Session 6: Macroeconomics and Inequality
- Adrien Auclert, Stanford University
- Kurt Mitman, IIES Stockholm
- Chris Tonetti, Stanford GSB
- Arlene Wong, Princeton University
Macroeconomics increasingly emphasizes inequality. When heterogeneous agents interact in frictional markets, macro aggregates depend on the distribution of wealth and cannot be characterized by a representative agent. At the same time, macro shocks and policies have redistributive effects. Now in its third edition, this session aims to bring together researchers working on macro and inequality. We welcome theoretical work on heterogeneous agent models, empirical studies with micro data and combinations thereof. We expect to attract both macroeconomists as well as applied microeconomists working on labor economics, firm dynamics, international economics, urban economics and household finance.
In This Session
Monday, August 16, 2021
Present Bias Amplifies the Balance-Sheet Channels of Macroeconomic Policy
Interest Rate Cuts vs. Stimulus Payments: An Equivalence Result
In a textbook New Keynesian model extended to allow for uninsurable household income risk, any aggregate allocation implementable via nominal interest rate policy is also implementable by adjusting uniform lump-sum transfer payments, and vice-versa. The equivalence fails only in the limit cases of perfectly Ricardian and perfectly hand-to-mouth households. It follows that conventional fiscal policy using stimulus checks can substitute for monetary policy when interest rates are constrained by an effective lower bound. In a tractable special case of the model, the mapping between the equivalent scal and monetary policies is fully characterized by a small number of readily measurable sufficient statistics. This closed-form characterization remains nearly exact even in a Heterogeneous Agent (HANK) model. However, while macro-equivalent, checks and rate cuts have different distributional effects in the cross-section of households.
The Geography of Job Creation and Job Destruction
Spatial differences in unemployment rates are large and persistent. Our objective is to develop a quantitative theory of these differences. Considering the local unemployment rate as an (equilibrium) outcome between workers and firms, we document facts on both sides of the labor market. First, we confirm recent findings that differences in separation rates (unemployment inflows) are more important than differences in job-finding rates (unemployment outflows) in accounting for local unemployment differences. Second, we present novel facts on the differences in job-creation and job-filling rates. We document that local labor markets with lower unemployment rates are tighter, have lower vacancy filling rates, and higher average vacancy duration. These facts constitute empirical regularities in the United States, Germany, and the United Kingdom. On the theory side, we demonstrate that a Diamond-Mortensen-Pissarides model with endogenous separations quantitatively accounts for all the documented facts on the geography of job creation and job destruction. Furthermore, we demonstrate that this model not only matches labor market differences across space but also over the business cycle.
The Aggregate and Distributional Effects of Spatial Frictions
We develop a general equilibrium model of frictional labor reallocation across firms and regions and use it to quantify the aggregate and distributional effects of spatial frictions that hinder worker mobility across regions in Germany. The model leverages matched employer-employee data to unpack spatial frictions into different types while isolating them from labor market frictions that operate also within region. The estimated model shows sizable spatial frictions between East and West Germany, especially due to the limited ability of workers to obtain job offers from more distant regions. Despite the large real wage gap between East and West of Germany, removing the spatial frictions leads, in equilibrium, to only a small increase in aggregate productivity and it mostly affects the within-region allocation of labor to firms rather than the between-region allocation. However, spatial frictions have large distributional consequences, as their removal drastically reduces the gap in lifetime earnings between East and West Germans.
Spending and Job Search Impacts of Expanded Unemployment Benefits: Evidence from Administrative Micro Data
How did the largest expansion of unemployment benefits in U.S. history affect household behavior? Using anonymized bank account data covering millions of households, we provide new empirical evidence on the spending and job search responses to benefit changes during the pandemic and compare those responses to the predictions of benchmark structural models. We find that spending responds more than predicted, while job search responds an order of magnitude less than predicted. In sharp contrast to normal times when spending falls after job loss, we show that when expanded benefits are available, spending of the unemployed actually rises after job loss. Using quasi-experimental research designs, we estimate a large marginal propensity to consume out of benefits. Notably, spending responses are large even for households who have built up substantial liquidity through prior receipt of expanded benefits. These large responses contrast with a theoretical prediction that spending responses should shrink with liquidity. Simple job search models predict a sharp decline in search in the wake of a substantial benefit expansion, followed by a sustained rebound when benefits expire. We instead find that the job-finding rate is quite stable. Moreover, we document that recall plays an important role in driving job-finding dynamics throughout the pandemic. A model extended to fit these key features of the data implies small job search distortions from expanded unemployment benefits. Jointly, these spending and job finding facts suggest that benefit expansions during the pandemic were a more effective policy than predicted by standard structural models. Abstracting from general equilibrium effects, we find that overall spending was 2.0-2.6