Research

Working papers

1. Collective Bargaining Networks, Rent-Sharing, and the Propagation of Shocks

   Santiago Hermo

   Job Market Paper, 2024

   Abstract PDF

   I study the role of collective bargaining, a prevalent wage-setting institution in many countries, in determining the effects of economic shocks on workers and firms. To do so, I leverage novel administrative data which allows me to construct the network linking employers to collective bargaining agreements in Argentina. I exploit changes in world import demand between 2009 and 2013 to construct exogenous shocks to product demand and to study how these shocks propagate through the collective bargaining network. My findings indicate that a shock equivalent to a 10% rise in firm revenue leads to a 1.5% increase in wages, and a shock equivalent to a 10% rise in average revenue of firms under the same agreement leads to a 4.3% increase in wages. The evidence suggests that these effects are driven by changes in common wage floors, which means that bargaining extends the impact of economic shocks to firms and workers not directly affected. I develop a general equilibrium model of the labor market with collective bargaining and firm heterogeneity to quantify how the degree of centralization of bargaining affects the propagation of shocks. The estimated model indicates that the degree of shock propagation is hump-shaped in the degree of centralization, with highly decentralized or highly centralized bargaining structures leading to less propagation than intermediate levels of centralization.

   2024
2. From Workplace to Residence: The Spillover Effects of Minimum Wage Policies on Local Housing Markets

   Gabriele Borg, Diego Gentile Passaro, and Santiago Hermo

   2023

   Abstract arXiv Bib PDF

   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},
   }

   2023

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, Nov 2022

   Abstract Bib HTML NBER WP VoxEU article

   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},
   }

   2022

Projects

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

   Santiago Hermo, Martín Trombetta, and Nicolás Sidicaro

   Description

   This project analyzes the contribution of firms, workers and sorting to the evolution of wage inequality in Argentina between 1995 and 2019. To do so, we leverage Argentina’s matched employer-employee dataset and regress log earnings on worker and firm fixed effects. Then, we decompose the variance of log earnings into three components: worker characteristics, firm characteristics and assortative matching. We find that the contribution of firms to inequality is large: above 1/3 of the total variance of log earnings is due to firms across the entire period. When looking at the drivers of changes in inequality, we find that the large reduction in inequality following the 2001-2002 crisis was driven by a decrease in the variance of both worker and firm effects, with no changes in assortative matching. We also note a mild increase in inequality in the 2010s that is explained by an increase in the variance of firm effects. We study several mechanisms that could explain the large role of firms in determining Argentina’s income inequality.
2. The Causal Effect of Collective Bargaining Agreements: Evidence from Firm Movers

   Santiago Hermo, and Andrés Sebastián Mena

   Description

   This project studies how collective bargaining agreements (or CBAs) affect firm pay using a sample firms that change CBA in Argentina. The goal is to study the causal effect of CBAs using a movers design, and quantify what is the contribution of CBAs towards earnings inequality.
3. The Effect of Underrepresented Students’ Success on Younger Students’ Outcomes: Evidence from Chile

   Diego Gentile Passaro, Santiago Hermo, and Diego Verdugo

   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

   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, Nov 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.

   2017