Final Conference 28 and 29 Oct 2021

Final Conference of the Team “Trends in Inequality: Sources and Policy”

On October 28 and 29 the Goethe University Frankfurt hosted the final conference of the NORFACE DIAL project “TRends in Inequality: Sources and Policy”. The workshop combined presentations by junior members of the research subgroups with presentations by established scholars whose research is closely linked to the research area of the TRISP team. The conference was very productive thanks to the involvement of all participants, who engaged in a lively and constructive discussion of the presented research projects. On the second day, Alexander Ludwig a policy panel on “Inequality and Policy: where do we stand, where do we head?” featuring the participation of Richard Blundell (University College London and IFS), Katarina Ivanković Knežević (European Commission), Sebastian Königs (OECD) and Chris Papageorgiou (IMF). The panelists highlighted the main dimensions of inequality they think are most relevant in the society and calls for most urgent policy action. They also discussed on the role of the pandemic in worsening inequalities and on possible direction to address it. The presentations spanned different research topics related to the sources of inequality and possible policies. Many papers focused on inequality over the life cycle. Raquel Fernández (New York University) provided a dynamic assessment of a Universal Basic Income policy (UBI) through the lens of a general equilibrium model incorporating imperfect capital markets, labor market shocks, and intergenerational linkages via skill formation and transfers. UBI increases-welfare for older agents but has large-welfare losses for younger agents and future generations.   Tom Zawisza (University College London / IFS) analyzed the labor supply response among workers far from retirement age to a reform that switched the Polish pension system from a Defined Benefit (DB) to a Notional Defined Contribution (NDC) scheme. He showed that changing the contribution-benefit link of public pensions can alleviate the labor supply distortions caused by social security contributions.     By using a life-cycle model with housing and portfolio choice that includes flexible earnings risk and aggregate asset price risk, Gonzalo Paz-Pardo (European Central Bank) showed that changes in earnings dynamics account for a large part of the reduction in homeownership across generations. Lower-income households find it harder to buy housing, and as a result accumulate less wealth. Two presentations were related to assessing the effect of the pandemic on inequality. Dirk Krueger (University of Pennsylvania) quantified the long-term impact of school closures during the Corona crisis on children affected at different ages and coming from households with different parental characteristics. The negative impact of the crisis on children’s welfare is especially severe for those with parents with low educational attainment and low assets. The impact of school closures affects the long-run welfare of the children more severely than the shock to parents’ income. Jonna Olsson (University of Edinburgh) presented a novel theoretical framework that integrates epidemiology with economics. She discussed the advantages of “epi-econ IAMs”, explicit Integrated Assessment Models, and the quantitative challenges that they introduce. Three papers looked at the inequality across individuals that are heterogeneous along the dimension of wealth and income. Alessandra Fogli (Federal Reserve Bank of Minneapolis) discussed the steady increase in residential segregation by income in the US that challenges the roots of the American dream. Using an OLG model, she showed that segregation and inequality amplify each other because of a local spillover that affects the returns to education. Using population data on capital income and wealth holdings for Norway, Luigi Pistaferri (Stanford University) documented the presence of assortative mating on the basis of own wealth and on returns to wealth. Assortative mating on own wealth dominates assortative mating on parental wealth. Benjamin Schöfer (University of California Berkeley) compared workers’ beliefs about rents and outside options in Germany, and proxies for actual outside options. He showed that many workers mistakenly believe their current wage is representative of the external labor market. Misinformation about outside options gives employers monopsony power and widens inequality across workers. Finally, two papers were related on the impact of the allocation of workers on aggregate growth and productivity. Kjetil Storesletten (University of Oslo) presented a model of firm dynamics with heterogeneous productivity and innovation through imitation or innovation. By looking at the case of China, he showed that the wedges causing R&D misallocation have large effects on the long run growth.   Chiara Lacava presented a decomposition of the differentials in productivity across Italian regions using administrative data on workers and firms. She finds that the mismatch of heterogeneous workers to heterogeneous firms has large effects on aggregate productivity.   Program: LINK