NBER Summer Institute 2021 Round-up: Week 1

On July 12, the National Bureau of Economic Research kicked off its summer institute, an annual 3-week conference featuring discussions and paper presentations on specific subfields of economics, including inequality and the macroeconomy, intergenerational mobility, automation and the future of work, and occupational segregation. This year’s NBER event is being held virtually due to the coronavirus pandemic and is being livestreamed on YouTube.

We’re excited to see Equitable Growth’s grantee network, Steering Committee, and Research Advisory Board and their research well-represented throughout the program. Below are abstracts (in no particular order) of some of the papers that caught the attention of Equitable Growth staff during the first week of the conference. Come back on Monday, July 26 for highlights from the second week of sessions and presentations.

“The racial wealth gap, 1860-2020”
Ellora Derenoncourt, Princeton University, Equitable Growth grantee
Chi Hyun Kim, University of Bonn
Moritz Kuhn, University of Bonn
Moritz Schularick, University of Bonn

Abstract: The racial wealth gap is the largest of the economic disparities between Black and White Americans, with a White-to-Black per capita wealth ratio of 6-to-1. It is also among the most persistent. In this paper, we provide a new long-run series on White-to-Black per capita wealth ratios from 1860 to 2020, using data from the U.S. Census, historical state tax records, and a newly harmonized version of the Survey of Consumer Finances (1949–2019), among other sources. We combine these data with a simple framework of wealth accumulation by each racial group to show that even under ideal conditions, racial wealth convergence is a distant scenario given vastly different starting conditions under slavery. Further, the observed path of convergence indicates that the wealth gap is on track to persist indefinitely or even diverge due to differences in wealth accumulating conditions for Black and White Americans since Emancipation. Our findings shed light on the importance of policies such as reparations, which address the historical origins of today’s persistent gap, as well as policies that reduce wealth inequality and thereby improve the relative wealth position of Black Americans.

“Monetary Policy and Racial Inequality”
Alina K. Bartscher, University of Bonn
Moritz Kuhn, University of Bonn
Moritz Schularick, Federal Reserve Bank of New York, University of Bonn
Paul Wachtel, New York University

Abstract: This paper aims at an improved understanding of the relationship between monetary policy and racial inequality. We investigate the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between Black and White households. Specifically, we show that, although a more accommodative monetary policy increases employment of Black households more than White households, the overall effects are small. At the same time, an accommodative monetary policy shock exacerbates the wealth difference between Black and White households, because Black households own fewer financial assets that appreciate in value. Over a 5-year horizon, the employment effects remain substantially smaller than the countervailing portfolio effects.

“Collective Bargaining Rights, Policing, and Civilian Deaths”
Jamein Cunningham, Cornell University, Equitable Growth grantee
Donna Feir, University of Victoria, Federal Reserve Bank of Minneapolis, IZA Institute for Labor Economics
Rob Gillezeau, University of Victoria

Abstract: Do collective bargaining rights for law enforcement result in more civilian deaths at the hands of the police? Using an event-study design, we find that the introduction of duty to bargain requirements with police unions has led to a significant increase in non-White civilian deaths at the hands of police during the late 20th century. We find no impact on various crime rate measures and suggestive evidence of a decline in police employment, consistent with increasing compensation. Our results indicate that the adoption of collective bargaining rights for law enforcement can explain approximately 10 percent of the total non-White civilian deaths at the hands of law enforcement between 1959 and 1988. This effect is robust to a contiguous county approach, accounting for heterogeneity in treatment timing, and numerous other specifications. While the relationship between police unions and violence against civilians is not clear ex-ante, our results show that the popular notion that police unions exacerbate police violence is empirically grounded.

“How Costly Is Noise? Data and Disparities in Consumer Credit”
Laura Blattner, Stanford University
Scott Nelson, University of Chicago, Equitable Growth grantee

Abstract: We show that lenders face more uncertainty when assessing default risk of historically underserved groups in U.S. credit markets and that this information disparity is a quantitatively important driver of inefficient and unequal credit market outcomes. We first document that widely used credit scores are statistically noisier indicators of default risk for historically underserved groups. This noise emerges primarily through the explanatory power of the underlying credit report data (e.g., thin credit files), not through issues with model fit (e.g., the inability to include protected class in the scoring model). Estimating a structural model of lending with heterogeneity in information, we quantify the gains from addressing these information disparities for the U.S. mortgage market. We find that equalizing the precision of credit scores can reduce disparities in approval rates and in credit misallocation for disadvantaged groups by approximately half.

Note: This paper builds off Equitable Growth-funded research.

“Mobility for All: Representative Intergenerational Mobility Estimates over the 20th Century”
Elisa Jácome, Stanford University
Ilyana Kuziemko, Princeton University
Suresh Naidu, Columbia University, Equitable Growth grantee

Abstract: We present what is, to the best of our knowledge, the first long-run estimates of intergenerational relative mobility for samples that are representative of the full U.S.-born population. We develop a simple mobility measure that allows easy inclusion of non-Whites and women for the 1910s to 1970s birth cohorts. We show a robust decline in both the intergenerational elasticity and rank-rank persistence measures between the 1910s and 1940s birth cohorts. Both measures tend to drift up afterward, so we find that persistence measures mirror the U-shaped trends in inequality over this period. Decomposing the IGE into within- and between-group components, we show that absolute convergence of incomes by race explains a large share of the decline in intergenerational mobility.

“Automation and the Future of Young Workers: Evidence from Telephone Operation in the Early 20th Century”
James Feigenbaum, Boston University, NBER
Daniel P. Gross, Duke University, NBER

Abstract: Telephone operation, one of the most common jobs for young American women in the early 1900s, provided hundreds of thousands of female workers a pathway into the labor force. Between 1920 and 1940, AT&T adopted mechanical switching technology in more than half of the U.S. telephone network, replacing manual operation. Although automation eliminated most of these jobs, it did not affect future cohorts’ overall employment: The decline in demand for operators was counteracted by growth in both middle-skill jobs like secretarial work and lower-skill service jobs, which absorbed future generations. Using a new genealogy-based census linking method, we show that incumbent telephone operators were most impacted by automation, and a decade later were more likely to be in lower-paying occupations or have left the labor force entirely.

“Exchange Rates and Monetary Policy with Heterogeneous Agents: Sizing up the Real Income Channel”
Adrien Auclert, Stanford University, Centre for Economic Policy Research, NBER, Equitable Growth grantee
Matthew Rognlie, Northwestern University, NBER
Martin Souchier, Stanford University
Ludwig Straub, Harvard University, NBER

Abstract: Introducing heterogeneous households to a New Keynesian small open economy model amplifies the real income channel of exchange rates: The rise in import prices from a depreciation lowers households’ real incomes and leads them to cut back on spending. When the sum of import and export elasticities is one, this channel is offset by a larger Keynesian multiplier, heterogeneity is irrelevant, and expenditure switching drives the output response. With plausibly lower short-term elasticities, however, the real income channel dominates, and depreciation can be contractionary for output. This weakens monetary transmission and creates a dilemma for policymakers facing capital outflows. Delayed import price pass-through weakens the real income channel, while heterogeneous consumption baskets can strengthen it.

Note: This paper builds off Equitable Growth-funded research.

“How the 1963 Equal Pay Act and 1964 Civil Rights Act Shaped the U.S. Gender Gap”
Martha J. Bailey, University of California, Los Angeles, Equitable Growth grantee
Thomas Helgerman, University of Michigan
Bryan A. Stuart, Federal Reserve Bank of Philadelphia

Abstract: In the 1960s, two landmark pieces of legislation targeted the longstanding practice of labor-market discrimination against U.S. women. The Equal Pay Act of 1963 mandated equal pay for equal work, and Title VII of the Civil Rights Act of 1964 included a broader ban on employment discrimination by sex. We evaluate the combined effects of this legislation using two complementary research designs, which exploit variation in the incidence of the legislation due to preexisting state equal pay laws and preexisting pay gaps. Our findings show that equal pay and fair employment legislation reduced discrimination against women and increased their wages. Although we find little evidence that the legislation reduced women’s employment or hours, women’s employment shifted away from jobs more affected by the legislation to jobs with smaller gender gaps.

“Bottlenecks: Sectoral Imbalances and the US Productivity Slowdown”
Daron Acemoglu, Massachusetts Institute of Technology, NBER
David Autor, Massachusetts Institute of Technology, NBER, Equitable Growth grantee, Equitable Growth Research Advisory Board member
Christina Patterson, University of Chicago, NBER, Equitable Growth grantee, former Equitable Growth Dissertation Scholar

Abstract: Despite the rapid pace of innovation in information and communications technologies, or ICT, and electronics, aggregate U.S. productivity growth has been disappointing since the 1970s. We propose and empirically explore the hypothesis that this is because of the unbalanced sectoral distribution of innovation over the past several decades. Because an industry’s success in innovation depends on complementary innovations among its input suppliers, rapid productivity growth in just a subset of sectors may create bottlenecks and fail to translate into commensurate aggregate productivity gains. Using data on input-output linkages, citation linkages, industry productivity growth, and patenting, we find evidence in support of this hypothesis: The variance of supplier TFP growth or innovation adversely affects an industry’s own TFP growth and innovation. Our estimates suggest that a substantial share of the productivity slowdown in the United States and several other industrialized economies can be accounted for by the sizable increase in cross-industry variance of TFP growth and innovation.

“A Goldilocks Theory of Fiscal Policy”
Atif Mian, Princeton University, NBER, Equitable Growth grantee, Equitable Growth Steering Committee member
Ludwig Straub, Harvard University, NBER
Amir Sufi, University of Chicago, NBER, Equitable Growth grantee, Equitable Growth Research Advisory Board member

Abstract: Fiscal policy in advanced economies faces a “Goldilocks dilemma”: Fiscal consolidation risks prolonged episodes at the zero lower bound (ZLB), while fiscal expansion raises sustainability concerns. This paper proposes a dynamic fiscal policy framework to study fiscal space subject to this trade-off. At the core of our analysis is a deficit-debt diagram, which we use to measure how much fiscal expansion is necessary to avoid the ZLB, when fiscal policy can run deficits indefinitely, and at what debt level the interest rate rises above the growth rate. Rising inequality and weak aggregate demand expand fiscal space, allowing greater indefinite deficits, while slowing growth tightens the ZLB constraint, requiring greater and greater debt levels. We characterize the effects of various tax policies on fiscal space and provide a cross-country comparison.