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).

October 2022

How Much Does Racial Bias Affect Mortgage Lending? Evidence from Human and Algorithmic Credit Decisions

Neil Bhutta, Aurel Hizmo, and Daniel Ringo

We assess racial discrimination in mortgage approvals, using new data on mortgage applications. Minority applicants tend to have significantly lower credit scores and higher leverage, and they are less likely than White applicants to receive algorithmic approval from race-blind government automated underwriting systems (AUS). Observable applicant risk factors explain most of the racial disparities in lender denials.

Topics: Borrowing & lending; Credit & financial markets; Housing
Optimal Unemployment Insurance Requirements

Gustavo de Souza and André Victor D. Luduvice

In the United States, workers must satisfy two requirements to receive unemployment insurance (UI): a tenure requirement of a minimum work spell and a monetary requirement of a past minimum earnings. Using discontinuity of UI rules at state borders, we find that the monetary requirement decreases the number of employers and the share of part-time workers, while the tenure requirement has the opposite effect. In a quantitative model, the monetary requirement induces workers to search longer because low paying jobs are not covered by UI.

Topics: Insurance; Unemployment; Public policy
The Impact of the Age Distribution on Unemployment: Evidence from U.S. States

Bruce Fallick and Christopher L. Foote

Economists have studied the potential effects of shifts in the age distribution on the unemployment rate for more than 50 years. This paper uses state-level data to examine demographic effects across the entire age distribution rather than just the youth share of the population. We find that shifts in the age distribution move the unemployment rate in the direction that a mechanical shift-share model would predict. But these effects are larger than the mechanical model would generate, indicating the presence of amplifying indirect effects of the age distribution on unemployment.

Topics: Unemployment; Workforce
Accounting for Wealth Concentration in the United States

Barış Kaymak, David Leung, and Markus Poschke

We assess the empirical relevance of different macroeconomic modeling approaches to wealth concentration, using the joint distribution of earnings, capital income, and net worth in combination with an overlapping-generations model of household heterogeneity. We find large earnings disparities to be the primary source of wealth concentration in the United States. This reflects the fact that labor income from salaries as well as from entrepreneurship is a major income source for top income and wealth groups in the data. Bequests and differences in rates of return on capital together explain about half the holdings of the wealthiest of households, but much less for the rest.

Topics: Wages, income, and wealth
Use It or Lose It: Efficiency and Redistributional Effects of Wealth Taxation

Fatih Guvenen, Gueorgui Kambourov, Burhanettin Kuruscu, Sergio Ocampo, and Daphne Chen

How does wealth taxation differ from capital income taxation? With return heterogeneity, the two tax systems typically have opposite implications for efficiency and inequality. Under capital income taxation, entrepreneurs who are more productive and therefore generate more income pay higher taxes. Under wealth taxation, entrepreneurs who have similar wealth levels pay similar taxes regardless of their productivity, which expands the tax base, shifts the tax burden toward unproductive entrepreneurs, and raises the savings rate of productive ones. In the simulated model parameterized to match U.S. data, replacing the capital income tax with a wealth tax in a revenue-neutral fashion delivers a significantly higher average welfare.

Topics: Taxes & tax policy
The Impact of Racial Segregation on College Attainment in Spatial Equilibrium

Victoria Gregory, Julian Kozlowski, and Hannah Rubinton

We incorporate race into an overlapping-generations spatial-equilibrium model with neighborhood spillovers. Race matters in two ways: (i) the Black-White wage gap and (ii) homophily, the preferences of individuals over the racial composition of their neighborhood. We find that these two forces generate a Black-White college gap of 22 percentage points, explaining about 80 percent of the college gap in the data for the St. Louis metro area. A policy of equalizing school funding across neighborhoods reduces the college gap by almost 10 percentage points and generates large welfare gains.

Topics: Higher education; Inequality; Spatial economics
What Determines the Success of Housing Mobility Programs?

Dionissi Aliprantis, Hal Martin, and Kristen Tauber

This paper studies how design features influence the success of Housing Mobility Programs (HMPs) in reducing racial segregation. Targeting neighborhoods based on previous residents’ outcomes does not allow for targeting race-specific outcomes, generates uncertainty when targeting income-specific outcomes, and generates bias in ranking neighborhoods’ effects. HMP success is aided by the ability to port vouchers across jurisdictions, access to cars, and relaxing supply constraints, perhaps by targeting lower-ranked neighborhoods.

Topics: Housing; Public policy; Diversity & inclusion

September 2022

How to Increase Housing Affordability: Understanding Local Deterrents to Building Multifamily Housing

Amrita Kulka, Aradhya Sood, and Nicholas Chiumenti

An important way to ensure low rents and low house prices is to increase the housing supply, which in land-constrained metropolitan areas involves constructing denser forms of housing. This study looks at how different zoning regulations interact with each other to affect the supply of various types of housing and the prices of single-family homes and rents for multifamily apartments. This paper focuses on three regulations: multifamily zoning, maximum-height restrictions, and density restrictions.

Topics: Housing; Low & moderate income
Bad Times, Bad Jobs? How Recessions Affect Early Career Trajectories

Parag Mahajan, Dhiren Patki, and Heiko Stüber

Studies find that if a worker enters the labor market during an economic downturn versus a period of expansion, they likely will have more difficulty finding a high-paying job, because the availability of such jobs is strongly procyclical. The earnings penalty for starting a career during bad times is both substantial and persistent. But to what extent do non-pecuniary characteristics of jobs offset some of those earnings losses? This paper uses population-scale linked employer-employee administrative data from Germany to estimate both the pecuniary and non-pecuniary impact of entering the workforce during a recession.

Topics: Recessions; Employment & labor markets
A Rescue or a Trap?—An Analysis of Parent PLUS Student Loans

Wenhua Di, Carla Fletcher and Jeff Webster

Parents taking out loans for their children’s college educations may face an excessive debt burden that jeopardizes their own financial security. We find that Parent Loan for Undergraduate Students (PLUS) borrowers are more likely to default if their children attend low-resource institutions. Although parent PLUS generally outperforms student loans, PLUS performance is sensitive to program costs during difficult economic times. In contrast, student outcomes depend more on educational outcomes. This study reveals the differing consequences of parent and student borrowing for higher education and the troublesome PLUS program design that poses challenges to certain borrowers.

Topics: Borrowing & lending; Higher education
The Racial Wealth Gap, Financial Aid, and College Access

Phillip Levine and Dubravka Ritter

We examine how the racial wealth gap interacts with financial aid in American higher education to generate a disparate impact on college access and outcomes. Retirement savings and home equity are excluded from the formula used to estimate the amount a family can afford to pay. We show that this treatment of assets provides an implicit subsidy worth thousands of dollars annually to students from families with above-median incomes. White students receive larger subsidies than Black students and Hispanic students with similar family incomes, and this gap in subsidies is associated with disadvantages in educational advancement and student loan levels.

Topics: Higher education; Inequality; Wages, income, and wealth
Causes and Consequences of Student-College Mismatch

Lutz Hendricks, Tatyana Koreshkova, and Oksana Leukhina

College admissions are highly meritocratic in the U.S. today, but this is not the case in many other countries. What is the tradeoff? On one hand, meritocracy produces more human capital overall if higher-ability students learn more in college and if they learn more in higher-quality colleges. On the other hand, more meritocracy generates a higher degree of earnings inequality. In this paper, we quantify this efficiency-equality tradeoff.

Topics: Higher education; Inequality
Labor Force Exiters around Recessions: Who Are They?

Victoria Gregory

This paper identifies workers who experience a job separation during a recession and tracks their labor force status in the following year, using the Current Population Survey. Workers are classified as exiters if they leave the labor force shortly after their job loss and non-exiters if they do not. The pool of exiters is disproportionately female, less educated, and older. I find that changes in the likelihood of being re-employed as well as the composition of individuals out of work are important for understanding the differences between the labor market in the Great Recession and the pandemic recession.

Topics: Recession; Employment & labor markets

August 2022

Getting Schooled: The Role of Universities in Attracting Immigrant Entrepreneurs

Natee Amornsiripanitch, Paul A. Gompers, George Hu, and Kaushik Vasudevan

We study immigrant founders of venture capital–backed firms. Immigrant founders have been critical to the entrepreneurial ecosystem, accounting for roughly 20 percent of all venture capital–backed founders over the past 30 years. Higher education has served as the primary entry channel for immigrant founders. Immigrant founders are likely to start their companies in the state in which they were educated, leading to potentially large local economic benefits associated with attracting foreign students. The results of this paper have important policy implications for the supply of entrepreneurial talent and efforts to promote entrepreneurial ecosystems.

Topics: Public policy; Immigration; Higher education
Health Insurance and Young Adult Financial Distress

Nathan Blascak and Vyacheslav Mikhed

We study how health-insurance eligibility affects financial distress for young adults using the Affordable Care Act’s (ACA) dependent coverage mandate—the part of the ACA that requires private health-insurance plans to cover individuals up to their 26th birthday. Our estimates show that increasing access to health insurance lowers young adults’ out-of-pocket medical expenditures and debt in third-party collections. However, reductions in financial distress are transitory, as they diminish after an individual loses access to parental insurance when they age out of the mandate at age 26.

Topics: Insurance; Public health
Heterogeneity and the Effects of Aggregation on Wage Growth

Robert Rich and Joseph Tracy

This paper focuses on the implications of alternative methods of aggregating individual wage data for the behavior of economy-wide wage growth. The analysis is motivated by evidence of significant heterogeneity in individual wage growth and its cyclicality. Because of this heterogeneity, the choice of aggregation will affect the properties of economy-wide wage growth measures. We find that aggregation effects largely account for average hourly earnings growth being persistently lower and less cyclical than average wage growth over the period 1990–2015, with these effects reflecting a disproportionate weighting of high-earning workers.

Topics: Wages, income, and wealth
On the Optimal Design of Transfers and Income-Tax Progressivity

Axelle Ferriere, Philipp Grübener, Gaston Navarro, and Oliko Vardishvili

We study the optimal design of means-tested transfers and progressive income taxes. In a simple analytical model, we demonstrate an optimally negative relation between transfers and income-tax progressivity due to efficiency and redistribution concerns. Transfers are key to implementing higher progressivity in average tax-and-transfer rates than in marginal ones, achieving redistribution while preserving efficiency. Quantitatively, the left tail of the income distribution determines optimal transfers, whereas the right tail determines income-tax progressivity.

Topics: Taxes & tax policy

July 2022

Does Giving CRA Credit for Loan Purchases Increase Mortgage Credit in Low-to-Moderate Income Communities?

Kenneth P. Brevoort

Under the Community Reinvestment Act (CRA), banks can fulfill their affirmative obligation to meet local credit needs by lending in low-to-moderate-income (LMI) communities or by purchasing loans made by others. This paper evaluates whether giving CRA credit for purchases has had its intended effect of increasing LMI credit availability by making LMI loans more liquid. Analyses using a regression discontinuity design show that the CRA increases loan purchases without affecting LMI originations. Instead, banks purchase loans that are temporarily diverted from government sponsored enterprises, which provides little benefit to the communities the CRA is meant to help.

Topics: Community Reinvestment Act (CRA); Borrowing & lending; Low & moderate income
The Shift to Remote Work Lessens Wage-Growth Pressures

José Maria Barrero, Nicholas Bloom, Steven J. Davis, Brent Meyer, and Emil Mihaylov

The recent shift to remote work raised the amenity value of employment. As compensation adjusts to share the amenity-value gains with employers, wage-growth pressures moderate. We find empirical support for this mechanism in the wage-setting behavior of U.S. employers, and we develop novel survey data to quantify its force. Our data imply a cumulative wage-growth moderation of 2.0 percentage points over two years. The amenity-values gains associated with the recent rise of remote work also lower labor's share of national income by 1.1 percentage points.

Topics: Wages, income, & wealth; Employment & labor markets
Seven Economic Facts About the U.S. Racial Wealth Gap

Kristen Broady, Darlene Booth-Bell, and Taylor Griffin

Using data from the 2019 Survey of Consumer Finances, the U.S. Census Bureau, and other sources, this paper presents seven economic facts about the racial wealth gap in the United States. We present data on racial disparities in income, employment, homeownership, education, access to credit, and retirement savings. While none of the economic factors listed fully explains the racial wealth gap, each factor, along with a history of racism and discrimination, has contributed to the extreme wealth inequality in America today.

Topics: Wages, income, & wealth; Inequality
Destruction, Policy, and the Evolving Consequences of Washington, DC’s 1968 Civil Disturbance

Leah Brooks, Jonathan Rose, and Stan Veuger

We study the aftermath of the 1968 Washington, DC, civil disturbance to illuminate the mechanisms that drive urban redevelopment in the presence of low demand and racial tension. After establishing that civil disturbance property destruction was quasi-random within blocks, we show that destroyed lots were more likely than other lots on the same block to remain vacant for the next 30 years. We also show that destroyed lots have only recently converged in terms of structure value. Our theoretical framework suggests that the city sought to preclude for-profit land owners from leaving land vacant until demand conditions improved.

Topics: Community & economic development
Opioids and the Labor Market

Dionissi Aliprantis, Kyle D. Fee, and Mark E. Schweitzer

This paper quantifies the relationship between local opioid prescription rates and labor market outcomes in the United States between 2006 and 2016. In our preferred specification, a 10-percent-higher local prescription rate is associated with a lower prime-age labor force participation rate of 0.53 percentage points for men and 0.10 percentage points for women.

Topics: Public health; Employment & labor markets
The Distributional Impact of the Minimum Wage in the Short and Long Run

Erik Hurst, Patrick J. Kehoe, Elena Pastorino, and Thomas Winberry

We develop a framework with rich worker heterogeneity, firm monopsony power, and putty-clay technology to study the distributional impact of the minimum wage in the short and long run. We find that in the short run, a large increase in the minimum wage has a small effect on employment and therefore increases the labor income of the workers who were earning less than the new minimum. In the long run, however, the minimum wage has perverse distributional implications in that it reduces the employment, income, and welfare of precisely the low-income workers it is meant to help. Existing transfer programs are more effective at improving long-run outcomes for workers at the low end of the wage distribution.

Topics: Minimum wage; Low & moderate income; Public policy

June 2022

Income Inequality and Job Creation

Donggyu Lee, Sebastian Doerr, and Thomas Drechsel

This paper shows that rising top income shares affect job creation at firms of different sizes. High-income households save relatively more in stocks and bonds and less in bank deposits. Exploiting variation in top incomes across U.S. states, we establish that an increase in the income share of the top 10 percent reduces the job creation rate at small, bank-dependent firms relative to the rate at large firms. Experiments in our model show that growing top incomes account for 16 percent of the decline in the employment share of small firms since 1980, and that ignoring the link between inequality and job creation understates the welfare effects of income redistribution.

Topics: Inequality; Employment & labor markets; Small business
The Impact of Minority Representation at Mortgage Lenders

W. Scott Frame, Ruidi Huang, Erik J. Mayer, and Adi Sunderam

We study links between the labor market for loan officers and access to mortgage credit. Using novel data matching the (near) universe of mortgage applications to loan officers, we find that minorities are significantly underrepresented among loan officers. Disparities in mortgage application rates, approvals, loan take-up, and default rates are significantly reduced when minority borrowers work with minority loan officers. Our results suggest that minority underrepresentation among loan officers has adverse effects on minority borrowers’ access to credit.

Topics: Borrowing & lending; Inequality
Credit Availability for Minority Business Owners in an Evolving Credit Environment: Before and During the COVID-19 Pandemic

Brett R. Barkley and Mark E. Schweitzer

We apply data from the Federal Reserve’s Small Business Credit Survey from 2016 to 2020 to estimate disparities in access to small business financing through loan denials and discouragement. We find that substantial credit disparities continue to exist despite the growth of fintech lenders, which prior research shows have expanded the set of small businesses receiving credit. PPP loans represented an unprecedented support for small businesses, support that was not dependent on the creditworthiness of businesses, but minority-owned businesses are estimated to have received a smaller fraction of the funds they applied for from the program.

Topics: Credit & financial markets; Payments & FinTech; Inequality
Universal Student Enrollment Systems: The More Policies Change, the More Enrollment Patterns Stay the Same

Lauren Sartain, Riley Lewers, and Lisa Barrow

Urban school districts nationwide have increased within-district choice for families. In response, district policymakers are overhauling the systems for applying to and enrolling in schools, with the goal of making it easier and more equitable for students to enroll in schools that are a good fit for them. Using the implementation of such a system in Chicago Public Schools, we examine how applications to, offers from, and enrollment in different types of high schools (e.g., high-performing vs. low-performing schools, charter vs. neighborhood schools) changed. The largest gains appear to be from streamlining applications and offers, with students receiving a single-best offer and schools having more certainty around their incoming ninth-grade class.

Topics: K-12 education; Inequality
Cost of Banking for LMI and Minority Communities

Marco Migueis, Michael Suher, and Jessie Xu

We assess whether minimum account balances to avoid fees, account maintenance fees, and non-sufficient funds charges are systematically different in low- and moderate-income communities (LMI) and in majority-minority communities. We find that they are generally higher. Differences in bank fees between LMI, majority-minority, and other communities result from various factors, including bank lending income, bank operating costs, and bank size.

Topics: Banks; Inequality; Low & moderate income
Social Externalities of Bank Enforcement Actions: The Case of Minority Lending

Byeongchan An, Robert Bushman, Anya Kleymenova, and Rimmy E. Tomy

This paper studies the role banking supervision plays in improving access to credit for minority groups by investigating how enforcement decisions and orders (EDOs) affect the bank borrower base. We find that after the resolution of an EDO, banks significantly increase residential mortgage lending to minority borrowers relative to lending to White borrowers, even when the enforcement order is not issued for violations of fair lending laws. Our findings highlight the indirect social benefits of bank enforcement and supervision.

Topics: Borrowing & lending; Banks; Inequality

May 2022

Who Killed the Phillips Curve? A Murder Mystery

David Ratner and Jae Sim

Conventional wisdom has it that sound monetary policy since the 1980s not only conquered the Great Inflation but also buried the Phillips curve. This paper provides an alternative explanation: labor market policies that have eroded worker bargaining power might have been the source of the demise of the Phillips curve. We show that a nearly 90 percent reduction in inflation volatility is possible even without any changes in monetary policy when the economy transitions from equal shares of power between workers and firms to a new balance in which firms dominate.

Topics: Monetary policy; trade unions
Financial Repercussions of SNAP Work Requirements

Samuel Dodini, Jeff Larrimore, and Anna Tranfaglia

This paper considers the credit response of individuals after the implementation of new work requirements for Supplemental Nutrition Assistance Program (SNAP) benefits, using a large nationally representative sample of credit records. We find that the new requirements lead more people to seek out new credit. New work requirements also result in an increase in total outstanding balances on bank and retail card accounts and increase the number of borrowers that are past due on these accounts. These findings suggest that some individuals are turning to credit and debt products to cover expenses after losing eligibility for SNAP benefits.

Topics: Public policy; Borrowing & lending
Monetary Policy and Homeownership: Empirical Evidence, Theory, and Policy Implications

Daniel A. Dias and Joao B. Duarte

We show that monetary policy affects homeownership decisions and argue that this effect is an important and overlooked channel of monetary policy transmission. We first document that monetary policy shocks are a substantial driver of fluctuations in the U.S. homeownership rate and that monetary policy affects households' housing tenure choices. We show that the homeownership decision channel amplifies the redistributive effects of monetary policy, with contractionary shocks benefiting more outright homeowners and disadvantaging more renters and homeowners with a mortgage.

Topics: Monetary policy; housing
The Geographic Effects of Monetary Policy

Juan Herreno and Mathieu Pedemonte

We study the differential regional effects of monetary policy, exploiting geographical heterogeneity in income across cities in the United States. We find that prices and employment in poorer cities react more to monetary policy shocks. The results for prices hold for a wide range of narrow consumer expenditure categories. We show that an increase in heterogeneity across cities amplifies the effect of monetary policy on prices and employment.

Topics: Monetary policy; Spatial economics
The Value of Unemployment Insurance: Liquidity vs. Insurance Value

Victor Hernandez Martinez and Kaixin Liu

This paper argues that the value of unemployment insurance (UI) can be decomposed into a liquidity component and an insurance component. Using Spanish administrative data, we find that the liquidity component represents half of the value of UI, while the insurance component captures the remaining half. However, the relevance of each component is highly heterogeneous across different groups of workers. Both poorer and wealthier workers are similarly liquidity-constrained, but poorer workers place a higher value on UI because the insurance component is significantly more important for them.

Topics: Unemployment; public policy
Labor Supply Shocks, Labor Force Entry, and Monetary Policy

Takushi Kurozumi and Willem Van Zandweghe

Should monetary policy offset the effects of labor supply shocks on inflation and the output gap? Motivated by weak labor force participation during the pandemic, we reexamine the question by introducing labor force entry and exit in an otherwise canonical model with sticky prices and wages. The entry decision generates an employment channel of monetary policy, and a labor supply shock to the value of nonparticipation in the labor market induces a policy trade-off between stabilization of the employment gap and wage growth.

Topics: Monetary policy; Employment & labor markets
The Evolution of Local Labor Markets After Recessions

Brad Hershbein and Bryan Stuart

This paper studies how U.S. local labor markets respond to employment losses after recessions. We find that following each recession between 1973 and 2009, areas that lose more jobs during the recession experience persistent relative declines in employment and population. These local labor markets also experience persistent decreases in the employment–population ratio and per capita earnings. Our results imply that limited population responses result in longer-lasting consequences for local labor markets than previously thought and that recessions are followed by persistent reallocation of employment across space.

Topics: Employment & labor markets; Recessions; Spatial economics
Housing Demand and Remote Work

John Mondragon and Johannes Wieland

What explains record U.S. house price growth since late 2019? We show that the shift to remote work explains over one half of the 23.8 percent national house price increase over this period. Using variation in remote work exposure across U.S. metropolitan areas, we estimate that an additional percentage point of remote work causes a 0.93 percent increase in house prices after controlling for negative spillovers from migration. Our results imply a fundamentals-based explanation for the recent increases in housing costs over speculation or financial factors and that the evolution of remote work is likely to have large effects on the future path of house prices and inflation.

Topics: Housing
Employer Reallocation During the COVID-19 Pandemic: Validation and Application of a Do-It-Yourself CPS

Alexander Bick and Adam Blandin

Economists have recently begun using independent online surveys to collect national labor market data. Questions remain over the quality of such data. This paper provides an approach to address these concerns. Our case study is the Real-Time Population Survey (RPS), a novel online survey built around the Current Population Survey (CPS). Our discussion contains practical suggestions for the design of novel labor market surveys and highlights other promising applications of our methodology.

Topics: Employment & labor markets; COVID-19

April 2022

Redistribution with Performance Pay

Paweł Doligalski, Abdoulaye Ndiaye, and Nicolas Werquin

Half of the jobs in the U.S. feature pay-for-performance. We derive novel incidence and optimum formulas for the overall rate of tax progressivity and the top tax rates on total earnings and bonuses when such labor contracts arise from moral hazard frictions within firms.

Topics: Taxes & tax policy
The Long-run Effects of the 1930s Redlining Maps on Children

Daniel Aaronson, Bhashkar Mazumder, Daniel Hartley, and Martha Stinson

We estimate the long-run effects of the 1930s Home Owners Loan Corporation (HOLC) redlining maps by linking children in the 1940 Census to 1) the universe of IRS tax data in 1974 and 1979 and 2) the long-form 2000 Census. We find that children living on the lower-graded side of HOLC boundaries had significantly lower levels of educational attainment, reduced income in adulthood, and lived during adulthood in neighborhoods characterized by lower educational attainment, higher poverty rates, and higher rates of single-headed households.

Topics: Inequality
Optimal Unemployment Insurance Requirements

Gustavo de Souza and André Victor D. Luduvice

In the United States, unemployed workers must satisfy two requirements to receive unemployment insurance (UI): a tenure requirement that stipulates the minimum qualifying work spell and a monetary requirement that determines a past minimum wage. This paper develops a heterogeneous-agents model with history-dependent UI benefits in order to quantitatively obtain an optimal UI program design. We show that, because it mitigates moral hazard, the monetary requirement can generate higher welfare levels than an increase in the length of the tenure requirement.

Topics: Unemployment; Public policy
The Problem Has Existed over Endless Years: Racialized Difference in Commuting, 1980–2019

devin michelle bunten, Ellen Fu, Lyndsey Rolheiser, and Christopher Severen

How have the longer journeys to work faced by Black commuters evolved in the United States over the last four decades? Black commuters spent 50.3 more minutes commuting per week in 1980 than White commuters; this difference declined to 22.4 minutes per week in 2019. Two factors account for the majority of the difference: Black workers are more likely to commute by transit, and Black workers make up a larger share of the population in cities with long average commutes.

Topics: Inequality
The Impact of Fintech Lending on Credit Access for U.S. Small Businesses

Giulio Cornelli, Jon Frost, Leonardo Gambacorta, and Julapa Jagtiani

Recently, nonbank lenders have gained market share in the small-business lending market in the United States. Among nonbanks, fintech lenders have become particularly active, leveraging alternative data for their own internal credit scoring. Our results show that fintech SBL platforms lent more in zip codes with higher business bankruptcy filings and higher unemployment rates. Overall, fintech lenders have the potential to create a more inclusive financial system, allowing small businesses that were less likely to receive credit through traditional lenders to access credit and to do so at lower cost.

Topics: Borrowing & lending; Credit & financial markets; Payments & FinTech

March 2022

Are Manufacturing Jobs Still Good Jobs? An Exploration of the Manufacturing Wage Premium

Kimberly Bayard, Tomaz Cajner, Vivi Gregorich, and Maria D. Tito

This paper explores the factors behind differences in wages between manufacturing and other sectors. Using data from the Current Population Survey, we find that the manufacturing wage premium—the additional pay a manufacturing worker earns relative to a comparable nonmanufacturing worker—has disappeared in recent years. A decomposition of the premium by union membership status reveals that declines have been substantially larger across union members. Our findings suggest that the erosion of “good” manufacturing jobs has contributed to the increase in overall wage inequality and could accelerate the decline of the manufacturing sector.

Topics: Wages, income, and wealth; Manufacturing; Inequality
The Effect of Housing First Programs on Future Homelessness and Socioeconomic Outcomes

Elior Cohen

Housing First programs provide housing assistance without preconditions for homeless individuals as a platform for rehabilitation, but limited evidence exists on their effects on socioeconomic outcomes. Using a novel data set combining administrative records from multiple public agencies in Los Angeles County and a random case manager assignment design, I estimate that Housing First assistance reduces homelessness and crime, increases income and employment, and does not have a detectable effect on health care utilization. Cost-benefit analysis implies that these potential savings offset program costs within 18 months.

Topics: Public policy
Place-Based Consequences of Person-Based Transfers: Evidence from Recessions

Brad Hershbein and Bryan Stuart

This paper studies how government transfers respond to changes in local economic activity that emerge during recessions. Local labor markets that experience greater employment losses during recessions face persistent relative decreases in per capita earnings. However, these areas also experience persistent increases in per capita transfers, which offset 16 percent of the earnings loss on average. The increase in transfers is driven by unemployment insurance in the short run and medical, retirement, and disability transfers in the long run. Our results show that nominally place-neutral transfer programs redistribute considerable sums of money to places with depressed economic conditions.

Topics: Recessions; Public policy; Employment & labor markets
Racial Inequality in Unemployment Insurance Receipt and Take-Up

Elira Kuka and Bryan Stuart

This paper studies differences in receipt and take-up of unemployment insurance (UI) benefits among White and Black individuals. We combine state-level UI regulations with data containing detailed information on individuals’ work history and UI receipt. Black individuals who separate from a job are 24 percent less likely than White individuals to receive UI. The UI receipt gap stems primarily from lower take-up of UI benefits among likely eligible individuals rather than differences in benefit eligibility.

Topics: Unemployment; Inequality; Insurance
More Than Shelter: The Eﬀects of Rental Eviction Moratoria on Household Well-Being

Xudong (Sean) An, Stuart A. Gabriel, and Nitzan Tzur-Ilan

We investigate the impact of 2020 COVID-19 rental eviction moratoria on household well-being. Analysis indicates that eviction moratoria reduced eviction filings and resulted in redirection of scarce household financial resources to immediate consumption needs, notably including food and grocery spending. We also find that eviction moratoria reduced household food insecurity and mental stress, with larger effects evidenced among African American households.

Topics: Public policy; COVID-19
The Labor Market Effects of Place-Based Policies: Evidence from England’s Neighbourhood Renewal Fund

Robert Calvert Jump and Adam Scavette

We examine the labor market effects of the Neighbourhood Renewal Fund, which targeted 88 of the most deprived areas in England during the early 2000s. The fund disbursed almost £3 billion for community safety, education, health care and worklessness, with supply-side interventions making up the bulk of the program's spending on worklessness. We find statistically significant impacts on local employment and out-of-work benefit claimants. Our results suggest that policy interventions to improve local labor supply can be a successful strategy for neighborhood renewal.

Topics: Community & economic development; Employment & labor markets; Public policy
Intermediation Frictions in Debt Relief: Evidence from CARES Act Forbearance

You Suk Kim, Donghoon Lee, Tess Scharlemann, and James Vickery

We study the role of mortgage servicers in implementing the CARES Act mortgage forbearance program during the COVID-19 pandemic. Despite universal eligibility, around one-third of the nonperforming federally backed loans in our sample fail to enter into forbearance. The relative frequency of these "missing" forbearances varies significantly across servicers for observably similar loans, with small servicers and nonbanks having a lower propensity to provide forbearance. The incidence of forbearance-related complaints by borrowers is also higher for these servicers. We also use servicer-level variation to estimate the causal effect of forbearance on borrower outcomes.

Topics: Borrowing & lending; Public policy; COVID-19

February 2022

The Economics of Internal Migration: Advances and Policy Questions

Ning Jia, Raven Molloy, Christopher Smith, and Abigail Wozniak

We review developments in research on within-country migration, focusing on internal migration in the U.S. We begin by describing approaches to modelling individuals' migration decisions and equilibrium outcomes across local areas. Next, we summarize evidence regarding the impact of migration on individuals' outcomes, implications of migration for local labor market adjustment, and interactions between migration and housing markets. Finally, we discuss evidence on the efficacy of policies aimed at encouraging migration and conclude by highlighting important unanswered questions that are critical for informing migration-related policy.

Topics: Migration; Employment & labor markets
Does Access to Free Pre-Kindergarten Increase Maternal Labor Supply?

Elias Ilin, Samantha Shampine, and Ellyn Terry

We evaluate the effects of free pre-kindergarten (pre-K) programs on the labor force participation of mothers, using variation in pre-K rules across U.S. states. We find that access to free pre-K programs increases overall maternal labor force participation by 2.3 percentage points. Mothers with the following demographic characteristics significantly increase their labor supply as a result of access to free pre-K: those who are married, those who are college educated, residents of metropolitan areas, and those with income either below 200 percent or above 400 percent of the federal poverty level.

Topics: Early childhood education; Employment & labor markets
Racial Wealth Disparities: Reconsidering the Roles of Human Capital and Inheritance

John Sabelhaus and Jeffrey P. Thompson

We present updated measures of racial disparities in wealth, using the most recent data from the Survey of Consumer Finances augmented by household-level estimates of defined benefit pension wealth. We find that racial wealth disparities are smaller than the numbers typically discussed in other research, but the disparities remain substantial. Differences in lifetime earnings, pension generosity, and a handful of other human capital and work-related variables explain three-quarters of the White-Black wealth gap and 80 to 90 percent of the White-Hispanic gap.

Topics: Wages, income, and wealth; Inequality
Cyclical Transactions and Wealth Inequality

Jung Sakong

Wealth is distributed more unevenly than income, and one contributing factor might be that richer households earn higher portfolio returns. I uncover one channel that causes portfolio returns to be increasing in wealth: poorer households consistently buy risky assets in booms—when expected returns are low—and sell after a bust—when expected returns are high. The estimated dispersion in expected returns from this “buy high, sell low” channel is large: the interquartile-range difference is 60 basis points per year.

Topics: Wages, income, and wealth; Inequality; Recessions
On the Distributional Effects of International Tariffs

Daniel R. Carroll and Sewon Hur

We provide a quantitative analysis of the distributional effects of the 2018 increase in tariffs by the U.S. and its major trading partners. We build a trade model with incomplete asset markets and households that are heterogeneous in their age, income, wealth, and labor skill. When tariff revenues are used to reduce labor and capital income taxes and increase transfers, the average welfare loss from the trade war is equivalent to a permanent 0.1 percent reduction in consumption. Much larger welfare losses are concentrated among retirees and low-wealth and low-income workers, while only wealthy households experience a welfare gain.

Topics: Trade & globalization; Inequality; Taxes & tax policy
Is the Grass Really Greener? Migrants' Improvements in Local Labor Market Conditions and Financial Health

Stephan D. Whitaker

Using the Federal Reserve Bank of New York/Equifax Consumer Credit Panel, I estimate the distribution of changes in local labor market conditions experienced by people who move to a different labor market. Net migration favors local labor markets with lower unemployment and faster job growth, but gross flows toward weaker labor markets are almost as large as the flows toward stronger labor markets. There are not clear advantages or disadvantages for migrants to strong or weak labor market regions as measured by credit scores, consumption, bankruptcy, or foreclosure.

Topics: Migration; Employment & labor markets
The Great Migration and Educational Opportunity

Cavit Baran, Eric Chyn, and Bryan Stuart

This paper studies the impact of the first Great Migration on children. We use the complete-count 1940 census to estimate selection-corrected place effects on education for children of Black migrants. On average, Black children gained 0.8 years of schooling (12 percent) by moving from the South to the North. Many counties that had the strongest positive impacts on children during the 1940s offer relatively poor opportunities for Black youth today. Opportunities for Black children were greater in places with more schooling investment, stronger labor market opportunities for Black adults, more social capital, and less crime.

Topics: Migration; K-12 Education
On the Inefficiency of Non-Competes in Low-Wage Labor Markets

Tristan Potter, Bart Hobijn, and Andre Kurmann

We study the efficiency of non-compete agreements (NCAs) in an equilibrium model of labor turnover. The model is consistent with empirical studies showing that NCAs reduce turnover, average wages, and wage dispersion for low-wage workers. But the model also predicts that NCAs, by reducing turnover, raise recruitment and employment. We show that optimal NCA policy (i) is characterized by a Hosios-like condition that balances the benefits of higher employment against the costs of inefficient congestion and poaching, and (ii) depends critically on the minimum wage, so that enforcing NCAs can be efficient with a sufficiently high minimum wage.

Topics: Minimum wage; Employment & labor markets

January 2022

Racial Disparities in Mortgage Lending: New Evidence Based on Processing Time

Bin Wei and Feng Zhao

This paper examines racial disparities in mortgage processing times prior to the Global Financial Crisis. We find that in the case of mortgages securitized by government-sponsored enterprises, Black borrowers are underrepresented and experience a longer processing time than White borrowers. At the same time, Black borrowers are overrepresented and face a similar processing time among privately securitized mortgages. Additionally, Black borrowers are strongly associated with the faster segments of mortgage markets, faster lenders within each segment, and the types of loan products that are processed faster, all of which subsequently experienced higher defaults.

Topics: Borrowing & lending; Inequality
New Evidence on Redlining by Federal Housing Programs in the 1930s

Price Fishback, Jonathan Rose, Ken Snowden, and Thomas Storrs

We show that from its inception in the 1930s, the Federal Housing Administration (FHA) did not insure mortgages in low-income urban neighborhoods, where the vast majority of urban Black Americans lived. The FHA’s exclusionary practice predates the advent of the infamous maps later made by the Home Owners’ Loan Corporation (HOLC) and shows little change after the drafting of those maps. In contrast, the HOLC itself broadly loaned to such neighborhoods and to Black homeowners. We conclude that the HOLC’s redlining maps had little effect on the geographic distribution of either program’s mortgage market activity.

Topics: Borrowing & lending; Inequality; Housing
On the Distributional Effects of International Tariffs

Daniel Carroll and Sewon Hur

We provide a quantitative analysis of the distributional effects of the 2018 increase in tariffs by the U.S. and its major trading partners. When tariff revenues are used to reduce labor and capital income taxes and increase transfers, the average welfare loss from the trade war is equivalent to a permanent 0.1 percent reduction in consumption. Much larger welfare losses are concentrated among retirees and low-wealth and low-income workers; only wealthy households experience a welfare gain.

Topics: Trade & globalization; Taxes & tax policy; Inequality
Why Are Residential Property Tax Rates Regressive?

Natee Amornsiripanitch

Among single-family homes that enjoy the same set of property tax–funded amenities and pay the same statutory property tax rate, owners of inexpensive houses pay almost 50 percent higher effective tax rates than owners of expensive houses because inexpensive houses are over-assessed relative to expensive houses. This pattern is attributed to measurement error in sale prices, tax assessors’ ignoring variation in priced house and neighborhood characteristics, and infrequent reappraisal.

Topics: Housing; Taxes & tax policy; Inequality
Anatomy of Lifetime Earnings Inequality: Heterogeneity in Job Ladder Risk vs. Human Capital

Fatih Karahan, Serdar Ozkan, and Jae Song

We study the determinants of lifetime earnings inequality in the U.S. by focusing on job ladder dynamics and on-the-job learning as sources of wage growth. We find that the vast differences across worker types in job ladder risk—job loss, job finding, and contact rates—account for 80 percent of wage growth differences among workers with below median lifetime earnings. We conclude that different economic forces are driving the inequality in different parts of the lifetime earnings distribution.

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

December 2021

Corporate Taxes and the Earnings Distribution: Effects of the Domestic Production Activities Deduction

Christine L. Dobridge, Paul Landefeld, and Jacob Mortenson

This paper investigates how corporate tax changes affect workers’ earnings. We use a data set of U.S. worker-level W-2 filings matched with corporate tax returns and study the implementation of the Domestic Production Activities Deduction (DPAD). We find the DPAD tax rate reduction has a substantial effect on the distribution of annual wage earnings within a firm. We see no change in overall employment effects, but the number of employees rises at small firms and declines at large firms. Our paper has significant implications for assessing the progressivity of the U.S. tax code and for analyzing the effect of corporate tax policy changes on the U.S. income distribution.

Topics: Taxes & tax policy; Wages, income, and wealth
Job Displacement and Sectoral Mobility

Osborne Jackson

This paper combines two components of the Current Population Survey to characterize the relationship between job displacement and sectoral mobility for long-tenured workers over the 1996–2019 period. While displacement negatively correlates with mobility over time, such job loss has a positive causal impact on mobility for displaced workers, compared with its effect on similar non-displaced workers. Education and industry structure facilitate post-displacement industry switching, and several factors, including business cycles, affect whether the alternative to sectoral mobility is likely to be same-industry employment or nonemployment.

Topics: Employment & labor markets; Sectoral mobility
Earnings Dynamics and Its Intergenerational Transmission: Evidence from Norway

Elin Halvorsen, Serdar Ozkan, and Sergio Salgado

Using administrative data from Norway, we investigate parents' role in childrens’ income dynamics. We find that children of high-income, high-wealth fathers enjoy steeper income growth over their life cycle and face more volatile but more positively skewed income changes, suggesting that they are more likely to pursue high-return, high-risk careers. Furthermore, the income dynamics of fathers and those of children are strongly correlated. In particular, children of fathers with steeper life cycle income growth, more volatile incomes, or higher downside risk also have income streams with similar properties.

Topics: Wages, income, and wealth; Inequality; Intergenerational mobility

November 2021

Rising Geographic Disparities in U.S. Mortality

Benjamin K. Couillard, Christopher L. Foote, Kavish Gandhi, Ellen Meara, and Jonathan Skinner

In this study, we find that geographic inequality in mortality for midlife Americans increased by about 70 percent from 1992 to 2016. Over time, state-level mortality has become increasingly correlated with state-level income; in 1992 income explained only 3 percent of mortality inequality, but by 2016, state-level income explained 58 percent. These mortality patterns are consistent with the view that high-income states in 1992 were better able to enact public health strategies and adopt behaviors that, over the next quarter century, resulted in pronounced relative declines in mortality.

Topics: Public health; Inequality
Decomposing Gender Differences in Bankcard Credit Limits

Nathan Blascak and Anna Tranfaglia

In this paper, we examine if there are gender differences in total bankcard limits by utilizing a data set that links mortgage applicant information with individual-level credit bureau data from 2006 to 2016. We document that after controlling for credit score, income, and demographic characteristics, male borrowers on average have higher total bankcard limits than female borrowers. We find that 87 percent of the gap is explained by differences in the effect of observed characteristics between male and female borrowers, while approximately 10 percent of the difference can be explained by differences in the levels of observed characteristics.

Topics: Credit & financial markets; Inequality
Macroeconomic Implications of Inequality and Income Risk

Aditya Aladangady, Etienne Gagnon, Benjamin K. Johannsen, and William B. Peterman

We explore the long-run relationship between income risk, inequality, and the macroeconomy in an overlapping-generations model in which households face uncertain streams of labor income and returns on their savings. We find that greater polarization in households’ labor income and returns on their savings generally accentuates households’ demand for risk-free assets and the compensation they require for bearing risk, leading to higher measured income and wealth inequality, a lower risk-free real interest rate, and higher risk premiums.

Topics: Wages, income, and wealth; Interest rates; Inequality
Wealth Inequality and Return Heterogeneity During the COVID-19 Pandemic

Katya Kartashova and Xiaoqing Zhou

Wealth inequality in the U.S., measured by the wealth share of the top 1 percent, experienced dramatic changes in the first year of the COVID-19 pandemic. We show that portfolio heterogeneity and asset price movements are the main determinants of wealth returns and inequality, whereas saving-rate heterogeneity and within-class return differences played a minor role. Our analysis suggests that return heterogeneity, together with large asset price movements, is also key to understanding short-run dynamics in wealth inequality.

Topics: Wages, income, and wealth; Inequality; Covid-19

October 2021

Women's Labor Force Exits during COVID-19: Differences by Motherhood, Race, and Ethnicity

Katherine Lim and Mike Zabek

In this paper, we study declines in women’s labor force participation by race and ethnicity as well as the presence of children. We find that increases in labor force exits were larger for Black women, Latinas, and women living with children. In particular, after controlling for detailed job and demographic characteristics, we find larger increases in pandemic-era labor force exits among women living with children under age 6 and among lower-earning women living with school-age children.

Topics: Employment & labor markets; COVID-19
The Heterogeneous Impact of Referrals on Labor Market Outcomes

Benjamin Lester, David A. Rivers, and Giorgio Topa

We document a new set of facts regarding the impact of referrals on labor market outcomes. Our results highlight the importance of distinguishing between different types of referrals—those from family and friends and those from business contacts—and different occupations. Then we develop an on-the-job search model that incorporates referrals, and we calibrate the model. The calibrated model provides quantitative estimates of the effects of referrals on employment, earnings, output, and inequality.

Topics: Employment & labor markets; Inequality
The Impact of Juvenile Conviction on Human Capital and Labor Market Outcomes

Limor Golan, Rong Hai, and Hayley Wabiszewski

This article documents the long-term relationship among juvenile conviction, occupation choices, employment, wages, and recidivism. Using data from a National Longitudinal Survey (NLSY97), we document that youths who are convicted at or before age 17 have a lower full-time employment rate and lower wage growth rate, even after 10 years in the labor market. Our results highlight the important role of occupation choices as a human capital investment vehicle through which juvenile crimes have a long-term impact on wages and recidivism.

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

September 2021

Between College and That First Job: Designing and Evaluating Policies for Hiring Diversity

Soumitra Shukla

Despite widespread caste disparities, compensatory hiring policies remain absent from the Indian private sector. This paper employs novel administrative data on the job search from an elite college and evaluates policies to promote hiring diversity. Disparities arise primarily between the final round (nontechnical personal interviews) and job offers; the emergence closely parallels caste revelation. For promoting diversity, hiring is twice as cost-effective as improving pre-college achievement.

Topics: Inequality; Public policy; Higher education
Can the Federal Reserve Effectively Target Main Street? Evidence from the 1970s Recession

John Kandrac

Modern central bankers confront a challenge of providing economic stimulus even when the policy rate is constrained by a lower bound. In this paper, I offer evidence on the efficacy of a new tool known as funding for lending, which provides banks with subsidized funding to make additional loans. I show that the cheap funding succeeded in generating more lending by countering banks' excessive liquidity preference. The additional credit benefited the real economy. Local areas enjoyed higher rates of small business formation and more rapid employment growth.

Topics: Economic growth; Borrowing & lending; Public policy
The Macroeconomic Effects of Universal Basic Income Programs

André Victor D. Luduvice

What are the consequences of a nationwide reform of a transfer system based on means-testing toward one of unconditional transfers? I answer this question with a quantitative model to assess the general equilibrium, inequality, and welfare effects of substituting the current U.S. income security system with a universal basic income (UBI) policy. I find that an expenditure-neutral reform has moderate impacts on agents’ labor supply response but induces aggregate capital and output to grow due to larger precautionary savings.

Topics: Public policy; Employment & labor markets; Macroeconomics
The Effect of Immigration on Local Labor Markets: Lessons from the 1920s Border Closure

Ran Abramitzky, Philipp Ager, Leah Boustan, Elior Cohen, and Casper W. Hansen

In the 1920s, the United States substantially reduced immigration by imposing country-specific entry quotas. We compare local labor markets differentially exposed to the quotas due to variation in the national origin mix of their immigrant populations. U.S.-born workers in areas losing immigrants did not gain in income score relative to workers in less exposed areas. Instead, in urban areas, European immigrants were replaced with internal migrants and immigrants from Mexico and Canada. By contrast, farmers shifted toward capital-intensive agriculture, and the immigrant-intensive mining industry contracted.

Topics: Immigration; Public policy; Wages, income, and wealth
Are We Over-diagnosing Mental Illnesses? Evidence from Randomly Assigned Doctors

Andrew Hertzberg, Marieke Bos, and Andres Liberman

Almost two in 10 adults in the U.S. and Europe are, at any moment in time, diagnosed with a mental illness. This paper asks whether mental illness is over- (or under-) diagnosed by looking at its causal effect on individuals at the margin of diagnosis. We follow all Swedish men born between 1971 and 1983 matched to administrative panel data on health, labor market, wealth, and family outcomes to estimate the impact of a mental illness diagnosis on subsequent outcomes.

Topics: Public health
Race and Environmental Worries

Ranie Lin, Lala Ma, and Toan Phan

We use survey data to document a strong heterogeneity in stated degrees of worry about environmental problems across racial groups. Minorities are significantly more worried about air and water pollution than their White counterparts, even after controlling for socioeconomic factors and pollution exposure. Our finding implies that residential sorting based on heterogeneous financial resources and heterogeneous levels of environmental concern is unlikely to be the only driver of uneven exposure to pollution across racial groups.

Topics: Climate; Inequality

August 2021

Maximum Employment and the Participation Cycle

Bart Hobijn and Ayşegül Şahin

We investigate the source, magnitude, and unevenness of the procyclical forces that shape labor force participation, i.e., the participation cycle, which are important for the implementation of the maximum employment mandate. We show that these forces can be analyzed in real time using a flow decomposition of the changes in the labor force participation rate. The decomposition reveals that the source of the participation cycle is fluctuations in job-loss and job-finding rates, rather than cyclical movements in labor force entry and exit rates.

Topics: Employment & labor markets; Unemployment
Student Loans, Access to Credit, and Consumer Financial Behavior

Alvaro Mezza, Daniel Ringo, and Kamila Sommer

This paper provides novel evidence that increased student loan debts increase borrowers' demand for additional consumer debt while simultaneously restricting their ability to access it. The net effect of student loan debt on consumer borrowing varies by market, depending on whether the supply or demand channel dominates.

Topics: Borrowing & lending; Higher education
Earnings Shocks and Stabilization During COVID-19

Jeff Larrimore, Jacob Mortenson, and David Splinter

This paper documents the magnitude and distribution of U.S. earnings changes during the COVID-19 pandemic and how fiscal relief offset lost earnings. We build panels from administrative tax data to measure annual earnings changes. The frequency of earnings declines during the pandemic was similar to frequency during the Great Recession, but the distribution was very different. After incorporating unemployment insurance, the likelihood of large earnings declines among low-earning workers was not only smaller than during the Great Recession, but also smaller than in 2019.

Topics: Wages, income, and wealth; Unemployment; COVID-19
A Wealth of Information: Augmenting the Survey of Consumer Finances to Characterize the Full U.S. Wealth Distribution

Jesse Bricker, Sarena Goodman, Kevin B. Moore, and Alice Henriques Volz

We use the Survey of Consumer Finances (SCF) to advance U.S. wealth analysis along several dimensions. We develop a comprehensive framework that modifies the SCF to recover the wealth distribution over families, tax units, and individuals from 1989 to 2019. We show that, by ignoring unequal holdings within families, existing estimates considerably understate U.S. inequality across individuals.

Topics: Wages, income, and wealth; Inequality
The Intangible Gender Gap: An Asset Channel of Inequality

Carlos F. Avenancio-Leon and Leslie Sheng Shen

We propose an "asset channel of inequality" that contributes to gender inequities. We establish that industries with low (high) gender pay gaps have high (low) shares of tangible assets. Because asset tangibility determines firms' ability to collateralize assets and borrow, credit conditions affect industries differently. We show that credit expansions further reduce the pay gap in low-pay-gap industries while leaving it unaffected in high-pay-gap industries, making low-pay-gap industries more appealing for women. Consequently, gender sorting across industries increases, which then cements gender roles and accentuates workplace gender bias. Ultimately, credit expansions help women "swim upstream" but also reinforce glass ceilings.

Topics: Inequality; Wages, income, and wealth; Credit & financial markets
Job Displacement and Job Mobility: The Role of Joblessness

Bruce Fallick, John Haltiwanger, Erika McEntarfer, and Matthew Staiger

Who is harmed by and who benefits from worker reallocation? We investigate the earnings consequences of changing jobs and find a wide dispersion in outcomes. This dispersion is driven not by whether the worker was displaced, but by the duration of joblessness between job spells. Job movers who experience joblessness suffer a persistent reduction in earnings and tend to move to lower-paying firms, suggesting that job ladder models offer a useful lens through which to understand the negative consequences of job separations.

Topics: Employment & labor markets; Wages, income, and wealth
The Geography of Job Tasks

Enghin Atalay, Sebastian Sotelo, and Daniel Tannenbaum

We study the sources of geographic inequality and present new facts about the geography of work using online job ads. We show that the (i) intensity of interactive and analytic tasks, (ii) technological requirements, and (iii) task specialization all increase with city size. We document that our new measures help account for a substantial portion of the urban wage premium, both in aggregate and across occupation groups.

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

July 2021

Serving the Underserved: Microcredit as a Pathway to Commercial Banks

Sumit Agarwal, Thomas Kigabo, Camelia Minoiu, Andrea F. Presbitero, and André F Silva

A large-scale microcredit expansion program—together with a credit bureau accessible to all lenders—can enable unbanked borrowers to build a credit history, facilitating their transition to commercial banks. Loan-level data from Rwanda show that the program improved access to credit and reduced poverty.

Topics: Banks; Borrowing & lending; Low & moderate income
Incarceration, Earnings, and Race

Grey Gordon, John Bailey Jones, Urvi Neelakantan, and Kartik B. Athreya

We study the implications of incarceration for the earnings and employment of different groups, characterized by their race, gender, and education using a hidden Markov model. The consequences are enormous: For Black (White) men with a high school degree, first-time incarceration reduces expected lifetime earnings by 39 percent (59 percent) and employment by eight (13) years. Conversely, adverse earnings shocks and nonemployment increase expected years in jail.

Topics: Incarceration; Wages, income, and wealth; Employment & labor markets
Wealth Concentration in the United States Using an Expanded Measure of Net Worth

Lindsay Jacobs, Elizabeth Llanes, Kevin Moore, Jeffrey P. Thompson, and Alice Henriques Volz

Defined benefit pensions and Social Security are two important resources for financing retirement that are often excluded from data, resulting in incomplete measures of wealth and representations of household wealth concentration. In this paper, we estimate an expanded measure of wealth that includes these resources and show how that inclusion affects estimates of wealth inequality in the United States as well as trends over time.

Topics: Wages, income, and wealth
The Unemployed with Jobs and without Jobs

Robert E. Hall and Marianna Kudlyak

Potential workers are classified as unemployed if they seek work but are not working. The unemployed population contains two groups, those with jobs and those without jobs. Those with jobs are on furlough or temporary layoff. We show that the resulting temporary-layoff unemployment dissipates quickly following a spike. Potential workers without jobs constitute what we call jobless unemployment. Shocks that elevate jobless unemployment have much more persistent effects.

Topics: Unemployment; Recessions
From Deviations to Shortfalls: The Effects of the FOMC’s New Employment Objective

Brent Bundick and Nicolas Petrosky-Nadeau

The Federal Open Market Committee recently revised its interpretation of its maximum employment mandate. In this paper, we analyze the possible effects of this policy change using a theoretical model with frictional labor markets and nominal rigidities. A monetary policy that stabilizes employment “shortfalls” rather than “deviations” of employment from its maximum level leads to higher inflation and more hiring at all times due to firms’ expectations of more accommodative future policy.

Topics: Monetary policy; Employment & labor markets; Interest rates

June 2021

Measuring Intergenerational Income Mobility: A Synthesis of Approaches

Nathan Deutscher and Bhashkar Mazumder

The literature on intergenerational income mobility uses a diverse set of measures, and knowledge is limited about whether these measures provide similar information and yield similar conclusions. We provide a framework to highlight the key concepts and properties of the different estimators. We then show how these measures relate to one another empirically.

Topics: Wages, income, and wealth; Intergenerational mobility
The Economic Effects of Firm-Level Uncertainty: Evidence Using Subjective Expectations

Giuseppe Fiori and Filippo Scoccianti

This paper uses over two decades of Italian survey data on business managers' expectations to measure subjective firm-level uncertainty and quantify its economic effects. We document that firm-level uncertainty persists for a few years and varies across firms' demographic characteristics. Uncertainty induces long-lasting economic effects over a broad array of real and financial variables. The source of uncertainty matters with firms responding only to downside uncertainty, that is, uncertainty about future adverse outcomes.

Topics: Recessions; Economic growth
Estimating Occupation- and Location-Specific Wages over the Life Cycle

Elias Ilin and Ellyn Terry

In this paper, we develop a novel method to project location-specific life-cycle wages for all occupations listed in the Occupational Outlook Handbook from the U.S. Bureau of Labor Statistics. First, we use individual-level data from the Current Population Survey to estimate the average number of years of potential labor market experience that is associated with each percentile of the education-level-specific wage distribution. Second, we map this estimated average years of experience to the wage-level percentiles reported in the Occupational Employment and Wage Statistics data for each occupation and area.

Topics: Wages, income, and wealth; Employment & labor markets
Impact of the 2017 Tax Cuts and Jobs Act on Labor Supply and Welfare of Married Households

Julie L. Hotchkiss, Robert E. Moore, and Fernando Rios-Avila

This paper calculates the change in optimal labor supply and total family welfare resulting from the Tax Cuts and Jobs Act of 2017 (TCJA). We find that optimal hours are lower post-TCJA relative to before. However, there are differences across family members and family types. Overall, families' welfare increased post-TCJA, with the gains in welfare disproportionately benefiting the wealthy, families with any self-employment income, families with children, and families that rent their home.

Topics: Taxes & tax policy; Employment & labor markets

May 2021

Revisiting Capital-Skill Complementarity, Inequality, and Labor Share

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
Fast Locations and Slowing Mobility

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
UI Generosity and Job Acceptance: Effects of the 2020 CARES Act

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

The Returns to Public Library Investment

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
The Economic Gains from Equity

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
Unintended Consequences of Unemployment Insurance Benefits: The Role of Banks

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
Which Lenders Are More Likely to Reach Out to Underserved Consumers: Banks versus Fintechs versus Other Nonbanks?

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
Labor Market Effects of the Oxycodone-Heroin Epidemic

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

The Affordable Care Act and the COVID-19 Pandemic: A Regression Discontinuity Analysis

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
Redistribution and the Monetary-Fiscal Policy Mix

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
Because of Monopolies, Income Inequality Significantly Understates Economic Inequality

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
Inferring Inequality with Home Production

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
Small Business Lending under the PPP and PPPLF Programs

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
How Foreign- and U.S.-Born Latinos Fare during Recessions and Recoveries

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
The Economic Status of People with Disabilities and Their Families since the Great Recession

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

Landlords and Access to Opportunity

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
How to Design a State Education Aid Formula That Is Equitable, Adequate, and Politically Feasible: The Case of Connecticut

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
A Macroeconomic Model of Healthcare Saturation, Inequality, and the Output-Pandemia Tradeoff

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
The Roles of State Aid and Local Conditions in Elementary School Test-Score Gaps

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
The Effects of the Great Migration on Urban Renewal

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
Using High-Frequency Evaluations to Estimate Discrimination: Evidence from Mortgage Loan Officers

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
Eviction Risk of Rental Housing: Does It Matter How Your Landlord Finances the Property?

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
Inequality in the Time of COVID-19: Evidence from Mortgage Delinquency and Forbearance

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

December 2020

The Pathway to Enrolling in a High-Performance High School: Understanding Barriers to Access

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
The Long-Run Effects of the 1930s HOLC “Redlining” Maps on Place-Based Measures of Economic Opportunity and Socioeconomic Success

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
Neighborhood Sorting Obscures Neighborhood Effects in the Opportunity Atlas

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
Distributional Effects of Payment Card Pricing and Merchant Cost Pass-through in the United States and Canada

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
Minimum Wage Increases and Vacancies

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

Financial Profiles of Workers Most Vulnerable to Coronavirus-Related Earnings Loss in the Spring of 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
Missouri’s Medicaid Contraction and Consumer Financial Outcomes

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
Raising College Access and Completion: How Much Can Free College Help?

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

The Geography of Jobs and the Gender Wage Gap

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
Income in the Off-Season: Household Adaptation to Yearly Work Interruptions

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
Business Exit During the COVID-19 Pandemic: Non-Traditional Measures in Historical Context

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
Mortgage Prepayment, Race, and Monetary Policy

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
Income-Driven Labor-Market Polarization

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
Finance and Inequality: A Tale of Two Tails

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
Reservation Benefits: Assessing Job Acceptance Impacts of Increased UI Payments

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

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