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 education, skills, investments of parental time and school quality, and family circumstances during childhood 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 representative British cohort followed from birth to age 55, we show the above variables explain most of the IGE. A key driver is the increased levels of parental investments received by children of high income parents early in their lives, and the resulting cognitive development.

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Labor Supply and the Pension Contribution-Benefit Link

with Attila Lindner, Cormac O’Dea and Tom Zawisza (Revise & Resubmit, Review of Economic Studies)

ABSTRACT: We estimate the impact of public pension incentives on labor supply far from the normal retirement age by exploiting Poland’s switch from a Defined Benefit to a Notional Defined Contribution scheme for men born after 1948. Using the universe of taxpayers and this sharp cohort-based discontinuity in the link between current contributions and future benefits, we estimate an employment elasticity with respect to the return to work of 0.44 for ages 51-54. We estimate a lifecycle model that matches these results. The model implies that the change in the contribution-benefit link from the reform increases employment among those in their 30s but decreases it at older ages, reducing overall labor supply across the lifecycle by two months.

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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 investments significantly impact children’s outcomes. Exploiting panel data covering individuals from birth to retirement, we estimate child skill production functions and embed them into an estimated dynastic model in which altruistic mothers and fathers make investments in their children. We find that time investments, educational investments, and assortative matching have a greater impact on generating inequality and intergenerational persistence than cash transfers. While education subsidies can reduce inequality, due to an estimated dynamic complementarity between time investments and education, it is crucial to announce them in advance to allow parents to adjust their investments when their children are young.

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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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Projections of socioeconomic costs of dementia in China 2020-2050: modelling study

with Yanjuan Wu and others

ABSTRACT: This study measured current and projected future socioeconomic costs (healthcare, formal care, and informal care costs) and quality adjusted life years (QALYs) lost to dementia in China, and assesses drivers of these costs. We synthesized health and demographic trends by a Markov model, using data from China Health and Retirement Longitudinal Study and Chinese Longitudinal Healthy Longevity Survey. We decomposed socioeconomic costs changes (2018 US$) into population growth, population ageing, dementia prevalence and average socioeconomic costs per case. Socioeconomic costs and the value of QALYs lost to dementia will reach $1,233 and $702 billion by 2050, rising by 563% and 457% over 2020-2050. Informal care is currently, and projected to remain, the largest share of socioeconomic costs. Population ageing (43%) and rising dementia prevalence (54%) drive this growth through 2050. Dementia will become an increasingly large economic burden on Chinese society.

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Relation of dementia incidence trend to dementia burden in China to 2050: macrosimulation study

with Yuyang Liu and others

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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