Research

Abstract
Using variation in the timing and location of branches of failed banks we analyze its effect on income inequality. Employing a difference-in-differences specification we find that bank failures increased the GINI by 0.3 units (or 0.7%). We show that the rise in inequality is due to a decrease in the incomes of the poor that outpaces declines of the rest. We further show that individuals with lower levels of education exhibit a relatively greater decline in real wages and weekly hours worked. Exploring channels of transmission, we find income inequality is explained by a general decline in small business loans. This in turn reduces net new small business formation and their job creation capacity, a sector that hires a substantial share of low-income earners.

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@article{contreras23,
author = {Salvador Contreras and Amit Ghosh and Iftekhar Hasan},
title = {The effect of bank failures on small business loans and income inequality},
journal = {Journal of Banking & Finance},
volume = {146},
number = {},
pages = {},
year = {2023}
}

"The effect of bank failures on small business loans and income inequality." Journal of Banking & Finance. forthcoming. (With Amit Ghosh and Iftekhar Hasan)

Abstract
Using individuals’-level data from the 2013, 2015 and 2017 Unbanked and Underbanked Household surveys, we examine the effect of the magnitude of bank failures in the 2008-2011 period on individuals’ use of financial services in the post Great Recession period. We find the intensity of local bank failure to reduce the probability of owning a bank account and increases the likelihood of using alternative financial services (AFS). We show that those exposed to medium intensity failures were 2.3 percentage points less likely to be fully banked (own a bank account and do not use AFS) and 0.5 percentage points more likely to be unbanked (do not own a bank account and use AFS). These effects are primarily driven by blacks and Hispanics in low and medium intensity MSAs. Our results are explained by the effect that the intensity of bank failures had on branching. Moreover, we find bank failures to intensify impediments to banking due to lack of convenient location and hours and distrust in banks, and the effect is more salient for minorities.

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@article{blanco22,
author = {Blanco, Luisa and Contreras, Salvador and Ghosh, Amit},
title = {Impact of Great Recession bank failures on use of financial services among racial/ethnic and income groups},
journal = {Southern Economic Journal},
volume = {88},
number = {4},
pages = {1574-1598},
year = {2022}
}

"Impact of Great Recession bank failures on use of financial services among racial/ethnic and income groups." Southern Economic Journal. v. 88, i. 4, pp. 1574-1598, 2022. (With Luisa Blanco and Amit Ghosh)

Abstract
Employing a difference-in-differences framework we examine the effect of COVID-19 on various performance metrics of minority-owned banks relative to peer banks. We find little evidence of worsening performance of minority-owned banks, except for Asian-owned banks. In some instances, minority banks show improved performance. We find a decline in non-performing single-family residential loans for Hispanic-owned banks. Moreover, minority banks have disbursed more PPP loans than their matched non-minority counterparts. Their resilient performance indicates that minority banks are well positioned to aid in the ongoing economic recovery.

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@article{contreras22,
author = {Salvador Contreras and Amit Ghosh},
title = {COVID-19 and its impact on minority-owned banks},
journal = {AEA Papers and Proceedings},
volume = {112},
number = {},
pages = {213-18},
year = {2022}
}

"COVID-19 and its impact on minority-owned banks." AEA Papers and Proceedings. v. 112, pp. 313-18, 2022. (With Amit Ghosh)

Abstract
This paper examines the impact of local banking market frictions measured by bank failures on youth crime. Using a difference-in-differences framework, we find white and black youth violent crimes increase by 0.11 and 0.66 per 1000 people, respectively, following a bank failure. Further, we find white property crime, petty delinquency and drug crime increase by 0.29, 0.75 and 0.35 per 1000 people. Black youth see a rise in drug crimes by 0.88 per 1000 people. Results by gender reveal male drug crimes rise by 2.4 and female property crimes by 0.66 per 1000 people, respectively. The economic effects are most persistent for petty delinquency crimes committed by white youths. Furthermore, we find evidence that bank failures worsen local labor markets conditions by increasing white youth unemployment and reduce employment in the limitedservices restaurant industry; channels that likely alter the opportunity cost of youth crime.

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@article{contreras21,
author = {Ghosh, Amit and Contreras, Salvador},
title = {Local banking market frictions and youth crime: evidence from bank failures},
journal = {Journal of Financial Services Research},
volume = {61},
number = {1},
pages = {43-75},
year = {2022}
}

"Local banking market frictions and youth crime: evidence from bank failures." Journal of Financial Services Research. v. 61, pp. 43-75, 2022. (With Amit Ghosh)

Abstract
Using firm-level data, we study the impact of bank failures on corporate innovation. We find that exposure to a bank failure reduces the number of patents by 0.34 and citations by 0.35, implying a loss of 21% and 22%, respectively. Such effects are most pronounced for explorative innovation and for firms more dependent on external financing. These effects point to the interdependence between bank failures and corporate decisions, highlighting an important role for government intervention. We show that the TARP helped banks to reduce such pernicious effects on innovation, which is primarily driven by TARP recipient banks headquartered in the county of the bank failure and by large TARP receiving banks.

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@article{contreras21,
author = {Salvador Contreras and Amit Ghosh and Joon Ho Kong},
title = {Financial crisis, Bank failures and corporate innovation},
journal = {Journal of Banking & Finance},
volume = {129},
number = {},
pages = {106161},
year = {2021}
}

"Financial crisis, Bank failures and corporate innovation." Journal of Banking & Finance. v. 129, i. 0378-4266, pp 106161, 2021. (With Joon Ho Kong and Amit Ghosh)

Abstract
Using MSA-level data over 1994–2014, we study the effect of bank failures on local business dynamics, in the form of net business formation and net job creation. We find that at least one bank failure in the metropolitan statistical area (MSA) with the mean population prevents approximately 475 net businesses from forming in that area, compared with MSAs that experience no bank failures, ceteris paribus. The equivalent effect on net job creation is 16,433 net job losses. Our results are even stronger for small businesses, which are usually more dependent on bank-firm relationships. These effects point to significant welfare losses stemming from bank failures, highlighting an important role for government intervention. We show that the Troubled Asset Relief Program (TARP) is effective in reducing the negative effects of bank failures on local business dynamics. This positive effect of TARP is quite uniform across small and large firms.

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@article{contreras21,
author = {Contreras, Salvador and Delis, Manthos D. and Ghosh, Amit and Hasan, Iftekhar},
title = {Bank failures, local business dynamics, and government policy},
journal = {Small Business Economics},
volume = {58},
number = {4},
pages = {1823-1851},
year = {2022}
}

"Bank failures, local business dynamics, and government policy. " Small Business Economics. v.58, n. 4, pp. 1823-1851, 2022. (With Manthos D. Delis, Amit Ghosh and Iftekhar Hasan)

Abstract
Using a difference-in-differences framework we evaluate the effect that exposure to a bank failure in the Great Recession period had on income inequality. We find that it led to a 1% higher Gini, relative rise of 38 cents for high earners, and 7% decline for lowest earners in treated MSAs. Moreover, we show that blacks saw a decline of 10.2%, Hispanics 9.8%, and whites 5.1% in income. Low income blacks and Hispanics drove much of the effect on inequality.

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@article{contreras21,
author = {Salvador Contreras and Amit Ghosh and Iftekhar Hasan},
title = {Income inequality and minority labor market dynamics: Medium term effects from the Great Recession},
journal = {Economics Letters},
volume = {199},
number = {},
pages = {109717},
year = {2021}
}

"Income inequality and minority labor market dynamics: Medium term effects from the Great Recession." Economics Letters. v. 199, i. 0165-1765, pp 109717, 2021. (With Amit Ghosh and Iftekhar Hasan)

Abstract
We investigate the determinants of the racial/ethnic gap in financial literacy in the general population and within income classes, with a focus on childhood family circumstances and neighborhood socioeconomic characteristics. Our model explains 48% and 57% of the observed gap for Blacks and Hispanics, respectively. For both groups, differences in individual characteristics and neighborhood socioeconomic status contribute the most to the explained gap. The White–Minority gap narrows when moving from low‐ to high‐income classes, but the ability of the model to explain it decreases monotonically. Identifying which additional barriers put minorities at a disadvantage is key to improve financial literacy.

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@article{contreras21,
author = {Marco Angrisani, Sergio Barrera, Luisa Blanco, and Salvador Contreras},
title = {The racial/ethnic gap in financial literacy in the population and by income},
journal = {Contemporary Economic Policy},
volume = {39},
number = {3},
pages = {524-536},
year = {2021}
}

"The racial/ethnic gap in financial literacy in the population and by income." Contemporary Economic Policy. v. 39, i. 3, pp 524-536, 2021. (With Marco Angrisani, Sergio Barrera, and Luisa Blanco)

Abstract
Purpose The authors present a quantitative analysis of the effect that organizational change has on work stress, work attitudes and perceptions, and cognitive utilization in a task. Design/methodology/approach First, the authors study the role organizational change has on work stress, attitudes and perceptions, including the role of attitudes toward change. The authors do so by examining differences across employees who are and are not undergoing change, as well as across two change phases. Second, the authors take advantage of the ongoing organizational change to study how people's anxiety about such change affects their cognitive utilization. They use an innovative approach to measure attention disengagement in a cognitive utilization task – a proxy for task-related performance – through a letter detection exercise. Third, the authors examine the role of work stress and change-related anxiety on attention disengagement among employees undergoing change. For this test, they use two organizational change-related texts to function as an anxiety-inducing and a calming-inducing prime. Findings Organization change is associated with higher work stress, lower job satisfaction and perceptions of institutional effectiveness and support. Further, organizational change-related anxiety adversely affects cognitive utilization, showing that employees undergoing change have higher attention disengagement relative to those not experiencing change. Among employees undergoing change, those receiving an anxiety-inducing prime show better cognitive utilization (lower attention disengagement) than those receiving the calming-inducing prime. Originality/value The rare merger of two public universities provides a natural experiment and a source of exogenous variation to examine the effects of radical organizational change on employees' attitudes, perceptions and task performance.

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@article{contreras20,
author = {Contreras, Salvador and Jorge A. Gonzalez },
title = {Organizational change and work stress, attitudes, and cognitive load utilization: a natural experiment in a university restructuring},
journal = {Personnel Review},
volume = {50},
number = {1},
pages = {264-284},
year = {2020}
}

"Organizational change and work stress, attitudes, and cognitive load utilization: a natural experiment in a university restructuring." Personnel Review. v. 50, n. 1, pp 264-284, 2020. (With Jorge Gonzalez)

Abstract
The identity choices people take on serve as a filter for viewing the world. It is believed that race identity formation is in part a response to economic and social incentives. Using NELS 1988 dataset we evaluate at the individual level factors that affect changes in self-reported racial identity. We find that being multiracial, living in a non-affirmative action ban state, and relative income/education measures within race groups have an effect on racial identity switching. We find strong evidence that the social-political environments surrounding an affirmative action ban alters the likelihood that an individual will change race. Our results suggest that social factors when present dominate economic incentives to take on a different racial identity.

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@article{contreras16,
author = {Contreras, Salvador},
title = {For Economic Advantage or Something Else? A Case for Racial Identification Switching},
journal = {Review of Black Political Economy},
volume = {43},
number = {3},
pages = {301--323},
year = {2016}
}

"For Economic Advantage or Something Else? A Case for Racial Identification Switching." Review of Black Political Economy. v. 43, i. 3, pp 301-323, 2016.

Abstract
We present a theoretical and empirical analysis of household positional and non-positional time investment choices in the education of her child. We show that a parent who is mindful of her relative position in the income distribution will use her time investment choices to influence her perceived status. Our theoretical model predicts that visible time investment increases as members of her reference group move up in rank. We show that moving down in rank lowers utility. We employ NELS (1988) dataset to test our model prediction and show that visible time invested in child's education is explained by place on the income distribution.

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@article{contreras16,
author = {Contreras, Salvador},
title = {Looking for status appeal? Act interested in your child’s education},
journal = {International Journal of Social Economics},
volume = {44},
number = {3},
pages = {377-399},
year = {2017}
}

" Looking for status appeal? Act interested in your child's education." International Journal of Social Economics, v. 44, n. 3, pp. 377-399, 2017.

[9]

Abstract
This paper presents an alternative view to the cause and size of market failures. The work here suggest that the size of the market failure is not man made per se but rather given a full set of initial conditions it is endogenous to the dynamical forces at play. It is shown that the level and variance of market failures is tied to the location of the steady state (i.e. level of development). The paper finds that only changes to the location of the steady state produces changes to the potential level of the market failure. This paper adds to the increasing body of literature the notion that institutional change is not a sufficient condition to sustained economic development.

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@article{contreras14,
author = {Contreras, Salvador},
title = {An Alternative View to the Cause of Market Failures: A Dynamic Approach},
journal = {Theoretical Economics Letters},
volume = {4},
number = {7},
pages = {548-557},
year = {2014}
}

"An Alternative View to the Cause of Market Failures: A Dynamic Approach."Theoretical Economics Letters, v. 4, n. 7, pp. 548-557, 2014.

[8]

Abstract
We evaluate the endogenous peer influence of students in one U.S. public University College of Business. In particular, we measure the peer effect on student grades. This study utilises an exclusion restriction approach similar to De Giorgi et al. (2010) to estimate the endogenous peer effect. Our results support the finding that a student’s classroom performance has a significant effect on their peers. Overall, our results suggest a negative peer effect. However, we find that the direction and magnitude of the peer effect is sensitive to the student’s own average ability and that of their peers.

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@article{contreras12,
Author = {Salvador Contreras and Francisco Badua and Mitchell Adrian},
Journal = {International Review of Economics Education},
Issue = {1},
Pages = {57-66},
Title = {Peer Effects on Undergraduate Business Student Performance},
Volume = {11},
Year = {2012},
}

"Peer Effects on Undergraduate Business Student Performance." International Review of Economics Education, v.11, i.1, pp. 57-66, 2012. (with Francisco Badua, and Mitchell Adrian)

Abstract
This paper develops a general equilibrium overlapping generation model of migrant and domestic households that reside in one of two countries, one rich and one poor. The model is used to analyze the impact of migration on human capital development. The model shows that migration, with remittances to non-migrant poor households, has a positive impact on non-migrant households' human capital accumulation (``brain gain''). The model shows that migration (or the option of) induces human capital investment. However, it is shown that remittances have a negative impact on the growth that migrant households enjoy in the rich country. In addition, strong links to source country reduce the educational attainment of second-generation migrant households.

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@article{contreras13,
author = {Contreras, Salvador},
title = {The Influence of Migration on Human Capital Development},
journal = {International Economic Journal},
volume = {27},
number = {3},
pages = {365-384},
year = {2013},
doi = {10.1080/10168737.2012.659277}
}

"The influence of migration on human capital development." International Economic Journal, Vol. 27, Iss. 3., pp. 365-384, 2013.

[7]

Abstract
This paper presents a model with a domestic household and a heterogeneous migrant household in arrival timing. The domestic and documented migrant households divide their one unit of time between lobbying for/against immigration enforcement expenditures and employment. The analysis shows that an increase in public dislike for undocumented workers lowers domestic and existing migrant households private investment in own child education. It also causes average public expenditures on education to fall and leads to a negative impact on the educational outcomes of all households.

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@article{contreras11,
Author = {Contreras, Salvador},
Journal = {Journal of Regional Science},
Number = {4},
Pages = {821 - 835},
Title = {A Theoretical Exposition of Migration Enforcement on Existing Migrant and Domestic Households.},
Volume = {51},
Year = {2011},
}

"A theoretical exposition of migration enforcement on existing migrant and domestic households." Journal of Regional Science, v. 51, i. 4, pp. 821-835, 2011

[5]

Abstract
This paper develops a theoretical model that explores the effects of child investment on human capital accumulation. Household investment effects are measured as a function of quality of investment choices, time allocation, child effort, and spillover effects. The theory dynamics are derived by employing a two-period OLG model. The model dynamics reveal the existence of multiple steady states of quality investment and child human capital accumulation under two stages of development. These dynamics show why poor households are often unable to escape poverty. Empirically, the theory and dynamics are tested with United States data. The data suggest that for poor households, income and parental human capital have no significant effect on child performance at school. Child effort and parental quality investment are shown to be significant determinants of child performance at school across household types.

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@article{contreras11,
Author = {Contreras, Salvador},
Journal = {International Economic Journal},
Number = {3},
Pages = {387 - 417},
Title = {Parental Quality Investment, Child Effort, and Human Capital Accumulation.},
Volume = {25},
Year = {2011},
}

"Parental Quality Investment, Child Effort, and Human Capital Accumulation." International Economic Journal, v. 25, i. 3, pp. 387-417, 2011.

[4]

Abstract
The authors investigated the results of the Educational Testing Service Major Field Test (ETS-MFT) administered to business majors at a U.S. state university. Longitudinal trends and cross-sectional differences are documented, including significant performance differences among students of different majors. Findings suggest that a cohort affect may influence testing outcomes. The authors discuss with possible explanations for performance differences and explore means of remediation.

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"Documenting and Explaining Major Field Test Results Among Undergraduate Students." Journal of Education for Business, v. 86, i.2, pp. 64-70, 2011. (with Francisco Badua, Jiun Shiu Chen, and Mitchell Adrian)

[3]

"A Major Choice: Differential Effects of Academics, Demographics, and Effort-Tolerance on Major Selection." The Journal of Academic Administration in Higher Education, v.4, pp. 41-48, 2008. (with Francisco Badua)

[2]

Abstract
This paper presents a household theoretical model that explains child labor as a function of household resources, wages, and child work time allocation. The analysis is based on the interplay between household educational investment choices and adult-child wage differentials. The theory dynamics reveal that child labor participation is increasing in wage equality and as the wage gap decreases it reduces the distance by where the households is able to escape the cycle of poverty by investing beyond the dynamically attracting poverty level of inefficient human capital investment. The model dynamics also present the conditions by where poor households use child labor as a development strategy, as a means of accumulating physical assets at the expense of child human capital investment, in the early stages of development. The policy implications of this work are that child labor bans increase the wage differentials between child and adult earners while simultaneously decreasing the household incentive to invest in child education. The impact, of such policies, has a double negative effect on poor households. Furthermore, policies that reduce wage distortions, between adult and child labor, increase adult human capital, and provide universal access to educational will have long-run developmental growth effects. These policies, in the long-run, are shown to produce household substitution away from child labor and toward the acquisition of schooling based education.

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@article{contreras08,
Author = {Contreras, Salvador},
Journal = {Journal of Macroeconomics},
Number = {1},
Pages = {499 - 512},
Title = {Child Labor Participation, Human Capital Accumulation, and Economic Development.},
Volume = {30},
Year = {2008},
}

"Child Labor Participation, Human Capital Accumulation, and Economic Development." Journal of Macroeconomics, v.30, pp. 499-512, 2008.

[1]