Three Essays on Market Imperfections and Inequality

My dissertation focuses on margins that may disproportionally impact impoverished individuals. I primarily focus on two imperfections that I show contribute to inequality: frictional labor markets, and imperfect credit markets. Understanding the consequences of each, as well as how they interact, is central to better understanding the sources of inequality.My first chapter quantifies the impact of borrowing constraints on consumption and earnings inequality using a life-cycle model. I first show that following an unemployment spell, likely-constrained workers in the Survey of Income and Program Participation match to jobs that pay more per quarter when they receive an increase in their unemployment insurance. I then construct a life-cycle model with risk averse workers who face borrowing constraints, accumulate human capital endogenously, and search both on and off the job. I use indirect inference to estimate the model parameters, and show that wealth inequality causes both placement into lower-paying jobs as well as slower human capital accumulation when workers face borrowing constraints. Unemployment risk is partially responsible for this change in human capital accumulation. I compare changes in initial conditions and find that a standard deviation decrease in initial wealth causes a larger decline in life-cycle consumption than a standard deviation decrease in initial human capital.My second chapter deals with the appropriate approach to modeling frictional labor markets, and is joint work with Christine Braun, Bryan Engelhardt, and Peter Rupert. In it, we address whether the arrival rate of a job independent of the wage that it pays. To do this we address how, and to what extent, unemployment insurance changes the hazard rate of leaving unemployment across the wage distribution using a Mixed Proportional Hazard Competing Risk Model and data from the 1997 National Longitudinal Survey of Youth. Controlling for worker characteristics we reject that job arrival rates are independent of the wages offered. We apply the results to several prominent job-search models and interpret how our findings are key to determining the efficacy of unemployment insurance.My final chapter addresses whether public education plays a role in decreasing intergenerational persistence of income. Intuitively, impoverished families face constraints when their children are young: either in moving to better school districts, or in buying adequate supplies for their children. I explore empirically the extent to which increases in public education spending can decrease the importance of a parent's income in determining their child's. I expand on the previous literature by using an instrument for government spending in order to assess the effect of public spending on public education in changing income persistence. I find that an increase in government spending on education significantly decreases persistence of income across generations