Motivated by the broad trends of rising inequality and falling interest rates since the 1980s, the authors will build a macroeconomic model to show how much higher income inequality has reduced the natural rate of interest through increased overall saving. The potential consequences of rising inequality for the level of aggregate economic activity is an active research area and one that we have funded in the past. This project will complement previous grants and push the research frontier by uncovering key insights about the link between inequality and the natural interest rate. The research is highly relevant to the active debates over secular stagnation and puts the researchers’ bargaining-power framework (as opposed to more technological changes such as declining investment costs) at the center of their evaluation of the increase in U.S. income inequality.
Archives: Grant
Effect of unemployment insurance benefits on match quality and job mobility
The authors will examine whether unemployment insurance benefit extensions improve job match quality. A longstanding question regarding unemployment insurance is whether recipients make use of funds to finance longer job searches, therefore finding better jobs. Most studies to date have examined wages and have found no effect, but if this project is able to find effects on match quality then it will make an important contribution. It could also be important to understanding the role that unemployment insurance plays in improving worker outcomes and overall macroeconomic performance. Unemployment insurance is typically understood by policymakers as a social insurance program. The idea that it might improve productivity by facilitating better match quality is poorly understood, and key to better understanding policy levers for macro performance.
The evolution of wealth inequality and social mobility in the U.S.
This is a cutting-edge project that will simulate the evolution of wealth inequality in a macroeconomic model. Specifically, the authors will assess the causes and consequences of wealth inequality, exploring how three channels—the distribution of earned income, the rate of return for various assets, and the nature of bequests—determine wealth inequality, and how U.S. wealth inequality might change via policies that affect these channels. One important academic contribution is the idea of treating intergenerational mobility in wealth as non-stationary. In terms of policy relevance, the research will inform debates over the role of inheritance in wealth inequality, and will have direct relevance in discussions over estate taxes and other capital taxation, an area where Equitable Growth has been and will continue to be active.
Preschool attendance and child health: Evidence from state-funded Pre-K programs
This project seeks to contribute to the literature on the impact of large-scale, publicly-funded preschool education programs on a variety of health and developmental outcomes for children ages 4 to 12. While numerous studies exist on the effects of attending Head Start, there is a dearth of research on state pre-K programs even though they are currently the largest provider of preschool education in the United States. State-funded pre-K programs have been expanding since the 1990s and the calls for universal pre-K continue. This project promises to add useful data to those discussions.
The distribution of economic activity across firms and the decline in the firm start up rate
Over the past several decades, the firm start-up rate has declined substantially while at the same time the number of unique business locations that belong to the largest firms also increased significantly. Using a combination of empirical analysis and modeling, the researcher will explore how these trends affect consumer welfare and productivity growth. We see this as an important contribution to a live question in the innovation space that also has implications for policymakers seeking to increase the firm start-up rate and spur local business activity.
The unequal gains from product innovations
This project explores the relationship between consumption inequality and innovation. It asks whether economic inequality affects the kind of innovation that takes place and who benefits from that innovation. Using scanner data, the researcher’s preliminary findings show that the difference in inflation rates across the income distribution can be accurately measured only with product-level data, not by simply reweighting aggregate price series based on income-specific spending shares, as the U.S. Bureau of Labor Statistics does. The findings could therefore have methodological as well as policy implications.
Balancing stability and growth in mid-century banking
How did the reorganization of the U.S. banking sector after World War II alter the relationship between profitable investment and macroeconomic stability? The researcher will address that question through archival research and by drawing on a substantial body of secondary historical and economic literature. As political debates on financial regulation and trade agreements show no sign of abating, this work will provide useful context and framing for those debates.
Social preferences at work: Evidence from online lab experiments and job-to-job mobility in the LEHD dataset
This project offers a novel twist on intra-firm mobility and job-to-job transitions by using preferences to look at labor market decisions and not simply tax preferences. Using a combination of online lab experiments and employee-employer matched LEHD data, the research will test for individual social preferences over payoff distributions.
Those jobs ain’t coming back: The consequences of an industry collapse on two tribal reservations
This research project uses qualitative data to explore the mechanisms that link the decline of employment options to the rise in drug use, the decline in labor force participation, and other negative socio-economic and behavioral consequences for males. Unlike many studies of industry decline which look at urban communities, this work focuses on the loss of natural resource employment in rural areas. Specifically, the researcher focuses on the lack of employment options and life outcomes on two Native American tribal reservations, The Yurok and Hoopa Valley Reservations, located in California’s northwest. A member of the Yurok tribe herself, the researcher’s data provides a unique contribution. We also see the research as having useful insights on the consequences of declining male labor force participation, particularly in non-urban settings. From a policy engagement perspective, the rich stories that are likely to come from this qualitative work will help provide the narrative and texture that is necessary for capturing policy attention.
Cyclical underemployment: Causes and consequences of inequality
This project links traditional macroeconomic models with labor models, specifically through the incorporation of the job ladder. The goal is lofty: to construct a comprehensive measure of underemployment and integrate it into commonly-used economic models, thereby providing evidence about the effects of underemployment on labor market functionality over the business cycle and on inequality more broadly. We view this project as a significant academic contribution with immediate policy relevance given the emerging debates over appropriate responses to the next recession.