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Abstract
This dissertation contains three essays on search frictions in macroeconomics. The first two study theeffects of domestic outsourcing on workers and labor markets; the first empirically, the second theoretically. The
third, writen with Fan Liang, studies the theoretical value of new currencies with uncertain acceptance.
Chapter 1 uses self-reported outsourcing data from the National Longitudinal Survey of Youth 1979
(NLSY) to study how domestic outsourcing affects workers and labor markets in the U.S. Outsourced
workers earn 7.1% less in total compensation, mainly because they have lower access to health insurance and
retirement plans. These effects are heterogeneous by education: workers without a bachelor’s degree earn
8.8% less, while workers with a bachelor’s degree earn insignificantly more. Occupations with high levels
of outsourcing have fewer workers earning high wages, evidence that high-wage firms are the ones that
chose to outsource. Within occupations, outsourcing is positively correlated with employment, evidence
that outsourcing firms demand more labor. Despite the fact that outsourced jobs are lower quality on
average, workers find them no faster than traditional jobs. Outsourcing leads to a trade-off for workers
without a bachelor’s degree: jobs are lower quality but more plentiful.
Chapter 2 develops a theoretical model to capture these empirical facts and matches the model to
NLSY data to show how outsourcing affects worker and overallwelfare. I develop a Diamond-Mortensen-
Pissarides (DMP) style labor search model in which firms endogenously choose between hiring from a
frictional labor market and bargaining over wages or renting labor from a frictionless outsourcing market
and paying a market clearing price. Outsourcers hireworkers from the same labor market as firms and also
bargain overwages; their comparative advantage is cheaper vacancy creation. The model captures the tradeoff
that workers face in the data. High-productivity firms chose to outsource and expand: workers lose
access to the highest-paying jobs but are more likely to be employed. The model also reveals another tradeoff
of outsourcing; its effect on labor market efficiency. Outsourcing increases efficiency on the intensive
margin: outsourcing firms make more efficient entry decisions. But outsourcing decreases efficiency on
the extensive margin: firms make ineffiecient choices between outsourcing and hiring. Calibrations reveal
outsourcing makes workers without a bachelor’s degree worse off but workers with one better off. For
both groups, however, total welfare and effiency increase.
Chapter 3 studies how new currencies with uncertain acceptance compete with existing currencies.
Prices of new currencies reflect both their liquidity today and their expected future liquidity as more
consumers and merchants accept them as means of payment. We adopt aNewMonetarist framework with
an emerging currency, cryptocurrency, competing with an existing currency, money. Seller’s acceptance of
cryptocurrency exogenously grows over time but this growth stops in a random period. Cryptocurrency
prices increase in expected future acceptance and crash when acceptance growth stops, potentially to
zero. We also study an environment in which a fraction of buyers are optimistic about the future of
cryptocurrencies. Surprisingly, the presence of optimists has an ambiguous effect on prices.