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Working Paper
Health, Health Insurance, and Retirement: A Survey
The degree to which retirement decisions are driven by health is a key concern for both academics and policymakers. In this paper we survey the economic literature on the health-retirement link in developed countries. We describe the mechanisms through which health affects labor supply and discuss how they interact with public pensions and public health insurance. The historical evidence suggests that health is not the primary source of variation in retirement across countries and over time. Furthermore, declining health with age can only explain a small share of the decline in employment ...
Working Paper
An Estimated Structural Model of Entrepreneurial Behavior
Using a rich panel of owner-operated New York dairy farms, we provide new evidence on entrepreneurial behavior. We formulate a dynamic model of farms facing uninsured risks and financial constraints. Farmers derive nonpecuniary benefits from operating their businesses. We estimate the model via simulated minimum distance, matching both production and financial data. We find that financial factors and nonpecuniary benefits are of first-order importance. Collateral constraints and liquidity restrictions inhibit borrowing and the accumulation of capital. The nonpecuniary benefits to farming are ...
Journal Article
The Lifetime Medical Spending of Retirees
Using dynamic models of health, mortality, and out-of-pocket medical spending (both inclusive and net of Medicaid payments), we estimate the distribution of lifetime medical spending that retired US households face over the remainder of their lives. We find that households who turned 70 in 1992 will, on average, incur $122,000 in medical spending, including Medicaid payments, over their remaining lives. At the top tail, 5 percent of households will incur more than $300,000 and 1 percent of households will incur over $600,000 in medical spending inclusive of Medicaid. The level and the ...
Working Paper
Why Do Couples and Singles Save During Retirement?
While the savings of retired singles tend to fall with age, those of retired couples tend to rise. We estimate a rich model of retired singles and couples with bequest motives and uncertain longevity and medical expenses. Our estimates imply that while medical expenses are an important driver of the savings of middle-income singles, bequest motives matter for couples and high-income singles, and generate transfers to non-spousal heirs whenever a household member dies. The interaction of medical expenses and bequest motives is a crucial determinant of savings for all retirees. Hence, to ...
Briefing
A More Comprehensive Measure of the Black-White Wealth Gap
In this article, we apply a simple graphical device — the plot of the relative rank distribution — to summarize the Black-White wealth gap. We also introduce the relative rank Gini coefficient — an analog to the standard Gini coefficient — as a summary measure of rank inequality. We find that the rank wealth gap is widest in the middle of the wealth distribution. Black-White rank wealth gaps are higher among college graduates than among other education groups. Households with young or retired heads have higher rank gaps than middle-aged households. We caution that rank gaps are not ...
Working Paper
Medicaid insurance in old age
Medicaid was primarily designed to protect and insure the poor against medical shocks. Yet, poorer people tend to live shorter lifespans and incur lower medical expenses before death than richer people. Taking these and other important dimensions of heterogeneity into account, and carefully modeling key institutional aspects, we estimate a structural model of savings and endogenous medical expenses to assess the costs and benefits of Medicaid for single retirees. ; We show that even higher-income retirees benefit from Medicaid, if they live long enough for their resources to be depleted by ...
Newsletter
How do the risks of living long and facing high medical expenses affect the elderly’s saving behavior?
This article shows that the elderly, especially those with high lifetime incomes, maintain large asset holdings to account for the possibility of their living a long time and facing high medical expenses.
Working Paper
Incarceration, Earnings, and Race
Working Paper
The Effects of Collecting Income Taxes on Social Security Benefits
Since 1983, Social Security benefits have been subject to income taxation, a provision that can significantly increase the marginal income tax rate for older individuals. To assess the impact of this tax, we construct and calibrate a detailed life-cycle model of labor supply, saving, and Social Security claiming. We find that in a long-run stationary environment, replacing the taxation of Social Security benefits with a revenue-equivalent increase in the payroll tax would significantly increase labor supply, consumption and welfare. From an ex-ante perspective an even more desirable reform ...
Working Paper
Social Security Reform with Heterogeneous Mortality
Using a heterogeneous-agent, life-cycle model of Social Security claiming, labor supply and saving, we consider the implications of lifespan inequality for Social Security reform. Quantitative experiments show that welfare is maximized when baseline benefits are independent of lifetime earnings, the payroll tax cap is kept roughly unchanged, and claiming adjustments are reduced. Eliminating the earnings test and the income taxation of Social Security benefits provides additional gains. The Social Security system that would maximize welfare in a "2050 demographics" scenario, characterized by ...