Research Database

Children's education and economic opportunities differ substantially across US neighborhoods. This paper develops and estimates a spatial equilibrium model that links children's education outcomes to their childhood location. Two endogenous factors determine education choices in each location: local education quality and local labor market access. We estimate the model with US county-level data and study the effects of a school funding equalization on education outcomes and social mobility. The reform's direct effects improve education outcomes among children from low-skill families. However, the effects are weaker in spatial general equilibrium because average returns to education decline and residential and educational choices of low-skill families shift them toward locations with lower education quality.

We harmonize the results of 42 different data sets and studies dating back to the early 20th century to construct a time series of college attendance patterns for the United States. We find an important reversal around the time of World War II: before that time, family characteristics such as income were the better predictor of college attendance; afterwards, academic ability was the better predictor. We construct a model of college choice that can explain this reversal. The model's central mechanism is an exogenous rise in the demand for college that leads better colleges to become oversubscribed. These colleges institute selective admissions and raise their quality relative to the remaining colleges, as in Hoxby (2009). Rising quality at better colleges attracts high-ability students, while falling quality at the remaining colleges dissuades low-ability students, generating the reversal.

We document new facts about risk in male wages and earnings, household earnings, and pre- and post-tax income in the Netherlands and the United States. We find that, in both countries, earnings display important deviations from the typical assumptions of linearity and normality. Individual-level male wage and earnings risk is relatively high at the beginning and end of the working life, and for those in the lower and upper parts of the income distribution. Hours are the main driver of the negative skewness and, to a lesser extent, the high kurtosis of earnings changes. Even though we find no evidence of added-worker effects, the presence of spousal earnings reduces the variability of household income compared to that of male earnings. In the Netherlands, government transfers are a major source of insurance, substantially reducing the standard deviation, negative skewness, and kurtosis of income changes. In the U.S. the role of family insurance is much larger than in the Netherlands. Family and government insurance reduce, but do not eliminate nonlinearities in household disposable income by age and previous earnings in either country.

Why do young firms pay less? Using confidential microdata from the US Census Bureau, we find lower earnings among workers at young firms. However, we argue that such measurement is likely subject to worker and firm selection. Exploiting the two-sided panel nature of the data to control for relevant dimensions of worker and firm heterogeneity, we uncover a positive and significant young-firm pay premium. Furthermore, we show that worker selection at firm birth is related to future firm dynamics, including survival and growth. We tie our empirical findings to a simple model of pay, employment, and dynamics of young firms.

Declining search frictions generate productivity growth by allowing workers to find jobs for which they are better suited. The return of declining search frictions on productivity varies across different types of workers. For workers who are "jacks of all trades" in the sense that their productivity is nearly independent from the distance between their skills and the requirements of their job—declining search frictions lead to minimal productivity growth. For workers who are "masters of one trade" in the sense that their productivity is very sensitive to the gap between their individual skills and the requirements of their job—declining search frictions lead to fast productivity growth. As predicted by this view, we find that workers in routine occupations have low wage dispersion and growth, while workers in non-routine occupations have high wage dispersion and growth.