Match Quality and Contractual Sorting

We ask whether match-specific quality has an effect on the type of contractual arrangements that firms offer to workers. We present evidence that contractual arrangements depend on match quality and that heterogeneity in pay mechanisms has a significant effect on employment durations and wage dynamics.

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Abstract. This paper examines the impact of match-specific heterogeneity on compensation arrangements. In a stylized contractual choice problem, we show that employers may have an incentive to offer performance-based contracts when match-specific productivity is high. We test the empirical content of this hypothesis using the NLSY79, which contains information about individual job histories and performance pay. We find that better match quality does affect pay arrangements, employment durations, and wage cyclicality. Direct evidence on the accrual of job offers to workers lends support to the hypothesis that employers use performance-related compensation to preserve high-quality matches.


  title={Match Quality and Contractual Sorting},
  author={Galindo da Fonseca, Joao and Gallipoli, Giovanni and Yedid-Levi, Yaniv},
  journal={Labour Economics}

Human Capital Inequality: Empirical Evidence

Heterogeneity in human capital is a key source of differences in economic well-being. This article provides a synopsis of the empirical approaches that have characterized the analysis of human capital inequality over the past few decades.


Abstract. Wealth inequality has received considerable attention, with mounting evidence of steady and economically meaningful changes in the concentration of wealth ownership. By definition, wealth inequality captures disparity in the ownership of productive capital and other non-labor factors of production. In contrast, in this article we focus on the distribution of human capital and its implications for the accrual of economic resources to individuals and households. Human capital inequality can be thought of as measuring disparity in the ownership of labor factors of production, which are usually compensated in the form of wage income.


  title={Human Capital Inequality: Empirical Evidence},
  author={Abbott, Brant and Gallipoli, Giovanni},
  journal={Oxford Research Encyclopedia of Economics and Finance},

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.


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.


 title={Education Policy and Intergenerational Transfers in Equilibrium},
 author={Abbott, Brant and Gallipoli, Giovanni and Meghir, Costas and Violante, Giovanni Luca},
 journal={Journal of Political Economy}, 
volume = {126},
number = {6},
pages = {2569-2624},

Markov-Chain Approximations for Life-Cycle Models

Non-stationary income processes are standard in quantitative life-cycle models. Their approximation is key for numerical implementations. We develop methods to apply standard discretization algorithms within non-stationary life-cycle settings and assess their relative performance. In one extension we examine income processes in which shocks to earnings are modeled as draws from a mixture of Normal distributions and describe simple and tractable approaches to numerically describe non-Normal earnings distributions.


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), Adda and Cooper (2003), and Rouwenhorst’s (1995) discretization methods to non-stationary AR(1) processes. We evaluate the performance of these methods in the context of a canonical life-cycle,income-fluctuation problem with a non-stationary income process. We also examine the case in which innovations to the persistent component of earnings are modeled as draws from a mixture of Normal distributions. We find that the generalized Rouwenhorst’s method performs consistently better than the others even with a relatively small number of states.


  title={Markov-Chain Approximations for Life-Cycle Models},
  author={Fella, Giulio and Gallipoli, Giovanni and Pan, Jutong},
  journal={Review of Economic Dynamics},
  volume = {34},
  pages = {183-201}

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.

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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.


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

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.


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.


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

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.


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.


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

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.


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.


  title={Distortions, Efficiency and the Size Distribution of Firms},
  author={Goyette, Jonathan and Gallipoli, Giovanni},
  journal={Journal of Macroeconomics},

Education and Crime over the Life Cycle

We compare two large-scale policy interventions aimed at reducing crime: subsidizing high school completion and increasing the length of prison sentences.


Abstract. We compare two large-scale policy interventions aimed at reducing crime: subsidizing high school completion and increasing the length of prison sentences. To this purpose we use a life-cycle model with endogenous education and crime choices. We apply the model to property crime and calibrate it to U.S. data. We find that targeting crime reductions through increases in high school graduation rates entails large efficiency and welfare gains. These gains are absent if the same crime reduction is achieved by increasing the length of sentences. We also find that general equilibrium effects explain roughly one half of the reduction in crime from subsidizing high school.


  title={Education and Crime over the Life Cycle},
  author={Fella, Giulio and Gallipoli, Giovanni},
  journal={The Review of Economic Studies},
  publisher={Oxford University Press}

Unobservable Skill Dispersion and Comparative Advantage

We study a theoretical mechanism linking comparative advantage to the distribution of skills in the working population.


Abstract. This paper investigates a theoretical mechanism linking comparative advantage to the distribution of skills in the working population. We develop a tractable multi-country, multi-industry model of trade with unobservable skills in the labor market and show that comparative advantage derives from (i) cross-industry differences in the substitutability of workers’ skills and (ii) cross-country differences in the dispersion of skills. We establish the conditions under which higher skill dispersion leads to specialization in industries characterized by higher skill substitutability across tasks. The main results are robust when the model is extended to allow for partial observability of skills. Finally, we use distributions of literacy scores from the International Adult Literacy Survey to approximate cross-country productivity differences due to skill dispersion and we carry out a quantitative assessment of the impact of skill dispersion on the pattern of trade.


  title={Unobservable Skill Dispersion and Comparative Advantage},
  author={Bombardini, Matilde and Gallipoli, Giovanni and Pupato, Germ{\'a}n},
  journal={Journal of International Economics},