Title: Essays on prices and frictions
Description: This dissertation consists of three essays on prices and frictions. The first chapter documents cyclical properties of distributions of labor factor prices, wages, in the United States from 1979 to 2016. The second chapter investigates which theory of nominal wage frictions in the existing literature has consistent implications with empirical regularities documented in the first chapter. The third chapter estimates the impact of e-commerce, a recent technology innovation reducing information frictions and trade costs, on prices and welfare in Japan. In Chapter 1, I construct distributions of individual workers’ year-over-year changes in nominal hourly wages across time and across US states from two nationally representative household surveys, the Current Population Survey (1979-2017) and the Survey of Income and Program Participation (1984-2013). The novel result is that the share of workers with no wage changes, which accounts for the large spike at zero in nominal wage change distribution, is more countercyclical than the share of workers with wage cuts.

A strand of related literature interpreted the empirical finding that US states with larger decreases in employment are also the states with lower average wage increases as a sign of wage flexibility. This paper overturns this interpretation by showing that the states with larger employment declines are also the states with greater increases in the share of workers with a zero wage change, suggesting wage rigidity instead. In Chapter 2, I ask which type of nominal wage rigidity model in the existing literature can match empirical regularities documented in Chapter 1. This chapter builds heterogeneous agent models with five alternative wage-setting schemes—perfectly flexible, Calvo, long-term contracts, menu costs, and downward nominal wage rigidity. The models feature not only idiosyncratic uncertainty but also aggregate uncertainty. Using a numerical method, I show among alternative wage setting schemes, the model with downward nominal wage rigidity has the most consistent implications with the empirical findings, regarding the shape and cyclicality of wage change distributions.

In Chapter 3, joint work with Misaki Matsumura and David Weinstein, we estimate the impact of e-commerce on Japanese prices and welfare. We find that goods sold intensively online have always had lower relative rates of price increase than goods sold mainly in physical stores, but the gap in inflation rates rose after the advent of e-commerce. This happened in part because goods sold offline began experiencing faster rates of price increase. Second, we compute the welfare gains generated by e-commerce by reducing intercity price differentials and by increasing available varieties. While we show the national gains were substantial, we also find that welfare rose much more for residents of high-income cities with highly educated populations and may have fallen for residents of other cities.