Pareto and Piketty: The Macroeconomics of Top Income and Wealth Inequality

From Chad Jones:

Since the early 2000s, research by Thomas Piketty, Emmanuel Saez, and their coathors has revolutionized our understanding of income and wealth inequality. In this paper, I highlight some of the key empirical facts from this research and comment on how they relate to macroeconomics and to economic theory more generally. One of the key links between data and theory is the Pareto distribution. The paper describes simple mechanisms that give rise to Pareto distributions for income and wealth and considers the economic forces that influence top inequality over time and across countries. For example, it is in this context that the role of the famous r-g expression is best understood.

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Mr. Brownback’s solution to fill the current $200M budget hole

From NYTimes:

Most of Mr. Brownback’s solution to fill the current hole comes through transferring more than $200 million from various state funds, such as one for highway projects and another for early-childhood education programs, into the state general fund. He also ordered a 4 percent budget cut to many, though not all, state agencies. He spared things like classroom funding and Medicaid, which would have sparked a lot of controversy if they were cut.

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How Gary Becker saw the scourge of discrimination

From Kevin Murphy:

In the 1950s, few economists thought of phenomena such as racial discrimination as under their purview. That changed in 1957, when Gary S. Becker, Professor of Economics and of Sociology at the University of Chicago and at Chicago Booth before his death in 2014, published The Economics of Discrimination, a book based on his 1955 PhD thesis.

Becker’s analysis would extend the reach of economics, and completely reshape the field—and social-science research in general, but it took decades to do so. “For several years it had no visible impact on anything,” he later recalled. “Most economists did not think racial discrimination was economics, and sociologists and psychologists generally did not believe I was contributing to their fields.”

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How to do a Job Market Spiel? Be Justin Wolfers

Originally posted on owenzidar:

I was looking up a paper on declining labor shares to prepare for interviews and came across these 90 second paper pitches by Justin Wolfers and realized that they are great demonstrations of how to do a job market spiel (see herehere, or here for more job market materials)

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Who Pays for the Minimum Wage?

From Attila Lindner and  Péter Harasztosi:

This paper analyzes the effects of a large (~60%) and persistent increase in the minimum wage instituted in Hungary in 2001. We propose a new approach to estimating the employment effects of a minimum wage increase that exploits information on the distribution of wages before and after the policy change. We infer the number of jobs destroyed by comparing the number of pre-reform jobs below the new minimum wage to the excess number of jobs paying at (and above) the new minimum wage. Our estimates imply that the higher minimum wage had at most a small negative effect on employment, and so the main effect was pushing up wages. We then use data on a large panel of firms to evaluate the economic incidence of the minimum wage increase. Contrary to theoretical models that attribute the small employment effects of minimum wage changes to monopsonistic wage setting, we find no evidence that the rise in the minimum wage led to lower profitability among low-wage employers. Instead, we find that the costs of the minimum wage were largely passed through to consumers.

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Trade Reform and Regional Dynamics: Evidence From 25 Years of Brazilian Matched Employer-Employee Data

From Rafael Dix-Carneiro and Brian Kovak:

We empirically study the dynamics of labor market adjustment following the Brazilian trade reform of the 1990s. We use variation in industry-specific tariff cuts interacted with initial regional industry mix to measure trade-induced local labor demand shocks, and then examine regional and individual labor market responses to those one-time shocks over two decades. Contrary to conventional wisdom, we do not find that the impact of local shocks is dissipated over time through wage-equalizing migration. Instead, we find steadily growing effects of local shocks on regional formal sector wages and employment for 20 years. This finding can be rationalized in a simple equilibrium model with two complementary factors of production, labor and industry-specific factors such as capital, that adjust slowly and imperfectly to shocks. Next, we document rich margins of adjustment induced by the trade reform at the regional and individual level. Workers initially employed in harder hit regions face continuously deteriorating formal labor market outcomes relative to workers employed in less affected regions, and this gap persists even 20 years after the beginning of trade liberalization. Negative local trade shocks induce workers to shift out of the formal tradable sector and into the formal nontradable sector. Non-employment strongly increases in harder-hit regions in the medium run, but in the longer run, non-employed workers eventually find re-employment in the informal sector. Working age population does not react to these local shocks, but formal sector net migration does, consistent with the relative decline of the formal sector and growth of the informal sector in adversely affected regions.

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Necessity is the Mother of Invention: Input Supplies and Directed Technical Change

From Walker Hanlon:

This study provides causal evidence that a shock to the relative supply of inputs to production can (1) affect the direction of technological progress and (2) lead to a rebound in the relative price of the input that became relatively more abundant (the strong induced-bias hypothesis). I exploit the impact of the U.S. Civil War on the British cotton textile industry, which reduced sup- plies of cotton from the Southern U.S., forcing British producers to shift to lower-quality Indian cotton. Using detailed new data, I show that this shift induced the development of new technologies that augmented Indian cotton. As these new technologies became available, I show that the relative price of Indian/U.S. cotton rebounded to its pre-war level, despite the increased rela- tive supply of Indian cotton. This is the first paper to establish both of these patterns empirically, lending support to the two key predictions of leading di- rected technical change theories.

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