Reporter NATIONAL BUREAU of ECONOMIC RESEARCH

NBER Reporter NATIONAL BUREAU OF ECONOMIC RESEARCH

A quarterly summary of NBER research No. 2, June 2019

Martin Feldstein, 1939–2019 Program Report

Economic Fluctuations and Growth

Mark Gertler and Pete Klenow*

Over the last decade, research in the Economic Fluctuations and Growth (EFG) Program has responded to important macroeconomic challenges. This report emphasizes four areas in which there have been significant developments. First, the global financial crisis Renowned Economist and has prompted research on the sources and propagation of financial crises, as well as on policy responses. Second, the general decline in NBER President Emeritus business dynamism and lackluster productivity have reignited interest Martin Feldstein, president of the in economic growth analysis. Third, the surge in income and wealth NBER for nearly 30 years, George F. inequality has generated new work on macroeconomic determinants Baker Professor of Economics at Harvard of inequality. Fourth, with respect to methodology, there has been a University, chair of the President’s Council growing recognition that so-called “representative agent” models are of Economic Advisers from 1982 to 1984, not sufficient for addressing many key macroeconomic issues. This and one of the most prolific and influential has led to the development and increased use of heterogeneous agent economists of the last half century, passed models. This report summarizes recent research in each of these areas. away on Tuesday, June 11. He was 79. 1. The Great Recession, Financial Obituary in NBER News, p. 31 Crises, and Policy Responses

ALSO IN THIS ISSUE Researchers affiliated with the EFG program have analyzed both the financial crisis and the policy responses extensively. Roughly one Changes in the Labor Market tenth of recent EFG working papers have been devoted to these issues. over the Business Cycle 14 Theoretical and empirical work on financial crises predates the Aging, Retirement Income, Great Recession. This work emphasized the role of borrower balance and Asset Markets in China 18 sheets in constraining credit access when capital markets are imperfect. It then associated financial crises with a kind of “adverse feed- The Sustainable Investing Proposition 23 The Economics of Fair Trade 27 *Mark Gertler, a professor of economics at New York University, NBER News 31 and Pete Klenow, a professor of economics at Stanford University, co- Conferences 35 direct the Economic Fluctuations and Growth Program. This report Program and Working Group Meetings 43 draws on extensive input from Roland Bénabou, Oded Galor, Erik NBER Books 51 Hurst, Greg Kaplan, Gianluca Violante, and Fabrizio Zilibotti.

Reporter Online at: www.nber.org/reporter back loop” in which declines in real activity weaken borrower balance sheets, which in NBER Reporter turn further depress spending and real activity. The emphasis was on borrowing frictions faced by nonfinancial firms. However, the evidence from the recent crisis suggests The National Bureau of Economic Research is a private, nonprofit research organization founded in 1920 and devoted to objective quantitative analysis of the that the key conduits of financial distress American economy. Its officers and board of directors are: were mainly highly leveraged households and President and Chief Executive Officer — James M. Poterba highly leveraged shadow banks. While nonfi- Controller — Kelly Horak nancial firms eventually felt the brunt of the Corporate Secretary — Alterra Milone financial distress, it was a dramatic buildup of BOARD OF DIRECTORS leverage in the housing and shadow banking Chair — Karen N. Horn sectors that made the economy vulnerable to Vice Chair — John Lipsky financial collapse. Treasurer — Robert Mednick There is now a rough consensus that there DIRECTORS AT LARGE were two main channels of financial distress. Peter Aldrich Diana Farrell Karen Mills The first, which we call the “household balance Elizabeth E. Bailey Jacob A. Frenkel Michael H. Moskow John H. Biggs Robert S. Hamada Alicia H. Munnell sheet channel,” features the impact of declin- Kathleen B. Cooper Peter Blair Henry Robert T. Parry ing house prices on households’ net financial Charles H. Dallara Karen N. Horn James M. Poterba positions, and in turn on their credit access George C. Eads Lisa Jordan John S. Reed Jessica P. Einhorn John Lipsky Marina v. N. Whitman and spending. The second, which we term “the Mohamed El-Erian Laurence H. Meyer Martin B. Zimmerman banking distress channel,” features the effect of weakening of bank balance sheets on credit intermediation.1 Of course the two channels DIRECTORS BY UNIVERSITY APPOINTMENT are interrelated, as the sources of the financial Timothy Bresnahan, Stanford Samuel Kortum, Yale Pierre-André Chiappori, Columbia George Mailath, Pennsylvania distress in banking stemmed from losses on Alan V. Deardorff, Michigan Marjorie B. McElroy, Duke mortgage-related securities that eventually led Edward Foster, Minnesota Joel Mokyr, Northwestern to a full-scale panic. John P. Gould, Chicago Cecilia Elena Rouse, Princeton Mark Grinblatt, California, Los Angeles Richard L. Schmalensee, MIT • The Household Balance Sheet Channel Bruce Hansen, Wisconsin-Madison Ing o Wa l t er, New York Benjamin Hermalin, California, Berkeley David B. Yoffie, Harvard Partly because of how the data was DIRECTORS BY APPOINTMENT OF OTHER ORGANIZATIONS unfolding in real time during the crisis, much Jean-Paul Chavas, Agricultural and Applied Economics Association of the early research emphasis was on the Martin Gruber, American Finance Association household balance sheet channel. The ori- Philip Hoffman, Economic History Association gins of the crisis involved an extraordinary Arthur Kennickell, American Statistical Association Jack Kleinhenz, National Association for Business Economics housing boom, featuring a dramatic run-up in Robert Mednick, American Institute of Certified Public Accountants home prices and mortgage debt. Among the Peter L. Rousseau, American Economic Association factors triggering the boom were: a secular Gregor W. Smith, Canadian Economics Association William Spriggs, American Federation of Labor and decline in mortgage rates due to a combina- Congress of Industrial Organizations tion of declining long-term interest rates and Bart van Ark, The Conference Board innovation in mortgage finance, relaxation of The NBER depends on funding from individuals, corporations, and private lending standards, and widespread optimism foundations to maintain its independence and its flexibility in choosing its about housing prices. research activities. Inquiries concerning contributions may be addressed to James What we have learned to appreciate since M. Poterba, President & CEO, NBER, 1050 Massachusetts Avenue, Cambridge, MA 02138-5398. All contributions to the NBER are tax-deductible. is that the pre-crisis housing boom was not unique to the 2007 U.S. experience. Across The Reporter is issued for informational purposes and has not been reviewed by both countries and time, it is typical for the Board of Directors of the NBER. It is not copyrighted and can be freely repro- run-ups of both household debt and hous- duced with appropriate attribution of source. Please provide the NBER’s Public Information Department with copies of anything reproduced. ing prices to precede major financial crises. For example, Òscar Jordà, Moritz Schularick, Requests for subscriptions, changes of address, and cancellations should be sent and Alan Taylor document that the run-up to Reporter, National Bureau of Economic Research, Inc., 1050 Massachusetts Avenue, Cambridge, MA 02138-5398 (please include the current mailing label), in household mortgage debt occurred across or by email to [email protected]. Print copies of the Reporter are only mailed to countries as a precursor to the recent global subscribers in the U.S. and Canada; those in other nations may request electronic financial crisis.2 Arvind Krishnamurthy and subscriptions at www.nber.org/drsubscribe/.

2 NBER Reporter • No. 2, June 2019 Tyler Muir, in related work, find that to influencing it. In a series of highly for balance sheet constraints on house- not all household debt booms lead to influential papers, Atif Mian and Amir holds. As with models developed before crises, but that those accompanied by Sufi use cross-sectional data to identify the crisis, these models feature adverse increasing credit spreads are more likely the household balance sheet channel.4 feedback loops between borrower bal- to do so.3 They first show that regions which ance sheets and real activity, but they What initially triggers the crises experienced the largest run up in home put households, rather than non-finan- that follow a run-up in household debt, prices and mortgage debt in the years cial firms, at center stage. One interest- including the recent one, is a contrac- prior to the crisis suffered the largest ing auxiliary finding is that the tight- tion in house prices. According to the drops in home prices and real activ- ening of balance sheet constraints on household balance sheet channel, the ity once the crisis hit. For the crisis household borrowers not only reduces drop in house prices weakens the bal- period, they estimate cross-sectional household spending, it also pushes ance sheets of households highly lev- regressions that relate some measure of down interest rates, helping account eraged with mortgage debt. In turn, real activity — for example, consump- for how household financial distress there is a significant could move the econ- decline in household omy into a liquidity spending. Household Balance Sheets, House Prices, and Consumer Spending trap, where the zero The descriptive lower bound on the Debt-to-Assets Debt-to-Income Durable consumption House-price index evidence suggests 0.31 1.2 $1,200 250 nominal interest rate Recession Lehman’s Recession Lehman’s 6 that a household bal- bankruptcy bankruptcy binds. ance sheet channel 0.27 1.1 1,100 225 • was a key conduit Banking Distress of financial distress and the Real Economy during the Great 0.23 1.0 1,000 200 Recession. The left The mirror image panel in Figure 1 0.19 0.9 900 175 of the sharp increase shows the behavior in household indebt- of household debt edness portrayed in to income (the blue 0.15 0.8 800 150 Figure 1 was a sharp line) versus debt to 2004 2006 2008 2010 2012 2004 2006 2008 2010 2012 increase in the lever- assets (the gray line) aging of the banking Source: M. Gertler and S. Gilchrist, NBER Working Paper No. 24746, and as “What Happened: Financial Factors in the Great over the period 2004 Recession,” Journal of Economic Perspectives, 2018, Vol. 32(3), pp. 3–30 system, particularly to 2012. The right the shadow banking panel shows house Figure 1 system that operated prices (the blue outside the direct reg- line) and consumer durable consumption or non-tradable employment — to ulatory control of the Federal Reserve. tion (the gray line). In each panel the the decline in household net worth, The right panel in Figure 2, on the next shaded band is the recession and the where the latter is measured by the rate page, illustrates the behavior of the liabil- solid vertical line is the date of the of decline in home prices weighted ities of broker/dealers — the investment Lehman bankruptcy. Preceding the cri- by household leverage at the begin- banks that were the main actors in the sis there is a roughly 20 percent run- ning of the crisis. They identify exog- shadow banking sector. The growth of up of household debt as a percent- enous variation in household net worth the shadow banking sector financed the age of income. The debt-to-assets ratio using an instrumental variable based sharp increase in mortgage-related secu- remains stable until 2007, reflecting on local land supply elasticity. Because rities, a product of the housing boom that home prices increase along with the regression is cross-sectional and described earlier. Importantly, while the debt. However, as home prices decline time effects are removed, it is not pos- assets held by these institutions were starting in early 2007, the household sible to identify the aggregate effects of mainly long-term, the liabilities were debt-to-assets ratio sharply increases. the household balance sheet channel. mostly short-term. With the benefit of The weakening of household balance Nonetheless, the results provide per- hindsight, this maturity mismatch made sheets, in turn, leads to a sharp drop in suasive evidence of the existence of a them vulnerable to panic. The down- spending on consumer durables. household balance sheet channel.5 turn in house prices portrayed in Figure With aggregate data, however, it is The empirical work on the house- 1 not only weakened household balance difficult to identify causality. Aggregate hold balance sheet in turn motivated sheets, it induced losses in mortgage- housing prices could be responding to a vast theoretical literature that modi- related securities held by both shadow the decline in real activity, as opposed fies macroeconomic models to allow and commercial banks. The highly lever-

NBER Reporter • No. 2, June 2019 3 aged and lightly regulated shadow bank- Once again, to establish causality equity, weakening the banks’ balance ing sector was particularly vulnerable. it is necessary to go beyond the aggre- sheets, inducing a tightening of credit The losses on mortgage-related securi- gate data. A number of microdata stud- and in turn a reduction in real activity. In ties led to panic in markets for whole- ies have shown how the banking distress this respect, the models capture the basic sale short-term funding, culminating induced contractions in real activity. As way in which financial distress played in the failure of Lehman Brothers and with the work on the household balance out during the Great Recession.10 the investment banking collapse.7 The channel, the work on banking distress Work following the initial wave of collapse in broker/dealer liabilities por- exploits cross-sectional variation to iden- new research on banking focused on trayed in Figure 2 was the product of tify variation in banks’ financial health another important aspect of the crisis, these events. that was unrelated to borrower quality. namely the high degree of nonlinear- The role of the banking distress It then compares the behavior of bor- ity. Krishnamurthy, Stefan Nagel, and channel demonstrates that the weaken- rowers who had relationships with finan- Dmitry Orlov note that financial crises ing of bank balance sheets over the crisis cially stressed banks with those whose feature sharp increases in credit spreads induced a contraction in intermediation, banks were in good financial health. For and sharp contractions in asset prices raising the cost of credit and thus weak- example, Gabriel Chodorow-Reich finds and output, which is consistent with the ening real activity. As with the house- that firms that borrowed from commer- evidence presented in Figure 2.11 There is hold balance sheet no symmetric move- channel, the aggre- Banking Distress and GDP Growth ment in these vari- gate data provide ables during booms. some suggestive sup- Excess bond premium Real GDP growth Total broker-dealer liabilities (Trillions) One way to introduce port. The left panel in 3.0% 6% $5.0 nonlinearity is to Figure 2 plots GDP 2.5 4 assume that balance 4.5 growth against a mea- 2.0 2 sheet constraints bind sure of financial dis- 1.5 0 only occasionally, as tress, the excess bond 4.0 in work by Enrique premium (EBP) 1.0 -2 Mendoza and also developed by Simon 0.5 -4 3.5 work by Zhiguo He 12 Gilchrist and Egon 0.0 -6 and Krishnamurthy. Zakrajšek.8 The EBP 3.0 During booms the -0.5 Lehman’s -8 Lehman’s measures the spread Recession bankruptcy Recession bankruptcy constraints are slack. -1.0 -10 2.5 between the rate of 2004 2006 2008 2010 2012 2004 2006 2008 2010 2012 However, a negative return on corporate disturbance can move bonds and on simi- Source: M. Gertler, N. Kiyotaki, and A. Prestipino, NBER Working Paper No. 21892, and as “Wholesale Banking and Bank the economy into a Runs in Macroeconomic Modeling of Financial Crises,” Editors: J. B. Taylor and H. Uhlig, Handbook of Macroeconomics, lar maturity govern- Elsevier, 2016, Vol. 2, pp. 1345–425 region where the con- ment bonds, but with straints are binding, the default premium Figure 2 amplifying the effect removed. The lat- of the shock on the ter adjustment implies that increases in cial banks with exposure to Lehman downturn. In contrast, recent work cap- the EBP reflect elevation in the cost of Brothers experienced a much sharper tures the nonlinearity by allowing for credit as opposed to signals of increasing contraction in employment than banks banking panics in the form of a roll- default. As Figure 2 shows, the begin- not directly exposed.9 He shows further over crisis, a situation in which suppli- ning of the recession features relatively that the effects due to banking distress ers of short-term debt in panic-like fash- modest declines in output growth and account for a significant fraction of the ion decide to not roll over their loans to increases in the EBP. In the summer of overall employment decline. banks.13 This kind of panic was a central 2008, the recession appeared similar to The banking crisis prompted a stream feature of the crisis. the relatively mild downturns of 1990– of research that incorporated banking in As to why the recovery from the bank- 91 and 2001–02. However, as Figure 2 macroeconomic models, a feature con- ing crisis was so slow, Carmen Reinhart makes clear, closely correlated with the spicuously absent from pre-crisis models. and Kenneth Rogoff argue in a classic Lehman collapse is a sharp increase in A common dimension of the work was study that the process of deleveraging by the EBP along with a sharp contraction to introduce balance sheet constraints borrowers can lead to prolonged periods in GDP growth. This broad connection on banks stemming either from regu- of low spending.14 Robert Hall argues of banking disruption, rising credit costs, lation or incentive problems between that the contraction in investment spend- and declining real activity is highly sug- banks and their creditors. In these mod- ing during the Great Recession was large gestive of a banking distress channel. els, losses on loans induce a decline in enough to generate a nontrivial reduction

4 NBER Reporter • No. 2, June 2019 in the capital stock.15 Finally, Hall, John work has focused on leverage restric- zle, while others suggest a behavioral Fernald, James Stock, and Mark Watson tions on households in order to limit or incomplete information approach argue that the slow recovery was mainly the possibility of the kind of large run- to introduce myopia.21 Emmanuel the product of bad luck with some con- up of consumer debt that was a fea- Farhi and Iván Werning argue that a tractionary fiscal policy mixed in. The bad ture of the crisis.18 Most of the work, combination of financial fractions and luck was a productivity slowdown that though, has focused on the effects of myopia is needed to produce plausible began in 2005, several years before the regulatory capital requirements on quantitative results.22 Great Recession, and is still continuing.16 banks.19 A tradeoff that emerges is that Finally, given constraints on mon- tighter capital requirements reduce the etary policy, fiscal policy provides an • Policy Responses to the Crisis likelihood of a crisis but also lower out- option when the economy hits the put, on average, due to the constraint ZLB. A key question is the interaction Research has not only focused on on intermediation. In many settings, between fiscal policy and the ZLB. It improving our ability to analyze finan- countercyclical capital buffers appear is possible at the zero lower bound to cial crises, but also on analyzing pol- optimal. That is, if the goal is mac- increase the fiscal multiplier due to the icy responses. For example, a key new roeconomic stability, capital require- feedback effect of inflation on the real tool the Federal Reserve used to com- ments should be raised in good times interest rate, with the nominal interest bat the crisis was unconventional mon- and relaxed during recession. The high rate unchanged due to the ZLB.23 Emi etary policy, which involved adjusting capital requirements force banks to Nakamura and Jón Steinsson provide the size and composition of its balance build up a buffer that cushions them evidence using state data that accom- sheet. The prime example, popularly against negative shocks. Relaxing capi- modative monetary policy increases known as quantitative easing, involved tal requirements in bad times permits the fiscal multiplier.24 There is also purchasing agency mortgage-backed more intermediation and thus reduces some empirical evidence suggesting securities, agency debt, and long-term credit costs, facilitating the recovery. that fiscal multipliers are stronger in government debt, and funding these Finally, the crisis forced us to think recessions.25 acquisitions by issuing short-term gov- further about conventional monetary ernment debt in the form of interest- and fiscal policy. For monetary policy, 2. Economic Growth bearing government debt. With per- the challenge was confronting the zero fect financial markets, unconventional lower bound (ZLB) on the nominal Economic growth is a thriving monetary policy is neutral: government interest rate. Earlier research suggested topic of inquiry. This section high- intermediation of long-term securities that a central bank could use forward lights two findings in particular. The simply displaces private intermedia- guidance to manage expectations of the first is declining business dynamism tion with no effect on security prices future path of the policy rate in this amidst lackluster productivity growth. and interest rates. During the Great kind of environment. A general finding The second is substantial — perhaps Recession, however, the financial dis- is that when the central bank is con- growing — misallocation of capital and tress induced a contraction in invest- fronting a liquidity trap, expansionary labor across firms and establishments. ment banking, raising credit costs by policy involves a promise to keep rates elevating both credit spreads on private “lower for longer,” that is, keep them • Declining Dynamism and securities and term premiums on long- low beyond the point at which the Lackluster Growth term bonds. In this kind of environ- ZLB is not binding.20 Lengthening the ment, unconventional monetary pol- expected period of low rates provides Productivity growth — as opposed icy can be effective in reducing credit stimulus to the economy by reducing to growth in human and physical capi- costs. Indeed, purchases of securities longer-term rates. tal — is the main force behind rising out- funded by interest-bearing reserves can The existing models suggest a put per worker hour.26 Firms, in turn, are be thought of as increasing govern- counterfactually powerful effect of key contributors to productivity growth. ment financial intermediation to offset forward guidance. This conundrum, Those firms that successfully innovate the contraction of private intermedia- dubbed the “forward guidance puz- survive and grow. Those that fail to inno- tion. By doing so, it reduces both credit zle,” has attracted considerable atten- vate shrink and die. The rise and fall of spreads and term premiums that had tion because, among other things, it firms is considered an essential byprod- been elevated due to the crisis.17 suggests that the standard models may uct of progress. This notion goes back to In addition to research on how pol- not be trustworthy for analyzing pol- Joseph Schumpeter’s conception of cre- icy can respond as the crisis unfolds, icy that relies on managing private- ative destruction.27 In this vein, a major there has also been work on regula- sector expectations. Some researchers finding is that the entry and exit rates tory policies designed to limit the like- have argued that allowing for financial of firms and establishments have been lihood of a crisis ex ante. Some of this market frictions can address the puz- falling in the United States in recent

NBER Reporter • No. 2, June 2019 5 decades.28 A corollary is that realloca- tal and labor are allocated across a given tion of labor across firms and establish- Annual Growth of U.S. Total set of firms.40 There are large differ- ments has slowed.29 Young firms tend to Factor Productivity ences in the ratio of revenue to inputs grow faster than older firms, even condi- across firms and establishments, which tional on size.30 And young firms appear 3.0% may reflect gaps in the value of mar- to be more innovative than older firms ginal products and therefore misalloca- 2.5 in the sense of patenting more per unit tion.41 Such gaps are best documented of employment and receiving more cita- 2.0 in manufacturing and, as Figure 4 sug- tions to their patents.31 Falling entry gests, are larger in China and India 42 rates and exit rates, combined with fall- 1.5 than in the United States. ing reallocation among incumbents, are The gaps may stem partly from consistent with falling rates of creative 1.0 adjustment costs that are technologi- destruction and innovation by entering cally avoidable and hence do not rep- firms and establishments. 0.5 resent misallocation.43 But the gaps

Figure 3 shows that productivity 0.0 are too persistent to reflect adjust- 44 growth has ebbed and flowed in the 1949–1973 1974–1995 1996–2005 2006–2017 ment costs alone. Misallocation may United States over the last 70 years. contribute to both differences in lev- After exceeding 2.5 percent per year in Source: J. Fernald, NBER Working Paper No. 20248 els and growth rates of productivity the period 1949–73, growth slowed to across countries.45 Financial frictions less than 1 percent per year in 1974– Figure 3 are one possible source of misalloca- 95 — the infamous productivity growth tion.46 Financial frictions, like adjust- slowdown. Growth surged to above 2.5 size of the market for selling products ment costs, might be expected to have percent again for a decade beginning in embodying those ideas. A contrarian transitory effects on the allocation of the mid-1990s, largely fueled by indus- view holds that the slowdown itself inputs in the absence of ongoing idio- tries producing and using information is illusory because growth is increas- syncratic shocks.47 technology.32 Since 2005, however, ingly difficult to measure. But measur- Another possible source of misal- growth has faltered again, to about 1 ing growth has always been challeng- location is markup dispersion.48 Price- percent per year. ing.38 Official measures may understate cost markups could differ persistently Declining business dynamism is growth, but not increasingly so.39 across firms or even establishments one reason for the meager produc- • within firms. Because markups may tivity growth.33 But it may not be Misallocation differ even within industries, they can the primary contributor, at least not In addition to innovation within cause larger allocative distortions than directly.34 Incumbent firms do most firms, the level of U.S. productivity cross-industry markup dispersion.49 R&D and patenting, and most growth reflects the efficiency with which capi- Even average markups can distort inter- appears to come from mediate inputs and 50 quality improvements Distribution of Revenue Total Factor Productivity in Manufacturing labor supply. Rising by incumbents on their markups have been tied 35 own products. Density to the declining frac- A leading view is 0.7 tion of national income that the slowdown is a 0.6 going to workers, in the U.S. 51 byproduct of slowing 0.5 U.S. and elsewhere. population growth.36 Static misalloca- It appears that ideas are 0.4 tion of inputs can, China getting harder to find 0.3 in turn, undermine as the level of technol- 0.2 dynamic incentives to 37 ogy attained rises. India increase productivity In this view, growth 0.1 and expand into more has been maintained 0.0 establishments.52 Firms through rising research 1/8 1/4 1/2 1 2 4 8 may exhibit slower effort. Population Revenue total factor productivity growth over their life growth feeds this by Source: C. T. Hsieh and P. J. Klenow, NBER Working Paper No. 13290, and published as “Misallocation and Manufacturing cycle if they face fric- providing more talent TFP in China and India,” Quarterly Journal of Economics, 2009, Vol. 124(4), pp. 1403–48 tions in hiring and/ to search for new ideas or firing workers and and by expanding the Figure 4 in financing capital.53

6 NBER Reporter • No. 2, June 2019 Figure 5 shows that, roeconomic household conditional on survival, Average Employment over the Firm Lifecycle balance sheets and establishments grow Average number of employees, capitalizing reported normalized to 1 for firms less than 5 years old faster in the United 16 incomes [Figure 6]. States than in Mexico Wealth concentra- and India. U.S. tion was high early in 8 Misallocation can the 20th century, then take many other forms, fell from 1929 to 1978, such as the alloca- 4 and has continuously tion of crops to farm- Mexico increased since. The land, the allocation of 2 top 0.1 percent’s wealth land to farmers, and India share rose from 7 per- the allocation of tal- 1 cent in 1978 to 22 per- <5 5–9 10–14 15–19 20–24 25–29 30–34 35+ ent across occupations. Age of firm, years cent in 2012, about as And declining discrim- high as it was in 1929. ination against women Source: C. T. Hsieh and P. J. Klenow, NBER Working Paper No. 18133, and published as “The Life Cycle of Plants in India High wealth today tends and African Americans and Mexico,” Quarterly Journal of Economics, 2014, Vol. 129(3), pp. 1035–84 to be associated with may have boosted U.S. high income much more growth for much of the Figure 5 than in the past. An past 50 years.54 tial segregation; technological change increase in saving-rate inequality is also and labor market institutions; and the documented to be an important factor. 3. Income and Wealth Inequality effects of specific policy reforms. Xavier Gabaix, Jean-Michel Lasry, and Macroeconomics Pierre-Louis Lions, and Benjamin • Long-run Trends and Income Moll ask whether standard random- Over the last three decades, mac- and Wealth Dynamics growth models for the evolution of the roeconomists have become more income distribution can be modified to interested in the study of inequality. While many studies document explain the large increase in the upper The links between the distributional trends in income inequality, it is dif- tail of the distribution.56 Two depar- dynamics of income, human capital, ficult to find reliable data spanning tures from the standard framework and financial wealth, and their aggre- long periods on wealth inequality. help: heterogeneity in the “type” of gate dynamics now constitute a vast Emmanuel Saez and Gabriel Zucman55 different individuals, and “scale depen- area of research with clear relevance to estimate its evolution in the United dence.” The first admits the possibility current policy concerns. States since 1913 by combining indi- that some individuals — such as entre- Recently, the field has increas- vidual income tax returns with mac- preneurs — can attain higher returns ingly (and naturally) on their wealth than the shifted toward empir- Share of U.S. Wealth Owned by the Top 0.1% of Households, 1913–2012 rest of the population. ical and quantitative The second allows for studies, thanks to 30% multiplicative shocks increasingly sophisti- to the income distribu- cated data and meth- 25 tion that can have large odologies. At the same effects on high incomes, time, it retains strong 20 rather than just addi- links with the theo- tive shocks, which tend 15 retical work carried to have smaller effects out earlier. This sec- 10 in producing very high tion highlights recent incomes. The frame- advances and findings 5 work is tractable and in four areas: long- yields an analytical char- run trends and recent 0 acterization of the speed dynamics of income 1913 1923 1933 1943 1953 1963 1973 1983 1993 2003 2013 of convergence of the and wealth distribu- Source: E. Saez and G. Zucman, NBER Working Paper No. 20625, and as "Wealth Inequality in the United States since 1913: cross-sectional income tions; links between Evidence from Capitalized Income Tax Data," Quarterly Journal of Economics, 2016, Vol. 131(2), pp. 519–78 distribution. In a related human capital, social study, Jess Benhabib, mobility, and residen- Figure 6 Alberto Bisin, and Mi

NBER Reporter • No. 2, June 2019 7 Luo match a parsimonious macroeco- the empirical distribution well, and in the macroeconomic consequences nomic model to key moments of the particular features a realistically large of large-scale early-childhood devel- distribution of wealth and the social- proportion of agents with low wealth. opment policies.61 Using a dynamic mobility matrix.57 This allows them to When these wealth-poor agents are hit general-equilibrium macro model, he disentangle the contribution of three by a large aggregate shock, they adjust traces the cumulative effects of such factors, all of which are found to be their consumption dramatically, which interventions on the skill formation of important in replicating the thick upper makes the model consistent with the successive generations and finds that tail of incomes and the observed extent evidence of a large fall in consumption the resulting welfare gains are twice of social mobility: heterogeneous and during the Great Recession. as large in the long run as in the short random returns to run, even taking into wealth, heterogeneity account attenuating in savings, and capital- Variation in Risk-Adjusted Return by Household Wealth Holding general-equilibrium income risk. effects, such as those of These findings Average risk-adjusted return to financial wealth, 2005–15 taxation. align well with those 0.015 Matthias Doepke of an empirical study and Fabrizio Zilibotti by Andreas Fagereng, 0.010 relate inequality, par- Luigi Guiso, Davide enting practices, and Malacrino, and Luigi the process of human 58 62 Pistaferri. Using tax 0.005 capital formation. records from Norway, They document that, their study documents in countries with high significant heteroge- 0.000 and growing economic neity in the returns 0 20 40 60 80 100 inequality such as the investors earn on their Percentile of financial wealth distribution, 2004 United States and assets. Interestingly, China, parents push Average risk-adjusted return are coe icients obtained by regressing the average return for the this does not solely 2005–2015 period against the standard deviation of individual returns over the same period. their children harder arise from different Source: A. Fagereng, L. Guiso, D. Malacrino, and L. Pistaferri, NBER Working Paper No. 22822 to become academic portfolio allocation achievers, whereas in between safe and risky Figure 7 more equal societies assets: Returns are het- like Sweden, Germany, erogeneous even within asset classes, • Inequality, Human Capital, and and Japan, parents care more about and moreover they are persistently pos- Residential Segregation promoting their children’s indepen- itively correlated with wealth [Figure dent development. Within the United 7]. All of these studies conclude that Leaving aside the very top of the States, the researchers document an heterogeneous returns to wealth are an income distribution, growing inequal- increasing “parenting gap” between important determinant of persistent ity in the United States and else- richer and poorer families, raising the wealth inequality. where stems in important part from prospect of diminished social mobility A number of studies have focused increasing skill and educational pre- and fewer opportunities for children specifically on the distributional effects miums, together with large differences from disadvantaged backgrounds. of the Great Recession, particularly in human capital across households. Another key driver of both inequal- for low incomes. Dirk Krueger, Kurt A growing applied microeconom- ity and intergenerational social mobil- Mitman, and Fabrizio Perri construct ics literature finds that a significant ity is residential and social segrega- a heterogeneous-agent model with part of this inequality can be traced tion. Alessandra Fogli and Veronica incomplete markets.59 Since this class back to early childhood, and that pro- Guerrieri document a significant cor- of models, when calibrated to a real- grams targeting poor families can have relation between income inequality istic income process, fails to produce important effects on the cognitive and and residential segregation over the sufficient dispersion in the wealth dis- noncognitive skills of their children. last three decades, both in the time- tribution, the researchers augment it Early work by Oded Galor and Joseph series and across metropolitan statistical with preference heterogeneity, idiosyn- Zeira showed how, due to credit-mar- areas.63 They construct a dynamic gen- cratic labor income risk, and a life-cycle ket imperfections, inequality can have eral-equilibrium model in which local structure that allows them to consider adverse effects on aggregate human cap- spillovers in education generate a feed- Social Security and unemployment ital formation and income growth.60 back mechanism between segregation insurance. The augmented model fits Diego Daruich examines quantitatively and income inequality. Calibrating the

8 NBER Reporter • No. 2, June 2019 model using census data to match the associated with innovation tends to Two areas in which there have been micro estimates of these spillovers from decrease subjective well-being, but less particularly important applications are Raj Chetty and Nathaniel Hendren,64 so in the presence of more generous the study of how heterogeneity affects they show that endogenous residen- unemployment benefits.68 the transmission of monetary and fis- tial segregation substantially magni- cal policy, and the use of regional het- fies the effects of exogenous increases • Tax and Regulatory Reforms erogeneity to draw implications about in the returns to education. A closely Policy is, of course, another impor- aggregate behavior. related amplifying mechanism is assor- tant determinant of the distribu- Prior to the Great Recession, tative mating in the marriage market. tion of incomes, both pre-and post- many researchers used the representa- As people live in increasingly stratified tax. Stefania Albanesi and Jaromir tive household framework with per- neighborhoods, highly educated people Nosal study the effects of a 2005 fect financial markets to analyze mon- meet mostly highly educated people, so reform of personal bankruptcy in the etary and fiscal policy. In addition to it is harder for those coming from the United States, the Bankruptcy Abuse being unrealistic, the representative lower ranks of society to move up the Prevention and Consumer Protection agent framework predicts a very strong ladder through marrying up, a tradi- Act, which increased the costs of fil- response of household consumption to tional vehicle of social mobility. Lasse ing and restricted eligibility.69 Using interest rates due to intertemporal sub- Eika, Magne Mogstad, and Basit Zafar administrative credit-file data, the study stitution. That is not seen in the data, study the extent of educational assor- documents that this act caused a large which makes the framework question- tative matching in the U.S. and four drop in filings for straight bankruptcy, able for studying monetary policy. The European countries,65 and show that it especially for low-income individuals, heterogeneous agent framework allows is indeed an important determinant of but also a large permanent rise in insol- for borrowing and lending among the level of inequality. In terms of time vency. They conclude that the reform households, along with realistic frictions trends for the U.S., however, they find may have reduced the provision of valu- in this process. Because this framework mixed results: Since the 1980s, there able insurance for poor households. recognizes that a sizeable fraction of has been little change in educational Katrine Jakobsen, Kristian Jakobsen, households face borrowing constraints, assortative mating, suggesting that this Henrik Kleven, and Zucman document overall consumption is not as sensi- may not have been a primary factor in the effects of wealth taxes on wealth tive to interest rate movements in this the rising inequality observed here in accumulation, using administrative framework as in the representative agent recent decades. data from Denmark.70 This country setting. Accordingly, the heterogeneous The debate on the relationship had a large wealth tax, which was first agent framework is better able to cap- between technology and the income reduced and then abolished between ture the monetary policy transmission distribution has been lively since the 1989 and 1997. The researchers con- mechanism and the distributional con- late 1980s, and in recent years, artifi- struct a lifecycle model and show that a sequences of monetary policy.71 cial intelligence and automation have calibrated version predicts a high long- On the other hand, the representa- attracted substantial attention. Daron run elasticity of wealth with respect to tive agent framework understates the Acemoglu and Pascual Restrepo pres- the net-of-tax return, especially for the effect of fiscal policy. The Ricardian ent evidence that robots are substitut- wealthiest individuals, hence a substan- equivalence theorem, which implies ing for jobs in manufacturing.66 David tial impact on inequality. that tax cuts do not affect household Autor and Anna Salomons argue that spending, holds: Households sim- automation shifts labor across indus- 4. Methodological Advance: ply adjust saving to pay future taxes. tries and pushes down labor’s share of Heterogeneous Agent Models Within the heterogeneous agent frame- income within industries.67 work, tax cuts stimulate spending due Through incomes and a variety of Stimulated in part by the need to to the fact that some households are other channels, innovation and creative better understand the dynamics of the at or near their respective borrowing destruction ultimately affect people’s 2008 financial crisis and the impact constraints. Accordingly, the heteroge- well-being. This is especially impor- of the policy response, heterogeneous neous agent framework offers a more tant in light of the evidence that, over agent modeling has been an area in realistic approach to studying fiscal recent years, certain groups in the pop- which research has advanced rapidly in policy.72 ulation — most notably, white males recent years. Models in this tradition In part because of the substantial in middle age — exhibited a significant focus on differences across households differences across places in the sever- deterioration in their health and per- or firms as critical for macroeconomic ity of the Great Recession, in recent ceived welfare. Philippe Aghion, Ufuk dynamics. Progress on this topic has studies researchers have estimated local Akcigit, Angus Deaton, and Alexandra included both important methodologi- employment, wage, consumption, and Roulet document that job destruction cal advances and substantive findings. output elasticities with respect to plau-

NBER Reporter • No. 2, June 2019 9 sibly identified exogenous regional 4 A. Mian and A. Sufi, “House Prices, Financial Crisis,” Quarterly Journal of shocks. Given the importance of gen- Home Equity-Based Borrowing, and the Economics, 129(1), 2013, pp. 1–59. For eral equilibrium forces, these regional U.S. Household Leverage Crisis,” NBER related evidence on how the disruption elasticities to a given shock do not Working Paper No. 15283, August of intermediation financial affected non- directly measure aggregate elastici- 2009, and A. Mian and A. Sufi, “What financial firms, see G. Chodorow-Reich ties to the same shock. In order to Explains High Unemployment? The and A. Falato, “The Loan Covenant translate well-identified regional elas- Aggregate Demand Channel,” NBER Channel: How Bank Health Transmits to ticities to meaningful aggregate elas- Working Paper No. 17830, February the Real Economy,” NBER Working Paper ticities for macroeconomic analysis, 2012. No. 23879, September 2017; S. Gilchrist, some additional structure is needed. Return to Text R. Schoenle, J. Sim, and E. Zakrajšek, Several important papers have devel- 5 A voluminous empirical literature “Inflation Dynamics During the Financial oped procedures linking well-identified has followed that essentially confirms Crisis,” NBER Working Paper No. 22827, regional estimates so that they speak Mian and Sufi’s findings, including, for November 2016; B. Chen, S. Hanson, and more directly to issues of aggregate example, G. K. Mitman and G. Violante, J. Stein, “The Decline of Big-Bank Lending fluctuations. For example, Nakamura “Non-durable Consumption and Housing to Small Business: Dynamic Impacts on and Steinsson use a structural model Net Worth in the Great Recession: Local Credit and Labor Markets,” NBER to show how estimates of local gov- Evidence from Easily Accessible Data,” Working Paper No. 23843, September ernment multipliers can inform aggre- NBER Working Paper No. 22232, May 2017. E. Benmelech, R. Meisenzahl, gate multipliers.73 Martin Beraja, Erik 2016; and C. Jones, V. Midrigan, and T. and R. Ramcharan, “The Real Effects of Hurst, and Juan Ospina develop a meth- Philippon, “Household Leverage and the Liquidity During the Financial Crisis: odology to combine regional data with Recession,” NBER Working Paper No. Evidence from Automobiles,” NBER aggregate data to discipline nominal 16965, April 2011. Working Paper No. 22148, April 2016, wage rigidities in New Keynesian mod- Return to Text present evidence on how such disruptions els.74 Beraja, Andreas Fuster, Hurst, 6 Examples of models with this feature affected household auto demand. and Joseph Vavra use regional variation include V. Guerrieri and G. Lorenzoni, Return to Text to explore the time-varying aggregate “Credit Crises, Precautionary Savings, 10 Z. He and A. Krishnamurthy, “A effects of monetary policy.75 Rodrigo and the Liquidity Trap,” NBER Working Macroeconomic Framework for Q uantifying Adao, Costas Arkolakis, and Federico Paper No. 17583, November 2011; G. Systemic Risk,” NBER Working Paper No. Esposito use a structural model to map Kaplan, K. Mitman, and G. Violante, 19885, February 2014, present a model in well identified estimates of the local “The Housing Boom and Bust: Model this tradition. employment effects of trade shocks Meets Evidence,” NBER Working Paper Return to Text to aggregate employment trends.76 No. 23694, August 2017; D. Berger, V. 11 A. Krishnamurthy, S. Nagel, and D. Callum Jones, Midrigan Virgiliu, and Guerrieri, G. Lorenzoni, and J. Vavra, Orlov, “Sizing Up Repo,” NBER Working Thomas Philippon were among the “House Prices and Consumer Spending,” Paper No. 17768, January 2012. first to use regional data in an equilib- NBER Working Paper No. 21667, Return to Text rium dynamic macro model to study October 2015; and A. Justiniano, G. 12 E. Mendoza, “Sudden Stops, Financial the origins of the Great Recession.77 Primiceri, and A. Tambalotti, “Credit Crises, and Leverage: A Fisherian Supply and the Housing Boom,” NBER Deflation of Tobin’s Q,” NBER Working 1 M. Gertler and S. Gilchrist, “What Working Paper No. 20874, January 2015. Paper No. 14444, October 2008; Z. He Happened: Financial Factors in the Return to Text and A. Krishnamurthy, “A Macroeconomic Great Recession,” NBER Working Paper 7 M. Gertler, N. Kiyotaki, and A. Framework for Quantifying Systemic No. 24746, June 2019, provide a time Prestipino, “A Macroeconomic Model with Risk,” NBER Working Paper No. 19885, , line of the crisis that highlights these Financial Panics,” NBER Working Paper February 2014, revised May 2019. two channels. No. 24126, December 2017, provides a Return to Text Return to Text timeline of the rise and fall of the shadow 13 M. Gertler and N. Kiyotaki, “Banking, 2 O. Jordà, M. Schularik, and A. Taylor, banking sector. Liquidity, and Bank Runs in an Infinite- “Macrofinancial History and the New Return to Text Horizon Economy,” NBER Working Paper Business Cycle Facts,” NBER Working 8 S. Gilchrist and E. Zakrajšek, “Credit No. 19129, June 2013; and ibid., NBER Paper No. 22743, October 2016. Spreads and Business Cycle Fluctuations,” Working Paper No. 24126. Return to Text NBER Working Paper No. 17021, May Return to Text 3 A. Krishnamurthy and T. Muir, 2011. 14 C. Reinhart and K. Rogoff, This “How Credit Cycles Across a Financial Return to Text Time is Different: Eight Centuries of Crisis,” NBER Working Paper No. 23850, 9 G. Chodorow-Reich, “The Employment Financial Folly, Princeton, N.J.: Princeton September 2017. Effects of Credit Market Disruptions, University Press, 2009. Return to Text Firm-level Evidence from the 2008-2009 Return to Text

10 NBER Reporter • No. 2, June 2019 15 R. Hall, “Quantifying the Lasting Common Knowledge,” NBER Working Responsiveness,” NBER Working Paper Harm to the U.S. Economy from the Paper No. 22785, October 2016; and X. No. 24236, January 2018. Financial Crisis,” NBER Working Paper Gabaix, “A Behavioral New Keynesian Return to Text No. 20183, May 2014. Model,” NBER Working Paper No. 22954, 30 J. Haltiwanger, R. Jarmin, and J. Return to Text December 2016. Miranda, “Who Creates Jobs? Small vs. 16 J. Fernald, R. Hall, J. Stock, and M. Return to Text Large vs. Young,” NBER Working Paper Watson, “The Disappointing Recovery of 22 E. Farhi and I. Werning, “Monetary No. 16300, August 2010, and Review of Output after 2009,” NBER Working Paper Policy, Bounded Rationality, and Economics and Statistics, 95(2), 2013, No. 23543, June 2017. Incomplete Markets,” NBER Working pp. 347–61. Return to Text Paper No. 23281, March 2017. Return to Text 17 Empirical work by A. Krishnamurthy Return to Text 31 U. Akcigit and W. Kerr, “Growth and A. Vissing-Jorgensen, “The Effects of 23 L. Christiano, M. Eichenbaum, and through Heterogeneous Innovations,” Quantitative Easing on Interest Rates: S. Rebelo, “When Is the Government NBER Working Paper No. 16443, Channels and Implications for Policy,” Spending Multiplier Large?” NBER November 2010, and Journal of Political NBER Working Paper No. 17555, and Working Paper No. 15394, October 2009. Economy, 126(4), 2018, pp. 1374–1443. others provides evidence for this kind of Return to Text Return to Text mechanism. 24 E. Nakamura and J. Steinsson, “High 32 J. Fernald, “Productivity and Return to Text Frequency Identification of Monetary Non- Potential Output Before, During, and 18 Examples include E. Farhi and I. Neutrality: The Information Effect,” NBER After the Great Recession,” NBER Werning, “A Theory of Macroprudential Working Paper No. 19260, July 2013. Working Paper No. 20248, June 2014, Policies in the Presence of Nominal Return to Text and NBER Macroeconomics Annual Rigidities,” NBER Working Paper No. 25 A. Auerbach and Y. Gorodnichenko, 2014, pp. 1–51. 19313, and A. Korinek and A. Simsek, “Fiscal Multipliers in Recession and Return to Text “Liquidity Trap and Excessive Leverage,” Expansion,” NBER Working Paper No. 33 T. Alon, D. Berger, R. Dent, and B. NBER Working Paper No. 19970, 17447, September 2011; V. Ramey, “ Te n Pugsley, “Older and Slower: The Startup March 2014. Years after the Financial Crisis: What Deficit’s Lasting Effects on Aggregate Return to Text Have We Learned from the Renaissance in Productivity Growth,” NBER Working 19 Examples include E. Farhi and Fiscal Research?” NBER Working Paper Paper No. 23875, September 2017, and J. Tirole, “Collective Moral Hazard, No. 25531, February 2019, suggests cau- Journal of Monetary Economics, 93, Maturity Mismatch, and Systemic tion in drawing conclusions about the 2018, pp. 68–85. Bailouts,” NBER Working Paper No. variation in the fiscal multiplier over the Return to Text 15138, July 2009; V. Chari and P. Kehoe, cycle. 34 D. Garcia-Macia, C. Hsieh, and P. “Bailouts, Time Inconsistency, and Return to Text Klenow, “How Destructive is Innovation?” Optimal Regulation,” NBER Working 26 C. Jones, “The Facts of Economic NBER Working Paper No. 22953, Paper No. 19192, June 2013; and J. Growth,” NBER Working Paper No. December 2016, and forthcoming in Bianchi and E. Mendoza, “Optimal 21142, May 2015, and Handbook of Econometrica. Time-Consistent Macroprudential Policy,” Macroeconomics, 2, 2016, pp. 3–69. Return to Text NBER Working Paper No. 19704, Return to Text 35 C. Hottman, S. Redding and D. December 2013. 27 P. Aghion, U. Akcigit, and P. Weinstein, “Quantifying the Sources of Return to Text Howitt, “What Do We Learn From Firm Heterogeneity,” NBER Working 20 I. Werning, “Managing a Liquidity Schumpeterian Growth Theory?” NBER Paper No. 20436, August 2014, and Trap: Monetary and Fiscal Policy,” NBER Working Paper No. 18824, February Quarterly Journal of Economics, 131(3), Working Paper No. 17344, August 2011. 2013; and Handbook of Economic 2016, pp. 1291–364. Return to Text Growth, 2, 2016, pp. 515–63. Return to Text 21 Research on this topic includes A. Return to Text 36 R. Gordon, “Why Has Economic McKay, E. Nakamura, and J. Steinsson, 28 U. Akcigit and S. Ates, “Ten Facts Growth Slowed When Innovation Appears “The Power of Forward Guidance on Declining Business Dynamism and to be Accelerating?” NBER Working Paper Revisited,” NBER Working Paper No. Lessons from Endogenous Growth No. 24554, April 2018. 20882, January 2015; M. Garcia-Schmidt Theory,” NBER Working Paper No. Return to Text and M. Woodford, “Are Low Interest 25755, April 2019. 37 N. Bloom, C. Jones, J. Van Reenen, and Rates Deflationary? A Paradox of Perfect- Return to Text M. Webb, “Are Ideas Getting Harder to Foresight Analysis,” NBER Working Paper 29 R. Decker, J. Haltiwanger, R. Jarmin, Find?” NBER Working Paper No. 23782, No. 21614, October 2015; G. Angeletos and J. Miranda, “Changing Business September 2017. and C. Lian, “Forward Guidance without Dynamism and Productivity: Shocks vs. Return to Text

NBER Reporter • No. 2, June 2019 11 38 C. Syverson, “Challenges to Revoltella, J. Svejnar, and C.T. Weiss, Economics, 129(3), 2014, pp. 1035–84. Mismeasurement Explanations for the “Resource Misallocation in European Return to Text U.S. Productivity Slowdown,” NBER Firms: The Role of Constraints, Firm 54 C. Hsieh, E. Hurst, C. Jones, and P. Working Paper No. 21974, February Characteristics, and Managerial Klenow, “The Allocation of Talent and 2016, and Journal of Economic Decisions,” NBER Working Paper No. U.S. Economic Growth,” NBER Working Perspectives, 31(2), 2017, pp. 165–86. 24444, March 2018. Paper No. 18693, January 2013, and Return to Text Return to Text forthcoming in Econometrica. 39 P. Aghion, A. Bergeaud, T. Boppart, 46 F. Buera, J. Kaboski, and Y. Shin, Return to Text P. Klenow, and H. Li, “Missing Growth “Finance and Development: A Tale of 55 E. Saez and G. Zucman, “Wealth from Creative Destruction,” NBER Two Sectors,” NBER Working Paper Inequality in the United States since 1913: Working Paper No. 24023, November No. 14914, April 2009, and American Evidence from Capitalized Income Tax 2017, and forthcoming in American Economic Review, 101(5), 2011, pp. D a t a ,” NBER Working Paper No. 20625, Economic Review. 1964-2002; A. Eisfeldt and Y. Shi, October 2014, and Quarterly Journal of Return to Text “Capital Reallocation,” NBER Working Economics, 131(2), 2016, pp. 519–78. 40 D. Restuccia and R. Rogerson, “The Paper No. 25085, September 2018. Return to Text Causes and Costs of Misallocation,” NBER Return to Text 56 X. Gabaix, J. Lasry, P. Lions, and Working Paper No. 23422, May 2017, 47 V. Midrigan and D.Y. Xu, “Finance and B. Moll, “The Dynamics of Inequality,” and Journal of Economic Perspectives, Misallocation: Evidence from Plant-Level NBER Working Paper No. 21363, July 31(3), 2017, pp. 151–74. D a t a ,” NBER Working Paper No. 15647, 2015, and Econometrica, 84(6), 2016, Return to Text January 2010, and American Economic pp. 2071–111. 41 C. Syverson, “What Determines Review, 104(2), 2014, pp. 422–58. Return to Text Productivity?” NBER Working Paper Return to Text 57 J. Benhabib, A. Bisin, and M. Luo, No. 15712, January 2010, and Journal 48 M. Peters, “Heterogeneous Mark-ups “Wealth Distribution and Social Mobility of Economic Literature, 49(2), 2011, and Endogenous Misallocation,” MIT in the U.S.: A Quantitative Approach,” pp. 326–65. Working Paper, 2011. NBER Working Paper No. 21721, Return to Text Return to Text December 2015, and American Economic 42 C. Hsieh and P. Klenow, “Misallocation 49 D. Baqaee and E. Farhi, “Productivity Review, 109(5), 2019, pp. 1623–47. and Manufacturing TFP in China and and Misallocation in General Return to Text India,” NBER Working Paper No. 13290, Equilibrium,” NBER Working Paper No. 58 A. Fagereng, L. Guiso, D. Malacrino, August 2007, and Quarterly Journal of 24007, November 2017. and L. Pistaferri, “Heterogeneity and Economics, 124(4), pp. 1403–48, 2009. Return to Text Persistence in Returns to Wealth,” Return to Text 50 C. Edmond, V. Midrigan, D. Xu, “How NBER Working Paper No. 22822, 43 A. Collard-Wexler, J. Asker, and J. De Costly are Markups?” NBER Working November 2016. Loecker, “Productivity Volatility and the Paper No. 24800, July 2018. Return to Text Misallocation of Resources in Developing Return to Text 59 D. Krueger, K. Mitman, and F. Economies,” NBER Working Paper No. 51 D. Autor, D. Dorn, L. Katz, C. Perri, “Macroeconomics and Household 17175, June 2011, and published as Patterson, and J. Van Reenen, “The Fall of Heterogeneity,” NBER Working Paper No. “Dynamic Inputs and Resource (Mis) the Labor Share and the Rise of Superstar 22319, June 2016. Allocation,” Journal of Political Economy, Firms,” NBER Working Paper No. Return to Text 122(5), 2014, pp. 1013–63. 23396, May 2017; J. De Loecker and J. 60 O. Galor and J. Zeira, “Income Return to Text Eeckhout, “The Rise of Market Power and Distribution and Macroeconomics,” 44 J.M. David and V. Venkateswaran, the Macroeconomic Implications,” NBER Review of Economic Studies, 60(1), “The Sources of Capital Misallocation,” Working Paper No. 23687, August 2017. 1993, pp. 35–52. NBER Working Paper No. 23129, Return to Text Return to Text February 2017, and forthcoming in the 52 U. Akcigit, H. Alp, and M. Peters, 61 D. Daruich, “The Macroeconomic American Economic Review. “Lack of Selection and Limits to Consequences of Early Childhood Return to Text Delegation: Firm Dynamics in Developing Development Policies,” Federal Reserve 45 G. Gopinath, S. Kalemli-Ozcan, L. Countries,” NBER Working Paper No. Bank of Minneapolis System Working Karabarbounis, and C. Villegas-Sanchez, 21905, January 2016. Paper 18–18, 2018. “Capital Allocation and Productivity in Return to Text Return to Text South Europe,” NBER Working Paper 53 C. Hsieh and P. Klenow, “The Life 62 M. Doepke and F. Zilibotti, “Parenting No. 21453, August 2015, and Quarterly Cycle of Plants in India and Mexico,” with Style: Altruism and Paternalism Journal of Economics, 132(4), 2017, NBER Working Paper No. 18133, in Intergenerational Preference pp. 1915–67; Y. Gorodnichenko, D. June 2012, and Quarterly Journal of Transmission,” NBER Working Paper No.

12 NBER Reporter • No. 2, June 2019 20214, June 2014, and Econometrica, American Economic Review, 106(12), Payments,” NBER Working Paper 85(5), 2017, pp. 1331–71. 2016, pp. 3869–97. No. 17338, August 2011; A. McKay Return to Text Return to Text and R. Reis, “The Role of Automatic 63 A. Fogli and V. Guerrieri, “The End 69 S. Albanesi and J. Nosal, “Insolvency Stabilizers in the U.S. Business Cycle,” of the American Dream? Inequality after the 2005 Bankruptcy Reform,” NBER Working Paper No. 19000, April and Segregation in U.S. Cities,” Mimeo, NBER Working Paper No. 24934, August 2013; and H. Oh and R. Reis, “ Targeted University of Chicago, Booth School of 2018. Transfers and the Fiscal Response to the Business, 2018. Return to Text Great Recession,” NBER Working Paper Return to Text 70 K. Jakobsen, K. Jakobsen, H. Kleven, No. 16775, February 2011. 64 R. Chetty and N. Hendren, and G. Zucman, “Wealth Taxation Return to Text “The Impacts of Neighborhoods on and Wealth Accumulation: Theory and 73 E. Nakamura and J. Steinsson, “Fiscal Intergenerational Mobility II: County- Evidence from Denmark,” NBER Working Stimulus in a Monetary Union: Evidence Level Estimates,” NBER Working Paper Paper No. 24371, March 2018. from U.S. Regions,” NBER Working Paper No. 23002, and Quarterly Journal of Return to Text No. 17391, September 2011. Economics, 2018, 133(3), 2018, pp. 71 Studies that employ the heterogeneous Return to Text 1163–1228. agent approach to analyze monetary 74 M. Beraja, E. Hurst, and J. Ospina, Return to Text policy include A. Auclert, “Monetary “The Aggregate Implications of Regional 65 L. Eika, M. Mogstad, and B. Zafar, Policy and the Redistribution Channel,” Business Cycles,” NBER Working Paper “Educational Assortative Mating and NBER Working Paper No. 23451, No. 21956, February 2016. Household Income Inequality,” NBER May 2017; G. Kaplan, B. Moll, and G. Return to Text Working Paper No. 20271, July 2014, and Violante, “Monetary Policy According 75 M. Beraja, A. Fuster, E. Hurst, and forthcoming in Journal of Political Economy. t o H A N K ,” NBER Working Paper No. J. Vavra, “Regional Heterogeneity and Return to Text 21897, January 2016; A. McKay, E. Monetary Policy,” NBER Working 66 D. Acemoglu and P. Restrepo, “Robots Nakamura, and J. Steinsson, “The Power Paper No. 23270, March 2017, and and Jobs: Evidence from U.S. Labor of Forward Guidance Revisited,” NBER Quarterly Journal of Economics, Markets,” NBER Working Paper No. Working Paper No. 20882, January 2015; 134(1), 2019, pp. 109–83. 23285, March 2017. and I. Werning, “Incomplete Markets and Return to Text Return to Text Aggregate Demand,” NBER Working 76 R. Adão, C. Arkolakis, and F. Esposito, 67 D. Autor and A. Salomons, “Is Paper No. 21448, August 2015. “Spatial Linkages, Global Shocks, and Automation Labor-Displacing? Return to Text Local Labor Markets: Theory and Productivity Growth, Employment, and 72 Studies that employ the hetero- Evidence,” NBER Working Paper No. the Labor Share,” NBER Working Paper geneous agent approach to analyze 25544, February 2019. No. 24871, July 2018. fiscal policy include M. Hagdorn, Return to Text Return to Text I. Manovskii, and K. Mitman, “The 77 C. Jones, V. Midrigan, and T. 68 P. Aghion, U. Akcigit, A. Deaton, and Fiscal Multiplier,” NBER Working Philippon, “Household Leverage and the A. Roulet, “Creative Destruction and Paper No. 25571, February 2019; G. Recession,” NBER Working Paper No. Subjective Well-Being,” NBER Working Kaplan and G. Violante, “A Model of the 16965, April 2011. Paper No. 21069, April 2015, and Consumption Response to Fiscal Stimulus Return to Text

NBER Reporter • No. 2, June 2019 13 Research Summaries

Changes in the Character of the Labor Market over the Business Cycle

Lisa B. Kahn

Economists have long been interested and David Autor provide a survey.1 in the immediate consequences of business Until recently, polarization had been cycle fluctuations. However, until recently, thought to be a gradual, secular phenomenon. they have paid less attention to the lasting However, a long theoretical literature begin- impacts of recessions on workers and firms. In ning with Joseph Schumpeter’s conception Lisa B. Kahn is a this piece, I summarize some of my research of creative destruction suggests that adjust- research associate in the contributions toward a better understanding ments to technological change may be more NBER’s Labor Studies of how and why recessions impact workers’ episodic. In boom times, high opportunity Program. She is a profes- careers both in the short and long run. costs, or frictions such as adjustment costs, sor of economics at the I begin by summarizing my work show- may inhibit resources from being reallocated University of Rochester and ing that the Great Recession accelerated firm- optimally in the face of technological change.2 a co-editor at the Journal of level adoption of technologies that replaced Recessions lower the opportunity cost and Human Resources. routine labor. As a consequence, workers pre- can produce large enough shocks to overcome Kahn’s research focuses viously employed in routine-task occupations these frictions. on understanding factors saw their skills rapidly depreciate and faced a Whether adjustments to new technol- that shape workers’ careers, more difficult recovery. I next discuss how the ogy are smooth or lumpy is important for pol- including both external business cycle impacts the job ladder. Workers icy and for our understanding of recoveries. market forces such as reces- tend to move up a wage ladder across firms, The recoveries from the last three U.S. recessions and technological gradually making their way to higher-paying sions (1991, 2001, 2007–09) have been job- change, and internal firm firms as they accumulate labor market experi- less: employment was slow to rebound despite practices, especially those ence. Recessions impede this process, result- recovery in aggregate output. Nir Jaimovich related to imperfect infor- ing in halting career progression, which is and Henry E. Siu provide suggestive evi- mation. She received her especially important for young workers. Both dence that polarization and jobless recovery Ph.D. in economics from of these areas of research imply long-lasting are linked, showing that the vast majority Harvard University in 2008, consequences of recessions for certain groups of declines in middle-skill employment have and holds an A.B. in eco- of workers. Finally, I describe my work quan- occurred during recessions and that, over the nomics from the University tifying the lasting impacts of recessions on same time period, recovery was jobless only in of Chicago. She was previ- careers of new college graduates. these occupations.3 If these episodic employ- ously an associate professor ment declines were driven by lumpy adjust- of economics at Yale School Technological Adoption ment to existing technologies, they would of Management. From 2010 and the Great Recession leave a mass of displaced workers with the to 2011, Kahn served on wrong skills for new production. President Obama’s Council One of the most important long-run In a recent paper, Brad Hershbein and I of Economic Advisers as trends in the U.S. labor market has been provide direct evidence that firm-level techno- the senior economist for the shift in employment and wages away logical adoption and restructuring of employ- labor and education policy. from occupations in the middle of the skill ment is episodic around recessions.4 We use She grew up in Ithaca, distribution toward those in the tails. This a new dataset collected by Burning Glass N.Y., and currently lives in so-called polarization has been linked to Technologies of the near-universe of electron- Rochester, N.Y., with her technological change, whereby new machine ically posted job vacancies to explore changes husband and their newborn technologies such as IT substitute for mid- in demand for skill over the Great Recession. daughter. dle-skill jobs and are in turn complementary Exploiting spatial variation in economic condi- to high-skill cognitive jobs. Daron Acemoglu tions, we establish a new fact: The skill require-

14 NBER Reporter • No. 2, June 2019 ments of job ads experienced a relative upskilled in job postings. These differences has distributional consequences, given increase in metropolitan statistical areas across MSAs emerge only after the Great that low-skill workers are well known (MSAs) that suffered larger employment Recession and, once again, persist through to suffer worse employment and wage shocks in the Great Recession. The left our sample period. We also link firms in consequences in recessions. Finally, this panel of Figure 1 illustrates our results, our job postings database to those in the type of episodic reallocation likely plays using as the dependent variable whether Harte Hanks database, as well as to pub- a role in the well-noted and marked an ad contains a cognitive skill require- licly traded firms in Compustat. We show decline in male employment-to-popula- ment. We obtain this skill measure from that firms increasing their capital invest- tion ratios over the past 25 years, espe- work I have done with David Deming ments, based on PC adoption and physi- cially since these declines have been stair- to categorize a range of keywords found cal capital holdings, are also more likely to step around recessions. in the job ads data into 10 general skills, upskill. Thus, increased demand for labor including cognitive, which includes key skill appears closely linked to both general Cyclical Job Ladders words and fragments like “analy,” “deci- and IT capital investment. sion,” and “thinking.”5 A hard-hit MSA Taken together, our results sug- Job mobility plays a central role sees an increase in demand for cognitive gest that firms in harder-hit cities were in earnings growth over the life cycle. skill, relative to its starting point in 2007 induced to restructure their production Despite frictions that can inhibit worker and relative to a less-hard-hit MSA. We toward greater use of technology and sorting, such as search costs or imper- find the same effects for a range of skill higher-skilled workers; that is, the Great fect information, workers are thought to requirements that are gradually climb a lad- known to be comple- der toward better jobs mentary with routine- Employment Restructuring and Technology Adoption Around the Great Recession and firms. This mobil- labor replacing tech- ity is especially impor- Percentage point change in number of job ads that Change in number of personal computers nologies. Moreover, contain a cognitive skill requirement, relative to 2007 per employee, relative to 2006 tant for young work- the vast majority of this 5 4 ers, who in general “upskilling” persists move jobs often, and 4 3 through the end of our increasingly matters sample in 2015, even 3 2 given the widening of while most measures earnings differentials of local labor-market 2 1 across firms.6 strength had returned At the same time, to pre-recession levels. 1 0 recessions impede These patterns col- worker mobility. For 0 -1 lectively raise the pos- 2007 2009 2011 2013 2015 2000 2002 2004 2006 2008 2010 2012 2014 example, in the Great sibility that a structural Recession, the volun- shift in the demand Light-blue shading represents 95% confidence intervals tary quit rate fell by half. Source: B. Hershbein and L. B. Kahn, NBER Working Paper No. 22762, and as “Do Recessions Accelerate Routine-Biased for skill occurred dis- Technological Change? Evidence from Vacancy Postings” in the American Economic Review, 3108(7), 2018, pp. 1737–72 How does this reduced proportionately in mobility impact career harder-hit MSAs. If Figure 1 progression up the job such a structural shift ladder, and what are the occurred and were driven by technologi- Recession hastened the polarization of consequences for workers? cal change, we would expect changes in the U.S. labor market. We demonstrate John Haltiwanger, Henry Hyatt, these skill requirements to be accompa- that during the Great Recession, firms Erika McEntarfer, and I explore whether nied by changes in production technolo- changed not only whom they would workers tend to move up a firm job ladder gies as well. Indeed, we find that increases hire in the recovery, but how they would and how any such progress is impacted in skill requirements are positively corre- produce. Instead of occurring gradually, by recessions.7 Using employer-employee lated with capital investments at both the with relatively few workers needing to matched data in the U.S., we show that in MSA and firm levels. The right panel of be reallocated at any given time, we find good times, workers tend to move from Figure 1 illustrates one piece of evidence. that changes in demand for skill were low- to high-paying firms. However, this Using the CI Technology Database from episodic, resulting in a swath of dis- mobility slows in downturns. For exam- Harte Hanks, a market intelligence firm, placed workers whose skills were sud- ple, in the Great Recession, movement we show that harder-hit MSAs exhib- denly rendered obsolete as firms ratch- away from the lowest-paying firms (bot- ited a relative increase in IT investments, eted up their requirements. The need to tom quintile) declined by 85 percent, as measured by the adoption of per- reallocate workers on such a large scale with an associated 40 percent decline in sonal computers, at the same time as they may drive jobless recoveries. This also earnings growth.

NBER Reporter • No. 2, June 2019 15 Our evidence is consistent with the outcomes across college majors and how age point below-average unemployment poaching models of Giuseppe Moscarini these effects changed over the period rate); the dotted lines show earnings for and Fabien Postel-Vinay: During slack 1974–2011.10 After a substantial data someone who graduated in a bust (a 4 per- markets, when there is less competition undertaking, involving piecing together centage point above-average unemploy- for workers, firms at the bottom of the seven datasets containing information on ment rate). job ladder can more easily retain workers college major and labor market outcomes, This figure shows several important who ordinarily would have been poached we provide the most comprehensive anal- patterns. First, the differences in earn- away.8 This means workers matching to ysis of U.S. data to date. Confirming my ings across majors are large and widen jobs in recessions spend relatively more earlier work, we find large negative wage with experience. Second, entry conditions time at firms at the bottom of the job consequences to graduating into a down- matter. At one year of potential experi- ladder before climbing up. turn that persist many years into a career. ence, one can easily see the gap in earn- Earnings losses from a lack of upward Furthermore, we find that majors with ings across boom and bust cohorts within mobility may be especially important typically higher earnings are somewhat major. The gap is largest for the low-return and persistent for young workers, who sheltered, while majors that tend to earn majors (gray lines). Correspondingly, the typically change jobs often. Given that less money suffer more from graduating time it takes to overcome this gap is lon- workers are much more likely to move into a recession. gest for the low-return major. We find up the job ladder during booms and that These effects are illustrated in Figure that busts tend to widen inequality, push- movements up the lad- ing workers away from der are critical for earn- the mean, while booms ings growth, our find- Average Earnings by Major, Market-Entry Conditions, and Experience tend to narrow inequal- ings suggest that the ity. Thus, a high-return Earnings (000s of 2006 dollars) cyclicality of the job lad- 90 major graduating in a der can have real con- Graduated during: bust widens his or her 80 Avg. level of unemployment sequences for work- 4 pp. below avg. unemployment advantage over the aver- 4 pp. above avg. unemployment Majors with earnings ers’ careers. These job 70 1.5 standard deviations age major, while a low- above average mobility dynamics will 60 return major graduating be especially important in a boom narrows his or 50 Majors with for workers such as new average earnings her disadvantage. labor market entrants 40 Majors with earnings This research high- 1.5 standard deviations who are forced to match 30 below average lights that recessions to firms in recessions, for have surprisingly long- 20 example. 1 2 3 4 5 6 7 8 9 10 lasting consequences for Years of experience new entrants. Evidence Graduating into discussed above on the Source: J. G. Altonji, L. B. Kahn, and J. D. Speer, NBER Working Paper No. 20531, and as “Cashier or Consultant? Entry a Recession Labor Market Conditions, Field of Study, and Career Success” in Journal of Labor Economics, 34(S1), 2016, pp. S361-S401 cyclicality of the job ladder can help to account How costly is it to Figure 2 for these findings, since it graduate during a reces- implies that workers who sion? In two papers, I explore the career 2, where we provide fitted earnings pro- are forced to search for and take jobs in a impacts of graduating from college into files for three types of college majors grad- downturn may spend substantially more an economic downturn. I show, using uating into three different economies: time in low-paying firms. Furthermore, panel data on white men who gradu- Black lines represent high-earning majors weathering and recovering from a reces- ated from college between 1979 and with average pay 1.5 standard deviations sion will be all the more difficult for work- 1989, that graduating from college dur- above the mean (e.g., economics or elec- ers laid off from routine-task occupations ing a worse local or national economy has trical engineering); blue lines represent because of the concentrated technologi- persistently negative impacts on wages.9 a major with average earnings (e.g., jour- cal adoption that I show took place in the Even 17 years after graduating from col- nalism or civic studies); gray lines repre- Great Recession. lege, those who graduated into a large sent low-earning majors with average pay downturn earn significantly lower wages 1.5 standard deviations below the mean (around 10 percent less) relative to those (e.g., secondary education or art history). 1 D. Acemoglu and D. Autor, “Skills, who graduated in the best times. The solid lines show earnings for someone Tasks and Technologies: Implications In subsequent work, Joseph Altonji, who graduated in an average economy; for Employment and Earnings,” NBER Jamin Speer, and I examine the differen- the dashed lines fit earnings for someone Working Paper No. 16082, June 2010, tial impact of entry conditions on career who graduated in a boom (a 4 percent- and Handbook of Labor Economics,

16 NBER Reporter • No. 2, June 2019 earch Equilibrium,” onomic Studies, 80(4),

4(B), 2011, pp. 1043–171. 23328, May 2017, and Journal of Labor 8 G. Moscarini and F. Postel- Return to Text Economics, 36(S1), 2018, pp. S337–69. Vinay, “The Timing of Labor 2 J. Schumpeter, Business Cycles, New Return to Text Market Expansions: New Facts York and London: McGraw-Hill, 1939. 6 R. Topel and M. Ward, “Job Mobility and a New Hypothesis,” in NBER Return to Text and the Careers of Young Men,” NBER Macroeconomics Annual 2008, pp. 3 N. Jaimovich and H. Siu, “Job Working Paper No. 2649, July 1988, and 1–52; G. Moscarini and F. Postel-Vinay, Polarization and Jobless Recovery,” NBER Quarterly Journal of Economics, 107, “Stochastic Search Equilibrium,” Review Working Paper No. 18334, November 1992, pp. 441–79; D. Card, J. Heining, of Economic Studies, 80(4), 2013, pp. 2018, and forthcoming The Review of and P. Kline, “Workplace Heterogeneity 1545–81. Economics and Statistics. and the Rise of West German Wage Return to Text Return to Text Inequality,” NBER Working Paper 9 L. Kahn, “The Long-Term Labor 4 B. Hershbein and L. Kahn, “Do No. 18522, November 2012, and The Market Consequences of Graduating Recessions Accelerate Routine-Biased Quarterly Journal of Economics, 128(3), from College in a Bad Economy,” Labour Technological Change? Evidence from 2013, pp. 967–1015. Economics, 17(2), 2010, pp. 303–16. Vacancy Postings,” NBER Working Paper Return to Text Return to Text No. 22762, September 2017, and The 7 J. Haltiwanger, H. Hyatt, L. Kahn, 10 J. Altonji, L. Kahn, and J. Speer, American Economic Review, 108(7), and E. McEntarfer, “Cyclical Job Ladders “Cashier or Consultant? Entry Labor 2018, pp. 1737–72. by Firm Size and Firm Wage,” NBER Market Conditions, Field of Study, Return to Text Working Paper No. 23485, June 2017, and Career Success,” NBER Working 5 D. Deming and L. Kahn, “Skill and American Economic Journal: Paper No. 20531, September 2014, and Requirements across Firms and Labor Macroeconomics, 10(2), 2018, pp. Journal of Labor Economics, 34(S1), Markets: Evidence from Job Postings for 52–85. 2016, pp. S361–401. Professionals,” NBER Working Paper No. Return to Text Return to Text

NBER Reporter • No. 2, June 2019 17 Population Aging, Retirement Income Security, and Asset Markets in China

Hanming Fang

Among the many challenges facing of alternative financial products such as the Chinese economy, population aging China’s Old-Age reverse mortgages in providing retirement is no doubt one of the most important. Dependency Ratio income for the elderly? What are the con- The old-age dependency ratio in China sequences of family planning policies on Ratio of population aged 65+ increased from 10 percent in 2000 to per 100 people aged 15–64 the physical and emotional well-being 13 percent in 2015, and is expected to 50% of the elderly? What are the impacts of increase to 44 percent by 2050 [Figure population aging on asset markets? What 1]. Both increasing life expectancy and 40 are the likely impediments to and distri- declining fertility contributed to China’s butional consequences of policies that rapid population aging. Family planning 30 increase the retirement age? policies, including but not restricted to It should be noted at the outset that 20 the one-child policy, have led to a rapid Dashed line represents population aging is a challenge that almost the UN’s projection decline in total fertility, from 5.7 in 1969 10 all industrialized nations face. The elderly to 2.7 in 1978, when the one-child policy face an amalgam of risks about income, started, to about 1.6 currently [Figure 2, 0 health expenditure, long-term care expen- on the next page]. According to World 2000 2010 2020 2030 2040 2050 diture, and mortality, and at the same Bank data, the average life expectancy at time have more-limited income sources birth in China has steadily increased from Data does not include Hong Kong, Macao, than their younger counterparts. In devel- or Special Administrative Regions of China 57.6 years in 1969 to 65.9 in 1978 to 76.4 Source: The United Nations oped economies, the elderly rely on a mix- in 2017. ture of self-savings, social insurance pro- Population aging has important impli- Figure 1 grams, and private insurance products to cations for China’s social insurance pro- cope with these risks.1 The population- grams, retirement income security, and aging in China from a variety of angles. aging challenge China faces is particularly asset markets, including the housing mar- What is the current status of the acute for several reasons. First, the trend ket. In a series of papers, my coauthors and Chinese pension system? To the extent is accelerated by China’s family planning I have studied the impact of population that it is inadequate, what are the roles policies since the early 1970s; second, the

Hanming Fang is the Class of 1965 Term Professor of Economics at the University of Pennsylvania. He is a research associate in the NBER Program on Public Economics, and served as acting director of the Chinese Economy Working Group from 2014 to 2016. He received a B.A. from Fudan University in Shanghai in 1993, an M.A. from the University of Virginia in 1995, and completed his Ph.D. in economics at the University of Pennsylvania in 2000. Fang is a fellow of the Econometric Society. Before joining the Penn faculty, he held positions at Yale University (2000–07) and Duke University (2007–09). He is currently a senior editor of the Journal of Risk and Insurance, and was previously a co-editor of Journal of Public Economics and International Economic Review. Fang is an applied microeconomist with broad theoretical and empirical interests. His research covers topics including discrimination, social economics, psychology and economics, welfare reform, health insurance markets, and population aging. His papers in these areas have been published in several leading journals, including American Economic Review, Journal of Political Economy, and International Economic Review. His recent research on China focuses on issues related to population aging, social security, and housing market. Fang grew up on the beautiful Zhoushan Islands, in the East China Sea, of Zhejiang Province. He now lives in a Philadelphia suburb with his wife, Yufeng, and two children: Jerry who will be a college freshman, and Katie who will be a high-school freshman. He enjoys reading and gardening.

18 NBER Reporter • No. 2, June 2019 current social insurance system in China of LLF implementation at the provincial Regarding living arrangements, we find tends to have low and unequal benefit lev- level. The second is different profiles of no evidence that family planning affects els; and third, the private insurance mar- the age-specific fertility rate in 1969 prior households’ decisions regarding co-res- kets for the risks the elderly face are not to the enforcement of any effective family idency. However, the family planning yet well developed. planning policy. policies reduce the probability of seniors How family planning affects the having children in their village or com- Family Planning Policies and quality of life in old age in China is munity by 8.8 percentage points and the Life of the Chinese Elderly ambiguous. While children historically of having children in their county/dis- play critical roles in providing old-age trict by 7.6 percentage points. The LLF Family planning policies introduced support, the reduction in the number of policies also reduce elderly parents’ net in the early 1970s in China contrib- children does not necessarily reduce the annual transfers from children by 395.9 uted to the population-aging challenges quality of life for seniors, for three rea- RMB (about 18.6 percent of the sample China faces today. It average) and are asso- is therefore important ciated with reduction to examine how these China’s Fertility Rate and Sex Ratio at Birth, 1949–2002 of children’s monthly policies have reshaped contacts and visits to Total fertility rate Sex ratio at birth, males to females the quality of life, 8 1.20 parents by 3.08 and including the physical China initiates 3.00 times per month, 7 family planning and mental well-being policies respectively. 2 of the Chinese elderly. 6 Despite reduced United In an effort to curb Authors’ data Nations’ financial support 5 data population growth, 1.10 from children, we 4 One-child policy China implemented Authors’ data find no effect on its one child per cou- comes into eect total household 3 ple policy nationwide 1.05 expenditures, though China initiates United Nations’ data from 1979 to 2015; 2 family planning One-child policy we find evidence somewhat less known, policies comes into eect that family planning 1 1.00 however, was the 1950 1960 1970 1980 1990 2000 2010 1950 1960 1970 1980 1990 2000 2010 affects the composi- “Later, Longer, Fewer” tion of expenditures:

(LLF) campaign also Source: Y. Chen and H. Fang, NBER Working Paper No. 25041 and the United Nations Households that initiated in the early are more exposed to 1970s. In fact, it was Figure 2 LLF policies spend the LLF campaign that more on food and liv- started the rapid decline of China’s total sons. First, having fewer children spares ing expenses and less on health-related fertility rate from 5.7 in 1969 to 2.7 in resources that could be redirected to expenses. 1978 [Figure 2].3 parents themselves. Second, parents can The most important finding is that LLF campaigns offer a valuable potentially turn to other measures of family planning has drastically different opportunity to study how family plan- old-age support — for example, more effects on elderly parents’ physical and ning policies affect the life of the Chinese savings — to substitute for having fewer mental well-being. Using a wide range elderly for three reasons. First, in con- children. Third, a quantity-quality trad- of health measures, either subjective or trast to the one-child policy, the rollout eoff may result in higher transfers from objective, we find that family planning of LLF varied across provinces. Second, fewer children. has either no effect or a slightly posi- LLF policies during the 1970s explain We use data from the China Health tive effect on elderly parents’ physical about half of the decline in the fertil- and Retirement Longitudinal Study health status. In contrast, parents who ity rate but, in contrast to the one-child (CHARLS) to examine the long-term are more exposed to the policies report policy, they did not result in an increase consequences of China’s family plan- more severe depression symptoms. The in the sex ratio [Figure 2]. Third, the first ning policy on a set of outcomes includ- effect is larger for women and rural par- cohorts affected by LLF are now entering support from children, consumption, ents. Three depression symptoms that ing their 60s. Yi Chen and I identify and physical and mental health, for those are most responsive to the policies are: the causal effect of LLF policies from aged 60 or above. “feel everything they are doing is an two types of province-level variations. On children’s support for their par- effort,” “feel lonely,” and “feel unhappy.” The first is different years for the estab- ents, we consider measures of co-res- We hypothesize that less interaction lishment of Provincial Family Planning idence, financial or in-kind support, with children is an important driving Leading Groups, which were in charge and time transfer, or informal care. force for these effects.

NBER Reporter • No. 2, June 2019 19 The Chinese Pension System than the population-wide dependency Housing Prices and Income ratio of 26 percent in 2017. The in-system in Tier-1 Chinese Cities In a survey paper, Jin Feng and I provide dependency ratio of the Resident Pension a detailed account of the current state of the scheme was 43 percent in 2016. Chinese pension system, as well as its histor- Beijing 4 All variables normalized to 1 in 2003 ical development. • China has one of the highest statutory 8

China’s pension system is multi-layered. pension contribution rates in the world at Housing The first layer consists of several public pension 28 percent, with 20 percent contribution 6 programs. Some are mandatory, including Basic by the employer, and 8 percent contribu- 4 Per capita gross Old Age Insurance (BOAI) for employees tion by the employee into a notional indi- regional product in for-profit enterprises and Public Employee vidual account with a notional interest 2 Pension (PEP) for civil servants and employees rate that currently stands at 8.31 percent. Per capita disposable income in nonprofit government institutions. Some are 0 voluntary, including Urban Resident Pension • The average benefit replacement 2003 2005 2007 2009 2011 2013 (URP) and New Rural Resident Pension ratio — pension benefits per pensioner as (NRP), respectively, for urban and rural resi- a percentage of the average wage of work- Shanghai dents aged 16 and older without a formal ers — has declined steadily and stood at All variables normalized to 1 in 2003 non-agricultural job. These pension plans aim 46 percent in 2017. 8 to provide basic social security to all residents when they reach old age, regardless of whether • Current retirement ages are 60 for men, 6 they were employed. The second layer con- 50 for women who work in blue-collar 4 sists of employer-sponsored annuity programs, jobs, and 55 for women who work in which employers voluntarily provide as a sup- white-collar jobs. About 93 percent of 2 plement to the public pension programs. The women are required to retire at age 50. third layer consists of household savings-based 0 annuity insurance policies. First-layer public • This is a fragmented system managed by 2003 2005 2007 2009 2011 2013 pension schemes receive substantial direct sub- local governments. Some provinces pool sidies from the government, and all plans or the funds at the provincial level, but most Guangzhou products receive tax preferences. funds are pooled at the city or county All variables normalized to 1 in 2003 URP and NRP were merged into a uni- level. 8 form Resident Pension system in 2014; PEP 6 was merged into BOAI in 2015, making • Despite the high statutory contribution BOAI the uniform program for all employ- rate, the BOAI would have run a fiscal def- 4 ees in urban sectors. As of the end of 2017, icit in almost half of the provinces in the BOAI had 402.9 million participants, of which absence of government subsidies in 2016. 2 about 37 million were public sector employees, and the Resident Pension plan had 512.6 The Chinese pension system faces many 0 2003 2005 2007 2009 2011 2013 million participants. The public pension plans challenges, including weak participation incen- covered 65.8 percent of China’s total popula- tives, regional as well as urban/rural disparity in tion, with a total public pension expenditure of benefits, low benefits, and fiscal unsustainabil- Shenzhen All variables normalized to 1 in 2003 4.032 trillion RMB, about 5 percent of China’s ity. Various pension reform proposals are being 8 GDP. Participation in the second layer was discussed. One obvious proposal is to raise much more limited. Only about 80,000 firms, retirement ages. In ongoing research projects, 6 accounting for less than 0.5 percent of all firms, my coauthors and I examine two issues related offered employer-sponsored annuity programs to this proposal. First, we study its distributional 4 to 23.3 million employees in 2017. The third consequences, recognizing that life expectancy layer is still in its infancy. differs significantly between blue-collar and 2

These are the key characteristics of the white-collar workers. Second, we critically eval- 0 Chinese pension system: uate the presumption that the elderly would be 2003 2005 2007 2009 2011 2013 able to find employment if retirement ages were • The in-system dependency ratio of China’s raised, focusing on the potential labor rationing Source: H. Fang, Q. Gu, W. Xiong, and Basic Old Age Insurance system (the ratio of elderly workers caused by rapid cohort-to- L. Zhou, NBER Working Paper No. 21112 of beneficiaries to contributors to the sys- cohort productivity growth and mechanisms tem) is about 38 percent, much higher for wage compressions. Figure 3

20 NBER Reporter • No. 2, June 2019 The Chinese Housing Market Our indices are more reliable than the housing price appreciation often has been high- two widely used official housing price series lighted as a concern for the Chinese housing Partly to pave the way for reform of state- reported by the National Bureau of Statistics market, the price appreciation was accompa- owned enterprises (SOEs) prior to China’s (NBS) of China: the NBS 70-City Index and nied by equally spectacular growth in house- accession to World Trade Organization, and the NBS Average Price Index. The 70-City holds’ disposable income (DI) and average partly as a response to the adverse effects of Index is remarkably smooth and shows very gross regional product (GRP). The average the 1997 Asian financial crisis, the Chinese little real housing price growth in the last annual real growth rate was about 9 percent government in 1998 established the real decade, while the Average Price Index fails throughout the country during the decade. estate sector as a new engine of economic to control for quality, as it does not account Simultaneous enormous housing price appreci- growth. Residential mortgages at subsidized for the fact that the newly transacted units in ation and income growth did not occur during interest rates were introduced by China’s cen- a city are gradually moving to its outer rings, the U.S. and Japanese housing bubbles. tral bank, the People’s Bank of China (PBC), an important factor in rapidly expanding and between 1998 and 2002, the PBC low- Chinese cities. Reverse Mortgages as a Source of ered the mortgage interest rate five times to Figures 3 and 4 plot our hous- Insurance and Retirement Income? encourage home purchases. By 2005, China ing price indices for the four first-tier cit- had become the largest residential mortgage ies — Beijing, Shanghai, Guangzhou, and China is under tremendous pressure to market in Asia. provide adequate finan- As housing becomes cial resources for its rap- the most important asset Housing Prices and Income in Tier-2 and 3 Chinese Cities idly growing elderly popu- for most Chinese house- lation. Besides considering holds, home-equity release Tier-2 Cities Tier-3 Cities reform and expansion of All variables normalized to 1 in 2003 All variables normalized to 1 in 2003 products can play an 4 4 the Chinese pension sys- important role in provid- tem, private insurance ing retirement income for Housing markets also could play the Chinese elderly. To 3 3 an important part in risk Per capita gross properly assess housing regional product mitigation. equity appreciation, one 2 2 Chinese house- needs quality-controlled Per capita disposable income holds hold a large propor- housing price indices for 1 1 tion of their wealth in the China. form of housing. Large Quanlin Gu, Wei increases in house prices 0 0 Xiong, Li-An Zhou, and 2003 2005 2007 2009 2011 2013 2003 2005 2007 2009 2011 2013 have led to large increases I undertake this exercise in household wealth.7 using a comprehensive Source: H. Fang, Q. Gu, W. Xiong, and L. Zhou, NBER Working Paper No. 21112 In contrast, other predom- dataset of mortgage loans inant investment vehicles issued by a major Chinese Figure 4 available to the Chinese commercial bank from have had low returns in 2003–13.5 Shenzhen — which are the most populous this period. The real one-year bank deposit We construct housing price indices for and economically important metropolitan rate averaged only 0.01 percent in 2003- 120 major cities in China, using a meth- areas in China and the averages of 31 sec- 2013; the Chinese stock market was still rel- odology that can be viewed as an analog of ond- and 85 third-tier cities between 2003 atively small, with a capitalization of slightly the well-known Case-Shiller index.6 This and 2013. They confirm enormous hous- less than 20 trillion RMB in 2013, and the index is based on comparison of repeat ing price appreciation across China. In first- returns were volatile and much lower than sales of the same homes, but due to the tier cities, housing prices had an average those in the housing market. The bond mar- nascent nature of the Chinese market, there annual real growth rate of 13.1 percent dur- ket was even smaller. are relatively few repeat home sales in the ing this decade. Housing prices in second- Recent surveys find that homeowner- country. However, an important feature of and third-tier cities had average annual real ship rates are high in China, and housing is the Chinese housing market is that hous- growth rates of 10.5 percent and 7.9 percent, the largest component of household wealth. ing units are typically apartments in large respectively. These growth rates substantially In the 2011 CHARLS national baseline, developments; thus, apartment units in the surpass housing price appreciation during 88 percent of urban residents and 92 per- same development that were sold at differ- the U.S. housing bubble in the 2000s and cent of rural residents aged 45 or older lived ent months can be thought of the analog of are comparable to those during the Japanese in households owning at least one prop- Case-Shiller repeat sales, as the units share housing bubble in the 1980s. erty. Similarly, the 2012 China Household similar characteristics and amenities. Figures 3 and 4 also show that, while rapid Finance Survey found that home ownership

NBER Reporter • No. 2, June 2019 21 rates were 88.1 percent and 94.7 percent, the contract, if they prefer. We also take 3 K. Babiarz, P. Ma, G. Miller, and S. respectively, for urban and rural house- special care to address potential purchas- Song, “The Limits (and Human Costs) of holds.8 Housing equity comprised 79–85 ers’ concerns about how house sales will Population Policy: Fertility Decline and percent of total wealth for urban residents be conducted, whether rental is permit- Sex Selection in China under Mao,” NBER and 61–74 percent for rural residents in ted, and how a loss of the property will be Working Paper No. 25130, October 2018, various surveys. Home ownership rates handled. In addition, we make sure to test also studied the impact of LLF campaigns and housing equity are even higher among the subjects’ understanding of our reverse on fertility and sex selection. older residents. Both the homeownership mortgage product, which has a simpler Return to Text rate and the fraction of housing in house- debt structure and lower fees than the 4 H. Fang and J. Feng, “The Chinese hold wealth in China are significantly reverse mortgage offered by Happy Life. Pension System,” NBER Working Paper higher than those in the United States. We test the demand for this product in two No. 25088, September 2018, and forth- How can the elderly access their hous- large online surveys, one targeting home- coming in M. Armstad, G. Sun, and W. ing wealth to provide retirement income? owners aged 45–65 as potential purchas- Xiong, Handbook on Chinese Financial Reverse mortgages allow homeowners to ers and the other targeting adult children Markets, Princeton University Press. borrow against their home without hav- aged 20–49 who represented the children Return to Text ing to make repayments while they still live of potential purchasers. Each survey has 5 H. Fang, Q. Gu, W. Xiong, and there. Once the homeowner dies or per- 1,100 participants. L. Zhou, “Demystifying the Chinese manently moves into a nursing home, the We find a high level of interest in Housing Boom,” NBER Working Paper home is sold, and the sale proceeds are used reverse mortgages both among older No. 21112, April 2015, and the NBER to repay the loan. homeowners and the adult children of Macroeconomics Annual, 2015, pp. In 2014, the Chinese government older homeowners. This result contradicts 105–66. We also answer the follow- authorized a pilot program to intro- some widely held perceptions of intergen- ing questions: Did the soaring prices duce reverse mortgages in China. These erational wealth transfer in China. Survey make housing out of the reach of typi- loans were initially offered by Happy Life participants want to use the reverse mort- cal households? How much financial Insurance in four cities for two years. gage payments for a range of purposes. burden did households face in buying Happy Life now offers reverse mort- Funding a more comfortable retirement homes? gages in eight cities: Beijing, Shanghai, and paying for better medical treatments Return to Text Guangzhou, Wuhan, Hangzhou, Dalian, or aged care services are the most impor- 6 K. Case and R. Shiller, “Prices of Nanjing, and Suzhou. However, so far the tant reasons given for interest in the prod- Single-Family Homes Since1970: New demand for the product has been low: uct by both older homeowners and adult Indexes for Four Cities,” New England only 139 contracts were underwritten by children. Consistent with previous litera- Economic Review, 1, 1987, pp. 45–56. mid-2018. The reverse mortgage product ture, we find that product familiarity and Return to Text offered by Happy Life is very complex and product understanding are associated with 7 Ibid, NBER Working Paper No. inflexible, and the product description is higher interest in the product. We are cur- 21112. hard to understand. rently examining the demand for hybrid Return to Text Katja Hanewald, Hazel Bateman, reverse mortgage products bundled with 8 A. Park and Y. Shen, “Understanding Shang Wu, and I investigate whether there long-term care and/or health insurance. wealth and housing inequality among would be a demand for properly designed China’s older population,” China and clearly explained reverse mortgages in 1 H. Fang, “Insurance Markets for the Economic Journal, 8(3), 2015, pp. China.9 We test an improved, more flex- Elderly,” NBER Working Paper No. 288–307; L. Gan, Z. Yin, N. Jia, S. Xu, ible reverse mortgage product design that 20549, October 2014, and published S. Ma, and L. Zheng, Data You Need to addresses some of the shortcomings of the in J. Piggott and A. Woodland, eds., Know About China: Research Report of unpopular product piloted by Happy Life. Handbook of Economics of Population China Household Finance Survey (2012), The key innovation of our study is the Aging, Vol. 1A, Amsterdam, The Berlin: Springer-Verlag, 2014; and Y. Xie product design and product description. Netherlands, Elsevier/North Holland and Y. Jin, “Household Wealth in China,” Our hypothetical product allows borrow- Press, 2016, pp. 237–309. Chinese Sociological Review, 47(3), ers to choose the level of debt as well as Return to Text 2015, pp. 203–29. the type of payment that best suits their 2 Y. Chen and H. Fang, “The Long-Term Return to Text retirement needs. Possible payment types Consequences of Having Fewer Children 9 K. Hanewald, H. Bateman, H. Fang, include a lump sum, lifetime fixed reg- in Old Age: Evidence from China’s and S. Wu, “Is There a Demand for ular payments, or flexible payments. In ‘Later, Longer, Fewer’ Campaign,” NBER Reverse Mortgages in China? Evidence addition, our product explicitly allows the Working Paper No. 25041, September from Two Online Surveys,” NBER borrowers’ heirs to settle the outstanding 2018. Working Paper No. 25491, January 2019. debt and keep the property at the end of Return to Text Return to Text

22 NBER Reporter • No. 2, June 2019 The Sustainable Investing Proposition

Harrison Hong

In a recent, widely covered press release, measures of ESG ranking are capturing other Larry Fink, chief executive of the world’s larg- firm characteristics that are correlated with est asset management company, BlackRock, ESG scores. pledged significant resources toward devel- In research with several coauthors over oping sustainable investing, for example by the last decade, I have investigated the valid- offering funds that invest using environmen- ity of a number of key premises underly- tal, social, and governance (ESG) criteria ing the sustainable investing proposition. We Harrison Hong is a along with other considerations to make asset use in our analysis ESG measures, produced research associate in the allocation decisions.1 Fink said he views sus- by MSCI KLD, which rank firms based on NBER’s Asset Pricing Program. tainable investing as being in its early stages. product, environment, community, diversity, He is currently the John R. The thinking goes that investors worried and governance criteria. MSCI is a global Eckel Jr. Professor of Financial about climate change increasingly want port- provider of equity and fixed income indices Economics in the Columbia folios of companies that are consistent with and MSCI KLD is one of the most widely University Department of their values — much in the way that an ear- used ESG scores by institutional investors Economics, where he teaches lier generation embraced ethical investing or and academics. Our analysis focuses on data courses in the undergrad- divestment-from-sin stocks. To the extent for S&P 500 firms over the period 1991 uate and Ph.D. programs. that markets are too short-termist to con- through 2009. Before coming to Columbia front long-run risks, high ESG stocks might in 2016, he was on the eco- have high risk-adjusted returns. Depending Direct versus Selection Effects nomics faculty of Princeton on how large these excess returns are, a fund University, most recently as portfolio tilted toward high ESG stocks A key premise of sustainable investing the John Scully ’66 Professor might outperform, or at least not underper- is that firms “do well by doing good.” This of Economics and Finance. form, passive indices. This is what I label the implies that a firm’s ranking on ESG crite- Prior to that, he was an assis- “sustainable investing proposition.” ria has a causal effect on its financial perfor- tant professor of finance at the This proposition is controversial among mance, for example by lowering its cost of Stanford Graduate School of academics and practitioners. Since ESG funds capital. But to what extent do firm sustain- Business from 1997–2001. typically have higher fees (due to the costs of ability scores simply reflect potential selec- Hong received his B.A. in-house research or licensing third-party sus- tion effects, whereby successful firms are in economics and statistics tainability scores) and tracking error (since more likely to be socially responsible for a with highest distinction from the mandate often requires tilting away from variety of other reasons? For instance, firms the University of California, large market capitalization stocks), it is far that have easy access to capital markets might Berkeley in 1992 and his Ph.D. from a foregone conclusion that ESG scores have less leverage in bargaining with labor, in economics from M.I.T. in contain enough expected return information and thereby be more likely to fund pensions 1997. to overcome these initial drags on perfor- and have higher ESG scores as a result. In this He has contributed to a mance. Indeed, the performance of funds cur- case, there might be no causal impact of ESG number of topics in finan- rently using sustainability scores generated by on firms’ cost of capital per se, but inves- cial economics, especially on leading ESG ratings agencies is mixed. tors in sustainable companies might inadver- behavioral finance and stock Academic studies have found similarly tently be exposed to firms with lower costs market efficiency. In 2009, divergent results on whether picking stocks of capital — those with higher stock valua- he was awarded the Fischer with better environmental, social, and good- tions and lower expected returns. While such Black Prize, given every two governance criteria have higher, comparable, a correlation of firm characteristics might years by the American Finance or lower average returns than asset allocations lead to stronger performance of firms with Association to the best finance that ignore these considerations. A critical strong ESG scores in some periods, the rea- economist under the age of 40. question in evaluating ex post performance is son would not be the one associated with the He has received several honor- whether the differential returns of allocation sustainable investment proposition. ary doctorates. He lives with strategies that include ESG considerations Jeffrey Kubik, José Scheinkman, and I his wife and son in New York are attributable to ESG factors, or whether show that these selection effects are likely City.

NBER Reporter • No. 2, June 2019 23 to be larger than the dend taxes in the United States. 2 direct effects of ESG. Firms’ ESG Scores and Investors’ Credit Risk Appetite Theories of the effect of div- To see why, in Figure 1 idend taxes on firm investments we plot the average ESG ESG score Credit risk appetite predict that tax cuts should lead scores of two groups of 0.2 2.0 to positive or at least nonnegative Investment-grade firms firms — investment- 0.1 1.5 effects on investments. See, for grade versus nonin- example, work by James Poterba 0.0 1.0 vestment-grade or junk and Lawrence Summers.5 To the firms over the years of -0.1 -0.5 extent ESG spending is profit-

1991 to 2009. The ESG -0.2 0.0 driven or pecuniary in nature, as a scores are normalized to form of investment or as an offset account for industry dif- -0.3 -0.5 to firm production as in pollution-

-0.4 -1.0 ferences. The scores of Junk-grade firms abatement models, we expect firm investment-grade firms sustainability scores should track are almost always higher -0.5 -1.5 firm capital expenditures and that 1991 1993 1995 1997 1999 2001 2003 2005 2007 than those of junk firms. the dividend tax cut should have

There are two ways to Credit risk appetite is defined as the relative issuance of junk debt to total debt had positive or at least nonnegative Source: Updated data, H. Hong, J. D. Kubik, and J. A. Scheinmkman, NBER Working Paper No. 18476; interpret this cross-sec- and R. Greenwood and S. Hanson, NBER Working Paper No. 17197, and published as “Issuer Quality effects on firm ESG scores. tional relationship. The and Corporate Bond Returns,” Review of Financial Studies, 26(6), 2013, pp. 1483–525 In Figure 2, we see that aver- first is that ESG causally age firm sustainability scores, which leads to better ratings or Figure 1 tracked average firm capital expen- lower cost of capital. The ital, is likely to be smaller when the firm diture before the 2003 dividend tax other is reverse-causality — that firms with already has access to finance, as is likely cut, diverge substantially afterward. The tax cut better ratings just happen to also be socially when risk appetite is high. occurs at around the same time as the recovery responsible. from the early 2000s recession. Capital invest- To gauge which channel is larger, Pecuniary versus Non- ments naturally rebound but ESG scores actu- we also plot in Figure 1 a measure of Pecuniary Motives ally decline significantly after the tax cut, incon- credit risk appetite developed by Robin sistent with the pecuniary motive. This decline Greenwood and Samuel Hanson that is Another key premise of sustainable in ESG scores occurs over a period when ESG defined as the relative issuance of junk investing is that sustainability scores cap- is receiving increasingly more, not less, atten- debt to total debt.3 The idea is that junk ture strategic positioning of firms to address tion from media, investors, and regulators. firms are much more sensitive to common long-run risks; that is, motives for corpo- This negative association of the tax shocks in risk appetite, whether rational rate actions that raise ESG scores are profit- cut with ESG is, however, consistent with or behavioral in nature, than investment- driven, just like investments in plant and a non-pecuniary, tax-motivated delegated grade firms. They show that junk debt rela- equipment or advertising. There are also non- giving chan- tive to total debt issuance is a good mea- pecuniary factors that contribute to varia- nel. Assuming sure of this common or macroeconomic tion in the behaviors that affect firms’ ESG that share- Average Annual S&P 500 Firms’ ESG Scores and Investment time-varying risk appetite. ratings. Corporate taxes, for example, can holders take Standard deviations Notice that the ESG scores of the influence the incentives for firms to make the standard 3.0 junk firms strongly track this credit risk charitable contributions; agency issues can tax deduc- 2.5 Capital expenditure appetite measure. Even though individual also be important. Since sustainability scores tion and do 2.0 firm normalized ESG scores cannot caus- cannot distinguish between pecuniary and not itemize 1.5 ally influence aggregate credit risk appe- non-pecuniary motives for ESG investment deductions 1.0 tites, they nonetheless strongly co-move by firms, the link between sustainable corpo- for charitable 0.5 with this appetite measure, thereby point- rate behaviors and subsequent performance giving, which 0.0 ing to selection effects largely driving is likely to be more tenuous if non-pecuniary is the case for -0.5 ESG scores. Indeed, if ESG scores have motives account for a substantial part of the many employ- -1.0 ESG score a large direct effect on a firm’s rating or variation in ESG scores. ees of firms, -1.5 Dividend tax cut access to credit, we would expect average Using two quasi-experiments, Ing-Haw those who -2.0 corporate ESG scores to fall as credit risk Cheng, Kelly Shue, and I show that firm want to sup- 1991 1993 1995 1997 1999 2001 2003 2005 2007 appetite in the macroeconomy rises. This sustainability scores are significantly influ- port sustain- is because the marginal return to addi- enced by non-pecuniary motives for corpo- able causes Source: I. Cheng, H. Hong, and K. Shue, NBER Working Paper No. 19432 tional corporate actions to improve ESG rate actions.4 The first experiment is provided might be able scores, and thereby lower the cost of cap- by the 2003 reduction in shareholder divi- to do so in a

24 NBER Reporter • No. 2, June 2019 more tax-efficient manner if the firm The Past versus the Future ing between the parent company and pros- makes a charitable gift and reduces their of Sustainable Investing ecutors from the Department of Justice and/ dividend payouts than if the firm pays a or the Securities and Exchange Commission. dividend and the individual makes a gift. Finally, while my papers raise challenges Settlements are publicly announced and reveal A cut in dividend taxes hence increases to the sustainable-investing proposition, it is detailed case data not only on sanctions, but the relative price of giving inside versus important to keep in mind that my research also on revenues obtained from bribes. We outside the firm, and can explain why and many other studies of related questions expect high ESG parent firms to receive lower firm ESG scores fall subsequent to the use data from a period when sustainability sanctions as a fraction of the size of the bribery tax cut. issues were arguably less important than they revenues, the reason being that firms with good To the extent such giving decisions are likely to be going forward. This addresses a ESG scores are more likely to be treated favor- are delegated to managers, agency prob- third key premise of sustainable investing: The ably by juries (i.e., a halo effect) should bargain- lems can then naturally arise, and firms risks to sustainability are large. In other words, ing fail and their cases go to trial. They might with high ESG scores might be expected the historical importance of considering a firm’s also be more cooperative with prosecutors, to underperform rather than outperform positioning regarding sustainability risks, as thereby reducing the costs of investigations. low ESG scores. To address such an agency measured by ESG scores, may have been small, Figure 3 plots the relationship motive, we exploit a regression disconti- because such risks might have been small in between the natural logarithm of sanc- nuity (RD) experiment using close proxy the past. If, indeed, regulation will likely be tions on the y axis and natural log of the contests regarding shareholder-initiated tighter and the climate risks to capital mar- bribery revenues on the x axis. We see a governance proposals. The identifying kets greater, then assumption is that close votes around the the direct effects Foreign Corrupt Practices Act Penalties: Low- vs. High-ESG Firms 50 percent cut-off are random in terms of of firm sustain- whether a governance proposal is passed, ability might Logarithm of FCPA penalties 4.0 and represent plausibly exogenous shocks become larger 3.0 to corporate governance. Vincente Cuñat, and the sustain- Low-ESG firms Mireia Giné, and Maria Guadalupe find able-investment 2.0 that close passage of shareholder propos- proposition 1.0 6 als increases firm value by about 2 percent. more convincing 0.0

We find that firms in which share- in the future. -1.0

holder proposals narrowly pass also expe- To this end, -2.0 rience significantly slower growth in my work with High-ESG firms -3.0 goodness scores than firms in which the Jeffrey Kubik, -4.0 proposals narrowly fail, consistent with Inessa Liskovich, -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 some ESG investments being value-reduc- and Scheinkman Logarithm of gains from corporate bribes ing and motivated by agency problems. estimates the Low- and high-ESG firms are in the bottom and top quartiles of ESG scores value of ESG for Source: H. Hong, J. Kubik, L. Liskovich, and J. Scheinkman, revision to NBER Working Paper No. 21215 bargaining set- Average Annual S&P 500 Firms’ ESG Scores and Investment tlements of the Figure 3 Foreign Corrupt Standard deviations 7 3.0 Practices Act (FCPA). The FCPA penalizes very pronounced linear and upward slop-

2.5 parent firms headquartered in the U.S. for brib- ing relationship between sanctions and Capital expenditure 2.0 ery crimes committed by employees located at illicit revenues, as we would expect from

1.5 foreign subsidiaries. Bribery and consequent FCPA sentencing guidelines. We also plot 1.0 FCPA penalties are a significant corporate risk observations for low ESG firms (bottom 0.5 that can amount to billions of dollars. That is, quartile of scores) and high ESG firms 0.0 firms that have been affected by FCPA cases (top quartile of scores). High ESG firms -0.5 are firms for which sustainability issues had a are more likely to be below the prediction -1.0 ESG score first-order effect on near-term profits, and the line, while low ESG firms are much more -1.5 affected firms may provide some foreshad- likely to be above the prediction line. A Dividend tax cut -2.0 owing on the role of ESG considerations for one standard deviation increase in the 1991 1993 1995 1997 1999 2001 2003 2005 2007 many firms going forward. We therefore focus independent variable ESG score leads to on the effect of ESG ranking on the settle- a decrease in the dependent variable log Source: I. Cheng, H. Hong, and K. Shue, NBER Working Paper No. 19432 ments exacted from these firms, which translate sanction to bribery revenue ratio that is directly into shareholder returns. nearly 20 percent of the standard devia- Figure 2 Virtually all cases are settled via bargain- tion of the dependent variable.

NBER Reporter • No. 2, June 2019 25 The main omitted-variables con- of this alternative approach by study- 5 J. Poterba and L. Summers, “The cern is that the subsidiaries of high ing whether prices of food stocks effi- Economic Effects of Dividend Taxation,” ESG firms for whatever reason com- ciently discount climate-change risks.9 NBER Working Paper No. 1353, May mit less egregious foreign bribes that In a world with greater regulatory scru- 1984. are not completely captured by case tiny or greater climate change risks, a Return to Text data. To this end, we instrument firm sustainable-investing approach that is 6 V. Cuñat, M. Giné, and M. Guadalupe, sustainability scores using the length robust to these concerns might deliver “The Vote is Cast: The Effect of Corporate of the legal code of the state where the value to investors. Governance on Shareholder Value,” NBER firm is headquartered, which is mea- Working Paper No. 16574, December sured in kilobytes and developed by 1 A. Mooney and P. Smith, “As the cli- 2010. Casey Mulligan and Andrei Shleifer.8 mate changes, ESG investing powers into Return to Text The exclusion restriction is that the the mainstream,”; Financial Times, Nov. 7 H. Hong and I. Liskovich, “Crime, egregiousness of bribes by employees 18, 2018. Punishment and the Halo Effect of at foreign subsidiaries is uncorrelated Return to Text Corporate Social Responsibility,” NBER with this state-level regulation mea- 2 H. Hong, J. Kubik, and J. Working Paper No. 21215, May 2015. The sure. Consistent with this exclusion Scheinkman, “Financial Constraints on plot and analysis are from an upcoming restriction, kilobytes of state law is Corporate Goodness,” NBER Working revision to this paper that is joint with uncorrelated with bribery revenues or Paper No. 18476, October 2012. Jeffrey Kubik and José Scheinkman. bribe length. But it is strongly corre- Return to Text Return to Text lated with firms’ ESG scores, giving us 3 R. Greenwood and S. Hanson, “Issuer 8 C. Mulligan and A. Shleifer, “Population a first-stage regression. Instrumental Q uality and the Credit Cycle,” NBER and Regulation,” NBER Working Paper variables estimates are twice as big as Working Paper No. 17197, July 2011, No. 10234, January 2004. Published as the ordinary least squares ones. and published as “Issuer Q uality and “The Extent of the Market and the Supply Another important consideration Corporate Bond Returns,” The Review of Regulation,” Quarterly Journal of is that climate-change risks will be of Financial Studies, 26(6), 2013, pp. Economics, 120 (4), 2005, pp. 1445–73. more manifest in the future. As a result, 1483–525. Return to Text sustainable investing might evolve from Return to Text 9 H. Hong, W. Li, and J. Xu, “Climate studying these coarse scores to model- 4 I. Cheng, H. Hong, and K. Shue, “Do Risks and Market Efficiency,” NBER ing the exposure of firms to such risks, Managers Do Good with Other People’s Working Paper No. 22890, December be it exposure to carbon or to natural Money?” NBER Working Paper No. 2016, and Journal of Econometrics, 208 disasters. In work with Weikai Li and 19432, September 2013. (1), 2019, pp. 265–81. Jiangmin Xu, I demonstrate the value Return to Text Return to Text

26 NBER Reporter • No. 2, June 2019 The Economics of Fair Trade

Nathan Nunn

Fair Trade certification, a label- Fair Trade uses two primary ing initiative that offers better terms mechanisms in an attempt to achieve to producers and helps them to orga- its goal of improving the lives of nize, aims to offer ethically minded farmers in developing countries. The consumers the opportunity to help first is a guaranteed minimum price Nathan Nunn is Frederic E. Abbe lift producers in developing countries to be paid if the product is sold as Professor of Economics at Harvard out of poverty. In a series of recent Fair Trade. This is meant to cover University. His primary research interests papers, I have examined the causes the average costs of sustainable pro- are in political economy, economic history, and consequences of Fair Trade duction and to provide a guarantee economic develo´pment, cultural econom- certification.1 that reduces the risk faced by coffee ics, and international trade. He is a research The appeal of this initiative is growers. The second is a price pre- associate in the programs on Development reflected in the impressive growth of of the American Economy, International Fair Trade-certified imports over the Number of Fair Trade Workers Trade and Investment, Political Economy, past two decades. Since Fair Trade’s and Producers by Product Type and Development Economics. He also is inception in 1997, sales of its certi- a research fellow at BREAD, and a faculty fied products have grown exponen- associate at Harvard’s Weatherhead Center tially. In 2016, when data are last Nuts 14,300 for International Affairs. He is currently available, there were over 1,400 Fair Fresh fruit 18,700 a co-editor of the Journal of Development Trade-certified producer organiza- Bananas 20,300 Economics. tions worldwide representing more One stream of Nunn’s research focuses than 1.6 million Fair Trade-certified Cane sugar 37,200 on the historical and dynamic process of farmers and workers in 73 countries Flowers 37,500 economic development. In particular, he has across 19 product categories. Seed cotton studied the factors that shape differences in This growth appears to be driven 66,500 the evolution of institutions and cultures by socially motivated demand by Cocoa 141,800 across societies. He has published research Western consumers who are willing Tea 258,100 that studies the historical process of a wide to pay more for coffee that is pro- range of factors that are crucial for eco- duced in a manner consistent with Co ee 580,200 nomic development, including distrust, gen- Fair Trade certification. A number der norms, religiosity, norms of rule follow- of recent studies focusing on coffee Source: R. Dragusanu and N. Nunn, NBER Working Paper No. 20357 ing, conflict, immigration, state formation, provide convincing evidence that the and support for democracy. demand for Fair Trade-certified prod- Another stream of Nunn’s research ucts is significantly higher and less Figure 1 examines economic development in a price-sensitive than for conventional mium paid to producers. This pre- contemporary context. He has published products.2 mium is in addition to the sales price research examining the effects of Fair Trade Among the products that have and must be set aside and invested in certification, CIA interventions during the Fair Trade certification, coffee is the projects that improve the quality of Cold War, foreign aid, school construction, largest product category. A compari- life of producers and their commu- and trade policy. He is particularly interested son of coffee with other products in nities. The specifics of how the pre- in the importance of the local context (e.g., terms of the number of producers that mium is used must be reached in a social structures, traditions, and cultures) for fall under the certification is shown democratic manner by the producers the effectiveness of development policy and in Figure 1. Fair Trade accounts for themselves. in understanding how policy can be opti- 48 percent of all Fair Trade farmers The relationship between the mally designed given the local environment. and for 46 percent of total premiums sum of the minimum price and price Nunn lives in Cambridge, Massachusetts, paid.3 Given this, my research has premium — the guaranteed amount and enjoys playing basketball and surfing. tended to focus on this sector. that Fair Trade-certified producers

NBER Reporter • No. 2, June 2019 27 receive if their products are sold as Fair The study examines the universe that is eligible to be sold as Fair Trade Trade — and the market price is shown in of coffee mills in Costa Rica, observed can actually be sold as Fair Trade by Figure 2 for coffee. From the figure it is annually over a sixteen-year period, Fair Trade-certified farmers.5 The mag- clear that the market price for coffee has 1999–2014. The analysis accounts nitude of our estimates is consistent historically been volatile and that, for sig- for time-invariant differences across with this fact. Taken at face value, they nificant periods of time, the market price mills, as well as mill-invariant differ- indicate that only 12 percent of Fair has been below the Fair Trade price. ences across years. Despite account- Trade-eligible coffee was sold as Fair Despite the rapid Trade over our sam- growth and perva- Coee Prices: Fair Trade vs. Worldwide Arabica ple period. Put dif- siveness of Fair Trade ferently, we find that products, well-iden- U.S. dollars/lb if the effective price tified evidence of the 3.5 benefit to Fair Trade effects of Fair Trade 3.0 certification — the certification remains difference between 2.5 scarce. The question the Fair Trade remains: Does Fair 2.0 and conventional

Trade accomplish 1.5 prices — increases by Fair Trade price its intended goals? 1 cent, the average Does it really work? 1.0 price benefit received Worldwide Arabica price My recent study with 0.5 by Fair Trade- Raluca Dragusanu certified mills is only 0.0 attempts to answer 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 0.12 cents. this question by esti- We then turn to mating the effects of When the market price is above the Fair Trade price floor, the Fair Trade price = market price + the Fair Trade premium. The Fair Trade upstream effects and premium was 0.05 $/lb. until June 2006, when it became 0.10 $/lb. It was raised again in April 2011 to 0.20 $/lb. Fair Trade certifica- Source: The Fairtrade Foundation and the World Bank estimate the effects of tion within the coffee Fair Trade certifica- 4 sector in Costa Rica. Figure 2 tion on intermediar- The primary issue ies, farmers, and farm one faces when attempting to iden- ing for these factors, it is still pos- employees. We link Fair Trade certifi- tify the causal effects of Fair Trade is sible that selection into certification cation to these individuals, observed in that certification is endogenous. For results in misleading estimates of the household survey data, by construct- example, mills may become certified causal effect of Fair Trade certifica- ing a measure of the share of exports in when they also obtain a lucrative long- tion. Thus, the estimation strategy also a canton (an administrative region in term contract from a large buyer like exploits the fact that the expected ben- Costa Rica) and year that is from Fair Starbucks. To gain a better understand- efits that accrue because of Fair Trade Trade-certified producers. ing of the nature of selection into cer- certification varied significantly during Since one of the explicit goals of tification, in August 2012 we inter- our sample period. This is true both Fair Trade is to set aside funds for viewed several Fair Trade-certified because of variation in the market price community projects, it is possible that coffee cooperatives to collect infor- of conventional coffee and in the price households not directly involved in mation on the factors that lead co- paid for Fair Trade-certified coffee due coffee production, but living in the ops to become Fair Trade-certified. to changes in the Fair Trade minimum same canton, may also benefit from Importantly, and perhaps surprisingly, price and price premium. This gen- an increase in Fair Trade certification. we learned that the reasons for selec- erates time variation in the price dif- Thus, our analysis checks for the pres- tion appear to be ambiguous or even ference between Fair Trade and con- ence of spillovers by examining the negative. In theory, positive selection ventional coffee, which the study also effects of Fair Trade certification on could arise, since those with the great- exploits. all households in a canton, includ- est capacity to adopt Fair Trade are The estimates indicate that when ing those not employed in the coffee also capable in other dimensions of the price floor is binding, Fair Trade- sector. business. However, in reality, the most certified producers sell their products We find no evidence of positive common narrative during our inter- at higher prices and earn more reve- spillover effects from Fair Trade certifi- views was that Fair Trade was some- nues. Thus, Fair Trade does have some cation to households in the canton not thing that producers resorted to only if effect. However, we also find that the working in the coffee sector. For those they had difficulty selling their coffee effect of Fair Trade is limited to only working within the coffee sector, we otherwise. a fraction of the market: not all coffee find sizeable, highly uneven benefits.

28 NBER Reporter • No. 2, June 2019 Within the coffee sector, we sepa- it decreases income inequality within tive income effects that we find for cof- rately estimate the effects of Fair Trade the coffee sector by transferring rents fee intermediaries. on the incomes of three groups. The from higher-income intermediaries to In the end, our household esti- first is skilled coffee growers, who are lower-income farm owners. mates paint a mixed picture. Fair Trade primarily farm owners and are 33 per- According to our estimates, about appears to have helped farm own- cent of those working in the coffee sec- 10 percent of the gains to farm owners ers, increasing their incomes. Part of tor. The second is unskilled workers, are likely due to the losses to intermedi- these gains (approximately 10 percent) such as coffee pickers and farm labor- aries, while the remaining 90 percent of appears to arise from a transfer of rents ers. This is the largest group, account- the gains are explained by the minimum from intermediaries. This is likely due ing for 61 percent of those working in price of Fair Trade-certified coffee. The to the creation of farmer cooperatives the sector. The third is non-farm occu- magnitudes of our estimated effects that perform many of the activities that pations in the coffee sector, primar- line up very closely with expected ben- intermediaries would otherwise per- ily intermediaries and their employees efits to Fair Trade, based on actual sales form. As a consequence, Fair Trade is who are responsible for transportation, by Fair Trade-certified producers, the also associated with a significant reduc- storage, and sales. This group accounts difference between the world price and tion in the incomes of intermediaries for 6 percent of those working in the the Fair Trade price guarantee, and the in the coffee sector. By these metrics, sector. The size and average annual number of coffee producers, workers, Fair Trade appears to be accomplish- income of each ing some of its stated group in our sample goals. The relatively are summarized in The Eect of Fair Trade Certification on Incomes in Costa Rica impoverished cof- Figure 3. The figure fee farmers gain at Average income (000s) Change in canton-level average annual income also summarizes the due to moving from no Fair Trade-certification to the expense of the estimated effects for $4,457 the average canton-level certification intensity $4,047 wealthier coffee inter- each group. mediaries. However, +2.2% We find large No significant Coee we also find that the eect intermediaries positive income $2,432 n=171 poorest and largest effects for farm own- group within the cof- $1,592 Unskilled Coee-farm ers. An increase from coee workers owners fee sector — unskilled n=1,723 n=943 zero to the mean Fair -2.6% workers — does not

Trade-certification Unskilled Coee-farm Coee All gain at all from Fair coee workers owners intermediaries occupations intensity is associ- (including Trade. In addition, we ated with a 2.2 per- non-coee) find no evidence of cent increase in aver- Source: R. Dragusanu and N. Nunn, NBER Working Paper No. 24260 positive spillovers of age income. Given benefits to those in that this group is Figure 3 the local community one-third of those working in the cof- and intermediaries in Costa Rica dur- who work outside of the coffee sector. fee sector, this is a sizeable benefit ing our sample period. that affects a large number of individ- Motivated by the fact that within uals. However, we also find that for Costa Rica, cooperatives commonly 1 R. Dragusanu, D. Giovannucci, and unskilled workers, the poorest and larg- use Fair Trade premiums for build- N. Nunn, “The Economics of Fair Trade,” est group within the coffee sector, there ing schools, purchasing materials, and NBER Working Paper No. 20357, is no evidence of a positive effect of providing scholarships, we also exam- July 2014, and Journal of Economic Fair Trade on incomes. The estimated ine the effect of Fair Trade certifica- Perspectives, 28(3), 2014, pp. 217–36. effects for this group are small and sta- tion on education, as measured by the Return to Text tistically insignificant. Lastly, we find enrollment of school-aged children. 2 C. Arnot, P. Boxall, and S. Cash, “Do that the small group of intermediaries However, we find no evidence of posi- Ethical Consumers Care About Price? A in nonfarm occupations is hurt signifi- tive effects of Fair Trade on schooling. Revealed Preference Analysis of Fair Trade cantly by Fair Trade. For this group, the The one education effect of Fair Trade Coffee Purchases,” Canadian Journal of same increase in Fair Trade intensity is that we do find is adverse: For the Agricultural Economics, 54(4), 2006, associated with a 2.6 percent decline in children of intermediaries, Fair Trade pp. 555–65; M. Hiscox, M. Broukhim, average incomes. Since intermediaries certification is associated with a 7.3 and C. Litwin, “Consumer Demand have incomes that are approximately 40 percentage-point decrease in the proba- for Fair Trade: New Evidence from a percent higher than those of farm own- bility of high school enrollment. These Field Experiment using eBay Auctions ers, a consequence of Fair Trade is that effects are likely due to the large nega- of Fresh- Roasted Coffee,” 2011. Mimeo,

NBER Reporter • No. 2, June 2019 29 Harvard University; and J. Hainmueller, the Scope and Benefits of Fairtrade. Return to Text M. Hiscox, and S. Sequeira, “Consumer Monitoring Report, 9th Edition,” 2018. 5 A. de Janvry, C. McIntosh, and E. Demand for Fair Trade: Evidence from a Return to Text Sadoulet, “Fair Trade and Free Multistore Field Experiment,” Review of 4 R. Dragusanu and N. Nunn, “The Entry: Can a Disequilibrium Market Economics and Statistics, 97(2), 2015, Effects of Fair Trade Certification: Serve as a Development Tool?” pp. 242–56. Evidence from Coffee Producers in Costa Review of Economics and Statistics, Return to Text Rica,” NBER Working Paper No. 24260, 97(3), 2015, pp. 567–73. 3 Fairtrade International, “Monitoring January 2018. Return to Text

30 NBER Reporter • No. 2, June 2019 NBER News

Martin Feldstein, 1939–2019 Renowned Economist and NBER President Emeritus Martin Feldstein, president of the NBER ulty in 1967, became a tenured professor of eco- for nearly 30 years, George F. Baker Professor of nomics in 1969, and was appointed the George F. Economics at Harvard University, chair of the Baker Professor of Economics in 1984. For over President’s Council of Economic Advisers from two decades, he taught an introductory economics 1982 to 1984, and one of the most prolific and course, “Social Analysis 10” or “Ec 10,” which was influential economists of the last half century, passed often the largest undergraduate course at Harvard away on Tuesday, June 11. He was 79. College. He was also a celebrated graduate teacher Feldstein’s leadership of the NBER had a and dissertation adviser. Many of his students have profound and lasting effect on applied economic gone on to influential careers in academia and pub- research. He was appointed president of the NBER lic policy making. in 1977 and, aside from his years of CEA service, In 1977, Feldstein received the John served in this role until 2008. He transformed the Bates Clark Medal of the American Economic organization and created the network structure that Association, an award presented to an economist today encompasses nearly 1,600 affiliated schol- under the age of 40 judged to have made the great- ars. He moved the NBER headquarters from New est contribution to economic science. In recogniz- York City to Cambridge, launched the NBER Summer Institute and ing the breadth of Feldstein’s work, the prize citation described his regular meetings of program groups, and promoted NBER work- research as “covering an astonishing array of economic methods ing papers as an important channel for dissemination of economic and problems.” He served as president of the American Economic research. Feldstein recognized the value of enhanced communica- Association in 2004. tion, at conferences and through sharing pre-publication manu- Feldstein played an active role in public policy discussions for scripts, in advancing research progress. He authored or coauthored more than four decades. In addition to chairing President Reagan’s 165 NBER working papers and edited 19 NBER books. Council of Economic Advisers, he served on President Obama’s Feldstein pioneered the use of data collected from house- Economic Recovery Advisory Board. He was a trustee of the Council hold surveys and corporate databases to study a wide range of on Foreign Relations, a member of the Trilateral Commission and questions in public policy. He played a key role in shaping the the Group of 30, and a frequent contributor to The Wall Street modern fields of public and health economics. His dissertation, Journal. He wrote broadly on economic policy issues. which analyzed the efficiency of the National Health Service in Feldstein was widely celebrated for his academic accomplish- the United Kingdom, helped launch the field of health econom- ments. He was a Fellow of the American Academy of Arts and ics. His research on Social Security and unemployment insurance Sciences, the British Academy, the Econometric Society, and the called attention to the effect of these programs on saving, retire- National Association of Business Economics, and was the recipi- ment, and labor supply. He documented the way taxes affect the ent of several honorary degrees. Feldstein is survived by his wife, behavior of households and firms, focusing in particular on how Kathleen, also an economist, two daughters, and four grandchildren. taxes on investment and saving could discourage capital accumula- The NBER is collecting remembrances from those who would tion and slow long-term economic growth. like to acknowledge Martin Feldstein’s contributions and influence, Feldstein graduated from Harvard College in 1961 and received but have not otherwise contacted the Feldstein family. Please send his D.Phil. in Economics from Oxford University, where he was such messages, ideally as an email attachment, on letterhead, and lim- an Official Fellow of Nuffield College. He joined the Harvard fac- ited to a single page, to Debby Nicholson at [email protected]. Media Reports on Martin Feldstein’s Life

• The Wall Street Journal • The Washington Post • The Financial Times • The Economist • The New York Times • Bloomberg (6/12/19) (6/11/19) • CNN • The Harvard Gazette • The Chronicle of Philanthropy

NBER Reporter • No. 2, June 2019 31 John S. Clarkeson, 1942–2019

John S. Clarkeson, who was elected as including a highly successful time as CEO nificant role in advancing the conflict of an at-large member of the NBER Board of between 1986 and 1997. On his watch, interest disclosure policy for NBER affili- Directors in 2001 and served as vice-chair the firm grew from about 300 to more ates. He was also a trustee of INSEAD, from 2005 until 2008 and board chair from than 3000 employees worldwide, and Wellesley College, and the Educational 2008 until 2011, passed away unexpectedly became established as one of the world’s Testing Service, and a board member at in May after a brief illness. He was 76. leading consultancies. a number of firms. He was honored by Clarkeson, who graduated from Clarkeson was an active member the New England chapter of the National Harvard College and Harvard Business of the NBER board and a long-serving Association of Corporate Directors as School, spent his career of more than 40 member of its executive and nominating its “Director of the Year for Corporate years at the Boston Consulting Group, committees. He played an especially sig- Governance” in 2016.

New Research Associates, Faculty Research Fellows Named The NBER Board of Directors appointed by the NBER president, must The 61 newly-appointed research- appointed 14 research associates at its hold primary academic appointments ers are affiliated with 35 different -col April 2019 meeting. New research asso- in North America. They also are rec- leges and universities. They completed ciates, who must be tenured faculty ommended by program directors and graduate studies at 29 different insti- members at North American colleges their steering committees in the culmi- tutions. On May 1, there were 1,219 or universities, are recommended to the nation of a highly competitive process NBER research associates and 345 fac- board by the directors of the NBER’s 20 that begins with a call for nominations in ulty research fellows. research programs, typically after consul- January. Candidates are evaluated based The newly appointed research- tation with a steering committee of lead- on their research records and their capac- ers, their universities, and their NBER ing scholars in the program area. Two of ity to contribute to the NBER’s activi- program affiliations, are listed below. the new research associates were previ- ties. This year, 246 researchers were nom- Entries in italics indicate research associ- ously faculty research fellows. inated for faculty research fellowships; ates who were promoted from the rank Faculty research fellows, who are 47 were appointed. of faculty research fellows.

Research Associates

Francisco Buera, Washington University in St. Louis Benjamin Moll, Princeton University Economic Fluctuations and Growth Economic Fluctuations and Growth

Davin Chor, Dartmouth College Daniel Rees, University of Colorado at Denver International Trade and Investment Health Economics

Isil Erel, Ohio State University Ayşegül Şahin, University of Texas at Austin Corporate Finance Monetary Economics

Nicole Fortin, University of British Columbia Angelino Viceisza, Spelman College Labor Studies Productivity, Innovation, and Entrepreneurship

Erica Fuchs, Carnegie Mellon University Alessandra Voena, University of Chicago Productivity, Innovation, and Entrepreneurship Labor Studies

Jessica Goldberg, University of Maryland Maisy Wong, University of Pennsylvania Development Economics Development Economics

Fabian Lange, McGill University Leeat Yariv, Princeton University Labor Studies Political Economy

32 NBER Reporter • No. 2, June 2019 Faculty Research Fellows

Anjali Adukia, University of Chicago Kyle Handley, University of Michigan Economics of Education International Trade and Investment

Jennie Bai, Georgetown University Tatiana Homonoff, New York University Asset Pricing Political Economy

Jie Bai, Harvard University John Horton, New York University Development Economics Labor Studies

Scott Baker, Northwestern University Gaston Illanes, Northwestern University Political Economy Industrial Organization

Silvia Barcellos, University of Southern California Ruixue Jia, UC, San Diego Aging Political Economy

Lauren Bergquist, University of Michigan Réka Juhász, Columbia University Development Economics Development of the American Economy

Judson Boomhower, University of California, San Diego Krzysztof Karbownik, Emory University Environment and Energy Economics Children

Fiona Burlig, University of Chicago Ethan Lieber, University of Notre Dame Environment and Energy Economics Health Care

Patrick Button, Tulane University Ilse Lindenlaub, Yale University Aging Economic Fluctuations and Growth

Eric Chyn, University of Virginia Michael Luca, Harvard University Political Economy Productivity, Innovation, and Entrepreneurship

Zack Cooper, Yale University Isaac Mbiti, University of Virginia Health Care Development Economics

Clement de Chaisemartin, University of California, Santa Barbara Robert Metcalfe, Boston University Economics of Education Environment and Energy Economics

Wenxin Du, University of Chicago Ferdinando Monte, Georgetown University Asset Pricing International Trade and Investment

Mark Egan, Harvard University Erik Nesson, Ball State University Corporate Finance Health Economics

Michael Ewens, California Institute of Technology Pablo Ottonello, University of Michigan Productivity, Innovation, and Entrepreneurship International Finance and Macroeconomics

Maryam Farboodi, MIT Analisa Packham, Miami University Asset Pricing Children

Adam Guren, Boston University Nitya Pandalai-Nayar, University of Texas at Austin Monetary Economics International Finance and Macroeconomics

NBER Reporter • No. 2, June 2019 33 Santiago Pérez, University of California, Davis Pietro Tebaldi, University of Chicago Development of the American Economy Industrial Organization

Giorgia Piacentino, Columbia University Owen Thompson, Williams College Corporate Finance Children

Tobias Salz, MIT Andrea Vedolin, Boston University Industrial Organization Asset Pricing

Raul Sanchez de le Sierra, University of California, Berkeley Kevin Williams, Yale University Political Economy Industrial Organization

Heather Sarsons, University of Chicago Jack Willis, Columbia University Labor Studies Development Economics

Molly Schnell, Northwestern University Constantine Yannelis, University of Chicago Health Care Economics of Education

Ludwig Straub, Harvard University Monetary Economics

34 NBER Reporter • No. 2, June 2019 Conferences

Economic Consequences of Trade

An NBER conference on Economic Consequences of Trade took place April 5–6 in Cambridge. Research Associate Stephen J. Redding of Princeton University organized the meeting, which was sponsored by the Smith Richardson Foundation. These researchers’ papers were presented and discussed: • Ryan Kim, Johns Hopkins University, and Jonathan Vogel, University of California, Los Angeles and NBER, “Trade and Inequality across Local Labor Markets: The Margins of Adjustment” • Gene M. Grossman, Princeton University and NBER, and Elhanan Helpman, Harvard University and NBER, “Identity Politics and Trade Policy” (NBER Working Paper No. 25348) • Paula Bustos, CEMFI; Joan Monras, Universitat Pompeu Fabra; Jacopo Ponticelli, Northwestern University; and Juan Manuel Castro Vincenzi, Princeton University, “Structural Transformation, Industrial Specialization, and Endogenous Growth” • Alonso de Gortari, Princeton University, “Disentangling Global Value Chains” • Kevin Lim, University of Toronto; Daniel Trefler, University of Toronto and NBER; and Miaojie Yu, Peking University, “Trade and Innovation: The Role of Scale and Competition Effects” • Kirill Borusyak, Princeton University, and Xavier Jaravel, London School of Economics, “The Distributional Effects of Trade: Theory and Evidence from the United States” • Donald R. Davis, Columbia University and NBER, and Eric Mengus and Tomasz K. Michalski, HEC Paris, “Labor Market Polarization and the Great Divergence: Theory and Evidence” • Spencer Lyon, New York University, and Michael E. Waugh, New York University and NBER, “Quantifying the Losses from International Trade” • David Baqaee, University of California, Los Angeles, and Emmanuel Farhi, Harvard University and NBER, “Networks, Barriers, and Trade” • Rui Costa, Swati Dhingra, and Stephen J. Machin, London School of Economics, “Trade and Worker Deskilling” • Nicholas Bloom, Stanford University and NBER; Kyle Handley, University of Michigan; André Kurmann, Drexel University; and Philip A. Luck, University of Colorado, Denver, “The Impact of Chinese Trade on U.S. Employment: The Good, the Bad, and the Apocryphal”

Summaries of these papers are at www.nber.org/conferences/2019/ECTs19/summary.html

Longer Working Lives and Labor Demand

An NBER conference on Longer Working Lives and Labor Demand took place April 5 in Cambridge. Research Associate Kevin S. Milligan of the University of British Columbia organized the meeting, which was sponsored by the Alfred P. Sloan Foundation. These researchers’ papers were presented and discussed: • Courtney Coile, Wellesley College and NBER; Kevin S. Milligan; and David A. Wise, Harvard University and NBER, “Social Security Programs and Retirement Around the World: Working Longer — Introduction and Summary” • Giulia Bovini, London School of Economics, and Matteo Paradisi, Harvard University, “Labor Substitutability and the Impact of Raising the Retirement Age”

NBER Reporter • No. 2, June 2019 35 • Nicole Maestas, Harvard University and NBER; Kathleen J. Mullen, David Powell, and Jeffrey Wenger, RAND Corporation; and Till M. von Wachter, University of California, Los Angeles and NBER, “The Value of Working Conditions in the United States and Implications for the Structure of Wages” (NBER Working Paper No. 25204) • Simon Jäger, MIT and NBER, “Marginal Jobs and Job Surplus: A Test of the Efficiency of Separations” (NBER Working Paper No. 24492) • Francesca Carta and Francesco D’Amuri, Bank of Italy, and Till M. von Wachter, University of California, Los Angeles and NBER, “Workforce Aging, Pension Reforms, and Firm Dynamics” Summaries of these papers are at www.nber.org/conferences/2019/LWLs19/summary.html

The 34th Annual Conference on Macroeconomics

The 34th NBER Annual Conference on Macroeconomics took place April 11–12 in Cambridge. Research Associates Martin S. Eichenbaum of Northwestern University, Erik Hurst of the University of Chicago, and Jonathan A. Parker of MIT organized the meeting. These researchers’ papers were presented and discussed: • Nir Jaimovich, University of Zurich; Sergio Rebelo, Northwestern University and NBER; Arlene Wong, Princeton University and NBER; and Miao Ben Zhang, University of Southern California, “Trading up and the Skill Premium” • Davide Debortoli, Universitat Pompeu Fabra; Jordi Galí, CREI and NBER; and Luca Gambetti, Universitat Autònoma de Barcelona, “On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint” • Michael McLeay, Bank of England, and Silvana Tenreyro, London School of Economics, “Optimal Inflation and the Identification of the Phillips Curve” • Margherita Borella, Università di Torino; Mariacristina De Nardi, Federal Reserve Bank of Minneapolis and NBER; and Fang Yang, Louisiana State University, “The Lost Ones: The Opportunities and Outcomes of Non-College Educated Americans Born in the 1960s” (NBER Working Paper No. 25661) • Chong-En Bai, Tsinghua University; Chang-Tai Hsieh, University of Chicago and NBER; and Zheng Michael Song, Chinese University of Hong Kong, “Special Deals with Chinese Characteristics” • Matias Covarrubias and Germán Gutiérrez, New York University, and Thomas Philippon,New York University and NBER, “Explaining the Rising Concentration of U.S. Industries: Superstars, Intangibles, Globalization or Barriers to Entry?” Summaries of these papers are at www.nber.org/conferences/2019/Macro19/summary.html

Innovation Policy and the Economy

An NBER conference on Innovation Policy and the Economy took place April 16 in Washington, DC. Research Associates Josh Lerner of Harvard University and Scott Stern of MIT organized the meeting, which was sponsored by the Ewing Marion Kauffman Foundation. These researchers’ papers were presented and discussed: • William R. Kerr, Harvard University and NBER, “The Gift of Global Talent” (based on his recent book) • Ashish Arora and Sharon Belenzon, Duke University and NBER; Andrea Patacconi, Norwich Business School; and Jungkyu Suh, Duke University, “The Changing Structure of American Innovation: Cautionary Remarks for Economic Growth” • Margaret Kyle, MINES ParisTech, “The Alignment of Innovation Policy and Social Welfare: Evidence from Pharmaceuticals”

36 NBER Reporter • No 2, June 2019 • Fiona Scott Morton, Yale University and NBER; Carl Shapiro, University of California, Berkeley and NBER; and Giulio Federico, European Commission, “Antitrust and Innovation: Welcoming and Protecting Disruption” • Edward L. Glaeser, Harvard University and NBER, and Naomi Hausman, Hebrew University, “The Spatial Mismatch between Innovation and Joblessness” • Albert Bravo-Biosca, Nesta, “Experimental Innovation Policy” Summaries of these papers are at www.nber.org/conferences/2019/IPEs19/summary.html

Economics of Culture and Institutions

An NBER conference on the Economics of Culture and Institutions took place April 27 in Cambridge. Research Associates Alberto Bisin of New York University and Paola Giuliano of the University of California, Los Angeles organized the meeting. These researchers’ papers were presented and discussed:

• Nicola Gennaioli, Bocconi University, and Guido Tabellini, IGIER, “Identity, Beliefs, and Political Conflict”

• Michela Carlana, Harvard University; Alberto F. Alesina, Harvard University and NBER; Eliana La Ferrara and Paolo Pinotti, Bocconi University, “Revealing Stereotypes: Evidence from Immigrants in Schools” (NBER Working Paper No. 25333)

• Ruochen Dai, Peking University; Dilip Mookherjee, Boston University and NBER; Kaivan Munshi, University of Cambridge; and Xiaobo Zhang, Peking University, “The Community Origins of Private Enterprise in China”

• David Atkin, Massachusetts Institute of Technology and NBER; Eve Sihra and Moses Shayo, Hebrew University, “How Do We Choose Our Identity? A Revealed Preference Approach Using Food Consumption” (NBER Working Paper No. 25693)

• Mathias Iwanowsky, University of Munich, and Andreas Madestam, Stockholm University, “State Repression, Exit, and Voice: Living in the Shadow of Cambodia’s Killing Fields”

• Anke Becker, Harvard University, “On the Economic Origins of Constraints on Women’s Sexuality” Summaries of these papers are at www.nber.org/conferences/2019/CIs19/summary.html

Economics of Energy Use in Transportation

An NBER conference on Economics of Energy Use in Transportation took place May 2–3 in Washington, DC. Kate S. Whitefoot of Carnegie Mellon University and Research Associates Meghan R. Busse of Northwestern University and Christopher R. Knittel of MIT organized the meeting, which was sponsored by the Alfred P. Sloan Foundation and the U.S. Department of Energy. These researchers’ papers were presented and discussed: • Erich Muehlegger, University of California, Davis and NBER, and David S. Rapson, University of California, Davis, “Estimating Demand for Electric Vehicles in Low- and Middle-income Households” • Steven T. Berry, Kenneth Gillingham, and James A. Levinsohn, Yale University and NBER, “Technological Innovation and Per-Mile Automobile Insurance: Effects on Patterns of Vehicle Usage” • Samuel Stolper, University of Michigan, “Local Pass-Through and the Regressivity of Taxes: Evidence from Automotive Fuel Markets”

NBER Reporter • No. 2, June 2019 37 • James B. Bushnell, University of California, Davis and NBER, and Jonathan E. Hughes, University of Colorado at Boulder, “Energy Consumption, Emissions and Modal Substitution in U.S. Freight Transportation” • Jeremy J. Michalek, Inês Azevedo, Constantine Samaras, and Pedro Ferreira, Carnegie Mellon University, and Nicholas Muller, Carnegie Mellon University and NBER, “Effects of On-Demand Ridesourcing on U.S. Vehicle Ownership, Travel Patterns, and Energy Use Externalities” • Jackson Dorsey, Indiana University; Ashley Langer, University of Arizona; and Shaun McRae, ITAM, “Fueling Alternatives: Evidence from Real-World Driving Data” • Stephen P. Holland, University of North Carolina at Greensboro and NBER; Erin T. Mansur, Dartmouth College and NBER; Nicholas Muller, Carnegie Mellon University and NBER; and Andrew J. Yates, University of North Carolina at Chapel Hill, “Environmental Benefits from Transportation Electrification” • Ziyan Chu, Resources for the Future, and Yichen Christy Zhou, Clemson University, “The Effect of Adopting the Next Generation Air Transportation System on Air Travel Performance” Summaries of these papers are at www.nber.org/conferences/2019/EUTs19/summary.html

Blockchain, Distributed Ledgers, and Financial Contracting

An NBER conference on Blockchain, Distributed Ledgers, and Financial Contracting took place May 2–3 in Cambridge. Research Associates Dean Corbae of the University of Wisconsin-Madison, Zhiguo He of the University of Chicago, and Robert Townsend of MIT organized the meeting, which was sponsored by the Puelicher Center for Banking Education at the University of Wisconsin-Madison. These researchers’ papers were presented and discussed: • Jonathan Chiu, Bank of Canada, and Thorsten V. Koeppl, Queen’s University, “The Economics of Cryptocurrency Bitcoin and Beyond” • Simon Janin and Akaki Mamageishvili, ETH Zurich, and Arthur Gervais, Imperial College London, “FileBounty: Secure and Efficient File Exchange in Rational Adversarial Environment” • Nick Arnosti, Columbia University, and Matt Weinberg, The Ohio State University, “Bitcoin: A Natural Oligopoly” • Leonid Kogan, MIT and NBER, “Economics of Proof-of-Stake Payment Systems” • Sean Cao and Baozhong Yang, Georgia State University, and William Cong, University of Chicago, “Financial Reporting and Blockchains: Audit Pricing, Misstatements, and Regulation” • Tetiana Davydiuk, Carnegie Mellon University; Deeksha Gupta, University of Pennsylvania; and Samuel Rosen, Temple University, “De-crypto-ing Signals in Initial Coin Offerings: Evidence of Rational Token Retention”

Summaries of these papers are at www.nber.org/conferences/2019/BDLs19/summary.html

New Developments in Long-Term Asset Management

The NBER conference New Developments in Long-Term Asset Management took place May 9–10 in Cambridge. Research Associates Monika Piazzesi of Stanford University and Luis M. Viceira of Harvard University organized the meeting, which was sponsored by Norges Bank Investment Management. These researchers’ papers were presented and discussed: • Matthew Backus, Columbia University and NBER; Christopher Conlon, New York University; and Michael Sinkinson, Yale University and NBER, “Common Ownership in America: 1980–2017” (NBER Working Paper No. 25454)

38 NBER Reporter • No 2, June 2019 • Andra C. Ghent, University of Wisconsin-Madison, “What’s Wrong with Pittsburgh? Delegated Investors and Liquidity Concentration” • Aleksandar Andonov, University of Amsterdam; Roman Kräussl, University of Luxembourg; and Joshua Rauh, Stanford University and NBER, “The Subsidy to Infrastructure as an Asset Class” (NBER Working Paper No. 25045) • Lubos Pastor, University of Chicago and NBER; Robert F. Stambaugh, University of Pennsylvania and NBER; and Lucian A. Taylor, University of Pennsylvania, “Fund Tradeoffs” (NBER Working Paper No. 23670) • Mikhail Chernov, University of California, Los Angeles and NBER; Lars A. Lochstoer, University of California, Los Angeles; and Stig Lundeby, Norwegian School of Economics, “Conditional Dynamics and the Multi-Horizon Risk- Return Trade-off ” (NBER Working Paper No. 25361) • Ralph S. J. Koijen, University of Chicago and NBER; Robert J. Richmond, New York University; and Motohiro Yogo, Princeton University and NBER, “Which Investors Matter for Global Equity Valuations and Expected Returns?” • Robin Greenwood, Harvard University and NBER, and Annette Vissing-Jorgensen, University of California, Berkeley and NBER, “The Impact of Pensions and Insurance on Global Yield Curves” • Arpit Gupta, New York University, and Stijn Van Nieuwerburgh, Columbia University and NBER, “Valuing Private Equity Investments Strip by Strip” • Anil K. Kashyap, University of Chicago and NBER; Natalia Kovrijnykh, Arizona State University; Jian Li, University of Chicago; and Anna Pavlova, London Business School, “The Benchmark Inclusion Subsidy” (NBER Working Paper No. 25337)

Summaries of these papers are at www.nber.org/conferences/2019/LTAMs19/summary.html

Machine Learning in Health Care

An NBER conference on Machine Learning in Health Care took place May 10 in Cambridge. Research Associates David M. Cutler of Harvard University and Sendhil Mullainathan of the University of Chicago, and Ziad Obermeyer of the University of California, Berkeley organized the meeting, which was sponsored by the National Institute on Aging.. These researchers’ papers were presented and discussed: • Hagai Rossman and Smadar Shilo, Weizmann Institute of Science, “Childhood Obesity Prediction and Risk Factor Analysis from Nationwide Health Records” • Jason Abaluck, Yale University and NBER; Leila Agha, Dartmouth College and NBER; and David C. Chan, Jr., Stanford University and NBER, “Who Should Get Blood? Personalizing Medicine with Heterogeneous Treatment Effects” • Emma J. Pierson and Jure Leskovec, Stanford University, David M. Cutler, Sendhil Mullainathan, and Ziad Obermeyer, “Using Machine Learning to Explain Socioeconomic and Racial Gaps in Pain” • Rediet Abebe, Cornell University; Shawndra Hill and Jennifer Wortman Vaughan, Microsoft Research; Peter M. Small, Rockefeller Foundation; and H. Andrew Schwartz, Stony Brook University, “Using Search Queries to Understand Health Information Needs in Africa” • Tony Duan, Pranav Rajpurkar, Dillon Laird, Andrew Ng, and Sanjay Basu, Stanford University, “Clinical Value of Predicting Individual Treatment Effects for Intensive Blood Pressure Therapy: A Machine Learning Experiment to Estimate Treatment Effects from Randomized Trial Data” • Michael A. Ribers, University of Copenhagen, and Hannes Ullrich, DIW Berlin, “Battling Antibiotic Resistance: Can Machine Learning Improve Prescribing?”

Summaries of these papers are at www.nber.org/conferences/2019/MLHCs19/summary.html

NBER Reporter • No. 2, June 2019 39 Environmental and Energy Policy and the Economy

Members of the NBER’s Program on Environmental and Energy Policy and the Economy met May 16 in Washington, DC. Research Associates Matthew Kotchen of Yale University and James H. Stock of Harvard University, and Program Director Catherine Wolfram of the University of California, Berkeley organized the meeting, which was sponsored by the Alfred P. Sloan Foundation. These researchers’ papers were presented and discussed: • Antonio Bento, University of Southern California and NBER; Mark R. Jacobsen, University of California, San Diego and NBER; Christopher R. Knittel, MIT and NBER; and Arthur van Benthem, University of Pennsylvania and NBER, “Estimating the Costs and Benefits of Fuel Economy Standards” • Robert Stavins, Harvard University and NBER, “The Future of U.S. Carbon-Pricing Policy” • Caroline Flammer, Boston University, “Green Bonds: Effectiveness and Implications for Public Policy” • Lucas W. Davis and James M. Sallee, University of California, Berkeley and NBER, “Should Electric Vehicle Drivers Pay a Mileage Tax?” • Nicholas Muller, Carnegie Mellon University and NBER, “Long-Run Environmental Accounting in the U.S. Economy” • Marc A. C. Hafstead, Resources for the Future, and Roberton C. Williams III, University of Maryland and NBER, “Jobs and Environmental Regulation”

Summaries of these papers are at www.nber.org/conferences/2019/EEPEs19/summary.html

Economics of Research and Innovation in Agriculture

An NBER conference on the Economics of Research and Innovation in Agriculture took place May 17 in Washington, DC. Research Associate Petra Moser of New York University organized the meeting, which was sponsored by the U.S. Department of Agriculture Economic Research Service. These researchers’ papers were presented and discussed: • Bradford L. Barham, Jeremy D. Foltz, and Ana Paula Melo, University of Wisconsin-Madison, “Academic Engagement, Commercialization, and Scholarship: Empirical Evidence from Agricultural and Life Scientists at U.S. Land Grant Universities” • Ellen M. Bruno, University of California, Berkeley, and Katrina Jessoe, University of California, Davis, “Water Prices, Water Markets, and Incentives to Adopt Agricultural Technology” • Jared P. Hutchins, Brent Hueth, and Guilherme Rosa, University of Wisconsin-Madison, “Quantifying Heterogeneous Returns to Genetic Selection: Evidence from Wisconsin Dairies” • Michael J. Andrews, NBER, “The Location of Public Agricultural Research Facilities and the Rate and Direction of Agricultural Innovation”

• Matthew S. Clancy, Yongjie Ji, and GianCarlo Moschini, Iowa State University, and Paul Heisey, U.S. Department of Agriculture, “The Roots of Agricultural Innovation: Evidence from Patents” • Keith Meyers, University of Southern Denmark, and Paul Rhode, University of Michigan and NBER, “Exploring the Causes Driving Hybrid Corn Adoption from 1933 to 1955” • Gregory D. Graff, Colorado State University, and David Zilberman, University of California, Berkeley, “Venture Capital and the Transformation of Private R&D for Agriculture and Food” Summaries of these papers are at www.nber.org/conferences/2019/RIAs19/summary.html

40 NBER Reporter • No 2, June 2019 Economics of Autonomous and Electric Vehicles

An NBER conference on the Economics of Autonomous and Electric Vehicles took place June 6–7 at Stanford University. Research Associates Susan Athey of Stanford and Ryan Kellogg of the University of Chicago, and Jing Li of MIT organized the meeting, which was sponsored by the Alfred P. Sloan Foundation. These researchers’ papers were presented and discussed: • Yixuan Liu, University of Texas at Austin, and Andrew B. Whinston, University of Texas, “Resolving Braess’s Paradox through Information Design: Routing for Heterogeneous Autonomous Vehicles” • Jennifer B. Hatch, Boston University, and Will Gorman, University of California, Berkeley, “GHG Implications of an Autonomous Future” • Leslie A. Martin and Zan Fairweather, University of Melbourne, “The Potential Distributional Impacts of Automated Vehicle Technologies” • Boyoung Seo, Indiana University, and Matthew H. Shapiro, Singapore Management University, “Minimizing Fleet Emissions through Optimal EV Subsidy Design and Vehicle Replacement” • Christopher R. Knittel, MIT and NBER, and James M. Sallee, University of California, Berkeley and NBER, “Vehicle Depreciation and Survival” • Avinash Balachandran, Toyota Research Institute, “Technological Frontiers and Challenges for AV Deployment” • Michael Ostrovsky, Stanford University and NBER, and Michael Schwarz, Microsoft, “Carpooling and the Economics of Self-Driving Cars” (NBER Working Paper No. 24349) • Stephen P. Holland, University of North Carolina, Greensboro and NBER; Erin T. Mansur, Dartmouth College and NBER; Nicholas Muller, Carnegie Mellon University and NBER; and Andrew J. Yates, University of North Carolina, Chapel Hill, “The Electric Vehicle Transition and the Economics of Banning Gasoline Vehicles” • Zhe Zhang, University of California, San Diego, and Beibei Li, New York University, “Ridesharing, Spatial Frictions, and Urban Consumption Patterns” • Federico Boffa and Alessandro Fedele, Free University of Bolzano, and Alberto Iozzi, Università di Roma Tor Vergata, “Congestion and Incentives in the Age of Driverless Cars” • Avi Chaim Mersky and Constantine Samaras, Carnegie Mellon University, “Impact of Vehicle Automation on Electric Vehicle Charging Infrastructure Siting and Energy Demand” • Ginger Zhe Jin, University of Maryland and NBER, and Guangyu Cao, Xi Weng, and Li-An Zhou, Peking University, “Market Expanding or Market Stealing? Competition with Network Effects in Bike-Sharing” (NBER Working Paper No. 24938) Summaries of these papers are at www.nber.org/conferences/2019/AEVs19/summary.html

East Asian Seminar on Economics

The NBER’s East Asian Seminar on Economics took place June 6–7 in Thailand. Research Associates Takatoshi Ito of Columbia University and Andrew K. Rose of the University of California, Berkeley organized the meeting. These researchers’ papers were presented and discussed: • Peter K. Schott, Yale University and NBER; Andrew Greenland, Elon University; Mihai Ion, University of Arizona; and John Lopresti, College of William & Mary, “Using Equity Market Reactions to Infer Exposure to Trade Liberalization” • Shujiro Urata, Waseda University and ERIA; Kazunobu Hayakawa, Institute of Developing Economies; and Tadashi Ito, Gakushuin University, “Impacts of Increased Chinese Imports on Japan’s Labor Market”

NBER Reporter • No. 2, June 2019 41 • Minho Kim, Korea Development Institute, and Iona Hyojung Lee, Singapore Management University, “The Impact of Chinese Imports on Korean Manufacturing Plants” • Yu-Yin Wu, Shih Hui-Tzu, Chu-Hsuan Su, and Chu-Nan Hu, Chung-Hua Institution for Economic Research, “Impact of Regional Economic Integration on Taiwan’s Industrial Supply Chain of Vehicles” • Bingjing Li, National University of Singapore, and Loren Brandt and Peter Morrow, University of Toronto, “Is Processing Good? Theory and Evidence from China” • Hong Ma, Tsinghua University, and Peter Eppinger, Tubingen University, “Optimal Ownership and Firm Performance: Theory and Evidence from China’s FDI Liberalization” • Teresa C. Fort and Andrew B. Bernard, Dartmouth College and NBER, and Frederic Warzynski and Valerie Smeets, Aarhus University, “Heterogeneous Globalization: Offshoring and Reorganization” • Edwin Lai, Hong Kong University of Science and Technology; Steffan Qi, Hong Kong Baptist University; and Heiwai Tang, Johns Hopkins University, “Global Sourcing and Domestic Value-added in Gross Exports” • Yong Wang, Peking University, and Shang-Jin Wei, Columbia University and NBER, “The Sandwich Effect: Challenges for Middle-Income Countries” • Toshihiro Okubo, Keio University, and Richard Baldwin, Graduate Institute, Geneva and NBER, “GVC Journeys: Industrialization and Deindustrialization in the Age of the Second Unbundling “ • Ayako Obashi, Aoyama Gakuin University, and Fukunari Kimura, Keio University, “New Developments in International Production Networks: Impact of Digital Technologies” • Rodney Tyers, Australian National University, and Yixiao Zhou, Curtin University, “U.S.-China Rivalry: The Macro Policy Choices” • Arnaud Costinot and Iván Werning, MIT and NBER, “Robots, Trade, and Luddism: A Sufficient Statistic Approach to Optimal Technology Regulation” (NBER Working Paper No. 25103) Summaries of these papers are at www.nber.org/conferences/2019/EASE19/summary.html

International Seminar on Macroeconomics

The NBER’s International Seminar on Macroeconomics took place June 27–28 in London. Research Associates Kristin Forbes of MIT and Pierre-Olivier Gourinchas of the University of California, Berkeley organized the meeting, which was hosted by the Bank of England. These researchers’ papers were presented and discussed: • Ulrike Malmendier, University of California, Berkeley and NBER; Demian Pouzo, University of California, Berkeley; and Victoria Vanasco, CREI, “Investor Experiences, Capital Flows and Debt Pricing” (NBER Working Paper No. 24697) • François Fontaine, Paris School of Economics; Julien Martin, UQAM; and Isabelle Mejean, École Polytechnique, “Price Discrimination Within and Across EMU Markets: Evidence from French Exporters” • Shang-Jin Wei, Columbia University and NBER, and Yinxi Xie, Columbia University, “Monetary Policy in a World of Global Supply Chains” • Olivier Coibion, University of Texas, Austin and NBER; Yuriy Gorodnichenko, University of California, Berkeley and NBER; Saten Kumar, Auckland University of Technology; and Mathieu Pedemonte, University of California, Berkeley, “Inflation Expectations as a Policy Tool?” (NBER Working Paper No. 24788) • Sergio de Ferra, Stockholm University; Kurt Mitman, Institute for International Economic Studies; and Federica Romei, Stockholm School of Economics, “Household Heterogeneity and the Transmission of Foreign Shocks”

42 NBER Reporter • No 2, June 2019 • Chris Redl, Bank of England, “Uncertainty Matters: Evidence from Close Elections” • Nuno T. Coimbra, Paris School of Economics, “Sovereigns at Risk: A Dynamic Model of Sovereign Debt and Banking Leverage” • Julia Bevilaqua, Galina Hale, and Eric Tallman, Federal Reserve Bank of San Francisco, “Corporate Spreads, Sovereign Spreads, and Crises” Summaries of these papers are at www.nber.org/conferences/2019/ISOM19/summary.html

Program and Working Group Meetings

Aging

Members of the NBER’s Aging Program met March 29 in Cambridge. Research Associate Kathleen M. McGarry of the University of California, Los Angeles, and Program Director Jonathan S. Skinner of Dartmouth College organized the meeting. These researchers’ papers were presented and discussed: • Péter Hudomiet and Susann Rohwedder, RAND Corporation, and Michael D. Hurd, RAND Corporation and NBER, “The Lifetime Risk of Living with Dementia for Six Months, One, Two, or Five Years” • Julie Bynum, University of Michigan, “The Diagnosis and Prevalence of Alzheimer’s Disease and Related Dementias in Clinical Practice” • Amitabh Chandra, Harvard University and NBER, “Innovation and the Economics of Alzheimer’s Disease” • Amanda E. Kowalski, University of Michigan and NBER, “Behavior within a Clinical Trial and Implications for Mammography Guidelines” (NBER Working Paper No. 25049) • Ryan Brown, University of Colorado, Denver, and Duncan Thomas, Duke University and NBER, “On the Long-term Effects of the 1918 U.S. Influenza Pandemic” • Simon Jäger, MIT and NBER; Benjamin Schoefer, University of California, Berkeley; and Josef Zweimüller, University of Zurich, “Marginal Jobs and Job Surplus: A Test of the Efficiency of Separations” (NBER Working Paper No. 25492) • Jay Bhattacharya, Stanford University and NBER; Dean R. Lillard, Ohio State University and NBER; and Su H. Shin, University of Alabama, “Understanding the Correlation between Alzheimer’s Disease Polygenic Risk, Wealth, and the Composition of Wealth Holdings” (NBER Working Paper No. 25526)

Summaries of these papers are at www.nber.org/conferences/2019/AGs19/summary.html

NBER Reporter • No. 2, June 2019 43 Public Economics

Members of the NBER’s Public Economics Program met April 4–5 in Cambridge. Program Director Raj Chetty of Harvard University, Research Associate John N. Friedman of Brown University, and Faculty Research Fellow Eric Zwick of the University of Chicago organized the meeting. These researchers’ papers were presented and discussed: • François Gerard, Columbia University and NBER, and Joana Naritomi, London School of Economics, “Job Displacement Insurance and (the Lack of ) Consumption-Smoothing” • Jacob Bastian, University of Chicago, and Maggie R. Jones, U.S. Census Bureau, “Do EITC Expansions Pay for Themselves? Effects on Tax Revenue and Public Assistance Spending” • Tatiana Homonoff, New York University, and Jason Somerville, Cornell University, “Program Recertification Costs: Evidence from SNAP” • Victor Stango, University of California, Davis, and Jonathan Zinman, Dartmouth College and NBER, “We Are All Behavioral, More or Less: Measuring and Using Consumer-level Behavioral Sufficient Statistics” (NBER Working Paper No. 25540) • Rebecca Diamond and Petra Persson, Stanford University and NBER; Michael J. Dickstein, New York University and NBER; and Timothy McQuade, Stanford University, “Take-Up, Drop-Out, and Spending in ACA Marketplaces” (NBER Working Paper No. 24668) • Shifrah Aron-Dine, Stanford University; Aditya Aladangady, David Cashin, Wendy Dunn, Laura Feiveson, Paul Lengermann, and Claudia R. Sahm, Federal Reserve Board; and Katherine Richard, University of Michigan, “High- frequency Spending Responses to the Earned Income Tax Credit “ • Paul Hufe, Ifo Institute for Economic Research; Ravi Kanbur, Cornell University; and Andreas Peichl, University of Munich, “Measuring Unfair Inequality: Reconciling Equality of Opportunity and Freedom from Poverty” • Bruce D. Meyer, University of Chicago and NBER, and Derek Wu and Victoria D. Mooers, University of Chicago, “The Use and Misuse of Income Data and the Rarity of Extreme Poverty in the United States” • Alisa Tazhitdinova, University of California, Santa Barbara, “Increasing Hours Worked: Moonlighting Responses to a Large Tax Reform” • Maria Polyakova, Stanford University and NBER, and Stephen P. Ryan, Washington University in St. Louis and NBER, “Subsidy Targeting with Market Power” • Marta Murray-Close and Misty L. Heggeness, U.S. Census Bureau, “Manning Up and Womaning Down: How Husbands and Wives Report Their Earnings When She Earns More” • Daniel W. Sacks and Bradley Heim, Indiana University, and Ithai Lurie, Department of the Treasury, “Does the Individual Mandate Affect Insurance Coverage? Evidence from the Population of Tax Returns” • John N. Tsivanidis, Dartmouth College, “The Aggregate and Distributional Effects of Urban Transit Infrastructure: Evidence from Bogotá’s TransMilenio”

Summaries of these papers are at www.nber.org/conferences/2019/PEs19/summary.html

44 NBER Reporter • No 2, June 2019 Asset Pricing

Members of the NBER’s Asset Pricing Program met April 12 in Chicago. Research Associates Janice C. Eberly and Konstantin Milbradt, both of Northwestern University, organized the meeting. These researchers’ papers were presented and discussed: • Ian Dew-Becker, Northwestern University and NBER, and Stefano Giglio, and Bryan T. Kelly, Yale University and NBER, “Hedging Macroeconomic and Financial Volatility and Uncertainty” • Lubos Pastor and Pietro Veronesi, University of Chicago and NBER, “Inequality Aversion, Populism, and the Backlash against Globalization” (NBER Working Paper No. 24900) • Robin Greenwood, Harvard University and NBER, and Annette Vissing-Jorgensen, University of California, Berkeley and NBER, “The Impact of Pensions and Insurance on Global Yield Curves” • Grace Xing Hu, University of Hong Kong; and Jun Pan, Jiang Wang, and Haoxiang Zhu, MIT and NBER, “Premium for Heightened Uncertainty: Solving the FOMC Puzzle” • Robert Novy-Marx, University of Rochester and NBER, and Mihail Z. Velikov, Federal Reserve Bank of Richmond, “Betting Against Betting Against Beta” • Sung Je Byun, Federal Reserve Bank of Dallas, and Lawrence Schmidt, MIT, “Real Risk or Paper Risk? Mis-measured Factors, Granular Measurement Errors, and Empirical Asset Pricing Tests” Summaries of these papers are at www.nber.org/conferences/2019/APs19/summary.html

Education

Members of the NBER’s Education Program met April 11–12 at Stanford University. Program Director Caroline M. Hoxby of Stanford University organized the meeting. These researchers’ papers were presented and discussed: • Andrew Morgan, Minh Nguyen, and Ben Ost, University of Illinois at Chicago; Eric A. Hanushek, Stanford University and NBER; and Steven G. Rivkin, University of Illinois at Chicago and NBER, “Getting Effective Educators in Hard-to-Staff Schools” • C. Kirabo Jackson and Laia Navarro-Sola, Northwestern University, and Diether Beuermann and Francisco Pardo, Inter-American Development Bank, “What is a Good School, and Can Parents Tell? Evidence on the Multidimensionality of School Output” (NBER Working Paper No. 25432) • Sarah Cohodes, Columbia University and NBER; Elizabeth Setren, Tufts University; andChristopher R. Walters, University of California, Berkeley and NBER, “Can Successful Schools Replicate? Scaling Up Boston’s Charter School Sector” • Hessel Oosterbeek, Sandor Sovago, and Bas van der Klaauw, Vrije Universiteit, Amsterdam, “Why are Schools Segregated? Evidence from the Secondary-School Match in Amsterdam” • Jeffrey T. Denning, Eric R. Eide, and Merrill Warnick, Brigham Young University, “Why Have College Completion Rates Increased?” • Ulf Zoelitz, University of Zurich, and Ingo E. Isphording, IZA Bonn, “The Value of a Peer — A New Way to Quantify Individual Spillovers” • Mauricio Romero, ITAM; Justin Sandefur, Center for Global Development; and Wayne A. Sandholtz, University of California, San Diego, “Outsourcing Service Delivery in a Fragile State: Experimental Evidence from Liberia” • Ying Shi, Stanford University, and John D. Singleton, University of Rochester, “Expertise and Independence on Governing Boards: Evidence from School Districts”

NBER Reporter • No. 2, June 2019 45 • Tarek Azzam, Claremont Graduate University, and Michael D. Bates and David Fairris, University of California, Riverside, “Do Learning Communities Increase First Year College Retention? Testing the External Validity of Randomized Control Trials” • James Berry, University of Delaware; Rebecca Dizon-Ross, University of Chicago and NBER; and Maulik Jagnani, Cornell University, “(Not) Playing Favorites: An Experiment on Parental Preferences for Educational Investment” • Krzysztof Karbownik, Northwestern University, and Umut Özek, American Institutes for Research, “Setting a Good Example? Examining Sibling Spillovers in Educational Achievement Using Regression Discontinuity Design” • Kendall J. Kennedy, Mississippi State University, “Hidden Schooling: Repeated Grades and the Returns to Education and Experience”

Summaries of these papers are at www.nber.org/conferences/2019/EDs19/summary.html

Organizational Economics

Members of the NBER’s Organizational Economics Working Group met April 12–13 in Cambridge. Research Associate Robert S. Gibbons of MIT organized the meeting. These researchers’ papers were presented and discussed: • Andrea Prat, Columbia University; Michael C. Best, Columbia University and NBER; and Adnan Khan and Oriana Bandiera, London School of Economics, “Incentives and the Allocation of Authority in Organizations: A Field Experiment with Bureaucrats” • Devesh Rustagi, Goethe University Frankfurt, “Waiting for Napoleon? Historical Democracy and Norms of Cooperation” • Mitchell Hoffman, University of Toronto and NBER; Guido Friebel and Nick Zubanov, Goethe University Frankfurt; and Matthias Heinz, University of Cologne, “What Do Employee Referral Programs Do?” • Guo Xu, University of California, Berkeley; Marianne Bertrand, University of Chicago and NBER; and Robin Burgess, London School of Economics, “Social Proximity and Bureaucrat Performance: Evidence from India” (NBER Working Paper No. 25389) • Daniel V. Barron and Yingni Guo, Northwestern University, “The Use and Misuse of Coordinated Punishments” • Oliver D. Hart, Harvard University and NBER, and David Frydlinger, Cirio Law Firm, “Overcoming Contractual Incompleteness: The Role of Guiding Principles” • Daniela Scur, MIT, and Renata Lemos, The World Bank, “The Ties That Bind: Family CEOs, Management Practices and Firing Costs” • Christian Zehnder, University of Lausanne; Ernst Fehr, University of Zurich; and Oliver D. Hart, Harvard University and NBER, “Contracts, Conflicts and Communication” • Christopher Cornwell and Ian M. Schmutte, University of Georgia, and Daniela Scur, MIT, “Picking from the Top or Shedding the Bottom? Personnel Management, Worker Quality and Firm Productivity” • Monica Martinez-Bravo, Centro de Estudios Monetarios y Financieros (CEMFI); Gerard Padró I Miquel, Yale University and NBER; Nancy Qian, Northwestern University and NBER; and Yang Yao, Peking University, “The Rise and Fall of Local Elections in China: Theory and Empirical Evidence on the Autocrat’s Trade-off ” (NBER Working Paper No. 24066)

46 NBER Reporter • No 2, June 2019 • Melanie Meng Xue, Northwestern University, and Mark Koyama, George Mason University, “Autocratic Rule and Social Capital: Evidence from Imperial China” • Heikki Rantakari, University of Rochester, “Simon Says? (Interpersonal) Authority in Organizations” Summaries of these papers are at www.nber.org/conferences/2019/OEs19/summary.html

Corporate Finance

Members of the NBER’s Corporate Finance Program met April 12 in Chicago. Research Associates Andrea L. Eisfeldt of the University of California, Los Angeles and Victoria Ivashina of Harvard University organized the meeting. These researchers’ papers were presented and discussed: • Antonio Falato, Diana Iercosan, and Filip Zikes, Federal Reserve Board, “Banks as Regulated Traders” • Zhengyang Jiang, Northwestern University, and Arvind Krishnamurthy and Hanno Lustig, Stanford University and NBER, “Dollar Safety and the Global Financial Cycle” • C. Fritz Foley, Harvard University and NBER; Agustin M. Hurtado, University of Chicago; Andres Liberman, New York University; and Alberto Sepulveda, SBIF, “The Effects of Information on Credit Market Competition: Evidence from Credit Cards” • Joshua L. Krieger, Harvard University; Danielle Li, MIT and NBER; and Dimitris Papanikolaou, Northwestern University and NBER, “Missing Novelty in Drug Development” (NBER Working Paper No. 24595) • Shai Bernstein and Rebecca Diamond, Stanford University and NBER, and Timothy McQuade and Beatriz Pousada, Stanford University, “The Contribution of High-Skilled Immigrants to Innovation in the United States” • Jason R. Donaldson, Washington University in St Louis; Denis Gromb, INSEAD; and Giorgia Piacentino, Columbia University, “Conflicting Priorities: A Theory of Covenants and Collateral” • Christopher A. Parsons, University of Washington; Casey Dougal, Drexel University; and Sheridan Titman, University of Texas at Austin and NBER, “Urban Vibrancy and Value Creation” • Xavier Gabaix, Harvard University and NBER, and Ralph S. J. Koijen, University of Chicago and NBER, “Granular Instrumental Variables” Summaries of these papers are at www.nber.org/conferences/2019/CFs19/summary.html

Behavioral Finance

Members of the NBER’s Behavioral Finance Working Group met April 12–13 in Chicago. Research Associate Nicholas C. Barberis of Yale University organized the meeting. These researchers’ papers were presented and discussed: • Niels Joachim Gormsen, University of Chicago, and Eben Lazarus, MIT, “Expected Returns and Cash-Flow Growth” • Stefano Giglio, Yale University and NBER; Matteo Maggiori, Harvard University and NBER; Johannes Stroebel, New York University and NBER; and Stephen Utkus, Vanguard, “Five Facts About Beliefs and Portfolios” (NBER Working Paper No. 25744) • Can Gao, Imperial College London, and Ian Martin, London School of Economics, “Volatility, Valuation Ratios, and Bubbles: An Empirical Measure of Market Sentiment”

NBER Reporter • No. 2, June 2019 47 • Klakow Akepanidtaworn, University of Chicago; Rick Di Mascio, Inalytics Ltd.; Alex Imas, Carnegie Mellon University; and Lawrence Schmidt, MIT, “Selling Fast and Buying Slow: Heuristics and Trading Performance of Institutional Investors” • Jordan Brooks and Michael Katz, AQR Capital Management, and Hanno Lustig, Stanford University and NBER, “Post-FOMC Announcement Drift in U.S. Bond Markets” (NBER Working Paper No. 25127) • Jessica Wachter, University of Pennsylvania and NBER, and Michael J. Kahana, University of Pennsylvania, “A Retrieved-Context Theory of Financial Decisions”

Summaries of these papers are at www.nber.org/conferences/2019/BFs19/summary.html

Political Economy

Members of the NBER’s Political Economy Program met April 26 in Cambridge. Program Director Alberto F. Alesina of Harvard University organized the meeting. These researchers’ papers were presented and discussed: • James J. Feigenbaum, Boston University and NBER, and Daniel Thompson, Andrew B. Hall, and Jesse Yoder, Stanford University, “Who Becomes a Member of Congress? Evidence From De-Anonymized Census Data” • Elhanan Helpman, Harvard University and NBER, and Gene M. Grossman, Princeton University and NBER, “Identity Politics and Trade Policy” (NBER Working Paper No. 25348) • Lubos Pastor and Pietro Veronesi, University of Chicago and NBER, “Inequality Aversion, Populism, and the Backlash against Globalization” (NBER Working Paper No. 24900) • Matthew Jackson, Stanford University, and Yiqing Xing, Johns Hopkins University, “The Complementarity between Community and Government in Enforcing Norms and Contracts, and their Interaction with Religion and Corruption” • Francesco Giavazzi, Bocconi University and NBER; Giacomo Lemoli, New York University; and Felix Iglhaut and Gaia Rubera, Bocconi University, “Terrorist Attacks, Cultural Incidents, and the Vote for Radical Parties” • Melanie Wasserman, University of California, Los Angeles, “Gender Differences in Politician Persistence”

Summaries of these papers are at www.nber.org/conferences/2019/POLs19/summary.html

Cohort Studies

Members of the NBER’s Cohort Studies Working Group met April 26–27 in Cambridge. Research Associate Dora Costa of the University of California, Los Angeles organized the meeting, which was sponsored by the National Institute on Aging. These researchers’ papers were presented and discussed: • Nicola Barban and Marco Francesconi, University of Essex, and Elisabetta De Cao, London School of Economics, “Basic Instincts? The Role of Gene-Environment Interactions in Female Fertility Behavior” • Prashant Bharadwaj, University of California, San Diego and NBER, and Arushi Kaushik and Gordon McCord, University of California, San Diego, “Intergenerational Effects of the Bhopal Gas Disaster” • Dora Costa, “Update on Ex-POW Trauma and Intergenerational Transmission” • Janice Compton, University of Manitoba, and Robert A. Pollak, Washington University in St. Louis and NBER, “The Life Expectancy of Older Couples and Surviving Spouses”

48 NBER Reporter • No 2, June 2019 • Ashley M. Ima, Chapman University, and Tim A. Bruckner, Trang T. Nguyen, and Andrew Noymer, University of California, Irvine, “Race and Life Expectancy in the United States in the Great Depression” • Gabriella Conti, University College London; Govert E. Bijwaard, Peter Ekamper, and Frans van Poppel, NIDI; and Lambert Lumey, Columbia University, “Impact of Famine Exposure In Utero on Labor Market Behavior and Health Later in Life” • Kasey Buckles, University of Notre Dame and NBER; Joseph Price, Brigham Young University and NBER; and Isaac Riley and Jacob R. Van Leeuwen, Brigham Young University, “Combining Family History and Machine Learning to Link Historical Records” • Gabriella Conti and Stavros Poupakis, University College London; Peter Ekamper, Govert E. Bijwaard, and Frans van Poppel, NIDI; and Lambert Lumey, Columbia University, “Health Effects of In Utero Exposure to the Dutch Hunger Winter” • Yiqun Chen, Stanford University, and Petra Persson and Maria Polyakova, Stanford University and NBER, “The Roots of Health Inequality and the Value of Intra-Family Expertise” (NBER Working Paper No. 25618) • Jamie M. Carroll, Chandra Muller, and Alicia Duncombe, University of Texas, Austin; Eric Grodsky, University of Wisconsin; Anna S. Mueller, University of Chicago; and John Robert Warren, University of Minnesota, “Preparing for an Uncertain Economy: How Occupational Expectations, Educational Attainment, and Labor Market Fluctuations Predict Death by Suicide and Substance Abuse by Midlife” • Jesse Rothstein, University of California, Berkeley and NBER, “The Lost Generation? Scarring after the Great Recession” • Lambert Lumey, Columbia University; Gabriella Conti, University College London; and Peter Ekamper, Govert Bijwaard, and Frans van Poppel, NIDI, “Overweight and Obesity in Young Men after Famine Exposure In Utero and Early Infancy: A Re-Examination” • Bastiaan T. Heijmans and Elmar W. Tobi, Leiden University Medical Center, and Lambert Lumey, Columbia University, “Exploring Epigenetic Mechanisms for the Long-term Health Impact of the Dutch Famine of 1944–45”

Summaries of these papers are at www.nber.org/conferences/2019/CSs19/summary.html

Health Economics

Members of the NBER’s Health Economics Program met April 26 in Cambridge. Program Director Michael Grossman of the City University of New York and Research Associates Christopher Carpenter of Vanderbilt University and Robert Kaestner of University of Chicago organized the meeting. These researchers’ papers were presented and discussed: • Alice Zulkarnain and Matthew S. Rutledge, Boston College, “Does Delayed Retirement Affect Mortality?”

• Lawrence Jin and Nicolas R. Ziebarth, Cornell University, “Sleep, Health, and Human Capital: Evidence from Daylight Saving Time”

• Marianne Bitler, University of California, Davis and NBER; Janet Currie, Princeton University and NBER; Hilary W. Hoynes, University of California, Berkeley and NBER; Lisa Schulkind, University of North Carolina, Charlotte; and Barton Willage, Louisiana State University, “The Impact of Childhood Nutrition Assistance on Child Health and Well- Being: Lessons from WIC”

• Peter A. Savelyev, College of William and Mary; Benjamin C. Ward, University of Georgia; and Robert Krueger and Matt F. McGue, University of Minnesota, “Health Endowments, Schooling Allocation in the Family, and Longevity: Evidence from U.S. Twins”

NBER Reporter • No. 2, June 2019 49 • Jason Fletcher, University of Wisconsin-Madison and NBER, and Qiongshi Lu, University of Wisconsin-Madison, “Health Policy and Genetic Endowments: Understanding Sources of Response to MLDA Laws”

• Willa H. Friedman, University of Houston, and Anthony Keats, Wesleyan University, “Disruptions to Health Care Quality and Early Child Health Outcomes: Evidence from Health Worker Strikes”

Summaries of these papers are at www.nber.org/conferences/2019/HEs19/summary.html

Children

Members of the NBER’s Program on Children met May 2–3 in Cambridge. Program Directors Anna Aizer of Brown University and Janet Currie of Princeton University organized the meeting. These researchers’ papers were presented and discussed: • Maria Micaela Sviatschi, Princeton University, and Iva Trako, World Bank, “Female Officers, Gender Violence and Children: Evidence from Women’s Justice Centers in Peru” • Giuseppe Sorrenti and Ulf Zoelitz, University of Zurich, “The Causal Impact of Socio-Emotional Skills Training on Educational Success” • Andrew C. Barr, Texas A&M University, and Alexander A. Smith, United States Military Academy, “The Effect of Income During Infancy: Evidence from the EITC” • Anthony Bald and Margarita Machelett, Brown University; Eric Chyn, University of Virginia; and Justine S. Hastings, Brown University and NBER, “The Causal Impact of Removing Children from Abusive and Neglectful Homes” (NBER Working Paper No. 25419) • Jonathan M. Colmer, University of Virginia, and John L. Voorheis, U.S. Census Bureau, “Pollution and the Intergenerational Transmission of Human Capital: Evidence from the 1970 Clean Air Act” • Natalie Bau, University of California, Los Angeles; Martin Rotemberg, New York University; Manisha Shah, University of California, Los Angeles and NBER; and Bryce Steinberg, Brown University and NBER, “Brain vs. Brawn: Child Labor, Human Capital Investment, and the Role of Dynamic Complementarities” • Bahadir Dursun, Princeton University; Ozkan Eren, University of California, Riverside; and My T. Nguyen, Louisiana State University, “Curriculum Reforms and Infant Health” • Anne Karing, University of California, Berkeley, “Social Signaling and Childhood Immunization: A Field Experiment in Sierra Leone” • Jonas Lau-Jensen Hirani, University of Copenhagen; Hans Henrik Sievertsen, University of Bristol; and Miriam Wüst, University of Copenhagen and the Danish Center for Social Science Research, “Beyond Treatment Exposure: The Timing of Early Interventions and Children’s Health” • Anne Ardila Brenoe, University of Zurich, “Brothers Increase Women’s Gender Conformity” • Kasey Buckles, University of Notre Dame and NBER; Melanie E. Guldi, University of Central Florida; and Lucie Schmidt, Williams College and NBER, “Fertility Trends in the United States, 1980–2017: The Role of Unintended Births” (NBER Working Paper No. 25521) Summaries of these papers are at www.nber.org/conferences/2019/CHs19/summary.html

50 NBER Reporter • No 2, June 2019 NBER Books

NBER Macroeconomics Annual 2018, Volume 33

Edited by Martin Eichenbaum and Jonathan A. Parker https://press.uchicago.edu/ucp/books/book/distributed/N/bo41210957.html

NBER Macroeconomics Annual 2018, Volume 33 Edited by Martin Eichenbaum and Jonathan A. Parker

This volume contains six studies VenkyThis volume containsVenkateswaran six studies on current topics in macroeconomics.argue Michaelthat the Woodford shows that while the assumption of rational expectations is unrealistic, on current topics in macroeconomics. financiala finite-horizon forwardforward crisis planningplanning model modelincreased cancan generategenerate results results similar similarperceived toto those those of of tail Macroeconomics Annual 2018 a rational expectations equilibrium. Andrew Atkeson, AdrienAdrien d’Avernas, Andrea Macroeconomics Annual Michael Woodford shows that while the riskEisfeldt, and and Pierre-Olivier led Weillto investigatehigher whether thedemand U.S. financialfinancial sector sector for is is safe, safer than it was before the financial crisiscrisis andand examineexamine thethe ratioratio ofof market-to-bookmarket-to-book values of banks. Loukas Karabarbounis and Brent Neiman study alternative ways assumption of rational expectations is risk-free,to allocate output thatliquid is not associated assets. with either capital They or labor, what also theythey call explore “factorless income.” JulianJulian Kozlowksi, LauraLaura Veldkamp,Veldkamp, and and Venky Venkateswaran unrealistic, a finite-horizon forward plan- theargue thatpropagation the financial crisiscrisis increasedincreased perceivedperceivedof tailtaillarge, riskrisk andand ledled toto higherrarehigher demanddemand shocks. for safe, risk-free, liquid assets. They also explore the propagation of large, rare ning model can generate results similar to Kerwinshocks. Kerwin KofiKofi Charles, Charles, Erik Erik Hurst, Hurst,Charles, and and Mariel Mariel Schwartz Schwartz Erik document document substan Hurst,substan- and tial changes in the manufacturing sectorsector andand thethe decline inin employmentemployment among prime-aged Americans sincesince 2000,2000, and assess the relative effects of of trade, trade, and and those of a rational expectations equilib- Marielworker health andSchwartz mobility. Omar Barbiero, document Emmanuel Farhi, Gita Gopinath, substantial and Oleg Itskhoki analyze the dynamic macroeconomic effects ofof borderborder adjustment adjustment rium. Andrew Atkeson, Adrien d’Avernas, changestaxes, considering in them the both in themanufacturing context of corporate tax reform and sector as a part and Andrea Eisfeldt, and Pierre-Olivier Weill theof the decline value added tax. in employment among prime- Contents Macroeconomics investigate whether the U.S. financial agedMichael WoodfordAmericans since 2000, and assess MONETARY POLICY ANALYSIS WHEN PLANNING HORIZONS ARE FINITE Annual sector is safer than it was before the theAndrew relative G. Atkeson, Adrien effects d’Avernas, Andrea L. ofEisfeldt, trade, and Pierre-Olivier and Weill worker GOVERNMENT GUARANTEES AND THE VALUATION OF AMERICAN BANKS 2018 2018 financial crisis and examine the ratio of healthLoukas Karabarbounis and and Brentmobility. Neiman Omar Barbiero, ACCOUNTING FOR FACTORLESS INCOME market-to-book values of banks. Loukas EmmanuelJulian Kozlowski, Laura Veldkamp,Farhi, and Venky Gita Venkateswaran Gopinath, and THE TAIL THAT KEEPS THE RISKLESS RATE LOW Volume 33 Karabarbounis and Brent Neiman study OlegKerwin KofiItskhoki Charles,Charles, ErikErik Hurst,Hurst, andanalyzeand MarielMariel SchwartzSchwartz the dynamic mac-Volume 33 THE TRANSFORMATION OF MANUFACTURING AND THE DECLINE IN U.S. alternative ways to allocate output that roeconomicEMPLOYMENT effects of border adjustment Omar Barbiero, Emmanuel Farhi, Gita Gopinath, and Oleg Itskhoki are not associated with either capital or taxes,THE MACROECONOMICS considering OF BORDER TAXESthem both in the con- labor, what they call “factorless income.” textThe University of corporate of Chicago Press tax reform and as a part National Bureau of Economic Research www.press.uchicago.edu National Bureau of Economic Research

Julian Kozlowski, Laura Veldkamp, and of the value-added tax. thet h e university u n i v e r s i t y of o f chicago c h i c a g o press p r e s s

Tax Policy and the Economy, Volume 33

Edited by Robert A. Moffitt

https://press.uchicago.edu/ucp/books/book/distributed/T/bo41210992.html Tax Economy Policy the and This volume presents five new stud- rate sets of policies that have the same 33 2019 ies on taxation and government transfer economic effects — and also illustrates Tax programs. Scott Baker, Lorenz Kueng, whenTax these equivalences break down. Leslie McGranahan, and Brian Melzer JeffreyPolicy Liebman and Daniel Ramsey use Policy explore whether “unconventional” fiscal data from NBER’s TAXSIM model to policy in the form of pre-announced con- investigateand the the Economy equity implications 33 of a and the Economy

sumption tax changes can shift durables switch from joint to independent taxa- NBER Edited by Robert A. Moffitt National Bureau of Economic Research purchases intertemporally, and how such tion Johnsthat Hopkins could University andoccur NBER in conjunction This volume presents five new studies on taxation and government Edited by Robert A. Moffitt shifts are affected by consumer credit. with adoption transferof programs.return-free Scott Baker, Lorenz Kueng, tax Leslie McGranahan, filing. and Brian Melzer explore whether “unconventional” fiscal policy in the form of pre-announced consumption tax changes can shift dura- Do Household Finances Constrain Michelle Hanlon, Jeffrey Hoopes, and Alexander Blocker,bles purchases intertemporally,Laurence and how such shiftsKotlikoff, are affected by Unconventional Fiscal Policy? consumer credit. Michelle Hanlon, Jeffrey Hoopes, and Joel Slemrod examine the effects of the Tax Cuts and Jobs Act on corporation Tax Reform Made Me Do It! behavior and on firms’ statements about their behavior. They focus 33 Joel Slemrod examine the effects of the Stephen Ross, andon four outcomes: Sergio bonuses, investment, Villar share repurchases, Vallenas and dividends. Alan Auerbach discusses “tax equivalences”—disparate Tax Equivalences and Their Implications sets of policies that have the same economic effects—and also Tax Cuts and Jobs Act on corporation show how assetillustrates pricing when these equivalences can break down.be Jeffrey used Liebman to Independent Taxation, Horizontal Equity, and Daniel Ramsey use data from NBER’s TAXSIM model to inves- and Return-Free Filing tigate the equity implications of a switch from joint to independent behavior and on firms’ statements about value implicit fiscaltaxation that could debts, occur in conjunction which with adoption ofare return- cur- free tax filing. Alexander Blocker, Laurence Kotlikoff, Stephen Ross, The True Cost of Social Security and Sergio Villar Vallenas show how asset pricing can be used to their behavior. They focus on four out- rently rarely measuredvalue implicit fiscal debts, whichor are currentlyadjusted rarely measured or for adjusted for risk, while accounting for risk properties. They apply their methodology to study Social Security. comes: bonuses, investment, share repur- risk, while accountingOf related interest for risk properties. Tax Policy and the Economy, Volume 32 NBER chases, and dividends. Alan Auerbach TheyThe Universityapply of theirEdited by Robertmethodology A. Moffitt to study Chicago Press Articles by James Andreoni, Caroline M. Hoxby, Alex Rees-Jones, The University of w w w.press.uchicago.edu Dmitry Taubinsky, Jeffrey Clemens, Benedic Ippolito, Andrew A. discusses “tax equivalences” — dispa- Social Security. Samwick, Bruce D. Meyer, Wallace K. C. Mok Chicago Press

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