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Jel Classification:D02 

Working Paper
Firms, Skills, and Wage Inequality

We present a model with search frictions and heterogeneous agents that allows us to decompose the overall increase in US wage inequality in the last 30 years into its within- and between-firm and skill components. We calibrate the model to evaluate how much of the overall rise in wage inequality and its components is explained by different channels. Output distribution per firm-skill pair more than accounts for the observed increase over this period. Parametric identification implies that the worker-specific component is responsible for 85 percent of this, compared to 15 percent that is ...
Working Papers , Paper 201706R

Working Paper
Optimal Delegation Under Unknown Bias: The Role of Concavity

A principal is uncertain of an agent's preferences and cannot provide monetary transfers. The principal, however, does control the discretion granted to the agent. In this paper, we provide a simple characterization of when it is optimal for the principal to screen by offering different terms of discretion to the agent. When the principal's utility is sufficiently concave, it is optimal for the principal to pool and to offer all agents the same discretion. Thus, for any number of agents and any distribution over agent preferences, the optimal contract is simple: the principal sets a cap and ...
Supervisory Research and Analysis Working Papers , Paper RPA 18-1

Working Paper
Organizations, Skills, and Wage Inequality

We extend an on-the-job search framework in order to allow firms to hire workers with different skills and skills to interact with firms? total factor productivity (TFP). Our model implies that more productive firms are larger, pay higher wages, and hire more workers at all skill levels and proportionately more at higher skill types, matching key stylized facts. We calibrate the model using five educational attainment levels as proxies for skills and estimate nonparametrically firm-skill output from the wage distributions for different educational levels. We consider two periods in time (1985 ...
Working Papers (Old Series) , Paper 1706

Working Paper
The distributional effects of contractual norms: the case of cropshare agreements

According to principal-agent theory, a share contract strikes an optimal balance between risk-sharing and incentive provision when it is difficult to gauge the agent's contribution. This theory predicts that the size of the share should vary with economic fundamentals. In practice, however, the share divisions that are specified often cluster around "usual and customary" levels ? even when there is substantial heterogeneity among principal - agent pairs. Using Illinois farm-level data observed between 1980 and 1994 that include soil productivity ratings, tenant net income, and crop yields, ...
Working Papers , Paper 15-7

Report
The Effect of Constitutional Provisions on Education Policy and Outcomes

Education services in the United States are determined predominantly by non-market institutions, the rules of which are defined by state constitutions. This paper empirically examines the effect of changes in constitutional provisions on education outcomes in the United States. To show causal effects, we exploit discontinuities in the procedure for adopting constitutional amendments to compare outcomes when an amendment passed with those when an amendment failed. Our results show that adoption of an amendment results in higher per-pupil expenditure, higher teacher salaries, smaller class ...
Staff Report , Paper 623

Working Paper
Community Leaders and the Preservation of Cultural Traits

We explain persistent differences in cultural traits of immigrant groups with the presence of community leaders. Leaders influence the cultural traits of their community, which have an impact on the group?s earnings. They determine whether a community will be more assimilated and wealthier or less assimilated and poorer. With a leader, cultural integration remains incomplete. The leader chooses more distinctive cultural traits in high-productivity environments and if the community is more connected. Lump-sum transfers to immigrants can hinder cultural integration. These findings are in line ...
Working Papers (Old Series) , Paper 1517

Report
Auctions implemented by the Federal Reserve Bank of New York during the Great Recession

During the Great Recession, the Federal Reserve implemented several novel programs to address adverse conditions in financial markets. Three of these temporary programs relied on an auction mechanism: the Term Auction Facility, the Term Securities Lending Facility, and the disposition of the Maiden Lane II portfolio. These auctions differed from one another in several dimensions: their objectives, rules, and the financial asset being traded. The object of this paper is to document, compare, and provide a rationale for the mechanics of the different auctions implemented by the Federal Reserve ...
Staff Reports , Paper 635

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