Published Papers

The impact of health on labor supply near retirement

with Richard Blundell, Jack Britton and Monica Costas Dias

Journal of Human Resources (forthcoming)

ABSTRACT: Estimates of how health affects employment vary considerably. We assess how different methods and health measures impact estimates of the impact of health on employment using a unified framework for the US and England. We find that subjective and objective health measures, and subjective measures instrumented by objective measures produce similar estimates when using sufficiently rich objective measures. Moreover, a single health index can capture the relevant health variation for employment. Health deterioration explains up to 15% of the decline in employment between ages 50 and 70. Effects are larger for the US than England, and for the low educated.

End of Life Medical Expenses

with John Jones, Elaine Kelly and Jeremy McCauley

Handbook of Aging and the Social Sciences (forthcoming)

ABSTRACT: In this review, we document end-of-life medical spending: its level, composition, funding and contribution to aggregate medical spending, both for the US and abroad. We discuss how end-of-life expenses affects household savings and other financial behaviour such as insurance choices. Lastly, we review economic evidence on the efficacy of medical spending at the end of life, assessing the value of palliative and other care for both longevity and patient satisfaction.

Medical Spending, Bequests, and Asset Dynamics around the Time of Death

with John Jones, Mariacristina De Nardi, Rory McGee and Rachel Rodgers

Economic Quarterly (2020)


Health and employment amongst older workers

with Jack Britton

Fiscal Studies (2020)

ABSTRACT: Health and employment are strongly correlated. This paper reviews the existing evidence and brings in new evidence on the following issues: (a) the measurement of health; (b) the impact of health on employment rather than just the association between health and employment; (c) the mechanisms by which health impacts employment; and (d) the likely effect of recent retirement and disability policy changes in the UK. Although the magnitude of the estimated effect of health on employment varies greatly from study to study, some of this variation is driven by the health measure used. Given our preferred measure, the evidence suggests that 5–10 per cent of the employment decline between ages 50 and 70 is due to declining health in England, with the largest effects among low‐educated men. Most of the effect comes through declining preferences for work and lower productivity when in bad health, although some of the effect is from government‐provided incentives to not work when in bad health, such as from disability benefits.

Social Security Research at the University of Michigan Retirement and Disability Research Center

with John Laitner, Alan L. Gustman, Michael D. Hurd, Olivia S. Mitchell, Kathleen J. Mullen, and Susan C. Barnes

Social Security Bulletin (2020)

ABSTRACT: In 1998, the Social Security Administration established the Retirement Research Consortium to encourage research on topics related to Social Security and the well-being of older Americans, and to foster communication between the academic and policy communities. The Michigan Retirement Research Center (MRRC) participated in the Consortium from its inception until 2019, when the MRRC expanded and became the Michigan Retirement and Disability Research Center. This article surveys a selection of the MRRC's output over its second 10 years (2008–2017), summarizes its innovative use of new data sources, and highlights several key themes in the center's research contributions.

Association between the arrested decline in cardiovascular disease and health and social-care costs: a modelling study

with Brendan Collins and others

The Lancet (2019)

ABSTRACT: Dementia and cardiovascular disease generate enormous health and social-care costs and have shared risk factors. Following decades of cardiovascular disease mortality declines in England, improvements slowed after 2011. We investigated the potential economic implications of this slowdown. We predict social-care costs will grow twice as fast as health-care costs over the next decade, even if cardiovascular disease occurrence continues to decline. Understanding the scale of the future health and social-care funding challenge might support proactive policy making. This study represents the first time ELSA data have been linked with HES data. However, we did not assess changes in health and social-care efficiency over time or the effect of spending on improving health.

Will social care need more resources? A modelling study of health and social costs in England and Wales for alternative future cardiovascular disease scenarios

with Brendan Collins and others

Journal of Epidemiology and Community Health (2019)

ABSTRACT: Cardiovascular disease (CVD) contributes to dementia and disability risk. It also affects the cost of care. The English NHS long-term plan targets preventing 150,000 CVD events from 2019–2029. However, after decades of declines in CVD mortality in England, CVD mortality improvements have slowed since 2011, which may indicate a slowdown in incidence reduction from around 2006. Therefore, there is uncertainty about how CVD burden and associated health and social care costs might evolve in the next decade.This study projects future health and social care costs resulting from the recent slowdown in CVD incidence and mortality declines. We predict that social care costs will grow twice as fast as healthcare costs over the next decade, regardless of future improvements. Total funding policy therefore need to needs to be urgently addressed, which may prove politically challenging.

Industry Dynamics and Minimum Wage: A Putty-Clay Approach

with Daniel Aaronson, Isaac Sorkin and Ted To

International Economic Review (2018)

ABSTRACT: We document three new facts about the industry-level response to minimum wage hikes. First, restaurant exit and entry both rise following a hike. Second, entry is concentrated in chains, which we show to be more capital-intensive. Third, there is no change in employment among continuing restaurants. We develop a model of industry dynamics based on putty-clay technology and show that it is consistent with these facts. In the model, continuing restaurants cannot change employment, and thus industry-level adjustment occurs through exit of labor-intensive restaurants and entry of capital-intensive ones. We show these three facts are inconsistent with other models of industry dynamics.

The Lifetime Medical Spending of Retirees

with John Jones, Mariacristina De Nardi, Rory McGee and Justin Kirschner

Economic Quarterly (Fall, 2018)

ABSTRACT: 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 U.S. households face over the remainder of their lives. We find that at age 70, households 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 dispersion of this spending diminish only slowly with age. Although permanent income, initial health, and initial marital status have large effects on this spending, much of the dispersion in lifetime spending is due to events realized later in life. Medicaid covers the majority of the lifetime costs of the poorest households and significantly reduces their risk.

Who receives Medicaid in Old Age? Rules and Reality

with Margherita Borella and Mariacristina De Nardi

Fiscal Studies (2017)

ABSTRACT: Medicaid is a government program that provides health insurance to the old who are sick and have little assets and income compared to their medical needs. Thus, it explicitly tests for income, assets, and health or medical needs to determine eligibility. We ask how these rules map into the reality of Medicaid recipiency and what observable characteristics are important to determine who ends up on Medicaid. The data show that both singles and couples with high retirement income can end up on Medicaid at very advanced ages. We find that, conditioning for a large number of observable characteristics, including those that directly relate to Medicaid eligibility criteria, single women are more likely to end up on Medicaid. So are non-whites, but, surprisingly, their higher recipiency is concentrated above the lower income percentiles. We also find that low-income people with a high school diploma or higher are much less likely to end up on Medicaid than their more educated counterparts. All of these effects are large and depend on retirement income in a very non-linear way.

The Accuracy of Economic Measurement in the Health and Retirement Study

with John Jones and Jeremy McCauley

Forum for Health Economics and Policy (2017)

ABSTRACT: We assess the quality of the HRS's measures of out-of-pocket medical spending and health insurance premia, both in the "core interviews'' and in the "exit interview'' data. We provide detailed evidence on the quality of the HRS insurance premia data, and we compare the HRS exit data to exit data in the MCBS. We document how changes in survey questions, including the introduction of "unfolding brackets'', affect the HRS measures. We document what we believe are errors in the HRS imputations and provide some suggestions for improving the accuracy of some imputed variables. Overall, we find the HRS data to be of high quality. However, we believe that many interesting variables in the HRS are under-utilized because users must perform imputations themselves.

Health, Health Insurance, and Retirement: A Survey

with John Jones

Annual review of Economics (2017)

ABSTRACT: 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 near retirement age. Health considerations nonetheless play an important role, especially in explaining cross-sectional variation in employment and other outcomes within countries. We review the mechanisms through which health affects retirement and discuss recent empirical analyses.

Data from the US and Eight Other Developed Countries Show that End-of-Life Medical Spending is Lower than Previously Reported

with Jeremy McCauley and Elaine Kelly and others

Health Affairs (2017)

ABSTRACT: Although end-of-life medical spending is often viewed as a major component of aggregate medical expenditure, accurate measures of this type of medical spending are scarce. We used detailed health care data for the period 2009–11 from Denmark, England, France, Germany, Japan, the Netherlands, Taiwan, the United States, and the Canadian province of Quebec to measure the composition and magnitude of medical spending in the three years before death. In all nine countries, medical spending at the end of life was high relative to spending at other ages. Spending during the last twelve months of life made up a modest share of aggregate spending, ranging from 8.5 percent in the United States to 11.2 percent in Taiwan, but spending in the last three calendar years of life reached 24.5 percent in Taiwan. This suggests that high aggregate medical spending is due not to last-ditch efforts to save lives but to spending on people with chronic conditions, which are associated with shorter life expectancies.

The Effect of Health Insurance on Near-Elderly Health and Mortality

with Bernard Black, José-Antonio Espín-Sánchez and Kate Litvak

American Journal of Health Economics (2017)

ABSTRACT: We use the best available longitudinal dataset, the Health and Retirement Study, and a battery of causal inference methods to provide both central estimates and bounds on the effect of health insurance on health and mortality among the near elderly (initial age 50-61) over an 18-year period. Compared to matched insured persons, those uninsured in 1992 consume fewer healthcare services, but, do not have worse health outcomes and, in our central estimates, do not die significantly faster than their insured counterparts. Our bounds suggest that prior studies overestimated the health and mortality benefits of health insurance for the uninsured.

Retirement Incentives and Labour Supply

with Richard Blundell and Gemma Tetlow

Handbook of the Economics of Population Aging (2016)

ABSTRACT: In this chapter, we review the evidence on retirement and study the role of incentives in the retirement decision. The key patterns of withdrawal from the labor market are presented and some of the factors that might explain the large and discrete drops in hours of work at the point of `retirement' are presented. We study the main retirement incentives that individuals face and place these financial and other incentives in the context of a structural approach to modeling retirement. We use this approach to frame issues of how government and private pension schemes affect retirement behavior. Noting that the typical household nearing retirement today in most developed economies is one in which both husband and wife work, we examine the theory and evidence on modeling incentives in couples and for joint decision-making. We conclude with a discussion of some of the gaps in our understanding of the employment of the elderly and raise some central questions that should be addressed by future research.

Medicaid Insurance in Old Age

with Mariacristina De Nardi and John Jones

American Economic Review (2016)

ABSTRACT: The old age provisions of the Medicaid program were designed to insure retirees against medical expenses. We estimate a structural model of savings and medical spending and use it to compute the distribution of lifetime Medicaid transfers and Medicaid valuations across currently single retirees. Compensating variation calculations indicate that current retirees value Medicaid insurance at more than its actuarial cost, but that most would value an expansion of the current Medicaid program at less than its cost. These findings suggest that for current single retirees, the Medicaid program may be of the approximately right size.

Savings After Retirement: A Survey

with Mariacristina De Nardi and John Jones

Annual Review of Economics (2016), Chicago Fed Letter No. 356

ABSTRACT: The saving patterns of retired U.S. households pose a challenge to the basic life cycle model of saving. The observed patterns of out-of-pocket medical expenses, which rise quickly with age and income during retirement, and heterogeneous lifespan risk can explain a significant portion of U.S. savings during retirement. However, more work is needed to disentangle these precautionary saving motives from other motives, such as the desire to leave bequests. Progress in disentangling these motivations has been made by matching other features of the data, such as public and private insurance choices. Better understanding whether intended bequests left to children and spouses are due to altruism, risk sharing, exchange motivations, or a combination of these factors, is an important direction for future research.

Medical Spending around the World: Summary of Results

with Elaine Kelly

Fical Studies (2016)

MAIN FINDINGS/POLICY POINTS: Our analysis includes high-quality administrative data from Denmark, England, France, Germany, Japan, the Netherlands, Quebec, Taiwan and the US, using standardised methods across countries. There is a (mostly) negative correlation between income and medical spending within all countries, the exceptions being both Japan and Taiwan for those aged 65 and over, and the US and Taiwan for those under 25. The concentration of medical spending varies substantially across countries. Medical spending is highly persistent in all countries. Medical spending in the year of death accounts for approximately 5–10 per cent of aggregate medical spending for the whole population, except in Taiwan where for hospital spending the share is 16 per cent. It accounts for 9–20 per cent (with the exception of Taiwan at 29 per cent) of medical spending among those aged 65 and over. Perhaps surprisingly, health care spending is less concentrated in the US than in most countries, and is less concentrated at the end of life than in most countries.

Medical Spending on the U.S. Elderly

with Mariacristina De Nardi, John Jones and Jeremy McCauley

Fical Studies (2016)

ABSTRACT: We use data from the Medicare Current Beneficiary Survey (MCBS) to document the medical spending of Americans aged 65 and older. We find that medical expenses more than double between ages 70 and 90 and that they are very concentrated: the top 10% of all spenders are responsible for 52% of medical spending in a given year. In addition, those currently experiencing either very low or very high medical expenses are likely to .find themselves in the same position in the future. We also find that the poor consume more medical goods and services than the rich and have a much larger share of their expenses covered by the government. Overall, the government pays for 65% of the elderly's medical expenses. Despite this, the expenses that remain after government transfers are even more concentrated among a small group of people. Thus, government health insurance, while potentially very valuable, is far from complete. Finally, while medical expenses before death can be large, on average they constitute only a small fraction of total spending, both in the aggregate and over the life cycle. Hence, medical expenses before death do not appear to be an important driver of the high and increasing medical spending found in the U.S.

Retirement Wealth on both Sides of the Pond

with Richard Blundell, Rowena Crawford and Gemma Tetlow

Fical Studies (2016)

ABSTRACT: We use comparable data from the US and England to examine similarities and differences in the level and trajectories of assets among households aged 70 and over. We find that in the US assets on average decline gradually with age, while in England older households actually accumulate wealth. These differences appear to be driven largely, though not entirely, by housing wealth: over the period we consider house price growth drove increases in housing wealth in England that more than offset the slow draw down of non-housing wealth. This suggests the illiquid nature of housing is likely to be an important factor in explaining wealth drawdown at older ages. We also consider the potential importance of bequest motives and savings to insure against risk of medical & long-term care expenses.

The Effect of Disability Insurance Receipt on Labor Supply

with Jae Song

American Economic Journal: Policy (2014)

ABSTRACT: This paper estimates the effect of Disability Insurance receipt on labor supply. Exploiting the effectively random assignment of judges to disability insurance cases, we use instrumental variables to address the fact that those allowed benefits are a selected sample. We find that benefit receipt reduces labor force participation by 26 percentage points three years after a disability determination decision, although the reduction is smaller for those over age 55, college graduates, and those with mental illness. OLS estimates are similar to instrumental variables estimates. We also find that over 60% of those denied benefits by an Administrative Law Judge are subsequently allowed benefits within 10 years, showing that most applicants apply, re-apply, and appeal until they get benefits.

How does a Federal Minimum Wage Hike Affect Aggregate Household Spending?

with Daniel Aaronson

Chicago Fed Letter No.313 (August, 2013)

Expected Income Growth and the Great Recession

with Taylor Kelley and An Qi

Chicago Fed Economic Perspectives Vol. 37 (1st Quarter, 2013)

The Spending and Debt Response to Minimum Wage Hikes

with Daniel Aaronson and Sumit Agarwal

American Economic Review (2012)

ABSTRACT: Immediately following a minimum wage hike, household income rises on average by about $250 per quarter and spending by roughly $700 per quarter for households with minimum wage workers. Most of the spending response is caused by a small number of households who purchase vehicles. Furthermore, we find that the high spending levels are financed through increases in collateralized debt. Our results are consistent with a model where households can borrow against durables and face costs of adjusting their durables stock.

Public Pensions and Labor Supply over the Life Cycle

with John Jones

International Tax and Public Finance (2012)

ABSTRACT: In order to remain fiscally solvent, governments of many countries have reformed their public pension schemes to encourage labor supply at older ages. These reforms include reductions in the generosity of public pensions and reduced penalties for working past the normal retirement age. In this paper, we consider how reforms to public pension systems affect labor supply over the life cycle. We put the recent empirical evidence on the effect of government pensions on labor supply in a life cycle context, and we present evidence on the effectiveness of tax reforms for stimulating labor supply over the life cycle. Our main conclusion is that the labor supply of older workers is responsive to changes in retirement incentives. The labor supply of younger workers is less responsive. Thus the trend towards lower taxes on older workers in many developed countries is likely to continue to fuel the recent trend towards later retirement.

Review of "The Minimum Wage and Labour Market Outcomes"

(by Chris Flinn)

Economic Journal (2012)

ABSTRACT: Should the minimum wage be raised? In ‘The Minimum Wage and Labor Market Outcomes’, Christopher Flinn attempts to answer this question. He uses a search and matching model to show that the answer involves more than knowledge of whether the minimum wage cuts employment. The answer also depends on (i) how much the minimum wage boosts the pay of those who don’t lose their jobs, (ii) how the minimum wage impacts the future employment and earnings prospects of those who are without jobs and (iii) how we weight the winners and losers following a minimum wage hike.

Medicaid and the Elderly

with Mariacristina De Nardi, Angshuman Gooptu and John Jones

Chicago Fed Economic Perspectives Vol. 36 (1st Quarter, 2012)

Consumption and the Great Recession

with David Benson and Mariacristina De Nardi

Chicago Fed Economic Perspectives Vol. 36 (1st Quarter, 2012)

How do the Risks of Living Long and Facing High Medical Expenses Affect the Elderly's Saving Behaviour?

with Mariacristina De Nardi and John Jones

Chicago Fed Letter No.294 (January, 2012)

The Effects of Health Insurance and Self-Insurance on Retirement Behaviour

with John Jones

Econometrica (2011)

ABSTRACT: This paper provides an empirical analysis of the effects of employer-provided health insurance, Medicare, and Social Security on retirement behavior. Using data from the Health and Retirement Study, we estimate a dynamic programming model of retirement that accounts for both saving and uncertain medical expenses. Our results suggest that Medicare is important for understanding retirement behavior, and that uncertainty and saving are both important for understanding the labor supply responses to Medicare. Half the value placed by a typical worker on his employer-provided health insurance is the value of reduced medical expense risk. Raising the Medicare eligibility age from 65 to 67 leads individuals to work an additional 0.074 years over ages 60-69. In comparison, eliminating two years worth of Social Security benefits increases years of work by 0.076 years.

Identification of Models of the Labor Market

with Chris Taber

Handbook of Labour Economics (2011)

ABSTRACT: This chapter discusses identification of common selection models of the labor market. We start with the classic Roy model and show how it can be identified with exclusion restrictions. We then extend the argument to the generalized Roy model, treatment effect models, duration models, search models, and dynamic discrete choice models. In all cases, key ingredients for identification are exclusion restrictions and support conditions.

How do Sudden Large Losses in Wealth Affect Labor Force Participation?

with David Benson

Chicago Fed Letter No.282 (January, 2011)

Comments on “Innovative Institutions and Products for Retirement Provision in Europe"

(by Lans Bovenberg and Theo Nijman)

Ageing, Health, and Pensions in Europe: an Economic and Social Policy Perspective (2010)


Why do the Elderly Save? The Role of Medical Expenses

with Mariacristina De Nardi and John Jones

Journal of Political Economy (2010)

ABSTRACT: This paper constructs a model of saving for retired single people that includes heterogeneity in medical expenses and life expectancies, and bequest motives. We estimate the model using Assets and Health Dynamics of the Oldest Old data and the method of simulated moments. Out-of-pocket medical expenses rise quickly with age and permanent income. The risk of living long and requiring expensive medical care is a key driver of saving for many higher-income elderly. Social insurance programs such as Medicaid rationalize the low asset holdings of the poorest but also benefit the rich by insuring them against high medical expenses at the ends of their lives.

Life Expectancy and Old Age Savings

with Mariacristina De Nardi and John Jones

American Economic Review, Papers and Proceedings (2009)

ABSTRACT: Rich people, women, and healthy people live longer. We document that this heterogeneity in life expectancy is large, and we use an estimated structural model to assess its effect on the elderly’s saving. We find that the differences in life expectancy related to observable factors such as income, gender, and health have large effects on savings, and that these factors contribute by similar amounts. We also show that the risk of outliving one’s expected lifespan has a large effect on the elderly’s saving behavior.

The Effect of Progressive Taxation on Labor Supply when Hours and Wages are Jointly Determined

with Daniel Aaronson

Journal of Human Resources (2009)

ABSTRACT: This paper extends a standard intertemporal labor supply model to account for progressive taxation as well as the joint determination of hourly wages and hours worked. We show that these two factors can have implications for both estimating labor supply elasticities as well as for using these elasticities in tax analysis. Failure to account for wage-hours ties and progressive taxation may cause the hours response to marginal tax rate changes to be understated by 5 to 30 percent for men.

The Minimum Wage, Restaurant Prices, and Labor Market Structure

with Daniel Aaronson and James MacDonald

Journal of Human Resources (2008)

ABSTRACT: Using store-level and aggregated Consumer Price Index data, we show that restaurant prices rise in response to minimum wage increases under several sources of identifying variation. We introduce a general model of employment determination that implies minimum wage hikes cause prices to rise in competitive labor markets but potentially fall in monopsonistic environments. Furthermore, the model implies employment and prices are always negatively related. Therefore, our empirical results provide evidence against the importance of monopsony power for understanding small observed employment responses to minimum wage changes. Our estimated price responses challenge other explanations of the small employment response too.

Product Market Evidence on the Employment Effects of the Minimum Wage

with Daniel Aaronson

Journal of Labour Economics (2007)

ABSTRACT: We infer the employment response to a minimum wage change by calibrating a model of employment for the restaurant industry. Whereas perfect competition implies employment falls and prices rise after a minimum wage increase, the monopsony model potentially implies the opposite. We show that estimated price responses are consistent with the competitive model. We place fairly tight bounds on the employment response, with the most plausible parameter values suggesting a 10 percent increase in the minimum wage lowers low skill employment by 2 to 4 percent and total restaurant employment by 1 to 3 percent.

Asset Rundown after Retirement: The Importance of Rate of Return Shocks

with Olesya Baker and Phil Doctor

Chicago Fed Economic Perspectives Vol. 31 (2nd Quarter, 2007)

Labor Force and Wage Dynamics Among Low Skilled Workers

with Bhashkar Mazumder and Chris Taber

Working and Poor: How Economic and Policy Changes Are Affecting Low-Wage Workers (2006)

ABSTRACT: In this chapter, we focus on the key components that determine an individual's early career wage growth and how these factors have changed for less skilled workers over the last twenty years. In particular, we examine the relative importance of accumulating work experience as compared to the quality of job matches in influencing wage growth over this time period. Our main finding that is that wage growth has varied considerably over the last 20 years. We find that the vast majority of the variation in wage growth is due to variability in the return to experience over time.7 Although the return to experience seems to change from year to year, there is no strong evidence of a secular trend. On average over this time period, an additional year of experience increases wages about 4 percent but this gain varies from as much as 6 percent to as little as 2 percent. In contrast, essentially none of the changing pattern of wage growth can be attributed to changes in experience accumulation, job to job finding rates, or layoff rates. While these variables have the expected cyclical relationships, the overall magnitude of their contributions to changes in wage growth is extremely small.

Right before the End: Asset Decumulation at the End of Life

with Olesya Baker, Mariacristina De Nardi, John Jones

Chicago Fed Economic Perspectives Vol. 30 (1st Quarter, 2006)

The Effects of Health, Wealth, and Wages on Labor Supply and Retirement Behaviour

Review of Economic Studies (2005)

ABSTRACT: This paper estimates a life cycle model of labor supply, retirement and savings behavior in which future health status and wages are uncertain. Individuals face a fixed cost of work and cannot borrow against future labor, pension, or Social Security income. The method of simulated moments is used to match the life cycle profiles of labor force participation, hours worked, and assets that are estimated from the data to those that are generated by the model. The model establishes that the tax structure of the Social Security system and pensions are the key determinants of the high observed job exit rates at ages 62 and 65. Removing the tax wedge embedded in the Social Security earnings test for individuals aged 65 and older would delay job exit by almost one year. By contrast, Social Security benefit levels, health, and borrowing constraints are less important determinants of job exit at older ages. For example, reducing Social Security benefits by 20% would cause workers to delay exit from the labor force by only three months.

On the Distribution and Dynamics of Health Costs

with John Jones

Journal of Applied Econometrics (2004)

ABSTRACT: Using data from the Health and Retirement Survey and the Assets and Health Dynamics of the Oldest Old survey, we estimate the stochastic process that determines both the distribution and dynamics of health care costs. We find that the data generating process for log health costs is well represented as the sum of a white noise process and a highly persistent AR(1) process. We also find that the innovations to this process can be modeled with a normal distribution that has been adjusted to capture the risk of catastrophic health care costs. Simulating this model, we find that in any given year 0.1% of households receive a health cost shock with a present value of at least $125,000.

You can't take it with you: Asset Rundown at the end of the life cycle

with Kate Anderson and Tina Lam

Chicago Fed Economic Perspectives Vol. 28 (3rd Quarter, 2004)

The Labor Supply Response to (Mismeasured but) Predictable Wage Changes

Review of Economics and Statistics (2004)

ABSTRACT: Most panel data studies of intertemporal labor supply assume classical measurement error. Recent validation studies refute this assumption. In this study I address non- classical measurement error explicitly. I use data on males from the Panel Study of Income Dynamics Validation Study to purge measurement error from the Panel Study of Income Dynamics. I find a large amount of predictable wage variation in the data, even after accounting for measurement error. However, there is almost no labor supply response to these predictable wage changes. Therefore, failure to control for non-classical measurement error cannot explain the low estimated labor supply elasticities in other.

The Effect of Part-Time Work on Wages: Evidence from the Social Security Rules

Journal of Labour Economics (2004)

ABSTRACT: This paper identifes the part-time wage effect using hours variation caused by the Social Security rules. We show that work hours and wages drop sharply at ages 62 and 65. We argue that the hours decline causes the wage decline, resulting in a 25 percent wage penalty for men who cut their workweek from 40 to 20 hours. However, we .find little evidence for such an e.ffect among women. We also show that models that fail to account for the joint determination of hours and wages will understate the labor supply response to a tax change by about 26 percent.

Analyzing the relationship between health insurance, health costs and health care utilization

with Kirti Kamboj

Chicago Fed Economic Perspectives Vol. 26 (3rd Quarter, 2002)

Is there still an Investment Overhang, and if so, should we sorry about it?

with Thomas H. Klier and David Oppedahl

Chicago Fed Letter No.177a (May, 2002)

The effect of the run-up in the stock market on labor supply

with Ing-Haw Cheng

Chicago Fed Economic Perspectives Vol. 24 (4th Quarter, 2002)

Part-time Work and Hourly Wages

with Daniel Aaronson

Chicago Fed Letter No.156 (August, 2000)