A recent “revisionist” literature characterizes the pronounced rise in U.S. wage inequality since 1980 as an “episodic” event of the first half of the 1980s driven by nonmarket factors (particularly a falling real minimum wage) and concludes that continued increases in wage inequality since the late 1980s substantially reflect the mechanical confounding effects of changes in labor force composition. Analyzing data from the Current Population Survey for 1963 to 2005, we find limited support for these claims. The slowing of the growth of overall wage inequality in the 1990s hides a divergence in the paths of upper-tail (90/50) inequality—which has increased steadily since 1980, even adjusting for changes in labor force composition—and lower-tail (50/10) inequality, which rose sharply in the first half of the 1980s and plateaued or contracted thereafter. Fluctuations in the real minimum wage are not a plausible explanation for these trends since the bulk of inequality growth occurs above the median ...

Trends in U.S. Wage Inequality: Revising the Revisionists

The theory of precautionary saving is shown in this paper to be isomorphic to the Arrow-Pratt theory of risk aversion, making possible the application of a large body of knowledge about risk aversion to precautionary saving, and more generally, to the theory of optimal choice under risk In particular, a measure of the strength of precautionary saving motive analogous to the Arrow-Pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving, and to give a new interpretation of the Oreze-Modigliani substitution effect

Precautionary Saving in the Small and in the Large

Recursive methods offer a powerful approach in dynamic macroeconomics. This book contains both an introduction to recursive tools, including standard applications such as asset pricing, and advanced material, including analyses of reputational mechanisms and contract design. The tools are presented with enough technical sophistication to get the reader started working on practical problems. When numerical simulations are called for, the book provides suggestions for how to proceed, as well as references for further reading. The applications cover many substantive issues in macroeconomics, such as equilibrium asset prices, market incompleteness, wealth distribution, fiscal-monetary theories of inflation, government debt, optimal labour and capital taxation, time consistency and credible government policies, optimal social insurance, economic growth and labour market dynamics.

Recursive Macroeconomic Theory

I process satellite-generated data on terrain elevation and presence of water bodies to precisely estimate the amount of developable land in U.S. metropolitan areas. The data show that residential development is effectively curtailed by the presence of steep-sloped terrain. I also find that most areas in which housing supply is regarded as inelastic are severely land-constrained by their geography. Econometrically, supply elasticities can be well characterized as functions of both physical and regulatory constraints, which in turn are endogenous to prices and demographic growth. Geography is a key factor in the contemporaneous urban development of the United States.

The Geographic Determinants of Housing Supply

The ability of a two-sector model to quantify the contribution of the housing market to business fluctuations is investigated using U.S. data and Bayesian methods. The estimated model, which contains nominal and real rigidities and collateral constraints, displays the following features: first, a large fraction of the upward trend in real housing prices over the last 40 years can be accounted for by slow technological progress in the housing sector; second, residential investment and housing prices are very sensitive to monetary policy and housing demand shocks; third, the wealth effects from housing on consumption are positive and significant, and have become more important over time. The structural nature of the model allows identifying and quantifying the sources of fluctuations in house prices and residential investment and measuring the contribution of housing booms and busts to business cycles.

/pdf/housing-market-spillovers-evidence-from-an-estimated-dsge-cw32z51gvs.pdf

Housing Market Spillovers: Evidence from an Estimated DSGE Model

All data and codes necessary to replicate results of the article. Also includes the data for figures.

Code and data files for "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States: 1967-2006"

http://www.jonathanheathcote.com/dec2000-2.pdf

Financial autarky and international business cycles

http://users.econ.umn.edu/~fperri/papers/usa2.pdf

Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States, 1967-2006 *

In the United States, the percentage standard deviation of residential investment is more than twice that of nonresidential investment. In addition, GDP, consumption, and both types of investment co-move positively. We reproduce these facts in a calibrated multisector growth model where construction, manufacturing, and services are combined, in different proportions, to produce consumption, business investment, and residential structures. New housing requires land in addition to new structures. The model can also account for important features of industry-level data. In particular, hours and output in all industries are positively correlated, and are most volatile in construction.

/pdf/housing-and-the-business-cycle-2lt5ohu3ya.pdf

Housing and the business cycle

In recent decades, American workers have faced a rising college premium, a narrowing gender gap, and increasing wage volatility. This paper explores the quantitative and welfare implications of these changes. The framework is an incomplete-markets life cycle model in which individuals choose education, intrafamily time allocation, and savings. Given the observed history of the U.S. wage structure, the model replicates key trends in cross-sectional inequality in hours worked, earnings, and consumption. Recent cohorts enjoy welfare gains, on average, as higher relative wages for college graduates and for women translate into higher educational attainment and a more even division of labor within the household.

/pdf/the-macroeconomic-implications-of-rising-wage-inequality-in-4ocvty9fi7.pdf

Jonathan Heathcote

Papers

Code and data files for "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States: 1967-2006"

Financial autarky and international business cycles

Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States, 1967-2006 *

Housing and the business cycle

The Macroeconomic Implications of Rising Wage Inequality in the United States