The surge in marketization – the purchase of services commonly produced at home from the market – in the US has been attributed to decreases in the marginal cost of marketable services through increased productivity. In this paper, I show that low-skill labor is the largest input to the production of these personal services, and thus low-skill wage movements contribute to marginal cost declines. To study the role that the rising skill premium has played in marketization, I build a model to study the economic forces that shape households' resource allocation in a heterogeneous skill economy. In contrast to the findings in the representative household models, my quantitative exercise shows that changes in the wage structure rather than a larger growth of productivity of the market service sector relative to the home sector are the predominant driver of marketization. Thus, the forces that change the skill premium can entirely account for trends in marketization. This new mechanism suggests that policies and labor market institutions responsible for the trajectory of the skill premium can also affect the extent of marketization.
Marketization and Labor Market Polarization in the U.S [Draft Available Upon Request]
This paper studies the role of increasing marketization of home production in shaping the earning distribution in the US from 1980 to 2019. I highlight the link between the decline of home production time and service workers' increasing employment shares and wages during this period. I then propose a model under the skill-biased technological change framework (SBTC) with an extension of home sector. I use the model to investigate the role of increasing marketization in the home production sector in accounting for the aggregate home production decline, the increasing employment shares, and wage for the service occupations. Quantitatively, the model accounts for 80% of the wage polarization seen in the data. The marketization process is necessary to explain the decline in home production time.
Working in Progress
On the demographic margin of labor force fluctuation
Recent study suggests that the weak procyclical property of labor force participation masks large fluctuations in the gross flows into and out of the labor force. A key mechanism to generate a large inflow and outflow in the participation margin is the composition shift towards people attached to the labor force differently during business cycles. However, existing works are silent in explaining the substantial magnitude of the inflow fluctuation to non-participation presented in the data. In this paper, I take a closer look at the dynamics based on demographic characteristics. My findings suggest that groups more attached to the labor force by convention exhibit larger volatilities in the inflows. This empirical regularity provides a direction that future work could aim at to properly account for the fluctuation of movements into non-participation.