Rushing into American Dream? House Prices, Timing of Homeownership, and Adjustment of Consumer Credit
In this paper we use a large panel of individuals from Consumer Credit Panel dataset to study the timing of homeownership as a function of credit constraints and expectations of future house price. Our panel data allows us to track individuals over time and we model the transition probability of their first home purchase. We find that in MSAs with highest quartile house price growth, the median individual become homeowners earlier by 5 years in their lifecycle compared to MSAs with lowest quartile house price growth. The result suggests that the effect of expectation dominates the effect of credit constraints and high price growth leads individuals to purchase home earlier. We further study other credit/loan behaviors around first-home purchases for young and old buyers. We find that younger buyers make more adjustments in their finances after the purchase? taking out more debt/credit, and yet they do not appear to experience larger increase in delinquency than older buyers.
AUTHORS: Agarwal, Sumit; Huang, Xing; Hu, Luojia
Displacement, asymmetric information and heterogeneous human capital
In a seminal paper Gibbons and Katz (1991; GK) develop and empirically test an asymmetric information model of the labor market. The model predicts that wage losses following displacement should be larger for layoffs than for plant closings, which was borne out by data from the Displaced Workers Survey (DWS). In this paper, we take advantage of many more years of DWS data to examine how the difference in wage losses across plant closing and layoff varies with race and gender. We find that the differences between white males and the other groups are striking and complex. The "lemons" effect of layoff holds for white males as in the GK model, but not for the other three demographic groups (white females, black females, and black males). These three all experience a greater decline in earnings at plant closings than at layoffs. This results from two reinforcing effects. First, plant closings have substantially more negative effects on minorities than on whites. Second, layoffs seem to have more negative consequences for white men than the other groups. These findings suggest that the GK asymmetric information model is not sufficient to explain all of the data. We augment the model with heterogeneous human capital and show that this model can explain the findings. We also provide some additional evidence suggestive that both asymmetric information and heterogeneous human capital are important. In support of both explanations, we demonstrate that the racial and gender effects are surprisingly robust to region, industry and occupation controls. To look at the asymmetric information, we make use of the Civil Rights Act of 1991 which induced employers to lay off "protected" workers in mass layoffs rather than fire them for cause. As a result, relative to whites, a layoff would be a more negative signal for blacks after 1991 than before. If information is important, this would in turn imply that blacks experience a relatively larger loss in earnings at layoffs after 1991 than prior; and that's what we find in the data. In addition, as further evidence for heterogeneous human capital, we document for the first time in the literature that the two types of layoffs reported in the DWS data, namely layoffs due to "slack work" and "position abolished" have very different features when compared to plant closings. Finally, we simulate our model and show that it can match the data.
AUTHORS: Hu, Luojia; Taber, Christopher
Simpler Bootstrap Estimation of the Asymptotic Variance of U-statistic Based Estimators
The bootstrap is a popular and useful tool for estimating the asymptotic variance of complicated estimators. Ironically, the fact that the estimators are complicated can make the standard bootstrap computationally burdensome because it requires repeated re-calculation of the estimator. In Honor and Hu (2015), we propose a computationally simpler bootstrap procedure based on repeated re-calculation of one-dimensional estimators. The applicability of that approach is quite general. In this paper, we propose an alternative method which is specific to extremum estimators based on U-statistics. The contribution here is that rather than repeated re-calculating the U-statistic-based estimator, we can recalculate a related estimator based on single-sums. A simulation study suggests that the approach leads to a good approximation to the standard bootstrap, and that if this is the goal, then our approach is superior to numerical derivative methods.
AUTHORS: Hu, Luojia; Honore, Bo E.
Poor (Wo)man’s Bootstrap
The bootstrap is a convenient tool for calculating standard errors of the parameters of complicated econometric models. Unfortunately, the fact that these models are complicated often makes the bootstrap extremely slow or even practically infeasible. This paper proposes an alternative to the bootstrap that relies only on the estimation of one-dimensional parameters. The paper contains no new difficult math. But we believe that it can be useful.
AUTHORS: Hu, Luojia; Honore, Bo E.
Do labor market activities help predict inflation?
The authors conduct an empirical analysis of the role of labor market activities in inflation and conclude that wage growth is not very informative for predicting price inflation. But price inflation does seem to help predict wage growth.
AUTHORS: Hu, Luojia; Toussaint-Comeau, Maude
Changing Labor Force Composition and the Natural Rate of Unemployment
This article discusses why changes in the composition of the labor force may have lowered the natural (or trend) rate of unemployment?the unemployment rate that would prevail in an economy making full use of its productive resources?to 5 percent or less. A lower natural rate may help explain why wage inflation and price inflation remain low despite actual unemployment recently reaching 5.5 percent?a figure only slightly above prominent estimates of the natural rate, such as that of the Congressional Budget Office (CBO). Demographic and other changes should continue to lower the natural rate for at least the remainder of the decade.
AUTHORS: Seifoddini, Arian; Sullivan, Daniel G.; Aaronson, Daniel; Hu, Luojia
How much of the decline in unemployment is due to the exhaustion of unemployment benefits?
Prior studies have examined the impact of extended unemployment insurance (UI) benefits on the rise in the unemployment rate in this recession and early recovery. We use real-time microdata from the Bureau of Labor Statistics? Current Population Survey (CPS) to examine whether there has been a reverse effect recently as benefits have been exhausted. We find that if UI benefits had lasted indefinitely, the unemployment rate would have been cumulatively about 0.1 to 0.3 percentage points higher between October 2009 and January 2011, which represents about 10% to 25% of the decline in the actual rate over that period.
AUTHORS: Hu, Luojia; Schechter, Shani
Explaining the decline in the U.S. labor force participation rate
The authors conclude that just under half of the post-1999 decline in the U.S. labor force participation rate, or LFPR (the proportion of the working-age population that is employed or unemployed and seeking work), can be explained by long-running demographic patterns, such as the retirement of baby boomers. These patterns are expected to continue, offsetting LFPR improvements due to economic recovery.
AUTHORS: Hu, Luojia; Aaronson, Daniel; Davis, Jonathan
How Health Insurance Improves Financial Health
Low-income Americans who became eligible to enroll in Medicaid due to the Affordable Care Act saw their medical debt cut in half.
AUTHORS: Mazumder, Bhashkar; Miller, Sarah; Kaestner, Robert; Wong, Ashley; Hu, Luojia
Explaining Variation in Real Wage Growth Over the Recent Expansion
In August 2019 the unemployment rate was roughly 1 percentage point below the Congressional Budget Office?s (CBO) estimate of its long-run or natural rate, nearly matching the unemployment rate gap that developed during the historically tight labor market of the late 1990s. Nevertheless, real wage growth remains well below its pace of the late 1990s and even that of the milder 2000s expansion.
AUTHORS: Hu, Luojia; Rajan, Aastha; Aaronson, Daniel