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 A Minimum Wage Mitigate Recession Effects?

This paper explores the role of a minimum wage in counteracting a labor force participation decline and in mitigating a consumer demand contraction during a downturn. Following an economic downturn, a large and persistent contraction in consumption is associated to a rise in income inequality. The significant rise in inequality in the bottom half of the male labor earnings distribution in the U.S. is correlated with a declining labor force participation rate. I provide empirical evidence that the increase in the federal minimum wage in the U.S. during the Great Recession had a positive and substantial impact on the labor force participation of prime-aged men. I also show that the minimum wage increase helped raise consumer demand. To assess the general equilibrium effects of raising the minimum wage in a recession, I build a theoretical model featuring heterogeneous agents, search frictions and nominal rigidities. The model shows that the minimum wage can be an effective stabilizing policy during downturns, mitigating the exit from the labor force and substantially reducing the volatility of both employment and aggregate consumption.

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”