wages experience and seniority in this paper we study the sources of wage growth we identify the contribution to such growth of general sector specific and firm specific human capital our results are interpretable within the context of a model where the returns to human capital may be heterogeneous and where firms may offer different combinations of entry level wages and firm specific human capital development we allow for the possibility that wages are match specific and that workers move jobs as a result of identifying a better match to estimate the average returns to experience sector tenure and firm specific tenure within this context we develop an identification strategy which relies on the use of firm closures our data source is a new and unique administrative data set for germany that includes complete work histories as well as individual characteristics we find positive returns to experience and firm tenure for skilled workers the returns to experience for unskilled workers are small and insignificant after 2 years of experience their returns to sector tenure are also zero however their returns to firm tenure are substantial in this paper we study the growth of wages of young workers in germany knowing the extent and reasons for individual wage growth over the life cycle is important for a number of areas in economics just to mention two examples first it is a key element to understanding and designing active labour market programmes many such programmes offer temporary and often subsidized work opportunities examples are the new deal in the u k and the swedish programmes as well as a number of programmes in germany these programmes are based on the assumption that general skills are sufficiently enhanced while working so as to render the workers employable without a wage subsidy thus the success of these programmes depends on how skills improve on the job for the target population and whether this skill enhancement is transferable across jobs second it is a key to understanding the benefits and costs of job mobility this in turn matters for a number of policy issues including the design of pension policies relating for example to final salary schemes as a result of this widespread interest a large body of empirical research has focused on obtaining estimates for the returns of experience and seniority 1 our study uses a new and unique administrative data set with a number of features that are important for our analysis and allow us to avoid many problems encountered in earlier work in this field in our model wages grow due to learning by doing which may be heterogeneous across individuals moreover since firms offer different career profiles and because we allow for match specific effects on wages investments take the form of searching for the firm with the most desirable learning by doing characteristics career structure 2

politics and efficiency of separating capital and ordinary government budgets we analyze a golden rule that separates capital and ordinary account budgets and allows a government to finance only capital items with debt many national governments followed this rule in the eighteenth and nineteenth centuries and most u s states do today we study an overlapping generations economy where majorities choose durable and nondurable public goods in each period when demographics imply even moderate departures from ricardian equivalence the golden rule substantially improves efficiency examples calibrated to u s demographics show greater improvements at the state level or with nineteenth century demographics than under current national demographics

do pensions foster education an empirical perspective the paper examines the effect of population ageing on public education spending on the one hand ageing is expected to have a negative effect on education as an increasing number of retirees resu

social security public education and the growth inequality relationship abstract we study how the relationship between economic growth and inequality depends upon the levels of funding of two of the largest government programs public education and social security we do this in the context of an overlapping generations economy with heterogeneous agents where the government collects a tax on labor income to finance these programs we show that in our model an increase in government spending on social security reduces income inequality and can have a non monotonic effect on growth when the initial level of social security funding is low as is the case in most poor economies then its increase will enhance growth when its funding level is high as is typical for developed countries we show that its further increase can slow down growth while reducing income inequality these results obtain regardless of whether the increase in social security funding is financed by a tax increase or by cutting the public education budget we also find that the effects of increasing the level of public education expenditures or the overall size of the government budget holding the budget composition fixed are characterized by similar non monotonic growth inequality relationships

the family and the state the immaturity of children sometimes precludes efficient arrangements between children and parents or others responsible for child care the difficulty in establishing efficient relations within families provides the point of departure for our interpretation of the heavy state involvement in the family the authors believe that a surprising number of state interventions mimic the agreements that would occur if children were capable of arranging for their care many regulations of the family improve the efficiency of family activities these interventions include subsidies to education and training social security and other old age support subsidies to births laws that limit access to divorce and the sale of children and laws that require parents permission for early marriage and other choices of children families that leave bequests can force children to repay parents for investments in human capital by reducing bequests therefore these families do not underinvest in childrens human capital by contrast families that do not leave bequests often poorer families do underinvest in children the state may subsidize schools and other training facilities to raise investments in children by poorer families to efficient levels authors modified

the political intergenerational welfare state abstract using a three period overlapping generations economy framework we characterize an intergenerational welfare state with endogenous education and pension under voting we show that although politically establishing pay as you go payg social security in isolation in a dynamically efficient economy will always reduce the capital investment and therefore the social welfare as expected in contrast politically implementing education pension policy package instead can improve both human and physical capital accumulation and social welfare over laissez faire however for this the political influence of the old has to be small thus limiting the size of the payg social security program

wages mobility and firm performance advantages and insights from using matched worker firm data to illustrate the wide applicability of longitudinal matched employer employee data we study the simultaneous determination of worker mobility and wage rates using an econometric model that allows for both individual and firm level heterogeneity the model is estimated using longitudinally linked employer employee data from france structural results for mobility show remarkable heterogeneity with both positive and negative duration dependence present in a significant proportion of firms the average structural returns to seniority are essentially zero but this result masks enormous heterogeneity with positive seniority returns found in low starting wage firms

optimal education and pensions in an endogenous growth model it is well known that in olg economies with life cycle saving and exogenous growth competitive equilibria will in general fail to achieve optimality and may even be dynamically ineefficient this is a consequence of individuals accumulating amounts of physical capital that differ from the level which would maximize welfare along a balanced growth path the golden rule with human capital a second potential source of departure from optimality arises to wit individuals may not choose the correct amount of education investment however the golden rule concept widely used in exogenous growth frameworks has not found its way into endogenous growth models in this paper we propose to recover the golden rule of physical and also human capital accumulation the optimal policy to decentralize the golden rule balanced growth path when there are no constraints for individuals to nance their education investments is also characterized it is shown that it involves positive pensions and negative education subsidies i e taxes

job displacement relative wage changes and duration of unemployment using special cps data on displaced workers this article investigates the wage consequences of job displacement in a framework that emphasizes the effects of past job duration s and unemployment duration s on postdisplacement wages our model also attempts to take account of the simultaneity between unemployment duration and the postdisplacement wage it is found that duration strongly reduces subsequent earnings and that considerable overstatement of the loss in firm specific training investments is implied by conventional routes to measuring wage losses

socially optimal social security and education subsidization in a dynastic model with human capital externalities fertility and endogenous growth abstract this paper considers socially optimal government policies in a dynastic family model with physical capital human capital endogenous fertility and positive spillovers from average human capital such spillovers reduce human capital investment but raise fertility from their social optimum we first characterize the social optimum with a non convex feasible set due to the quantity quality tradeoff concerning children we then show that social security and education subsidization together financed by labor income taxes can fully eliminate the efficiency losses of the spillovers and achieve the social optimum under plausible conditions however none of the policies can do so alone

intergenerational transfers within the family in this paper we present a stylized model of private transfers within the family under alternative assumptions as to the nature of relations between parents and children we then analyze the effectiveness of public education and social security to achieve efficiency when needed

liquidity constrained markets versus debt constrained markets this paper compares two different models in a common environment the first model has liquidity constraints in that consumers save a single asset that they cannot sell short the second model has debt constraints in that consumers cannot borrow so much that they would want to default but is otherwise a standard complete markets model both models share the features that individuals are unable to completely insure against idiosyncratic shocks and that interest rates are lower than subjective discount rates in a stochastic environment the two models have quite different dynamic properties with the debt constrained model exhibiting simple stochastic steady states while the liquidity constrained model has greater persistence of shocks

social contracts as assets a possible solution to the time consistency problem this paper presents a new solution to the time consistency problem that appears capable of enforcing ex ante policy in a variety of settings in which other enforcement mechanisms do not work the solution involves formulating a social contract institution or agreement that specifies the optimal ex ante policy the social contract is effectively sold by succesive old generations to successive young generations who pay for the social contract through the payment of taxes both old and young generations have an economic incentive to fulfill the social contract for the old generation breaking the social contract makes the social contract valueless and the generation suffers a capital loss by not being able to sell it for the young generation the economic advantage of purchasing the existing social contract exceeds its price as well as the economic gain from setting up the a new social contract

the family as an incomplete annuities market families can self insure against uncertain dates of death through implicit or explicit agreements with respect to consumption and interfamily transfers interfamily transfers need have nothing to do with altruistic feelings they may simply reflect risk sharing behavior of completely selfish family members although family annuity markets are incomplete even small families can substitute by more than 70 percent for perfect market annuities given adverse selection and transaction costs family risk pooling may be preferred to public market annuities in the absence of public annuities these risk sharing arrangements provide powerful incentives for marriage and family formation

property rights and efficiency in olg models with endogenous fertility is there an economic rationale for pronatalist policies we propose and analyze a particular market failure that leads to inefficiently low fertility in equilibrium the friction is caused by the lack of ownership of children if parents have no claim on their children s income the private benefit from producing a child can be smaller than the social benefit we analyze an overlapping generations model with fertility choice and parental altruism ownership is modeled as a minimum constraint on transfers from parents to children using the efficiency concepts proposed in golosov jones and tertilt 2007 we find that whenever the transfer floor is binding fertility choices are inefficient second we show that the usual conditions for efficiency are not sufficient in this context third in contrast to settings with exogenous fertility a payg social security system cannot be used to implement efficient allocations to achieve an efficient outcome government transfers need to be tied to fertility choice

the intergenerational state education and pensions allocation is inefficient when generations overlap this failure can be mitigated by properly designed social arrangements we show that public financing of education and public pensions can be designed to implement an intergenerational transfer scheme supporting the complete market allocation neither the public financing of education nor the pension scheme we consider resemble standard ones in our mechanism via the public education system the young borrow from the middle aged to invest in human capital they pay back the debt via a social security tax the proceedings of which finance pension payments when the complete market allocation is achieved the rate of return implicit in this borrowinglending scheme should equal the market rate of return

the effect of health insurance on married female labor supply we investigate the effects of employer provided health insurance on the labor supply of married women because health benefits commonly are restricted to full time workers wives who prefer to work short hours but have no alternate source of insurance may work long hours in order to acquire coverage for their families we use data from the april 1993 current population survey benefits supplement and we exploit variation in coverage under husbands health plans to estimate the magnitude of this effect our reduced form labor supply models indicate a strong negative effect of husbands health insurance on wives work hours particularly in families with children this effect persists when we replace husbands insurance coverage with husbands offered insurance and when we use a multinomial logit model that accounts for unobserved heterogeneity in family labor supply preferences

linking consumption externalities with optimal accumulation of human and physical capital and intergenerational transfers abstract this paper opens a new perspective from which one can explain the presence of government intervention in education even in the absence of human capital externality it argues that consumption externalities can provide rationale for government intervention in education within the context of overlapping generations economy it has also been shown that competitive equilibrium either underaccumulates both physical and human capital or overaccumulates both thus the result rules out the possibility of competitive equilibrium deviating from the social optimum in its allocation of physical and human capital in opposite directions immediate policy issues have also been discussed

ageing government budgets retirement and growth we analyze the short and long run effects of demographic ageing increased longevity and reduced fertility on per capita growth the olg model captures direct effects working through adjustments in the savings rate labor supply and capital deepening and indirect effects working through changes of taxes government spending components and the retirement age in politico economic equilibrium growth is driven by capital accumulation and productivity increases fueled by public investment the closed form solutions of the model predict taxation and the retirement age in oecd economies to increase in response to demographic ageing and per capita growth to accelerate if the retirement age were held constant the growth rate in politico economic equilibrium would essentially remain unchanged due to a surge of social security transfers and crowding out of public investment

millian efficiency with endogenous fertility should governments implement policies that affect fertility decisions on efficiency grounds what is the correct notion of efficiency to use to address these issues this paper develops an extension of the notion of pareto efficiency referred to as millian efficiency to evaluate symmetric allocations in an overlapping generations setting with endogenous fertility this extension is based on preferences of those agents who are actually alive and exclusively allows for welfare comparisons of symmetric allocations first we provide necessary and sufficient conditions to determine whether an allocation is millian efficient or not and we show that the sufficient conditions for dynamic efficiency offered by cass 1972 and balasko and shell 1980 cannot be directly applied when fertility decisions are endogenous second we characterize millian efficient allocations as the equilibria of a decentralized price mechanism and we present a sufficient condition for dynamic efficiency that uses the sequence of prices associated to such decentralized equilibria finally we analyse how intergenerational policies should be designed to restore efficiency and achieve net welfare gains in two different settings in which markets yield inefficient allocations dynamic inefficiencies and financial market incompleteness regarding human capital in the former a pay as you go social security system eliminates dynamic inefficiencies provided pensions are explicitly linked with fertility decisions in the latter a specific link between social security and public education becomes a necessary condition for millian efficiency copyright wiley blackwell

the fiscal effects of immigration to the uk we investigate the fiscal impact of immigration on the uk economy with a focus on the period since 1995 our findings indicate that when considering the resident immigrant population in each year from 1995 to 2011 immigrants from the european economic area eea have made a positive fiscal contribution even during periods when the uk was running budget deficits while non eea immigrants not dissimilar to natives have made a negative contribution for immigrants that arrived since 2000 contributions have been positive throughout and particularly so for immigrants from eea countries notable is the strong positive contribution made by immigrants from countries that joined the eu in 2004

optimal accumulation in an endogenous growth setting with human capital this paper considers a three overlapping generations model of endogenous growth wherein human capital is the engine of growth it first contrasts the laissez faire and the optimal solutions three possible accumulation regimes are distinguished then it discusses a standard set of tax transfer instruments that allow for decentralization of the social optimum within the limits of our model the rationale for the standard pattern of intergenerational transfers the working aged financing the education of the young and the pension of the old is seriously questioned on pure efficiency grounds the case for generous public pensions is rather weak

peasants procreation and pensions producers and consumers durable goods yielding a stream of benefits which are compared with a stream of costs births occur if the present value of the benefits exceeds the present value of the costs the theory has been used by malthusians to rationalize the casual observation that population growth rates increase during the early stages of economic development and then perhaps fall later on as

optimal fiscal policy in the design of social security reforms the quantitative literature has documented that a privatization of the social securitysystemgenerateslargelong runwelfaregainsatthecostofwelfarelosses for transition generations in this article we maximize over the entire policy space following the optimal fiscal policy approach the resulting allocation by construction lies on the constrained pareto frontier we find that the optimal design of reforms exhibits sizeable welfare gains arising from a reduction in labor supply distortions in contrast the welfare gains coming from the reduction of savings distortions are relatively small

endogenous fiscal policy and capital market transmissions in the presence of demographic shocks abstract previous analyses of population aging mainly focused on the social security implications of the aging trend this paper addresses aging in an open economy framework with two regions that have politically responsive fiscal policy regarding education finance demographic shocks start an economic growth process but results are sensitive to a critical parameter in the model that indicates return to education spending low values of this parameter are associated with less favorable economic outcomes hence a policy implication emerges that enhancing the education system might pay off in terms of easing the negative growth and welfare consequences of expected demographic shocks

public education intergenerational transfers and fertility abstract we consider a three overlapping generations model with physical and human capital in the absence of credit markets to finance education investments the government provides public education for the young that can be financed through lump sum taxes on the middle aged and or the elderly embracing the golden rule criterion we analyse the welfare effects of public provision of education intergenerational transfers and changes in the demographic growth rate we identify sufficient conditions for welfare improvements following marginal increases in public education expenditures lump sum taxes on the middle aged and the population growth rate along a locally stable balanced growth path

two sided intergenerational transfer policy and economic development a politico economic approach we consider an overlapping generations model with public education and social security where the overall size of these policies is determined in a repeated voting game we investigate the interaction between the politically determined policies and economic development in a markov perfect equilibrium the following results are obtained first the level of human capital determines whether these policies are sustained in the markov perfect equilibrium second if the level of initial human capital is sufficiently high human capital grows forever in contrast if the level of initial human capital is low the economy might be caught in a poverty trap

forward and backward intergenerational goods why is social security good for the environment this paper studies the ability of nonmarket institutions to invest optimally in forward intergenerational goods figs such as education and the environment when agents are selfish or exhibit paternalistic altruism we show that backward intergenerational goods bigs such as social security play a crucial role in sustaining investment in figs without them investment is inefficiently low but with them optimal investment is possible we also show that making the provision of bigs mandatory crowds out the voluntary provision of figs and that population aging can increase investment in figs

the intergenerational welfare state and the rise and fall of pay as you go pensions this article develops a theory of the two armed intergenerational welfare state consistent with key features of modern welfare arrangements and uses it to rationalise the rise and fall in generosity of pay as you go pensions solely on efficiency grounds by using the education arm a dynamically efficient welfare state is shown to improve upon long run laissez faire even when market failures are absent to release these downstream welfare gains without hurting any transitional generation help from the pension arm is needed in the presence of an intergenerational education externality pensions initially rise in generosity but can be replaced by fully funded pensions eventually

population pensions and endogenous economic growth abstract we study the effect of a declining labor force on the incentives to engage in labor saving technical change and ask how this effect is influenced by institutional characteristics of the pension scheme when labor is scarcer it becomes more expensive and innovation investments that increase labor productivity are more profitable we incorporate this channel in a new dynamic general equilibrium model with endogenous economic growth and heterogeneous overlapping generations we calibrate the model for the us economy and obtain the following results first the effect of a decline in population growth on labor productivity growth is positive and quantitatively significant in our benchmark it is predicted to increase from an average annual growth rate of 1 74 over 1990 2000 to 2 41 in 2100 second institutional characteristics of the pension system matter both for the growth performance and for individual welfare third the assessment of pension reform proposals may depend on whether economic growth is endogenous or exogenous

social background education and inequality the role parents education plays for the educational achievements of children is a source of unequal opportunities through this channel the number of educated affects the options of future cohorts creating a social multiplier effect making improvements in education self reinforcing policies to compensate for inequalities of opportunities public education or transfers have very different implications transfers not only reduce inequality on impact but also reduce social mobility while public education even if a perfect substitute to private education works in the opposite direction social impediments to education are similar to a market imperfection and publicly provided education may lead to a pareto improvement jel d3 i2 h2 h4

interfirm mobility wages and the returns to seniority and experience in the united states in this paper we expand on the seminal work of altonji and shakotko 1987 and topel 1991 and reinvestigate the returns to seniority in the united states we begin with the same wage equation as in previous studies we extend the model of hyslop 1999 and explicitly model the participation employment and inter firm mobility decisions which in turn define the individual s experience and seniority we introduce into the wage equation a summary of the workers entire career path the three equation system is estimated simultaneously using data from the panel study of income dynamics psid we find that for each of the three education groups studied the returns to seniority are larger than those previously found in the literature

pay as you go or funded social security a general equilibrium comparison abstract this paper demonstrates that the analysis of fiscal sustainability of social security must include the education funding dimension of public policy which affects the productivity of future workers this fact is true under both social security regimes pay as you go payg and fully funded ff we consider an olg economy where the government in addition to running social security also funds education via a dedicated tax the education tax rates are chosen in each period by a majoritarian rule we demonstrate contrary to conjectures in the literature that the ff social security system produces political support for a relatively higher compared to payg education funding and hence generates higher rates of human capital accumulation physical capital accumulation and economic growth furthermore it also results in a comparatively lower degree of income inequality

pension design when fertility fluctuates the role of education and capital mobility this study compares alternative designs of an unfunded pension system convex combinations between a fixed contribution rate and a fixed benefit rate are considered the objective is to maximize the expected ex ante welfare under stochastic fertility the model is a three period cge framework where the financing of education and effects on factor prices are accounted for factor prices depend on the degree of capital mobility for low degrees of capital mobility it is optimal to have a fixed benefit rate in the pension system but for the small open economy a fixed contribution rate is optimal if the education system has a fixed benefit rate in this case individuals in the small open economy are unaffected by fertility fluctuations

risky human capital and deferred capital income taxation abstract we study the structure of optimal wedges and capital taxes in a dynamic mirrlees economy with endogenous distribution of skills human capital is a private stochastic state variable that drives the skill process of each individual building on the findings of the labor literature we construct a tractable life cycle model of human capital evolution with risky investment and stochastic depreciation in this setting we demonstrate the optimality of a a human capital premium i e an excess return on human capital relative to physical capital b a large intertemporal wedge early in the life cycle and c a non zero intratemporal wedge even at the top of the skill distribution at all dates except the last date in the life cycle the main implication for the structure of optimal linear capital taxes is the necessity of deferred taxation of physical capital the average marginal tax rate on physical capital held in every period is zero in present value however expected capital tax payments do not equal zero in every period necessarily agents face negative expected capital tax payments early in the life cycle and positive expected capital tax payments late in the life cycle

modeling an immigration shock abstract in this paper we model an overlapping generation economy affected by an unexpected immigration shock and determine how households may insure themselves against immigration risk we use the model to study the impact of immigration on i the welfare of different generations ii the distribution of income among factors of production and iii the optimal design of the intergenerational welfare state in particular we construct a system of public education and public pensions that mimics the efficient complete market allocation we also consider the impact of immigration shocks in a small open economy in this case our model suggests that the external capital flow can act as a substitute for the missing private insurance markets our analysis delivers a set of predictions that we find useful for understanding certain aspects of the spanish experience between 1996 and 2008

the timing of redistribution we investigate whether late redistribution programs that can be targeted toward low income families but that may distort savings decisions can dominate early redistribution programs that cannot be targeted as a result of information constraints we use simple two period overlapping generations models with heterogeneous agents under six policy regimes a model calibrated to the u s economy benchmark two early redistribution lump sum regimes two targeted late redistribution regimes and finally a model without taxes and redistribution redistribution programs are financed by a labor tax on the young generation and a capital tax on the old generation we argue that if the programs are small in size late redistribution can dominate early redistribution in terms of welfare but not in terms of real output better targeting of low income households cannot completely offset savings distortions in addition we find that the optimal transfer and tax policy implies a capital tax of 100 and transfers exclusively to the young generation

public education and pensions in democracy a political economy theory a dynamic political economy theory of scal policy is presented to explain the simultaneous existence of public education and pensions in modern democracies the driving force of the model is the intergenerational conict over the allocation of the public budget successive generations of voters choose scal policies through repeated elections the political power of elderly voters creates the motive for adults to support public investment in the human capital of future generations since it expands future pension possibilities we characterize the markov perfect equilibrium of the voting game in a small open economy the equilibrium reproduces salient features of intergenerational