Published Research

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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}
}

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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}
}

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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}
}

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@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}
}

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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}
}

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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}
}

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Abstract. This paper examines the equilibrium effects of alternative financial aid policies intended to promote college participation. We build an overlapping generations life cycle model with education, labor supply, and consumption/saving decisions. Cognitive and non-cognitive skills of children depend on the cognitive skills and education of parents and affect education choice and labor market outcomes. Driven by both altruism and paternalism, parents make transfers to their children which can be used to fund education, supplementing grants, loans, and the labor supply of the children themselves during college. The crowding out of parental transfers by government programs is sizable and thus cannot be ignored when designing policy. The current system of federal aid is valuable: removing either grants or loans would each reduce output by 2% and welfare by 3% in the long-run. An expansion of aid towards ability-tested grants would be markedly superior to either an expansion of student loans or a labor tax cut. This result is, in part, due to the complementarity between parental education and ability in the production of skills of future generations.

Citation

@article{AGMV2019,
 title={Education Policy and Intergenerational Transfers in Equilibrium},
 author={Abbott, Brant and Gallipoli, Giovanni and Meghir, Costas and Violante, Giovanni Luca},
 journal={Journal of Political Economy}, 
volume = {126},
number = {6},
pages = {2569-2624},
year={2019}
}

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Abstract. Non-stationary income processes are standard in quantitative life-cycle models, prompted by the observation that within-cohort income inequality increases with age. This paper generalizes Tauchen (1986), Adda and Cooper (2003), and Rouwenhorst’s (1995) discretization methods to non-stationary AR(1) processes. We evaluate the performance of these methods in the context of a canonical life-cycle,income-fluctuation problem with a non-stationary income process. We also examine the case in which innovations to the persistent component of earnings are modeled as draws from a mixture of Normal distributions. We find that the generalized Rouwenhorst’s method performs consistently better than the others even with a relatively small number of states.

Citation

@article{fgp2019approximations,
  title={Markov-Chain Approximations for Life-Cycle Models},
  author={Fella, Giulio and Gallipoli, Giovanni and Pan, Jutong},
  journal={Review of Economic Dynamics},
  year={2019},
  volume = {34},
  pages = {183-201}
}

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Abstract. Has the emergence of information technology changed the structure of employment and earnings in the US? We propose a new index of occupation-level IT intensity and document several long-term changes in the occupational landscape over the past decades. Using Census and US KLEMS micro-data, we show that: (i) the bulk of productivity growth after 1950 is concentrated in IT-intensive sectors; (ii) the share of workers in IT jobs has expanded significantly, with little or no pause and IT jobs enjoy a large and growing earnings premium, even after controlling for general task requirements (e.g., cognitive, non-routine); and (iii) the rise of the IT-intensive employment share is closely associated with declines in the manufacturing employment share. While earnings premia for college-educated and cognitive/non-routine workers have flattened in the aggregate since 2000, we show that they continued growing in IT-intensive jobs and that these jobs have played a key role in accounting for the surge of high tech service labor productivity. We also use our IT intensity index to estimate industry-specific elasticities of substitution between IT and non-IT intensive labor, finding values of 1.6 in manufacturing and 1.3 in services. Finally, we revisit a long-standing question about the relationship between technological progress and productivity and provide evidence that occupation-level IT intensity is positively associated with output growth, especially in the services sector.

Citation

@article{gallipoli_makridis_2018_structural_transformation,
 title={Structural Transformation and the Rise of Information Technology},
 author={Gallipoli, Giovanni and Makridis, Christos A.},
 journal={Journal of Monetary Economics},
 year={2018},
 month={August},
 note = {Carnegie Rochester NYU Series on Public Policy}
}

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Abstract. We estimate the costs of occupational mobility and quantify the relative importance of differences in task content as a component of total mobility costs. We use a novel approach based on a model of occupational choice which delivers a gravity equation linking worker flows to occupation characteristics and transition costs. Using data from the Current Population Survey and the Dictionary of Occupational Titles we find that task-specific costs account for no more than 15% of the total transition cost across most occupation pairs. Transition costs vary widely across occupations and, while increasing with the dissimilarity in the mix of tasks performed, are mostly accounted for by task-independent occupation-specific factors. The fraction of transition costs that can be attributed to task-related variables appears fairly stable over the 1994-2013 period.

Citation

@article{cortes_gallipoli2018costs,
  title={The Costs of Occupational Mobility: an Aggregate Analysis},
  author={Cortes, Guido Matias and Giovanni Gallipoli},
  journal={Journal of the European Economic Association},
  volume={16},
  pages = {275-315},
  number = {2},
  year={2018}
}

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Abstract. We develop and estimate an equilibrium model of geographic variation in the intergenerational elasticity of earnings (IGE). The theory extends the Becker-Tomes model, introducing a production sector in which workers’ human capital inputs are complements. In this setting the return to parental human capital investments is lower where skill complementarity is more intense, and this is reflected in less intergenerational persistence. We also show that education subsidies may be more desirable where skill complementarities are stronger, endogenously leading to a negative correlation between progressive public policy and IGE. Using microdata we construct location-specific measures of skill complementarity and document that patterns of geographic variation in IGE are consistent with this hypothesis. Geographic differences in skill complementarity directly account for roughly one fifth of cross-country variation in IGE, and possibly more if one allows for the indirect effect through government expenditure in public education.

Citation

@article{Abbott_Gallipoli_RED2017,
title = {Human Capital Spill-Overs and the Geography of Intergenerational Mobility},
journal = {Review of Economic Dynamics},
volume = {25},
pages = {208 - 233},
year = {2017},
note = {Special Issue on Human Capital and Inequality}
}

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Abstract. We develop a model of firms’ growth in which the tax and credit environments act as selection mechanisms. Such a model, parameterized and validated using a variety of data restrictions, can rationalize observations about input choices and size patterns typical of many developing countries. Using counterfactual experiments, we show that firms’ optimal responses to the tax environment are effective in reducing efficiency losses. As a consequence, tax distortions only account for 13% of the gap in output per worker between an undistorted economy and the benchmark. Credit constraints account for 44% of this gap. However, the interaction between the cost of capital and credit constraints appears to be the most important source of misallocation and can explain up to 85% of the difference in output per worker between the benchmark and first-best.

Citation

@article{goyette2015distortions,
  title={Distortions, Efficiency and the Size Distribution of Firms},
  author={Goyette, Jonathan and Gallipoli, Giovanni},
  journal={Journal of Macroeconomics},
  volume={45},
  pages={202--221},
  year={2015},
  publisher={North-Holland}
}

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Abstract. We compare two large-scale policy interventions aimed at reducing crime: subsidizing high school completion and increasing the length of prison sentences. To this purpose we use a life-cycle model with endogenous education and crime choices. We apply the model to property crime and calibrate it to U.S. data. We find that targeting crime reductions through increases in high school graduation rates entails large efficiency and welfare gains. These gains are absent if the same crime reduction is achieved by increasing the length of sentences. We also find that general equilibrium effects explain roughly one half of the reduction in crime from subsidizing high school.

Citation

@article{fella2014education,
  title={Education and Crime over the Life Cycle},
  author={Fella, Giulio and Gallipoli, Giovanni},
  journal={The Review of Economic Studies},
  volume={81},
  number={4},
  pages={1484--1517},
  year={2014},
  publisher={Oxford University Press}
}

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Abstract. This paper investigates a theoretical mechanism linking comparative advantage to the distribution of skills in the working population. We develop a tractable multi-country, multi-industry model of trade with unobservable skills in the labor market and show that comparative advantage derives from (i) cross-industry differences in the substitutability of workers’ skills and (ii) cross-country differences in the dispersion of skills. We establish the conditions under which higher skill dispersion leads to specialization in industries characterized by higher skill substitutability across tasks. The main results are robust when the model is extended to allow for partial observability of skills. Finally, we use distributions of literacy scores from the International Adult Literacy Survey to approximate cross-country productivity differences due to skill dispersion and we carry out a quantitative assessment of the impact of skill dispersion on the pattern of trade.

Citation

@article{bombardini2014unobservable,
  title={Unobservable Skill Dispersion and Comparative Advantage},
  author={Bombardini, Matilde and Gallipoli, Giovanni and Pupato, Germ{\'a}n},
  journal={Journal of International Economics},
  volume={92},
  number={2},
  pages={317--329},
  year={2014},
  publisher={North-Holland}
}

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Abstract. The probability of dropping out of high school varies considerably with parental education. Using a rich Canadian panel dataset, we examine the channels determining this socio-economic status effect. We estimate an extended version of Carneiro, Hansen and Heckman (2003)’s factor model, incorporating effects from cognitive and non-cognitive ability and parental valuation of education (PVE). We find that cognitive ability and PVE have substantial impacts on dropping-out and that parental education has little direct effect on dropping-out after controlling for these factors. Our results confirm the importance of determinants of pre-high school ability stocks but also indicate an important role for PVE during teenage years.

Citation

@article{foley2014ability,
  title={Ability, Parental Valuation of Education, and the High School Dropout Decision},
  author={Foley, Kelly and Gallipoli, Giovanni and Green, David A},
  journal={Journal of Human Resources},
  volume={49},
  number={4},
  pages={906--944},
  year={2014},
  publisher={University of Wisconsin Press}
}

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Abstract. This paper critically appraises the approaches that have characterized the literature on the macroeconomic effects of job reallocations. Since Lilien’s (1982) seminal contribution there has been a flourishing of empirical analysis but no unifying theoretical framework has obtained consensus in the scientific debate. We face a corpus of research which is heterogeneous in variables’ selection and experimental design. This heterogeneity makes the evaluation of results a daunting task. As a guiding principle for our excursion we track down the methodological development of the solutions to the crucial problem of observational equivalence of aggregate and sectoral reallocation shocks. We draw two main conclusions from our analysis. The first is that the non-directional nature of reallocation shocks holds the key to the solution of the fundamental identification problem. In this sense the recent perspective on job creation and destruction
shows much promise. The second conclusion is that sectoral reallocation of labor has been responsible for no less that 1/4 and no more that 2/3 of the variance of aggregate unemployment in postwar data. While this range may seem wide it is an indication that the importance of labor reallocation may have changed over time, being quite large at particular historical junctures.

Citation

@article{gallipoli2013macroeconomic,
  title={Macroeconomic Effects of Job Reallocations: a Survey},
  author={Gallipoli, Giovanni and Pelloni, Gianluigi},
  journal={Review of Economic Analysis},
  volume={5},
  number={2},
  pages={127--176},
  year={2013},
  publisher={RCEA}
}

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Abstract. Is skill dispersion a source of comparative advantage? In this paper we use microdata from the International Adult Literacy Survey to show that the effect of skill dispersion on trade flows is quantitatively similar to that of the aggregate endowment of human capital. In particular we investigate, and find support for, the hypothesis that countries with a more dispersed skill distribution specialize in industries characterized by lower complementarity of workers’ skills. The result is robust to the introduction of controls for alternative sources of comparative advantage, as well as to alternative measures of industry-level skill complementarity.

Citation

@article{BGP2012skill,
  title={Skill Dispersion and Trade Flows},
  author={Matilde Bombardini, Giovanni Gallipoli, Germ{\'a}n Pupato},
  journal={The American Economic Review},
  volume={102},
  number={5},
  pages={2327--2348},
  year={2012}
}