Thomas H. Jørgensen

LIFE will develop further the next generation of economic models, focusing on dynamic bargaining of individuals in couples in a dynamic environment. Using empirical data on savings, labor market work, childcare usage, time allocation and marriages and divorces, we will validate the appropriateness of our proposed economic laboratory. Using our framework, LIFE will investigate how not yet implemented tax and transfer policies is likely to affect the economic activity and inequality within families. 

We study how fertility decisions interact with labor supply of men and women. First, we use longitudinal Danish register data and tax reforms to show that increases in wages of women decrease fertility while increases in wages of men increase fertility. Second, we estimate a life-cycle model to quantify the importance of fertility adjustments for labor supply and long-run gender inequality. Wage elasticities of women are more than 10\% lower if fertility cannot be adjusted in our model. Finally, we show that human capital depreciation around childbirth is an important driver of the long-run gender wage gap. 

We examine whether financial incentives affect fertility and family planning. We use a reform reducing child benefits paid to larger families together with Danish longitudinal register data on the universe of legal abortions and birth control pill purchases to address this question. We find that partnered women in low-income households reduced their fertility in response to the reform, partly by increasing the use of abortions. Younger women also increased the use of oral contraceptives. Responses are largest for younger and cohabiting women compared to their married counterparts.  Our results show that family policies can affect family planning through financial incentives. 

We generalize the canonical permanent-transitory income process to allow for infrequent shocks. The distribution of income growth rates can then have a discrete mass point at zero and fat tails as observed in income data. We provide analytical formulas for the unconditional and conditional distributions of income growth rates and higher-order moments. We prove a set of identification results and numerically validate that we can simultaneously identify the frequency, variance, and persistence of income shocks. We estimate the income process on monthly panel data of 400,000 Danish males observed over 8 years. When allowing shocks to be infrequent, the proposed income process can closely match the central features of both monthly and annual income data.

While dynamic bargaining models are growing in popularity, the rich model environments come with a computational burden. We address these difficulties by proposing the interpolated endogenous grid method (iEGM) -- an alternative implementation of the standard EGM -- that approximates the inverse marginal utility function through interpolation. We showcase the performance of our method relative to standard approaches through an example of dynamic consumption allocation in which household members bargain with limited commitment. The iEGM is around 15 times faster than the standard EGM and 50 times faster than traditional value function iterations (VFI), without loss of accuracy. We also provide several computational strategies, including a fast bargaining algorithm, to further reduce solution time. All code used to generate the results are available through our web pages.