The Price of Egalitarianism

We compute the welfare cost of egalitarianism - a tax policy that equalizes wages for all. The benchmark "laissez-faire" economy has features a la Aiyagari (1994) with endogenous labor supply. A progressive income tax provides insurance against income risks but at the cost of efficiency: it undermines highly productive workers' incentives to work. We find that in an economy with the labor-supply elasticity of 1, the welfare cost of egalitarianism, measured in consumption-equivalence units, is only 1% as the welfare gain from insurance against income risks nearly offsets the efficiency loss from distorting labor effort. However, with an elastic labor supply, the welfare cost of egalitarianism is as large as 7.5% of steady state consumption.Egalitarianism; Welfare Cost; Equal-Wage Policy; Income Risks.

Taxes and Unmarried Fathers’ Participation in the Underground Economy

In this paper we employ data from the Fragile Families and Child Well-Being Study in order to estimate a model of underground labor supply developed by Lemieux et al. (1994). We focus specifically on the underground labor supply of unmarried fathers, a group that is likely to have significant involvement in the underground economy. We also extend the empirical analysis of Lemieux et al. by taking into account exogenous state and local variation in marginal tax rates, as well as sociodemographic variables related to the likelihood of participation in the underground. In accordance with expectations, we find that a significant proportion of unmarried fathers report participation in the underground. However, although the theoretical model predicts a positive relationship between the tax rate and underground hours of work (under certain conditions), we find that the effect of the tax rate on hours is statistically indistinguishable from zero, even after including exogenous variation in tax rates. We also fail to find a positive and statistically significant effect of the tax rate on participation in the underground. Within the context of the model, these results have specific implications for the magnitudes of the probability of detection and the penalty on evaded tax. Therefore, we conclude that additional empirical information is needed regarding these parameters. Future research might also employ other datasets in the estimation of the theoretical model outlined by Lemieux et al., as well as investigate the applicability of other models of underground labor supply.

Can a Representative-Agent Model Represent a Heterogeneous-Agent Economy?

Accounting for observed fluctuations in aggregate employment, consumption, and real wage using the optimality conditions of a representative household often requires preferences that are incompatible with economic priors (e.g., Mankiw, Rotemberg, and Summers 1985). This discrepancy between the equilibrium model and the aggregate data is often viewed as evidence of the failure of labor-market clearing. We argue that such a conclusion is premature. We construct a model economy where all prices are flexible and all markets clear at all times but household decisions are not readily aggregated because of incomplete capital markets and the indivisible nature of the labor supply. We demonstrate that if we were to explain the model-generated aggregate time series using decisions of a fictitious" stand-in household, such a household is likely to have a non-concave or unstable utility. Our analysis suggests that the representative-agent model often fails to represent an equilibrium outcome of a heterogeneous-agent economy.Representative-agent model, Aggregation, Heterogeneity, Incomplete Markets, Indivisible Labor, GMM Estimation

Comparative Advantage in Cyclical Unemployment

We introduce worker differences in labor supply, reflecting differences in skills and assets, into a model of separations, matching, and unemployment over the business cycle. Separating from employment when unemployment duration is long is particularly costly for workers with high labor supply. This provides a rich set of testable predictions across workers: those with higher labor supply, say due to lower assets, should display more procyclical wages and less countercyclical separations. Consequently, the model predicts that the pool of unemployed will sort toward workers with lower labor supply in a downturn. Because these workers generate lower rents to employers, this discourages vacancy creation and exacerbates the cyclicality of unemployment and unemployment durations. We examine wage cyclicality and employment separations over the past twenty years for workers in the Survey of Income and Program Participation (SIPP). Wages are much more procyclical for workers who work more. This pattern is mirrored in separations; separations from employment are much less cyclical for those who work more. We do see for recessions a strong compositional shift among those unemployed toward workers who typically work less.

Comparative Advantage in Cyclical Unemployment

We introduce worker differences in labor supply, reflecting differences in skills and assets, into a model of separations, matching, and unemployment over the business cycle. Separating from employment when unemployment duration is long is particularly costly for workers with high labor supply. This provides a rich set of testable predictions across workers: those with higher labor supply, say due to lower assets, should display more procyclical wages and less countercyclical separations. Consequently, the model predicts that the pool of unemployed will sort toward workers with lower labor supply in a downturn. Because these workers generate lower rents to employers, this discourages vacancy creation and exacerbates the cyclicality of unemployment and unemployment durations. We examine wage cyclicality and employment separations over the past twenty years for workers in the Survey of Income and Program Participation (SIPP). Wages are much more procyclical for workers who work more. This pattern is mirrored in separations; separations from employment are much less cyclical for those who work more. We do see for recessions a strong compositional shift among those unemployed toward workers who typically work less.

Spectral Interference in High Harmonic Generation from Solids

Various interference effects are known to exist in the process of high harmonic generation (HHG) both at the single atom and macroscopic levels. In particular, the quantum path difference between the long and short trajectories of electron excursion causes the HHG yield to experience interference-based temporal and spectral modulations. In solids, due to additional phenomena such as multi-band superposition and crystal symmetry dependency, the HHG mechanism appears to be more complicated than in gaseous atoms in identifying accompanying interference phenomena. Here, we first report experimental data showing intensity-dependent spectral modulation and broadening of high harmonics observed from bulk sapphire. Then, by adopting theoretical simulation, the extraordinary observation is interpreted as a result of the quantum path interference between the long and short electron/hole trajectories. Specifically, the long trajectory undergoes an intensity-dependent redshift, which coherently combines with the short trajectory to exhibit spectral splitting in an anomalous way of inverse proportion to the driving laser intensity. This quantum interference may be extended to higher harmonics with increasing the laser intensity, underpinning the potential for precise control of the phase matching and modulation even in the extreme ultraviolet and soft X-ray regime. Further, this approach may act as a novel tool for probing arbitrary crystals so as to adjust the electron dynamics of higher harmonics for attosecond spectroscopy

Comparative Advantage and Unemployment.

We model unemployment allowing workers to differ by comparative advantage in market work. Workers with comparative advantage are identified by who works more hours when employed. This enables us to test the model by grouping workers based on their long-term wages and hours from panel data. The model captures the greater cyclicality of employment for workers with low comparative advantage. But the model fails to explain the magnitude of countercyclical separations for high-wage workers or the magnitude of procyclical findings for high-hours workers. As a result, it only captures the cyclicality of the extensive, employment margin for low-wage, low-hours workers.

Can a Representative-Agent Model Represent a Heterogeneous-Agent Economy?

Accounting for observed fluctuations in aggregate employment, consumption, and real wage using the optimality conditions of a representative household requires preferences that are incompatible with economic priors. In order to reconcile theory with data, we construct a model with heterogeneous agents whose decisions are difficult to aggregate because of incomplete capital markets and the indivisible nature of labor supply. If we were to explain the model-generated aggregate time series using decisions of a stand-in household, such a household must have a non-concave or unstable utility as is often found with the aggregate U.S. data.Representative-Agent Model, Heterogeneous Agent, Macroeconomics