Research Database

It has long been argued that a minimum wage could alleviate efficiency losses from monopsony power. In a general equilibrium framework that quantitatively replicates results from recent empirical studies, we find higher minimum wages can improve welfare, but most welfare gains stem from redistribution rather than efficiency. Our model features oligopsonistic labor markets with heterogeneous workers and firms and yields analytical expressions that characterize the mechanisms by which minimum wages can improve efficiency, and how these deteriorate at higher minimum wages. We provide a method to separate welfare gains into two channels: efficiency and redistribution. Under both channels and Utilitarian social welfare weights the optimal minimum wage is $15, but alternative weights can rationalize anything from $0 to $31. Under only the efficiency channel, the optimal minimum wage is narrowly around $8, robust to social welfare weights, and generates small welfare gains that recover only 2 percent of the efficiency losses from monopsony power.

This note addresses the role of the Taylor principle to solve the indeterminacy of equilibria in economies in which the monetary authority follows an interest rate rule. We first study the role of imposing two additional ad-hoc restrictions on the definition of equilibrium. Imposing the equilibrium to be locally unique never delivers a unique outcome. Imposing the equilibrium to be bounded, renders the outcome unique only if the inflation target is the Friedman rule. Second, we show that the Taylor principle is strongly time inconsistent - in a sense we make very precise - and that policies that implement the Friedman rule are the only sustainable policies.

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 construct the first continuous series on white-to-Black per capita wealth ratios from 1860 to 2020, drawing on historical census data, early state tax records, and historical waves of the Survey of Consumer Finances, among other sources. Incorporating these data into a parsimonious model of wealth accumulation for each racial group, we document the role played by initial conditions, income growth, savings behavior, and capital returns in the evolution of the gap. Given vastly different starting conditions under slavery, racial wealth convergence would remain a distant scenario, even if wealth-accumulating conditions had been equal across the two groups since Emancipation. Relative to this equal-conditions benchmark, we find that observed convergence has followed an even slower path over the last 150 years, with convergence stalling after 1950. Since the 1980s, the wealth gap has widened again as capital gains have predominantly benefited white households, and income convergence has stopped.

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.

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.

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.

We measure college graduate quality — the average human capital of a college’s graduates—using the average earnings of the college’s graduates adjusted to a common labor market. Our implementation uses the database of the website Glassdoor, which has the necessary information on earnings and education for non-migrants and migrants who graduate from roughly 3,300 colleges in 66 countries. Graduates of colleges in the richest countries have 50 percent more human capital than graduates of colleges in the poorest countries. Migration reinforces these differences. Poorer countries do not just lose a higher share of their skilled workers; their emigrants are highly positively selected on human capital. Finally, we show that these stocks and flows matter for growth and development by showing that college graduate quality predicts the share of a college’s students who become inventors, engage in entrepreneurship, and become top executives, both within and across countries.

This paper explores the role of restrictions on the use of international reserves as economic sanctions. We develop a simple model of the strategic game between a sanctioning (creditor) country and a sanctioned (debtor) country. We show how the sanctioning country should impose restrictions optimally, internalizing the geopolitical benefits and the financial costs of a potential default from the sanctioned country.

This paper reports the results of a large, school-level randomized controlled trial evaluating a set of three informational interventions for young people choosing high schools in 473 middle schools, serving over 115,000 8th graders. The interventions differed in their level of customization to the student and their mode of delivery (paper or online); all treated schools received identical materials to scaffold the decision-making process. Every intervention reduced likelihood of application to and enrollment in schools with graduation rates below the city median (75 percent). An important channel is their effect on reducing nonoptimal first choice application strategies. Providing a simplified, middle-school specific list of relatively high graduation rate schools had the largest impacts, causing students to enroll in high schools with 1.5-percentage point higher graduation rates. Providing the same information online, however, did not alter students’ choices or enrollment. This appears to be due to low utilization. Online interventions with individual customization, including a recommendation tool and search engine, induced students to enroll in high schools with 1-percentage point higher graduation rates, but with more variance in impact. Together, these results show that successful informational interventions must generate engagement with the material, and this is possible through multiple channels.