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  1. Home
  2. Opportunity & Inclusive Growth Institute
  3. Research Publications

System Working Papers

The System Working Papers series showcases the ongoing research of scholars throughout the Federal Reserve System on issues related to economic opportunity and inclusive growth. These working papers are preliminary versions that are being shared in a timely manner to a broad research community, with the aim of promoting scholarly debate and soliciting constructive feedback. Browse the archive (Jan. 2017 - Oct. 2020).

    May 2021

  • Lee Ohanian, Musa Orak, and Shihan Shen

    This paper revisits capital-skill complementarity and inequality, as in Krusell, Ohanian, Ríos-Rull, and Violante (KORV 2000). Using their methodology, we study how well the KORV model accounts for more recent data, including the large changes in the labor’s share of income that were not present in KORV. We study both labor share of gross income (as in KORV) and income net of depreciation.

    Topics: Inequality; Employment & labor markets; Wages, income, and wealth

  • Patrick Coate and Kyle Mangum

    Declining internal migration in the United States is driven by increasing home attachment in locations with previously high rates of population turnover. These “fast locations” were the population growth destinations of the 20th century, where home attachments were once low but have increased as regional population growth has converged. The paper uses a stylized island economy model featuring endogenous home attachments to show that after a shock, gross migration returns to steady state much more slowly than net population change.

    Topics: Migration; Housing; Employment & labor markets

  • Nicolas Petrosky-Nadeau and Robert G. Valletta

    To assess the impact of the UI supplement under the U.S. CARES Act of 2020, we analyze the job acceptance decision in a dynamic framework in which job seekers weigh the value of a job against remaining unemployed, accounting for the perceived state of the labor market and expected weeks of UI benefits. We supplement this quantitative assessment of reservation benefits with direct empirical analysis of labor force transitions, finding moderate disincentive effects of the $600 supplemental payments on job finding rates and by extension small effects of the $300 weekly supplement available during 2021.

    Topics: Unemployment; Insurance; COVID-19

    April 2021

  • Gregory Gilpin, Ezra Karger, and Peter Nencka

    Local governments spend over $12 billion annually funding the operation of 15,000 public libraries in the United States. We use a dynamic difference-in-difference approach to show that library capital investment increases children’s attendance at library events by 18 percent, children’s checkouts of items by 21 percent, and total library visits by 21 percent. Increases in library use translate into improved children’s test scores in nearby school districts.

    Topics: K-12 Education; Community & economic development

  • Shelby R. Buckman, Laura Y. Choi, Mary C. Daly, and Lily M. Seitelman

    How much is inequity costing us? Using a simple growth accounting framework, we apply standard shift-share techniques to data from the Current Population Survey (1990-2019) to compute the aggregate economic costs of persistent educational and labor market disparities by gender and race. Our findings suggest that differences in employment opportunities and educational attainment make the largest contributions by race. Differences by gender are primarily driven by gaps in employment and hours.

    Topics: Inequality; Economic growth; Educational equity; Employment & labor markets

  • Yavuz Arslan, Ahmet Degerli, and Gazi Kabaş

    We use disaggregated U.S. data and a border discontinuity design to show that more generous unemployment insurance (UI) policies lower bank deposits. We test several channels that could explain this decline and find evidence consistent with households lowering their precautionary savings. Banks that raise deposits in states with generous UI policies squeeze their small business lending. Furthermore, counties that are served by these banks experience a higher unemployment rate and lower wage growth.

    Topics: Banks; Unemployment; Borrowing & lending

  • Erik Dolson and Julapa Jagtiani

    We explore the supply side of fintech credit, focusing on unsecured personal loans and mortgage loans. We investigate whether fintech firms are more likely than other lenders to reach out to “underserved consumers,” such as minorities; those with low income, low credit scores, or thin credit histories; or those who have a history of being denied credit. For both personal loans and mortgage loans, fintech firms are more likely than other lenders to reach out and offer credit to nonprime consumers.

    Topics: Borrowing & lending; Payments & FinTech; Low & moderate income

  • David Cho, Daniel I. Garcia, Joshua Montes, and Alison Weingarden

    We estimate the causal effects of heroin use on labor market outcomes by using prior exposure to oxycodone as a proxy for heroin use. We find increases in heroin use led to declines in employment and labor force participation rates, particularly for white, young, and less-educated groups, consistent with the profile of oxycodone misusers. The results show the importance of extending beyond prescriptions when accounting for the labor market effects of the opioid crisis.

    Topics: Employment & labor markets; Public health

    March 2021

  • Rajashri Chakrabarti, Lindsay Meyerson, William Nober, and Maxim L. Pinkovskiy

    Did Medicaid expansion under the Affordable Care Act affect the course of the COVID-19 pandemic? We answer this question using a regression discontinuity design for counties near the borders of states that expanded Medicaid with states that did not. We find that health insurance changes discontinuously at the frontier; COVID-19 cases do not change discontinuously at the frontier, but the precision of this estimate is low; and COVID-19-related doctor visits discontinuously increase in Medicaid expansion areas.

    Topics: Public health; Insurance; COVID-19

  • Saroj Bhattarai, Jae Won Lee, and Choongryul Yang

    We show that the effectiveness of redistribution policy in stimulating the economy and improving welfare is directly tied to how much inflation it generates, which in turn hinges on monetary-fiscal adjustments that ultimately finance the transfers. We compare two distinct types of monetary-fiscal adjustments. In the monetary regime, the government eventually raises taxes to finance transfers, while in the fiscal regime, inflation rises, effectively imposing inflation taxes on public debt holders.

    Topics: Monetary policy; Inequality; Taxes & tax policy

  • James A. Schmitz Jr.

    There is a force in market economies that have extensive amounts of monopoly, like the United States, which leads income inequality to understate economic inequality. Monopolies, of course, raise prices. This reduces the purchasing power of households. But monopolies reduce the purchasing power of low-income households much more than high-income households because in many markets, as monopolies raise the prices for their goods, they simultaneously destroy low-cost substitutes that are purchased by low-income households, which shuts low-income households out of markets for goods and services that are important for their economic well-being.

    Topics: Inequality; Low & moderate income; Economic growth

  • Job Boerma and Loukas Karabarbounis

    We revisit the causes, welfare consequences, and policy implications of the dispersion in households’ labor market outcomes using a model with uninsurable risk, incomplete asset markets, and home production. Allowing households to be heterogeneous in both their disutility of home work and their home production efficiency, we find that home production amplifies welfare-based differences, meaning that inequality in standards of living is larger than we thought.

    Topics: Inequality; Wages, income, and wealth; Employment & labor markets

  • Jose A. Lopez and Mark M. Spiegel

    We examine the effects of the Paycheck Protection Program (PPP) and the PPP Liquidity Facility (PPPLF) on small business and farm lending by individual commercial banks in the United States. We find that while both programs had significant positive effects on small business lending, they did not influence small loans to farms over the period studied, which is likely due to a structural feature of the PPP. Participation in both programs increased bank balance sheets, but risk-adjusted bank capital ratios actually improved with PPP and PPPLF participation.

    Topics: Small business; Public policy; Agriculture & farming

  • Pia M. Orrenius and Madeline Zavodny

    One significant headwind to progress among Latinos is recessions. Economic outcomes of Latinos are far more sensitive to the business cycle than are outcomes for non-Hispanic Whites. Latinos also have higher poverty rates than Whites, although the gap had been falling prior to the pandemic. Policies that would help working-class and poor Latinos include immigration reform and education reform and broader access to affordable health care.

    Topics: Recessions; Low & moderate income; Public policy

  • Leila Bengali, Mary C. Daly, Olivia Lofton, and Robert G. Valletta

    We assess how people with disabilities and their families fared during the long economic expansion that followed the Great Recession of 2007-09. We find that the expansion bolstered the well-being of people with disabilities and in particular their relative labor market engagement. We also find that applications and awards for federal disability benefits fell during the expansion.

    Topics: Wages, income, and wealth; Employment & labor markets; Public policy

    February 2021

  • Dionissi Aliprantis and Hal Martin

    Landlords in high-opportunity neighborhoods screen out tenants using vouchers. In our correspondence experiment, signaling voucher status cuts landlord responses in half. This voucher penalty increases with posted rent and varies little with signals of tenant quality and race. Our results suggest a successful, systematic policy of moving to opportunity would require more direct engagement with landlords.

    Topics: Housing; Public policy; Economic opportunity

  • Bo Zhao

    This paper shows how to design a state education aid formula that can effectively address funding inequity and inadequacy while taking political feasibility into account. It first develops a measure of the gap between education cost and revenue capacity, both of which are estimated using school district characteristics that are outside the direct control of local officials at any given point in time. The paper then proposes, as a potential solution, a gap-based formula that allocates state aid to close the cost-capacity gaps.

    Topics: K-12 education; Inequality; Public policy

  • Enrique G. Mendoza, Eugenio Rojas, Linda L. Tesar, and Jing Zhang

    Empirical evidence shows that lockdowns and health care saturation help explain the cross-country variation in GDP declines even after controlling for COVID-19 cases and mortality. We explain this output-pandemia tradeoff as resulting from a shock to subsistence health demand that is larger at higher capital utilization in a model with entrepreneurs and workers. Quantitatively, strict lockdowns and large transfer hikes can be optimal and yield sizable welfare gains because they prevent a sharp rise in inequality.

    Topics: COVID-19; Public health; Macroeconomics

  • Katharine Bradbury

    This study uses information from metropolitan areas and from school districts to understand which factors are strongly related to the size of racial and socioeconomic test-score gaps. One key factor is the degree to which state aid to school districts is distributed progressively to districts with high fractions of students living in poverty. Second, test-score gaps are larger in areas where poverty segregation is greater, that is, where, compared with white children or higher-income children, minority children or low-income children are in school districts with more students from low-income families.

    Topics: K-12 education; Inequality; Public policy

  • Ying Shi, Daniel Hartley, Bhashkar Mazumder, and Aastha Rajan

    The Great Migration significantly increased the number of African Americans moving to northern and western cities beginning in the first half of the 20th century. We show that their arrival shaped slum clearance and urban redevelopment efforts in receiving cities. We find that local governments responded by undertaking more urban renewal projects that aimed to redevelop and rehabilitate “blighted” areas.

    Topics: Urban economics; Community & economic development; Housing

  • Marco Giacoletti, Rawley Z. Heimer, and Edison G. Yu

    We develop empirical tests for discrimination that use high-frequency evaluations to address the problem of unobserved heterogeneity in a conventional benchmarking test. We bring our approach to the residential mortgage market. Owing to within-month variation in loan officers’ subjectivity, we estimate that Black mortgage applicants have 3.5 percent to 5 percent lower approval rates. When we use this approach to evaluate policies, we find that shadow banking has reduced discrimination, presumably by having a larger presence in under-served communities.

    Topics: Borrowing & lending; Inequality; Payments & FinTech

  • Brent W. Ambrose, Xudong An, and Luis A. Lopez

    We show, using a stylized model, how the financing choice of landlords can impact eviction decisions in rental markets. Since multifamily loans rely on timely cash flows from tenants, strict underwriting factors can increase the chances that landlords are able to weather income shocks. Lender-provided relief may create further leeway for landlords to work out a deal with tenants who default on rental payments. We also quantify the eviction risks induced by the COVID-19 pandemic for 12 U.S. cities using our empirical model.

    Topics: Borrowing & lending; Housing; COVID-19

  • Xudong An, Larry Cordell, Liang Geng, and Keyoung Lee

    Using a novel database that combines mortgage servicing records, credit-bureau data, and loan application information, we show that lower-income and minority borrowers have significantly higher nonpayment rates during the COVID-19 pandemic, even after controlling for conventional risk factors. We then find that government and private-sector forbearance programs have mitigated these inequalities in the near term, as lower-income and minority borrowers have taken up the short-term debt relief at higher rates.

    Topics: Borrowing & lending; Inequality; Low & moderate income; COVID-19

    January 2021

  • Roozbeh Hosseini, Karen Kopecky, and Kai Zhao

    Using a dynamic panel approach, we provide empirical evidence that negative health shocks reduce earnings. The effect is primarily driven by the participation margin and is concentrated in less-educated individuals and those with poor health. We build a dynamic, general equilibrium, life cycle model that is consistent with these findings.

    Topics: Wages, income, and wealth; Insurance; Public policy

  • David Hao Zhang and Paul Willen

    This paper uses a new methodology to assess mortgage pricing discrimination faced by minority borrowers. We identify a “menu problem” that comes from the multidimensional nature of mortgage pricing. Empirically, we find that mortgage pricing differentials by race still exist, particularly among more creditworthy conforming borrowers.

    Topics: Borrowing & lending; Housing; Inequality

    December 2020

  • Lauren Sartain and Lisa Barrow

    In 2017, Chicago Public Schools adopted an online universal application system for all high schools with the hope of providing more equitable access to high-performance schools. Despite the new system, Black students and students living in low-socioeconomic-status neighborhoods remained less likely than their peers to enroll in a high-performance high school. We characterize constraints that students and families may face in enrolling in a high-performance high school, including eligibility based on prior academic achievement, distance from high-performance options, and neighborhood and elementary school resources.

    Topics: K-12 education; Public policy; Diversity & inclusion

  • Daniel Aaronson, Jacob Faber, Daniel Hartley, Bhashkar Mazumder, and Patrick Sharkey

    We estimate the long-run effects of the 1930s Home Owners Loan Corporation (HOLC) redlining maps on census tract–level measures of socioeconomic status and economic opportunity from the Opportunity Atlas (Chetty et al. 2018). We find that the maps had large and statistically significant causal effects on a wide variety of outcomes measured at the census tract level for cohorts born in the late 1970s and early 1980s.

    Topics: Housing; Inequality; Economic opportunity

  • Dionissi Aliprantis and Hal Martin

    The Opportunity Atlas (OA) is an innovative data set that ranks neighborhoods according to children’s adult outcomes in several domains, including income. This paper shows that neighborhood sorting contributes to OA estimates. We document cases in which small sample sizes and changes over time can explain disagreements between OA rankings and those based on contemporaneous variables.

    Topics: Economic opportunity; Public policy

  • Fumiko Hayashi, Marie-Hélène Felt, Joanna Stavins, and Angelika Welte

    Using data from the United States and Canada, we quantify consumers’ net pecuniary cost of using cash, credit cards, and debit cards for purchases across income cohorts. We find that consumers in the lowest-income cohort pay the highest net pecuniary cost as a percentage of transaction value, while consumers in the highest-income cohort pay the lowest net cost.

    Topics: Consumer economics; Wages, income, and wealth; Inequality

  • Marianna Kudlyak, Murat Tasci, and Didem Tuzemen

    This paper estimates the impact of minimum wage increases on the quantity of labor demanded as measured by firms’ vacancy postings. We find that minimum wage increases during the 2005–18 period led to substantial declines in vacancy postings in occupations with a larger share of employment around the prevailing minimum wage. Our estimate implies that a 10 percent increase in the binding minimum wage level reduces vacancies by 2.4 percent in this group.

    Topics: Minimum wage; Unemployment

    • November 2020

  • Brooke Helppie-McFall and Joanne W. Hsu

    Using data from the Survey of Consumer Finances, we describe the financial profiles of U.S. families whose workers were most vulnerable to coronavirus-related earnings losses in the spring of 2020, based on whether a particular worker was deemed "essential" and whether a worker's job could be conducted remotely. We find that families with workers not able to work remotely who were most vulnerable to layoff also had both demographic and financial profiles that are associated with greater vulnerability to income shocks: These families were more likely to be people of color and single wage earners and to have less savings.

    Topics: COVID-19; Unemployment; Wages, income, and wealth

  • Dionissi Aliprantis, Hal Martin, and Kristen Tauber

    There is currently interest in crafting public housing policy that combats, rather than contributes to, the residential segregation in American cities. One such policy is the Housing Mobility Program (HMP), which aims to help people move from disinvested neighborhoods to areas with more opportunities. This paper studies how design features influence the success of HMPs in reducing racial segregation.

    Topics: Housing; Public policy; Diversity & inclusion

  • James Bailey, Nathan Blascak, and Slava Mikhed

    In July 2005, a set of cuts to Medicaid eligibility and coverage went into effect in the state of Missouri. We show that the Medicaid reform led to increases in both credit card borrowing and debt in third-party collections. Our results suggest that there are important asymmetries in the financial effects of shrinking a public health insurance program compared with a public health insurance expansion.

    Topics: Public health; Public policy; Insurance

  • Maria Marta Ferreyra, Carlos Garriga, Juan David Martin, and Angelica Maria Sanchez Diaz

    To evaluate the potential effects of free college policies, we develop and estimate a dynamic model of college enrollment, performance, and graduation. Universal free college expands enrollment the most, but it does not affect graduation rates and has the highest per-graduate cost. Performance-based free college, in contrast, delivers a slightly lower enrollment expansion, yet a greater graduation rate at a lower per-graduate cost. Additional, complementary policies might be required to elicit the large effort increase needed to raise graduation rates.

    Topics: Higher education; Public policy

    • October 2020

  • Sitian Liu and Yichen Su

    Prior studies have shown that women are more willing to trade off wages for short commutes than men. Our model shows that differential commuting choices account for about 16-21 percent of the gender wage gap on average, but the contribution varies widely across residential locations. The model also shows that policies that increase commute speed or density in the central city neighborhoods could moderately lower the gender wage gap.

    Topics: Wages, income, and wealth; Inequality

  • John Coglianese and Brendan M. Price

    Joblessness is highly seasonal. We show that an excess share of prime-age U.S. workers experience recurrent separations spaced exactly 12 months apart. We find that these workers incur large earnings losses during the off-season. Lost earnings are (1) driven mainly by repeated separations from the same employer; (2) not recouped at other firms; (3) partly offset by unemployment benefits; and (4) amplified by concurrent drops in partners' earnings.

    Topics: Employment & labor markets; Unemployment; Insurance

  • Leland D. Crane, Ryan A. Decker, Aaron Flaaen, Adrian Hamins-Puertolas, and Christopher Kurz

    We review official data on business exit in recent decades. Business exit is common in the U.S. and is countercyclical. We explore a range of alternative measures and indicators of business exit, including novel measures based on payroll events and phone-tracking data, and find tentative evidence that exit has been elevated during 2020. Evidence is somewhat mixed, however, and exiting businesses do not appear to represent a large share of U.S. employment.

    Topics: Small business; COVID-19; Recessions

  • Kristopher Gerardi, Paul Willen, and David Hao Zhang

    Black and Hispanic White borrowers pay more than 50 basis points higher interest rates than White borrowers in a large, representative sample of loans insured by Fannie Mae and Freddie Mac. The authors show that this disparity is primarily driven by the fact that White borrowers are more likely to exploit periods of falling interest rates by refinancing their mortgages or moving.

    Topics: Inequality; Monetary policy; Borrowing & lending

  • Diego Comin, Ana Danieli, and Martí Mestieri

    We propose a mechanism for labor-market polarization based on the nonhomotheticity of demand that we call the income-driven channel. Our mechanism builds on a novel empirical fact: Expenditure elasticities and production intensities in low- and high-skill occupations are positively correlated across sectors. Thus, as income grows, demand shifts toward expenditure-elastic sectors, and the relative demand for low- and high-skill occupations increases, causing labor-market polarization.

    Topics: Employment & labor markets; Wages, income, and wealth; Low & moderate income

  • Alexander Ludwig, Alexander Monge-Naranjo, Ctirad Slavik, and Faisal Sohail

    We estimate the effects that various financial deregulations in the U.S. have had on the country's income distribution. We find that the various reforms have moved inequality in drastically different directions.

    Topics: Inequality; Low & moderate income; Financial regulation

  • Nicolas Petrosky-Nadeau

    Job acceptance decisions weigh the value of a job against remaining unemployed. A reservation level of benefit payments exists in this dynamic decision problem at which an individual is indifferent between accepting and refusing an offer. Estimating the reservation benefit for a wide range of U.S. workers suggests that few would turn down an offer to return to work at the previous wage under the CARES Act expanded unemployment insurance payments.

    Topics: Insurance; Unemployment; COVID-19