Knowledge that Transforms

For whom has earnings risk changed, and why? We answer these questions by combining the Kalman filter and EM algorithm to estimate persistent and temporary earnings for every individual at every point in time. We apply our method to administrative earnings linked with survey data. We show that since the 1980s, persistent earnings risk rose by 12.5 percent for both employed and unemployed workers and the scarring effects of unemployment doubled. At the same time, temporary earnings risk declined. Using education and occupation codes, we show that rising persistent earnings risk is concentrated among high-skill workers and related to technology adoption.

Consider an economy with equal amounts of N types of goods, to be allocated to agents with strict quasi-convex preferences over lotteries. We show that ex ante, all Pareto-efficient allocations give almost all agents lotteries over at most two outcomes. Our results provide a simple criterion showing that many popular allocation mechanisms are ex ante inefficient. For the case of identical preferences, we establish existence of an efficient solution where all lotteries used are equally attractive. Assuming the reduction axiom, social welfare deteriorates by first randomizing over these binary lotteries. Efficient ex ante equality is achieved if agents satisfy the compound-independence axiom.

I study multidistrict legislative elections with two parties and two binary dimensions of policy. Strategic voters focus on the dimension where their district is most likely to be pivotal in the legislature. Anticipating this, candidates select different policies than they would in single-district elections. The final policy is (i) uniquely pinned down by voter preferences, (ii) preferred by a majority of districts on each dimension, and (iii) a Condorcet winner if one exists. These properties are not guaranteed in single-district elections.

We quantify the firm responses and real wage effects of foreign demand shocks. We use Belgian microdata to construct firm-specific measures of demand shocks, which capture that firms pass on foreign demand shocks to domestic suppliers. Our estimates of firm responses to these shocks suggest that firms face upward-sloping labor supply curves and have sizable fixed labor costs. We specify a general equilibrium model with these features to quantify the aggregate effects of simulated tariff shocks on wages. We find that ignoring fixed labor costs substantially underestimates aggregate effects on wages, whereas incorporating upward-sloping labor supply appears less consequential.

This paper studies housing vouchers and urban redevelopment programs by incorporating neighborhood effects into a general equilibrium overlapping-generations model with endogenous location choice and child development. We calibrate the model using US data and estimate impacts of large-scale implementations of rental voucher and place-based subsidy policies. Our core finding is that vouchers generate long-run welfare gains by reducing inequality and generating skill improvements that offset higher taxation and other GE effects. Although vouchers lead to larger welfare gains on average, we find housing supply.

High school students from non-elite backgrounds are less likely to have peers with elite-educated parents than their elite counterparts. This difference in social capital is a key driver of the high intergenerational persistence in elite education. We identify a positive elite peer effect on enrollment in elite programs and labor market earnings, then disentangle underlying mechanisms. Exploiting a lottery in assessment, a causal mediation analysis shows the overall positive peer effect reflects a positive effect on application behavior (conditional on GPA). When considering income mobility, we find that further mixing between high school elite and non-elite students could improve mobility.

Wage rigidity is an important explanation for unemployment fluctuations. In benchmark models wages for new hires are key, but there is limited evidence on this margin. We use wages posted on vacancies, with job and establishment information, to measure the wage for new hires. We show that our measure of the wage for new hires is rigid downward and flexible upward, in two steps. First, wages change infrequently at the job level, and fall especially rarely. Second, wages do not respond to rises in unemployment, but respond strongly to falls in unemployment. Job information is crucial for detecting downward rigidity.

Policy-relevant treatment effect estimation in a marketplace setting requires assessing both the direct treatment benefit and spillovers induced by changes to the market equilibrium. We show how to identify and estimate policy-relevant treatment effects using a unit-randomized trial run within a single large market. A Bernoulli-randomized trial allows consistent estimation of direct effects and of treatment-heterogeneity measures that enable welfare-improving targeting. Estimating spillovers—and providing confidence intervals for the direct effect—requires estimates of price elasticities, which we provide using an augmented experimental design. We illustrate our results using a simulation calibrated to a conditional cash-transfer experiment in the Philippines.

We develop a tractable framework for deficit and debt dynamics. A “free lunch” fiscal deficit—one that raises spending without higher future taxes—is sustainable without zero lower bound (ZLB) only when R < G − φ, where φ is the sensitivity of the interest rate to the debt level. With the ZLB, both high and low deficits can increase debt, as the latter weaken demand and reduce nominal growth at the ZLB. A rise in income inequality expands fiscal space outside the ZLB, but contracts it at the ZLB. Calibrating the model, we find little space for “free lunch” policies for the United States in 2019, but significant space for Japan.