Research

The Heterogeneous Effects of COVID-19 on Canadian Household Consumption, Debt and Savings (Canadian Journal of Economics, 2022)

With James MacGee and Kurt See.

Abstract:  This paper develops an agent-based model (ABM) to quantify the impact of COVID-19 on household debt and savings. To build a representative cross-section of households who vary by income, debt portfolios and consumption baskets, we merge data from the Survey of Household Spending (SHS) and the Survey of Financial Security (SFS). We construct paths for consumption and employment over the crisis, accounting for heterogeneous risk of unemployment across demographics, government transfers, and substitution between expenditure categories that vary in contact-intensity. Our model simulations yield a heterogeneous effect of COVID-19 across the income distribution. Low-income households face the highest risk of unemployment, but transfers provide generous income replacement. Middle-income job-losers see the fastest rise in debt as transfers only partially replace lost income. Most unplanned savings are accumulated by high-income households who face lower risk of unemployment and larger declines in hard-to-distance spending. We find the rise in savings could generate a brief jump of nearly 6% of monthly consumption.

Link to Canadian Journal of Economics. Link to Bank of Canada Staff Working Paper. (earlier version) 

Additional Consumption Analysis Data Analysis can be found here.

Saving after Retirement and Preferences for Residual Wealth

With Giulio Fella and Martin Blomhoff-Holm.

Abstract:  We use administrative data for Norway to estimate an incomplete-market life-cycle model of retired singles and couples with a bequest motive, health-dependent utility, and uncertain longevity and health. We allow the parameters of the bequest utility to differ between households with and without offspring. Our estimates imply a very strong utility of residual wealth (bequest motive), in line with the estimates by Lockwood (2020). The bequest motive accounts for approximately three-quarters of aggregate wealth at age 85. More surprisingly, we estimate similar utility of residual wealth for households with and without offspring. We interpret this as, prima facie, evidence that the utility of residual wealth represents forces beyond an altruistic bequest motive

Link to Bank of Canada Staff Working Paper; Institute of Fiscal Studies working paper.

Uncovering the Differences among Displaced Workers: Evidence from Canadian Job Separation Records.

With Serdar Birinci, Youngmin Park and Kurt See

Abstract:  We revisit the measurement of the sources and consequences of job displacement using Canadian job separation records. To circumvent administrative data limitations, conventional approaches address selection by identifying displacement effects through mass-layoff separations, which are interpreted as involuntary. We refine this procedure and find that only a quarter of mass-layoff separations are indeed layoffs. Isolating mass-layoff separations that reflect involuntary displacement, we find twice the earnings losses relative to existing estimates. We uncover heterogeneity in losses for separations with different reason and timing, ranging from 15 percent for quits after a mass layoff to 60 percent for layoffs before it. 

Federal Reserve Bank of St. Louis working paper; Bank of Canada Staff Working Paper. 

The Fundamental Heterogeneity of Entrepreneurs (Working Paper)

With Xing Guo and Christian Bustamante.

Abstract: we study the link between individual characteristics of entrepreneurs and the firms they start to explain the persistence of ex-ante heterogeneity in the firm size distribution, and the dynamics of personal wealth and inequality that result through a heterogeneous model of entrepreneurship occupational choice.

Wealth and Mobility: Superstars, Returns Heterogeneity and Preferences

Abstract: The wealthy hold a large fraction of total wealth but to what extent do they stay wealthy over time and why? There is high mobility at the top of the distribution where around 30% of the top 1% leave the category in 2 years, and a quarter of the top 1\% lose more than a third of their wealth, using the longitudinal UK Wealth and Assets Survey. Entrepreneurs are an engine of social mobility more likely to rise to the top and to fall from it. I examine theoretical explanations for the right tail distribution of wealth versus the data. In estimation, heterogeneous returns to wealth including difference for entrepreneurs is necessary to generate sufficient mobility and inequality, simultaneously changing stocks of wealth and future saving through expected persistence in wealth returns, generating very large downwards mobility.

Link to latest paper (in progress and often incomplete!), earlier paper,  slides for presentation

Hand to Mouth Dynamics (Working Paper)

With Felipe Alves, Colin Grimes, Soyoung Lee and Jim MacGee.

Abstract:  Wealthy hand to mouth households (WHTM), those with little liquid assets but significant illiquid wealth, form a large part of the population (30-40%). However, we still do not know the circumstances and choices that lead households to become WHTM, or how they stop being so. We use a number of longitudinal datasets to track hand to mouth households over time, documenting whether those leaving and entering at different lifecycle stages have different distributions of wealth, income and demographic features, thereby identifying mechanisms behind low liquidity holdings. 

We find that 40% of hand-to-mouth status households leave the status after just 2 years and that there are substantial differences in the probabilities of entry and exit to and from poor and wealthy hand to mouth groups. Using a methodology adapted from Elsby et al’s (2015) work in unemployment, we attribute lifecycle variation in the size of the hand to mouth groups to different flows, finding that changes in the poor hand-to-mouth come almost entirely from fluctuations in entry probabilities by age, not in exit likelihood, and the hump-shaped wealthy hand to mouth profile is largely sourced from changes in entry probabilities by age.