We expand the "Unequal We Stand" analysis of empirical trends in US inequality, and extend it up to 2021. Special issue of RED in memory of Tom Cooley
I explain why the idea of human capitalists is important in a number of areas of macroeconomics.
This paper evaluates the impact of slower economic growth on labor market dynamism and misallocation by developing a model of endogenous growth via imitation in a frictional labor market. Slower growth can explain declining business and labor market dynamism but, surprisingly, it leads to less misallocation.
We introduce the Global Repository of Income Dynamics (GRID) is a new open-access, cross-country database that contains a wide range of micro statistics on income inequality, dynamics, and mobility. It has four key characteristics: administrative, longitudinal, granular, and harmonized.
A systematic investigation on whether, and how, an array of commonly used heterogeneous-agent incomplete-markets models can generate MPCs in line with the empirical evidence.
Four useful lessons we learned from HANK models on the transmission mechanism, amplification channels, redistributive implications, and empirics of monetary policy.
We characterize the equilibrium of a labor market with OJS and decreasing returns to scale in technology by building on the idea of joint value of the firm and its incumbents. The model yields a job ladder in marginal surplus which explains the failure of the job ladder after the Great Recession as a result of the collapse of firm entry.…
Administrative tax-return data shed new light on the degree of intergenerational income mobility in Italy since the late 1990s. Mobility is higher than in the US, but lower than in Scandinavia. It is sharply heterogeneous across provinces, with a steeply positive South-North gradient.
It depends on whether the force behind it is a rise in the skill premium or in uninsurable income risk. Through the lenses of our model, in the US these two forces offset each other over the last 40 years and optimal tax progressivity should not have changed much. We argue the data agree with this prediction.
A quantitative assessment of the relative importance of some key forces of amplification and dampening of monetary policy shocks in HANK models. In the Special Issue celebrating the 50th anniversary of the JMCB
An equilibrium model of the US economy with endogenous fluctuations in house prices allows to address three questions. What was the key source of the boom and bust in house prices? How much of the consumption dynamics around the Great Recession was caused by house prices? Would a massive debt forgiveness policy have cushioned the bust?
We revisit and refine the Mian-Rao-Sufi estimate of the impact of the drop in housing net worth on consumption during 2006-09, using easily accessible micro data on housing wealth, liabilities, and non-durable expenditures.
When the degree of tax progressivity is allowed to vary with age, the age profile of progressivity is U-shaped because of offsetting forces. The welfare gains from this more flexible tax system are around 2% of lifetime consumption.
Recessions that occur against the backdrop of SBTC have persistent effects on non-participation and earnings inequality at the bottom of the distribution. Special Issue of the RED on The 25th anniversary of Frontiers of Business Cycle Research
We combine a simple analytical model with measurement from micro survey data and VARs to estimate the effect of an interest rate cut on aggregate consumption, and its transmission mechanism across the distribution of households as a function of their wealth portfolios and their income exposure.
The current U.S. financial aid system to college education is very valuable: removing it would reduce welfare by nearly 6% in the long-run. However, further marginal expansions of aid would have no salient aggregate effects because of substantial crowding-out of parental transfers.
Do household heterogeneity and market incompleteness matter for the response of the economy to aggregate shocks? We discuss how macroeconomists have thought about this question over the last three decades and then zoom in on HANK models.
Firms' recruiting effort is strongly procyclical and can explain much of the fluctuations in aggregate matching efficiency.
Adelino et al. present some very useful descriptive empirical work that helps us understanding the forces behind the recent boom-bust in house prices (looser credit or shift in expectations?). I argue that one needs more structure to make further progress.
In Heterogeneous Agent New Keynesian (HANK) models the transmission mechanism of monetary policy is entirely different from that of Representative Agent New Keynesian (RANK) models: more indirect GE effects and less intertemporal substitution.
What is the optimal degree of tax progressivity when households economic outcomes are determined by their initial ability, partially insurable wage shocks, taste for work, and human capital investment? A Ramsey-style answer to this question.
The rise in female labor supply explains half of the growth in U.S. average earnings since the mid 1960s, but none of the dynamics of earnings inequality because of offsetting effects on the income distribution.
Much of the slow growth in U.K. productivity after the Great Recession can be explained by the fact that the bulk of new hires occurred in occupations and industries with low labor productivity.
Soft welfare-to-work programs make no use of punishments or sanctions. Their optimal design can be characterized analytically and shown to be robust to hidden saving. Plenary Lecture at the 2013 Annual Meeting of the SED (Seoul, Korea)
Survey data on household portfolios for 8 countries reveal that the group of wealthy HtM (low liquid wealth but sizable illiquid wealth) is twice as large as that of poor HtM (low net worth). This observation matters for fiscal policy.
Mismatch across industries and occupations explains at most 1/3 of the total observed increase in the unemployment rate over the Great Recession, whereas geographical mismatch plays no apparent role.
Wealthy hand-to-mouth households -who hold little or no liquid wealth despite owning sizable quantities of illiquid assets- can help accounting for the large estimated propensities to consume out of (small) tax rebates.
We study how differences in (i) the size of the transfer, (ii) the design of the policy, and (iii) the state of the macroeconomy account for the differences in the consumption response to the fiscal stimulus payment episodes of 2001 and 2008.
An analytically tractable equilibrium framework to measure the degree of consumption insurance. The news is that data on individual labor supply can be very informative about the extent of risk sharing in the economy
A critical evaluation of the large literature that studies the welfare consequences of the recent shift in the wage structure in the United States.
Compared to single-agent search, joint search offers additional opportunities to the couple (similarly to on-the-job search), but it also imposes additional costs when job offers can originate from multiple locations.
The observed magnitude of worker flows implies that in a wide range of search and matching models frictional wage dispersion is very small.
The labor income tax will have to increase from 23% in 2005 to 36% in 2080 to finance the rising costs of Medicare. Under an open-economy scenario, the tax would have to rise by much less.
In a calibrated life-cycle incomplete markets model, households have access to less consumption smoothing against permanent earnings shocks than what is measured in the data.
Welfare implications of the recent widening of the wage distribution are complex: bigger idiosyncratic shocks imply welfare losses due to imperfect insurability, but gender-biased and especially skill-biased demand shifts are welfare improving.
Introductory article to the RED special issue on Cross-Sectional Facts for Macroeconomists. Data and Codes for all articles in this issue are available from this same link.
To document how different dimensions of inequality are related via choices, markets, and institutions, we follow the mapping implied by the household budget constraint from individual wages to individual earnings, to household earnings, to disposable income, and, ultimately, to consumption and wealth.
A review of quantitative macroeconomics that focuses on household heterogeneity, with a special focus on the "standard" incomplete-markets model.
A condensed explanation of the meaning of skill-biased technical change.
An analytical study of the welfare implications of idiosyncratic labor market risk showing that removing uncertainty is different from insuring uncertainty.
An optimal sequence of activities for a jobless welfare recipient whose skills depreciated during unemployment and whose effort is unobservable is: first Unemployment Insurance-->Job-Search Monitoring-->Social Assistance.
Capital-embodied technological change reduces labor demand and raises equilibrium unemployment. More so, in the presence of labor market regulation. This interaction explains the different labor market experiences of US and Europe in the 1980s and 1990s.
Does a two-region model of the global demographic transition have similar implications compared to a closed-economy model for the sustainability of US social security? Yes.
The long-run effects of demographic trends for less developed countries depend on the degree of international capital mobility and on the extent to which the pay-as-you-go pension systems in place in the more developed world will survive.
An overview of twenty years of literature on the many ways in which technological progress shapes the distribution of wages and other economic outcomes.
An introduction to the debate on the quantitative business-cycle implications of the matching model of unemployment.
The standard matching model with vintage capital ad a version with "machine upgrading" are almost equivalent, quantitatively.
The choice of whether to control for cohort or time effects has a drastic impact on the estimated age profiles for inequality. If analyzing data for the last 30 years, time effects are much more important.
The employment effects of severance payments combined with wage rigidities are not the same as those of firing taxes.
Theory tells us that organizational capital plays an important role in macroeconomics, especially in phases of technological transformation, but we are still lacking reliable direct measurement.