Knowledge that Transforms

Abstract We argue that the Democratic Party’s evolution on economic policy helps explain partisan realignment by education. First, we document that educated Americans differentially oppose “predistribution” (e.g., job guarantees, higher minimum wages, protectionism, and stronger unions), while the educational gradient for redistribution (taxes and transfers) is close to zero. These relationships have been largely unchanged since the 1940s. Second, focusing on politicians and donors as key party actors, we show that the Democratic Party has moved away from predistribution since the 1970s. The number of predistribution bills introduced by Democratic House Speakers has declined by half since the 1970s. Unions—the traditional lobbying force for predistribution—see their share of Democratic Party PAC donations decline from 90% to 40% from 1968 to 1980, following 1970s legislation that facilitated corporate PAC donations. From 1980 onward, the Democrats rely increasingly on individual contributions from educated donors relative to the Republicans. We show the increased reliance on corporate PACs and educated donors is driven by the rise of a self-described “New Democrat’’ faction particularly conservative on predistribution and social issues. Finally, we trace the reaction of voters to these changes in the Democratic Party. Less-educated Americans begin to leave the party in the 1970s, after decades of serving as its base. We also show that in the crucial transition period of the 1970s through 1990s, New Democrat candidates outperform other Democrats among more-educated voters in both survey questions and actual Congressional elections. As the New Democrats are more socially conservative than other Democrats, their success with educated voters suggests that social issues alone cannot explain educational realignment.

Abstract We study technology sophistication using a novel approach that measures the sophistication of the most advanced (MAX) and the most widely used (MOST) technologies in key business functions within establishments. Using data from over 21,000 establishments across 15 countries, we find that establishments generally underutilize the most sophisticated technologies available in a business function. These MAX-MOST gaps are persistent and strongly associated with productivity both across establishments and countries. At the establishment level, there is substantial variation in both MAX and MOST, with MOST showing a more skewed distribution. MAX and MOST follow different life cycle patterns in low-income countries and among small establishments, and they exhibit different associations with several establishment characteristics and performance indicators. This evidence underscores the different nature of the technology upgrading processes that drive MAX and MOST.

Abstract Why do managers matter for firm performance? This article provides evidence of the critical role of managers in matching workers to jobs within the firm using the universe of personnel records from a large multinational firm. The data cover 200,000 white-collar workers and 30,000 managers over 11 years in 100 countries. I identify good managers by their speed of promotion and leverage exogenous variation induced by the rotation of managers across teams. I find that good managers cause workers to reallocate within the firm through lateral and vertical transfers and generate large and persistent gains in workers’ career progression and productivity. My results imply that the visible hands of managers match workers’ specific skills to specialized jobs, leading to an improvement in the productivity of existing workers that outlasts the managers’ time at the firm.

Abstract We introduce and validate a novel approach to identifying good managers. In a preregistered lab experiment, we causally identify managerial contributions by randomly assigning managers to teams and controlling for individual skill. We find that manager contributions are crucial for team success, and that people who self-select into management roles perform worse than randomly assigned managers. Managerial performance is strongly predicted by economic decision-making skill but not by demographic characteristics. Two validation studies support our experimental results. Participants who succeed in the lab receive more real-world promotions and, in a separate study of retail store managers, skill measures strongly predict store sales. A one standard deviation increase in manager quality increases annual per store sales by US$4.1 million (25% increase). Selecting managers on skills rather than demographic characteristics or the desire to lead could substantially improve organizational performance.

Abstract Does information about the long-run financial costs of reduced labor supply increase mothers’ working hours? We document descriptively that long-term financial factors are not top of mind when mothers decide on their employment level. Moreover, a substantial share of women holds overly optimistic expectations about pension receipt and wage growth under part-time work. In a large-scale field experiment in Switzerland, we randomly assign mothers working part-time as teachers to receive objective information about the long-run costs of reduced labor supply. The treatment increases both demand for financial information and future labor supply plans, in particular among women who underestimate the costs of part-time work. Leveraging linked employer administrative data one year post-intervention, we find that this group of mothers increases working hours by 7%. These findings underscore that policies reducing information frictions in labor supply decisions may help address remaining gender gaps in the labor market.

Abstract This article uses labor force surveys from 160 countries to build a new microdatabase on hours worked covering 97% of the world population in cross section. We also construct time series spanning over 20 years in 86 countries. Hours worked per adult slightly decline with GDP per capita but are weakly correlated with development overall. Hours worked by the young (aged 15–19) and elderly (aged 60+) fall with development, driven entirely by growing school attendance and public pension coverage. Hours worked among prime-age adults (aged 20–59) are stable with development but undergo a great gender reshuffling: falling hours per male worker have been exactly offset by increases in female labor force participation in many countries. Labor income taxes are strongly negatively related to hours worked across countries. This correlation is attenuated when controlling for social spending and disappears when further controlling for working hours regulations. Both social spending and working hours regulations are associated with lower hours worked.

Abstract We construct the first annual market rent and home sales price series for American cities over the twentieth century using 2.7 million newspaper real estate listings. Our findings revise several stylized facts about U.S. housing markets. Real market rents did not fall during the postwar period in most cities and rose nationally by 60% from 1890 to 2006. We also document higher sales price growth between 1953 and 1987 relative to previous series. Real prices reached almost four times their 1890 level by 2006. Prices grew most in metros with high demand and low levels of construction. We find that the rent-to-price ratio fell from about 8% in the early twentieth century to 3% by 2006, consistent with declines in the cost of owning housing relative to renting. For the typical year in our period, the annual return to owning housing was 9%, driven mostly by rental returns of 7.7%, with capital gains contributing only 1.3%. While capital gains were close to zero from 1890 to 1940, they grew to nearly a third of total returns from 1970 to 2006.

Abstract Stock markets play a dual role: they provide information about firms’ fundamentals, which improves resource allocations, and they provide liquidity. We propose a setting in which these two roles interact: if stocks are used more intensively for liquidity, then prices reveal less information about fundamentals. We structurally estimate stock price informativeness for several countries and show that it declines when alternative liquidity sources, such as banks, are in distress. To study the real effects of this mechanism, we devise a strategy to integrate our stock-trading module into a dynamic general equilibrium model with heterogeneous firms. We calibrate the model to the United States and simulate recessions with and without banking distress. In a standalone recession, prices become more informative and allocation improves, mitigating output losses by 4.4%. If the recession coincides with banking distress, agents rely more on stock markets to obtain liquidity, prices become less informative, and allocation deteriorates, magnifying output losses by 22%.

Abstract This article shows that a CEO’s trust enhances innovation within a firm, providing a novel micro-foundation for the well-known trust-growth relationship. I build a new matched CEO-firm-patent data set covering 5,753 CEOs in 3,598 U.S. public firms and 700,000 patents during 2000–2011. I exploit variation in generalized trust across CEO ethnic origins, inferred from their last names using deanonymized historical censuses. Following CEO turnovers, a one standard deviation increase in a CEO’s generalized trust is associated with 6% more future patents and 4%–6% higher average patent quality, driven entirely by higher-quality patents. Text analysis of employee reviews shows that the CEO’s trust enhances a firm’s trust culture. These results are consistent with insights from qualitative interviews suggesting that the CEO's trust and the firm’s trust culture encourage researchers to undertake high-risk explorative research and development. In addition, changes in the CEO’s bilateral trust toward inventors in different countries have comparable effects on inventors’ patenting, controlling for CEO and other fixed effects.

Abstract We develop a system of disaggregated economic accounts. The system breaks down national accounting positions into bilateral flows between consistently defined groups of consumers (consumer cells), groups of producers (producer cells), the government, and the rest of the world. We disaggregate the full circular flow of money, including consumer spending, labor compensation, firm profits, intermediates trade, foreign trade, and government transactions, while satisfying all national accounting identities. We implement the disaggregated system for small region-by-industry cells in Denmark and present stylized facts, such as variation in domestic spending, local and urban bias in consumer spending, and a pattern of triangular flows across regions. Cell-level measures of spending intensity capture how much spending by a cell contributes to the income of cells experiencing unemployment after a shock. Using a general equilibrium model, we show that fiscal transfers raise aggregate GDP by more when they target cells with high spending intensity on unemployed cells. The disaggregated economic accounts help governments select more effective policies.