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Jel Classification:D33 

Working Paper
Neoclassical Inequality

In a model with a worker-capitalist dichotomy, we show that the relationship between inequality (measured as a ratio of incomes for the two types) and growth is complicated; zero growth generally lowers inequality, except under extreme parameterizations. In particular, the elasticity of substitution between capital and labor in production needs to be considerably greater than 1 in order for income inequality be higher with zero growth. If this condition is not met, factor prices adjust strongly causing the fall in the return to capital (the rise in wages) to reduce income inequality. Our ...
Working Papers , Paper 14-32R2

Working Paper
The Piketty Transition

We study the effects on inequality of a "Piketty transition" to zero growth. In a model with a worker-capitalist dichotomy, we show first that the relationship between inequality (measured as a ratio of incomes for the two types) and growth is complicated; zero growth can raise or lower inequality, depending on parameters. Extending our model to include idiosyncratic wage risk we show that growth has quantitatively negligible effects on inequality, and the effect is negative. Finally, following Piketty?s thought experiment, we study how the transition might occur without declining returns; ...
Working Papers (Old Series) , Paper 1432

Working Paper
Macroeconomic Implications of Inequality and Income Risk

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. To manage those risks, households can apportion their savings to a bond, whose return is safe and identical across households, and a productive asset, whose return is uncertain and can differ persistently across households. We find that greater polarization in households' labor income and returns on their savings generally accentuates households' demand for risk-free assets and ...
Finance and Economics Discussion Series , Paper 2021-073

Working Paper
The Future of Labor: Automation and the Labor Share in the Second Machine Age

We study the effect of modern automation on firm-level labor shares using a 2018 survey of 1,618 manufacturing firms in China. We exploit geographic and industry variation built into the design of subsidies for automation paid under a vast government industrialization program, “Made In China 2025,” to construct an instrument for automation investment. We use a canonical CES framework of automation and develop a novel methodology to structurally estimate the elasticity of substitution between labor and automation capital among automating firms, which for our preferred specification is 3.8. ...
Working Papers , Paper 20-11

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

Working Paper
Which Ladder to Climb? Wages of Workers by Job, Plant, and Education

Wages grow but also become more unequal as workers age. Using German administrative data, we largely attribute both life-cycle facts to one driving force: some workers progress in hierarchy to jobs with more responsibility, complexity, and independence. In short, they climb the career ladder. Climbing the career ladder explains 50% of wage growth and virtually all of rising wage dispersion. The increasing gender wage gap by age parallels a rising hierarchy gap. Our findings suggest that wage dynamics are shaped by the organization of production, which itself likely depends on technology, the ...
Opportunity and Inclusive Growth Institute Working Papers , Paper 15

The Distributional Impact of the Minimum Wage in the Short and Long Run

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. Our production technology is disciplined to be consistent with the small estimated employment effects of the minimum wage in the short run and the large estimated elasticities of substitution across inputs in the 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 ...
Staff Report , Paper 640

Working Paper
Understanding Growth Through Automation: The Neoclassical Perspective

We study how advancements in automation technology affect the division of aggregate income between capital and labor in the context of long-run growth. Our analysis focuses on the fundamental trade-off between the labor-displacing effect of automation and its positive productivity effect in an elementary task-based framework featuring a schedule of automation prices across tasks linked to the state of technology. We obtain general conditions for the automation technology and technical change driving automation to be labor-share displacing. We identify a unique task technology that reconciles ...
Working Papers , Paper 22-25


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