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Working Paper
Health Shocks, Health Insurance, Human Capital, and the Dynamics of Earnings and Health
We specify and calibrate a life-cycle model of labor supply and savings incorporating health shocks and medical treatment decisions. Our model features endogenous wage formation via human capital accumulation, employer-sponsored health insurance, and means-tested social insurance. We use the model to study the effects of health shocks on health, labor supply and earnings, and to assess how health shocks contribute to earnings inequality. We also simulate provision of public insurance to agents who lack employer-sponsored insurance. The public insurance program substantially increases medical ...
Journal Article
A new idea for welfare reform
This article analyzes several proposals to build work incentives into the U.S. welfare system. It concludes that the most cost effective way to do that is to offer a work subsidy to all low-income single parents?in other words, to simply pay them for working in the labor market. This conclusion is based on a model of the labor force participation behavior of low-income single mothers that the author developed with Robert Moffitt. Among the proposals evaluated in the article, besides the work subsidy, are proposals to reduce the rate that welfare benefits are reduced when welfare recipients ...
Discussion Paper
The employment and wage effects of oil price shocks: a sectoral analysis
In this paper we use micro panel data to examine the effects of oil price shocks on employment and real wages, at the aggregate and industry levels. We also measure differences in the employment and wage responses for workers differentiated on the basis of skill level. We find that oil price increases result in a substantial decline in real wages for all workers, but raise the relative wage of skilled workers. The use of panel data econometric techniques to control for unobserved heterogeneity is essential to uncover this result, which is completely hidden in OLS estimates. While the ...
Working Paper
A structural model of multiple welfare program participation and labor supply
One of the long-standing issues in the literature on transfer programs for the U.S. low-income population concerns the high cumulative marginal tax rate on earnings induced by participation in the multiplicity of programs offered by the government. Empirical work on the issue has reached an impasse partly because the analytic solution to the choice problem is intractable and partly because the model requires the estimation of multiple sets of equations with limited dependent variables, an estimation problem which until recently has been computationally infeasible. In this paper we estimate a ...
Working Paper
What Explains the Growing Gender Education Gap? The Effects of Parental Background, the Labor Market and the Marriage Market on College Attainment
In the 1960 cohort, American men and women graduated from college at the same rate, and this was true for Whites, Blacks and Hispanics. But in more recent cohorts, women graduate at much higher rates than men. To understand the emerging gender education gap, we formulate and estimate a model of individual and family decision-making where education, labor supply, marriage and fertility are all endogenous. Assuming preferences that are common across ethnic groups and fixed over cohorts, our model explains differences in all endogenous variables by gender/ethnicity for the ‘60-‘80 cohorts ...
Journal Article
Are economic forecasts rational?
This paper discusses at an undergraduate level how forecast rationality can be tested. It explains that forecasters should correctly use any relevant information they knew in making their predictions. It shows that forecast rationality can be tested by determining whether the forecasters' prediction errors are predictable. After addressing what data and methods can be used for testing rationality, the paper presents tests of the price-forecast rationality of individual professional forecasters. Unlike results of previous studies, the test results show that those forecasters' price predictions ...
Working Paper
The career decisions of young men
Working Paper
Robust Inference for the Frisch Labor Supply Elasticity
The Frisch labor supply elasticity plays a key role in many economic policy debates, but its magnitude remains controversial. Many studies estimate the Frisch elasticity using 2SLS regressions of hours changes on wage changes. But a little appreciated power asymmetry property of 2SLS causes estimates to appear spuriously imprecise when they are shifted away from the OLS bias. This makes it difficult for a 2SLS t-test to detect a true positive Frisch elasticity. We illustrate this problem in an application to NLSY97 data. We obtain an estimate of 0.60 for young men, but the t-test indicates it ...
Discussion Paper
Individual heterogeneity and interindustry wage differentials
Estimates of interindustry wage differentials are obtained using a fixed-effects estimator on a long panel, the National Longitudinal Survey of Young Men (NLS). After controlling for observable worker characteristics, 84 percent of the residual variance of log wages across industries is explained by individual fixed-effects. Only 16 percent of the residual variance is explained by industry dummies. Since no controls for specific job characteristics are used, job characteristics that vary across industries could potentially explain this rather small residual across-industry log wage variance ...