#ASSA2016: Day 3 roundup

The annual meeting of the Allied Social Science Associations concludes today in San Francisco. The conference features hundreds of sessions covering a wide variety of economics research. Interesting papers are all over the place, so below are some of the papers that caught the eyes of Equitable Growth staffers during the final day of the conference.

Distributional National Accounts: Methods and Estimates for the United States, 1913-2013

Abstract: This paper combines tax, survey, and national accounts data to build new series on the distribution of national income in the United States since 1913. In contrast to previous attempts, our “Distributional National Accounts” estimates capture 100% of national income recorded in the national accounts. This allows us to provide decompositions of growth by income groups consistent with total economic growth used in macroeconomic analysis. We compute both pre-tax and post-tax per adult incomes. We find an overall U-shape for pre-tax top income shares over the century 1913-2012, although less marked than the Piketty-Saez series. Growth for the bottom 90% incomes has been slower than for upper income groups since the 1970s. However, in contrast to survey and individual tax data, we find substantial increase in average real pre-tax incomes for the bottom 90% since the 1970s.

Lifetime Inequality and Income Dynamics

Abstract: In this paper we use data on the earnings histories of US workers that span their entire working life. These data come from administrative records and therefore does not suffer from problems typical in survey data (survey response error, attrition, top coding, etc.). Our paper makes two contributions. First, we document the evolution of lifetime inequality for 26 cohorts that entered the labor market between 1957 and 1982. We find that (i) inequality in lifetime earnings is much higher than what has been documented in the previous literature based on indirect methods, and (ii) the rise in inequality has been smaller than previously thought. The second contribution of our paper is to focus on top earners in this sample and estimate the dynamics of their earnings over the lifecycle. The resulting stochastic process for top earners should help guide research on the economic behavior of top earners and on top end inequality.

Sovereign Default, Inequality, and Progressive Taxation

Abstract: A sovereign’s willingness to repay its foreign debt depends on the cost of raising taxes. The allocation of this tax burden across households is a key factor in this decision. To study the interaction between the incentive to default and the distributional cost of taxes, I extend the canonical Eaton-Gersovitz-Arellano model to include heterogeneous agents, progressive taxation, and elastic labor supply. When the progressivity of the tax schedule is exogenous, progressivity and the incentive to default are inversely related. Less progressive taxes, and hence higher after-tax inequality, encourage default since the cost of raising tax revenue from a larger mass of low-income households outweighs the cost of default in the form of lost insurance opportunities. When tax progressivity is endogenous and chosen optimally, the government internalizes the influence of progressivity on default risk and the cost of borrowing. As such, committing to a more progressive tax system emerges as an effective policy tool to reduce sovereign credit spreads in highly indebted countries.

College Quality and the Market for Higher Education

Abstract: We use detailed data on student higher education choices, student loans, college matriculation and graduation as well as data on higher education admissions decisions and tuition to examine the impact of student loan programs the market for higher education in Chile. We show that institutions respond to increased demand from students from lower-income backgrounds very differently. Consistent with models of competition between prestige goods and a competitive fringe, selective institutions choose to increase price and increase selectivity, while less selective institutions hold price constant and expand enrollment substantially. We link these supply-side responses to estimated earnings returns by higher education degree, and discuss the implications for policies aimed at increasing equality of higher education outcomes through expanding student loan subsidies.

Changing Business Dynamism: Volatility of or Responsiveness to Shocks?

Abstract: The pace of business dynamism as measured by indicators such as job reallocation has declined in the U.S. in recent decades, but this decline has not been monotonic for all sectors. For the High Tech sector, business dynamism as measured by the pace of job reallocation rose through the 1990s but then declined sharply in the post-2000 period. This is in contrast with the Retail Trade sector, which exhibited a sharp decline in dynamism in the 1990s. In this paper we ask whether the observed patterns in the High Tech sector respond to changes in the volatility of idiosyncratic TFP shocks or rather the response of businesses to those shocks. We focus on the High Tech sector since it is an important sector for innovation and productivity growth. Using plant-level data from the High Tech U.S. manufacturing sector, we document rising dispersion in idiosyncratic TFP shocks across plants and little change in the persistence of such shocks. This suggests the patterns of rising and then declining reallocation are not being driven by changes in the volatility of shocks. Instead, we find changes in the marginal effects of idiosyncratic plant-level productivity shocks on growth and survival that mimic the patterns of reallocation in the High Tech sector. During the 1990s, the responsiveness of growth and survival increased in the High Tech sector for young businesses. In contrast, during the 2000s responsiveness declined because of accelerating decline in the responsiveness of both young and mature businesses. These changes in the responsiveness yield substantial changes in the contribution of reallocation to aggregate (industry-level) productivity growth. During the 1990s, the increased responsiveness yields an increase in the contribution of reallocation to productivity growth of as much as half a log point per year. During the post-2000 period, responsiveness declines in an accelerated fashion implying as much as a two log point per year reduction in the contribution of reallocation to industry-level productivity growth.

Does Transparency Lead to Pay Compression?

Abstract: This paper asks whether pay disclosure changes wage setting at the top of the public sector distribution. I examine a 2010 California mandate that required municipal salaries to be posted online. Among top managers, new disclosure led to approximately 7 percent average compensation declines, and a 75 percent increase in their quit rate. The wage cuts were largely nominal. Wage cuts were larger in cities with higher initial compensation, but not in cities where compensation was initially out of line with (measured) fundamentals. The response is more consistent with public aversion to high compensation than the effects of increased accountability.

Check out papers from the first and second days of the conference and come back over the next few weeks as we dig into all this new research.

January 5, 2016

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