Thomas Winberry

Thomas Winberry
Assistant Professor of Finance, The Wharton School


Working Papers

The Distributional Impact of the Minimum Wage in the Short and Long Run, with Erik Hurst, Patrick Kehoe, and Elena Pastorino
We develop a framework with worker heterogeneity, monopsony power, and putty-clay technology in order to study the distributional impact of the minimum wage in the short and long run. We discipline our model to match the small employment effects of the minimum wage in the short run and the large estimated elasticities of substitution across different workers in the long run. We find that in the short run, both small and large increases in the minimum wage have small impacts on employment and increase the labor income of the workers earning less than the new minimum. In the long run, the effects of the minimum wage greatly differ depending on the size of its increase: a small increase has a beneficial long-run impact on low-income workers in that it increases their employment, income, and welfare, whereas a large increase reduces the employment, income, and welfare of precisely the low-income workers it is meant to support. In either case, these long-run effects take time to fully materialize because firms slowly adjust their mix of inputs. Existing transfer programs, such as the earned-income tax credit (EITC) or a progressive tax system, are more effective than large increases in the minimum wage at improving long-run outcomes for workers at the low end of the wage distribution. But combining existing programs with a small increase in the minimum wage provides even larger welfare gains for those workers.


The Investment Network, Sectoral Comovement, and the Changing U.S. Business Cycle, with Christian vom Lehn (Quarterly Journal of Economics, Volume 137, Issue 1 (February 2022) 387-433) Investment Network Data
We argue that the network of investment production and purchases across sectors is an important propagation mechanism for understanding business cycles. Empirically, we show that the majority of investment goods are produced by a few ``investment hubs" which are more cyclical than other sectors. We embed this network into a multisector business cycle model and show that sector-specific shocks to the investment hubs and their key suppliers have large effects on aggregate employment and drive down labor productivity. Quantitatively, we find that sector-specific shocks to hubs and their suppliers account for an increasing share of aggregate fluctuations over time, generating the declining cyclicality of labor productivity and other changes in business cycle patterns since the 1980s.

Lumpy Investment, Business Cycles, and Stimulus Policy
(American Economic Review, Vol. 111, Issue 1 (January 2021) 365-396) Appendices
I study the aggregate implications of micro-level lumpy investment in a model consistent with the empirical dynamics of the real interest rate. I find that the elasticity of aggregate investment with respect to shocks is procyclical because more firms are likely to make an extensive margin investment in expansions. Matching the dynamics of the real interest rate is key to generating this result; otherwise, counterfactual behavior of the model would eliminate most of the procyclical responsiveness in general equilibrium. Therefore, data on interest rates places important discipline on the role of general equilibrium in aggregating micro-level investment.

Financial Heterogeneity and the Investment Channel of Monetary Policy, with Pablo Ottonello (Econometrica, Vol. 88, No. 6 (November 2020), 2473-2502) Submitted version (with appendices)
We study the role of financial frictions and firm heterogeneity in determining the investment channel of monetary policy. Empirically, we find that firms with low default risk -- those with low debt burdens and high ``distance to default" -- are the most responsive to monetary shocks. We interpret these findings using a heterogeneous firm New Keynesian model with default risk. In our model, low-risk firms are more responsive to monetary shocks because they face a flatter marginal cost curve for financing investment. The aggregate effect of monetary policy may therefore depend on the distribution of default risk, which varies over time.

A Method for Solving and Estimating Heterogeneous Agent Macro Models
(Quantitative Economics , Vol. 9, Issue 3 (November 2018) 1123 - 1151)
Dynare codes and user guide for Krusell-Smith and Codes for Khan-Thomas
I develop a computational method for solving and estimating heterogeneous agent macro models with aggregate shocks. The main challenge is that the aggregate state vector contains the distribution of agents, which is typically infinite-dimensional. I approximate the distribution with a flexible parametric family, reducing its dimensionality to a finite set of endogenous parameters, and solve for the dynamics of these endogenous parameters by perturbation. I implement the method in Dynare and show that it is fast, general, and easy to use. As an illustration, I use the method to perform a Bayesian estimation of a heterogeneous firm model with aggregate shocks to neutral and investment-specific productivity. I find that the behavior of investment at the firm level quantitatively shapes inference about the aggregate shock processes, suggesting an important role for micro data in estimating DSGE models.

When Inequality Matters for Macro and Macro Matters for Inequality, with SeHyoun Ahn, Greg Kaplan, Ben Moll, and Christian Wolf (NBER Macroeconomics Annual, Vol. 32, Issue 1 (January 2018) 1-75)
Matlab Toolbox available on github here
We develop an efficient and easy-to-use computational method for solving a wide class of general equilibrium heterogeneous agent models with aggregate shocks. Our method extends standard linearization techniques and is designed to work in cases when inequality matters for the dynamics of macroeconomic aggregates. We present two applications that analyze a two-asset incomplete markets model parameterized to match the distribution of income, wealth, and marginal propensities to consume. First, we show that our model is consistent with two key features of aggregate consumption dynamics that are difficult to match with representative agent models: (i) the sensitivity of aggregate consumption to predictable changes in aggregate income and (ii) the relative smoothness of aggregate consumption. Second, we extend the model to feature capital-skill complementarity and show how factor-specific productivity shocks shape dynamics of income and consumption inequality.

Work In Progress

Misallocation Over the Business Cycle with Pablo Ottonello (National Science Foundation grant, co-PI with Pablo Ottonello)

Macroeconomic Implications of Asset Prices with Mikhail Golosov

Does Home Production Provide Consumption Insurance? A Macro Perspective with Christian Wolf

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