Grant Category

Macroeconomics and Inequality

What are the implications of inequality on the long-term stability of our economy and its growth potential?

What are the implications of inequality on the long-term stability of our economy and its growth potential?

A larger share of U.S. national income has been flowing to the individuals at the top of the income and wealth ladder. These individuals are less likely to spend and more likely to save their money than those with lower income. There is evidence that growing income inequality may be contributing to the so-called secular stagnation of macroeconomic growth.

Growing income inequality likely bears on macroeconomic performance through other channels as well. The lower real interest rates that have resulted from higher global saving will limit the ability of conventional monetary policy to stabilize the economy in the next economic downturn. Growing inequality has also contributed to a growing sense that the economy isn’t working for most families, fueling both distrust in institutions and greater political polarization.

We need to better understand the implications of inequality on the long-term stability of our economy and its growth potential. The large and sustained rise in inequality across income and wealth groups, as well as the disparate performance of different geographies and demographic groups, make understanding how these trends could exacerbate economic instability and reduce economic growth a pressing national concern.

  • The effects of monetary policy
  • The effects of fiscal policy
  • The effects of the tax and transfer system
  • Political economy

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The Role of State Policy in Reducing Disparities in Unemployment Insurance Recipiency

Grant Year: 2022

Grant Amount: $75,000

Grant Type: academic

This project will leverage variations in implementation timing of the requirement in the Coronavirus Aid, Relief, and Economic Stimulus, or CARES, Act that employers notify recently separated workers of their eligibility for Unemployment Insurance. It seeks to causally identify whether notification improves the take-up of Unemployment Insurance with an emphasis on Black and Latino workers. The author will compile a database of states’ implementation of required separation notices by employers to employees by state and year. This project is expected to yield credible evidence regarding the efficacy of these employer separation notice requirements on the receipt of Unemployment Insurance. The project will further investigate whether such requirements close the racial divide in receiving Unemployment Insurance. Given known racialized disparities in receiving these benefits, the emphasis on this is critical. The distribution of information on UI eligibility as a mechanism in attenuating (or not) racial disparities would add to policymakers’ understanding of what is driving these disparities. In the case that separation notice requirements increase the take-up of Unemployment Insurance, the project has the potential to identify a relatively low-cost intervention with large payoffs. In the case that separation notice requirements do not improve UI take-up or close racial divides, policymakers may want to reconsider the universal requirements implemented as part of the CARES Act.

Does Monetary Policy Work Through the Labor Market?

Grant Year: 2021

Grant Amount: $15,000

Grant Type: doctoral

This project examines how increasing labor market polarization affects the transmission of monetary policy. Specifically, Morrison will examine how heterogeneity in worker substitutability with capital affects the role the labor market plays in the transmission of monetary policy. The research will estimate the importance of a heterogeneous worker-capital substitutability channel of monetary policy—investment spurred by monetary policy will have muted effects on aggregate consumption if workers whose labor is complementary with capital tend to have lower marginal propensities to consume. To investigate this phenomenon, she first plans to build and solve a model that captures this effect, then estimate the impulse-response functions of wages of workers in various skill categories to unexpected expansionary monetary shocks.

Optimal Monetary Policy with Menu Costs is Nominal Wage Targeting

Grant Year: 2021

Grant Amount: $15,000

Grant Type: doctoral

Central banks across the developed world are reconsidering their monetary policy frameworks and are frequently looking to academic research to inform the question of whether to stick with the dominant paradigm of inflation targeting or to adopt a new monetary policy regime. To address this question, Halperin and Caratelli will build a model where price stickiness is modeled in a substantially more realistic way, compared to other models, in order to explore whether it is optimal for central banks to use nominal income targeting rather than inflation targeting. The two researchers will examine whether nominal income targeting would mean that central banks would not have to tighten policy in response to strong wage growth, which could boost equitable growth.

Measuring Inequality in Real Time

Grant Year: 2021

Grant Amount: $50,000

Grant Type: academic

U.S. unemployment due to the onset of the coronavirus pandemic was widespread, as was U.S. economic insecurity. In terms of consumption, aggregate retail sales fell by 16 percent in April 2020, the largest fall on record. While retail spending recovered by mid-July, spending on services remained significantly depressed. In contrast to aggregate spending and U.S. labor market data, there is little real-time data on the impact of the coronavirus pandemic on consumer spending inequality. This project will use a new transaction-level, real-time dataset from Earnest Research to measure consumer spending inequality in the United States and assess the impact of the pandemic on consumption inequality. The dataset contains information on a panel of 6 million households and is updated with a delay of just 1 week. Abdelwahed and Robbins will be able to study the outflows of spending, as well as the inflows of payments from wages and salaries, stimulus payments, and other government transfers into the households’ accounts, allowing them to construct a series on various ratios of spending between the top and bottom percentiles in order to study changes in consumer spending inequality along the distribution. They will also measure the effects of the pandemic on consumption of those who lost their jobs or experienced lower incomes and will compare them to individuals who retained their jobs. Abdelwahed and Robbins will estimate the impact of government stimulus payments and Unemployment Insurance on consumer spending inequality and consumption patterns. The data will be released publicly at the aggregate level at both the state and county levels, and the two researchers plan to release quarterly reports, providing other researchers and policymakers with a valuable new data source.

Macroprudential Regulations, Income Inequality and the Redistribution Channel

Grant Year: 2021

Grant Amount: $57,860

Grant Type: academic

The 2008 global financial crisis outlined the need for a policy toolkit that lessens the pain of financial cycles for the real economy. In particular, conventional macroeconomic policies undertaken by public authorities in the aftermath of the crisis lead to extremely low interest rates and put public finances under heavy strain. During this period, macroprudential regulation established itself as a new cornerstone of regulators’ toolkits. Yet most models evaluating the potential benefits from macroprudential regulation consider redistribution as a side effect by using representative agent models. This project asks whether the redistribution channel calls for stronger or weaker macroprudential regulations, how the effectiveness of prudential capital controls as a financial stability tool are affected by the distribution of income, and what the distributional implications are of prudential regulations. The authors will build on existing research that presents models showing that monetary policy may impact income inequality in ways that then turn out to affect the transmission mechanism for such policy. First, they will be extending models that focus on the closed economy context to the open economy context. Second, they will be providing both a theoretical and a quantitative analysis of the transmission channels associated with capital controls. Third, they will perform their analysis in a dynamic context.

Who Weathers the Storm? The Unequal Effects of Hurricanes in the United States

Grant Year: 2021

Grant Amount: $85,624

Grant Type: academic

Understanding the degree to which, and how, hurricanes have had disparate effects across disadvantaged and advantaged groups in the United States is key to policymakers’ ability to craft climate policy that ensures disadvantaged communities do not bear the brunt of our warming world. Most of the literature in this area has focused on average impacts, with relatively little attention paid to heterogeneity. But even in cases where no negative impacts of natural disasters are found, on average, some subgroups may experience substantial negative effects. This project leverages newly linked administrative tax data from the IRS and demographic information from the American Community Survey and decennial census with exogenous variation in individual-level exposure to all hurricanes in the United States between 1995 and 2019. The analysis seeks to uncover a deeper understanding of the consequences of and responses to hurricanes, and how these effects differ across socioeconomic and demographic groups.

Experts

Research Advisory Board

Jeffrey Liebman

Harvard University

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Former Steering Committee

Laura Tyson

University of California, Berkeley

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Grantee

Kevin Rinz

U.S. Census Bureau

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Grantee

Ethan Feilich

University of California, Davis

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Scholar

Umberto Muratori

European University Institute

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