2021 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 | Secular stagnation / Labour market / Underemployment / Inequality / Macroeconomics / Wealth preference |
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| Outline of Annual Research Achievements |
The objective of my research agenda is to analyze empirical phenomena such as rising inequality and underemployment in the labour market by combining standard macroeconomic models with features from bahavioural economics. Specifically, two of our projects (together with Japanese and international researchers) aim at investigating the dynamics of wealth inequality using extensive numerical simulation based on mean-field games as well as the occurrence of part-time and non-standard employment when an economy suffers from secular stagnation.
In the first project, we have substantially extended our initial model framework to allow for preference shocks, income risk, liquidity considerations and capital adjustment costs. These features allow us to capture and replicate important moments of the empirical wealth distribution (particularly in the United States). We are also now in a position to analyze the effects of income and wealth taxation on this wealth distribution. Our goal is to have a first full draft of the paper by this summer.
The second project on the relative importance of unemployment versus underemployment in the labour market is at a more advanced stage and has been presented at several workshops and conferences, among others at Waseda University or Munich University. Having received encouraging feedback and comments, we have substantially revised the paper over the last months and submitted it to a top international journal in April.
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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 with the research agenda described above, partly exceeding the initial expectations. Specifically, research visits to my coauthors in Osaka and Europe have proven highly beneficial in advancing the two main projects of this agenda.
Progress on the inequality project has been somewhat more tedious. While advances on the theoretical part of the paper have been smooth, there have been several problems related to the numerical simulations. In particular, it has proven difficult to reconcile the explosive implications of the wealth preference for wealth accumulation with the practical need for limiting the wealth space in our simulations. While our solutions are encouraging, I am still working on overcoming this challenge in several applications.
In contrast, progress on the second project on underemployment has exceeded our expectations and we were highly encouraged by the positive feedback from commentators and seminar participants. In addition, we have developed several ideas on extending this project in the future (see below).
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| Strategy for Future Research Activity |
In the future, we are planning several extensions of the projects outlined above. In addition, we intend to use the methods of these projects to analyze important questions in related areas.
With respect to the inequality project, our plans are to combine the current framework with nominal rigidities to allow for persistent stagnation to occur. In the current project, we show that the relationship between the real interest rate and economic growth rate is important in determining the dynamics of the wealth distribution. Inequality is rising when the real rate is above the growth rate (and vice versa). However, we have shown in prior projects that the same condition determines whether an economy is able to produce at full employment. Analyzing both phenomena and their interactions in a unified framework is an exciting questions for our future research agenda.
When it comes to underemployment, we currently investigate the effects of secular stagnation on the job creation incentives of firms as this seems to be empirically the most important channel for Japan, which has motivated our work. However, looking at countries like the United States or European nations after the Great Recession, demand shortage also seems to impact job destruction behaviour. Allowing for endogenous job destruction is a natural extension of our current framework but allows us to contrast the labour market patterns internationally.
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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 both funds are interrelated.
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