Paul Gaggl’s Research
My main research interests are
- Labor Economics
- Listen to my recent NPR Appearance in a discussion on the role of automation for the future of jobs, which draws on many of the research projects below.
- Read my VOX EU columns summarizing some of the research projects below.
- Read my co-author’s New York Times piece drawing on insights from one of our recent projects.
- A Short-Run View of What Computers Do: Evidence from a UK Tax Incentive [pdf]
joint with Greg Wright. In American Economic Journal: Applied Economics, July 2017.
Published Version (doi)
Popular/Press coverage: VOX EU, World Economic Forum
We study the short-run, causal effect of Information and Communication Technology (ICT) adoption on the employment and wage distribution. We exploit a natural experiment generated by a tax allowance on ICT investments and find that the primary effect of ICT is to complement non-routine, cognitive-intensive work. We also find that the ICT investments led to organizational changes that were associated with increased inequality within the firm and we discuss our findings in the context of theories of ICT adoption and wage inequality. We find that tasks-based models of technological change best fit the patterns that we observe.
- Do Banks Take Unusual Risks When Interest Rates are Expected to Stay Low for a Long Time? [pdf]
joint with Maria T. Valderrama. Macroeconomic Dynamics, forthcoming.
(accepted version: 02-21-2017)
he financial woes that initiated the current economic slump have, at least in part, been traced to excessive bank risk-taking. What induced this behavior? One explanation are persistently low short-term interest rates during the mid-2000s. We exploit an extensive panel of matched Austrian banks and firms during 2000–2008 to investigate the effects of the ECB’s policy of persistently low interest rates during 2003q3-2005q3. Our analysis suggests that this period likely caused Austrian banks to hold risker loan portfolios in response to cheaper short-term funds, than they would have in the absence of this policy.
Revise and Resubmit Papers
- On the Welfare Implications of Automation [pdf]
joint with Maya Eden. Revision submitted to Review of Economic Dynamics.
(this version: 07-24-2017, previously circulated under the title “The Substitution of ICT Capital for Routine Labor: Transitional Dynamics and Long Run Implications”)
Other Versions: World Bank Research Working Paper No. 7487
Popular/Press coverage: New York Times, Nada es gratis
We study the effects of information and communication technologies (ICT) on the distribution of income across factors of production in the United States. Since the 1950s, the income share of ICT saw a seven-fold increase, while it has remained trendless for other types of capital. In parallel, we document substantial reallocation of labor income from occupations relatively substitutable with ICT (routine) to ones relatively complementary (non-routine). In a general equilibrium model that matches these trends, automation accounts for half of the decline in the labor share and for 27% of growth in output per person since 1990.
- The Cyclical Component of Labor Market Polarization and Jobless Recoveries in the US [pdf]
joint with Sylvia Kaufmann. Revise and resubmit at Journal of Monetary Economics.
(this version: 03-07-2015)
We analyze quarterly occupation-level data from the US Current Population Survey for 1976-2013. Based on common cyclical employment dynamics, we identify two clusters of occupations that roughly correspond to the widely discussed notion of “routine” and “non-routine” jobs. After decomposing the cyclical dynamics into a cluster-specific (“structural”) and an occupation specific (“idiosyncratic”) component, we detect significant structural breaks in the systematic dynamics of both clusters around 1990. We show that, absent these breaks, employment in the three “jobless recoveries” since 1990 would have recovered significantly more strongly than observed in the data, even after controlling for observed idiosyncratic shocks.
[click on the image for higher resolution and notes]
- Do Poor Countries Really Need More IT? The Role of Relative Prices and Industrial Composition [pdf]
joint with Maya Eden. Revise and resubmit at World Bank Economic Review.
(this version: 02-23-2016)
Other Versions: World Bank Research Working Paper No. 7352
Popular/Press coverage: VOX EU, World Economic Forum
Conventional wisdom suggests too little information and communication technology (ICT) in poor countries. Indeed, within 70 countries at various levels of development, we find poor countries to be relatively less ICT abundant. However, while this is consistent with explanations based on technology adoption lags and ICT-labor substitutability, we find little empirical support for these hypotheses. Instead, we show that (a) relatively higher ICT prices and (b) specialization in less ICT intensive industries fully account for the relative scarcity of ICT in poor countries.
- The Impacts of Ending Long-Term Unemployment Insurance: Evidence from North Carolina [pdf]
joint with Craig Depken. Revise and resubmit at Economic Inquiry.
(this version: 02-14-2016)
We investigate the causal effect of ending long-term emergency unemployment insurance (EUI) payments on labor market outcomes. Federal EUI payments in North Carolina (NC) expired on July 1, 2013, while EUI provision continued in all other states through December 31, 2013. We exploit cross-state variation generated by this unexpected NC law change to identify the causal effect of ending EUI payments. Our results indicate that the policy change induced a 1pp decrease in NC’s unemployment rate, primarily due to unemployed individuals finding employment. However, these employment gains were concentrated in part-time jobs and among single females with children.
- Did Banks Lend in Herds During 2000–2008? [pdf]
joint with Maria T. Valderrama. Revise and resubmit at Empirical Economics.
(this version: 09-09-2013)
Systemic risk was one of the greatest concerns during the financial crisis of 2007/2008. But why did financial institutions choose asset portfolios that were highly correlated with their peers’? We seek to identify the degree to which financial institutions intentionally followed the actions of their competitors. Based on a matched bank-firm panel we construct three time varying measures of bank “herding” within the Austrian business loan market for the period 2000-2008. These measures indicate sizable degrees to which banks were copying their peers’ actions throughout the 2000s, particularly during the episode of low policy interest rates during 2003-2005.
Work In Progress (full drafts coming soon)
- Capital Concentration and the Declining Labor Income Share
joint with Maya Eden.
Capital concentration may be an important driver of the labor income share. We document that the fall in the labor income share since 2000 has been accompanied by a sharp rise in the average level of capital concentration, as measured by the market share of the largest firms. Motivated by this fact, we consider an oligopoly model in which markups are increasing in the concentration of capital. We illustrate that trends in capital concentration can help reconcile the disparity in the timing of the ICT revolution and the timing of the decline in the labor income share. Consistent with this view, we document that the primary counterpart of the decline in the labor income share since 2000 has been an increase in the non-ICT capital income share.
- Technological Revolutions and Occupational Change: Electrifying News from the Old Days
joint with Rowena Gray, Ioana Marinescu, and Miguel Morin.
How do major technological breakthroughs affect workers in the wake of their adoption? We address this question by studying the impact of early electricity adoption, using newly digitized, detailed maps of the US electricity grid in 1918, 1928, and 1940. We follow individual workers over time by linking the 100% count Census of Population for 1920, 1930, and 1940 and study the impact of electricity adoption on employment, job and sectoral mobility, as well as earnings. To identify the causal impact on worker trajectories, we exploit the geography of hydro-electric potential, which provides arguably exogenous variation in the incentive to adopt electricity. Unlike earlier studies, our analysis is neither limited to particular industries nor particular geographies and constitutes the first comprehensive analysis of individual worker trajectories in response to a major technological revolution in the U.S. Our results uncover the following insights: (1) on average, electricity has no effect on employment and earnings within the population at large; (2) causes substantial re-allocation of workers from the farm to the factory; (3) causes a significant upward movement in the earnings distribution for transitioning farm workers; (4) leaves average manufacturing wages unaffected despite a net increase in manufacturing employment, suggesting a significant increase in both the supply and demand for low-skill manufacturing labor.
- The Effects of Technological Change: Does Capital Aggregation Matter?
joint with Maya Eden.
This paper investigates the role of capital aggregation for quantifying the effects of technological change. We particularly study the effects on aggregate output and on the division of income between capital and labor. We show that, for a given aggregate technological improvement, the effects on output and the labor share can be anywhere between very small (almost zero for the labor share) and substantial, depending on the source of technological change. Most importantly, the more concentrated technological improvements are in factors that are highly substitutable with labor, the larger the effects on output and the labor share. Intuitively, this is because labor is effectively in fixed supply and is therefore a key limiting factor of growth in the presence of capital-labor complementarities. This insight is particularly important in light of the recent interest in the effect of information and computing technology (ICT) on the aggregate labor share.
- The Impact of Education Earmarking on State Level Lottery Sales [doi], joint with Carol O. Stivender, Louis H. Amato, and Tonya E. Farrow-Chestnut. In The B.E. Journal of Economic Analysis and Policy, volume 16, issue 3, pages 1473-1500, May 2016.
- Does a Low Interest Rate Environment Affect Risk Taking in Austria? [pdf], joint with Maria T. Valderrama. In Monetary Policy & the Economy, Austrian Central Bank, issue 4, pages 32-48, January 2011.
- Will the Great Recession Lead to a Lasting Impact on Potential Output in Austria? [pdf], joint with Jürgen Janger. In Monetary Policy & the Economy, Austrian Central Bank, issue 3, pages 26-52, November 2009.
- The Role of Exchange Rate Movements for Prices in the Euro Area [pdf] In Monetary Policy & the Economy, Austrian Central Bank, issue 2, pages 83-103, August 2009.
- The Short and Long-run Interdependencies Between the Eurozone and the U.S.A. [pdf], joint with Serguei Kaniovski, Klaus Prettner and Thomas Url. In Empirica, Springer, vol. 36(2), pages 209-227, May 2009.