Three Essays on Macroeconomics and Income Inequality
Dissertation Committee
Prof. Xavier Fairise (thesis advisor)
Prof. Francois Langot (thesis co-advisor)
Prof. Alexandre Popier (thesis co-advisor)
Prof. Yannick L’Horty (referee)
Prof. Fabien Tripier (referee)
Prof. Julien Albertini (member of the jury),
Prof. Thepthida Sopraseuth (member of the jury)
Prof. Anthony Terriau (chair)
Summary
This thesis examines intergenerational income mobility, the sustainability of the pension system, and labor protection policies in the United States. Despite covering seemingly different topics, they are all analyzed through the lens of income and wealth inequalities using macroeconomic tools. Furthermore, education emerges as a crucial determinant across all three chapters, shaping the results. The link between education, income, and wealth inequalities is indeed fundamental. Chapter one, measures the evolution of intergenerational income and educational mobility and whether access to opportunities in the American economy has become more open over time. We provide estimates for intergenerational income elasticities, rank-rank income correlations, and educational-income transition matrices using the two cohorts of the National Longitudinal Survey of Youth (1979, 1997) administered by the Bureau of Labor Statistics of the United States. We find that since the 1980s, educational mobility, both upward and downward, has increased. This suggests that the American system manages to provide the same educational opportunities to all children regardless of their parents' education level. We also find that the impact of the income rank of parents without a university degree is very low on the income rank of their children. Chapter two introduces a heterogeneous agent model to understand pension system sustainability in the context of increasing life expectancy and a lowering dependency ratio. We explore various reform options, including adjustments to income tax rates, pension levels, and retirement age. We take into account the evolution of educational attainment and the average career development linked to employment experience, distinguishing between the labor market for graduates and non-graduates. We find that variations in income tax and pension rates increase distortions in labor supply, reducing work-related remuneration. These adjustments also tend to increase the probability for youths to be financially constrained. However, the distortions in labor supply vanish when increasing the retirement age, but this raises the problem of optimal time allocation between work and leisure over the life cycle. The increase in education level does not significantly affect fiscal budget sustainability, even though it allows a significant increase in GDP. Adjustments via tax increases or pension reductions increase wealth inequalities, which are higher when raising the retirement age. Chapter three addresses how variations in employment protection regulations across US states affect wage differentials between educational categories. These effects appear influenced by workers' education levels. The evolution of the college-wage premium, a measure of education returns, has shown a fluctuating trend in the United States. Alongside the steep increase in the college-wage premium during the period 1977-1997, the US also experienced a rise in firing costs during the same period. Several exceptions to the employment-at-will policy were introduced between 1977-1997. The employment-at-will policy allows employers to discharge or retain employees at will, with or without cause. Increasing employment protection may prompt firms to lower their dismissal threshold, potentially reducing average job productivity and wages. Furthermore, the arrival of idiosyncratic shocks may be higher for less and highly educated workers due to deteriorating labor market conditions and high volatility, respectively. I find that rising firing costs negatively affect wages within selected states, with the extent of these effects varying by education level. There is a particularly strong negative effect for individuals with greater-than-college education and high school dropouts. From a theoretical perspective, firing costs negatively impact equilibrium wages for incumbent workers.