Knowledge that Transforms

We study how firms set wages for their employees when they can legally age-discriminate across workers. We exploit an age-specific minimum wage change in the UK, which raised the minimum applying to workers aged 25 and over, leaving unchanged the minima for younger workers. Using matched employer-employee data on a low-paying sector, we show large, positive wage spillovers on workers aged under 25, which arise within firms from company wage policy. Pay equity norms offer the most parsimonious explanation for the emergence of spillovers. The effects that we document also operate in other low-paying sectors of the UK labor market.

We study how supply disruptions interact with monopoly pricing, inventory management, and consumer stockpiling in a continuous-time model. Preemption incentives—consumers prefer to stock up before a price hike while the firm prefers to hike before consumers stock up—lead to an equilibrium with gradual stockpiling and endogenous uncertainty over the timing of a price hike, which can trigger a run at the disruption onset. Consumer storage introduces welfare losses from randomized pricing, but can also strengthen the firm’s incentive to hold buffer stock. Rationing, price controls, and reserve mandates can each improve welfare, but only strategic government reserves can implement the social optimum.

In this paper, I document systematic heterogeneity in ownership and financing of firms across Eurozone countries. To rationalize these differences, I build a quantitative general equilibrium model of workers and entrepreneurs who choose debt and equity financing of their firms, subject to rich country-specific financial frictions. The novel data on firm ownership and financing, combined with the structure of the model, allows me to quantify the level of debt and equity frictions in each country. Quantitatively, I find much larger output effects from equity frictions: harmonizing them across countries would lead to nearly four times larger output effects compared to debt frictions, and removing them would increase aggregate output by 73% more. The larger impact on output is due not only to the estimated levels and dispersion of equity frictions but also to the greater risk sharing provided by equity, which further incentivizes entrepreneurs to expand their firms. Through their effect on risk sharing, equity frictions also rationalize the observed negative relationship between equity financing and wealth inequality. Quantitatively, they are responsible for over 70% of the explained variation in top wealth shares across countries.

This paper studies how municipal governments jointly manage spending, credit market borrowing, and a public employee pension system. I model governments as levered investors who must meet non-defaultable pension obligations and may value government spending more than citizens. I quantify the model using data on California cities, including a new record of fiscal emergencies, tax increases required to maintain essential city services. After the financial crisis depleted pension funds, cities engaged in excessive risk-taking: the fiscal emergency option encouraged gambling for resurrection that kept cities vulnerable to shocks well into the recovery. To correct this problem, a savings requirement works better than a restriction on risk-taking or a pension funding requirement. The policy experiments emphasize that effective policies need to target the combined pension and bond finances, as policies that only target one, such as a pension funding requirement, are undermined by endogenous changes to the other.

We experimentally study decentralized one-to-one matching markets with transfers. We vary the information available to participants, complete or incomplete, and the surplus structure, supermodular or submodular. Several insights emerge. First, while markets often culminate in efficient matchings, stability is more elusive, reflecting the difficulty of arranging attendant transfers. Second, incomplete information and submodularity present hurdles to efficiency and especially stability; their combination drastically diminishes stability's likelihood. Third, matchings form ``from the top down'' in complete-information supermodular markets, but exhibit many more and less-obviously ordered offers otherwise. Last, participants' market positions matter far more than their dynamic bargaining styles for outcomes.

We show that the emergence of new economic opportunities that draw women away from their traditional domestic roles has significantly influenced the adoption of religious veiling. We measure the prevalence of veiling among young women across Indonesia's districts for more than two decades by hand-coding around a quarter million photographs attached to Indonesia's public high school registers. To establish causality, we exploit exogenous variation generated by international demand for Indonesia's products, interacted with the gender and sectoral composition of local industries. Districts exposed to stronger positive economic shocks---and thus greater economic opportunities for women---exhibit higher rates of veiling adoption. Our findings suggest that veiling facilitates young women's participation in formal labor markets while safeguarding their personal and social image in society.

We estimate the impact of public pension incentives on labor supply far from the normal retirement age by exploiting Poland's switch from a Defined Benefit to a Notional Defined Contribution (NDC) scheme. This reform created a sharp cohort-based discontinuity in the link between current pension contributions and future benefits. Using this discontinuity and the universe of taxpayers, we estimate an employment elasticity with respect to the net return to work of 0.51 for men at ages 51-54. We estimate a lifecycle model to match these responses and discuss the broader implications of the reform. The shift to NDC reallocates work incentives over the lifecycle, strengthening incentives at younger ages, when labor supply is relatively inelastic, and weakening them at older ages, when labor supply is more elastic. This reallocation of work incentives tends to reduce aggregate lifecycle labor supply, which highlights the advantage of targeting pension incentives towards ages at which labor supply is most responsive.

Do workers from social groups with comparable productivity distributions obtain comparable lifetime earnings? We study how a small amount of early-career discrimination propagates over time when workers’ productivity is revealed through employment. In breakdown learning environments that primarily track on-the-job failures, such discrimination spirals into a substantial lifetime earnings gap for groups of comparable productivity, whereas in breakthrough learning environments that track successes, early-career discrimination can be self-corrected, so comparable groups obtain comparable lifetime earnings. This contrast persists in large labor markets and with flexible wages, inconclusive learning, and misspecified employer beliefs.

We study opinion dynamics in a social network consisting of two groups. Agents update their opinions by conforming to members of their own group while rejecting the views of the opposing group (affective polarization), and by listening to a media outlet that may provide biased information. We characterize the long-run opinions and identify when affective polarization and media bias lead to ideological polarization, persistent disagreement, or failures of learning. We also derive when information interventions or censorship improve the accuracy of average opinions and reduce disagreement, and when they backfire: better information helps only under specific media bias configurations and when directed to the agents we identify as most effective at propagating it through the network.

We study a parsimonious model of a competitive labor market in which firms privately screen workers to identify talent. The equilibrium exhibits dispersion in wages and productivity; when talent is scarce, firms with superior screening skills post higher wages, attract better applicants, and recruit more talented workers. High-wage firms impose a compositional externality on low-wage firms, leading to equilibrium inefficiency: Welfare would be higher if low-skilled firms posted high wages and selected first. We also provide a micro-foundation for firms heterogeneous screening skills. When talented workers are better at screening (e.g. via superior referrals), a dynamic version of the economy converges to a unique steady state in which differences in talent, profits and screening skills persist forever.