Knowledge that Transforms

We analyze the effect of rising Chinese import competition between 1990 and 2007 on US local labor markets, exploiting cross-market variation in import exposure stemming from initial differences in industry specialization and instrumenting for US imports using changes in Chinese imports by other high-income countries. Rising imports cause higher unemployment, lower labor force participation, and reduced wages in local labor markets that house import-competing manufacturing industries. In our main specification, import competition explains one-quarter of the contemporaneous aggregate decline in US manufacturing employment. Transfer benefits payments for unemployment, disability, retirement, and healthcare also rise sharply in more trade-exposed labor markets.

I study a dynamic economy featuring adverse selection in asset markets. Borrowing constrained entrepreneurs sell past projects to finance new investment, but asymmetric information creates a lemons problem. I show that this friction is equivalent to a tax on financial transactions. The implicit tax rate responds to aggregate shocks, generating amplification in the response of investment and cyclical variation in liquidity.

This paper presents evidence that school districts' use of an alternative academic calendar, the year-round school calendar, results in a reduction in maternal employment for women with school-aged children that varies in magnitude across racial groups. Negative employment effects are larger in districts with a particularly high proportion white and smaller in districts with a particularly high proportion of minorities. The larger effects in primarily white school districts is not likely to be explained by income differences, yet could potentially be explained by the lower reliance on relatives for child care among whites than minorities.

We develop a stylized model of frictional local labor markets with the goal of studying the efficiency of unemployment differences across areas. The model adapts the widely used Diamond-Mortensen-Pissarides framework to a local labor market setting with a competitive housing market. The result is a simple search analogue of the classic Roback model that provides a tractable environment for studying the effects of local job creation efforts.

Despite the importance attributed to the effects of diversity on the stability and prosperity of nations, the origins of the uneven distribution of ethnic and cultural fragmentation across countries have been underexplored. Building on the role of deeply-rooted biogeographical forces in comparative development, this research empirically demonstrates that genetic diversity, predominantly determined during the prehistoric "out of Africa" migration of humans, is an underlying cause of various existing manifestations of ethnolinguistic heterogeneity. Further exploration of this uncharted territory may revolutionize the understanding of the effects of deeply-rooted factors on economic development and the composition of human capital across the globe.

We use employee-level panel data from a single firm to explore the possibility that individuals may select insurance coverage in part based on their anticipated behavioral ("moral hazard") response to insurance, a phenomenon we label "selection on moral hazard." Using a model of plan choice and medical utilization, we present evidence of heterogeneous moral hazard as well as selection on it, and explore some of its implications. For example, we show that, at least in our context, abstracting from selection on moral hazard could lead to over-estimates of the spending reduction associated with introducing a high-deductible health insurance option.

We consider an economy populated by institutional investors alongside standard retail investors. Institutions care about their performance relative to a certain index. Our framework is tractable, admitting exact closed-form expressions, and produces the following analytical results. We find that institutions tilt their portfolios towards stocks that compose their benchmark index. The resulting price pressure boosts index stocks. By demanding more risky stocks than retail investors, institutions amplify the index stock volatilities and aggregate stock market volatility and give rise to countercyclical Sharpe ratios. Trades by institutions induce excess correlations among stocks that belong to their benchmark, generating an asset-class effect.

We present a theory of charitable fund-raising in which it is costly to solicit donors. We fully characterize the solicitation strategy that maximizes donations net of fund-raising costs. It is optimal for the fund-raiser to target only the “net contributors”––donors who would give more than their solicitation costs. We show that as the income inequality increases, so does the level of the public good, despite a (potentially) non-monotonic fund-raising strategy. This implies that costly fund-raising can provide a novel explanation for the non-neutrality of income redistributions and government grants often found in empirical studies.

We consider a model where firms differ in their productivity and workers are differentiated by skill and gender. A reduction in tariffs induces more productive firms to modernize their technology and enter the export market. New technologies involve computerized production processes and lower the need for physically demanding skills. As a result, the relative wage and employment of women improves in blue-collar tasks, but not in white-collar tasks. We empirically confirm these theoretical predictions using a panel of Mexican establishments and the tariff reductions associated with the North American Free Trade Agreement (NAFTA).

While cross-sectional data show increasing income inequality in the United States, it is also important to examine how incomes change over time. Using income tax data, this paper provides new evidence on long-term and intergenerational mobility, and persistence at the top of the income distribution. Half of those aged 35-40 in the top or bottom quintile in 1987 remain there in 2007; the others have moved up or down. While 30 percent of dependents aged 15-18 from bottom quintile households are themselves in the bottom quintile after 20 years, most have moved up. Persistence is lower in the highest income groups.