Grant Category

Macroeconomics and Inequality

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

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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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Microeconomic and Macroeconomic Implications of Wage Rigidity

Macroeconomics and Inequality

Grant Year: 2023

Grant Amount: $70,000

Grant Type: academic

This project will unpack the effect of inflation on employment and wages during the current inflationary episode in the United States. They plan to establish stylized empirical facts related to heterogeneity in wage rigidity and the labor market effects of inflation. They will use Longitudinal Employer-Household Dynamics data to study how wage rigidities vary with inflation. The team’s second goal is an extension of an existing theoretical model of the labor market by adding job-to-job mobility, wage renegotiation costs, and multiworker firms to better capture firms’ labor market power.

Designing Climate Adaptation Funding Portfolios for Equity and Efficiency

Macroeconomics and Inequality

Grant Year: 2023

Grant Amount: $55,000

Grant Type: academic

This project seeks to explain how climate adaptation projects mitigate the unequal effects of climate change. They plan to model efficient investment in climate adaptation from a global perspective to inform how the United States should fund global activities to mitigate climate change. They will develop and calibrate a multiregion, multisector spatial equilibrium model that incorporates heterogenous exposure to climate change and adaptive capacity to deal with climate change. They will use the model to explore the equity-efficiency frontier of adaptation funding. Importantly, the model will account for global production networks, which play a key role in the propagation of shocks. They seek to understand how these shocks propagate across countries and affect workers with different characteristics, such as education level or race.

The Lifecycle Origins of Income Inequality

Macroeconomics and Inequality

Grant Year: 2023

Grant Amount: $60,000

Grant Type: academic

This project will challenge an accepted finding in economics on the lifecycle pattern of inequality—namely, that inequality increases with age within a birth cohort. The research team builds on existing research from the Global Repository of Income Dynamics database to develop a model to explain an observation in the data that inequality is generated more from differences in childhood experiences such as parental income or school quality than from labor market experiences.

Aggregate Costs of Workplace Sexual Harassment

Macroeconomics and Inequality

Grant Year: 2022

Grant Amount: $15,000

Grant Type: doctoral

Workplace sexual harassment is a pervasive problem that affects women more than men and often leads to a decline in productivity and altered labor market outcomes for survivors. This project is the first to attempt to quantify the implications of workplace sexual harassment for economic growth and gender wage inequality. What are the aggregate implications of workplace sexual harassment? And how can policy effectively reduce its consequences? The authors will use employer-employee linked administrative data from Denmark, along with a survey tracking instances of workplace sexual harassment, to calibrate a quantitative model. They will measure three channels: productivity, the accumulation of human capital, and the allocation of talent. They will also measure how each of these channels affect output and wage inequality, and how harassment affects workers directly reporting harassment, as well as the spillover to other workers at the same firm. These measurements will enable the authors to see when people change jobs after harassment or don’t change jobs, and they plan to look beyond policies intended to address harassment, including policies that boost worker power and mobility.

Monetary Policy and the Dynamics of Wealth Inequality

Macroeconomics and Inequality

Grant Year: 2022

Grant Amount: $15,000

Grant Type: doctoral

This project looks to determine the effect of monetary policy on wealth inequality in the United States. The author seeks to add to the literature demonstrating how portfolio heterogeneity is an important driver of wealth inequality. One contribution of the research is the use of the Distributional Financial Accounts. This dataset, collected by the Federal Reserve, reconciles the definitions of wealth between the Fed’s Survey of Consumer Finances and the quarterly flow of data from its Z.1 Financial Accounts of the United States, and then combines the datasets to create a series that tracks wealth for four quantile bins of households by wealth at a quarterly frequency. A key strength of the Distributional Financial Accounts is the ability to decompose quarterly wealth data into component asset and liability classes, allowing for the study of the channels by which monetary policy affects wealth for different groups of U.S. households.

Inequality and Targeting of Disaggregated Policy

Macroeconomics and Inequality

Grant Year: 2022

Grant Amount: $74,929

Grant Type: academic

This project explores the question of how policy shocks propagate through the economy. The researchers will build a large dataset using Danish Bank and Danish government administrative data to build matrices of income, consumption, and production in different regions and sectors, as well as how income, consumption, and production in different regions and sectors are interconnected. This “disaggregated economic account” will be used to trace out how a shock that hits one part of the economy propagates to other parts and determine the aggregate impact of the shock. The resulting model will help define optimal policy responses to different kinds of shocks, to measure how certain shocks affect income inequality and growth, and to identify the most important channels that propagate shocks. Tracing how a shock in one sector filters through the economy is only possible with this type of administrative data linked in this way.
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Experts

Kreg Steven Brown
Guest Author

Kreg Steven Brown

Equitable Growth

Former Director of Economic Mobility Policy

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Matthew Rognlie
Guest Author

Matthew Rognlie

Northwestern University

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José Ignacio Cuesta
Grantee

José Ignacio Cuesta

Stanford University

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David Alexander
Grantee

David Alexander

Illinois Action for Children

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Federico Huneeus
Grantee

Federico Huneeus

Central Bank of Chile

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