The 2018 Summer Workshop took place in Edinburgh on Monday 18 and Tuesday 19 June. The workshop began with a talk from José-Víctor Ríos-Rull (University of Pennsylvania) discussing the forces that drive wage dispersion. Rios-Rull showed that – everything else equal – people are less likely to quit higher paid jobs, which leads some employers to increase the wage rate to attract and keep workers. However, higher-paying employers above-proportionally attract wealthier workers, who are more likely to quit their jobs, dampening wage dispersion. View slides.
Carlos Carrillo-Tudela (University of Essex) discussed the Hartz reforms and their relationship to the recent fall in German unemployment and increase in welfare. Carrillo-Tudela showed that the reforms caused a gradual decrease in unemployment, as unemployed workers were more likely to accept low-paid employment rather than act as ‘jobseekers’ (i.e. visiting the job centre and be means tested). In addition, the Hartz reforms introduced a tax benefit to secondary-work, which led to income inequality. However, this rise in inequality was mirrored by an increase in welfare leading to an increase in living standards. View paper.
David Lagakos (University California, San Diego) discussed how unemployment is increasing in line with the rise in GDP per-capita, however, there are stark differences across various countries. Lagakos analysed household survey data from around the world and built a new model to highlight the differences between poor and rich countries. Lagakos showed that in rich countries it is the low-educated that are more likely to be unemployed, whereas in poor countries the opposite is true. This difference is driven by differences in working sectors: traditional vs. modern. This results in some of the rise in unemployment is a ‘natural consequence of the development process’. View paper.
Matthias Kredler (Universidad Carlos III Madrid) studied a fiscal union in which an altruistic central decision maker stands above two imperfectly altruistic countries that make consumption decisions on their own. In particular, these countries can bank on the altruism of the central decision, to help them (with the resources of the other country) when they face low consumption. Kredler showed that this setting can lead to bail-outs on the equilibrium path, with the central decision maker controlling consumption for the country in question thereafter.
Kurt Mitman (IIES, Stockholm) closed the first day of talks by exploring the issues surrounding ‘forward guidance’ – a tool used by central banks to provide information to governments about their future monetary policy intentions. Mitman looked the use of forward guidance during the 2008 recession and highlighted that banking intentions of keeping nominal interest rates low has little impact on governmental budgets, and subsequently on output and employment. Mitman outlined a new model which could help make better use of forward guidance and clarify mistakes in previous studies of its use. View paper.
Day two began with Kyle Herkenhoff (University of Minnesota) exploring unemployed borrowing. Herkenhoff used administrative earnings records with credit reports in the U.S to show that recently individuals have significant access to credit (through e.g. credit cards and home equity lines of credit), despite job losses. Herekenhoff argues that this creates a ‘private unemployment insurance market’, leading to implications for rates of public insurance in the US. View paper.
David Wiczer (University of Stony Brook) discussed how individuals search for jobs while still in employment and explore how people search for jobs has a direct impact on wage and employment dynamics. Wiczer showed that workers who are ‘better connected’ and find jobs using their own ‘network of peers’ are able to find work faster and more efficiently as opposed to workers who search for jobs via usual recruitment methods. Wizcer concluded that individuals who find work via their ‘network’ way tend to be higher paid and last longer in their roles. View paper.
Dongya Koh (University of Arkansas) then explored income compositions in the U.S. Koh argued that younger households in the U.S. rely more on the money they earn, rather than income from assets (property, savings etc.). Koh shows that those with a better standard of living over their life-cycle are those who have invested in assets (e.g. who have contributed to savings), compared to those who have invested in ‘human capital (e.g. their education). This investment has a direct impact on the life-cycle of individuals. Koh shows that top earners who invest less in ‘human capital’ (e.g. in their education) are able to save more and therefore have a better standard of living over their lifetime. This is driven largely by most highly-educated workers in the U.S. being unable to save effectively due to significant to student debts. View paper.
The Summer Workshop concluded with a talk from Ana Araujo (University of Minnesota) who explored wage inequality in Brazil, looking specifically at who bears the greatest burden on firing taxes: high-wage or low-wage workers. To answer this Araujo explained her model, which analyses the different firing rates among firms, and examines employer-employee data from Brazil to measure wage inequality. View paper.
The project extends its warmest thanks to all speakers and delegates, in particular to Ludo Visschers for coordinating the programme.
Photographs by Douglas Robertson.