Iourii Manovskii: Research

Published Papers:

Joint with Dmytro Hryshko, University of Alberta

Journal of Monetary Economics, 130 Sept. 2022, pp. 17-33.


We identify two sets of households in the Panel Study of Income Dynamics (PSID) differing dramatically in their income and consumption dynamics, although both should be equally representative. The degree of consumption insurance in each subsample is consistent with the standard incomplete-markets model’s prediction. We contrast PSID and administrative earnings data and study the patterns in international datasets modeled on the PSID. We find an important role of differential attrition based on the dynamic properties of incomes in inducing the differences and identify PSID households providing a better guide to income dynamics and consumption insurance in the U.S.

Joint with Dmytro Hryshko, University of Alberta and Moira Daly, Copenhagen Business School

International Economic Review, 63(1) Feb. 2022, pp. 95-124.


The stochastic process for earnings is the key element of incomplete markets models in modern quantitative macroeconomics. We show that a simple modification of the canonical earnings process used in the literature leads to a substantial improvement in the measurement of earnings dynamics in administrative and survey data alike. Empirically, earnings at the start or end of earnings spells are lower and more volatile than the observations in the interior of earnings histories, reflecting mainly the effects of working less than the full year. Ignoring these properties of earnings, as is standard in the literature, leads to a substantial mismeasurement of the variances of permanent and transitory shocks and induces the large and widely documented divergence in the estimates of these variances based on fitting the earnings moments in levels or growth rates. Accounting for these effects enables more accurate analysis using quantitative models with permanent and transitory earnings risk and improves empirical estimates of consumption insurance against permanent earnings shocks.

Joint with Marcus Hagedorn, University of Oslo, Jinfeng Luo, University of Pennsylvania, and Kurt Mitman, IIES Stockholm University

Journal of Monetary Economics, 102 April 2019, pp. 1-23.


We assess the power of forward guidance--promises about future interest rates--as a monetary tool in a liquidity trap using a quantitative incomplete-markets model. Our results suggest the effects of forward guidance are negligible. A commitment to keep future nominal interest rates low for a few quarters--although macro indicators suggest otherwise--has only trivial effects on current output and employment. We explain theoretically why in complete markets models forward guidance is powerful--generating a "forward guidance puzzle"--and why this puzzle disappears in our model. We also clarify theoretically ambiguous conclusions from previous research about the effectiveness of forward guidance in incomplete and complete markets models.

Joint with Gueorgui Kambourov, University of Toronto and Miana Plesca, University of Guelph

Canadian Journal of Economics, 53(1) Jan. 2020, pp 174-211.


The literature on the returns to training has pointed out that, immediately following a training episode, wages of participants in employer-sponsored training increase substantially while wages of participants in government-sponsored training hardly change. We argue that there is a potential selection issue: most of the government-sponsored trainees are occupation switchers while most participants in employer-sponsored training are occupation stayers. An occupational switch involves a substantial destruction of human capital, and once we account for the associated decline in wages we find a large positive impact of both employer- and government-sponsored training on workers' human capital.

Joint with Dmytro Hryshko, University of Alberta

American Economic Review, Papers and Proceedings, Vol. 108, May 2018, pp. 292-96.


A large body of knowledge on income dynamics in the U.S. is based on data from the Panel Study of Income Dynamics (PSID). We find two sets of households in the PSID that differ dramatically in the dynamics of their income. Households headed by the sons of original PSID members have a highly persistent income process, whereas households headed by males who marry daughters of the original PSID members have a much less persistent income process. Using a variety of methods for identification of the persistence of income shocks, we show that these differences, albeit surprising, are highly robust.

Joint with Marcus Hagedorn, University of Oslo and Tzuo Law, Boston College

Econometrica, 85(1) Jan. 2017, pp. 29-65.


We assess the empirical content of equilibrium models of labor market sorting based on unobserved (to economists) characteristics. In particular, we show theoretically that all parameters of the classic model of sorting based on absolute advantage in Becker (1973) with search frictions can be non-parametrically identified using only matched employer-employee data on wages and labor market transitions. In particular, these data are sufficient to non-parametrically estimate the output of any individual worker with any given firm. Our identification proof is constructive and we provide computational algorithms that implement our identification strategy given the limitations of the available data sets. Finally, we add on-the-job search to the model, extend the identification strategy, and apply it to a large German matched employer-employee data set to describe detailed patterns of sorting and properties of the production function.

Joint with Marcus Hagedorn, University of Oslo and Sergiy Stetsenko, GM Financial

Review of Economic Dynamics, 19(1) Jan. 2016, pp. 161-189.


We introduce ex-ante heterogeneity between workers and two technology shocks, neutral and investment-specific, as the driving forces into the basic Mortensen-Pissarides search and matching model. The calibrated model is simultaneously consistent with a strong response of labor market variables to cyclical fluctuations in productivity and a weaker response to changes in taxes found in cross-country data. The model also matches the evidence that countries with higher tax rates have higher aggregate productivity, lower skill premia, and higher unemployment rates among both high- and low-skilled workers. The key mechanism that allows us to achieve these results is that aggregate and group-specific productivities are endogenous and respond to changes in tax policy.

Joint with Fane Groes, Copenhagen Business School and Philipp Kircher, University of Edinburgh

Review of Economic Studies, 82(2) April 2015, pp. 659-692.


Using administrative panel data on the entire Danish population we document a new set of facts characterizing occupational mobility. For most occupations, mobility is U-shaped and directional: not only low but also high wage earners within an occupation have a particularly large probability of leaving their occupation, and the low (high) earners tend to switch to new occupations with lower (higher) average wages. Exceptions to this pattern of two-sided selection are occupations with steeply rising (declining) productivity, where mainly the lower (higher) paid workers within this occupation tend to leave. The facts conflict with several existing theories that are used to account for endogeneity in occupational choice, but it is shown analytically that the patterns are explained consistently within a theory of vertical sorting under absolute advantage that includes learning about workers' abilities.

Joint with Hyeok Jeong, Seoul National University and Yong Kim, Yonsei University

American Economic Review, 105(2) Feb. 2015, pp. 784-815.


We identify a key role of factor supply, driven by demographic changes, in shaping several empirical regularities that are a focus of active research in macro and labor economics. In particular, demographic changes alone can account for the large movements of the return to experience over the last four decades, for the differential dynamics of the age premium across education groups emphasized by Katz and Murphy (1992), for the differential dynamics of the college premium across age groups emphasized by Card and Lemieux (2001), and for the changes in cross-sectional and cohort-based life-cycle profiles emphasized by Kambourov and Manovskii (2005).

Joint with Marcus Hagedorn, University of Oslo

American Economic Review, 103(2) April 2013, pp. 771-803.


We consider a model with on-the-job search where current wages depend only on current aggregate labor market conditions and idiosyncratic match-specific productivities. We show theoretically that the model replicates the findings in Bils (1985) and Beaudry and DiNardo (1991) on the history dependence in wages. We develop a method to measure match qualities in the data and show empirically that various variables summarizing past aggregate labor market conditions have explanatory power for current wages only because they are correlated with match qualities. They lose any predictive power once match qualities are accounted for.

Joint with Gueorgui Kambourov, University of Toronto

Macroeconomic Dynamics, 17(1) January 2013, pp. 172-194.


The monthly Current Population Survey (CPS), with its Annual Demographic March supplement, and the Panel Study of Income Dynamics (PSID) are the leading sources of data on worker reallocation across occupations, industries, and firms. Much of the active current research is based on these data. In this paper, we contrast these datasets as sources of data for measuring the dynamics of worker mobility. We find that (i) (March) CPS data is characterized by a substantial amount of noise when it comes to identifying occupational and industry switches; (ii) March CPS data provides a poor measure of annual occupational mobility and, instead, most likely measures mobility over a much shorter period; (iii) (the changes in) the procedure to impute missing data has a dramatic effect on the interpretation of the CPS data in, e.g., the trend in occupational mobility. The most important shortcomings of the PSID are the facts that (i) occupational and industry affiliation data is available in most years at an annual frequency; (ii) the PSID's sample, by design, excludes immigrants arriving to the U.S. after 1968; (iii) the Retrospective Occupation-Industry Files with reliable occupation and industry affiliation data are available only until 1980.

Joint with Marcus Hagedorn, University of Oslo

International Economic Review, 52 (3) Aug. 2011, pp. 603-619.


The productivity-driven Mortensen-Pissarides model predicts that labor productivity, defined as the ratio of output to employment, is strongly correlated with employment, unemployment, vacancies and wages whereas these correlations were argued to be much weaker in the data, especially since the mid 1980s. We first document that the size of these discrepancies between the data and the model becomes substantially smaller if employment data from the Current Population Survey is used in measuring productivity instead of the commonly used employment data from the Current Employment Statistics. Second, we show that incorporating time to build and a stochastic value of home production helps reconcile the quantitative performance of the model with the data with stochastic productivity being the key determinant of the business cycle dynamics of the model.

Joint with Gueorgui Kambourov, University of Toronto

Review of Economic Studies, 76 (2) April 2009, pp. 731-759.

[Extended (but somewhat different) working paper version available here


In this paper we argue that wage inequality and occupational mobility are intimately related. We are motivated by our empirical findings that human capital is occupation-specific and that the fraction of workers switching occupations in the United States was as high as 16% a year in the early 1970s and had increased to 21% by the mid 1990s. We develop a general equilibrium model with occupation-specific human capital and heterogeneous experience levels within occupations. We find that the model, calibrated to match the level of occupational mobility in the 1970s, accounts quite well for the level of (within-group) wage inequality in that period. Next, we find that the model, calibrated to match the increase in occupational mobility, accounts for over 90% of the increase in wage inequality between the 1970s and the 1990s. The theory is also quantitatively consistent with the level and increase in the short-term variability of earnings.

Joint with Gueorgui Kambourov, University of Toronto

International Economic Review, 50 (1) February 2009, pp. 63-115.


We find that returns to occupational tenure are substantial. Everything else being constant, 5 years of occupational tenure are associated with an increase in wages of 12% to 20%. Moreover, when occupational experience is taken into account, tenure with an industry or employer has relatively little importance in accounting for the wage one receives. This finding is consistent with human capital being occupation specific.

Joint with Marcus Hagedorn, University of Oslo

American Economic Review, 98(4), September 2008, pp. 1692-1706.

[Extended working paper version available here


Recently, a number of authors have argued that the standard search model cannot generate the observed business-cycle-frequency fluctuations in unemployment and job vacancies, given shocks of a plausible magnitude. We propose a new calibration strategy of the standard model that uses data on the cost of vacancy creation and cyclicality of wages to identify the two key parameters - the value of non-market activity and the bargaining weights. Our calibration implies that the model is consistent with the data.

Joint with Gueorgui Kambourov, University of Toronto

International Economic Review, 49 (1) February 2008, pp. 41-79.


We document and analyze the high level and the substantial increase in worker mobility in the United States over the 1968-1997 period at various levels of occupational and industry aggregation. This is important in light of the recent findings in the literature that human capital of workers is largely occupation- or industry-specific. To control for measurement error in occupation and industry coding, we develop a method that utilizes the Retrospective Occupation-Industry Supplemental Data Files, newly released by the Panel Study of Income Dynamics. This allows us to obtain the most reliable estimates of occupational and industry mobility levels available in the literature. We emphasize the importance of these findings for understanding a number of issues such as the changes in wage inequality, aggregate productivity, job stability, and life-cycle earnings profiles.

Joint with Gueorgui Kambourov, U. of Toronto and Irina Telyukova, U. of California San Diego

In Frontiers in Family Economics, Volume 1, edited by Peter Rupert, pp. 217-256, 2008. Emerald Group Publishing Limited, UK.


We study trends in occupational and geographic mobility of single and married men and women in the United States over the last 40 years. We find that while occupational mobility has increased for almost all subgroups of males, most of the increase was accounted for by a sharp increase in the mobility of singles. Similarly, the rates of geographic mobility were virtually identical for single and married workers in the early 1970s, but diverged since then: the increase in the geographic mobility of single men was more pronounced than the increase for married men. We discuss several theories of worker mobility in light of these trends and suggest that the increased labor force attachment of women might have played a prominent role in driving these changes.


Research Papers:

March 2022

Joint with Moritz Kuhn, University of Bonn and Xincheng Qiu, University of Pennsylvania


Spatial differences in labor market performance are large and highly persistent. Using data from the United States, Germany, and the United Kingdom, we document striking similarities across these countries in the spatial differences in unemployment, vacancies, and job filling, finding, and separation rates. The novel facts on the geography of vacancies and job filling are instrumental in guiding and disciplining the development of a theory of local labor market performance. We find that a spatial version of a Diamond-Mortensen-Pissarides model with endogenous separations and on-the-job search quantitatively accounts for all the documented empirical regularities. The model also quantitatively rationalizes why differences in job-separation rates have primary importance in inducing differences in unemployment across space while changes in the job-finding rate are the main driver in unemployment fluctuations over the business cycle.


Discussion with Adrien Bilal:

- Bilal’s critique: “Theories of Job Loss, Job Finding and Vacancies in the Cross-Section of Locations: A Response to Kuhn et al. (2021),” Sept. 1, 2022.

- Kuhn, Manovskii, Qiu’s rebuttal: “The Geography of Worker and Job Flows: A Rejoinder to Bilal (2022),’’ Sept. 29, 2022.


August 2020

Joint with Dmytro Hryshko, University of Alberta


An accurate quantitative analysis using lifecycle incomplete markets models requires that they match both the total amount of insurance available to households in the data and the empirical importance of the sources of insurance such as, e.g., household saving and borrowing or the tax and transfer system. The prominent empirical benchmark estimates of the extent and sources of insurance provided in Blundell, Pistaferri and Preston (American Economic Review, 2008) imply that the currently used models poorly fit these data. We show that this is because the income process used as an input in the incomplete markets models and when constructing the empirical benchmark estimates of insurance abstracts from the irregular nature of income observations at the start and end of family income spells. When ignored, this feature of the income data induces a large bias in the empirical measures of the degree and sources of insurance and results in a misleading assessment of the models' performance. The empirical measures of insurance accounting for the bias imply a limited role of assets and taxes and transfers in insuring permanent shocks to household budgets.

February 2019

Joint with Marcus Hagedorn, University of Oslo and Kurt Mitman, IIES Stockholm University

NBER Working Paper 25571.


We measure the size of the fiscal multiplier using a heterogeneous-agent model with incomplete markets, capital and rigid prices and wages. The environment encompasses the essential elements necessary for a quantitative analysis of fiscal policy. First, output is partially demand-determined due to pricing frictions in product and labor markets, so that a fiscal stimulus increases aggregate demand. Second, incomplete markets deliver a realistic distribution of dynamic consumption and investment responses to stimulus policies across the population. These elements give rise to the standard textbook Keynesian-cross logic which, and unlike conventional wisdom would suggest, is significantly reinforced in our dynamic forward looking model.


We find that market incompleteness is key to determining the size of the fiscal multiplier, which is uniquely determined in our model for any combination of fiscal and monetary policies of interest. The multiplier is 1.34 if deficit-financed and 0.61 if contemporaneously tax-financed for a pegged nominal interest rate, with similar values in a liquidity trap. If monetary policy follows a Taylor rule, the numbers drop to 0.66 and 0.54, respectively. We elucidate the importance of market incompleteness for our results and contrast them to models featuring complete markets or hand-to-mouth consumers.

November 2017

Joint with Marcus Hagedorn, University of Oslo and Kurt Mitman, IIES Stockholm University

Previous Version: NBER Working Paper 20884.


We measure the aggregate effect of unemployment benefit duration on employment and the labor force. We exploit the variation induced by Congress' failure in December 2013 to reauthorize the unprecedented benefit extensions introduced during the Great Recession. Federal benefit extensions that ranged from 0 to 47 weeks across U.S. states were abruptly cut to zero. In sharp contrast to their typical dynamics, labor force and employment growth accelerated sharply in states with larger cuts in benefit duration.

January 2019

Joint with Marcus Hagedorn, University of Oslo, Fatih Karahan, NY Fed, and Kurt Mitman, IIES Stockholm University

NBER Working Paper 19499.


Equilibrium labor market theory suggests that unemployment benefit extensions affect unemployment by impacting both job search decisions by the unemployed and job creation decisions by employers. The existing empirical literature focused on the former effect only. We develop a new methodology necessary to incorporate the measurement of the latter effect. Implementing this methodology in the data, we find that benefit extensions raise equilibrium wages and lead to a sharp contraction in vacancy creation, employment, and a rise in unemployment.

May 2016

Joint with Marcus Hagedorn, University of Oslo and Kurt Mitman, IIES Stockholm University

NBER Working Paper 22280.


We critically review recent methodological and empirical contributions aiming to provide a comprehensive assessment of the effects of unemployment benefit extensions on the labor market and attempt to reconcile their apparently disparate findings. We describe two key challenges facing these studies - the endogeneity of benefit durations to labor market conditions and isolating true effects of actual policies from agents' responses to expectations of future policy changes.


Marinescu (2015) employs a methodology that does not attempt to address these challenges. A more innovative approach in Coglianese (2015) and Chodorow-Reich and Karabarbounis (2016) attempts to overcome these challenges by exploiting a sampling error in unemployment rates as an exogenous variation. Unfortunately, we find that this approach falls prey to the very problems it aims to overcome and it appears unlikely that the fundamental bias at the core of this approach can be overcome. We find more promising the approach based on unexpected policy changes as in the recent contributions by Johnston and Mas (2015) and Hagedorn, Manovskii and Mitman (2015). This approach by design addresses the problem of benefit endogeneity. It does not, however, fully address the effects of expectations and generally yields a lower bound on the actual effects of policies.


A More Focused Discussion of Writings by Chodorow-Reich and Karabarbounis:

- NBER EFG Discussion

- CRK Writings: CRK (2016a) - original piece, CRK (2016b) - reply to HMM's review, CRK (2016c) - reply to EFG discussion

- A rebuttal to CRK writings:

Some Observations on ``The Limited Macroeconomic Effects of Unemployment Benefit Extensions" and Related Writings by Chodorow-Reich and Karabarbounis

August 2016

Joint with Marcus Hagedorn, University of Oslo and Kurt Mitman, IIES Stockholm University


In Hagedorn et al. (2016a) we reviewed Chodorow-Reich and Karabarbounis (2016a) among other recent contributions to the literature studying the aggregate implications of unemployment benefit extensions. We were also invited to discuss their paper at the summer 2016 NBER EF&G meeting with the slides of our discussion available as Hagedorn et al. (2016b). We found the identification argument in CRK (2016a) to be incorrect because the exogeneity of the estimator they proposed and implemented does not follow from their fundamental identifying assumption of exogeneity of the measurement error in unemployment. The authors responded to our assessment in Chodorow-Reich and Karabarbounis (2016b,c) and proposed a new identification argument to justify their measurement strategy. In this paper we explain that their new identification argument does not overcome the endogeneity problems we previously documented.


Replication package of all the data, programs, and log files reported in this paper.


April 2014

Joint with Luigi Bocola, University of Pennsylvania and Marcus Hagedorn, University of Oslo


The role of neutral technology shocks in driving business cycle fluctuations is hotly debated. Yet, we argue that there is no existing empirical methodology that allows to identify neutral shocks in the data in the presence of input heterogeneity in the aggregate production function. We develop a method that identifies a neutral technology shock based on the result that it is the only shock consistent with balanced growth properties. Monte Carlo simulations using benchmark business cycle models imply that the proposed method performs very well in small samples. We apply the method to assess the role of neutral technology in driving business cycle fluctuations in U.S. data.

September 2010

Joint with Bjoern Bruegemann, Yale University


The US health insurance system for those younger than 65 is and will remain largely employer-based after the implementation of the 2010 reform. We develop an equilibrium model of the existing system and study quantitatively the likely effects of the enacted legislation. We show that to match the key empirical regularities of the existing system it is essential to model workers as being discrete, match the firm size distribution and the extent of search frictions, and to model explicitly government regulations affecting the system, such as tax-advantaged treatment of employer purchased coverage and legal non-discrimination restrictions. The model predicts that the enacted reform will achieve universal coverage. The premium regulations of the reform alone would induce a collapse of coverage due to adverse selection. But the accompanying tax credits for small businesses and penalties for individuals are sufficient to prevent this collapse.

October 2010

Joint with Marcus Hagedorn, University of Oslo


We propose a way to measure the contribution of search frictions to the level of wage dispersion observed in the data. Using the data from the 1979 cohort of the National Longitudinal Survey of Youth we find that the variance of match qualities between workers and employers accounts for about 6% of the variance of log wages. Our method relies on a minimal set of assumptions, the main among them being that match quality is constant over the duration of a job. We show that this assumption can be verified empirically and is supported by the data.

October 2009

Joint with Gueorgui Kambourov, University of Toronto


We document a significant flattening of life-cycle earnings profiles for the successive cohorts of male workers entering the labor market since the late 1960s. Further, we provide evidence on the steepening in the profiles of earnings inequality and an upward shift in the profiles of occupational mobility for more recent cohorts. We develop a theory that relates these developments and study quantitatively what fraction of the change in the life-cycle profiles of earnings and earnings inequality is accounted for by the economic forces that drive the increase in occupational mobility. The results indicate that the increase in the variability of productivity shocks to occupations from the early 1970s to the late 1990s, may account for all these observations. The theory we propose is consistent with other facts characterizing the changes in the labor market, such as a sharp increase in cross-sectional wage inequality and the increase in the transitory variability of earnings.

Data Project: Postwar U.S. Labor Productivity Data

Joint with Bjoern Bruegemann, Yale University and Marcus Hagedorn, University of Zurich

Latest Update: October 3, 2010 (Extended unpublished BLS LPC aggregate productivity series to Q2 2010)


Research on U.S. labor productivity is complicated by the fact that a variety of measures is in use, which differ along several dimensions. The objective of this project is to construct and make available a dataset that contains most relevant series to provide a common ground for the discussion.



Data Description



Work in Progress:

Excessive Risk Taking (with Marcus Hagedorn)

Demand Stimulus and Inflation: Empirical Evidence (with Marcus Hagedorn and Jessie Handbury)

Unemployment Benefits and Unemployment in the Great Recession: The Role of Micro Effects (with Marcus Hagedorn and Kurt Mitman)

Employer Coverage Decisions: Unintended Consequences of 2010 Health Insurance Reform (with Bjoern Bruegemann and Gregory Phelan)

Plugging Holes (with Philipp Kircher)

Interpreting Income Dynamics (with Moira Daly, Fane Groes, and Dmytro Hryshko)


Temporarily Abandoned Projects:

November 2002


I show that, in the absence of complete insurance markets, progressive taxation of labor income may provide productivity and welfare gains as compared to a revenue-equivalent proportional tax. In order to increase income in the future, individuals have to forgo income today by accepting lower wages while accumulating human capital or when destroying specific human capital in order to build it elsewhere. I first show analytically that a progressive tax system encourages people to make these temporary sacrifices despite the increased tax burden when wages are high. Next, I measure the quantitative importance of this channel in a calibrated general equilibrium model.


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