Research

Working papers

1. Wage-Setting Constraints and Firm Responses to Demand Shocks

   Manudeep Bhuller, Lukas Delgado-Prieto, Santiago Hermo, and Linnea Lorentzen

   December 2025

   Abstract ACCESS AT SSRN ACCESS AT ARXIV BIB ENTRY

   This paper investigates how institutional wage-setting constraints, such as a national minimum wage or collectively bargained wages, affect firm responses to demand shocks. We develop a framework to interpret heterogeneous shock responses that depend on the constraints firms face, and provide empirical evidence on the relevance of these constraints in shaping firm behavior across three countries with different institutional settings: Portugal, Norway, and Colombia. We discuss the implications of our findings for conventional estimates of rent-sharing and employer wage-setting power.

   @techreport{BDHL2025,
     author = {Bhuller, Manudeep and Delgado-Prieto, Lukas and Hermo, Santiago and Lorentzen, Linnea},
     title = {Wage-Setting Constraints and Firm Responses to Demand Shocks},
     year = {2025},
     month = dec,
     type = {Available at SSRN: \url{https://ssrn.com/abstract=5954516}},
     url = {https://ssrn.com/abstract=5954516},
   }

2. Collective Bargaining Networks and the Propagation of Shocks

   Santiago Hermo

   Submitted, December 2025
   Winner of the 2024 AIEL “Carlo Dell’Aringa” Young Economist Prize
   Honorary Mention at the 2024 IDB Young Economist Award

   Abstract OPEN PDF BIB ENTRY

   How does collective bargaining shape the labor market response to economic shocks? I use novel Argentine administrative data to uncover the network of firms linked by collective bargaining and show that positive product-demand shocks to firms within a bargaining unit raise wages at other non-shocked firms in the same unit. Heterogeneous wage and employment responses indicate that propagation operates via collectively bargained wage floors. I develop and estimate a structural model where wage floors are determined in bargaining equilibrium. The model shows that the network shapes the bite of wage floors, which in turn determines the magnitude of shock propagation.

   @article{Hermo2025,
     title = {Collective Bargaining Networks and the Propagation of Shocks},
     author = {Hermo, Santiago},
     year = {2025},
     month = dec,
     journal = {Working paper},
   }

3. From Workplace to Residence: The Spillover Effects of Minimum Wage Policies on Local Housing Markets

   Gabriele Borg, Diego Gentile Passaro, and Santiago Hermo

   December 2023

   Abstract ACCESS AT ARXIV OPEN PDF BIB ENTRY

   The recent rise of sub-national minimum wage (MW) policies in the US has resulted in significant dispersion of MW levels within urban areas. In this paper, we study the spillover effects of these policies on local rental markets through commuting. To do so, for each USPS ZIP code we construct a “workplace” MW measure based on the location of its resident’s jobs, and use it to estimate the effect of MW policies on rents. We use a novel identification strategy that exploits the fine timing of differential changes in the workplace MW across ZIP codes that share the same “residence” MW, defined as the same location’s MW. Our baseline results imply that a 10 percent increase in the workplace MW increases rents at residence ZIP codes by 0.69 percent. To illustrate the importance of commuting patterns, we use our estimates and a simple model to simulate the impact of federal and city counterfactual MW policies. The simulations suggest that landlords pocket approximately 10 cents of each dollar generated by the MW across directly and indirectly affected areas, though the incidence on landlords varies systematically across space.

   @techreport{BorgGentilePassaroHermo2023,
     title = {From Workplace to Residence: The Spillover Effects of Minimum Wage Policies on Local Housing Markets},
     author = {Borg, Gabriele and Gentile Passaro, Diego and Hermo, Santiago},
     year = {2023},
     institution = {arXiv},
     type = {arXiv},
     number = {2208.01791v1},
     url = {https://arxiv.org/abs/2208.01791},
   }

Publications

1. Labor Market Returns and the Evolution of Cognitive Skills: Theory and Evidence

   Santiago Hermo, Miika Päällysaho, David Seim, and Jesse M. Shapiro

   The Quarterly Journal of Economics, November 2022

   Abstract HTML NBER WP VoxEU article BIB ENTRY

   A large literature in cognitive science studies the puzzling “Flynn effect” of rising fluid intelligence (reasoning skill) in rich countries. We develop an economic model in which a cohort’s mix of skills is determined by different skills’ relative returns in the labor market and by the technology for producing skills. We estimate the model using administrative data from Sweden. Combining data from exams taken at military enlistment with earnings records from the tax register, we document an increase in the relative labor market return to logical reasoning skill as compared to vocabulary knowledge. The estimated model implies that changes in labor market returns explain 37\% of the measured increase in reasoning skill, and can also explain the decline in knowledge. An original survey of parents, an analysis of trends in school curricula, and an analysis of occupational characteristics show evidence of increasing emphasis on reasoning as compared to knowledge.

   @article{HermoPaallysahoSeimShapiro2022,
     author = {Hermo, Santiago and Päällysaho, Miika and Seim, David and Shapiro, Jesse M.},
     title = {Labor Market Returns and the Evolution of Cognitive Skills: Theory and Evidence},
     journal = {The Quarterly Journal of Economics},
     volume = {137},
     number = {4},
     pages = {2309-2361},
     year = {2022},
     month = nov,
     issn = {0033-5533},
     doi = {10.1093/qje/qjac022},
     url = {https://doi.org/10.1093/qje/qjac022},
     eprint = {https://academic.oup.com/qje/article-pdf/137/4/2309/45947010/qjac022.pdf},
   }

Projects

1. High Wage Collective Bargaining Units: The Effect of Unions on Firm Pay

   Bruno Cardinale Lagomarsino, Santiago Hermo, and Sebastián Mena

   2025

   Description

   This project studies the causal effects of different collective bargaining institutions on firm pay, exploring the heterogeneity of these effects across collective bargaining units and their correlation with characteristics of the collective bargaining agreements.

2. Firms and the Evolution of Earnings Inequality in Argentina’s Volatile Economy

   Santiago Hermo, Martín Trombetta, and Nicolás Sidicaro

   2024

   Description

   We document large fluctuations in earning inequality between 1995 and 2019 in Argentina. Leveraging Argentina’s matched employer-employee dataset, we fit high-dimensional models of log earnings as a function of worker and firm fixed effects. Using our estimates we decompose the variance of log earnings into three components: worker characteristics, firm characteristics and assortative matching. We find a large contribution of firms to inequality: they account for one-third of the decline in inequality between the 1990s and 2000s, and fully explain the increase in the 2010s. On the other hand, we find a muted role for matching between high-wage workers and high-wage firms. We study the role of several drivers of firm-pay in driving these results, including firm productivity and collective bargaining institutions.

3. The Effect of Underrepresented Students’ Success on Younger Students’ Outcomes: Evidence from Chile

   Diego Gentile Passaro, Santiago Hermo, and Diego Verdugo

   2020

   Description

   In this project we study the spillover effects of underrepresented students’ successful college application outcomes on similar-background younger students own academic, college application, and post-graduation outcomes.’ We exploit admission cutoffs in Chile’s university system to assess whether low SES students that get admitted and obtain a college degree in a selective institution can transmit the benefits of their higher education to younger members of their school network.

Pre-doctoral

1. Impacto económico de la investigación agropecuaria en Argentina: El caso del INTA

   Rolando Daniel Lema, and Santiago Hermo

   Documento de Trabajo, Instituto Nacional de Tecnología Agropecuaria (INTA), 2019
2. The Structure of Wages in Argentina 1992-2016: The Role of Demand and Supply

   Santiago Hermo

   LII Annual Meeting of the Argentine Association of Political Economy, November 2017

   Abstract

   The skill wage premium, both for individuals with complete tertiary and complete secondary education, increased in Argentina between 1992 and 2003 and decreased afterwards. These movements are correlated with income inequality and are probably an important part of the reason of the rise and fall in inequality during the twenty-five-year period under analysis. Thinking about inequality as a market-determined phenomenon, this paper presents an explanation of the movements in relative wages based on a supply and demand framework. It is found that the relative supply of women increased substantially and, nevertheless, their relative wage increased. In fact, the gender wage gap decreased, although gains were concentrated among skilled women. For skilled workers, it is found that their relative supply grew ceaselessly throughout the period. Since the relative wage increased in 1992-2003, and decreased afterwards, it is established that an increase in relative demand for skilled labor must have occurred in the former period. After 2003, however, relative demand stagnated (or even declined) and relative wages started to fall with the increase in supply. Some possible variables that might explain this behavior are proposed and discussed.