Research Database

Non-Hispanic whites who do not have a college degree have experienced an increase in “deaths of despair” – deaths caused by suicide, drug use, and alcohol use. Yet, deaths of despair are proportionally largest among Native Americans and the rate of increase of these deaths matches that of non-Hispanic white Americans. Native American women and girls face the largest differentials: deaths of despair comprise over 10% of all deaths among Native American women and girls – almost four times as high as the proportion of deaths for non-Hispanic white women and girls. However, the factors related to these patterns are very different for Native Americans than they are for non-Hispanic white Americans. Improvements in economic conditions are associated with decreased deaths from drug use, alcohol use, and suicide for non-Hispanic white Americans. On the other hand, in counties with higher labor force participation rates, lower unemployment, and higher ratios of employees to residents, there are significantly higher Native American deaths attributed to suicide and drug use. These results suggest that general improvements in local labor market conditions may not be associated with a reduction in deaths of despair for all groups.

The #MeToo movement has demonstrated that assaults between colleagues are an internationally relevant phenomenon. In this paper, we link every police report in Finland to administrative data to identify assaults between colleagues, and the economic consequences for victims, perpetrators, and firms. This new approach to observe when one colleague attacks another overcomes previous data constraints limiting evidence on this phenomenon to self-reported surveys that do not identify perpetrators. We document large, persistent labor market impacts of between-colleague violence on victims and perpetrators. Male perpetrators experience substantially weaker consequences after attacking female colleagues. Perpetrators’ relative economic power in male-female violence partly explains this asymmetry. Turning to broader implications for firm recruitment and retention, we find that male-female violence causes a decline in women at the firm, both because fewer new women are hired and current female employees leave. There is no change in hiring from within existing employees’ networks, ruling out supply-side explanations for the reduction in new female hires via "whisper networks". Management practices play a key role in mediating the impacts on the wider workforce. Only male-managed firms lose women. Female managers do one important thing differently: fire perpetrators.

As of 2022, the share of U.S. income accruing to labor is at its lowest level since the Great Depression. Updating previous studies with more recent observations, I document the continuing decline of the labor share for the United States, other countries, and various industries. I discuss how changes in technology and product, labor, and capital markets affect the trend of the labor share. I also examine its relationship with other macroeconomic trends, such as rising markups, higher concentration of economic activity, and globalization. I conclude by offering some perspectives on the economic and policy implications of the labor share decline.

The extent to which households can self-insure and the government can help them to do so depends on the wage risk that they face and their family structure. We study wage risk in the UK and show that the persistence and riskiness of wages depends on one's age and position in the wage distribution. We also calibrate a model of couples and singles with two alternative processes for wages: a canonical one and a flexible one that allows for the much richer dynamics that we document in the data. We use our model to show that allowing for rich wage dynamics is important to properly evaluate the effects of benefit reform: relative to the richer process, the canonical process underestimates wage persistence for women and generates a more important role for in-work benefits relative to income support. The optimal benefit configuration under the richer wage process, instead, is similar to that in place in the benchmark UK economy before the Universal Credit reform. The Universal Credit reform generates additional welfare gains by introducing an income disregard for families with children. While families with children are better off, households without children, and particularly single women, are worse off.

Low-skilled immigrants indirectly affect public finances through their effect on native wages & labor supply. We operationalize this general-equilibrium effect in the workhorse labor market model with heterogeneous workers and intensive and extensive labor supply margins. We derive a closed-form expression for this effect in terms of estimable statistics. We extend the analysis to various alternative specifications of the labor market and production that have been emphasized in the immigration literature. Empirical quantifications for the U.S. reveal that the indirect fiscal benefit of one low-skilled immigrant lies between $770 and $2,100 annually. The indirect fiscal benefit may outweigh the negative direct fiscal effect that has previously been documented. This challenges the perception of low-skilled immigration as a fiscal burden.

Emerging markets have experienced large human and economic costs from COVID-19, and their tight fiscal space has limited the support extended to their citizens. We study the impact of an epidemic on economic and health outcomes by integrating epidemiological dynamics into a sovereign default model. The sovereign’s option to default tightens fiscal space and results in an epidemic with limited mitigation and depressed consumption. A quantitative analysis of our model accounts well for the dynamics of fatalities, social distancing, consumption, sovereign debt, and spreads in Latin America. We find that because of default risk, the welfare cost of the pandemic is about a third higher than it is in a version of the model with perfect financial markets. We study debt relief programs and find a compelling case for their implementation. These programs deliver large social gains, improving health and economic outcomes for the country at no cost to international lenders or financial institutions.

Houses are the most important asset on American households’ balance sheets, rendering the U.S. economy sensitive to house prices. There is a consensus that credit conditions affect house prices, but to what extent remains controversial, as an expansion in credit supply often coincides with changes in house price expectations. To address this longstanding question, we rely on novel microdata on the universe of mortgages guaranteed under the Veterans Administration (VA) loan program. We use the expansion of eligibility of veterans for the VA loan program following the Gulf War to estimate a long-lived effect of credit supply on house prices. We then exploit the segmentation of the conventional mortgage market from program eligibility to link this sustained house price growth to developments in the initially unaffected segment of the credit market. We uncover a net increase in credit for all other residential mortgage applicants that aligns closely with the evolution of house price growth, which supports the view that credit-induced house price shocks are amplified by beliefs.

Are labor markets in higher-income countries more meritocratic, in the sense that worker-job matching is based on skills rather than idiosyncratic attributes unrelated to productivity? If so, why? And what are the aggregate consequences? Using internationally comparable data on worker skills and job skill requirements of over 120,000 individuals across 28 countries, we document that workers’ skills better match their jobs’ skill requirements in higher-income countries. To quantify the role of worker-job matching in development accounting, we build an equilibrium matching model that allows for cross-country differences in three fundamentals: (i) the endowments of multidimensional worker skills and job skill requirements, which determine match feasibility; (ii) technology, which determines the returns to matching; and (iii) idiosyncratic matching frictions, which capture the role of nonproductive worker and job traits in the matching process. The estimated model delivers two key insights. First, improvements in worker-job matching due to reduced matching frictions account for only a small share of cross-country income differences. Second, however, improved worker-job matching is crucial for unlocking the gains from economic development generated by adopting frontier endowments and technology.

Labor protection policies in the 1950s and 1960s helped many low- and middle-wage white workers in the United States achieve the American Dream. This coincided with historically low levels of inequality across income deciles. After the Civil Rights Act of 1964, policies that had previously helped build the white middle class reversed, especially in states with a larger Black population. Calibrating a labor search model to match minimum wages, unemployment benefits, and bargaining power before and after the Civil Rights Act, I find declining labor protections explain half of the rise in 90/10 wage inequality since the 1960s.

A prominent explanation for why trade is not free is politicians’ desire to protect some of their constituents at the expense of others. In this paper we develop a methodology that can be used to reveal the welfare weights that a nation’s import tariffs implicitly place on different groups of society. Applied in the context of the United States in 2017, this method implies that redistributive trade protection accounts for a significant fraction of US tariff variation and causes large monetary transfers between US individuals, mostly driven by differences in welfare weights across sectors of employment. Perhaps surprisingly, differences in welfare weights across US states play a much smaller role.

We document that the protracted decline in the labor share has been accompanied by a decline in the tightness rate defined as the number of vacancies per job seekers. We argue that these two trends are related. When vacancies and job seekers are complements in the matching process, a decline in the tightness rate reduces workers’ fundamental bargaining power as defined by Hosios (1990), which in turn reduces the labor share of income. We calibrate a search and matching model extended to allow for an endogenous determination of bargaining power. The model can rationalize the common trends in the labor shares and tightness. According to the model, workers’ bargaining power declined by about 15 percent during the 1980–2007 period.

We introduce dynamic incentive contracts into a model of inflation and unemployment dynamics. Our main result is that wage cyclicality from incentives neither affects the slope of the Phillips curve for prices nor dampens unemployment dynamics. The impulse response of unemployment in economies with flexible, procyclical incentive pay is first-order equivalent to that of economies with rigid wages. Likewise, the slope of the Phillips curve is the same in both economies. This equivalence is due to effort fluctuations, which render effective marginal costs rigid even if wages are flexible. Our calibrated model suggests that 46% of the wage cyclicality in the data arises from incentives, with the remainder attributable to bargaining and outside options. A standard model without incentives calibrated to weakly procyclical wages matches the impulse response of unemployment in our incentive pay model calibrated to strongly procyclical wages.

Advanced economies borrowed substantially during the Covid recession to fund their fiscal policy. The Covid recession differed from the Great Recession in that sovereign debt markets remained calm and spreads barely responded. We study the experience of Greece, the most extreme manifestation of the puzzling behavior of spreads during Covid. We develop a small open economy model with long-term debt and default, which we augment with official lenders, heterogeneous households and sectors, and Covid constraints on labor supply and consumption demand. The model is quantitatively consistent with the observed boom-bust cycle of Greece before Covid and salient observations on macro aggregates, government debt, and the sovereign spread during Covid. The spread is stable despite a rise in external borrowing during Covid, because lockdowns were perceived as transitory and the bailouts of the 2010s had tilted the composition of debt at the beginning of Covid away from defaultable private debt. The ECB's policy of purchasing debt in secondary markets during Covid did not stabilize spreads so much, but allowed the government to provide transfers that reduced inequality.

Ways of leaving the labor force has been an understudied aspect of labor market outcomes. Labor market institutions such as occupational licensing may influence how individuals transition to retirement. When and how workers transition from career jobs to full retirement may contribute to pre- and post-retirement well-being. Previous investigations of retirement pathways focused on the patterns and outcomes of retirement transitions, yet the influence of occupational licensing on retirement transition has not been analyzed. In this study, we use the Current Population Survey and Survey of Income and Program Participation to investigate how occupational licensing influences American later-career workers’ choice of retirement pathways. Our results show that licensed workers are less likely to choose to change careers but more likely to reduce work hours in transitioning out of the workforce. These results are consistent with the findings that licensed workers receive more benefits in the form of preferable retirement options, suggesting that these workers tend to have higher wages, benefits, and flexibility even toward the end of their careers.

This paper investigates how a government should manage international reserves when it faces the risk of a rollover crisis. We ask, should the government accumulate reserves or reduce debt to make itself less vulnerable? We show that the optimal policy entails initially reducing debt, followed by a subsequent increase in both debt and reserves as the government approaches a safe zone. Furthermore, we uncover that issuing additional debt to accumulate reserves can lead to a reduction in sovereign spreads.

We examine banking regulation in a macroeconomic model of bank runs. We construct a general equilibrium model where banks may default because of fundamental or self-fulfilling runs. With only fundamental defaults, we show that the competitive equilibrium is constrained efficient. However, when banks are vulnerable to runs, banks’ leverage decisions are not ex-ante optimal: individual banks do not internalize that higher leverage makes other banks more vulnerable. The theory calls for introducing minimum capital requirements, even in the absence of bailouts.

The appendix accompanies Staff Report 605: How Do Voters Respond to Welfare vis-à-vis Public Good Programs? An Empirical Test for Clientelism.

By preemptive austerity, we mean a policy that increases taxes to deter potential rollover crises. The policy is so successful that the usual danger signal of a rollover crisis, a high yield on new bonds sold, does not show up because the policy eliminates the danger. Mechanically, high taxes make the safe zone in the model - the set of sovereign debt levels for which the government prefers to repay its debt rather than default - larger. By announcing a high tax rate at the beginning of the period, the government ensures that tax revenue will be high enough to service sovereign debt becoming due, which deters panics by international lenders but is ex-post suboptimal. That is why, as it engages in preemptive austerity, the government continues to reduce the level of debt to a point where, asymptotically, high taxes are no longer necessary.

We examine how the distribution of employment tenure has changed in aggregate and for various demographic groups, drawing links to trends in job stability and satisfaction. The fraction of workers with short tenure (less than a year) has been falling since at least the mid-1990s, consistent with the decline in job changing documented over this period. The decline in short-tenure was widespread across demographic groups, industry, and occupation. It appears to be associated with fewer workers cycling among briefly-held jobs and coincides with an increase in perceived job security among short tenure workers. Meanwhile, the fraction of workers with long tenure (20 years or more) has been rising modestly since the early 1980s owing to an increase in long tenure for women and the ageing of the population. The rise in long tenure for women was broad-based across industries and occupations but limited to married women. By contrast, long tenure has declined markedly among older men. This is only partly explained by changing demographics and employment patterns such as the decline in manufacturing and unionization. In addition, an increase in mid-career separations during the 1970s and 1980s appears to have reduced the likelihood of reaching long-tenure for men. Survey evidence indicates that – despite these substantive changes over time – longer-tenure workers report no greater concern about job insecurity or decreases in job satisfaction than four decades ago.