Nadim Elayan Balagué

Nadim Elayan Balagué

Senior Economist at the Central Bank of Chile. Monetary Policy Division, Economic Modeling Department

WORKING PAPERS

Recessions create enduring effects, or scars, on young individuals’ careers. I investigate how educational choices amplify or mitigate these scarring effects by income. Low-income young people face dual scarring effects: an increased likelihood of dropping out of college and enduring negative labor market entry effects. High- and middle-income young people strategically evade these repercussions by delaying labor market entry through timely college enrollment during economic downturns. I quantify the lifetime repercussions of experiencing a recession during these critical phases using a dynamic life-cycle model with educational choices calibrated to US data. I find that the negative consequences of recessions are largely concentrated on the poorest subset within the low-income group, who endure a 40% reduction in lifetime consumption if a recession occurs while they are enrolled in college. A recession that occurs around the time of high school graduation hinders the college attendance of the second poorest subset within the low-income group, causing a 24% lifetime consumption loss.

In this paper I show that Okun’s Law, the relationship between changes in the unemployment rate and real GDP growth, is state dependent: the relationship is stronger during recessions. I hypothesize that this state dependency arises from firms engaging in selective labor hoarding. If firms hoard high-skilled workers outside of recessions to economize on training costs, the Okun relationship will be relatively flat in those times. Such labor hoarding becomes untenable during large recessions, which produces a nonlinear response of unemployment. I build a dynamic model of directed search with heterogeneous firms, endogenous exit, and training costs that generates the nonlinear response of unemployment to changes in real GDP.

This paper explores how regional shocks affect the formation of global supply chains, recognizing the trade-off firms face when choosing the sourcing location of their inputs. On the one hand, sourcing from similar countries entails a lower risk of being exposed to regional shocks. On the other hand, it implies firms are less able to take advantage of the pattern of comparative advantage across the world. Using customs data on Mexican firms we document how firms weigh this trade-off and whether there is sectoral heterogeneity in this behavior. We study whether this heterogeneity is the result of sector-specific input complementarity. We build a model of global sourcing that accounts for comparative advantage being driven by geographical location and exposure to regional shocks. With our model, we explore the effects that an episode of increased regional risk, the global COVID-19 pandemic, had on firms’ global supply chain formation.