reconciling the old and new census bureau education questions recommendations for researchers beginning with the 1990 census and the january 1992 current population survey cps the bureau of the census changed the emphasis of its educational attainment question from years of education to degree receipt using a matched sample from the 1991 and 1992 march cps this article addresses how to reconcile the old and new questions the effects of those methods on the estimated return s to education are then examined both the estimated linear return and the estimated college high school wage differential are slightly larger using information from the new question

intertemporal labor supply and human capital accumulation we solve and estimate a dynamic model that allows agents to optimally choose their labor hours and consumption and that allows for both human capital accumulation and savings estimation results and simulation exercises indicate that the intertemporal elasticity of substitution is much higher than the conventional estimates and the downward bias comes from the omission of the human capital accumulation effect the human capital accumulation effect renders the life cycle path of the shadow wage relatively flat even though wages increase with age hence a rather flat life cycle labor supply path can be reconciled with a high intertemporal elasticity of substitution

intergenerational equity the capital environment trade off abstract this paper examines the trade off between capital accumulation and environmental quality that determines an intergenerationally equitable program according to the rawls maximin criterion this trade off is explored by an analysis of regular maximin programs in the framework developed by brock this results in a constant utility path supported by competitive prices with government imposed effluent charges and environmental rentals sufficient conditions for a regular maximin path to satisfy a hartwick rule in deciding on the combination of capital and environmental quality left to future generations are given

occupational mobility occupation distance and specific human capital abstract distance and direction measures are constructed and used to contrast occupational mobility following involuntary job displacement and total occupational mobility displacement involves specific capital loss some voluntary occupational mobility for example promotions reflects augmented skills rather than specific human capital loss wage losses following displacement are strongly related to distance and direction this is reflected in a downward shift in the skill portfolio by contrast the skill portfolio change in total occupational mobility shows a neutral or modest upward pattern suggesting limited or no specific human capital loss from voluntary occupational mobility the mean distance in occupational mobility following displacement declined significantly in the 1980s and 1990s suggesting the labor market was more efficiently reemploying workers following displacement lowering displacement costs in that period

can falling supply explain the rising return to college for younger men a cohort based analysis although the college high school wage gap for younger u s men has doubled over the past 30 years the gap for older men has remained nearly constant in the united kingdom and canada the college high school wage gap also increased for younger relative to older men using a model with imperfect substitution between similarly educated workers in different age groups we argue that these shifts reflect changes in the relative supply of highly educated workers across age groups the driving force behind these changes is the slowdown in the rate of growth of educational attainment that began with cohorts born in the early 1950s in all three countries

pollution control and the ramsey problem pollution is an inevitable by product of production and is only gradually dissolved by the environment it can be reduced by producing less and by cleaning up the environment but neither occur when they are left to the market cleaning activities and the optimal emission charges increase with the stock of pollutants when one allows for pollution of the environment in the classical ramsey problem the capital stock is less than in the market outcome and a fortiori less than under the golden rule the analysis distinguishes between stock and flow externalities arising from pollution an increase in impatience can lead to more capital accumulation even though this leaves less room for current consumption

household production and environmental kuznets curves examining the desirability and feasibility of substitution this paper provides a theoretical explanation for the widely debatedempirical finding of environmental kuznets curves i e u shaped relationships between per capita income and indicators of environmentalquality we present a household production model in which the degradationof environmental quality is a by product of household activities householdscan not directly purchase environmental quality but can reduce degradation by substituting more expensive cleaner inputs to production for less costlydirty inputs if environmental quality is a normal good one expectssubstitution towards the less polluting inputs so that increases in incomewill increase the quality of the environment it is shown that this onlyholds for middle income households poorer households spend all income on dirty inputs when they buy more as income rises the pollution also rises they do not want to substitute as this would reduce consumption ofnon environmental services for environmental amenities that are alreadyabundant thus as income rises from low to middle levels a u shape can result yet an n shape might eventually result as richer households spend all income on clean inputs further substitution possibilities are exhausted thus as income rises again pollution rises and environmental quality falls

central bank independence disinflations and the sacrifice ratio it is widely believed that independent central banks produce costless low inflation yet a few recent studies indicate that more independent central banks are associated with higher output costs during disinflations this carries the implication that there are indeed costs associated with autonomy the author develops and extends those analyses in two important ways first he shows that central bank independence cbi affects both the output and the unemployment costs of disinflation because central banks control only monetary policy they should not exert a differential effect on the two ratios and there should be a positive relationship between independence and both the unemployment and the output costs of disinflations second by including a range of potentially significant political and institutional controls the author demonstrates both the importance of political and institutional determinants of the costs of disinflation and that cbi is a robust predictor of those costs

what do we really know about wages the importance of nonreporting and census imputation in the most frequently used microdata sets over a quarter of all respondents now refuse to answer some questions about their incomes the census bureau has dealt with this problem which has been increasing in severity over time by imputing incomes of non respondents their imputation procedure called the hot deck essentially matches nonrespondents with demographically similar donors in this paper we evaluate the census imputation methodology and raise some questions first the census procedure is tied to commonality of events in the population rather than the more appropriate informational content of regressors clearly the census procedure severely understates income in certain occupations because it is based on the apparently invalid assumption that income does not affect reporting propensities it most likely understates average incomes as well

the human capital stock a generalized approach this paper presents a new framework for human capital measurement the generalized framework can i substantially amplify the role of human capital in accounting for cross country income dierences and ii reconcile the existing con ict between regression and accounting evidence in assessing the wealth and poverty of nations one natural interpretation emphasizes dierences across economies in the acquisition of advanced knowledge by skilled workers

the evolution of the human capital of women the labour market attachment of females has increased dramatically over the last half century converging to a pattern similar to that of males human capital theory predicts an associated increase in human capital investment by females and a convergence in the life cycle human capital investment profiles of males and females this paper explores wage based and job skills based approaches to measuring the increased supply of efficiency units of human capital by females over the last four decades results suggest that the magnitude of the contribution of the increased human capital of women to post war economic growth is substantially underestimated by conventional methods of measuring human capital and labour inputs a complete picture of the evolution of the human capital of women requires new approaches to measuring their human capital l evolution du capital humain des femmes au cours des cinquante dernieres annees l activite des femmes sur le marche du travail a considerablement augmente convergeant vers un modele similaire a celui des hommes correlativement la theorie du capital humain anticipe deux phenomenes une augmentation de l investissement des femmes dans le capital humain ainsi qu une convergence des profils d investissement dans le capital humain par les deux sexes tout au long de la vie afin d evaluer la hausse de productivite du capital humain des femmes au cours des quarante dernieres annees cet article explore les approches basees a la fois sur le salaire et les competences professionnelles les resultats suggerent que l ampleur de la hausse du capital humain des femmes dans l economie d apres guerre a ete sensiblement sous evaluee par les methodes de calcul traditionnelles a la fois du capital humain et du facteur travail ainsi pour mesurer l evolution du capital humain des femmes de facon plus globale de nouvelles approches sont necessaires

propagation and smoothing of shocks in alternative social security systems abstract even with well developed capital markets there is no private market mechanism for trading between current and future generations this generates a potential role for public old age pension systems to spread economic and demographic shocks among different generations this paper evaluates how different systems smooth and propagate shocks to productivity fertility mortality and migration in a realistic olg model we use reductions in the variance of wealth equivalents to measure performance starting with the existing u s system as a unifying framework in which we vary how much taxes and benefits adjust and which we then compare to the existing german and swedish systems we find that system design and shock type are key factors the german system and the benefit adjustment only u s system best smooth productivity shocks which are by far the most important shocks overall the german system performs best while the swedish system which includes a buffer stock to relax annual budget constraints performs rather poorly focusing on the u s system reliance solely on tax adjustment fares best for mortality and migration shocks while equal reliance on tax and benefit adjustments is best for fertility shocks

the fairness of discounting a majority rule approach a model of majority rule is developed in which each of a finite number of generations votes on a redistribution of income between itself and the other generations in voting each generation expresses tastes for its own income and for the distribution of income across generations the model is then used to derive the conditions under which discounting is justified namely those conditions for which the majority rule exhibits a positive marginal rate of time preference it is demonstrated that when each generation is wealthier than those preceding it the parameters representing the taste for income equality must be relatively high for the majority rule to exhibit a positive marginal rate of time preference

alternative approaches to economic environmental interactions abstract the key questions raised by recent developments in resource and environmental economics have been what useful economic functions does the environment provide and how are these functions affected by the process of economic environmental interaction this paper distinguishes between two different formal approaches to answering these questions the more conventional approach which is concerned with the optimal allocation of economically valuable exhaustible resources and an alternative analysis that considers the trade off between on the one hand environmental quality and on the other resource depletion and waste generation by the economic process to illustrate and extend the latter approach a model is constructed to show how this trade off might lead to continuously declining environmental quality and a future ecological constraint society must therefore optimally allocate output between consumption and services to improve the environment and choose between increased capital accumulation and environmental degradation although strict application of such a model may be limited it has wider implications for the role of technological change and the value of the environment in any system experiencing deteriorating environmental quality

environmental abatement and intergenerational distribution this paper employs an overlapping generations model to explore the impact of public abatement on private investment and the intergenerational distribution of welfare whereas public abatement benefits old generations in terms of non environmental welfare future generations gain most in terms of environmental welfare the overall benefits tend to be smallest for generations born at the time of the unanticipated policy shock public debt policy however can be employed to ensure that welfare gains are distributed more equally across the various generations such a policy implies that natural capital crowds out man made capital

price flexibility in channels of distribution evidence from scanner data in this study we empirically examine the extent of price rigidity using a unique store level time series data set consisting of i actual retail transaction prices ii actual wholesale transaction prices which represent both the retailers costs and the prices received by manufacturers and iii a measure of manufacturers costs for 12 goods in two widely used consumer product categories we simultaneously examine the extent of price rigidity for each of the 12 products at both final goods and intermediate goods levels we study two notions of price rigidity employed in the existing literature i the frequency of price changes and ii the response of prices to exogenous cost changes we find that retail prices exhibit remarkable flexibility in terms of both notions of price rigidity i e they change frequently and they seem to respond quickly and fully to cost changes furthermore we find that retail prices respond not just to their direct costs but also to the upstream manufacturers costs which further reinforces the extent of the retail price flexibility at the intermediate goods level of the market in contrast we find relatively more evidence of rigidity in the response of manufacturers prices to cost changes this despite the fact that wholesale prices change frequently and therefore exhibit flexibility according to the first notion of price rigidity

the role of life insurance in an emerging economy human capital protection assets allocation and social interaction abstract in this paper we provide micro econometric evidence on the determinants of life insurance demand in china the largest emerging market in the world we employ the china household income project chip dataset for the year 2002 in the analysis the timing is ideal because of the nature of the less well developed capital markets and social security systems in china in 2002 which sets a suitable stage to study the insurance demand behavior of emerging markets the results indicate that both the human capital protection motive and the asset allocation motive are important in explaining the purchase of life insurance in china in addition we present three empirical regularities 1 the positive correlation between the returns to human capital and the returns to market portfolio decrease the demand for life insurance 2 both the current wealth and future income of a household exert curvilinear impacts on life insurance demand 3 the breadth of a households social connections has substantial impacts on life insurance demand

appropriate technology and income differences this article studies the relative productivity of skilled to unskilled workers across countries relative productivities are broken down into the human capital embodied in skilled workers and relative physical productivities reflecting production techniques i find that skilled workers from poorer countries embody less human capital and are also relatively less physically productive furthermore results show that production techniques are inappropriate for most low income countries and these countries experience large increases in gdp per capita by increasing the relative physical productivity of skilled to unskilled workers this suggests that there are significant barriers to the adoption of skill complementary technologies

informational diversity over time and the optimality of monetary equilibria abstract the temporal realizations of a random state variable in an overlapping generations model create an informational diversity between members of different generations and require a reexamination of the optimality that competitive equilibria might display in such an environment using an optimality criterion that reflects this informational diversity we prove the optimality of competitive equilibrium in a model with a fixed stock of fiat money a single spot market and good endowments that follow a markov process the need for an optimality criterion that incorporates informational diversity is further motivated by studying the same model with the operation of complete contingent commodities markets

job tasks time allocation and wages this paper studies wage determination using the first longitudinal data set containing job level task information for individual workers novel quantitative task measures detail the amount of time

sticky prices the impact of regulation abstract this paper finds that approximately one third of the items in the cpi are governed by price regulations that can slow and add noise to the response of prices to changes in cost or demand conditions consequently regulation is a possible partial explanation of sticky prices in the overall rate of inflation and delayed response to changes in the money supply a survey is used to decompose the cpi into freely determined and regulated sub components evidence is provided that prices in the regulated sector of the economy respond approximately two quarters after prices in the freely determined sector thereby contributing a source of stickiness in overall inflation and in the response of inflation to monetary policy

avoiding some costs of inflation and crawling toward hyperinflation the case of the brazilian domestic currency substitute the pattern of a classical hyperinflation is an acute acceleration of the inflation level accompanied by rapid substitution away from domestic currency until the real plan 1 july 1994 however brazil experienced inflation levels well above 1000 a year since 1988 without entering the classical hyperinflation path two elements played key roles in differentiating the brazilian case from the classical hyperinflations indexation and the provision of a reliable domestic currency substitute i e the provision of liquidity to interest bearing assets this paper claims that the existence of this domestic currency substitute was the main source of both the inability of the brazilian central bank to fight inflation and of the unwillingness of brazilians to face the costs of such a fight the provision of the domestic currency substitute through the banking sector is modeled and the main macroeconomic consequences of this monetary regime are derived those are the lack of a nominal anchor for the price system due to the passive monetary policy and the non controllability of seigniorage unlike traditional models of hyperinflations

general equilibrium with endogenously incomplete financial markets abstract the present paper studies a class of general equilibrium economies with imperfectly competitive financial intermediaries and price taking consumers intermediaries optimally choose the securities they issue and the bid ask spread they charge financial intermediation is costly and hence markets are endogenously incomplete an appropriate equilibrium concept is developed and existence is proved competitive equilibria for this class of economies display full indexation of securities payoffs and monetary neutrality even if intermediaries are restricted to issue nominal securities and financial markets turn out to be incomplete this is in sharp contrast with the indeterminacy and non neutrality results established in the literature for incomplete markets economies with exogenously given nominal securities journal of economic literaturclassification numbers d52 g20

bridge jobs and partial retirement the job stopping process of older workers often includes some combination of postcareer bridge employment partial retirement and reverse retirement fewer than two fifths of household heads retire directly from career jobs over half partially retire at some point in their working lives and a quarter reenter the labor force after initially retiring in addition postcareer employment is frequently located outside the industry and occupation of the career job and there are important differences in postcareer labor force experiences by gender permanent income and career job pension status

a theoretical basis for the environmental kuznets curve abstract this paper attempts to explain the environmental kuznets curve ekc or inverted u shaped relationship between income and environmental degradation in the framework of endogenous growth model considering a closed economy one part of capital is used for commodity production which generates pollution that degrades existing environment and the remaining part is used for abating pollution i e upgrading environment sufficient abatement activity improves restores environmental quality a sufficient abatement activity associated with commodity production could only lead optimally towards steady state the ratio of allocation of capital between two sectors production and abatement is fixed along the optimal path but it varies along the non optimal path that exists in the off steady state in the economy allocation of capital for abatement activity varies over time thus a change from insufficient to sufficient allocation of capital i e investment for abatement activity is the basis for an inverted u shaped relationship between environmental quality and economic growth

staggered price setting translog preferences and endogenous persistence abstract this paper generates persistent real effects of a monetary disturbance in the context of staggered price setters the model combines two related and reinforcing features a translog demand structure and a particular input output production structure these features offer a rationale why a firm when computing its own optimal contract price is influenced by the prices set in other overlapping contracts practically the two features interact in a positive manner and provide a way to generate significant endogenous persistence

lessons from experiences with high inflation in economies where price control has been the rule the most serious concern may be recognition of the inflation problem beyond the initial correction of subsidies there is the broader issue of the risk of a serious inflation this article looks at the problem of high inflation in developing countries in europe and latin america and draws lessons from historical experience it analyzes the dynamics of the interaction among deficit finance institutional innovation in financial markets dollarization and the s hortening of wage contracts in high inflation situations when stabilization is undertaken there is neither immediate spontaneous resumption of longer adjustment periods for wages and prices nor instant increase of real money demand to noninflationary levels incomes policy freezing exchange rates wages and prices is advocated as an effective supplement to the inevitable budget cut to make up for institutional inertia and facilitate the start of the stabilization process

the interactive effects of human capital and quality of life on economic growth abstractto bridge the gap in the quality of life qol and economic growth literature and understand the reinforcing effects of qol and human capital on economic development we examine the interactive effects of these two factors on wage growth from 2000 to 2007 at the county level across the united states first a rosen roback model is employed to estimate implicit values of amenities including climate clean air and other natural attributes which are used to generate qol indices second qol human capital represented by the share of college graduates and their interaction serve as key variables in the wage growth model an instrumental variable approach and location fixed effects are used to address endogeneity of human capital and control for location specific unobservable characteristics results suggest that human capital and qol significantly contribute to economic growth and the growth effects are even larger in nonmetropolitan counties importantly we find that the effect of human capital on

student abilities during the expansion of us education abstract the us experienced two dramatic changes in the structure of education in a 50 year period the first was a large expansion of educational attainment the second an increase in test score gaps between college bound and non college bound students this paper documents the impact of these two trends on the composition of school groups by ability and the importance of these composition effects for wages the main finding is that there is a growing gap between the abilities of high school and college educated workers that accounts for one half of the college wage premium for recent cohorts and for the entire rise of the college wage premium between the 1910 and 1960 birth cohorts

sobre el rol de las politicas fiscales y financieras en las fluctuaciones macroeconomicas we study second best macroeconomic policies for open economies subject to intertemporal sustainability problems and where agents may face liquidity constraints if the private sector has biased expectations of future incomes fiscal policies could offset the consequent distortions according to the nature and origin of those biases when some agents confront liquidity constraints there is a potential counter cyclical role for policies that shift current disposable incomes with heterogeneous agents macroeconomic policies may be confronted with dilemmas whose resolution involves distributive considerations

wage indexation and output stability revisited since gray 1976 and fischer 1977 the accepted view is that wage indexation stabilizes output when shocks are nominal and destabilizes output when shocks are real this paper examines this proposition s validity when wage indexation is based on lagged inflation it shows that i in a gray fischer economy with plausible parameters indexing wages to lagged inflation destabilizes output regardless of the type of shocks ii the gray fischer result may be restored if nominal shocks have a strong direct effect on prices given wages iii wage indexation to lagged inflation can be neutral for output stability if monetary policy is accommodative

real exchange rates and the pattern of trade comparative dynamics for north and south abstract using a two country model of imperfect competition this paper examines cross sectional implications for the time series behavior of real exchange rates across different patterns of trade under intersectoral trade price setters display less interaction in their pricing decisions across national boundaries allowing for greater deviation and weaker mean reversion in relative prices conversely with intra industry trade greater price linkages between similar countries trading in similar goods generate lower pass through and less real exchange rate persistence the pattern of trade is shown to essentially alter the degree of domestic price stickiness which in turn affects the self correcting mechanism of an open economy

intergenerational risk sharing and endogenous labour supply within funded pension schemes funded defined benefit pensions add to welfare on account of providing intergenerational risk sharing but lower it on account of inducing labour supply distortions we show that a properly designed funded defined benefit pension scheme involves a welfare improvement even if contributions are distortionary and even if individuals face potentially correlated wage and equity risks numerical calculations indicate that diversification gains from risk sharing are large compared to the losses related to labour supply distortions this result withstands a number of extensions like the introduction of a short sale constraint for individuals or the inclusion of a labour income tax

the baby boomers and the productivity slowdown abstract the entry of baby boomers into the labor force in the late 1960s and 1970s slowed growth for physical and human capital per worker because young workers have little of both thus the baby boom could have contributed to the productivity slowdown i build and calibrate a model a la huggett et al 2011 with exogenous population growth life expectancy retirement and tfp to evaluate this theory the baby boom alone accounts for 53 of the slowdown in the period 1964 69 18 in 1970 74 and 6 in 1975 79

long run implications of investment specific technological change an attempt is made to disentangle its effects from the more traditional hicksneutral form of technological progress the balanced growth path for the model is characterized and calibrated to u s national income and product account nipa data the quantitative analysis suggests that investment specific technological change accounts for the major part of growth jel e13 030 041 047

social security and demographic shocks an overlapping generations model of social security with shocks to the productivity of labor and capital and demographic shocks is studied we focus attention on stationary long run allocations an allocation is interim optimal if there does not exist another feasible allocation that improves the expected welfare of all generations computed conditionally on the state of the world when they are born we characterize the set of interim optimal allocations and study the equilibria associated with various institutional forms of social security from the point of view of this optimality criterion we obtain the analogs of the two traditional welfare theorems of microeconomic theory assume that there exists a financial asset in fixed quantity which supports some non null intergenerational transfers then the rational expectations equilibrium allocation of this economy is interim optimal conversely any stationary interim optimal allocation can be supported by such an equilibrium with adequate lump sum transfers

human capital and earnings distribution dynamics abstract earnings heterogeneity plays a crucial role in modern macroeconomics we document that mean earnings and measures of earnings dispersion and skewness all increase in us data over most of the working life cycle for a typical cohort as the cohort ages we show that i a human capital model can replicate these properties from the right distribution of initial human capital and learning ability ii differences in learning ability are essential to produce an increase in earnings dispersion over the life cycle and iii differences in learning ability account for the bulk of the variation in the present value of earnings across agents these findings emphasize the need to further understand the role and origins of initial conditions

market structure and competitive equilibrium in dynamic economic models abstract recently theorists have analyzed economies which potentially contain both finite and infinite horizon overlapping generations using arrow debreu complete markets typically applied models assume recursive spot and contingent securities markets implying a different equilibrium concept indeed if infinite horizon agents are present recursive equilibria cannot exist without some side conditions on debt with the right side conditions we show that every recursive market equilibrium allocation is a complete market equilibrium allocation and vice versa this bridges a gap between theory and applications and extends existing equivalence results on market structure

the effects of investing social security funds in the stock market when fixed costs prevent some households from holding stocks with fixed costs of participating in the stock market consumers with high income will participate in the stock market but consumers with lower income will not participate if a fully funded defined contribution social security system tries to exploit the equity premium by selling a dollar of bonds per capita and buying a dollar of equity per capita consumers who save but do not participate in the stock market will increase their consumption thereby reducing saving and capital accumulation calibration of a general equilibrium model indicates that this policy could reduce the aggregate capital stock substantially by about 50 cents per capita

sustainability policy and environmental policy a theoretical representative agent economy with a depletable resource stock polluting emissions and productive capital is used to contrast environmental policy which internalises externalised environmental values with sustainability policy which achieves some form of intergenerational equity the obvious environmental policy comprises an emissions tax and a resource stock subsidy each equal to the respective external cost or benefit sustainability policy comprises an incentive affecting the choice between consumption and investment and can be a consumption tax capital subsidy or investment subsidy or a combination thereof environmental policy can reduce the strength of the sustainability policy needed more specialised results are derived in a small open economy with no environmental effects on utility

impact of pension system structure on international financial capital allocation abstract recent findings indicate that pension system structure affects private savings and through them the aggregate foreign asset position of a country we present a two country overlapping generations model that explores the relationship between the magnitude of pension guarantees and the resulting portfolio choices of workers the existence of a pay as you go pension system lowers the wealth of the young workers who consequently borrow from abroad to supplement their current consumption and lowers the overall riskiness of their lifetime wealth prompting them to invest in risky equity financed by the selling of safe bonds in particular we are able to replicate and explain the venture capitalist positive net equity accompanied by negative net debt portfolio profile of the united states more broadly we find empirical support for our results in a cross country analysis using data from 110 economies greater amounts of pension spending are associated with international indebtedness long equity positions and short debt positions

paradoxical consumption behavior when economic activity has environmental effects in a model where enhanced economic activity accumulation of produced capital leads to environmental eects depletion of natural capital competitive steady states corresponding to dierent discount rates are compared for positive discount rates the steady state stock of produced capital may exceed the size maximizing sustainable consumption this implies paradoxical consumption behavior that is a lower discount rate may be associated with lower steady state consumption the theoretical significance of this phenomenon for intergenerational equity is discussed and examples indicating the empirical relevance of the underlying assumptions are presented

quantifying the risk sharing welfare gains of social security the welfare effects of intergenerational risk sharing through a pay as you go social security system that is efficiently indexed to wages or interest rates are quantified comparing steady states there are large welfare gains of being born into an economy with efficient risk sharing as compared to the current u s system efficient policy involves an increasingly risky net of tax income over the life cycle when adjustment to steady state is taken into account the welfare gains largely turn negative the results are also compared and contrasted to the first best allocation

business cycle models aggregation and real wage cyclicality a substantial literature has developed to estimate the true cyclicality of real wages that is composition bias free two major issues are addressed in this article aggregation of heterogeneous workers and potential bias in the measurement of the labor input a general analysis of the biases is presented and alternative approaches in the literature are nested in a single framework estimates based on an efficiency units concept that avoids the usual aggregation problems are presented composition bias underestimates the usual parameters of interest unless both the price and the quantity of the labor input are adjusted appropriately

the cyclical and secular behaviour of the labour input comparing efficiency units and hours worked summary a monthly labour input series designed to correct for the fact that all hours worked are not of the same quality is constructed and its properties compared with unadjusted hours worked this efficiency units series is constructed from bls data on hours worked and earnings by age and sex the cyclical fluctuations displayed by the efficiency units series are smaller on average than those displayed by hours worked although the difference is not large however the secular behaviour of the series is quite different hours worked per capita displays a significant positive trend while efficiency units per capita does not

production chains and general equilibrium aggregate dynamics abstract recent empirical studies reveal that monetary shocks can cause persistent fluctuations in aggregate output in this paper we propose a mechanism to help generate such persistence our dynamic stochastic general equilibrium model features a vertical input output structure with staggered price contracts at each stage of production working through the input output relations and the timing of firms pricing decisions the model generates persistent fluctuations in aggregate output and the observed patterns of price dynamics following a monetary shock output responses are more persistent the greater the number of stages of production and the larger the share of intermediate inputs with a sufficient number of stages the persistence is arbitrarily large if the share of intermediate inputs is one at all but finitely many stages

social security and risk sharing abstract in this paper we identify conditions under which the introduction of a pay as you go social security system is ex ante pareto improving in a stochastic olg economy with capital accumulation and land we argue that these conditions are consistent with realistic specifications of the parameters of the economy in our model financial markets are complete and competitive equilibria interim pareto efficient therefore a welfare improvement can only be obtained if agents welfare is evaluated ex ante and arises from an improvement in intergenerational risk sharing we also examine the optimal size of a given social security system as well as its optimal reform

political intergenerational risk sharing abstract in a stochastic two period olg model featuring an aggregate shock to the economy ex ante optimality requires intergenerational risk sharing we compare the level of intergenerational risk sharing chosen by a benevolent government and by an office seeking politician in our political system the transfer of resources across generations is determined as a markov equilibrium of a probabilistic voting game low realized returns on the risky asset induce politicians to compensate the old through a payg system this political system typically generates an intergenerational risk sharing scheme that is i larger ii more persistent and iii less responsive to the realization of the shock than the social optimum this is because the current politician anticipates her transfers to the elderly to be compensated by future politicians through offsetting transfers and hence overspends

human capital and the wealth of nations we reevaluate the role of human capital in determining the wealth of nations we use standard human capital theory to estimate stocks of human capital and allow the quality of human capital to vary across countries our model can explain differences in schooling and earnings profiles and consequently estimates of mincerian rates of return across countries we find that effective human capital per worker varies substantially across countries cross country differences in total factor productivity tfp are significantly smaller than found in previous studies our model implies that output per worker is highly responsive to changes in tfp and demographic variables jel e23 i25 j24 j31 o47 no question has perhaps attracted as much attention in the economics literature as why are some countries richer than others much of the current work traces back to the classic work of solow 1956 solow s seminal paper suggested that differ ences in the rates at which capital is accumulated could account for differences in output per capita more recently following the work of lucas 1988 human capital disparities were given a central role in the analysis of growth and development however the best recent work on the topic reaches the opposite conclusion klenow and rodriguez clare 1997 hall and jones 1999 parente and prescott 2000 and bils and klenow 2000 argue that most of the cross country differences in output per worker are not driven by differences in human capital or physical capital rather they are due to differences in a residual total factor productivity tfp in this paper we revisit the development problem in line with the earlier view we find that factor accumulation is more important than tfp in accounting for relative incomes across countries the key difference between our work and previous analyses is in the measurement of human capital the standard approach largely inspired by the work of mincer 1974 takes estimates of the rate of return to schooling as building blocks to directly measure a country s stock of human capital implicitly this method assumes that the marginal contribution to output of one additional year

social security and individual accounts as elements of overall risk sharing the widespread public and political impetus in the united states and elsewhere to revamp social security to incorporate some form of individual accounts creates a time of opportunity it is a time when people want to see the better exploitation of the available trade off between risk and return and a time to reconsider the foundations of the social security system so that it can much better serve its intended purpose as a manager of risks as i argue in my new book the new financial order risk in the 21st century shiller 2003 the time when we redesign social security ought to be a time when we carefully consider the fundamental intergenerational risk management problem and define choices in individual accounts that reflect the true problem it is also a time when we must make creative use of insights from behavioral economics that have emerged over the years finally it is a time for an expanded exploitation of our new electronic information technology we should not miss this opportunity this means we must work now toward solving a complex constrained optimization problem where the objective is to maximize a social welfare function involving all generations and the constraints reflect the varying degrees of individual optimization ability psychological underpinnings of human behavior and modem information technology

social security taxation and intergenerational risk sharing the life cycle hypothesis has become the dominant mode used to analyze the effects of a social security system on private saving the labor leisure choice and social welfare as both barro and samuelson indicate a fully funded social security program in a world of certainty would drive out an equivalent amount of private saving if the interest rate is r the effects of a payment of a dollar into the social security pool while young would just offset the effects of receiving 1 r dollars as a transfer when retired papers by diamond hi and samuelson among others have examined the effects of non fully funded social security schemes in a growing economy a non fully funded program can be used to alter the private sector s saving rate and hence the capital labor ratio social security then can be used as a policy tool for achieving the or some variant of the golden rule growth path this abstract was borrowed from another version of this item

heterogeneity in price rigidity evidence from a case study using microlevel data we combine two data sets to study price rigidity the first consists of weekly time series of retail wholesale and spot prices for twelve products these time series contain two exogenous cost shocks we find that prices exhibit more rigidity in response to the second shock than the first the second data set consists of all publicly available information about the shocks content analysis of these information reveals that the first shock is larger and more persistent and the market has more information on it than the second we conclude therefore that prices are more flexible in response to cost shocks that are larger that are more persistent and on which market participants have more information

the conditions for achieving environmentally sustainable development this paper is interested in the narrower interpretation the relationship between environmental quality and sustainable economic activity the latter is interpreted as that level of economic activity which leaves the environmental quality level intact with the policy objective corresponding to this notion being the maximization of net benefits of economic development subject to maintaining the services and quality of natural resources over time 3

disinflation shocks in the eurozone a dsge perspective we investigate the effects of disinflation policies on key macroeconomic variables using euro area data and structural vector autoregressions svars we identify disinflation shocks as the only shocks that drive nominal variables to a lower long run level we find that in the immediate aftermath of a disinflation shock the euro area enters in a persistent recession we use these dynamic responses to estimate a dsge model with imperfect information about the disinflation shock we find that both nominal and real frictions and monetary policy gradualism have played a prominent role in the recessionary effect of disinflation shocks conversely allowing for imperfect credibility does not yield a better fit except when we shut key model s frictions down

generating real persistent effects of monetary shocks how much nominal rigidity do we really need abstract this paper attempts to assess whether money can generate persistent economic fluctuations in dynamic general equilibrium models of the business cycle we show that a small nominal friction in the goods market can make the response of output to monetary shocks large and persistent if it is amplified by real wage rigidity in the labor market we also argue that for plausible levels of real wage rigidity a small degree of nominal stickiness is sufficient for money to produce economic fluctuations as persistent as those observed in the data

paying down the environmental debt we reflect on scenarios of sustain able development constant utility paths in which the stock of pollution is drawn down by investments in environmental cleanup we also report on con stant utility as interest on the vector of capital stocks in our economy jel 02 the costs of cleaning up the environment involve multiyear programs for many sites and or problems and sums in the billions of dollars we have superfund activities in the united states in mind but obviously the site cleanup problems facing the people of eastern europe are also very large scale cleanup expenditures resemble programs of investment in infrastructure rather than once over disbursements for troubleshoot

a simple model of disinflation and the optimality of doing nothing abstract this paper analyses the optimal monetary policy of a government facing an election whose disinflationary abilities are uncertain under the assumption that reducing inflation is costly because of backward looking contracts it is shown that if the government likes to be in power it can choose to do nothing on the inflation front in order to avoid risking electoral defeat should disinflation prove too costly the costs of inflation reduction are worth bearing if initial inflation is sufficiently high therefore it is possible to observe quick disinflations that however stop short of low inflation

explaining cross cohort differences in life cycle earnings abstract college educated workers entering the labor market in 1940 experienced a 4 fold increase in their labor earnings between the ages of 25 and 55 in contrast the increase was 2 6 fold for those entering the market in 1980 for workers without a college education these figures are 3 6 fold and 1 5 fold respectively why are earnings profiles flatter for recent cohorts we build a parsimonious model of schooling and human capital accumulation on the job and calibrate it to earnings statistics of workers from the 1940 cohort the model accounts for 99 of the flattening of earnings profiles for workers with a college education between the 1940 and the 1980 cohorts 52 for workers without a college education the flattening in our model results from a single exogenous factor the increasing price of skills the higher skill price induces i higher college enrollment for recent cohorts and thus a change in the educational composition of workers and ii higher human capital at the start of work life for college educated workers in the recent cohorts which implies lower earnings growth over the life cycle

idiosyncratic risk aggregate risk and the welfare effects of social security we ask whether a pay as you go financed social security system is welfare improving in an economy with idiosyncratic productivity and aggregate business cycle risk we show analytically that the whole welfare benefit from joint insurance against both risks is greater than the sum of benefits from insurance against the isolated risk components one reason is the convexity of the welfare gain in total risk the other reason is a direct risk interaction which amplifies the utility losses from consumption risk we proceed with a quantitative evaluation of social security s welfare effects we find that introducing an unconditional minimum pension leads to substantial welfare gains in expectation even net of the welfare losses from crowding out about 60 of the welfare gains would be missing when simply summing up the isolated benefits

funded pensions and intergenerational and international risk sharing in general equilibrium we explore intergenerational and international risk sharing in a general equilibrium multiple country model with two tier pensions systems the exact design of the pension system is key for the way in which risks are shared over generations the laissez faire market solution fails to provide an optimal allocation because the young cannot share in the financial risks however the existence of wage indexed bonds combined with a pension system with a fully funded second tier that pays defined wage indexed benefits can reproduce the first best if wage indexed bonds are not available mimicking the first best is not possible except under special circumstances we also explore whether national pension funds want to deviate from the first best by increasing domestic equity holdings with wage indexed bonds this incentive is absent while there is indeed such an incentive when wage indexed bonds do not exist

the duality of a dynamic model of equilibrium and an optimal growth model the heterogeneous capital goods case the equivalence between optimal growth solutions and solutions of decentralized models of intertemporal allocation is explored in a one consumer heterogeneous capital goods framework the decentralized economy follows a perfect foresight path the main result is that the decentralized economy will impose on itself a transversality condition this yields the interpretation of equilibrium prices as prices consistent with a certainty version of the efficient markets hypothesis the results rest on the recent contribution by benveniste and scheinkman providing sufficient conditions for infinite horizon concave programs to exhibit capital value transversality as a necessary condition for optimality

intergenerational risk sharing via social security when financial markets are incomplete this paper develops an overlapping generations model with stochastic production and incomplete markets to assess whether the introduction of an unfunded social security system can lead to a pareto improvement even if the initial equilibrium is neither production ine cient in the spirit of diamond 1965 nor dynamically ine cient in the spirit of samuelson 1957 when returns to capital and wages are imperfectly correlated and subject to aggregate shocks then the consumption variance of all generations can be reduced if private markets or government policies enable them to pool their labor and capital incomes a social security system that endows retired households with a claim to labor income may serve as an e ective tool to share aggregate risk between gener

the joint choice of retirement age and postretirement hours of work in this paper we develop and estimate the first complete and internally consistent model of the effect of social security on the labor supply of the aged we develop a simple life cycle model that captures the effect of social security on the joint choice of the date of retirement and hours of work immediately after retirement we show that in the presence of social security the budget constraint relating these choices is highly complex and nonlinear and we develop a maximum likelihood procedure for the model that yields consistent parameter estimates our procedure avoids the selectivity biases present in prior studies that have ignored the nonlinearity of the constraint or have examined only self selected subsamples that exclude nonretirees our results show that social security has a significant though relatively small effect on the age of retirement and postretirement hours of work and that the effect of social security grows with advancing age

intergenerational risk sharing and risk taking of a pension fund abstract by using their financial reserves efficiently pension funds can smooth shocks on their asset returns and can thus facilitate intergenerational risk sharing in addition to the primary benefit of improved time diversification this form of risk allocation affords the additional benefit of allowing these funds to take better advantage of the equity premium which also favors the consumers in this paper our aim is twofold first we characterize the socially efficient policy rules of a collective pension plan in terms of portfolio management capital payments to retirees and dividend payments to shareholders we examine both the first best rules and the second best rules where in the latter case the fund is constrained by a solvency constraint and by a guaranteed minimum return to workers contributions second we measure the social surplus of the system compared to a situation in which each generation would save and invest in isolation for its own retirement we estimate that the certainty equivalent return of the pension saving scheme goes from 3 23 per year to 3 76 when intergenerational risk sharing is introduced one of the main results of the paper is that better intergenerational risk sharing does not reduce the risk born by each generation rather it increases the expected return to the workers contributions

intergenerational risk sharing abstract in this paper we examine government debt and tax transfer policies that can be improve the allocation of risk between generations markets cannot allocate risk efficiently between two generations whenever the two generations are not both alive prior to the occurence of a stochastic event this implies that government policies transferring risk between generations have the potential to create first order welfare improvements our model provides a non keynesian justification for the debt finance of wars and recessions as well as an added rationale for social security type tax transfer schemes which aid unlucky generations e g the depression generation at the expense of luckier generations

inflation debt and indexation these twelve essays cover topics on the frontier of indexation and practice an often proposed and debated tool of economic policy they range from highly theoretical discussions to practical experiences in brazil and europe rudiger dombush is ford international professor of economics at mit mario henrique simonsen is director of the postgraduate school of economics getulio vargas foundation rio de janeiro and former minister of finance and planning brazil

optimal consumption and the environment choosing between clean and dirty goods in this paper a model with heterogeneous consumption goods is presented consumers are assumed to choose between two different consumption goods characterized by a different impact on the environment this implies that in a decentralized economy government can sustain the social optimum by setting two pigouvian taxes one on production as a whole and the other on dirty consumption acting as an incentive in favour of clean consumption in accordance with the previous literature a trade off between a clean environment and economic activity evolves however this trade off is now mitigated by the additional taxation on polluting consumption which allows the control of pollution stock evolution through the substitution between clean and dirty commodities

micro and macroeconomic implications of heterogeneity in the production of human capital we derive a tractable nonlinear earnings function that we estimate separately individual by individual using nlsy79 data we obtain three ability measures a rate of skill depreciation a time discount rate and a population wide estimate of the human capital rental rate we utilize these parameters to verify a number of heretofore untested theorems based on the life cycle model we show how these human capital production function parameters relate to cognitive ability personality traits and family background finally we show that accounting for individual specific heterogeneity dramatically reduces estimates of population wide persistence of permanent and transitory shocks by over 50 percent

a rational economic model of paygo tax rates abstract we argue that paygo rates are determined by a representative agent and a benevolent government jointly maximizing the expected life time utility of the agent the distributions of labor and capital income are calculated from national data on real gdp real wages and the real return to capital since 1950 with uniform risk aversion predicted rates explain 83 of the variance of observed rates the globalization of capital markets would lead to convergence of paygo rates our results are immune to crises like 2008

skill biased technical change and the cost of higher education we document the growth in higher education costs and tuition over the past 50 years to explain these trends we develop a general equilibrium model with skill and sector biased technical change finding the model s parameters through a combination of estimation and calibration we show that it can explain the rise in college costs between 1961 and 2009 along with the increase in college attainment and the change in the relative earnings of college graduates the model predicts that if college costs had ceased to grow after 1961 enrollment in 2010 would have been 3 6 higher

empirical age earnings profiles the human capital earnings function in which earnings are expressed as a quadratic in potential experience is probably the most widely accepted empirical specification in economics in spite of its widespread acceptance the human capital earnings function provides a very poor approximation of the true empirical relationship between earnings and experience the standard formulation understates early career earnings growth by about 30 50 and overstates midcareer growth by 20 50 however simple alternative specifications that fit the data are available

the slowdown in american educational attainment relative to those for high school graduates lifetime earnings for college graduates are higher for more recent cohorts at the same time across successive cohorts born after 1950 there is a stagnation in the fraction of high school graduates that go on to complete a college degree what explains this phenomenon i formulate a life cycle model of human capital accumulation in college and on the job where successive cohorts decide whether or not to acquire a college degree as well as the quality of their college education cohorts differ by the sequence of rental price per unit of human capital they face and by the distribution of initial human capital across individuals my model reproduces the observed pattern in college attainment for the 1920 1970 birth cohorts the stagnation in college attainment is due to the decrease in the growth rate of the rental price per unit of human capital commencing in the 1970s my model also generates about 80 of the increase in lifetime earnings for college graduates relative to those for high school graduates observed across cohorts

training and lifetime income this paper challenges the notion that on the job training investments are quantitatively important for workers welfare and argues that on the job training may not increase lifetime income by more than 1 percent i argue that it is very difficult to reconcile the slowdown in wage growth late in a worker s career with optimizing behavior unless the technology for learning on the job is such that it generates very low gains from training the analysis is based on a nonparametric methodology for estimating the learning technology from wage profiles the results are arrived at by comparing the lifetime income when the worker optimally invests in his human capital to the one where he does not make any investments jel e24 j24 j31

intergenerational risk sharing and fiscal policy abstract risk sharing implications of alternative fiscal policies are compared in a stochastic production economy with overlapping generations ex ante efficiency is shown to be achievable with optimal transfers regardless of distributional concerns for crra preferences stylized real world policies notably safe debt and safe pensions are found inefficient in the direction of imposing not enough productivity risk on retirees and too much on future generations safe transfers can be rationalized as efficient if preferences display age increasing risk aversion such as habit formation the ubiquity of safe transfers suggests that governments treat the young as more risk tolerant than older cohorts

an estimable dynamic general equilibrium model of work schooling and occupational choice this paper develops and estimates a dynamic general equilibrium overlapping generations model of career decisions the model is fit to data on life cycle employment schooling and occupation decisions and on life cycle labor earnings within and between cohorts observed in the us between 1968 and 1993 based on the estimates of the model the impact of cohort size on skill prices and consequently on career decisions is assessed compared to a baseline case in which cohort size increased at a steady average rate and the fertility process was stationary it is found that the male baby bust generations born in the 1930s and 1940s faced higher skill prices by as much as 2 0 completed college at a higher rate by as much as 0 3 percentage points and worked more over the lifetime by as much as 0 1 years in contrast the males from the baby boom generations born in the 1950s and 1960s faced lower skill prices by as much as 1 5 completed college at a lower rate by as much as 1 0 percentage points and worked less over the lifetime by as much as 0 1 years the impact of cohort size is found to differ across gender due to the differential impact of fertility on the value of home production unlike males the female baby bust generations completed college at a lower rate by as much as 1 5 percentage points and worked less over the lifetime by as much as 0 5 years while the female baby boom generations completed college at a lower rate by as much as 1 5 percentage points and worked more over the lifetime by as much as 0 2 years a tuition subsidy experiment is also performed both in a general equilibrium setting in which skill prices are endogenous and in a partial equilibrium setting with fixed skill prices based on the estimated model a 1 increase in tuition is predicted to reduce college enrollment rates by 1 27 in partial equilibrium consistent with previous estimates and by 1 05 in the general equilibrium case thus for this policy experiment the partial equilibrium analysis of schooling choice would not differ significantly from the general equilibrium analysis

human capital prices productivity and growth separate identification of the price and quantity of human capital has important implications for understanding key issues in labor economics and macroeconomics price and quantity series are derived and subjected to robustness checks the human capital price series associated with dierent education levels are highly correlated and exhibit a strong secular trend three result

economic growth with environmental damage and technical progress the papers on economic growth with environmental constraints usually ignore the effect of technical progress this results in static steady state solutions this paper examines the problem of optimal economic growth with environmental damage technical progress taken into account which produces a steady state solution that corresponds to an equilibrium growth with non constant emissions and pollutant stock as a means of steering the economy along the optimal path two types of tradeable pollution permits are analyzed the method of stabilizing the optimal path leading to a steady state is suggested

match bias in wage gap estimates due to earnings imputation about 30 of workers in the current population survey have earnings imputed wage gap estimates are biased toward zero when the attribute being studied e g union status is not a criterion used to match donors to nonrespondents an expression for match bias is derived in which attenuation equals the sum of match error rates attenuation can be approximated by the proportion with imputed earnings union wage gap estimates with match bias removed are presented for 1973 2001 estimates for recent years are biased downward 5 percentage points bias in gap estimates accompanying other non match criteria public sector industry etc is examined