Abstract: We document systematic differences in wage and earnings inequality both between and within occupations and show that these differences are intimately related to systematic differences in labor supply across occupations. We then develop a variant of a Roy model in which earnings are a non-linear function of hours, with the extent of this non-linearity differing across occupations. In our theory, the interplay between heterogeneity in tastes for leisure and occupational differences in non-linearities affects the sorting of workers. Moreover, this interplay is crucial to account for the facts on the distributions of hours, wages, and earnings within and across occupations.


Abstract: What are the aggregate effects of informality in a financially constrained economy? We develop and calibrate an entrepreneurship model to data on matched employer-employee from both formal and informal sectors in Brazil. The model distinguishes between informality on the business side (extensive margin) and the informal hiring by formal firms (intensive margin). We find that when informality is eliminated along both margins, aggregate output increases 9.3%, capital 14.7%, TFP 5.4%, and tax revenue 37%. The output and TFP increases would be much larger if informality were only eliminated on the extensive margin, a result that supports the view that the informal economy can play a positive role in an economy with financial frictions. Finally, we find that the output cost of financing social security in our baseline model is about twice as large as the one in an economy with no frictions.


Abstract: Goldin (2014) offers a narrative in which gender differences in home production responsibilities create gender gaps in labor market outcomes. We carry out a model based quantitative assessment of this narrative and find that empirically reasonable gender differences in home production time account for a significant share of gender gaps in three labor market outcomes: occupational choice, wages, and hours. Our analysis emphasizes two key elements not highlighted by Goldin (2014). One is heterogeneity in comparative advantage. This feature generates selection effects that are crucial for the model to be consistent with the fact that the gender wage gap is uncorrelated with occupational mean hours. Second, we explicitly model multi-member households that make joint decisions about occupational choice and hours of market work. Family interactions are a quantitatively important source of amplification. Gender differences in non-market responsibilities can have important aggregate effects on welfare and productivity, similar to those emphasized by Hsieh et al. (2019).


Abstract: I assess the macroeconomic and redistributive effects of tax reforms aimed at increasing tax revenue in Spain.  To this end, I develop a theory of entrepreneurship that mimics key facts on the wealth and income distribution in Spain. I find two reforms that raise fiscal pressure in Spain to the average value among countries in the Euro area. The first reform involves doubling the average effective tax rate on personal income (labor and business income) for all individuals whose income is above a threshold level. I find that this reform reduces the inequality in after-tax income, wealth, and consumption. However, it implies a substantial GDP reduction. The second reform increases the flat tax rate on consumption by fifteen percentage points. While this reform does not reduce long-run output, it does not decrease household inequality. All in all, the desirability of the two reforms depends on the government’s preferences for reducing inequality at the expense of aggregate output losses.


Abstract: We build a heterogeneous life-cycle model which captures a large number of salient features of individual male labor supply over the life cycle, by education, both along the intensive and extensive margins. The model provides an aggregation theory of individual labor supply, firmly grounded on individual-level micro evidence, and is used to study the aggregate labor supply responses to changes in the economic environment. We find that the aggregate labor supply elasticity to a transitory wage shock is 1.75, with the extensive margin accounting for 62% of the response. Furthermore, we find that the aggregate labor supply elasticity to a permanent-compensated wage change is 0.44.


Abstract: This paper measures how much of the gender wage gap over the  lifecycle is due to the  fact that working hours are lower for women than for men. We build a quantitative theory of fertility, labor supply, and human capital accumulation decisions to measure gender differences in human capital investments over the lifecycle. We assume tha tthere are no gender differences in the human capital technology and calibrate this technology using wage–age profiles of men. The calibration of females assumes that children involves a forced reduction in hours of work that falls on females rather than on males and that there is an exogenous gender gap in hours of work. We find that our theory accounts for all of the increase in the gender wage gap over the lifecycle in the NLSY79 data. The impact of children on the labor supply of females accounts for 56% and 45% of the increase in the gender wage gap over the lifecycle among non-college and college females, while the rest is due to the exogenous gender differences in hours of work. 


Abstract: There are substantial cross-country differences in labor supply late in the life cycle (age 50+). A theory of labor supply and retirement decisions is developed to quantitatively assess the role of social security, disability insurance, and taxation for understanding differences in labor supply late in the life cycle across European countries and the United States. The findings support the view that government policies can go a long way towards accounting for the low labor supply late in the life cycle in the European countries relative to the United States, with social security rules accounting for the bulk of these effects.


Abstract: There are substantial cross-country differences in labor supply late in the life cycle (age 50+). A theory of labor supply and retirement decisions is developed to quantitatively assess the role of social security, disability insurance, and taxation for understanding differences in labor supply late in the life cycle across European countries and the United States. The findings support the view that government policies can go a long way towards accounting for the low labor supply late in the life cycle in the European countries relative to the United States, with social security rules accounting for the bulk of these effects.


Abstract: We compute the welfare effects of different revenue-neutral tax reforms that eliminate capital income taxation in two general equilibrium models calibrated to the U.S. economy. In our dynastic model, the reform with the largest welfare gain is the one that eliminates all income taxation and increases the consumption tax to 35%; 75% of the population alive at the time of the reform benefit from it. Individuals use intervivos transfers and bequests to redistribute the long-run benefits. In a pure life-cycle economy that lacks this redistribution technology, we find that the same reform would benefit only 9% of the population.


Abstract: This chapter discusses the welfare effects of reforming social security by introducing Personal Security Accounts (PSA) and mandatory annuitization. There are three economic features that enhance the success of social security reform: operative bequest motives, flexible labor markets, and weak linkage between contributions and benefits. As government budgets in the countries in the Organization for Economic Cooperation and Development (OECD) are spent in old-age, disability, health, and unemployment insurance programs, demographic projections indicate a significant increase in the next few decades. The chapter highlights an explanation on PSA without annuitization, PSA with mandatory annuitization, government budget, preferences, and steady-state equilibrium, among others. It also presents a detailed model that includes calibration, numerical results, as well as conclusive commentaries.


Abstract: Much of the existing literature on social security has taken the extreme assumption that individuals have little or no altruism; this paper takes an opposite assumption that there is full two-sided altruism. When households insure members that belong to the same family line, privatizing social security can gain public support. In our benchmark model calibrated to the U.S. economy, privatization without compensation is favoured by 52% of the population. If social security participants are fully compensated for their contributions, and the transition to privatization is financed by a combination of debt and a consumption tax, 58% experience a welfare gain. These gains and the resulting public support for social security reform depend critically on a flexible labour market. If the labour supply elasticity is low, then support for privatization disappears.


Abstract: We develop a quantitative theory of fertility and labor market participation decisions in order to investigate the role of labor market frictions in generating the observed positive association between fertility and employment among O.E.C.D. countries. We find that unemployment induces females to postpone and space births, which, in turn, reduces the total fertility rate. Moreover, differences in female labor outcomes across the United States and Spain can account for the low fertility rate in Spain relative to the United States. We also find that labor market frictions can generate a positive association between female employment ratios and fertility rates across economies. Copyright 2006 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.


Abstract: This paper studies the impact of an unfunded social security system on the distribution of altruistic transfers in a framework where savings are due to both life cycle and random altruistic motivations. We show that the effect of social security on the distribution of these transfers depends crucially on the strength of the bequest motive in explaining savings behaviour. We measure this strength by the expected weight that individuals attach to the utility of future generations. On the one hand, if the bequest motive is strong, then an increase in the social security tax raises the bequests left by altruistic parents. On the other hand, when the importance of altruism in motivating savings is sufficiently low, the increase in the social security tax could result in a reduction of the bequests left by altruistic parents under some conditions on the attitude of individuals toward risk and on the relative returns associated with private saving and social security. Some implications concerning the transitional effects of introducing an unfunded social security scheme are also discussed. 


Abstract: In this article, we study the welfare effects of unfunded social security in a general equilibrium model populated with overlapping generations of altruistic individuals that differ in lifetime expectancy and earnings ability. Contrary to previous research, our results indicate that steady-state welfare increases with social security for most households, although by very different amounts. This result is mainly due to two factors. First, the presence of two-sided altruism significantly mitigates the crowding out effect of unfunded social security. Second, ability shocks and uncertain lifetimes generate significant heterogeneity among households to yield different induced preferences for social security. 


Abstract: A striking observation of the U.S. and other labor markets is the weak position of women in terms of job attachment, employment, and earnings relative to men. We develop a model of fertility and labor market decisions to study the impact of fertility on gender differences in labor turnover, employment, and wages. In our framework, individuals search for jobs and accumulate general (experience) and specific (tenure) human capital when they work. They can also increase their wage by moving to a job of higher quality. Labor market decisions (e.g., job acceptance and job mobility) may differ across genders: females that give birth may decide to interrupt their labor market attachment in order to enjoy the value of staying at home with their children. The model economy is successfully calibrated to match aggregate statistics in terms of fertility, employment, and wages. We find that fertility decisions generate important gender differences in turnover rates, with long lasting effects in employment and wages. These differences in labor turnover account for almost all the U.S. gender wage gap that is attributed to labor market experience by Blau and Kahn (2000, Journal of Labor Economics 15 (1), 1-42). The model also implies a very small role of tenure capital in accounting for wage differences between males and females (gender gap), and between females with and without children (family gap).


Abstract: This paper studies how the lack of an annuities market affects savings behavior and intergenerational transfers in a dynastic overlapping generations economy. I find that the answer to this question depends crucially on altruism. On the one hand, if the altruistic bequest motive is operative, then the lack of annuity markets enhances capital accumulation. On the other hand, if the altruistic bequest motive is not operative, the absence of annuity markets can either increase of decrease aggregate savings. I characterize under which conditions capital accumulation is enhanced. I also prove that an overlapping generations economy with altruism and uninsurable lifetime risk faces capital overaccumulation relative to the Modified Golden rule. The efficient allocation corresponding to the Modified Golden rule can be decentralized as a competitive equilibrium by a pay-as-you-go social security system, and this can only be done if individuals are altruistic.

 

Abstract: This paper quantifies the effects of social security on capital accumulation and wealth distribution in a life-cycle framework with altruistic individuals. The main findings of this paper are that the current U.S. social security system has a significant impact on capital accumulation and wealth distribution. I find that social security crowds out 8% of the capital stock of an economy without social security. This effect is driven by the distortions of labor supply due to the taxation of labor income rather than by the intergenerational redistribution of income imposed by the social security system. In contrast to previous analysis of social security, I found that social security does not affect the savings rate of the economy. Another interesting finding is that even though the current U.S. social security system is progressive in its benefits, it may lead to a more dispersed distribution of wealth.


Abstract: This paper studies the effects of uncertain lifetime on capital accumulation and growth and also the sensitivity of those effects to the existence of a perfect annuities market. The model is an overlapping generations model with uncertain lifetimes. The technology is convex and such that the marginal product of capital is bounded away from zero. A contribution of this paper is to show that the existence of accidental bequests may lead the economy to an equilibrium that exhibits asymptotic growth, which is impossible in an economy with a perfect annuities market or with certain lifetimes. This paper also shows that if individuals face a positive probability of surviving in every period, they may be willing to save at any age. This effect of uncertain lifetime on savings may also lead the economy to an equilibrium exhibiting asymptotic growth even if there exists a perfect annuities market.


Non-refereed Publications