Why Has Urban Inequality Increased? (joint with Nathaniel Baum-Snow and Matthew Freedman - Accepted for publication at AEJ: Applied)

ABSTRACT: This paper examines mechanisms driving the more rapid increases in wage inequality in larger cities between 1980 and 2007. Production function estimates indicate strong evidence of capital-skill complementarity and increases in the skill bias of agglomeration economies in the context of rapid skill-biased technical change. Immigration shocks are the source of identifying variation across cities in changes to the relative supply of skilled versus unskilled labor. Estimates indicate that changes in the factor biases of agglomeration economies rationalize at least 80 percent of the more rapid increases in wage inequality in larger cities.

Online appendix

On the Production of Skills and the Birth Order Effect JHR  (2016), Vol. 51(3), p699-726.

ABSTRACT: First-born children tend to outperform their younger siblings on measures such as cognitive exams, wages, educational attainment, and employment. Using a framework similar to Cunha and Heckman (2008) and Cunha et al. (2010), this paper finds that differences in parents’ investments across siblings can account for more than one-half of the gap in cognitive skills among siblings. The study’s framework accommodates for endogeneity in parents’ investments, measurement error, missing observations, and dynamic impacts of parental investments.

"The Specificity of General Human Capital: Evidence from College Major Choice" (Last Modified 05/2014 - joint with Josh Kinsler) Journal of Labor Economics 2015 33:4, 933-972 .

ABSTRACT: College graduates with a science or business related degree earn up to 25% higher wages than other college graduates. However, individuals do not always pursue careers related to their major, generating within-major gaps in wages that are similar in size to the across major gaps. As an example, science majors who work in jobs related to their field of study earn approximately 30% higher wages than those working in non-related jobs. In this paper, we aim to estimate the true returns to college major accounting for the specificity of skill. We develop a structural model of human capital that allows for both skill uncertainty and differential accumulation of human capital across major. Our findings indicate that the average returns to obtaining a business or science degree, although quite large, are smaller than the raw gaps would indicate. The average return to obtaining a science degree and working in a related job remains close to 30%. We also find that individuals are uncertain about their future productivity at the time of the college major decision. The combination of skill uncertainty and the specificity of the return appear to make majoring in a science related field less attractive.

"Inequality and City Size". (joint with Nathaniel Baum-Snow) Review of Economics and Statistics (2013) 95-5: 1535-1548.

ABSTRACT: Between 1979 and 2007 a strong positive monotonic relationship between wage inequality and city size has developed. This paper investigates the links between this emergent city size inequality premium and the contemporaneous nationwide increase in wage inequality. After controlling for the composition of the workforce across cities of different sizes, we show that at least 23 percent of the overall increase in the variance of log hourly wages in the United States from 1979 to 2007 is explained by the more rapid growth in the variance of log wages in larger locations relative to smaller locations. This influence occurred throughout the wage distribution and was most prevalent during the 1990s. More rapid growth in within skill group inequality in larger cities has been by far the most important force driving these city size specific patterns in the data. Differences in the industrial composition of cities of different sizes explain up to one-third of this city size effect. These results suggest an important role for agglomeration economies in generating changes in the wage structure during the study period.

"Understanding the City Size Wage Gap". (joint with Nathaniel Baum-Snow) – 2012 Review of Economic Studies 79 (1), 88-127.

ABSTRACT:  In this paper, we decompose city size wage premia into various components. We base these decompositions on an estimated on-the-job search model that incorporates latent ability, search frictions, firm-worker match quality, human capital accumulation and endogenous migration between large, medium and small cities. Counterfactual simulations of the model indicate that variation in returns to experience and differences in wage intercepts across location type are the most important mechanisms contributing to observed city size wage premia. Variation in returns to experience is more important for generating wage premia between large and small locations while differences in wage intercepts are more important for generating wage premia between medium and small locations. Sorting on unobserved ability within education group and differences in labor market search frictions and distributions of firm-worker match quality contribute little to observed city size wage premia. These conclusions hold for separate samples of high school and college graduates.

"Family Income and Higher Education Choices: The Importance of Accounting for College Quality",  (joint with Josh Kinsler) Journal of Human Capital 5-4 (Winter 2011)

ABSTRACT: While there exists a vast literature analyzing the relationship between family income and the quantity of higher education, much less attention has been devoted to the relationship of family income with the quality of higher education. Using the 1979 and 1997 waves of the National Longitudinal Survey of Youth (NLSY), we show that not only does family income significantly affect the quality of higher education but also that this impact is economically relevant when compared with the more analyzed margin. While the impact of family income on college quality is significant in both the NLSY79 and NLSY97, it has declined considerably across the two surveys for high ability students. Overall, the trends we observe in the importance of family income for both the quantity and quality of schooling are highly consistent with increases in tuition across the quality spectrum, coupled with more generous merit-based aid at high quality institutions.

"Career Choice and Wage Growth". – Journal of Labor Economics 29-3 (July 2011)

ABSTRACT: In this paper, I present structural estimates of a search model that flexibly incorporates general human capital accumulation along with career and firm choice, where a career is empirically identified as a combination of industry and occupation. I use these estimates to empirically distinguish between the relative importance of various factors for generating wage growth over the life-cycle. Evidence presented in the paper highlights the importance of considering the two-stage search process that originates from the model. In particular, I demonstrate that previous IV methods dramatically underestimate the importance of …firm specific matches for wage growth.

Note: There is a small typo in equation (21). The drifts for both the firm-specific and career-specific component should be indexed by ε or θ and by the individual-specific component h. The version of the paper in this web page has been corrected.

"The role of Career Choice in Understanding Job Mobility."LABOUR, 2010, 24, (2), 107-127

ABSTRACT: This paper presents a simple model that explains how the likelihood of job changes and their complexity changes over a worker’s career, and the empirical work presented here uses the life cycle patterns of mobility and their complexity to infer the relative importance of firm-specific versus career-specific concerns as determinants of mobility decisions. The estimates of the model indicate that the contemporaneous presence of two quality matches, one career-specific and one firm-specific, is necessary to understand the patterns of the data. The model performs much better than alternative models that are not characterized by a two-dimensional search process. I compare the welfare losses due to workers’ displacement predicted by the baseline model and by a model with only firm-specific matches and I find that they are around 30% smaller in the baseline model.


Parental Beliefs and Investment in Children: The Distortionary Impact of Schools (joint with Josh Kinsler - September 2018 - Resubmitted)

ABSTRACT: Parental investments in early childhood have been shown to have a large impact on skill acquisition. In this paper, we examine how beliefs about a child’s relative skill influences investment and how these beliefs are determined. Using data from the ECLS-K, we first show that parental beliefs about a child’s skill relative to children of the same age is distorted by a child’s skill relative to children in the same school. In other words, parents of children attending schools with high (low) average skills tend to believe their child is lower (higher) in the overall skill distribution. We then show that beliefs about a child’s skill relative to children of the same age affects parental investments such as helping with homework or hiring a tutor. Thus, parents are making important investment decisions using inaccurate information. Building off our descriptive findings, we develop a model of parental investment that incorporates uncertainty about the average skill level of similarly aged children. We estimate the model using indirect inference and perform a set of counterfactuals where parents are fully informed about the average skill level in the population. We find that investment and achievement rise by a considerable amount for students at the bottom of the skill distribution. The mechanism behind this result is that parents of children in relatively low achieving schools revise upward their beliefs about the average child in the population, inducing an investment response.


Substance Abuse and the Production of Cognitive Skill (joint with Josh Kinsler)

Maternal Emotional Well-being and Child Development (with Emilia Del Bono and Josh Kinsler)

Local Economic Spillovers (with Nathaniel Baum-Snow and Nicolas Gendron-Carrier)

A Dynamic Model of HS Curriculum Choice and Human Capital Formation (with Josh Kinsler)

"Temporarily" Abandoned Projects

Total Earnings and "Usual" Wages: Reinterpreting the Role of Job to Job Transitions (joint with Maria Canon - 2014)
We present a simple on-the-job search model in which workers can receive shocks to their employer-specific productivity match. Because the firm-specific match can vary, wages may increase or decrease over time at each employer. Therefore, for some workers, job-to-job transitions are a way to escape job situations that worsened over time. The contribution of our paper relies on our novel approach to identifying the presence of the shock to the match specific productivity. The presence of two independent measures of workers’ compensation in our dataset of is crucial for our identification strategy. In the first measure, workers are asked about the usual wage they earn with a certain employer. In the second measure, workers are asked about their total amount of labor earnings during the previous year. While the first measure records the wages at a given point in time, the second measure records the sum of all wages within one year. We calibrate our model using both measures of workers’ compensation and data on employment transitions. The results show that 59% of the observed wage cuts following job-to-job transitions are due to deterioration of the firm-specific component of wages before workers switch employers.

"A Flexible Model of Individual Wage Dynamics and Job Mobility Outcomes", (Last modified 08/08)

ABSTRACT: In this paper, I propose and estimate a flexible model of individual wage dynamics and job mobility outcomes. I find that around 40% of total wage growth after 20 years of experience is due to firm-specific, and therefore non-transferable, factors. I also find that return to tenure is very low, 6% after 10 years of seniority and that lifetime inequality is 30% smaller than cross-sectional inequality and it grows during the first years of experience. In the paper, I also show that using a less flexible model would yield very different predictions, overstating the role of firm-specific factors.

free web stats