Knowledge that Transforms

Abstract We use anonymized admissions data from several colleges linked to income tax records and SAT and ACT test scores to study the determinants and causal effects of attending Ivy-Plus colleges (Ivy League, Stanford, MIT, Duke, and Chicago). Children from families in the top 1% are more than twice as likely to attend an Ivy-Plus college as those from middle-class families with comparable SAT/ACT scores. Two-thirds of this gap is due to higher admission rates for students with comparable test scores from high-income families; the remaining third is due to differences in rates of application and matriculation. In contrast, children from high-income families have no admissions advantage at flagship public colleges. The high-income admissions advantage at Ivy-Plus colleges is driven by three factors: (i) preferences for children of alumni, (ii) weight placed on nonacademic credentials, and (iii) athletic recruitment. Using a new research design that isolates idiosyncratic variation in admissions decisions for waitlisted applicants, we show that attending an Ivy-Plus college instead of the average flagship public college increases students’ chances of reaching the top 1% of the earnings distribution by 50%, nearly doubles their chances of attending an elite graduate school, and almost triples their chances of working at a prestigious firm. The three factors that give children from high-income families an admissions advantage are uncorrelated or negatively correlated with postcollege outcomes, whereas academic credentials such as SAT/ACT scores are highly predictive of postcollege success.

Abstract This article estimates that the macroeconomic damages from climate change are an order of magnitude larger than previously thought. Exploiting natural global temperature variability, we find that 1ºC warming reduces world GDP by over 20% in the long run. Global temperature correlates strongly with extreme climatic events, unlike country-level temperature used in previous work, explaining our larger estimate. We use this evidence to estimate damage functions in a neoclassical growth model. Business-as-usual warming implies a present welfare loss of more than 30%, and a social cost of carbon in excess of $1,200 per ton. These impacts suggest that unilateral decarbonization policy is cost-effective for large countries such as the United States.

ABSTRACT We present evidence that the high estimated marginal propensities to consume (MPCs) from the leading household studies result in implausible macroeconomic counterfactuals. Using the 2008 tax rebate as a case study, we calibrate a standard macro model with the estimated micro MPCs to construct counterfactual macroeconomic consumption paths in the absence of a rebate. The counterfactual paths imply that consumption expenditures would have plummeted in spring and summer 2008 and mostly recovered in September 2008. We use narratives and forecasts to argue that these paths are implausible. We show that standard two-way fixed effect estimates of the micro MPCs are upward biased. When we correct for the biases, we estimate smaller micro MPCs using the CEX data than the previous literature. We show that realistic modifications of the model result in general equilibrium forces that dampen rather than amplify micro MPCs. The combination of smaller micro MPCs and dampening general equilibrium forces implies general equilibrium consumption multipliers that are below 0.2.

ABSTRACT This article posits an information channel as an explanation for sudden inflations. Households saving via nominal government bonds face a choice whether to acquire costly information about future government surpluses. They trade off the cost of acquiring information about the surpluses that back bond repayment against the benefit of a more informed saving decision. Through the information channel, small changes in the economic environment can trigger large responses in consumer behavior and prices. This setting explains why there can be long stretches of time during which government surpluses have large movements with little inflation response; then at some point, something snaps, and a sudden inflation takes off that is strongly responsive to incoming fiscal news.

Abstract We characterize the contribution of changes in quality, price, and variety entry/exit to the aggregate price index for smooth, invertible demand systems, generalizing the standard results derived in the CES case. The results require the knowledge of heterogeneous cross-product elasticities of substitution. To apply them in practice, we also show how to identify rich demand systems using data only on prices and market shares, without the need for external cost-shock instruments or strong assumptions on the covariance between supply and demand shocks. Using this approach, we compute the U.S. import price index based on the Kimball demand system. We find that quality change on average lowered the inflation in import prices by around 0.007 log points annually (1989–2016). To further validate our approach, we show that it estimates price elasticities and quality changes similar to those found by the standard mixed logit (BLP) demand in data on the U.S. auto market.

Abstract From 1944 to 1952, largely agrarian Finland had to export, on average, 4% of its yearly GDP in industrial products to the Soviet Union as war reparations. To meet the reparation demands, the Finnish state needed to provide extensive temporary support to Soviet-assigned industries with insufficient production capacity. This article documents the long-term effects of this extensive and temporary industrial policy on industrial and local development and on individual outcomes. Using newly digitized data sets, I show in a difference-in-differences setup that the short-term nonmarket production persistently and significantly increased the employment and production of the manufacturing industries exposed to the policy. These industries plausibly benefited from large initial investments and exposure to export markets associated with the war reparations. The episode further led to local development and structural change, as the more exposed regions became persistently more industrialized. I substantiate these within-Finland results with triple-difference setups using comparable Norwegian data. I use Finnish administrative data to study the long-term individual effects of the episode. Tracking individuals over 30 years, I show that the initial state investments and the persistent change in the local industrial structure increased long-term incomes, led to more educational attainment, and promoted the upward mobility of children and young adults in the more exposed regions before the war reparations period. The observed effects are driven by the more advanced heavy industry, which received the majority of state assistance.

Abstract How does inventors’ migration affect international talent allocation, knowledge diffusion, and productivity growth? To answer this question, I build a novel two-country innovation-led endogenous growth model, where heterogeneous inventors produce innovations, learn from others, and make dynamic migration and return decisions. Migrants interact with individuals at origin and destination, diffusing knowledge within and across countries. To quantify this framework, I construct a micro-level data set of migrant inventors on the U.S.-EU corridor from patent data and document that (i) gross migration is asymmetric, with brain drain (net emigration) from the EU to the United States; (ii) migrants increase their patenting by 33% a year after migration; (iii) migrants continue working with inventors at origin after moving, although less frequently; (iv) migrants’ productivity gains spill over to their collaborators at origin, who increase patenting by 16% a year when a co-inventor emigrates. I calibrate the model to match the empirical results and study the effect of innovation and migration policy. A tax cut for foreigners and return migrants in the EU that eliminates the brain drain increases EU innovation but lowers U.S. innovation and knowledge spillovers. The former effect dominates in the first 25 years, increasing EU productivity growth by 3%, but the latter dominates in the long run, lowering growth by 3%. On the migration policy side, doubling the size of the U.S. H1B visa program increases U.S. and EU growth by 4% in the long run, because it sorts inventors to where they produce more innovations and knowledge spillovers.

ABSTRACT This article identifies which investments in school facilities help students and which are valued by homeowners. Using novel data on school district bonds, test scores, and house prices across 29 U.S. states and a research design based on narrowly decided elections with staggered timing, we find that increased capital spending in schools significantly improves test scores and is efficient on average. However, the effects vary widely depending on the type of project and the characteristics of the school district. Investments in essential infrastructure, such as HVAC systems or pollutant removal, yield notable improvements in student performance, while expenditures on athletic facilities show no measurable academic benefit. Socioeconomically disadvantaged districts gain disproportionately from capital investments, even after accounting for project type, yet these districts typically underinvest in such projects.

ABSTRACT We study the role of unions in improving workplaces for women. Starting in 2015, Brazil’s largest trade union federation made women central to its agenda. Using a difference-in-differences design that leverages variation in union affiliation to this federation, we find that “bargaining for women” increased female-friendly amenities in collective bargaining agreements and in practice. These changes led women to queue for jobs at treated establishments and separate from them less—both revealed-preference measures of firm value. We find no evidence that gains came at the expense of wages, employment, or firm profits. Better amenities instead reduced turnover and absenteeism, suggesting greater worker satisfaction and effort. Larger improvements occurred where women initially composed a lower share of workers or union leaders. Our findings show that shifting union priorities toward women improved workplaces without meaningful trade-offs and benefited both workers and employers. They illustrate the potential for unions to improve workplace quality by focusing on the needs of less represented workers.

Abstract Workers who are worried about their personal finances may find it hard to focus at work. If so, reducing financial concerns could increase productivity. We test this hypothesis in a sample of low-income Indian piece-rate manufacturing workers. We stagger when wages are paid out: some workers are paid earlier and receive a cash infusion while others remain liquidity constrained. The cash infusion leads workers to reduce their financial concerns by immediately paying off debts and buying household essentials. Subsequently, they become more productive at work: their output increases by 7% (0.11 std. dev.), and they make fewer costly, unintentional mistakes. Workers with more cash on hand thus not only work faster but also more attentively, suggesting improved cognition. These effects are concentrated among more financially constrained workers. We argue that mechanisms such as gift exchange or nutrition cannot account for our results. Instead, our findings suggest that financial strain, at least partly through psychological channels, has the potential to reduce earnings exactly when money is most needed.