Macroeconomists are increasingly looking at the interaction between economic inequality and macroeconomic policy. Past research has looked at the impact of monetary policy on the level of income or wealth inequality, but a new literature has started to focus on how the level of inequality changes the effectiveness of countercyclical monetary and fiscal policy. This project helps push that research frontier forward by investigating how differences in consumption baskets among households may affect the transmission of monetary policy. First, the researchers will document differences in consumption baskets across the income distribution. Using those data, they will measure the variation in price stickiness among U.S. households. If this heterogeneity varies significantly by income level, it’s possible that the upward shift of income over the past several decades may have significantly enhanced or reduced the effectiveness of monetary policy. Understanding the strength of monetary policy in an era of high economic inequality is critical for informing policymakers of the optimal strategy for fighting the next recession.

For more than a quarter of a century, one of the central questions in empirical academic and policy research on the U.S. labor market concerns the long-term decline in male employment rates. Existing research has documented patterns and trends in employment rates but almost entirely using cross-sectional data. A critical open question is what the decline in employment measured on an annual basis reflects in terms of an individual’s employment trajectory. This project tackles this question by incorporating longitudinal analysis (through the Panel Study of Income Dynamics) and pseudo-panel techniques (via cohort analysis using the Current Population Survey). By looking at the wages of the sometimes-nonemployed, this project will yield a better answer to the question of how much of the reduction in prime-age employment over recent decades can be explained by declining wages. This is critical to understanding the extent to which changes in labor demand (which have reduced wages for sets of workers) versus changes in labor supply elasticities (which have potentially lowered labor supply for a given wage) explain reductions in prime-age employment.

There is currently a debate in the literature about whether income volatility has increased or decreased over the past decade. To help resolve this, the researchers will link the Current Population Survey to the Social Security Administration’s detailed earnings records data. This unique data is essential for understanding earnings, as previous research demonstrates that earnings in household surveys differ from those measured in administrative data—especially at the top and bottom of the income distribution. Determining whether the recent increase in income volatility (as shown in papers using household survey data) also occurs in the administrative earnings data is important in evaluating the changing well-being of individuals and families. It also impacts the measures of inequality. Decreasing volatility may suggest decreasing inequality, which contradicts many recent estimates of the change in inequality in the United States. This work is critical to understanding the nature of inequality in the United States today and the level of income volatility Americans may be experiencing.

The extent to which income inequality can be traced to shifts in the distribution of rents and/or to declines of workers’ share of those rents is an open and important question, one that researchers have had difficulty answering due to data limitations. This research will link multiple administrative datasets to assess how concentration in managerial power contributes to rising wage inequality. The research will make an important contribution to our understanding of the larger forces generating income inequality—specifically, how corporate decision-making that fuels market concentration may also fuel income inequality

This project expands on recent path-breaking work that has documented substantial variation in rates of social mobility across locations in the United States. Where children grow up has a strong influence on the probability that they will earn more than their parents in adulthood, with some regions highly mobile and others lagging far behind. This research suggests that regional differences in opportunity might be explained not only by contemporary characteristics but also by historical disparities. The researchers will merge the Panel Study of Income Dynamics (PSID) with Raj Chetty and others’ Equality of Opportunity dataset, and the Logan-Parman index of inequality, providing a profound advancement in the literature with strong policy implications.

The decline in bargaining power for large groups of workers is at the core of rising inequality. This research aims to provide some of the first causal evidence that contractual language is not merely cheap talk but rather meaningfully shapes the decisions of contracting parties in the labor market. The grant will support an effort to digitize union contracts stored at the Kheel Center at Cornell University. In addition to digitization, the researchers will use language processing tools to extract norms, commitments, and entitlements from the text. The result will be a tool that can be used to understand the role of unions in the 20th century. The dataset will be uniquely detailed, including features of union contracts based on industry sector, union, firm, and year of the contract. The research questions that might be answered with the data range from the fundamental—How are labor contractual terms determined, and how do contractual terms affect workers and firms?—to the more subtle—How and why do contractual terms begin to reflect legal changes and judicial decisions?