Essays on the Causes and Consequences of Economic Inequality

Abstract

This dissertation studies the sources and macroeconomic consequences of inequality, across workers, cities, and states of the world. Chapter 1 starts by studying the aggregate consequences of spatial inequality on human capital. While the spatial concentration of talent begets regional disparities, it may benefit aggregate productivity by fostering human capital accumulation. To study this equity-efficiency tradeoff, I propose a theory wherein individuals learn from the other workers in their cities. Learning complementarities determine the existence of a tradeoff. Empirically, I find that workers employed in relatively skill-dense cities experience faster wage growth, and disproportionately so if they are skilled. Once estimated, the model gives rise to a steep tradeoff between aggregate human capital and spatial inequality. As a consequence, I find that large moving vouchers are effective at reducing spatial disparities at the cost of decreased aggregate efficiency. Chapter 2, joint with Adrien Bilal, then studies the implications of the rise of domestic outsourcing on labor market inequality and productivity. Outsourced workers indeed experience large wage declines, yet domestic outsourcing may raise aggregate productivity. To address this question, we contribute a framework in which firms either hire workers in-house, or rent labor services from contractors. More productive firms are more likely to outsource their workers to save on higher labor costs, and they enjoy larger size when doing so. We provide empirical causal evidence in support of these predictions. After structurally estimating the model, we find that the rise in outsourcing in France between 1997 and 2016 lowers low-skill service worker earnings and welfare but raises aggregate output. Chapter 3, co-authored with Gene Grossman and Elhanan Helpman, finally studies whether firms' supply chains inefficiently expose consumers to global risks. We address this question in a model of production with a critical input and exogenous risks of supply disturbances. We establish that, with constant elasticity of substitution across goods, firms necessarily under-diversify their supply chain. In contrast, when the demand elasticity rises with price, private investments in resilience may be socially excessive.