Knowledge that Transforms

We propose a novel identification strategy to isolate exogenous immigration shocks across US counties, by interacting quasi-random variations in the composition of ancestry across counties with the contemporaneous inflow of migrants from different countries. We show a positive causal impact of immigration on local innovation and wages at the five-year horizon. The positive dynamic impact of immigration on innovation and wages dominates the short-run negative impact of increased labor supply. A structural estimation of a model of endogenous growth and migrations suggests the increased immigration to the United States since 1965 may have increased innovation and wages by 5 percent. (JEL J15, J22, J31, J61, O31, R11, R23)

What is the optimal response of a resource exporter when a price cap is imposed on its main export? This paper develops a dynamic framework incorporating stochastic prices, financial frictions, and market power to study this novel tool of statecraft. With the right design, a price cap can incentivize increased extraction, stabilizing prices in the global market. But the stabilizing effects diminish when there is leakage outside the cap. Consequently, weak enforcement of the policy worsens the trade-off faced by the sanctioning policymaker. We provide a systematic approach to setting and enforcing an optimal cap level in these circumstances. (JEL F12, F14, F51, L71, P28, P33, Q35)

We assemble a new dataset spanning 150 years and 60 countries to study the economic toll of war. A war of average intensity is associated with an output drop of close to 10 percent in the war-site economy, while consumer prices rise by approximately 20 percent. The capital stock, total factor productivity, and equity returns all decline sharply. The economic ramifications of war are not confined to the war site. The evidence points to adverse economic outcomes in other belligerent and third-party countries if they are exposed to the war site through trade linkages or share a common border. (JEL D74, E23, E32, F43, F51, N40)

We study the welfare impacts of 96 climate-related tax and spending policies. We extend and apply the marginal value of public funds (MVPF) framework, most notably providing a new method for incorporating learning-by-doing spillovers. We find subsidies for the production of clean energy (such as wind production tax credits) have higher MVPFs than all other subsidies in our sample, including EV subsidies. Conservation nudges have large MVPFs when targeting regions with dirty grids. Fuel taxes and cap-and-trade policies are highly efficient means of raising revenue. We also construct traditional cost-per-ton estimates and compare and contrast the lessons they provide. (JEL D83, H23, H25, L62, Q42, Q54, Q58)

Using linked employer-employee data from Brazil, we document a significant gender pay gap, which is largely attributed to women working at lower-paying employers. To interpret this fact, we develop an equilibrium search model with endogenous firm pay, amenities, and hiring. We provide a constructive proof of identification of all model parameters. The estimated model suggests that amenities are important for both men and women, and that compensating differentials account for half of the gender pay gap. Equal treatment policies partly close gender gaps but are not output- or welfare-improving. (JEL E24, J16, J23, J31, J32, M51, O15)

This paper estimates the effects of improving public transit infrastructure on city structure and welfare. It develops a quantitative urban model with multiple worker groups and transit modes, and derives a special case yielding sufficient statistics for aggregate welfare in a broad class of models. The paper estimates reduced-form elasticities to implement the approach using data spanning construction of the world’s largest Bus Rapid Transit system in Bogotá, Colombia. This class of models explains observed adjustments in economic activity. Standard value-of-time calculations capture only 52 percent of welfare gains. Accounting for reallocation and general equilibrium effects, distributional impacts are modest. (JEL H76, L92, L98, O18, R42, R53)

We show remote work led to large drops in lease revenues, occupancy, and market rents in the commercial office sector. We revalue New York City office buildings, taking into account both the cash flow and discount rate implications of these shocks, and find a 46 percent decline in long-run value. For all US office markets combined, we find a $556.8 billion value destruction. Higher-quality buildings were buffered against these trends due to a flight to quality, while lower-quality offices are at risk of becoming a stranded asset. These valuation changes have repercussions for financial stability and local public finances. (JEL E31, E32, G12, J22, M51, R33)

We show that subjective assessments of employee “potential” contribute to gender gaps in promotion and pay. Using data on 29,809 management-track employees from a large retail chain, we find that women receive substantially lower potential ratings despite receiving higher performance ratings. Differences in potential ratings account for approximately half of the gender promotion gap. Women’s lower potential ratings do not reflect accurate forecasts of future performance: Women subsequently outperform male colleagues, both on average and on the margin of promotion. We highlight two mechanisms driving the gender potential gap: strategic retention and stereotyping. (JEL J16, J31, J71, L81, M12, M51)

We construct a public atlas of mean outcomes in adulthood by childhood census tract. Outcomes vary sharply across neighborhoods: For children whose parents earn $27,000, the standard deviation of mean household income in adulthood is $10,420 across tracts within counties. Only half the variation in outcomes is explained by traditional measures of neighborhood opportunity like poverty rates. Experimental and quasi-experimental estimates indicate 60 percent of the variation in outcomes across neighborhoods is driven by causal effects. We demonstrate how our statistics can be applied to better target policies to improve low-opportunity areas and help families move to affordable high-opportunity areas. (JEL G51, I32, I38, J12, R23)

This paper examines how workforce composition, labor demand, and minimum wage jointly determine wages through their effects on worker-task assignments, firm wage premiums, and firm-worker sorting. Using an estimated model of monopsonistic local labor markets, it finds that minimum wage hikes and labor demand shocks drove the decline in Brazilian wage inequality from 1998 to 2012. While rising educational attainment compressed skill premiums within firms, it also reallocated skilled workers to high-wage firms, limiting that shock’s effect on inequality. The analysis highlights interactions among exogenous factors, showing that concurrent supply and demand changes attenuated minimum wage impacts. (JEL J22, J23, J24, J31, J38, J42, R23)