Working Papers

The Intergenerational Elasticity of Earnings: Exploring the Mechanisms

with Uta Bolt, Jamie Hentall MacCuish and Cormac O'Dea (Revise & Resubmit, Journal of Political Economy)

ABSTRACT: How do family circumstances during childhood, parental time and school quality investments, skills, and educational attainment contribute to the persistence of earnings across generations? Building on a classic literature in sociology and a more recent literature in economics, our model allows each of the above variables to affect lifetime earnings directly, as well as through their contribution to human capital formation. The model allows us to decompose the intergenerational elasticity of earnings (IGE) into its drivers. Using data from a British cohort followed from birth to age 55, we show the above variables explain most of the IGE. A key driver is the higher levels of parental investments received by children of high income parents which result in greater cognitive development.

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Forecasting Dementia Incidence

with Jerome R. Simons, Yuntao Chen, Eric Brunner

ABSTRACT: This paper estimates the stochastic process of how dementia incidence evolves over time. We proceed in two steps: first, we estimate a time trend for dementia using a multi-state Cox model. The multi-state model addresses problems of both interval censoring arising from infrequent measurement and also measurement error in dementia. Second, we feed the estimated mean and variance of the time trend into a Kalman filter to infer the population level dementia process. Using data from the English Longitudinal Study of Aging (ELSA), we find that dementia incidence is no longer declining in England. Furthermore, our forecast is that future incidence remains constant, although there is considerable uncertainty in this forecast. Our two-step estimation procedure has significant computational advantages by combining a multi-state model with a time series method. To account for the short sample that is available for dementia, we derive expressions for the Kalman filter’s convergence speed, size, and power to detect changes and conclude our estimator performs well even in short sample.

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The Dynamic Effects of Health on the Employment of Older Workers: Impacts by Gender, Country, and Race

with Richard Blundell, Jack Britton, Monica Costa Dias and Weijian Zou

ABSTRACT: Using data from the Health and Retirement Study (HRS) and the English LongitudinalStudy of Ageing (ELSA), we estimate the impact of health on employment for individuals close to retirement age. Estimating the model separately by race and gender, we find that racial differences in employment can be partly explained by the worse health of minorities aswell as the larger impact of health on employment for minorities.

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Genetic Endowments and Lifetime Earnings: Understanding the Mechanisms

with Uta Bolt, Varun Warrier, Qianyu Yang and Weilong Zhang

ABSTRACT: This paper investigates how genetic endowments influence lifetime earnings using a dynamic lifecycle model and longitudinal data from a cohort tracked from birth to retirement. We examine genetic impacts on skill formation as well as choices of parental investments, educational attainment, and occupation. A one standard deviation increase in the polygenic score for educational attainment raises lifetime earnings by 18.9%. Although part of this effect is due to genetic endowments impacting skill formation, the majority is due to genetic endowments impacting choices. Extending our analysis to include polygenic scores for additional traits reveals other channels through which they operate. Furthermore, our estimates show that genetic endowments and investments are substitutes in the production of earnings during early childhood but are complements later in life, highlighting the crucial importance of early-life interventions to effectively mitigate genetic inequalities.

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On the Distribution and Dynamics of Medical Expenditure among Older Households

with Karolos Arapakis, John Jones and Jeremy McCauley

ABSTRACT: Using data from the Health and Retirement Study linked to administrative Medicare and Medicaid records along with the Medical Expenditure Panel Survey, we estimate the stochastic process for total and out-of-pocket medical spending. By focusing on dynamics, we consider not only the risk of catastrophic expenses in a single year, but also the risk of moderate but persistent expenses that accumulate into a catastrophic lifetime cost. We assess the reduction in out-of-pocket medical spending risk provided by public insurance schemes such as Medicare or Medicaid. We find that although Medicare and Medicaid pay the majority of medical expenses, households at age 65 will incur, on average, $59,000 in out-of-pocket costs with 10% of households incurring more than $121,000 in out-of-pocket expenses over their remaining lives.

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Imagine your Life at 25: Children’s Gender Attitudes and Later-Life Outcomes

with Sreevidya Ayyar, Uta Bolt and Cormac O’Dea

ABSTRACT: Using a digitized sample of thousands of essays written by 11-year-olds in 1969, we construct an index which measures the extent to which girls' imagined futures conform to gender norms in Britain at the time. We link this index to outcomes over the life-cycle. Conditional on a large set of age-11 covariates, a one standard deviation increase in our index is associated with a decrease in lifetime earnings of 3.5%, due to both lower wages and fewer hours worked. Half of this earnings decline is mediated by reduced educational attainment, selection into lower-paid occupations, and earlier family formation of those who conform more strongly to prevalent gender norms. Holding skills constant, girls whose essays conform less to gender norms, live in regions with higher female employment and educational attainment. This highlights that the wider environment in which girls grow up shapes gender conformity.

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Intergenerational Altruism and Transfers of Time and Money: A Lifecycle Perspective

with Uta Bolt, Jamie Hentall-MacCuish and Cormac O'Dea

ABSTRACT: Parental transfers of time, education, and money shape intergenerational mobility. Using panel data from birth to retirement, we estimate child skill production functions and embed them in a dynastic model of parental investment. We find that parental time investments have a dual purpose: investments increase children’s human capital, but parents also enjoy time spent with children more than work. We then assess the effects of relaxing intergenerational borrowing constraints via student loans: student loans reduce persistence in earnings and education and raise parental welfare. However, while children newly able to attend college experience welfare gains, on average the higher debt levels reduce children’s welfare.

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The Dynamic Effects of Health on the Employment of Older Workers

with Richard Blundell, Jack Britton and Monica Costas Dias

ABSTRACT: Using data from the Health and Retirement Study (HRS) and the English Longitudinal Study of Ageing (ELSA), we estimate a dynamic model of health and employment. We estimate how transitory and permanent health shocks a.ect employment over time. We .find that permanent shocks have much bigger effects on employment than transitory shocks, and that these permanent shocks are long lived. We also show that accounting for these facts lead to larger estimates of the effect of health on employment than what simple OLS estimates of health on employment would imply.

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Medical Spending Risk among Retired Households by Race

with Karolos Arapakis, John Jones and Jeremy McCauley

ABSTRACT: Using data from the Health and Retirement Study linked to Medicare and Medicaid administrative records, we examine how total and out-of-pocket medical expenditures by older households vary across race, both annually and over their remaining lifespans. We find that in any given year all races have similar total expenditures, with most differences attributable to age, education, income, and household structure. Because they have shorter lifespans, lifetime medical spending is lower for individuals in Black households than for those in white or Hispanic households. Black and Hispanic households spend less out of pocket than white households. This largely reflects higher Medicaid recipiency rates stemming from their lower economic resources. At age 65, white households will on average incur around $100,000 in out-of-pocket medical spending (excluding insurance premia) over the remainders of their lives. The corresponding quantities for Black and Hispanic households, who are better insured by Medicare and Medicaid, are $48,000 and $42,000, respectively.

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How redistributive are public health care schemes? Evidence from Medicare and Medicaid in old Age

with Karolos Arapakis, John Jones and Jeremy McCauley

ABSTRACT: Most health care for the US population aged 65 and older is publicly provided through Medicare and Medicaid. Despite the massive expenditures of these systems, little is known about how redistributive they are. Using data from the Health and Retirement Study, matched to administrative Medicare, Medicaid, and Social Security earnings records, we estimate the distribution of lifetime Medicare and Medicaid benefits received and the distribution of lifetime taxes paid to finance these benefits. For the cohort who turned 65 in 1999-2004, we find that benefits are greater among the high income, in large part because they live longer. Nonetheless, high income people pay more in the way of taxes. Middle income households gain the most from these programs, as these people live long yet pay modest taxes. All income groups gain from these programs: this cohort’s lifetime tax contribution did not cover the medical benefits it received. This deficit must be paid by younger cohorts.

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Insurance Purchases of Older Americans

with Karolos Arapakis, John Jones and Jeremy McCauley

ABSTRACT: Using data from the Health and Retirement Study (HRS) matched to administrative Medicare and Medicaid records, and also the Medical Expenditure Panel Survey (MEPS), we estimate the determinants of Medigap insurance purchases of older Americans. Our data and framework allow us to consider multiple reasons individuals do not purchase Medigap insurance: (i) adverse selection caused by those in poorer health purchasing Medigap; (ii) crowd out due to Medicaid insurance coverage or the option to default on medical debt; (iii) behavioral factors such as risk tolerance and cognition. We find that those who purchase Medigap spend approximately $2,300 more than those who do not. However, we find no evidence that this higher spending is caused by adverse selection in this market and only modest evidence that crowd out and behavioral factors are important for understanding Medigap purchases. Our results are consistent with the view that this higher spending is caused by moral hazard driven by the coinsurance provided by Medigap.

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The Effect of the Affordable Care Act on the Labour Supply, Savings and Social Security of Older Americans

with John Jones and Hans-Martin von Gaudecker

ABSTRACT: This paper assesses the effect of the Affordable Care Act (ACA) on the labor supply of Americans ages 50 and older. Using data from the Health and Retirement Study and the Medical Expenditure Panel Survey, we estimate a dynamic programming model of retirement that accounts for both saving and uncertain medical expenses. Importantly, we model the two key channels by which health insurance rates are predicted to change: the Medicaid expansion and the subsidized private exchanges.

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Comparing Death Data from the Social Security Administration and the National Center for Health Statistics, 1990-2013

with Bernard Black, Jeremy McCauley, Leticia Faria de CarvalhoNunes and Jae Song

ABSTRACT: In the past, the best source for U.S. mortality information has been the National Death Index (NDI). The Social Security Administration (SSA)’s restricted access “Numident” file and the publicly available Death Master File (DMF) have been substantially less complete. We report evidence that the SSA Numident file has substantially improved in recent years. For those ages 20 and older, the Numident data now approaches the NDI in completeness; the two datasets are nearly equivalent for ages 60 and older. However, this good news applies only to the Numident file, which is not publicly available and is thus only sometimes available to researchers. Legal changes governing which Numident deaths are reported in the DMF have made more recent versions of the DMF highly incomplete and unusable for research purposes.

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