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Series:Opportunity and Inclusive Growth Institute Working Papers  Bank:Federal Reserve Bank of Minneapolis 

Working Paper
Skilled Tradable Services: The Transformation of U.S. High-Skill Labor Markets

We study a group of service industries that are skill-intensive, widely traded, and have recently seen explosive wage growth. Between 1980 and 2015, these ?Skilled Tradable Services? accounted for a sharply increasing share of employment among the highest earning Americans. Unlike any other sector, their wage growth was strongly biased toward the densest local labor markets and the highest paying firms. These services alone explain 30% of the increase in inequality between the 50th and 90th percentiles of the wage distribution. We offer an explanation for these patterns that highlights the ...
Opportunity and Inclusive Growth Institute Working Papers , Paper 25

Working Paper
The Lost Ones: The Opportunities and Outcomes of Non-College-Educated Americans Born in the 1960s

White, non-college-educated Americans born in the 1960s face shorter life expectancies, higher medical expenses, and lower wages per unit of human capital compared with those born in the 1940s, and men's wages declined more than women's. After documenting these changes, we use a life-cycle model of couples and singles to evaluate their effects. The drop in wages depressed the labor supply of men and increased that of women, especially in married couples. Their shorter life expectancy reduced their retirement savings but the increase in out-of-pocket medical expenses increased them by more. ...
Opportunity and Inclusive Growth Institute Working Papers , Paper 19

Working Paper
Optimal Social Insurance and Rising Labor Market Risk

This paper analyzes the optimal response of the social insurance system to a rise in labor market risk. To this end, we develop a tractable macroeconomic model with risk-free physical capital, risky human capital (labor market risk) and unobservable effort choice affecting the distribution of human capital shocks (moral hazard). We show that constrained optimal allocations are simple in the sense that they can be found by solving a static social planner problem. We further show that constrained optimal allocations are the equilibrium allocations of a market economy in which the government ...
Opportunity and Inclusive Growth Institute Working Papers , Paper 18

Working Paper
The Return to Big City Experience: Evidence from Danish Refugees

We offer causal evidence of higher returns to experience in big cities. Exploiting a natural experiment that settled political refugees across labor markets in Denmark between 1986 and 1998, we find that while refugees initially earn similar wages across locations, those placed in Copenhagen exhibit 35% faster wage growth with each additional year of experience. This gap is driven primarily by differential sorting towards high-wage establishments, occupations, and industries. An estimated spatial model of earnings dynamics attributes an important role to unobserved worker ability: more able ...
Opportunity and Inclusive Growth Institute Working Papers , Paper 24

Working Paper
Who is a Passive Saver Under Opt-In and Auto-Enrollment?

Defaults have been shown to have a powerful effect on retirement saving behavior yet there is limited research on who is most affected by defaults and whether this varies based on features of the choice environment. Using administrative data on employer-sponsored retirement accounts linked to survey data, we estimate the relationship between retirement saving choices and individual characteristics ? long-term discounting, present bias, financial literacy, and exponential-growth bias ? under two distinct choice environments: an opt-in regime and an auto-enrollment regime. Consistent with our ...
Opportunity and Inclusive Growth Institute Working Papers , Paper 26

Working Paper
Nonlinear Pricing in Village Economies

This paper examines the price of basic staples in rural Mexico. We document that nonlinear pricing in the form of quantity discounts is common, that quantity discounts are sizable for typical staples, and that the well-known conditional cash transfer program Progresa has significantly increased quantity discounts, although the program, as documented in previous studies, has not affected on average unit prices. To account for these patterns, we propose a model of price discrimination that nests those of Maskin and Riley (1984) and Jullien (2000), in which consumers differ in their tastes and, ...
Opportunity and Inclusive Growth Institute Working Papers , Paper 23

Working Paper
Cyclical Labor Income Risk

We investigate cyclicality of variance and skewness of household labor income risk using PSID data. There are five main findings. First, we find that head's labor income exhibits countercyclical variance and procyclical skewness. Second, the cyclicality of hourly wages is mutted, suggesting that head's labor income risk is mainly coming from the volatility of hours. Third, younger households face stronger cyclicality of income volatility than older ones, although the level of volatility is lower for the younger ones. Fourth, while a second earner helps lower the level of skewness, it does not ...
Opportunity and Inclusive Growth Institute Working Papers , Paper 22

Working Paper
Medical Expenses and Saving in Retirement: The Case of U.S. and Sweden

Many U.S. households have significant wealth late in life, contrary to the predictions of a simple life-cycle model. In this paper, we document stark differences between U.S. and Sweden regarding out-of-pocket medical and long-term-care expenses late in life, and use them to investigate their role in discouraging the elderly from dissaving. Using a consumption-saving model in retirement with significant uninsurable expense risk, we find that medical expense risk accounts for a quarter of the U.S.-Sweden difference in retirees' dissaving patterns. Furthermore, medical expense risk affects ...
Opportunity and Inclusive Growth Institute Working Papers , Paper 8

Working Paper
The Environmental Cost of Land Use Restrictions

Cities with cleaner power plants and lower energy demand have stricter land use restrictions; these restrictions increase housing prices and disincentivize living in these lower polluting cities. We use a spatial equilibrium model to quantify the effect of land use restrictions on household carbon emissions. Our model features heterogeneous households, cities that vary by power plant technology and the benefits of energy usage, as well as endogenous wages and rents. Relaxing restrictions in California to the national median leads to a 2.3% drop in national carbon emissions. The burden of a ...
Opportunity and Inclusive Growth Institute Working Papers , Paper 20

Working Paper
Pay, Employment, and Dynamics of Young Firms

Why do young firms pay less? Using confidential microdata from the US Census Bureau, we find lower earnings among workers at young firms. However, we argue that such measurement is likely subject to worker and firm selection. Exploiting the two-sided panel nature of the data to control for relevant dimensions of worker and firm heterogeneity, we uncover a positive and significant young-firm pay premium. Furthermore, we show that worker selection at firm birth is related to future firm dynamics, including survival and growth. We tie our empirical findings to a simple model of pay, employment, ...
Opportunity and Inclusive Growth Institute Working Papers , Paper 21

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