Sladana Krgovic

My research lies at the intersection of macroeconomics, labor economics and income inequality, focusing particularly on understanding of inequality drivers and potential policies that could help alleviate the effects of economic downturns.

JOB MARKET PAPER

Can Minimum Wage Mitigate Recession Effects?

This paper explores the role of minimum wage in counteracting labor force participation decline and in mitigating consumer demand contraction. An increase in income inequality generally does not have a quantitative impact on aggregate consumption. However, following an economic downturn, it is associated with a significantly larger and more persistent contraction in consumption. The significant rise in inequality in the bottom half of the male labor earnings distribution in the US is correlated with declining participation rate. Labor force participation declines heavily in recessions, and it does not recover in subsequent expansions. I provide empirical evidence that the increase in federal minimum wage in the U.S. during the Great Recession had a positive and substantial impact on labor force participation of prime-aged men. I also show that the minimum wage increase helped raise consumer demand, mitigating the overall decline during the Great Recession, which is confirmed with a theoretical model.

WORKING PAPERS

• “Long-Run Trends in Demographics, Income Inequality, and the Natural Rate of Interest – Further Evidence”, with Carlo A. Favero, Alessandro Melone and Andrea Tamoni
• “Equity-Based Compensation, Wage Rigidity and Financial Constraints”