Author: gallipol

The Changing Value of Employment


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Abstract. Do workers derive different returns from similar jobs? Are earnings informative about changes in overall returns from work? We estimate the value of worker-occupation matches in an equilibrium model that distinguishes between wages and latent returns. We define a measure of employment rents that has three properties: (i) it reflects both wages and unobserved match values; (ii) it delivers a monetary metric for compensating differentials; (iii) it illustrates how the marginal workers within a match affect the rents of others. We show that earnings data reliably approximate the evolution of average rents between 1980 and 2018 despite differences in unobserved match values. The results highlight a dichotomy: while the existence of rents is due to latent values, their evolution is driven by productivity and technology.

Citation

@techreport{alonzo2023changing,
  title={The changing value of employment and its implications},
  author={Alonzo, Davide and Gallipoli, Giovanni},
  year={2023},
  institution={CEPR DP17943}
}

The Production of Financial Literacy


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Abstract. We study the accumulation of financial competencies in a model of dynamic skill formation. We find evidence of complementarities between financial literacy, wealth and risk attitudes. Risk tolerance and wealth facilitate experimentation and learning-by-doing. Latent risk attitudes and financial literacy are unevenly distributed across households and do not align with general human capital. Linking estimates with data on household portfolios, we show that early-life differences in financial literacy and its accumulation in the life-cycle may account for about one-fifth of the standard deviation of wealth by age 60. Dynamic complementarities in skill formation imply that early interventions may reduce later-life inequality while boosting average wealth growth.

Citation

@article{gallipoli-gomez-2023,
  title={The Production of Financial Literacy},
  author={Gallipoli, Giovanni and Gomez, sebastian},
  journal={mimeo, UBC},
  year={2023}
}

End-of-Life Liquidity


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Abstract. Uncertainty about one’s lifespan induces a preference for end-of-life liquidity (Yaari, 1965). Such preference, which can be characterized as a warm-glow motive but need not be interpreted that way, interacts with institutional constraints to shape life-cycle behaviors. We illustrate its quantitative importance using a model of consumption, labor supply, and retirement decisions and document a little-known set of distortions that annuity plans, including the U.S. social security, impose on life-cycle decisions through the illiquid and uncertain nature of its entitlements. A minor policy change that reduces the value of retirement annuities in exchange for a guaranteed amount upon death induces large effects on life-cycle allocations and raises welfare, especially among unmarried individuals with low education. These findings are relevant for the design of annuity programs, whether public or private.

Citation

@article{bairoliya2023end,
  title={End-of-Life Liquidity},
  author={Bairoliya, Neha and Gallipoli, Giovanni and McKiernan, Kathleen},
  journal={Available at SSRN 4585698},
  year={2023}
}

Comments on Unequal Growth


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Abstract. What is the relationship between income inequality and aggregate growth? Through an ingenious decomposition, Lippi and Perri cast this relationship as a function of simple moments of the distribution of changes in household income. Their study delivers new evidence linking heterogeneous micro-level income changes to macro-level growth outcomes. Faster income growth among rich households has mitigated the slowdown of aggregate growth in the US, especially after 20 0 0. These findings bring forth questions about the origins of unequal growth and its impact on the welfare of different subsets of the population.

Citation

@article{gallipoli2023comments,
  title={Comments on unequal growth},
  author={Gallipoli, Giovanni},
  journal={Journal of Monetary Economics},
  volume={133},
  pages={19--24},
  year={2023},
  publisher={Elsevier}
}

Firm Heterogeneity in Skill Returns


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Abstract. This paper presents new evidence on worker–firm complementarities. We combine matched employer-employee data with direct measures of workers’ cognitive and noncognitive skills, and propose an empirical approach that separately identifies the firm-level return for each attribute. We find that similar skills command different returns across employers and that workers’ sorting into firms depends on returns to both attributes. We derive theoretical restrictions that characterize many-to-one matching in employer-employee data, linking within-firm skill dispersion to between-firm differences in average skills. Estimates support these restrictions. Firm heterogeneity in skill returns raises both the average level and dispersion of earnings.

Citation

@article{bohm2020firm,
  title={Firm Heterogeneity in Skill Returns},
  author={B{\"o}hm, Michael J and Esmkhani, Khalil and Gallipoli, Giovanni},
  journal={Journal of Labor Economics},
  volume={43},
  number={3},
  pages={XXX--XXX},
  year={forthcoming}
}

Permanent-Income Inequality

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Abstract. We examine two alternative welfare representations and empirically characterize their distribution across individuals and households. Through certainty equivalent consumption (CE) measures, we show that dispersion of current earnings, expenditures, and net-worth overstate welfare inequality. This is largely due to the unaccounted value of future earnings, which we call human wealth. The latter mitigates permanent-income inequality, though its influence is diminished by the growing importance of assets in lifetime wealth. Average expenditures and CE inequality roughly doubled between 1983 and 2016 and, to weigh these offsetting forces, we decompose aggregate welfare changes into contributions from the level and dispersion of consumption, as well as uncertainty and demographic composition. About 1/4 of the welfare gains from higher consumption have been lost to rising inequality, with most of the losses accruing after 2000.

Citation

@article{abbott2022permanent,
  title={Permanent-income inequality},
  author={Abbott, Brant and Gallipoli, Giovanni},
  journal={Quantitative Economics},
  volume={13},
  number={3},
  pages={1023--1060},
  year={2022},
  publisher={Wiley Online Library}
}

Sectoral Digital Intensity and GDP Growth After a Large Employment Shock


We develop and estimate a simple state-dependent model of output dynamics. The model builds on the original insights of Okun (1963), generalizing them to multiple sectors and locations. Our simple approach allows for heterogeneity in GDP sensitivity to employment changes. The suggested algorithm can be used to project output across industries and places with minimal data and computational requirements.

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Abstract.

We examine the dynamics of GDP following an economy-wide pandemic shock that curtails physical mobility and the ability to perform certain tasks at work. We examine whether greater reliance on digital technologies has the potential to mediate employment and productivity losses. We employ industry-level indices of task-based digital intensity and ability to work from home (“home-shorability”), in conjunction with publicly available data on employment and GDP for Canada, and document that: (i) employment responses after the onset of the shock are milder in digitally-intensive sectors; (ii) conditional on the size of employment
changes, GDP responses are less extreme in IT-intensive sectors. We suggest a simple state-dependent algorithm for predicting output dynamics as a function of employment across industries and locations with different digital intensities. In our baseline scenario, the aggregate output returns to pre-crisis levels eight quarters after the initial shock onset, although we find significant heterogeneity in recovery patterns across sectors.

Citation

@article{gallipoli2022sectoral,
  title={Sectoral digital intensity and GDP growth after a large employment shock: A simple extrapolation exercise},
  author={Gallipoli, Giovanni and Makridis, Christos A},
  journal={Canadian Journal of Economics/Revue canadienne d'{\'e}conomique},
  volume={55},
  pages={446--479},
  year={2022},
  publisher={Wiley Online Library}
}

Consumption and Income Inequality across Generations


How much of the cross-sectional dispersion of income and consumption can be accounted for by parental heterogeneity and family background? How strong are intergenerational linkages? We examine data on expenditures and income of parent-child pairs and document the presence of significant family persistence in earnings, consumption, saving behaviours, and marital sorting patterns. However, we also show that idiosyncratic (family independent) heterogeneity has a quantitatively bigger role than parental effects for the evolution of cross-sectional inequality.
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Abstract. We characterize the joint evolution of cross-sectional inequality in earnings, other sources of income, and consumption across generations in the U.S. To account for cross-sectional dispersion, we estimate a model of intergenerational persistence and separately identify the influences of parental factors and of idiosyncratic life-cycle components. We find evidence of family persistence in earnings, consumption and saving behaviours, and marital sorting patterns. However, the quantitative contribution of idiosyncratic heterogeneity to cross-sectional inequality is significantly larger than parental effects. Our estimates imply that intergenerational persistence is not high enough to induce further large increases in inequality over time and across generations.

Citation

@techreport{GLM,
  title={Consumption and Income Inequality across Generations},
  author={Gallipoli, Giovanni and Low, Hamish and Mitra, Aruni},
  year={2020},
  institution={Discussion Paper}
}

Match Quality and Contractual Sorting


We ask whether match-specific quality has an effect on the type of contractual arrangements that firms offer to workers. We present evidence that contractual arrangements depend on match quality and that heterogeneity in pay mechanisms has a significant effect on employment durations and wage dynamics.
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Abstract. This paper examines the impact of match-specific heterogeneity on compensation arrangements. In a stylized contractual choice problem, we show that employers may have an incentive to offer performance-based contracts when match-specific productivity is high. We test the empirical content of this hypothesis using the NLSY79, which contains information about individual job histories and performance pay. We find that better match quality does affect pay arrangements, employment durations, and wage cyclicality. Direct evidence on the accrual of job offers to workers lends support to the hypothesis that employers use performance-related compensation to preserve high-quality matches.

Citation

@article{fgy2020contracts,
  title={Match Quality and Contractual Sorting},
  author={Galindo da Fonseca, Joao and Gallipoli, Giovanni and Yedid-Levi, Yaniv},
  volume={66},
  year={2020},
  journal={Labour Economics}
}

Human Capital Inequality: Empirical Evidence


Heterogeneity in human capital is a key source of differences in economic well-being. This article provides a synopsis of the empirical approaches that have characterized the analysis of human capital inequality over the past few decades.
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Abstract. Wealth inequality has received considerable attention, with mounting evidence of steady and economically meaningful changes in the concentration of wealth ownership. By definition, wealth inequality captures disparity in the ownership of productive capital and other non-labor factors of production. In contrast, in this article we focus on the distribution of human capital and its implications for the accrual of economic resources to individuals and households. Human capital inequality can be thought of as measuring disparity in the ownership of labor factors of production, which are usually compensated in the form of wage income.

Citation

@article{AG_HC2019,
  title={Human Capital Inequality: Empirical Evidence},
  author={Abbott, Brant and Gallipoli, Giovanni},
  journal={Oxford Research Encyclopedia of Economics and Finance},
  year={2020},
  month={January}
}