization. As job opportunities in middle-skill occupations disappeared, employment opportunities concentrated in the highest- and lowest-wage occupations. I develop a two-country stochastic growth model that incorporates trade in tasks, rather than in goods, and reveal that this setup can replicate the observed polarization in the United States. This polarization was not a steady process: the relative employment share of each skill group fluctuated significantly over short-to-medium horizons. I show that the domestic and international aggregate shocks estimated within this framework can rationalize such employment dynamics while providing a good fit to the macroeconomic data. The model is estimated with employment data for different skills groups and trade-weighted macroeconomic indicators.

Labor market polarization and international macroeconomic dynamics

During the last thirty years, labor markets in advanced economies were characterized by their remarkable polarization. As job opportunities in middle-skill occupations disappeared, employment opportunities concentrated in the highest and lowest wage occupations. A two-country stochastic growth model that incorporates trade in tasks, rather than in goods, accounts for this evidence. This polarization did not result from a steady process: the relative employment share of each skill group significantly fluctuated over short to medium horizons. The aggregate shocks estimated within this framework can rationalize the observed skill-based employment dynamics, while providing a good fit to the macroeconomic data.

Offshoring, Low-skilled Immigration, and Labor Market Polarization

During the last three decades, the U.S. labor market has been characterized by its employment polarization. As jobs in the middle of the skill distribution have shrunk, employment has expanded in high- and low-skill occupations. Real wages have not followed the same pattern. While earnings for high-skill occupations have risen robustly, wages for both low- and middle-skill workers have remained subdued. We attribute this outcome to the rise in offshoring and low-skilled immigration, and develop a three-country stochastic growth model to rationalize their asymmetric effect on employment and wages, as well as their implications for U.S. welfare. In the model, the increase in offshoring negatively affects middle-skill occupations but benefits the high-skill ones, which in turn boosts aggregate productivity. As the income of high-skill occupations rises, so does the demand for complementary services provided by low-skill workers. However, low-skill wages remain depressed due to the rise in low-skilled immigration. Native workers react to immigration by investing in training. Offshoring and low-skilled immigration improve aggregate welfare in the U.S. economy, notwithstanding their asymmetric impact on native workers of different skill levels. The model is estimated using data on real GDP, U.S. employment by skill group, and enforcement at the U.S.-Mexico border.