In 2024, 24 papers were added to the Institute Working Papers series, bringing the total in the series to 108. These papers make use of frontier methods to conduct empirical analysis and build models of economic processes. Institute economists were authors on eight of the new papers in 2024. Two of these papers analyze novel datasets that the authors created and made public. Two others look at the early impact of new labor policies: a guaranteed basic income program and a prohibition on domestic outsourcing.
This summary article provides a brief overview of the main findings of all 24 new additions from 2024.
Labor markets
Artificial intelligence dominated headlines in 2024, offering opportunities and provoking concerns. For workers, one concern is how wages and employment will respond to the current wave of technological innovation. In “New Technologies and Jobs in Europe,” Stefania Albanesi, António Dias da Silva, Juan F. Jimeno, Ana Lamo, and Alena Wabitsch investigate the impact of AI on relative employment and wages by occupation in 16 European countries over the period 2011 to 2019. Their results suggest that the adoption of AI has not been associated with lower aggregate employment in Europe.
New technologies are one type of economic shock. In “Economic Diversity and the Resilience of Cities,” François de Soyres, Simon Fuchs, Illenin O. Kondo, and Helene Maghin examine how the flow of workers changing occupations, industries, and locations responds when the demand for labor increases and decreases. Their analysis finds that after labor demand falls, worker flows fall more in economically concentrated cities.
In “Quits, Layoffs, and Labor Supply,” Kathrin Ellieroth and Amanda Michaud use the Current Population Survey to develop a new time series of quits and layoffs that result in nonemployment. Unlike the Job Openings and Labor Turnover Survey, which captures what happens to jobs, this data series captures what happens to people. The authors then analyze where workers end up after a quit or a layoff and show how the patterns vary over the business cycle.
Read the related research feature: Leaving your job? Losing your job? Where you end up might reveal a lot about the state of the economy.
Unemployment rates vary not only over time but across space as well. In “The Geography of Job Creation and Job Destruction,” Moritz Kuhn, Iourii Manovskii, and Xincheng Qiu investigate the sources of persistent differences in unemployment rates across local labor markets in the United Kingdom, the United States, and Germany. Their empirical analysis determines that these differences are mainly a result of fewer people losing their jobs, rather than a higher probability of finding jobs.
Read the related research feature: Unemployment is local.
Income varies across space, too. Oriana Bandiera, Ananya Kotia, Ilse Lindenlaub, Christian Moser, and Andrea Prat use data on individual worker skills and job skill requirements from 28 countries to assess whether labor markets in higher-income countries do a better job of matching workers to jobs based on their skills rather than idiosyncratic worker attributes. In “Meritocracy across Countries,” the authors then estimate how worker skills, technology, and matching frictions shape each country’s aggregate output and wage inequality.
Labor policy
The U.S. labor share of income has declined since the 1970s. In “Endogenous Bargaining Power and Declining Labor Compensation Share,” Juan C. Córdoba, Anni T. Isojärvi, and Haoran Li explore how the long-run decline in the number of vacancies per job seeker, which makes it costlier to lose one’s job, has reduced workers’ bargaining power. The authors estimate this decline is responsible for around one-third of the decline in labor’s share of income between 1980 and 2007.
In “Did Racially Motivated Labor Policy Reverse Equality Gains for Everyone?,” Erin L. Wolcott first shows that the federal minimum wage, average unemployment insurance, and unionization rates all declined following the Civil Rights Act, particularly in states with larger Black populations. Wolcott then constructs a labor market search model to show that these declines in labor protections are responsible for about half of the rise in wage inequality between the 10th and 90th percentiles of the income distribution.
The rise of domestic outsourcing—that is, when a company obtains employees through a subcontracting firm rather than hiring the workers directly—is a defining feature of many economies over the past 20 years. In “Outsourcing Policy and Worker Outcomes: Causal Evidence from a Mexican Ban,” Alejandro Estefan, Roberto Gerhard, Joseph P. Kaboski, Illenin O. Kondo, and Wei Qian show that when Mexico banned the practice, wages increased while output and employment stayed stable.
Read the related research feature: Domestic outsourcing is on the rise. What happens when the practice is banned?
Income and wealth
There is still much we do not know about how earnings and incomes have evolved for many groups of Americans. Illenin O. Kondo, Kevin Rinz, Natalie Gubbay, Brandon Hawkins, John Voorheis, and Abigail Wozniak constructed a new resource from administrative data that contains granular statistics on income fluctuations, income mobility, and income differences within and across groups in the United States. In “Granular Income Inequality and Mobility using IDDA: Exploring Patterns across Race and Ethnicity,” the authors use the data to examine how the gap in earnings for Black men and women have evolved.
Read the related research feature: The growing income gap for Black workers.
To support those at the bottom of the income distribution, local policymakers are piloting basic income programs. Andrew Goodman-Bacon and Vanessa Palmer study a randomized, controlled trial that gave $500 per month for 24 months to 200 low-income people in Minneapolis, Minnesota. In “How Do Low-Income Households Respond to Basic Income? Experimental Evidence from Minneapolis,” they report their findings that the payments lead to improvements in food security, housing stability, and financial security for recipients while having no effect on their labor supply.
Economists also seek to better understand the sources of wealth inequality. “To Have or Not to Have: Understanding Wealth Inequality” shows that the variation in wealth is driven more by whether households hold any assets (for example, a house or a retirement savings account) rather than how much they contribute. Authors Pavel Brendler, Moritz Kuhn, and Ulrike I. Steins next investigate why participation exhibits such large variation. They find that access to asset markets is not equal: Households with higher incomes have much greater access than households with lower incomes.
Participation in asset markets is also correlated with race: Black households are less likely than White households to hold stocks, for instance. In “Unemployment Risk, Portfolio Choice, and the Racial Wealth Gap,” Ellora Derenoncourt, Chi Hyun Kim, Moritz Kuhn, and Moritz Schularick study why Black Americans invest less in equity. Their analysis points to differences in the risk of unemployment that Black and White workers face, which lead to different investment decisions.
Read the related research feature: Risky employment, safe assets, and the racial wealth gap.
Housing and health
How does the expansion of credit affect housing prices? In “Army of Mortgagors: Long-Run Evidence on Credit Externalities and the Housing Market,” Tobias Herbst, Moritz Kuhn, and Farzad Saidi study a policy that expanded eligibility for loans guaranteed by the Veterans Administration. This expansion caused home price increases in areas with large veteran populations as well as an increase in loan approval rates in the conventional mortgage market. These findings deepen our understanding of the mechanisms through which credit expansion affects the housing market.
The affordability of housing is also affected by property tax rates. In “Property Taxes and Housing Allocation Under Financial Constraints,” Joshua Coven, Sebastian Golder, Arpit Gupta, and Abdoulaye Ndiaye use an overlapping generations model to analyze how property tax rates affect housing choices over people’s life cycle. The authors show that raising property taxes in low-tax California to match those in higher-tax Texas increases homeownership in California by 4.6 percent and among younger households by 7.4 percent.
Read the related research feature: How higher property taxes increase home affordability.
In “Public Education and Intergenerational Housing Wealth Effects,” Michael Gilraine, James Graham, and Angela Zheng study how housing prices shape economic opportunity. They find that rising local house prices lead to improvements in local school quality, which increases children’s future earnings potential.
For some people, however, any housing remains out of reach. What policy tools could help reduce homelessness? In “Homelessness,” Kai Zhao and Ayşe İmrohoroğlu develop a general equilibrium model of homelessness calibrated to U.S. data, which they use to evaluate the effectiveness of different policies. They find that existing housing voucher programs are effective at reducing homelessness.
In “Health Inequality and Health Types,” Margherita Borella, Francisco Bullano, Mariacristina De Nardi, Benjamin Krueger, and Elena Manresa seek to better understand health dynamics in middle and old age. They identify five health types, which are characterized by different starting health statuses as well as different health and mortality trajectories. Their analysis suggests that these categories explain subsequent economic outcomes better than the kinds of variables usually observed in public datasets do.
In a related paper, Nicolo Russo, Rory McGee, Mariacristina De Nardi, Margherita Borella, and Ross Abram investigate how health inequality during middle and old age varies by race, ethnicity, and gender. In “Health Inequality and Economic Disparities by Race, Ethnicity, and Gender,” the authors show that health disparities explain about half of the variation in a number of economic outcomes, including disability and retirement duration.
Criminal legal system and the economy
Algorithm-based rules have replaced human discretion in some settings, but in many high-stakes environments, algorithmic predictions interact with human decision-makers. In “The Hidden Effects of Algorithmic Recommendations,” Alex Albright examines bail decisions in Kentucky after legislation passed in 2011 recommended no money bail for defendants that an algorithm deemed were low or moderate risk. This recommendation changed judges’ bail decisions independently of the algorithmic predictions.
Read the related research paper: Who decides? How algorithms and humans interact in judges’ decisions about bail.
“Dynamics of Deterrence: A Macroeconomic Perspective on Punitive Justice Policy” takes a broader view of the criminal legal system and the economy, analyzing how policies in the 1980s that increased incarceration rates affected future crime rates, inequality, and labor markets. Authors Bulent Guler and Amanda Michaud point out that harsher punitive policy operates through several channels. The deterrent effect materializes gradually, so studying changes to punitive policies requires a long-term lens.
“Mispricing Narratives after Social Unrest,” by Bocar Abdoulaye Ba, Abdoulaye Ndiaye, Roman G. Rivera, and Alexander Whitefield, studies how stakeholders value firms when there is significant public discourse around a particular industry. The authors look specifically at the “defund the police” movement. They find that both laypeople and finance professionals forecasted negative stock outcomes for firms that supplied equipment to police forces. Their analysis of real-world outcomes supports these findings, showing that mutual funds in protest-affected areas were 20 percent less likely to hold police stocks after the events of 2020.
Taxes, trade, and marriage
Macroeconomists have long believed that wages are rigid, which has implications for inflation rates over the business cycle. How does bonus pay affect these dynamics? In “Bonus Question: How Does Flexible Incentive Pay Affect Wage Rigidity?,” Meghana Gaur, John Grigsby, Jonathon Hazell, and Abdoulaye Ndiaye find that wage cyclicality from bonus pay does not affect the slope of the Phillips curve for prices, nor does it dampen unemployment dynamics.
Rodrigo Adão, Arnaud Costinot, Dave Donaldson, and John Sturm develop a methodology to reveal the welfare weights that a nation’s import tariffs implicitly place on different groups in society. In “Why is Trade Not Free? A Revealed Preference Approach,” they apply this methodology to the U.S. tariff schedule in 2017, finding that the apparel, textile, and metals sectors enjoy the highest welfare weights.
Michael T. Baker, Susan P. Carter, and Abigail Wozniak look at a different social institution: the role of peers in individuals’ decisions about marriage. In “Peer Effects and Marriage Formation,” the authors use administrative data from the U.S. Army to show that higher marriage rates among peers increases the likelihood that an individual gets married. Because marriage is linked to a variety of benefits for individuals, understanding marriage decisions is valuable for addressing associated welfare impacts.
Lisa Camner McKay is a senior writer with the Opportunity & Inclusive Growth Institute at the Minneapolis Fed. In this role, she creates content for diverse audiences in support of the Institute’s policy and research work.