The Cyclical Behavior of Job Quality and Real Wage Growth
joint with Andriana Bellou
We study the empirical relevance of implicit insurance contracts for wage setting while accounting for cyclical fluctuations in average job quality. Using proxy measures, we find the latter to be acyclical, if not countercyclical, due to the cleansing effects of layoffs during recessions versus quits during expansions. Then, we study the cyclical behavior of wage growth among job stayers to test for contracts, circumventing differences in job quality altogether. Both methods strongly corroborate the prevalence of wage contracts in the labor market and imply a highly procyclical price for labor.
Loss-Offset Provisions in the Corporate Tax Code and Capital Misallocation
joint with Immo Schott
The corporate tax code allows corporations to write off operating losses against past or future tax obligations, resulting in effective tax rates that are firm-specific and dependent on the history of the firm’s performance. Since losses are partly an indication of a drop in productivity, which is generally persistent over time, firms with higher expected productivity face, on average, higher marginal taxes on their investment. In this paper, we analyze the distortionary effects of loss-offset provisions on investment and assess the associated aggregate output losses implied by the misallocation of capital. We find that replacing the corporate income tax with a revenue-neutral value-added tax which eliminates the firm-level differences in effective tax rates leads to a 13.9 percent increase in aggregate output.
Comments by Venky Venkateswaran
The Evolution of Wealth Inequality over Half a Century: The Role of Taxes, Transfers and Technology
joint Markus Poschke
Over the last 50 years the US tax system went through a striking transformation that reduced the effective tax rates for top income groups and raised transfers to seniors. This paper investigates the macroeconomic repercussions of this change in policy, particularly for the distributions of income, wealth and consumption.Laurence Ales’ discussion at Carnegie-Rochester-NYU Conference
Jotwell VoxEU Comments by Laurance Ale
Transitional Dynamics and the Optimality of Progressive Income Redistribution
joint with Ozan Bakış and Markus Poschke,
In a dynastic economy with uninsurable income risk, where generations are linked by dynastic wealth accumulation and correlated incomes, the optimal long-run tax policy is moderately regressive. By contrast, the optimal once-and-for-all change in the tax system, taking into account the transitional dynamics, is progressive.
The Rising Skill Premium and Deunionization
joint with Ömer Açıkgöz
During the past 50 years, the US economy has seen a rapid decline in labor union membership and a substantial rise in wage inequality. Since labor unions compress wages between skilled and unskilled workers, a rising skill premium encourages skilled workers to withdraw from the union. If this withdrawal is accompanied by a fall in the productivity of unskilled workers, firms become reluctant to hire the relatively expensive union workers, reinforcing the decline in the unionization rate. Evaluating this hypothesis, we find that the rise in the skill premium explains about 40% of the decline in the unionization rate.
Post-Schooling Training Investment and Employer Learning
Wage growth among young workers relates positively to ability and negatively to education, conditional on ability. This was interpreted as evidence for statistical discrimination with employer learning. I show that this pattern is also consistent with a version of the Ben-Porath model of skill formation where (i) workers differ in their learning ability and (ii) job training is a substitute for formal schooling. Data on job training from the NLSY confirm both modeling extensions for young workers. Nonetheless, the substitutability of training for schooling fades too quickly to explain the slow wage growth by education among workers with comparable ability.
Wages, Implicit Contracts and the Business Cycle: Evidence from a European Panel
joint with Andriana Bellou
The joint behavior of hours and wages over the business cycle in a unique panel of 13 European countries points to significant history dependence in wages. Unobserved differences in productivity, such as varying job quality are not likely to explain this variation. The results instead point to the importance of contractual arrangements in wage determination.
Ability Bias and the Rising Education Premium in the United States
I use differences in educational attainment by birth cohorts to estimate the rise in the return to education in the United States. If average ability is similar among nearby cohorts, then differences in educational attainment lead to differences in earnings only if education is productive. The results reveal that (i) the return to a year of schooling increased from 4.8 percent to 8.4 percent between 1964 and 2003, (ii) the ability bias rose from 1.8 percent to 4.7 percent during the same period, and (iii) the acceleration in the education premium after 1980 is explained almost entirely by the rise in the ability bias.
Sets of Alternatives as Condorcet Winners
joint with Remzi Sanver
We characterize sets of alternatives which are Condorcet winners according to preferences over sets of alternatives, in terms of properties defined on preferences over alternatives. We state our results under certain preference extension axioms which, at any preference profile over alternatives, give the list of admissible preference profiles over sets of alternatives. It turns out to be that requiring from a set to be a Condorcet winner at every admissible preference profile is too demanding, even when the set of admissible preference profiles is fairly narrow. However, weakening this requirement to being a Condorcet winner at some admissible preference profile opens the door to more permissive results and we characterize these sets by using various versions of an undomination condition. Although our main results are given for a world where any two sets – whether they are of the same cardinality or not – can be compared, the case for sets of equal cardinality is also considered.