Education Policy and Intergenerational Transfers in Equilibrium

We examine the equilibrium effects of alternative financial aid policies intended to promote college participation. We model a rich environment featuring various dimensions of heterogeneity and intergenerational linkages.

The Journal of Political Economy (forthcoming)

With
Brant Abbott, Costas Meghir, Gianluca Violante

Abstract
This paper examines the equilibrium effects of alternative financial aid policies intended to promote college participation. We build an overlapping generations life cycle model with education, labor supply, and consumption/saving decisions. Cognitive and non-cognitive skills of children depend on the cognitive skills and education of parents, and affect education choice and labor market outcomes. Driven by both altruism and paternalism, parents make transfers to their children which can be used to fund education, supplementing grants, loans and the labor supply of the children themselves during college. The crowding out of parental transfers by government programs is sizable and thus cannot be ignored when designing policy. The current system of federal aid is valuable: removing either grants or loans would each reduce output by 2% and welfare by 3% in the long-run. An expansion of aid towards ability-tested grants would be markedly superior to either an expansion of student loans or a labor tax cut. This result is, in part, due to the complementarity between parental education and ability in the production of skills of future generations.

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Citation

@article{AGMV2018,
 title={Education Policy and Intergenerational Transfers in Equilibrium},
 author={Abbott, Brant and Gallipoli, Giovanni and Meghir, Costas and Violante, Giovanni L},
 journal={The Journal of Political Economy}, 
 year={2018}
 note={forthcoming},
}

Structural Transformation and the Rise of Information Technology

We use a task-based IT intensity index to: (1) document the evolution of earnings, employment, and productivity in low and high tech industries; (2) estimate the elasticity of substitution in production between IT and non-IT jobs; (3) revisit Solow’s Paradox, finding evidence of positive occupation-level effects of IT intensity on productivity growth.

The Journal of Monetary Economics (forthcoming) (Carnegie Rochester NYU Series on Public Policy)

With
Christos A. Makridis

Abstract

Has the emergence of information technology changed the structure of employment and earnings in the US? We propose a new index of occupation-level IT intensity and document several long-term changes in the occupational landscape over the past decades. Using Census and US KLEMS micro-data, we show that: (i) the bulk of productivity growth after 1950 is concentrated in IT intensive sectors; (ii) the share of workers in IT jobs has expanded significantly, with little or no pause and IT jobs enjoy a large and growing earnings premium, even after controlling for general task requirements (e.g., cognitive, non-routine); and (iii) the rise of the IT intensive employment share is closely associated with declines in the manufacturing employment share. While earnings premia for college-educated and cognitive/non-routine workers have flattened in the aggregate since 2000, we show that they continued growing in IT intensive jobs and that these jobs have played a key role in accounting for the surge of high tech service labor productivity. We also use our IT intensity index to estimate industry-specific elasticities of substitution between IT and non-IT intensive labor, finding values of 1.6 in manufacturing and 1.3 in services. Finally, we revisit a long-standing question about the relationship between technological progress and productivity and provide evidence that occupation-level IT intensity is positively associated with output growth, especially in the services sector.

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Online Appendix (PDF)

Citation

@article{gallipoli_makridis_2018_structural_transformation,
 title={Structural Transformation and the Rise of Information Technology},
 author={Gallipoli, Giovanni and Makridis, Christos A.},
 journal={Journal of Monetary Economics},
 year={2018},
 month={August},
 note = {Carnegie Rochester NYU Series on Public Policy}
}

Permanent-Income Inequality

We estimate the extent of Permanent-Income inequality and concentration using microdata for 1989-2016. We show that households at the top of the assets distribution have not increased their share of human wealth. Instead, the higher concentration of permanent income over the past decades is due to the growing importance of assets in lifetime wealth portfolios.

With
Brant Abbott

Abstract
We estimate the level and evolution of inequality in assets, human capital wealth and permanent income. Our definition of the latter variable does not rely on a specific utility function and imposes no restrictions on income processes. We characterize the distribution of human wealth using nonparametric identification results that allow for state-dependent stochastic discounting and unobserved heterogeneity. Accounting for the value of human capital delivers a different view of inequality. We find that (i) in 2016 the top 10% shares of total wealth and permanent income were roughly 1/3 lower than the corresponding share of assets; (ii) between 1989 and 2016 the top 10% shares of total wealth and permanent income grew significantly faster than the corresponding share of asset wealth. Hence, human wealth has had a mitigating influence on overall inequality but this mitigating effect has declined over time. We show that households at the top of the assets distribution have not increased their share of human wealth. Instead, higher concentration of permanent income is due to the growing importance of assets in lifetime wealth portfolios.
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Citation

@techreport{abbott-gallipoli-2018PI,
  title={Permanent-Income Inequality},
  author={Abbott, Brant and Gallipoli, Giovanni},
  year={2018},
  institution={University of British Columbia}
}

Match Quality, Contractual Sorting and Wage Cyclicality

We examine whether match-specific quality has any effect on the type of contractual arrangements and on wage dynamics.

With
João Alfredo Galindo da Fonseca and Yaniv Yedid-Levi

Abstract
This paper studies the role of match quality for contractual arrangements, wage dynamics and workers’ retention. We develop a model in which profit maximizing firms offer a performance-based pay arrangement to retain workers with relatively high match-specific productivity. The key implications of our model hold in data from the NLSY79, where information about job histories and performance pay is available. We relate our findings to the literature on occupation heterogeneity and provide evidence that jobs in “cognitive” occupations have better match quality, exhibit higher prevalence of performance pay, display significant sensitivity of wages to business cycle conditions and last longer.

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Citation

@techreport{fgy2017contracts,
  title={Match Quality, Contractual Sorting and Wage Cyclicality},
  author={Galindo da Fonseca, Joao and Gallipoli, Giovanni and Yedid-Levi, Yaniv},
  year={2017},
  note = {Working Paper},
  institution={UBC, Vancouver School of Economics}
}

Markov-Chain Approximations for Life-Cycle Models

Non-stationary income processes are standard in quantitative life-cycle models, prompted by the observation that within-cohort income inequality increases with age.

With
Giulio Fella, Jutong Pan

Abstract
Non-stationary income processes are standard in quantitative life-cycle models, prompted by the observation that within-cohort income inequality increases with age. This paper generalizes Tauchen (1986) and Rouwenhorst’s (1995) discretization methods to non-stationary AR(1) processes. We evaluate the performance of both methods in the context of a canonical finite-horizon, income-fluctuation problem with a non-stationary income process. We find that the generalized Rouwenhorst’s method performs extremely well even with a relatively small number of states.

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Citation

@techreport{fgp2017approximations,
  title={Markov-Chain Approximations for Life-Cycle Models},
  author={Fella, Giulio and Gallipoli, Giovanni and Pan, Jutong},
  year={2017},
  note = {Working Paper},
  institution={UBC, Vancouver School of Economics}
}

The Costs of Occupational Mobility: An Aggregate Analysis

We define a measure of job distance based on task content and quantify its importance for occupational mobility. We estimate the size of different layers of mobility costs.

Journal of the European Economic Association, 16 (2), 275-315, 2018

With
Matias Cortes

Abstract

We estimate the costs of occupational mobility and quantify the relative importance of differences in task content as a component of total mobility costs. We use a novel approach based on a model of occupational choice which delivers a gravity equation linking worker flows to occupation characteristics and transition costs. Using data from the Current Population Survey and the Dictionary of Occupational Titles we find that task-specific costs account for no more than 15% of the total transition cost across most occupation pairs. Transition costs vary widely across occupations and, while increasing with the dissimilarity in the mix of tasks performed, are mostly accounted for by task-independent occupation-specific factors. The fraction of transition costs that can be attributed to task-related variables appears fairly stable over the 1994-2013 period.

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DATA and CODE

Citation

@article{cortes_gallipoli2018costs,
  title={The Costs of Occupational Mobility: an Aggregate Analysis},
  author={Cortes, Guido Matias and Gallipoli, Giovanni},
  journal={Journal of the European Economic Association},
  volume={16},
  pages = {275-315},
  number = {2},
  year={2018}
}

Revisiting the Relationship Between Unemployment and Wages

We investigate the empirical relationship between wages and labor market conditions.

With
Joao Galindo da Fonseca and Yaniv Yedid-Levi

Abstract
We investigate the empirical relationship between wages and labor market conditions. Following work histories in the NLSY79 we document that the relationship between wages and unemployment rate differs across occupations. The results hold after controlling for unobserved match quality. This suggests that evidence about history-dependence of wages obtained from pooled samples conceals significant differences and provides an imprecise description of earning dynamics. We examine these discrepancies and offer new evidence suggesting that the sensitivity of wages to current unemployment is linked to the prevalence of performance pay.

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Citation


	

Human Capital Spill-Overs and the Geography of Intergenerational Mobility

We develop and estimate an equilibrium model of geographic variation in the intergenerational elasticity of earnings (IGE). We highlight the role of human capital complementarities for intergenerational mobility.

Review of Economic Dynamics, 25, 208-233, 2017 (Special Issue on Human Capital)

With
Brant Abbott

Abstract

We develop and estimate an equilibrium model of geographic variation in the intergenerational elasticity of earnings (IGE). The theory extends the Becker-Tomes model, introducing a production sector in which workers’ human capital inputs are complements. In this setting the return to parental human capital investments is lower where skill complementarity is more intense, and this is reflected in less intergenerational persistence. We also show that education subsidies may be more desirable where skill complementarities are stronger, endogenously leading to a negative correlation between progressive public policy and IGE. Using microdata we construct location-specific measures of skill complementarity and document that patterns of geographic variation in IGE are consistent with this hypothesis. Geographic differences in skill complementarity directly account for roughly one fifth of cross-country variation in IGE, and possibly more if one allows for the indirect effect through government expenditure in public education.

PAPER (PDF)

DATA AND CODE

Citation

@article{ABBOTT_GALLIPOLI_2017208,
title = "Human Capital Spill-Overs and the Geography of Intergenerational Mobility",
journal = "Review of Economic Dynamics",
volume = "25",
number = "",
pages = "208 - 233",
year = "2017",
note = "Special Issue on Human Capital and Inequality",
issn = "1094-2025"
}

Interactive Procedural Decision Making: Experimental Evidence

We document the presence of significant heterogeneity in the decision-making process of agents within an interactive setting. The setting is designed to elicit behaviours that can be used to experimentally gauge the way agents make their choices.

With
Guidon Fenig, Yoram Halevy

Abstract
We examine coordination in private provision of public goods when agents’ contributions are complementary. When complementarity is sufficiently high an additional full-contribution equilibrium emerges, even when agents are selfish. We experimentally investigate subjects’ behavior using a between-subject design that varies complementarity. When two equilibria exist, subjects tend to coordinate on contributions close to the efficient equilibrium. When complementarity is sizable but only a zero-contribution selfish-equilibrium exists, subjects persistently contribute above it. Observed choices and other nonchoice data indicate heterogeneity among subjects and two distinct types. Homo pecuniarius maximizes profits by best-responding to beliefs, while Homo behavioralis identifies this strategy but chooses to deviate from it, sacrificing pecuniary rewards to support altruism or competitiveness.

DRAFT (PDF)

Citation

@techreport{IPDM-2018,
  title={Interactive Decision Making: Experimental Evidence},
  author={Fenig, Guidon and Gallipoli, Giovanni and Meghir, Costas and Halevy, Yoram},
  year={2018},
  institution={University of British Columbia}
}

Distortions, Efficiency and the Size Distribution of Firms

We develop a model of firms’ growth in which the tax and credit environment acts as a selection mechanism.

Journal of Macroeconomics, 45, 202-221, 2015

With
Jonathan Goyette

Abstract

We develop a model of firms’ growth in which the tax and credit environments act as selection mechanisms. Such a model, parameterized and validated using a variety of data restrictions, can rationalize observations about input choices and size patterns typical of many developing countries. Using counterfactual experiments, we show that firms’ optimal responses to the tax environment are effective in reducing efficiency losses. As a consequence, tax distortions only account for 13% of the gap in output per worker between an undistorted economy and the benchmark. Credit constraints account for 44% of this gap. However, the interaction between the cost of capital and credit constraints appears to be the most important source of misallocation and can explain up to 85% of the difference in output per worker between the benchmark and first-best.

PAPER (PDF)

Citation

@article{goyette2015distortions,
  title={Distortions, Efficiency and the Size Distribution of Firms},
  author={Goyette, Jonathan and Gallipoli, Giovanni},
  journal={Journal of Macroeconomics},
  volume={45},
  pages={202--221},
  year={2015},
  publisher={North-Holland}
}