MEF-Seminar Winter 25/26
This paper examines the impact of innovation on migration patterns across skill groups, taking into account labor market, housing market and amenity responses. Utilizing data from the Chinese Census spanning 2005 to 2015, we find that cities experiencing higher patent growth attract more low-skilled than high-skilled migrants, a pattern that contrasts with findings from other developed countries. These cities also exhibit stronger wage growth for both low- and high-skilled workers, but not faster growth in amenities. Our analysis indicates that low-skilled workers prioritize wages more highly, whereas high-skilled workers place greater value on amenities. As a result, a positive shock to patent activity draws in more low-skilled than high-skilled workers, leads to a reduction in amenities, and thereby further discourages high-skilled migration. Counterfactual analysis suggests that technological growth in China has substantially increased wages and welfare for both groups of workers.
Since the invasion of Ukraine in 2022, several governments have regulated electricity and gas prices to shield households from sharp increases in inflation. We analyse the welfare effects of such policies, considering not only their direct impacts on consumption and distributional outcomes but also their macroeconomic implications and interactions with monetary policy. We derive a welfare formula within a multi-sector New Keynesian framework featuring heterogeneity in income, wealth, and consumption baskets. Our results show that energy price controls can enhance social welfare by alleviating the central bank’s trade-off between the output gap and inflation, which may outweigh the adverse welfare effects of distorted consumption baskets. Stabilizing the aggregate demand effects of such price controls may require large interest rate adjustments, generating adverse redistributive consequences. We apply our framework quantitatively to the energy price cap implemented by the UK government.
We provide a number of insights into the nature and consequences of monopsony power through the lens of comparative advantage, where employers' power in wage setting stems from match-specific rents. Chief among them is that employers will apply larger wage markdowns to workers with greater comparative advantage at their firm. This leads to stronger monopsony power over more productive workers, provided the workers' comparative advantage aligns with their absolute advantage. Using Brazilian administrative data, we confirm this prediction: monopsony disproportionately affects high-wage workers within firms and workers at high-paying firms. The model, calibrated to our estimates for Brazil, predicts that minimum wages increase both wages and formal employment for more productive workers while pushing less productive workers out of formal employment.
Using an administrative data set from Germany we estimate a functional VAR to measure the response of the earnings distribution to a productivity shock. We then replace the functional part of the VAR by cross-sectional-unit-level income dynamics equations (csuVAR), discuss model properties and estimation. In the empirical application we compare the csuVAR responses to the fVAR results and discuss the pros and cons of the respective modeling approaches.
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