Highlights 2025
WP 25/05
Labor income risk arises from potential job loss or wage volatility that can impact workers' earnings. This risk is particularly significant due to labor market frictions, which often lead to lasting negative effects for displaced workers. These frictions also make it difficult and costly for employees to switch jobs after a pay cut, giving firms substantial power in setting wages. As a result, firms can provide a form of implicit insurance by absorbing economic shocks themselves rather than passing them on to workers through layoffs or wage reductions. This paper, “Entrepreneurs’ Diversification and Labor Income Risk”, authored by Marco Pagano together with Jan Bena, Andrew Ellul, and Valentina Rutigliano, is the first to investigate whether entrepreneurs' ability to bear risk—thanks to portfolio diversification—enhances labor income insurance for employees in closely held firms. Using Canadian administrative data on over 524,000 firms and 858,000 owners, the study finds that entrepreneurs with more diversified portfolios do, in fact, offer better protection against labor income risk. Their firms provide greater job security and more stable wages. In particular, when owners’ portfolios are one standard deviation more diversified, the sensitivity of layoffs and earnings to foreign sales shocks drops by 13% and 41%, respectively. These entrepreneurs tend to reduce their own pay and increase firm leverage to fund this insurance. The improved protection is positively correlated with better retention of skilled workers and fewer costly separations, as well as improved firm profitability.
WP 25/04
In “Women Behind Bars: Do Single-Gender Prisons Reduce Recidivism?”, Daniele Terlizzese, together with F. Calamunci, G. Daniele and G. Mastrobuoni, study whether serving a sentence in a prison housing only women, rather than in the separate women section in a prison housing predominantly men, reduces women recidivism. They find that it does, by up to 16 p.p. While the precise mechanism is difficult to identify, the design and organization of correctional facilities customized around women needs and fostering rehabilitation initiatives specifically targeted at women inmates seem to require a minimum scale and an appropriately attuned sensibility.
WP 25/03
In “Math Exposure and University Performance: Causal Evidence from Twins”, Graziella Bertocchi, together with Luca Bonacini, Majlinda Joxhe and Giuseppe Pignataro, investigate the impact of exposure to math in high school on college major choice and academic performance, using a dataset of twins drawn from the student population of an Italian university. Their empirical approach accounts for confounding factors, such as family background, that would otherwise bias their results. They find that attending a low-math high school decreases the likelihood of choosing a STEM major, while it boosts academic performance in terms of on-time graduation and grades. A national high school reform that increased math hours in low-math curricula further reduced STEM enrollment but was the driver of the improvement in performance for treated students. Hence, more math does not increase STEM enrollment, but does provide students valuable skills.
WP 25/02
In "Does Distance Still Matter? Evidence from 30 Years of Mortgage Lending" Joao Monteiro, together with Menaka Hampole and Adam Jorring, study the role distance between lenders and borrowers plays in mortgage contracts. The find that mortgage lending by banks is still predominantly a local business. Local branches have a significant advantage in attracting and originating mortgages. More than 25% of borrowers are less than two miles from their branch, and more than 50\% are within 10 miles. Distance is associated with lower credit quality, and the additional risk is priced: higher distance is associated with a lower probability of approval, a higher interest rate spread, and a higher ex-post likelihood of delinquency. They document business cycle patterns as the distance rises in booms and falls in busts but find that the sensitivity of distance for loan approval and pricing has persisted over the past 30 years despite the dramatic rise in securitization and online banking. Using a quantitative spatial model of the mortgage market, they explore the economic mechanisms driving our results. Through the lens of the model, they find that decreasing search costs lowers the match quality of borrower search, which counteracts the effects of increasing screening technology. Their findings highlight that local bank branches are still highly relevant despite the "fintech" revolution.
WP 25/01
In "Government Support in Times of Crisis: Transfers and the Road to Socialism" Mounu Prem, together with Felipe González, explore the fact that despite economic crises, incumbents often retain electoral support. In particular, they study Chile’s 1970-1973 infant nutrition program under Salvador Allende’s left-wing government and attribute this electoral resilience to the political returns of transfers during crises. The program provided milk to preschoolers, reducing infant mortality and bolstering electoral support despite hyperinflation and economic hardship. Using administrative data, surveys, and variation in crisis severity, they show transfers had greater political returns in areas most affected by the crisis. Survey evidence suggests voters swayed by transfers did not blame the government for the crisis. Their findings highlight how transfers and crisis perceptions sustain electoral popularity.
