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Working Paper
Taxing top earners: a human capital perspective
We assess the consequences of substantially increasing the marginal tax rate on U.S. top earners using a human capital model. The top of the model Laffer curve occurs at a 53 percent top tax rate. Tax revenues and the tax rate at the top of the Laffer curve are smaller compared to an otherwise similar model that ignores the possibility of skill change in response to a tax reform. We also show that if one applies the methods used by Diamond and Saez (2011) to provide quantitative guidance for setting the tax rate on top earners to model data then the resulting tax rate exceeds the tax rate at ...
Working Paper
The Hedgehog’s Curse: Knowledge Specialization and Displacement Loss
This paper studies the impact of knowledge specialization on earnings losses following displacement. We develop a novel measure of the specialization of human capital, based on how concentrated the knowledge used in an occupation is. Combining our measure with individual labor histories from the NLSY 79-97 and Norway’s LEED, we show that workers with more specialized human capital suffer larger earnings losses following exogenous displacement. A one standard deviation increase in pre-displacement knowledge specialization increases the earnings losses post-displacement by 3 to 4 pp per year ...
Working Paper
The Impact of Juvenile Conviction on Human Capital and Labor Market Outcomes
This article documents the long-term relationship among juvenile conviction, occupation choices, employment, wages, and recidivism. Using data from NLSY97, we document that youths who are convicted at or before age 17 have lower full-time employment rate and lower wage growth rate even after 10 years into the labor market. Merging the NSLY97 with occupational characteristics data from O*NET, we show that youths with a juvenile conviction are less likely to be employed in occupations that have a higher on-the-job (OTJ) training requirement and these high OTJ occupations have higher wage and ...
Working Paper
Natural Resources and Global Misallocation
Are production factors allocated efficiently across countries? To differentiate misallocation from factor intensity differences, we provide a new methodology to estimate output shares of natural resources based solely on current rent flows data. With this methodology, we construct a new dataset of estimates for the output shares of natural resources for a large panel of countries. In sharp contrast with Caselli and Feyrer (2007), we find a significant and persistent degree of misallocation of physical capital. We also find a remarkable movement toward efficiency during last 35 years, ...
Working Paper
Misallocation, informality, and human capital: understanding the role of institutions
Accepted for publication, Journal of Economic Dynamics and Control The aim of this paper is to quantify the role of formal-sector institutions in shaping the demand for human capital and the level of informality. We propose a firm dynamics model where firms face capital market imperfections and costs of operating in the formal sector. Formal firms have a larger set of production opportunities and the ability to employ skilled workers, but informal firms can avoid the costs of formalization. These firm-level distortions give rise to endogenous formal and informal sectors and, more importantly, ...
Discussion Paper
Human Capital and Education in Puerto Rico
Educational attainment is an important element of human capital; however a series of recent papers highlights the crucial role of the quality of education?which determines the skills actually learned, rather than the number of years spent in a classroom?as a main driver of growth. In fact, Hanushek and Woessmann argue that the importance of more appropriately measuring skills is seen in the very tight relationship between quality of skills, or knowledge capital, and growth. Moreover, the researchers state, ?The knowledge capital?growth relationship suggests little mystery for East Asia, Latin ...
Journal Article
Research Spotlight: Assessing Unemployment Insurance
Unemployment insurance (UI) programs assist unemployed workers but can also reduce their incentive to search for a new job. This trade-off has led to multiple studies about whether the benefits of UI programs outweigh the costs. Most microeconomic analyses of these programs have determined that these programs do benefit society. In contrast, many macroeconomic analyses disagree, noting that unemployment benefits often tend to reduce production, reduce private savings, and increase prices. Recent research by Richmond Fed economist Nicholas Trachter, along with Facundo Piguillem of the Einaudi ...
Working Paper
Driving, Dropouts, and Drive-Throughs: Mobility Restrictions and Teen Human Capita
We provide evidence that graduated driver licensing (GDL) laws, originally intended to improve public safety, impact both high school completion and teen employment. Many teens use automobiles to commute both to school and to employment. Because school and work decisions are interrelated, the effects of automobile-specific mobility restrictions are ex ante ambiguous. Combining variation in the timing of both GDL law adoption and changes in compulsory school laws into a triple-difference research design shows that restricting teen mobility significantly reduces high school dropout rates and ...
Discussion Paper
Migration in Puerto Rico: Is There a Brain Drain?
Given Puerto Rico’s long-term economic malaise and ongoing fiscal crisis, it is no wonder that out-migration of the Island’s residents has picked up. Over the past five years alone, migration has resulted in a net outflow of almost 300,000 people, a staggering loss. It would make matters worse, however, if Puerto Rico were losing an outsized share of its highest-paid workers. But we find that, if anything, Puerto Rico’s migrants are actually tilted somewhat toward the lower end of the skills and earnings spectrum. Still, such a large outflow of potentially productive workers and ...