After all the centuries of innovation and growth in productivity and wages, why does the median household still have to work long hours to afford housing, education, and other goods? Could it be that growing incomes drive inflation which keeps some goods forever expensive? This project pursues these questions using analytical models and agent-based simulations in which working time, wages and prices adjust endogenously and in which consumers compete for socially-scarce goods.
As consumers, we pay for locations where we live as part of the rent or house price. Through retail prices, we also end up paying for locations occupied by stores and restaurants where we shop and dine. The suppliers of the stores and restaurants – factories, warehouses, trucking firms – also pay location rents, which they pass on up the supply chain. Location rents thus permeate the economy, yet they are rarely made explicit and how they affect prices and wages remains obscure. Could it be that economic growth drives up location rents, and thereby keeps the median household on a tight budget and working long hours? Could it be that our reliance on price indices computed by deflating nominal incomes and prices into "real" amounts hides the structural inflation of location rents? Could it be that Basic Income grants may end up inflating location rents and thus fail to reduce the pressure to work and earn? This project aims to theoretically and empirically clarify the fraction of prices and wages attributable to location rents and draw policy implications.
Japan, South Korea and several other countries have large industries selling goods and services to help high school students prepare for university entrance exams. In Italy, Australia and many other countries the exam-prep industry is tiny. The existence of a large industry in country X but not in country Y implies that consumers in X demand much more exam-preparation assistance than do consumers in Y. Avoiding cultural attributions such as “some countries take education more seriously,” this project aims to investigate the institutional and economic factors that make it rational for students and parents to rely on goods and services to prepare for university entrance exams in some countries but not in others. Understanding factors that fuel or contain entrance exam preparation efforts is a first step toward reforms to reduce the burden on students, parents, and teachers.