This article provides the first decomposition of the extent to which the UK disability pay gap is a consequence of within-firm inequality and the allocation of workers across firms. We use linked employer-employee data which matches high-quality information from employer payroll records to Census data on disability. Our findings indicate that the distribution of disabled and non-disabled employees across firms acts to reinforce within-firm disability-related pay inequality. However, both the raw and unexplained disability pay gap predominately exist within rather than between firms. The finding that the disability pay gap is driven primarily by within-firm wage-setting provides support for the introduction of employer-level disability pay gap reporting in the UK.
Abstract We study why inflation responds differently to economic activity over time. Using survey data covering the universe of Japanese firms, we show that firms are unable to perfectly distinguish aggregate from sector-specific demand changes, leading to positively correlated expectations about these two components. We develop a model with imperfect information that reproduces this pattern and predicts that higher relative volatility of sector-specific demand reduces the sensitivity of inflation to changes in aggregate demand, thus flattening the Phillips curve. Testing this prediction with Japanese data from 1976 to 2022, we find that increases in the volatility of sectoral demand shocks explain significant changes in the Phillips curve slope over the sample period. Our results provide a novel explanation for the flattening of the Phillips curve: the composition of shocks—not just their magnitude—critically affects the sensitivity of inflation to aggregate demand.
Abstract The role of improved information flows in facilitating international trade has been relatively neglected; this paper examines the issue in the context of international electric telegraphy during the 19th-century ‘golden age’ of globalisation. Having compiled the most comprehensive dataset of new international telegraphic connections for the period, we analyse the effect of new connections on polity-specific British trade from 1849 to 1903. We find no statistically significant effect of the telegraph on British trade overall. Our upper-bound estimate of the potential effect of the telegraph suggests that previous estimates of the effect of the telegraph network on trade are implausibly high. However, we do establish that trade between Britain and polities within the British Empire increased by an estimated 39% (48% for exports specifically), indicating that the trade-enhancing effects of the telegraph were contingent on the institutional context within which communication and trade were occurring.
Decarbonization can affect growth and cause structural change because some energy-related inputs have been easier to decarbonize than others, and energy use is more significant in certain sectors. This article examines these effects through a two-sector growth model with two energy-related inputs and two final goods. These inputs are produced using fossil and low-carbon capital stocks, which vary in their substitutability and use in producing final goods. A decarbonization policy encourages low-carbon inputs and directs R&D towards technology fields that are easier to decarbonize through innovation. Model calibration to the UK economy illustrates its dynamics. While much of the economy can be readily decarbonized through innovation and innovation policy, some sectors such as heavy industry face greater technological and policy challenges. These sectors would benefit from more targeted R&D support to overcome path dependencies in low-carbon innovation, enabling their decarbonization and growth to progress hand in hand.
This article examines a two-sided market structure in which a monopoly platform offers a service for free to users, while generating revenue from advertisers. Users can either opt-in (share their data) or opt-out (remain anonymous) at an exogenous cost. We show that equilibrium advertising level (weakly) increases with a decrease in the cost of staying anonymous. Also, a decrease in the cost of anonymity can generate asymmetric welfare effects in markets with a small to intermediate cost of anonymity, with users becoming worse off and advertisers benefiting. Finally, platform profit increases as the cost of anonymity decreases.
We examine how a severe earthquake changed attitudes about and the prevalence of intimate partner violence (IPV) in Papua New Guinea. Although there are several reasons why disasters can aggravate IPV, we illustrate a large decline in the acceptability of IPV among men in disaster-affected regions and a smaller and noisier decline in reported incidents of IPV, driven entirely by strong and precisely estimated declines among women who are least likely to underreport violence. We further illustrate an important mechanism explaining the improvement, where we find evidence of an expanded role for women in the household. The results highlight that disasters can have important non-economic impacts that need not always be negative and illustrate the value of a survey-based technique to more fully analyze sensitive issues that are difficult to address with standard survey modules.
This paper examines the effect of power outages on registered firms' access to finance in developing countries, using firm-level data from the World Bank Enterprise Surveys (2006-2024) covering 99 countries and over 120,000 observations. Applying entropy balancing, we show that power outages significantly increase firms' financing constraints, defined as limitations in access to external finance, and this result is robust across specifications. The effect exhibits substantial heterogeneity across sectors, outage duration and frequency, export intensity, and energy intensity, and varies with key structural conditions. In particular, the adverse impact intensifies in environments with higher bank non-performing loans, while it is mitigated by greater net official development assistance and wider interest rate spreads. We further document that reduced productivity growth and slower sales growth act as transmission channels through which outages exacerbate financing constraints.
Despite substantial increases in women's labour force participation in the UK, large disparities remain across ethnic groups. This article examines the sources of these gaps, assessing the relative importance of individual, household, structural, and cultural factors. Beyond the well-established role of human capital, we find that integration-related factors, household composition, family structure, and gender norms play a significant role, particularly for South Asian women. In contrast, over and above structural elements, more egalitarian gender attitudes help explain higher participation among Caribbean women. We also find that the influence of gender norms varies depending on economic constraints. These findings emphasize the need for targeted, group-specific policies to reduce persistent ethnic gaps in women's employment and promote more inclusive labour markets. By focusing on participation as the first barrier, the article sheds light on the entry point for ethnic minority women, informing future research and policy on broader labour market inequalities.
This article analyses the extent to which natives' anti-immigration attitudes affect migration flows to European Union (EU) countries. Using bilateral panel data on migration inflows to the EU between 2000-2019, we examine how cross-country and temporal variation in natives' anti-immigrant attitudes shapes subsequent migration from both EU and non-EU origins. To address potential reverse causality between attitudes and immigration, we employ an instrumental-variable strategy and account for interdependence across alternative EU destination countries. Our findings indicate that stronger anti-immigration attitudes significantly reduce migration inflows to EU destinations, with effects that are larger for intra-EU mobility than for migration from non-EU countries. Overall, the analysis demonstrates that public attitudes, which are often overlooked in the migration literature, play a substantial role in shaping migration patterns. More broadly, the findings underscore that negative public attitudes towards immigration can materially constrain the effectiveness of policies designed to attract skills and talent.
This article investigates the efficacy of raising tax rates on housing property and reducing mortgage repayment deductibility as macroprudential instruments to curb household indebtedness. We analyze the output and welfare implications of these measures, with a particular emphasis on the role of revenue allocation. Utilizing a dynamic general equilibrium framework, we find that while both instruments successfully reduce house prices and credit, raising tax rates on housing property induces more significant price contractions and higher short-run output costs. In contrast, reducing mortgage repayment deductibility is more targeted, effectively lowering mortgage default rates and minimizing collateral erosion. Welfare outcomes depend crucially on fiscal recycling: allocating revenues to public investment or debt reduction primarily benefits patient households, whereas directing revenues toward transfer payments mitigates the welfare losses of credit-constrained borrowers and maximizes benefits for renters by alleviating liquidity constraints.
The Chinese collectivization movement culminated in a famine from 1959-1961 that resulted in up to 30 million deaths. Lin argues that the famine was due to making collective membership mandatory. This turned a repeated Prisoners' Dilemma into a one-shot game with shirk as the dominant action. This paper shows that shirking need not be the dominant strategy. In a model with increasing returns or sufficiently small collectives, the prisoners' dilemma is replaced with a coordination game. In this case voluntary collectives may either collapse or flourish, consistent with the historical evidence. This result follows from a theoretical model of effort incentives on collectives when output is equally shared. The model isolates the essential role played by returns to scale and by collective size. While shirking can emerge, it is far from guaranteed. Imposing mandatory participation can lead to a collapse of effort in a previously thriving voluntary collective.
In 2011, the American Economic Association (AEA) changed the peer review policy of its journals, shifting from double-blind to single-blind review. Under the new system, author identities are disclosed to referees, whereas they are formally concealed under double-blind review. This paper finds that this change in the information environment did not affect the prevalence of p-hacking in articles published in the American Economic Review.
This article shows that tax revenue responses to changes in tax rates crucially depend on how the changes affect the marginal tax rate relative to the average tax rate. Using a wide range of empirical frameworks and datasets, we find that tax multipliers are consistently large and tax revenues fall in response to tax rises, particularly when marginal taxes are raised. We validate our empirical findings within canonical real and new-Keynesian general equilibrium models by introducing the wedge between the average and marginal tax rates. Doing so reconciles a significant discrepancy between the theoretical and empirical size of tax multipliers.
In this article, we examine the response of earnings and employment to fluctuations in aggregate economic activity (GDP) across the income distribution. Using data from the UK's Labour Force Survey, we present evidence that aggregate fluctuations have economically significant but heterogeneous impacts across the income distribution. While the earnings response is broadly similar across the distribution, further decompositions reveal important differences in the channels of transmission. Changes to hours worked and employment better explain the earnings response in the bottom half of the distribution, whereas changes to the hourly wage are more important in the top half. We incorporate these empirical estimates into the calibration of a Heterogeneous Agent New Keynesian (HANK) model for the UK and find that the heterogeneity we document amplifies the consumption response to aggregate shocks by around 10 per cent.
This study examines misreporting behaviour of firms engaged in international trade. Using detailed administrative data covering the universe of import transactions in Pakistan, we analyse how exchange rate movements interact with the incentive to under-invoice imports to evade tariffs. We use the sharp depreciation of the British pound (GBP) following the unanticipated outcome of the Brexit referendum as a quasi-natural experiment and document a statistically significant decline in misreporting of imports sourced from the UK relative to other origins. An appreciation of the Pakistani rupee against the pound lowered the financial gain from under-invoicing UK imports, prompting firms to report more accurately, particularly for high-tariff products and GBP-denominated transactions. Our findings indicate that tariff evasion is the key underlying mechanism, and we offer policy implications for improving tax compliance and the reliability of official trade statistics.
We introduce a novel approach to uncovering causation by exploiting transition episodes in aggregate macroeconomic data. Using a panel of 132 countries over 1961-2017, we identify twenty-six productivity-growth and forty savings transitions, episodes characterized by sudden, persistent, and unpredictable increases in growth and savings. Event-study evidence shows that productivity-growth transitions lead to sustained increases in savings, whereas savings transitions do not generate sustained growth effects. We conduct extensive robustness checks addressing staggered transitions, heterogeneous effects, and unobserved time-varying confounders. Having established the direction of causality, we estimate the effects of productivity-growth and productivity shocks (estimated separately for each country using a neoclassical model) on savings using panel Vector Auto-Regressions and local projections. We find that a one standard deviation increase in productivity growth raises the savings ratio by approximately 0.5 percentage points, highlighting the importance of policies that promote productivity growth to increase savings, rather than relying solely on savings-focused interventions.
Economic growth in advanced economies has slowed since the early 2000s, while government debt has risen. This article sheds light on this high-debt, low-growth environment by highlighting innovation as a mechanism. It argues that high government debt leads firms to cut back on R&D investment, potentially by amplifying policy uncertainty and financing frictions. Based on data from manufacturing industries since 1980, the results show that high government debt predicts a disproportionate and persistent growth slowdown in industries that rely more on R&D. This pattern is consistent with R&D investment falling in those industries when debt is high. Importantly, this effect is weaker in countries with deeper or more open financial systems, suggesting that better access to finance helps protect innovation when debt is high. These findings imply that safeguarding innovation is crucial to sustain growth in the current high-debt environment.
International cooperation to provide global public goods is often weak: coalitions tend to be small, or, when large coalitions form, the resulting welfare gains are limited-a result known as the 'paradox of cooperation'. We revisit this issue by analyzing a two-stage coalition formation game in which contributing to a global public good involves not only variable costs but also fixed upfront costs. This cost structure fundamentally alters cooperation incentives. Fixed costs can generate corner provision outcomes and qualitatively different coalition formation scenarios. Depending on their magnitude, fixed costs can alter the 'paradox of cooperation' by making broad and effective international agreements both stable and welfare-enhancing.
A substantial share of hospital expenditure is devoted to hard facilities management in building maintenance, and soft services such as catering, cleaning, laundry, waste management, and security. This article examines how these services are delivered-insourced or outsourced-under traditional procurement and Private Finance Initiative (PFI) arrangements. We show that PFIs create incentives to internalize externalities between construction and maintenance while encouraging outsourcing to specialized providers to mitigate operational risks. Under traditional procurement, builders' warranties generate reverse moral hazard by increasing their exposure to future maintenance problems. The analysis characterizes the choice between PFIs and traditional procurement as a trade-off between moral hazard arising from outsourcing, warranty provisions, and operational risks associated with maintenance and soft services. PFIs are preferred when hard facilities management risks are either very low or very high, whereas traditional procurement is optimal when service quality is critical, maintenance risks are moderate, and warranties are limited.
We study the macroeconomic role of unemployment insurance in an economy with job search, labor force participation decisions, and involuntary unemployment. The framework allows labor market distortions to vary endogenously over the business cycle and, under certain conditions, to amplify economic fluctuations. We show that unemployment insurance can reduce the scope for such destabilizing dynamics and thereby act as an effective automatic stabilizer. Quantitative analysis indicates that while these dynamics may arise at unemployment benefit levels comparable to those observed in North America, they are unlikely at the higher replacement rates typical of European countries. Overall, our results suggest that unemployment insurance not only provides social insurance but can also contribute to macroeconomic stability, with important implications for the design of labor market policies over the business cycle.
