evaluating welfare reform in the united states this paper reviews the economic literature on welfare reform over the 1990s a brief summary of the policy changes is followed by a discussion of the methodological techniques that analyze the effects of these changes on outcomes the paper then critically reviews the econometric and experimental literature on caseload changes labor force changes poverty and income changes and family formation changes a growing body of evidence suggests that recent policy changes have influenced economic behavior and well being one particular set of new style welfare programs seems to show especially promising results with significantly increased work and earnings and reduced poverty

a multiplicative model of optimal ceo incentives in market equilibrium this paper presents a unified theory of both the level and sensitivity of pay in competitive market equilibrium by embedding a moral hazard problem into a talent assignment model by considering multiplicative specifications for the ceo s utility and production functions we generate a number of different results from traditional additive models first both the ceo s low fractional ownership the jensen murphy incentives measure and its negative relationship with firm size can be quantitatively reconciled with optimal contracting and thus need not reflect rent extraction second the dollar change in wealth for a percentage change in firm value divided by annual pay is independent of firm size and therefore a desirable empirical measure of incentives third incentive pay is effective at solving agency problems with multiplicative impacts on firm value such as strategy choice however additive issues such as perk consumption are best addressed through direct monitoring jel d2 d3 g34 j3

income inequality in france 1901 1998 this paper uses data from income tax returns 1915 98 wage tax returns 1919 98 and inheritance tax returns 1902 94 in order to compute homogeneous yearly estimates of income wage and wealth inequality for twentieth century france the main conclusion is that the decline in income inequality that took place during the first half of the century was mostly accidental in france and possibly in a number of other countries as well wage inequality has been extremely stable in the long run and the secular decline in income inequality is for the most part a capital income phenomenon holders of large fortunes were badly hurt by major shocks during the 1914 45 period and they were never able to fully recover from these shocks probably because of the dynamic effects of progressive taxation on capital accumulation and pretax income inequality

executive compensation strategic competition and relative performance evaluation theory and evidence we examine compensation contracts for managers in imperfectly competitive product markets we show that strategic interactions among firms can explain the lack of relative performance based incentives in which compensation decreases with rival firm performance the need to soften product market competition generates an optimal compensation contract that places a positive weight on both own and rival performance firms in more competitive industries place greater weight on rival firm performance relative to own firm performance we find empirical evidence of a positive sensitivity of compensation to rival firm performance that is increasing in the degree of competition in the industry

tax reform and automatic stabilization an income tax provides implicit insurance by dampening the variability of disposable income and consumption using an empirical framework derived from the consumption insurance literature and data from the panel study of income dynamics we examine the effect of federal income tax reforms of the 1980 s on automatic stabilization of consumption overall erta and tra86 reduced consumption stability by about 50 percent recently increased eitc generosity restored or enhanced consumption insurance the welfare cost of moving to the post tra86 system is sizable for relatively risk averse households facing large income risk but is much more modest for the typical household jel h21

exercise behavior valuation and the incentive effects of employee stock options abstract we use a large database on eso exercises to document characteristics of exercise behavior and calibrate a utility based model for measuring how differences in exercise behavior are manifested in option values and incentives option values and incentives computed from the model calibrations are compared to those computed from models used to value tradable options our analysis provides guidance to both academics and practitioners about how differences in exercise behavior and model choice affect measures of eso values and incentives and underscores the importance of gaining a thorough understanding of the underlying economic forces that affect the behavior of eso holders

what mean impacts miss distributional effects of welfare reform experiments labor supply theory predicts systematic heterogeneity in the impact of recent welfare reforms on earnings transfers and income yet most welfare reform research focuses on mean impacts we investigate the importance of heterogeneity using random assignment data from connecticut s jobs first waiver which features key elements of post 1996 welfare programs estimated quantile treatment effects exhibit the substantial heterogeneity predicted by labor supply theory thus mean impacts miss a great deal looking separately at samples of dropouts and other women does not improve the performance of mean impacts we conclude that welfare reform s effects are likely both more varied and more extensive than has been recognized

family welfare cultures strong intergenerational correlations in various types of welfare use have fuelled a long standing debate over whether welfare receipt in one generation causes welfare participation in the next generation some claim a causal relationship in welfare receipt across generations has created a culture in which welfare use reinforces itself through the family others argue the determinants of poverty or poor health are correlated across generations so that children s welfare participation is associated with but not caused by parental welfare receipt however there is little empirical evidence to sort out these claims in this paper we investigate the existence and importance of family welfare cultures in the context of norway s disability insurance di system to overcome the challenge of correlated unobservables across generations we take advantage of random assignment of judges to di applicants whose cases are initially denied some appeal judges are systematically more lenient which leads to random variation in the probability a parent will be allowed di using this exogenous variation we find strong evidence that welfare receipt in one generation causes welfare participation in the next generation when a parent is allowed di their adult child s participation over the next five years increases by 6 percentage points this effect grows over time rising to 12 percentage points after ten years while these findings are specific to our setting they serve to highlight that welfare reforms can have long lasting effects on program participation since any original effect on the current generation could be reinforced by changing the participation behavior of their children as well the detailed nature of our data allows us to compare the intergenerational transmission with spillover effects in other networks and to explore mechanisms our findings point to a special link between parents and their children with little impact due to close neighbors di participation we find suggestive evidence that what may change as a result of a parent being allowed di is their children s beliefs about the efficacy of trying to get on to the di program or their attitudes about di participation and its stigma

incentives learning and compensation a theoretical and empirical investigation of managerial labor contracts this article analyzes properties and implications of multiperiod managerial labor contracts under two alternative hypotheses incentives in which productivity depends on unobservable effort and learning in which ability is unknown and is revealed over time shared and conflicting implications of these competing models are developed in terms of experienceearnings profiles and the relation between compensation and performance i empirically examine these theoretical results by using a longitudinal sample of 1 488 chief executive officers followed from 1974 1985 the data yield mixed evidence that generally supports the learning hypothesis over the incentive hypothesis

detecting and removing discrimination under equal opportunities policies abstract this paper surveys part of the recent voluminous literature on the economics of discrimination focusing on two key questions first how should discrimination be measured and can in fact unambiguous estimates be derived as the basis for detecting where discrimination is present and setting in train measures to eliminate it second to what extent has the implementation of equal opportunities legislation improved the relative standing of women and minority workers in the labour force this section includes a discussion of the likely effects of recent changes in the law such as the equal value amendment in the uk or the introduction of comparable worth in the usa the survey concludes that our ability to detect discrimination at all precisely is still rudimentary and consequently policy measures are likely to be inefficient for this reason

welfare for the elderly the effects of ssi on pre retirement labor supply abstract this paper studies pre eligibility age labor market disincentives created by the supplemental security income ssi program asset and income limits might induce individuals nearing the eligibility age to work less we exploit states supplementation of federal ssi benefits to estimate the effects of ssi on pre retirement labor supply using sipp data we find some evidence that generous ssi benefits reduce the pre retirement labor supply and earnings of men who are likely to participate in ssi after retirement as they near the eligibility age especially men who are eligible for early social security benefits which may be used to offset their reduced labor income

sharing the national cake in post reform new zealand income inequality trends in terms of income sources abstract using household economic survey hes data in unit record form this paper examines the trends of household income inequality in new zealand over the period 1984 96 a period that saw new zealand implement a wide range of economic and social policy reform the observed changes in the overall income inequality are then decomposed by income components to measure the contributions of the different sources of personal income to the overall inequality to our knowledge this is the first time that the methodology for disaggregating the gini co efficient including its more recent extensions by lerman and yitzhaki review of economics and statistics 63 1985 151 podder review of income and wealth 39 1993 51 and mookherjee and shorrocks economic journal 92 1982 886 has been applied to micro level new zealand data for computing income inequality and other related indices and measures reported in this study the findings which indicate a steady upward trend in income inequality are examined in the light of the reform policies used at the time their implications for policy are also addressed

decomposing trends in income volatility the wild ride at the top and bottom we use 2 year panels from the current population survey to provide a detailed accounting of family income volatility from 1980 to 2009 volatility doubled overall and the increase was most pronounced among the top 1 of the income distribution but in any given year the level of volatility among the bottom 10 exceeds that of the top the increased volatility comes from higher instability of head and spouse earnings other nonlabor income and from reduced covariance between these income sources with the tax system this suggests that current tax policy is less effective in mitigating income shocks than previous decades jel j31 i30

the income and tax share of very high income households 1960 1995 this paper presents new information on the fraction of adjusted gross income and of wages and salaries that is reported by taxpayers in the top one half of one percent of the income distribution this corresponds to roughly five hundred thousand households in the late 1990s this paper relies on data from the treasury s individual income tax model for the period 1960 1995 the definition of adjusted gross income is standardized so that changes in the tax law do not affect the measured concentration of agi the results suggest that the share of agi reported by the highest income households increased significantly between the early 1980s and the mid 1990s with most of the increase taking place in the years immediately following the tax reform act of 1986 while we find some evidence of transitory changes in the concentration of income around major tax changes which may be the result of income retiming by high income taxpayers re timing does not seem to explain most of the changes since 1986 this abstract was borrowed from another version of this item

income volatility and household consumption the impact of food assistance programs the impact offood assistance programs food stamps in a period of rising income inequality in the united states is analyzed using 1978 92 psid data we assess to what extent food assistance can be viewed as an effective insurance to permanent shocks to income the results show that the program has a substantial consumption smoothing effect in the lowincome population the response of food consumption to a permanent income shock is a third lower after accounting for the monetary value of food stamps

extreme wage inequality pay at the very top we provide new evidence on the growth in pay at the very top of the wage distribution in the united kingdom sectoral decompositions show that workers in the financial sector have accounted for the majority of the gains at the top over the last decade new results are also presented on the pay of ceos in the united kingdom we show how improved measurement of pay points to a stronger pay performance link than previously estimated this link is stronger and more symmetric for those firms in which institutional investors play a larger role

uncertainty risk and incentives theory and evidence uncertainty has qualitatively different implications than risk in studying executive incentives we study the interplay between profitability uncertainty and moral hazard where profitability is multiplicative with managerial effort investors who face greater uncertainty desire faster learning and consequently offer higher managerial incentives to induce higher effort from the manager in contrast to the standard negative risk incentive trade off this learning by doing effect generates a positive relation between profitability uncertainty and incentives we document empirical support for this prediction this paper was accepted by wei jiang finance

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

top executive rewards and firm performance a comparison of japan and the united states this paper studies top executive turnover and compensation and their relation to firm performance in the largest japanese and u s companies japanese executive turnover and compensation are related to earnings stock returns and to a lesser extent sales performance measures the fortunes of japanese top executives therefore are positively correlated with stock performance and current cash flows or with factors contributing to such performance the relations for the japanese executives are generally economically and statistically similar to those for their u s counterparts there is some evidence however that the fortunes of japanese executives are more sensitive to low income but less sensitive to stock returns than those of u s executives

optimal incentive contracts in the presence of career concerns theory and evidence this paper studies optimal incentive contracts when workers have career concerns concerns about the effects of current performance on future compensation we show that the optimal compensation contract optimizes total incentives the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract thus the explicit incentives from the optimal compensation contract should be strongest for workers close to retirement because career concerns are weakest for these workers we find empirical support for this prediction in the relation between chief executive compensation and stock market performance

the value of medicaid interpreting results from the oregon health insurance experiment we develop frameworks for welfare analysis of medicaid and apply them to the oregon health insurance experiment across different approaches we estimate low income uninsured adults willingness to

optimal top marginal tax rates under income splitting for couples abstract this paper provides formulas for optimal top marginal tax rates when couples are taxed according to income splitting between spouses consumption is taxed and the skill distribution is unbounded optimal top marginal income tax rates are computed for germany using a dataset that includes the tax returns of all german top taxpayers we find that the optimal top marginal tax rate converges to about 2 3 and convergence obtains at income levels that are substantially higher than those currently subject to the actual top tax rate

top executive pay and firm performance in china the sensitivity of executive pay to share price performance has been the main focus of western executive pay studies reflecting shareholders efforts to reduce agency problems by better aligning the rewards of executives with their own however these studies have ignored motivational effects and possible two way pay performance causation this paper reports chinese executive pay performance sensitivity with international comparisons to examine whether china s unique institutional environment has produced outcomes consistent with those for western market economies this same unique environment makes possible the first estimates of two way causation based on panel data analysis the results show that executive pay and firm performance mutually affect each other through both reward and motivation

evolution of the gender earnings gap among canadian university graduates this paper reports the results of an empirical analysis of the gender earnings gap among recent canadian bachelor s level university graduates the overall gap as of two years leaving university narrowed significantly across successive cohorts of graduates but widened significantly from two to five years out for all groups differences in the explanatory variables explain account for between 40 and essentially the entire gap across the different periods this portion rising from two to five years out and across cohorts by the final group all of the gap is thus explained at the two year point in time and most of it is explained at the five year mark meaning that labour market returns measured in this manner are largely gender neutral for the last group of graduates hours of work is the single most important influence while past work experience job characteristics family status and province of residence and language have smaller and more mixed effects

the health and earnings of rejected disability insurance applicants applicants for social security disability benefits who fail to pass the medical screening form a natural control group for beneficiaries data drawn from the 1972 and 1978 surveys of the disabled done for the social security administration show that fewer than 50 percent of rejected male applicants work typical earnings of those that do are less than 59 percent of median earnings for other men their age these data cast doubt on recent econometric work that suggests that the disincentive effects of the social security disability program have been substantial copyright 1989 by american economic association

executive compensation and principal agent theory the empirical literature on executive compensation generally fails to specify a model of executive pay on which to base and test hypotheses regarding its determinants in contrast this paper analy

incentives for the identification and treatment of children with disabilities the supplemental security income program abstract this paper examines how supplemental security income ssi benefit availability and generosity affect the probability that families identify health problems in their children and move onto the ssi rolls first i observe that a liberalization of ssi eligibility in 1990 was followed by a substantial re evaluation of the health status of low income children by their parents then i find that increases in ssi benefits raise the likelihood that a family identifies a chronic impairment in their child my results indicate that cash assistance targeted on children with disabilities promotes the detection and treatment of medical problems in low income children

the effect of disability payments on household earnings and income evidence from the ssi children s program abstract i estimate the effect of removing children with disabilities from supplemental security income ssi on parental earnings and household disability receipt using administrative data from the social security administration ssa i implement regression discontinuity and differencein differences designs based on changes in ssa s budget for child medical reviews i find that parents fully offset the ssi loss with increased earnings and the loss of the child s ssi payment reduces disability applications by parents and siblings but does not reduce their actual disability receipt i examine alternative hypotheses for the large parental earnings response

trends in employment and earnings of allowed and rejected applicants to the social security disability insurance program since the early 1980s changes in the economic environment and in the process for determining eligibility for the social security disability insurance di program have had significant effects on the program first the economic situation and labor force opportunities for lower skilled people continued to decline leading to lower rates of participation in the labor force for less educated men second changes in the eligibility process made it easier to obtain di benefits based on conditions difficult to clearly identify on medical terms alone such as back pain or depression 1 those two factors have likely contributed to a substantial increase in the number of individuals receiving di as well as a significant change in the characteristics of applicants and new beneficiaries over the same period both applicants and new beneficiaries have become younger longer lived more likely to apply because of nonterminal conditions such as back pain or mental health and more likely to be female 2 as a result recent work projects a rapid increase in program costs as greater numbers of beneficiaries stay on the program for more years e g david h autor and duggan 2006 the concurrent developments in the economy and eligibility rules have also fueled the concern that the generosity of di increasingly induces low income workers to apply for and sometimes receive benefits and that some of those beneficiaries would be able to work in the absence of the program indeed a growing body of research suggests that some workers in difficult economic conditions exit the labor force to

the effect of means tested income support for the elderly on pre retirement saving evidence from the ssi program in the u s abstract we attempt to draw inferences about behavioral responses to means tested income support for the elderly by examining the effects on saving of the supplemental security income ssi program for the aged in the u s part of this program provides payments to the poor elderly operating as a means tested public retirement program we exploit state level variation in ssi benefits to estimate the effects of ssi on saving using data from the 1984 survey of income program participation we find evidence that high ssi benefits reduce saving among households with heads who are approaching the ssi eligibility age and are likely participants in the program

the exercise and valuation of executive stock options abstract in theory hedging restrictions faced by managers make executive stock options more difficult to value than ordinary options because they imply that exercise policies of managers depend on their preferences and endowments using data on option exercises from 40 firms this paper shows that a simple extension of the ordinary american option model which introduces random exogenous exercise and forfeiture predicts actual exercise times and payoffs just as well as an elaborate utility maximizing model that explicitly accounts for the nontransferability of options the simpler model could therefore be more useful than the preference based model for valuing executive options in practice

revenge of the managers labor cost cutting and the paradoxical resurgence of managerialism in the shareholder value era 1984 to 2001 institutional changes associated with the rise of shareholder value capitalism have had seemingly contradictory effects on managers and managerialism in the united states economy financial critiqu

what explains the rise in ceo pay in germany a panel data analysis for 1977 2009 the compensation of executive board members in germany has become a highly controversial topic since vodafone s hostile takeover of mannesmann in 2000 and it is again in the spotlight since the outbreak of the financial crisis of 2009 based on unique panel data evidence of the 500 largest firms in germany in the period 1977 2009 we test two prominent hypothesis in the literature on executive pay the manager power hypothesis and the efficient pay hypothesis we find support for the manager power hypothesis for germany as executives tend to be rewarded when the sector is doing well rather than the firm they work for we reject however the efficient pay hypothesis as ceo pay and the demand for managers increases in germany in difficult times when the typical firm size shrinks we find further that domestic and global competition for managers has contributed to the rise in executive pay in germany lastly we show that ceos in the banking sector are provided with incentives for performance and that the great recession of 2009 acted as a disciplining devise on ceo pay in germany

testing agency theory with entrepreneur effort and wealth we develop a principal agent model in an entrepreneurial setting and test the model s predictions using unique data on entrepreneurial effort and wealth in privately held firms accounting for unobserved firm heterogeneity using instrumental variables techniques we find that entrepreneurial ownership shares increase with outside wealth and decrease with firm risk effort increases with ownership and effort increases firm performance the magnitude of the effects in the cross section of firms suggests that agency costs may help explain why entrepreneurs concentrate large fractions of their wealth in firm equity

the roles of corporate governance in bank failures during the recent financial crisis abstract this paper analyzes the roles of corporate governance in bank defaults during the recent financial crisis of 2007 2010 using a data sample of 249 default and 4 021 no default us commercial banks we investigate the impact of bank ownership and management structures on the probability of default the results show that defaults are strongly influenced by a bank s ownership structure high shareholdings of outside directors and chief officers managers with a chief officer position such as the ceo cfo etc imply a substantially lower probability of failure in contrast high shareholdings of lower level management such as vice presidents increase default risk significantly these findings suggest that high stakes in the bank induce outside directors and upper level management to control and reduce risk while greater stakes for lower level management seem to induce it to take high risks which may eventually result in bank default some accounting variables such as capital earnings and non performing loans also help predict bank default however other potential stability indicators such as the management structure of the bank indicators of market competition subprime mortgage risks state economic conditions and regulatory influences do not appear to be decisive factors in predicting bank default

the distribution of wealth and fiscal policy in economies with finitely lived agents we study the dynamics of the distribution of wealth in an overlapping generation economy with finitely lived agents and intergenerational transmission of wealth financial markets are incomplete exposing agents to both labor and capital income risk we show that the stationary wealth distribution is a pareto distribution in the right tail and that it is capital income risk rather than labor income that drives the properties of the right tail of the wealth distribution we also study analytically the dependence of the distribution of wealth of wealth inequality in particular on various fiscal policy instruments like capital income taxes and estate taxes and on different degrees of social mobility we show that capital income and estate taxes can significantly reduce wealth inequality as do institutions favoring social mobility finally we calibrate the economy to match the lorenz curve of the wealth distribution of the u s economy

are ceos really paid like bureaucrats a common view is that there is little correlation between firm performance and ceo pay using a new fifteen year panel data set of ceos in the largest publicly traded u s companies we document a strong relationship between firm performance and ceo compensation this relationship is generated almost entirely by changes in the value of ceo holdings of stock and stock options in addition we show that both the level of ceo compensation and the sensitivity of compensation to firm performance have risen dramatically since 1980 largely because of increases in stock option grants

optimal exercise prices for executive stock options although exercise prices for executive stock options can be set either below or above the grant date market price in practice virtually all options are granted at the money we offer an economic rationale for this apparent puzzle by showing that pay to performance incentives for risk averse undiversified executives are typically maximized by setting exercise prices at or near the grant date market price we provide an operationally useful alternative to black scholes 1973 for the purpose of both valuing executive stock options and measuring the incentives created by options our framework has implications not only for exercise price policies but also for indexed options option repricings exchanges of cash for stock based compensation and the design of bonus plans

gender differences in the changing labor market the role of legislation and inequality in changing the wage gap for qualified workers in the united kingdom we use detailed cohort data from three surveys of graduates to examine two explanations for the large decline in the male female wage gap that occurred in the united kingdom during the early 1970s the first attributes the fall to gender specific factors most notably the introduction of antidiscrimination legislation the second explanation argues that these changes were largely in respon ie to changes in the wage structure and in particular to the introduction of income policies our findings show that for u k graduates all the change in relative wages that occurred in this period can be accounted for by gender specific forces

does disability insurance receipt discourage work using examiner assignment to estimate causal effects of ssdi receipt abstract we present the first causal estimates of the effect of social security disability insurance benefit receipt on labor supply using all program applicants we use administrative data to matc

a unified welfare analysis of government policies we conduct a comparative welfare analysis of 133 historical policy changes over the past half century in the united states focusing on policies in social insurance education and job training taxes and cash transfers and in kind transfers for each policy we use existing causal estimates to calculate both the benefit that each policy provides its recipients measured as their willingness to pay and the policy s net cost inclusive of long term impacts on the government s budget we divide the willingness to pay by the net cost to the government to form each policy s marginal value of public funds or its mvpf comparing mvpfs across policies provides a unified method of assessing their impact on social welfare our results suggest that direct investments in low income children s health and education have historically had the highest mvpfs on average exceeding 5 many such policies have paid for themselves as governments recouped the cost of their initial expenditures through additional taxes collected and reduced transfers we find large mvpfs for education and health policies amongst children of all ages rather than observing diminishing marginal returns throughout childhood we find smaller mvpfs for policies targeting adults generally between 0 5 and 2 expenditures on adults have exceeded this mvpf range in particular if they induced large spillovers on children we relate our estimates to existing theories of optimal government policy and we discuss how the mvpf provides lessons for the design of future research

long term impacts of childhood medicaid expansions on outcomes in adulthood we use administrative data from the internal revenue service to examine long term impacts of childhood medicaid eligibility expansions on outcomes in adulthood at each age from 19 to 28 greater medicaid eligibility increases college enrolment and decreases fertility especially through age 21 starting at age 23 females have higher contemporaneous wage income although male increases are imprecise together both genders have lower mortality these adults collect less from the earned income tax credit and pay more in taxes cumulatively from ages 19 to 28 at a 3 discount rate the federal government recoups 58 cents of each dollar of its investment in childhood medicaid

disability insurance and the dynamics of the incentive insurance trade off we provide a life cycle framework for comparing insurance and disincentive effects of disability benefits the risks that individuals face and the parameters of the disability insurance di program are estimated from consumption health disability insurance and wage data we characterize the effects of disability insurance and study how policy reforms impact behavior and welfare di features high rejection rates of disabled applicants and some acceptance of healthy applicants despite worse incentives welfare increases as programs become less strict or generosity increases disability insurance interacts with welfare programs making unconditional means tested programs more generous improves disability insurance targeting and increases welfare

ceo compensation in financially distressed firms an empirical analysis this paper studies senior management compensation policy in 77 publicly traded firms that filed for bankruptcy or privately restructured their debt during 1981 to 1987 almost one third of all ceos are replaced and those who keep their jobs often experience large salary and bonus reductions newly appointed ceos with ties to previous management are typically paid 35 less than the ceos they replace in contrast outside replacement ceos are typically paid 36 more than their predecessors and are often compensated with stock options on average ceo wealth is significantly related to shareholder wealth after firms renegotiate their debt contracts however managers compensation is sometimes explicitly tied to the value of creditors claims

economic aspects of optimal disability benefits this paper analyzes optimal disability and retirement or welfare benefits with imperfect disability evaluation with some able workers judged disabled and some disabled workers judged able thus the levels of both disability and retirement benefits affect labor supply with anyone not working eligible for retirement benefits we analyze the optimal structure of benefits for a given disability screening mechanism and briefly consider the problem of optimal evaluations of disability evidence in the united states there is an overlap in eligibility for disability and retirement portions of social security more generally welfare is sometimes available to people denied disability benefits

top incomes in the netherlands and the united kingdom over the 20th century a method is developed for using income tax data to investigate the evolution of the highest incomes over virtually the entire 20th century the income shares of the top 10 5 1 0 5 0 1 and 0 05 percent are analysed for the uk and the netherlands for considering the top shares among themselves the pareto lorenz coefficient is proposed between the two countries the top shares appear to undergo a strikingly similar and strong decline up to the mid 1970s since then british top shares have increased significantly while dutch shares remained basically unchanged this outcome parallels similar results for the us and france obtained by piketty and saez and poses interesting questions for research jel n34 d31 o15

the insurance value of state tax and transfer programs abstract this paper estimates the total value that individuals derive from their state s tax and transfer program and shows how this value varies by income the paper decomposes this total value into two components redistributive value which is due to predictable changes in income and family circumstances and insurance value which occurs when taxes and transfers compensate for unexpected income shocks our approach is a forward looking one where we examine income and transfers net of taxes over a 10 year period we model state taxes personal income taxes the eitc and sales taxes and state means tested transfers afdc tanf and medicaid schip the calculations are made using the panel study of income dynamics and allow for analysis of the role of changes in tax and transfer programs demographics and income in the value of state net benefits over a period of more than 30 years we find that the redistributive value of state tax and transfer programs sharply declines with income but that the insurance value is increasing in income the resulting total value still declines with income but not nearly as sharply as the redistributive value hence the insurance value mitigates the incentives for mobility that would undo state redistributive spending

corporate performance and managerial remuneration an empirical analysis abstract economic theories of efficient compensation predict a positive relationship between executive pay and corporate performance and yet efforts to document this relationship have been largely unsuccessful in this paper we argue that previous cross sectional studies have omitted important variables which seriously bias their results using data that focus on individual executives over time we find that executive compensation is strongly positively related to corporate performance as measured by shareholder return and growth in firm sales the results are robust to the stock market performance measure utilized

estimates of year to year volatility in earnings and in household incomes from administrative survey and matched data abstract we document trends in the volatility in earnings and household incomes between 1985 and 2005 in three different data sources administrative earnings records the survey of income and program participation sipp matched to administrative earnings records and sipp survey data in all data sources we find a substantial amount of year to year volatility in workers earnings and household incomes in the data sources that contain administrative earnings we find that volatility has been roughly constant and has even declined slightly since the mid 1980s these findings differ from what is found using survey data and what has been reported in previous studies

risk aversion performance pay and the principal agent problem this paper calculates numerical solutions to the principal agent problem and compares the results to the stylized facts of ceo compensation the numerical predictions come from parameterizing the models of grossman and hart and of holmstrom and milgrom while the correct incentives for a ceo can greatly enhance a firm s performance providing such incentives need not be expensive for many parameter values ceo compensation need increase only by about 10 for every 1 000 of additional shareholder value for some values the amount is 0 003 cents

the interaction of public and private insurance medicaid and the long term care insurance market a long tradition in public finance examines how public programs can crowd out private activ ity in areas as diverse as education savings and insurance among others these studies typi cally focus on aggregate economic implications particularly for government expenditures and national savings in this paper we demonstrate that crowd out can also have an important effect on individual welfare specifically we show that the provision of even very incomplete public insurance can crowd out more comprehensive private policies by imposing a large implicit tax on private insurance benefits thus potentially increasing overall risk exposure for individuals we examine the interaction of public and private insurance for one of the largest uninsured financial risks facing the elderly in the united states long term care expenditures at 135 bil lion in 2004 long term care expenditures represented over 8 5 percent of total health expendi tures or all ages or roughly 1 2 percent of gdp moreover real long term care expenditures are projected to triple over the next 35 years due to rising medical costs and the aging of the baby boomers only 10 percent of the elderly however have any private long term care insurance and one third of expenditures are paid for out of pocket congressional budget office cbo 1999 cbo 2004 brown and finkelstein 2007 one potential explanation for the small size of the private market is that the public insurance provided by medicaid may crowd out demand for private insurance medicaid was designed to provide long term care insurance for the poor elderly mark v pauly 1989 1990 has established the qualitative result that as an incomplete but publicly funded source of long term care insur ance medicaid has the potential to reduce substantially demand for private long term care insur ance even among the nonpoor our work builds on this insight by quantifying the magnitude of medicaid s crowd out effect and the incomplete nature of medicaid coverage we also illustrate the mechanism behind medicaid s crowd out effect and are therefore able to assess the likely impact of alternative policies on private insurance demand we develop a utility based model of a 65 year old risk averse individual who chooses an opti mal intertemporal consumption path in the presence of uncertainty about long term care expen ditures we calibrate the model using data on the distribution of long term care expenditure risk common state medicaid rules and the prices and coverage of typical private long term care insurance policies

hedging familiarity and portfolio choice we exploit the restrictions of intertemporal portfolio choice in the presence of non nancial income risk to design and implement tests of hedging that use the information contained in the actual portfolio of the investor we use a unique dataset of swedish investors with information broken down at the investor level and into various components of wealth investor income tax positions and investor demographic characteristics portfolio holdings are identi ed at the stock level we show that investors do not engage in hedging but invest in stocks closely related to their non nancial income we explain this with familiarity that is the tendency to concentrate holdings in stocks with which the investor is familiar in terms of geographical or professional proximity or that he has held for a long period we show that familiarity is not a behavioral bias but is information driven familiarity based investment allows investors to earn higher returns than they would have otherwise earned if they had hedged

does tax policy affect executive compensation evidence from postwar tax reforms abstract the trends in executive pay and labor income tax rates since the 1940s suggest a high elasticity of taxable income with respect to tax policy by contrast the level and structure of executive compensation have been largely unresponsive to tax incentives since the 1980s however the relative tax advantage of different forms of pay was small during this period using a sample of top executives in large firms from 1946 to 2005 we also find a small short run response of salaries qualified stock options and bonuses paid after retirement to changes in tax rates on labor income even though tax rates were significantly higher and more heterogeneous across individuals in the first several decades following wwii we explore several potential explanations for the conflicting impressions given by the long run and short run correlations between taxes and pay including changes in social norms and concerns about pay equality

does welfare inhibit success the long term effects of removing low income youth from the disability rolls i estimate the effects of removing low income youth with disabilities from supplemental security income ssi on their earnings and income in adulthood using a regression discontinuity design based on a 1996 policy change in age 18 medical reviews i find that youth who are removed from ssi at age 18 recover one third of the lost ssi cash income in earnings ssi youth who are removed and stay off ssi earn on average 4 400 annually and they lose 76 000 in present discounted observed income over the 16 years following removal relative to those who do not receive a review jel i30 i38 j14 supporters of welfare programs defend them as vital lifelines for those who face barriers to work while critics charge that these programs create perverse incentives to qualify and perpetuate dependency encapsulating this debate is the controversy over the us supplemental security income ssi program a program that provides cash payments and medicaid eligibility to low income children and adults with disabilities and the aged elderly after three decades of rapid expansion ssi is now the largest nonwork based cash welfare program in the united states paying about 50 billion each year to 8 million recipients including 1 3 million children 1 ssi has been singled out by policymakers and the media for potential perverse incentives

work incentives and the food stamp program abstract labor supply theory makes strong predictions about how the introduction or expansion of a social welfare program impacts work effort although there is a large literature on the work incentive effects of afdc and the eitc relatively little is known about the work incentive effects of the food stamp program and none of the existing literature is based on quasi experimental methods we use the cross county introduction of the program in the 1960s and 1970s to estimate the impact of the program on the extensive and intensive margins of labor supply earnings and family cash income consistent with theory we find reductions in employment and hours worked when food stamps are introduced the reductions are concentrated among families headed by single woman

public health insurance labor supply and employment lock we study the effect of public health insurance on labor supply by exploiting a large public health insurance disenrollment in 2005 approximately 170 000 tennessee residents abruptly lost medicaid coverage using both across and within state variation in exposure to the disenrollment we estimate large increases in labor supply primarily along the extensive margin the increased employment is concentrated among individuals working at least 20 hours a week and receiving private employer provided health insurance we explore the dynamic effects of the disenrollment and find an immediate increase in job search behavior and a steady rise in both employment and health insurance coverage following the disenrollment our results are consistent with a significant degree of employment lock workers who are employed primarily to secure private health insurance coverage jel codes i1 j22 h75