Session 18: Inequality Through the Lens of Individual and Labor Market Dynamics

The optimal functioning of centralized allocation systems is undermined by the presence of institutions operating off-platform—a feature common to virtually all real-world implementations. These off-platform options generate justified envy, as students may reject their centralized assignment in favor of an outside offer, leaving vacant seats in programs that others would have preferred to their current match. We examine whether sequential assignment procedures can mitigate this inefficiency: they allow students to delay their enrollment decision to potentially receive a better offer later, at the cost of waiting before knowing their final admission outcome. To quantify this trade-off, we estimate a dynamic model of application and acceptance decisions using rich administrative data from the French college admission system, which include rank-ordered lists and waiting decisions. We find that waiting costs are large. Yet, by improving students’ assignment outcomes relative to a standard single-round system, the sequential mechanism decreases the share of students who leave the higher education system without a degree by 5.4% and leads to large welfare gains.

In the presence of credit frictions, student debt may prevent graduates from realizing the full returns to a college education by distorting their occupation choice and subsequent early career investments in human capital. This paper quantifies the aggregate size of these labor market distortions by computing the effect of large-scale student debt forgiveness policies. The model’s predictions are disciplined by new empirical evidence showing that more student debt leads to higher initial earnings, but lower returns-to-experience. The quantitative results suggest that rising student debt is having a substantial adverse effect on aggregate labor productivity and the occupational composition of employment.

This paper studies how family and firm investments interact to explain gender gaps in career achievement. Using Danish administrative data, we first document novel evidence of this interaction through a “spousal effect” on firm-side career investments. This effect is accounted for by family labor supply choices that shape worker characteristics, which then influence firms’ training and promotion decisions. Our main theoretical contribution is to develop a quantitative life cycle model that captures these family-firm interactions through household formation, families’ joint career and fertility choices, and firms’ managerial training and promotion decisions. We then use the estimated model to show that the interaction between families and firms in the joint equilibrium of labor and marriage markets is important when evaluating firm-side and family-side policy interventions. We find that gender-equal parental leave and a managerial quota can both improve gender equality, but leave implies costly skill depreciation, whereas the quota raises aggregate welfare, in part through adjustments in marital sorting towards families that invest in women.

This paper examines how local job opportunities and commuting constraints shape the skills and earnings of workers, contributing to widening inequalities over the life cycle by gender and geography. The long-term costs of work interruptions might be lower in places where job opportunities are plentiful and diverse than in areas with limited labor demand. These costs can be especially meaningful for women, given their tendency to stop working and switch to jobs closer to home after having children. When high-skill opportunities are not locally available, this often involves moving to lower-complexity occupations, impeding skill accumulation and hindering long-term career progression. A constrained search radius also weakens women’s outside options, enabling employers to mark down wages and further reinforce gender disparities. We develop an equilibrium search model where workers make employment decisions based on commuting time, working hours, and skill requirements, with job choices and hours worked directly influencing human capital dynamics. We estimate the model using longitudinal data from the UK Household Longitudinal Study (UKHLS) combined with spatially detailed job vacancy data from Adzuna. We then use the model to quantify the long-lasting effects of local job opportunities on the careers of men and women, and evaluate counterfactual policies, including improved access to part-time work and the expansion of remote work.

We propose a nonlinear framework to study the dynamic transmission of idiosyncratic and aggregate shocks to household income that exploits both macro and micro data. Our approach allows us to examine empirically the following questions: (a) How do business cycle fluctuations modulate the persistence of heterogeneous individual histories and the risk faced by households? (b) How do macro and micro shocks propagate over time for households in different macro and micro states? (c) How do they shape the cost of business-cycle risk? We develop novel identification, estimation and inference results, and provide a complete empirical analysis combining macro time series from the US and household panels from the PSID.

How do different income taxation systems affect household decisions and welfare? We answer this question by first documenting the strong labor supply disincentives for secondary earners of the U.S. tax system and by using variations from the Bush Tax Cuts to assess their effects on intra-household specialization. We then develop a lifecycle model incorporating labor supply, marriage and divorce decisions with limited commitment, household production, human capital accumulation, and assortative mating. After estimating and validating the model with various datasets, we evaluate four tax systems: a U.S.-like income-splitting system, an individual taxation system, a flexible general joint system, and an income-splitting system with secondary-earner deductions. We find that the individual taxation system provides higher welfare than income splitting but increases inequality. The general joint system offers the highest welfare but is complex to implement. The income-splitting system with a secondary-earner deduction improves welfare and reduces inequality while maintaining simplicity.

Wages vary substantially between and within cities. While wages are on average higher in larger cities, the real earnings of low-wage workers are lower. Using French matched employer-employee data, I document two novel facts that highlight the role of employers in shaping between- and within-city inequality jointly. First, high-paying jobs are concentrated in large cities whereas low-paying jobs are present throughout space. Second, the wage gains offered by large cities materialize over time as workers reallocate from low- to high-paying jobs. I propose a spatial framework that rationalizes these facts through two ingredients: heterogeneous employers and frictional local labor markets with on-the-job search. Productive employers agglomerate in large cities to hire more workers. Fiercer competition for workers arises. A higher average wage, faster growth, and greater within-city inequality follow. I estimate the model and quantify that local TFP gaps are minimal once I account for employers’ incentives to sort by size. The steeper ladder of large cities implies higher lifetime real earnings for every local worker, including those with lower real wages.

Why are wages in New York or Paris higher than in other cities? This paper uses establishment mobility to separate the role of “location effects” (e.g., local geography, infrastructure, and agglomeration) from the spatial sorting of workers and f irms. Using French administrative records and U.S. commercial data, we document that 4% of establishments relocate annually. Establishments retain their main activity and structure as they move, but adjust their workforce and wages. Combining establishment and worker mobility, we decompose wage disparities across French commuting zones. We find that spatial wage differences are largely driven by the sorting and co-location of workers and firms: location effects account for only 2–4% of disparities, while differences in the composition of workers and establishments account for 30% and 17%, respectively. The remaining half is accounted for by the co-location of high-wage workers and establishments, especially in cities with high location effects. Revisiting the elasticity of local wages to population density, we f ind a significant coefficient of 0.007—two to three times lower than estimates that do not control for establishment composition.