2022 Fiscal Year Research-status Report
Inequality dynamics, underemployment, and secular stagnation
| Project/Area Number |
21K13261
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| Research Institution | Sophia University |
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Principal Investigator |
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| Project Period (FY) |
2021-04-01 – 2026-03-31
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| Keywords | Inequality / Underemployment / Secular stagnation / Labour market / Unemployment / Macroeconomics |
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| Outline of Annual Research Achievements |
My research agenda (joint with Japanese and international researchers) consists of a series of interrelated projects that analyze empirical phenomena, such as inequality and underemployment in the labour market, by combining standard macroeconomic models with features from behavioural economics, specifically a preference for wealth. This year has seen substantial progress on the following two projects.
In the inequality project, we have substantially revised our model framework to allow for the possibility of technological progess and capital adjustment costs, in addition to wealth preference shocks, income and liquidity risks. We have calibrated this model to match empirical features of the U.S. wealth distribution and are currently analyzing the effects of various tax schemes (based on actual tax plans from U.S. politicians) on the wealth distribution using numerical simulations based on mean-field game formulations. Our goal is to summarize our results in a full draft of the paper within the next months.
In the labour market project, we study the simultaneous occurrence of unemployment and underemployment in the Japanese labour market. Having received constructive feedback from referees and journal editiors, we have substantially revised this paper including both the theoretical model and the numerical simulations. This revised version has been accepted for publication in the Journal of Economic Theory in April 2023.
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| Current Status of Research Progress |
Current Status of Research Progress
2: Research has progressed on the whole more than it was originally planned.
Reason
I have made consistent progress on the two projects outlined above, exceeding the initial expectations.
In particular, having presented the underemployment project at two conferences in Europe, substantial progress has been achieved thanks to helpful feedback from conference participants. In addition, research visits and discussions with my coauthors in Osaka and Kobe have been highly beneficial for the paper revision and eventual publication.
Progress on the inequality project has been consistent, though at a somewhat slower speed due to the tedious nature of simulating dynamics of a wealth distribution over an empirically plausible wealth grid. Yet, we have successfully revised our model structure to account for empirically relevant features such as capital adjustment costs and could calibrate the model to match moments of the U.S. wealth distribution. Using this model, we are in the process of evaluating the implications of policy proposals on wealth taxation (e.g. by Sanders or Warren). In addition, we have developed several ideas of extending this work in the future.
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| Strategy for Future Research Activity |
In the future, we are planning to substantially extend the projects outlined above and to use the methods introduced in these projects to analyze closely related empirical phenomena.
A key omission from the underemployment project has been the role of job destruction, which we assumed exogenous in order to focus on job creation incentives of firms. However, variations in job destruction are potentially able to explain rising unemployment in the United States and Europe (in contrast to Japan) following the global financial crisis. To explain these international differences, I am planning to allow for endogenous job destruction in our model framework. This features might also be able to explain declining productivity growth under secular stagnation.
With respect to the inequality projects, we have developed several ideas for potential future extensions. First, the current model framework is purely neoclassical and abstracts from nominal frictions. Introducing nominal rigidities into our model will allow us to analyze potential interactions of inequality dynamics and the zero lower bound or price rigidities. Such a unified framework will also allow us to contrast the developments of the wealth distribution under full employment with those of a stagnating economy. Finally, our current framework only considers bonds and riskfree capital. Introducing more assets or differences in risk and liquidity will generate further insights into the drivers of wealth inequality.
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| Causes of Carryover |
Due to the Covid situation over the previous years, my Start-Up Fund was extended and some of the planned expenditures (such as travel expenditures) could be allocated to the Start-Up Fund instead, since some of the projects in the two funds are interrelated.
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Research Products
(3 results)
