wealth accumulation over the life cycle and precautionary savings this article constructs and simulates a life cycle model of wealth accumulation and estimates the parameters of the utility function the rate of time preference and the coefficient of risk aversion by matching the simulated median wealth profiles with those observed in the panel study of income dynamics and in the survey of consumer finances the estimates imply a low degree of patience and a high degree of risk aversion the results are used to study the importance of precautionary savings in explaining wealth accumulation they imply that wealth accumulation is driven mostly by precautionary motives at the beginning of the life cycle whereas savings for retirement purposes become significant only closer to retirement

labor supply and government programs a cross country analysis abstract there are substantial cross country differences in labor supply late in the life cycle age 50 a theory of labor supply and retirement decisions is developed to quantitatively assess the role of social security disability insurance and taxation for understanding differences in labor supply late in the life cycle across european countries and the united states the findings support the view that government policies can go a long way towards accounting for the low labor supply late in the life cycle in the european countries relative to the united states with social security rules accounting for the bulk of these effects

natural resource use with limited tenure property rights abstract we study the dynamic harvest incentives faced by a renewable resource harvester with insecure property rights a resource concession is granted for a fixed duration after which it is renewed with a known probability only if a target stock is achieved despite the insecurity of this property right simple concessions contracts can be designed to induce first best harvest trajectories we examine how those contracts will depend on economic ecological and institutional variables and apply theoretical insights to two concessions managed fisheries in baja california mexico

pension design with a large informal labor market evidence from chile this article investigates the fiscal and welfare trade offs involved in designing a pension system when workers can avoid contributing by working informally using a life cycle model of labor supply and saving decisions i structurally estimate preferences and earnings opportunities in the formal and informal sectors using data on chilean households i find limited support for formal jobs rationing instead mandatory pension contributions significantly encourage informality policy experiments show that chile could lower minimum pension spending by 23 while guaranteeing the same income to retirees if the minimum pension s implicit tax rate was increased to 60

more on optimal denominations for coins and currency abstract telser telser l b 1995 optimal denominations for coins and currency economics letters 49 425 427 has shown that the problem of b chet helps answer the question of the optimal denominational structure of currency in the u s and u k this note provides further evidence to support this claim using cross country data 1997 elsevier science s a

individual and aggregate labor supply in heterogeneous agent economies with intensive and extensive margins we develop a heterogeneous agent general equilibrium model that incorporates both intensive and extensive margins of labor supply a nonconvexity in the mapping between time devoted to work and labor services distinguishes between extensive and intensive margins we consider calibrated versions of this model that dier in the value of a key preference parameter for labor supply and the extent of heterogeneity the model is able to capture the salient features of the empirical distribution of hours worked including how individuals transit within this distribution we then study how the various specications inuence labor supply responses to aggregate technology shocks we nd that abstracting from intensive margin adjustment has large eects on the volatility of aggregate hours even if intensive margin uctuates relatively little

employment and hours over the business cycle abstract approximately one quarter of the adjustment in total hours of employment over the business cycle represents adjustments in hours while the remainder is explained by changes in employment real business cycle models characterize agents as either continuously adjusting their hours or making only labor force participation decisions about jobs with indivisible hours in this paper we extend the representative agent framework to allow for decisions on both participation and hours we calibrate and simulate a dynamic version of the model and show that it is better able to mimic some features of the aggregate data

insurance and opportunities a welfare analysis of labor market risk abstract using a model with constant relative risk aversion preferences endogenous labor supply and partial insurance against idiosyncratic wage risk this paper provides an analytical characterization of three welfare effects a the welfare effect of a rise in wage dispersion b the welfare gain from completing markets and c the welfare effect from eliminating risk the analysis reveals an important trade off for these welfare calculations on the one hand higher wage uncertainty increases the cost associated with missing insurance markets on the other hand greater wage dispersion presents opportunities to raise aggregate productivity by concentrating market work among more productive workers welfare effects can be expressed in terms of the underlying parameters defining preferences and wage risk or alternatively in terms of changes in observable second moments of the joint distribution over individual wages consumption and hours

optimal annuitization with stochastic mortality and correlated medical costs the conventional wisdom since yaari 1965 is that households without a bequest motive should fully annuitize their investments numerous frictions do not break this sharp result we modify the yaari framework by allowing a household s mortality risk itself to be stochastic due to health shocks a lifetime annuity still helps to hedge longevity risk but the annuity s remaining present value is correlated with medical costs such as those for nursing home care thereby reducing annuity demand even without ad hoc liquidity constraints we find that most households should not hold a positive level of annuities and many should hold negative amounts jel d14 d82 g23 i12 j14 j26

currency by denomination abstract the distribution of the dutch currency circulation by denomination is related to the requirements of efficient payment i e payment involving a minimum number of coins or banknotes for any amount

social security liquidity and early retirement abstract this paper investigates the effect of social security on retirement decisions it argues that it is important to take realistic account of how recipients evaluate potential benefit flows the paper presents a simple retirement model in which liquidity constraints prompt individuals to use higher than market discount rates in evaluating future pension benefits as a consequence even an apparently actuarially fair early retirement benefit could on average discourage continued work using data on individual retirement decisions i find support for the argument that this phenomenon contributes to some of the observed increase in early retirement

the effects of health insurance and self insurance on retirement behavior this paper provides an empirical analysis of the effects of employer provided health insurance medicare and social security on retirement behavior using data from the health and retirement study we estimate a dynamic programming model of retirement that accounts for both saving and uncertain medical expenses our results suggest that medicare is important for understanding retirement behavior and that uncertainty and saving are both important for understanding the labor supply responses to medicare half the value placed by a typical worker on his employer provided health insurance is the value of reduced medical expense risk raising the medicare eligibility age from 65 to 67 leads individuals to work an additional 0 074 years over ages 60 69 in comparison eliminating 2 years worth of social security benefits increases years of work by 0 076 years

a life cycle model of unemployment and disability insurance abstract a general equilibrium life cycle model is developed in which individuals choose a sequence of saving and labor supply faced with search frictions and uncertainty in longevity health status and medical expenditures unemployed individuals decide whether to apply for disability insurance di benefits if eligible we investigate the effects of cash transfer and in kind medicare component of the di system on the life cycle employment without medicare benefits di coverage could fall significantly we also study how di interacts with reforms of social security and medicare and find that di enrollment amplifies the effects of reforms

the effects of collecting income taxes on social security benefits abstract since 1983 social security benefits have been subject to income taxation a provision that can significantly increase the marginal income tax rate for older individuals to assess the impact of this tax we construct and calibrate a detailed life cycle model of labor supply saving and social security claiming we find that in a long run stationary environment replacing the taxation of social security benefits with a revenue equivalent change in the payroll tax would increase labor supply consumption and welfare from an ex ante perspective an equally desirable reform would be to make the portion of benefits subject to income taxes completely independent of other income

economic determinants of workers retirement decisions economic determinants of workers retirement decisions the landscape for older workers has changed dramatically in recent decades governments have made cuts to public pension programs private pensions have shifted from defined benefit to defined contribution plans equity and housing markets have been unusually volatile and workers have experienced declining morbidity and mortality at the same time the labor force participation rate for older men and women has been rising over the past two decades implying later retirement are these phenomena related this paper reviews the large and growing body of literature exploring the economic determinants of workers retirement decisions including public and private pensions wealth and savings health and health insurance and labor demand

optimal denominations for coins and currency abstract let all denominations have the same cost let transactions be any amount between 1 and 3 k 1 1 2 since one can make change the least expensive set of weights requires denominations that are powers of 3 from 1 to k

the risk free rate in heterogeneous agent incomplete insurance economies abstract why has the average real risk free interest rate been less than one percent the question is motivated by the failure of a class of calibrated representative agent economies to explain the average return to equity and risk free debt i construct an economy where agents experience uninsurable idiosyncratic endowment shocks and smooth consumption by holding a risk free asset i calibrate the economy and characterize equilibria computationally with a borrowing constraint of one year s income the resulting risk free rate is more than one percent below the rate in the comparable representative agent economy

housing over time and over the life cycle a structural estimation we estimate a structural model of optimal life cycle housing and nonhousing con sumption in the presence of labor income and house price uncertainties the model postulates constant elasticity of substitution between housing service and nonhousing consumption and explicitly incorporates a housing adjustment cost our estimationts the cross sectional and time series household wealth and housing proles from the panel study of income dynamics 1984 to 2005 reasonably well and suggests an intratemporal elasticity of substitution between housing and nonhousing consumption of 0 487 the low elasticity estimate is largely driven by moments conditional on state house prices and moments in the latter half of the sample period and is robust to different assumptions of housing adjustment cost we then conduct policy analyses in which we let house price and income take values as those observed between 2006 and 2011 we show that the responses depend importantly on the housing adjustment cost and the elasticity of sub stitution between housing and nonhousing consumption in particular compared with the benchmark the impact of the shocks on homeownership rates is reduced but the impact on nonhousing consumption is magnied when the house selling cost is sizable or when housing service and nonhousing consumption are highly substitutable

how social security and medicare affect retirement behavior in a world of incomplete markets this paper provides an empirical analysis of how the u s social security and medicare insurance system affect the labor supply of older males in the presence of incomplete markets for loans annuities and health insurance we estimate a detailed dynamic programming dp model of the joint labor supply and social security acceptance decision focusing on a sample of males in the low to middle income brackets whose only pension is social security the dp model delivers a rich set of predictions about the dynamics of retirement behavior and comparisons of actual vs predicted behavior show that the dp model is able to account for wide variety of phenomena observed in the data including the pronounced peaks in the distribution of retirement ages at 62 and 65 the ages of early and normal eligibility for social security benefits respectively we identify a significant fraction of health insurance constrained individuals who have no form of retiree health insurance other than medicare and who can only obtain fairly priced private health insurance via their employer s group health plan the combination of significant individual risk aversion and a long tailed pareto distribution of health care expenditures implies that there is a significant security value for these individuals to remain employed until they are eligible for medicare coverage at age 65 overall our model suggests that a number of heretofore puzzling aspects of retirement behavior can be viewed as artifacts of particular details of the social security rules whose incentive effects are especially strong for lower income individuals and those who do not have access to fairly priced loans annuities and health insurance

back to work expectations and realizations of work after retirement this paper analyzes a puzzling aspect of retirement behavior known as unretirement nearly 50 percent of retirees follow a nontraditional retirement path that involves partial retirement or unretirement and at least 26 percent of retirees later unretire i explore two possible explanations 1 unretirement transitions result from failures in planning or financial shocks and 2 unretirement transitions are anticipated prior to retirement reflecting a more complex retirement process i show that unretirement was anticipated for the vast majority of those returning to work and is not a result of financial shocks poor planning or low wealth accumulation

learning and wage dynamics we develop a dynamic model of learning about worker ability in a competitive labor market the model produces three testable implications regarding wage dynamics 1 although the role of schooling in the labor market s inference process declines as performance observations accumulate the estimated effect of schooling on the level of wages is independent of labor market experience 2 timeinvariant variables correlated with ability but unobserved by employers such as certain test scores are increasingly correlated with wages as experience increases and 3 wage residuals are a martingale we present evidence from the nlsy that is broadly consistent with the model s predictions

wealth distribution in life cycle economies abstract this paper compares the age wealth distribution produced in life cycle economies to the corresponding distribution in the us economy the idea is to calibrate the model economies to match features of the us earnings distribution and then examine the wealth distribution implications of the model economies the findings are that the calibrated model economies with earnings and lifetime uncertainty can replicate measures of both aggregate wealth and transfer wealth in the us furthermore the model economies produce the us wealth gini and a significant fraction of the wealth inequality within age groups however the model economies produce less than half the fraction of wealth held by the top 1 percent of us households

micro and macro labor supply elasticities a reassessment of conventional wisdom the response of aggregate labor supply to various changes in the economic environ ment is central to many economic issues especially the optimal design of tax policies conventional wisdom based on studies in the 1980s and 1990s has long held that the analysis of micro data leads one to conclude that aggregate labor supply elasticities are quite small in this paper we argue that this conventional wisdom does not hold up to empirically reasonable and relevant extensions of simple life cycle models that served as the basis for these conclusions in particular we show that several pieces of conventional wisdom fail in the presence of human capital accumulation or labor supply decisions that allow for adjustment along both the extensive and intensive margin we conclude that previous estimates of small labor supply elasticities based on micro data are fully consistent with large aggregate labor supply elasticities jel d91 e24 j22

the estimation of a joint wage hours labor supply model in this paper the standard cross sectional static model of labor supply is modified to make the wage endogenous and a joint wage hours model is estimated the econometric technique addresses the non linearity of the budget constraint by approximating the constraint by a series of discrete points the results show that the budget constraint is indeed nonlinear that hours affect the wage quadratically that true wage elasticities are lower as a result and that the model fits the hours distribution much better than the standard tobit model

taxes transfers and employment in an incomplete markets model the consequences of increases in the scale of tax and transfer programs are assessed in the context of a model with idiosyncratic productivity shocks and incomplete markets the effects are contrasted with those obtained in a stand in household model featuring no idiosyncratic shocks and complete markets the main finding is that the impact on hours remains very large but the welfare consequences are very different the analysis also suggests that tax and transfer policies have large effects on average labor productivity via selection effects on employment

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

the effect of social security on labor supply a cohort analysis of the notch generation this article uses aggregate birth year calendar year level data derived from the current population survey cps to estimate the effect of social security wealth on the labor supply of older men in the 1970s and 1980s the analysis focuses on measuring the impact of the 1977 amendments to the social security act which created a substantial unanticipated reduction in social security wealth for individuals born after 1916 this differential in benefits has become known as the benefit notch results indicate that labor supply continued to decline for the notch babies who received lower social security benefits than earlier cohorts

nonconvexities retirement and the elasticity of labor supply abstract we consider two life cycle models of labor supply that use nonconvexities to generate retirement in each case we derive a link between hours worked prior to retirement the intertemporal elasticity of substitution for labor ies and the size of the nonconvexities this link is robust to allowing for credit constraints and human capital accumulation by younger workers and suggests values for the ies that are 75 or higher jel d91 j22 j24 j26

the economic importance of financial literacy theory and evidence this paper undertakes an assessment of a rapidly growing body of economic research on financial literacy we start with an overview of theoretical research which casts financial knowledge as a form of investment in human capital endogenizing financial knowledge has important implications for welfare as well as policies intended to enhance levels of financial knowledge in the larger population next we draw on recent surveys to establish how much or how little people know and identify the least financially savvy population subgroups this is followed by an examination of the impact of financial literacy on economic decision making in the united states and elsewhere while the literature is still young conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps a final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy jel a20 d14 g11 i20 j26

cross sectional and aggregate labor supply abstract standard heterogeneous agent macro models that highlight idiosyncratic productivity shocks do not generate the near zero cross sectional correlation between hours and wages found in the data we ask whether matching this moment matters for business cycle properties of these models to do this we explore two extensions of the model in chang et al 2019 that can match this empirical cross section correlation one of these departs from the assumption of balanced growth preferences the other introduces an idiosyncratic shock to the opportunity cost of market work that is highly correlated with the shock to market productivity while both extensions can match the empirical correlation they have large and opposing effects on the cyclical volatility of the labor market we conclude that the cross sectional moment is important for business cycle analysis and that more work is needed to distinguish the potential mechanisms that can generate it

the effects of health wealth and wages on labour supply and retirement behaviour this paper estimates a life cycle model of labour supply retirement and savings behaviour in which future health status and wages are uncertain individuals face a fixed cost of work and cannot borrow against future labour pension or social security income the method of simulated moments is used to match the life cycle profiles of labour force participation hours worked and assets that are estimated from the data to those that are generated by the model the model establishes that the tax structure of the social security system and pensions are key determinants of the high observed job exit rates at ages 62 and 65 removing the tax wedge embedded in the social security earnings test for individuals aged 65 and older would delay job exit by almost one year by contrast social security benefit levels health and borrowing constraints are less important determinants of job exit at older ages for example reducing social security benefits by 20 would cause workers to delay exit from the labour force by only three months

fiscal cost of demographic transition in japan abstract this paper quantifies the fiscal cost of demographic transition that japan is projected to experience over the next several decades in a life cycle model with endogenous saving consumption and labor supply in both intensive and extensive margins retirement waves of baby boom generations combined with a rise in longevity and low fertility rates raise the old age dependency ratio to 85 by 2050 the highest among major developed countries and generate a significant budget imbalance as the government faces rising costs of public pension and health and long term care insurance preserving the current level of the transfers will require a major increase in taxation using consumption taxes to balance the government budget the tax rate reaches the maximal value of 48 in late 2070s a pension reform to reduce benefits by 20 results in a peak tax rate of 37 which can be reduced further to 28 if the retirement age is also gradually raised by 5 years

trends in male labor force participation and retirement some evidence on the role of pensions and social security in the 1970 s and 1980 s this article estimates the effects of changes in pension plans and social security in the 1970s and 1980s on the steady state retirement of men work incentives associated with pension coverage and plan characteristics are calculated primarily from the 1969 79 retirement history study and the 1983 and 1989 surveys of consumer finances simulations with a structural retirement model suggest that the long run effects of changes in pension plans and social security account for about a quarter of the reduction in full time work by men in their early sixties but cannot explain the reduction by those age 65

is there a retirement savings puzzle in this paper we ask whether households are saving enough for their retirement we use data on income expenditure and expenditure components to analyse patterns of behaviour at and around the time of retirement for successive date of birth cohorts we compare periods of unemployment to periods of retirement and separate expenditures into categories reflecting work related expenditures basic necessities and other goods we find that income typically falls by more at unemployment than retirement but the reverse is true for expenditure we observe falls in expenditure at retirement for all expenditure categories using a stochastic life cycle model including mortality rates we assess the anticipated impact of retirement on consumption against that of unemployment the inter relationship between goods and leisure explains a large part of the persistent fall in expenditure at retirement we argue that the only way in which the life cycle hypothesis could be reconciled with the remaining unanticipated dip in consumption would be with the systematic arrival of unexpected adverse information at the time of retirement

an evaluation of the life cycle effects of minimum pensions on retirement behavior in this paper we explore the effects of the minimum pension program on welfare and retirement in spain this is done with a stylized life cycle model which provides a convenient analytical characterization of optimal behavior we use data from the spanish social security to estimate the behavioral parameters of the model and then simulate the changes induced by the minimum pension in aggregate retirement patterns the impact is substantial there is a threefold increase in retirement at 60 the age of first entitlement with respect to the economy without minimum pensions and total early retirement before or at 60 is almost 50 larger copyright 2007 john wiley sons ltd

micro and macro elasticities in a life cycle model with taxes we build a life cycle model of labor supply that incorporates changes along both the intensive and extensive margin and use it to assess the consequences of changes in tax and transfer policies on equilibrium hours of work we find that changes in taxes have large aggregate effects on hours of work moreover we find that there is no inconsistency between this result and the empirical finding of small labor elasticities for prime age workers in our model micro and macro elasticities are effectively unrelated our model is also consistent with other cross country patterns

the labor supply response to mismeasured but predictable wage changes most panel data studies of intertemporal labor supply assume classical measurement error recent validation studies refute this assumption in this study i address nonclassical measurement error explicitly i use data on males from the panel study of income dynamics validation study to purge measurement error from the panel study of income dynamics i find a large amount of predictable wage variation in the data even after allowing for measurement error however there is almost no labor supply response to these predictable wage changes therefore failure to control for nonclassical measurement error cannot explain the low estimated labor supply elasticities in other papers

an empirical model of labor supply in a life cycle setting this paper formulates and estimates a structural intertemporal model of labor supply using theoretical characterizations derived from an economic model of lifetime behavior a two step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path

an empirical analysis of euro cash payments abstract if the denominational structure of the euro is used in an optimal way there should be no preferences for certain coins and notes when making cash payments in kippers et al 2003 an empirical study of cash payments statistica neerlandica 57 484 508 it is documented that the dutch public did have certain preferences concerning the dutch guilder in the sense that a few notes and coins were used less often than they should have been with the advent of the euro which changed the denominational structure from 1 2 1 2 5 guilder to 1 2 5 euro it is of interest to examine whether there are any preferences for euro coins and notes in this paper we use a unique dataset for the netherlands to empirically examine if the euro range is used in an optimal way we find that there are no preferences for certain euro denominations

earnings test non actuarial adjustments and flexible retirement abstract in response to the challenges of increasing longevity many countries have introduced flexibility reforms for their public pension systems a key measure of these reforms is the abolishment of earnings tests it is claimed that these reforms increase labor supply and therefore the financial sustainability of pension systems we build a simulation model to show that abolishing an earnings test may indeed create more labor supply but simultaneously reduce the average claiming age when adjustments remain less than actuarial as is the case in most european pension systems flexibility reforms may therefore worsen rather than improve the sustainability of public pension systems

is consumption growth consistent with intertemporal optimization evidence from the consumer expenditure survey in this paper we show that some of the predictions of models of consumer intertemporal optimization are in line with the patterns of nondurable expenditure observed in u s household level data we propose a flexible specification of preferences that allows multiple commodities and yields empirically tractable equations we estimate preference parameters using the only u s micro data set with complete consumption information we show that previous rejections can be explained by the simplifying assumptions made in previous studies we also show that results obtained using good consumption or aggregate data can be misleading

humps and bumps in lifetime consumption in this article we argue that the life cycle model that allows demographics to affect household preferences and relaxes the assumption of certainty equivalence can generate hump shaped consumption profiles over age that are very similar to those observed in household level data sources and in particular match the differences in shape across different education groups liquidity constraints or myopia are not required to explain the empirical features of observed life cycle patterns

a life cycle model of health and retirement the case of swedish pension reform abstract sweden is one of the few western economies to have undertaken a large pension reform in recent years this was done with great expectations but little formal analysis in this paper we develop a life cycle labor supply model to quantify the predicted labor supply implications of this reform in our framework individuals choose when to stop working and given eligibility criteria when if to apply for disability and pension benefits agents are heterogeneous in skills and receive exogenous shocks to health throughout their life we find that the new pension system creates large incentives for the continued employment of older workers this is promising news for countries grappling with pension reform and indicates that there are significant lessons to be learned from the swedish case

optimal fossil fuel taxation with backstop technologies and tenure risk abstract the paper derives the global welfare optimizing time path for a tax on fossil fuels causing a negative stock externality climate change under increasing marginal extraction cost and in the presence of an unlimited backstop resource causing no externality in a basic competitive case the optimal tax equals the pigou rate equivalent to the present discounted value of marginal damage costs we consider two separate types of tenure insecurity for resource owners and their impact on the tax implementing the optimal policy when insecure control is with respect to future ownership to the resource competitive extraction is higher than otherwise and the efficiency implementing tax exceeds the pigou rate when tenure insecurity instead implies possible expropriation holdup of investment in extraction capacity it deters extraction and the optimal tax is lower than the pigou rate

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

labor force dynamics of older men this paper describes and analyzes movements of older men among labor force states in the united states using quarterly observations derived from the retirement history survey rhs the results indicate substantial undercounts in the biannual data indicating that the prevalence of labor force movements at older ages has been underestimated previously the results show that labor force dynamics at older ages are important including duration and spell occurrence dependence and work experience effects these effects are robust to nonparametric controls for unobserved heterogeneity the estimates indicate that social security benefits have strong effects on the timing of labor force transitions at older ages but that changes in social security benefit levels over time have not contributed much to the trend toward earlier labor force exit excerpt

the effect of part time work on wages evidence from the social security rules this article identifies the part time wage effect using hours variation caused by the social security rules we show that work hours and wages drop sharply at ages 62 and 65 we argue that the hours decline causes the wage decline resulting in a 25 wage penalty for men who cut their work week from 40 to 20 hours however we find little evidence for such an effect among women we also show that models that fail to account for the joint determination of hours and wages will understate the labor supply response to a tax change by about 26

intertemporal substitution in labor supply evidence from micro data the sensitivity of the supply of labor to intertemporal variation in the wage is an important issue in macroeconomics the analysis of social security and pensions and the study of life cycle patterns of work this paper explores two approaches to the measurement of intertemporal substitution that have appeared in the literature the first approach is to use consumption to control for wealth and unobserved expectations about future wages in the labor supply equation the second approach is to estimate a first difference equation for hours in which labor supply from the previous period serves as a control for wealth and wage expectations the results indicate that intertemporal substitution elasticity for married men is positive but small

social security reform and intertemporal smoothing abstract this paper examines the welfare and distributional impact of switching from a defined benefit pension system like social security to a defined contribution system of personal retirement accounts pras while such a switch would do away with the transfers that low wage workers receive through social security it would have the benefit of reducing labor supply distortions moreover a particular kind of pra suggested in this paper one that has very low or zero contribution rates early in life substantially enhances life cycle patterns of consumption and labor supply by making more resources available to credit constrained young workers simulations of a life cycle model show that in welfare terms these pras significantly outperform conventional pras because of this enhanced intertemporal smoothing

consumption retirement and social security evaluating the efficiency of reform that encourages longer careers abstract this paper proposes and analyzes a social security reform in which individuals no longer face the oasi payroll tax after say age 54 or a career of 34 years and their subsequent earnings have no bearing on their benefits we first estimate parameters of a life cycle model our specification includes non separable preferences and possible disability it predicts a consumption expenditure change at retirement we use the magnitude of the expenditure change together with households retirement age decisions to identify key structural parameters the estimated magnitude of the change in consumption expenditure depends importantly on the treatment of consumption by adult children of the household simulations indicate that the reform could increase retirement ages one year or more equivalent variations could average more than 4000 per household and income tax revenues per household could increase by more than 14 000

interpreting labor supply regressions in a model of full and part time work we construct a family model of labor supply that features adjustment along both the intensive and extensive margin intensive margin adjsutment is restricted to two values full time work and part time work using simulated data from the steady state of the calibrated model we examine whether standard labor supply regressions can uncover the true value of the intertemporal elasticity of labor supply parameter we find positive estimated elasticities that are larger for women and that are highly significant but they bear virtually no relationship to the underlying preference parameters

labour supply the roles of human capital and the extensive margin we specify and estimate a life cycle labour supply model that expands on earlier work by simultaneously including human capital accumulation saving and bequests an active extensive margin a realistic specification of the progressive tax structure and the social security system and an accounting for private pensions and health expenditures by incorporating all these features we develop new insights into how taxes affect life cycle labour supply for instance we find that labour supply elasticities vary in important ways with age education and the tax structure itself we also show how human capital affects elasticities differently on the intensive versus extensive margins

the effect of age targeted tax credits on labor force participation of older workers abstract i analyze the effect of income tax policy changes on labor force participation of older workers i exploit two age targeted policy initiatives to promote work at older ages simultaneously implemented in sweden in 2007 an earned income tax credit and a payroll tax credit for workers above age 65 using an age based discontinuity in eligibility criteria i conduct a difference in differences analysis with the reform as an instrument for the net of tax rate i find a participation elasticity with respect to the net of participation tax rate of about 0 22 in the year following the 65th birthday for individuals who were working four years earlier

social security unanticipated benefit increases and the timing of retirement between 1969 and 1972 real u s social security retirement benefits rose by 20 the rise was unanticipated and followed over 15 years of relatively constant real benefits this paper proposes a model of retirement behaviour in which workers respond differently although in a theoretically consistent manner to the anticipated and unanticipated components of the social security benefit they can receive upon retirement the retirement age decision in the presence of unanticipated benefit changes is shown to be a special case of utility maximization under a nonlinear budget constraint the model is estimated using the longitudinal retirement history survey between 1969 and 1973 real social security benefits for u s workers with fixed earnings histories were raised by more than 20 these increases were the first significant increases in social security since the early 1950 s at the same time that retirement benefits were rising the trend toward early retirement among older american men accelerated in the period from 1965 to 1970 the labour force participation rate of men aged 55 to 64 fell 1 6 percentage points from 84x6 to 83 0 but in the five years after 1970 the rate fell an additional 7 4 points to 75 6 the participation rate of men over 65 fell by 1 1 points in the five years after 1965 but by 5 2 points during the mid 1970 s 1 not surprisingly a large share of this labour force decline has been attributed to the effects of the social security increases enacted in 1969 and 1972 the purpose of this paper is to determine the precise effect of the unanticipated benefit increases on the timing of retirement the effect of social security on the age at retirement has been the subject of lively debate in recent years the literature has been reviewed in two recent papers by mitchell and fields 1982 and hurd 1983 who reach nearly opposite conclusions about the lessons that can be drawn from past empirical research mitchell and fields find that no definite judgment can be reached about the effects of social security on retirement while hurd argues that more careful studies have all found a significant and meaningful effect of social security on early retirement certainly the earlier studies by boskin 1977 and boskin and hurd 1978 found very large social security effects with boskin concluding that the social security system has been the major factor in the explosion in earlier retirement boskin 1977 p 1 very recent studies by burkhauser and quinn 1983 burtless and moffitt 1984 diamond and hausman 1984 fields and mitchell 1984 and hausman and wise 1985 have found smaller social security effects however none of them dealt explicitly with the rapid rise in real benefits during the early 1970 s the approach taken in this paper differs significantly from that in the earlier research just cited the proposed econometric model takes full account of the nonlinear relationship between goods consumption and the age at retirement introduced by social security

government old age support and labor supply evidence from the old age assistance program many major government programs transfer resources to older people and implicitly or explicitly tax their labor in this paper we shed new light on the labor supply and welfare effects of such programs by investigating the old age assistance program oaa a means tested and state administered pension program created by the social security act of 1935 using newly available census data on the entire us population in 1940 we exploit the large differences in oaa programs across states to estimate the labor supply effects of oaa our estimates imply that oaa reduced the labor force participation rate among men aged 65 74 by 5 8 percentage points nearly half of its 1930 40 decline however both reduced form evidence and an estimated structural model of labor supply imply that the welfare cost to recipients of the high tax rates implicit in oaa s earnings test were small the evidence also suggests that social security could account for at least half of the large decline in late life work from 1940 to 1960

reprint of marriage and health selection protection and assortative mating abstract using data from the panel study of income dynamics psid and the medical expenditure panel survey meps we analyze the health gap between married and unmarried individuals of working age controlling for observables we find a gap that peaks at 10 points at ages 55 59 years the marriage health gap is similar for men and women if we allow for unobserved heterogeneity in innate health permanent and age dependent potentially correlated with timing and likelihood of marriage we find that the effect of marriage on health disappears below age 40 years while about 5 points difference between married and unmarried individuals remains at older ages 55 59 years this indicates that the observed gap is mainly driven by selection into marriage at younger ages but there might be a protective effect of marriage at older ages exploring the mechanisms behind this result we find that better innate health is associated with a higher probability of marriage and a lower probability of divorce and there is strong assortative mating among couples by innate health we also find that married individuals are more likely to have a healthier behavior compared to unmarried ones finally we find that health insurance is critical for the beneficial effect of marriage

bounds on elasticities with optimization frictions a synthesis of micro and macro evidence on labor supply how can price elasticities be identified when agents face optimization frictions such as adjustment costs or inattention i derive bounds on structural price elasticities that are a function of the observed effect of a price change on demand the size of the price change and the degree of frictions the degree of frictions is measured by the utility losses agents tolerate to deviate from the frictionless optimum the bounds imply that frictions affect intensive margin elasticities much more than extensive margin elasticities i apply these bounds to the literature on labor supply the utility costs of ignoring the tax changes used to identify intensive margin labor supply elasticities are typically less than 1 of earnings as a result small frictions can explain the differences between micro and macro elasticities extensive and intensive margin elasticities and other disparate findings pooling estimates from existing studies i estimate a hicksian labor supply elasticity of 0 33 on the intensive margin and 0 25 on the extensive margin after accounting for frictions

the control of invasive species on private property with neighbor to neighbor spillovers invasive pests cross property boundaries property managers may have private incentives to control invasive species despite not having sufficient incentive to fully internalize the external costs of their role in spreading the invasion each property manager has a right to future use of his own property but his property may abut others properties enabling spread of an invasive species the incentives for a foresighted property manager to control invasive species have received little attention we consider the efforts of a foresighted property manager who has rights to future use of a property and has the ability to engage in repeated discrete control activities we find that higher rates of dispersal associated with proximity to neighboring properties reduce the private incentives for control controlling species at one location provides incentives to control at a neighboring location control at neighboring locations are strategic complements and coupled with spatial heterogeneity lead to a weaker link public good problem in which each property owner is unable to fully appropriate the benefits of his own control activity future use rights and private costs suggest that there is scope for a series of coase like exchanges to internalize much of the costs associated with species invasion pigouvian taxes on invasive species potentially have qualitatively perverse behavioral effects a tax with a strong income effect e g failure of effective revenue recycling can reduce the value of property assets and diminish the incentive to manage insects on one s own property

family labor supply and aggregate fluctuations abstract this paper considers an economy which is populated by a continuum of identical families consisting of two members the two members have different productivities and the family faces a fixed utility cost if both members supply labor simultaneously although both family members have the same preferences they display very different elasticities of labor supply a real business cycle model is calibrated and it is seen that this cross sectional heterogeneity results in interesting forms of aggregation bias

wealth inequality and intergenerational links previous work has had difficulty generating household saving behaviour that makes the distribution of wealth much more concentrated than that of labour earnings and that makes the richest households hold onto large amounts of wealth even during very old age i construct a quantitative general equilibrium overlapping generations model in which parents and children are linked by accidental and voluntary bequests and by earnings ability i show that voluntary bequests can explain the emergence of large estates while accidental bequests alone cannot and that adding earnings persistence within families increases wealth concentration even more i also show that the introduction of a bequest motive generates lifetime savings profiles more consistent with the data

towards a micro founded theory of aggregate labour supply we build a heterogeneous agents life cycle model that captures a large number of salient features of individual male labour supply over the life cycle by education both along the intensive and extensive margins the model provides an aggregation theory of individual labour supply firmly grounded on individual level micro evidence and is used to study the aggregate labour supply responses to changes in the economic environment we find that the aggregate labour supply elasticity to a transitory wage shock is 1 75 with the extensive margin accounting for 62 of the response furthermore we find that the aggregate labour supply elasticity to a permanent compensated wage change is 0 44

uncertain medical expenses and precautionary saving near the end of the life cycle this paper introduces a dynamic structural model of household consumption decisions in which elderly families consider the effects of uncertain future medical expenses when deciding current levels of consumption the model with uncertain medical expenses implies a potentially important role for precautionary saving incentives to explain slow rates of dissaving among elderly americans during retirement rather than just simulating the stochastic dynamic model preference parameters are estimated using panel data on health wealth and expenditures for retired families the health uncertainty model predicts consumption levels closer to observed expenditures than a life cycle model with uncertain longevity however elderly families typically dissave their financial assets more slowly than even the baseline health uncertainty model predicts is optimal

the effects of marital status and children on savings and portfolio choice this paper investigates the impact of demographic shocks on optimal decisions about saving life insurance and most centrally asset allocation we analyze these choices within the framework of a life cycle model that features exogenous changes in family composition heterogeneity in lifetime income and uninsurable fluctuations in earnings and medical costs our analysis indicates that marital status transitions and children can have important effects on optimal household decisions widowhood induces sharp reductions in the portfolio shares in stock and the impact is largest for women and individuals with children divorce causes men and women to reallocate their portfolios in different directions men choose much riskier allocations while women opt for safer ones children play a fundamental role in the optimal portfolio decisions men with children for example increase their shares in response to divorce by less than half as much as men without children comparing our simulation results with panel data evidence on stockholding from the psid and the hrs we conclude that changes in marital status and children matter empirically as well but not always in the ways that the model predicts

interpreting aggregate wage growth the role of labor market participation a new and easily implementable framework for the empirical analysis of the relationship between aggregate and individual wages is developed aggregate real wages are shown to contain three important bias terms one associated with the dispersion of individual wages a second deriving from compositional changes in the selected sample of workers and a third reflecting the distribution of working hours their importance for interpreting the path of aggregate wages and of the returns to education for recent experience in britain is highlighted a close correspondence between the estimated biases and the patterns of differences shown by aggregate wages is established

the effects of progressive taxation on labor supply when hours and wages are jointly determined this paper extends a standard intertemporal labor supply model to account for progressive taxation as well as the joint determination of hourly wages and hours worked we show that these two factors can have implications for both estimating labor supply elasticities as well as for using these elasticities in tax analysis failure to account for wage hours ties and progressive taxation may cause the hours response to marginal tax rate changes to be understated by 5 to 30 percent for men

heterogeneity and aggregation implications for labor market fluctuations we demonstrate that aggregate employment and consumption can increase without a corresponding movement in productivity in a model with heterogeneous agents where the only aggregate disturbance is a productivity shock the interaction between incomplete capital markets and indivisible labor results in a low employment productivity correlation and creates a time varying wedge between the marginal rate of substitution for commodity consumption and hours and productivity our results caution against viewing the measured wedge as an inefficiency due to a failure of labor market clearing or as a fundamental driving force behind business cycles jel d31 e32 j22 j24 j31

some costs of incomplete property rights with regard to federal grazing permits public land uses other than raising livestock have gained greater importance in pol icy proposals recently under the current prop erty rights regime the market solution of trading grazing permits is restricted political action is used to allocate public land use the effect of in creased political pressure to emphasize non commercial uses on grazing permits values is es timated if the rights to grazing permits were secure and transferable then the grazing permits values would not decrease in value as non commercial uses become more desired results indicate the opposite effect occurs in that as non commercial uses become more dear grazing per mit values have declined jel q15

saving and liquidity constraints this paper is concerned with the theory of saving when consumers are not permitted to borrow and with the ability of such a theory to account for some of the stylized facts of saving behavior the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life cycle models copyright 1991 by the econometric society

disability capacity for work and the business cycle an international perspective important policy issues arise from the high and growing number of people claiming disability benefits for reasons of incapacity for work in oecd countries economic conditions play an important part in explaining both the stock of disability benefit claimants and inflows to and outflows from that stock employing a variety of cross country and country specific household panel data sets as well as administrative data we find strong evidence that local variations in unemployment have an important explanatory role for disability benefit receipt with higher total enrolments lower outflows from rolls and often higher inflows into disability rolls in regions and periods of above average unemployment in understanding the nature of the cyclical fluctuations and trends in disability it is important to distinguish between work disability and health disability the former is likely to be influenced by economic conditions and welfare programmes while the latter evolves in a slower fashion with medical technology and demographic changes there is little evidence of health disability being related to the business cycle so cyclical variations are driven by work disability the rise in unemployment due to the current global economic crisis is expected to increase the number of disability insurance claimants

the mortality effects of retirement evidence from social security eligibility at age 62 abstract social security eligibility begins at age 62 and approximately one third of americans immediately claim at that age we examine whether age 62 is associated with a discontinuous change in aggregate mortality a key measure of population health using mortality data that covers the entire u s population and includes exact dates of birth and death we document a robust two percent increase in male mortality immediately after age 62 the change in female mortality is smaller and imprecisely estimated additional analysis suggests that the increase in male mortality is connected to retirement from the labor force and associated lifestyle changes

effects of permanent and transitory tax changes in a life cycle labor supply model with human capital i examine effects of labor income taxation in life cycle models with human capital accumulation in this case the opportunity cost of time equals the wage plus returns to work experience this has several interesting consequences first the data appear consistent with larger labor supply elasticities than prior work suggests second contrary to conventional wisdom permanent tax changes can have larger effects on current labor supply than temporary changes third human capital dampens responses of young workers to transitory tax changes fourth labor supply elasticities increase with age fifth human capital amplifies the effect of permanent tax changes in the long run

can social security explain trends in labor force participation of older men in the united states after a long decline the labor force participation rate lfpr of older men in the united states leveled off in the 1980s and began to increase in the late 1990s we examine how changes in social security rules affected these trends we attribute only a small portion of the decline from the 1960s 80s to the increasing generosity of social security over this period increases in the full retirement age and the delayed retirement credit explain one quarter to one half of the recent increase in the lfpr increasing educational attainment and increasing lfpr of married women also contributed to the recent rise

aggregation and labor supply elasticities aggregation and labor supply elasticities the aggregate frisch elasticity of labor supply has played a key role in business cycle analysis this paper develops a statistical aggregation procedure which allows for worker heterogeneity in observables and unobservables and is applicable to an individual labor supply function with non employment as a possible outcome performing a thought experiment in which all offered or paid wages are subject to an unanticipated temporary change we can derive an analytical expression for the aggregate frisch elasticity and illustrate its main components i the intensive and extensive adjustment of hours worked ii the extensive adjustment of wages and iii the aggregate employment rate we use individual specific data from the german socio economic panel soep for males at working age in order to quantify each component this data base provides indirect evidence on non employed workers reservation wages we use this variable in conjunction with a twostep conditional density estimator to retrieve the extensive adjustment of hours worked and wages paid the intensive hours adjustment follows from estimating a conventional panel data model of individual hours worked our estimated aggregate frisch elasticity varies between 63 and 70 these results are sensitive to the assumed nature of wage changes jel classification c51 e10 j22

confidence and the real value of money in an overlapping generations economy we demonstrate that stochastic bubbles which have a constant exogenous probability of collapsing may exist in general equilibrium on an intrinsically useless and unbacked asset money this may happen provided that the probability q that the bubble will persist next period is large enough and exceeds a threshold level q which we call the minimum rate of confidence this condition is always violated when the economy without bubble is dynamically efficient it is more likely to be satisfied in dynamically inefficient economies the larger the size of the inefficiency as measured by the excess of the growth rate over the no bubble interest rate we study both exchange and production economies

a model of regulated open access resource use abstract this paper develops a model of regulated open access resource exploitation the regulatory model assumes that regulators are goal oriented choosing target harvest levels according to a safe stock concept these harvest quotas are implemented by setting season lengths conditioned on the industry fishing capacity the industry enters until rents are dissipated conditioned on season length regulations harvest levels fishing capacity season length and biomass are determined jointly using parameter estimates from the long regulated north pacific halibut fishery predictions of these variables from the regulated open access model are compared to predictions that arise from the gordon model

a structural retirement model the life cycle model analyzed here constrains most work on the main job to be full time partial retirement entails a wage reduction and frequently a job change maximum likelihood estimates of utility function parameters are designed to incorporate information on the age of leaving full time work and the age of full retirement the model closely tracks retirement behavior including peaks in retirement activity at 62 and 65 the paper explores the relation of these peaks to nonlinearities in the budget constraint created by various retirement programs policy analyses based on this and on earlier models with simpler structures are compared the retirement choice is one of the more prominent manifestations of life cycle behavior the decision is the result of an interplay between an individual s preferences and a set of incentives which change in complicated ways as the individual progresses through his or her late 50 s and 60 s the purpose of this study is to formulate and estimate a structural model which incorporates in a fundamental way this interplay between lifetime preferences and incentives and to illustrate how such a model may be used to investigate retirement behavior a structural model of this type is essential for analyzing potential policy changes which can be expected to affect incentives in varying ways over a number of years in the life cycle the current study incorporates two structural features which have frequently been omitted from previous studies first the model requires that an individual who wishes to reduce work effort below full time must accept a reduced hourly wage rate in order to do so this reflects empirical evidence from micro data sets which indicates that around one third of older individuals engage in part time work at one time or another and that regardless of whether or not these older workers change jobs to obtain part time work they usually take wage cuts as compared to their previous full time work 2 the fact that an individual is willing to accept a lower wage rate in return for the opportunity to work fewer than full time hours contains important information about the preferences of the

the way we pay with money we assess the sample distribution of payments in the netherlands using survey data for 1984 1986 the payment pattern fits a lognormal distribution with peaks caused by the price tags of the purchased items the results are used to simulate the use of coins and notes which indicates a rather efficient denominational mix but a high degree of hoarding for the large bank notes