detecting policy effects with wage rigidity and instability evidence on the taiwan labour market with stagnant wages and growing productivity a widening gap is becoming prevalent in global labour markets the relationship between wages and productivity has become indeterminate especially aft

selection investment and women s relative wages over time in theory growing wage inequality within gender should cause women to invest more in their market productivity and should differentially pull able women into the workforce our paper uses heckman s two step estimator and identification at infinity on repeated current population survey cross sections to calculate relative wage series for women since 1970 that hold constant the composition of skills we find that selection into the female full time full year workforce shifted from negative in the 1970s to positive in the 1990s and that the majority of the apparent narrowing of the gender wage gap reflects changes in female workforce composition we find the same types of composition changes by measuring husbands wages and national longitudinal survey iq data as proxies for unobserved skills our findings help to explain why growing wage equality between genders coincided with growing inequality within gender

household time use among older couples evidence and implications for labor supply parameters using the consumption activities mail survey cams module in the hrs we document how individual time allocations change when one or more household members transitions from full time work to not working we find that the ratio of home production to leisure time is approximately constant for both family members using a model of household labor supply to understand the implications of this finding we conclude that the elasticity of substitution between the leisure of the two members is quite large this elasticity plays a key role in models of household labor supply and is important for understanding how changes in relative wages and taxes affect household labor supply

the evolution of time preference with aggregate uncertainty we examine the evolutionary foundations of intertemporal preferences when all the risk affecting survival and reproduction is idiosyncratic evolution selects for agents who maximize the discounted sum of expected utility discounting at the sum of the population growth rate and the mortality rate aggregate uncertainty concerning survival rates leads to discount rates that exceed the sum of population growth rate and death rate and can push agents away from exponential discounting

revisiting wage earnings and hours profiles abstract for the youngest cohorts whose entire working life can be observed hours start falling much earlier than wages wages do not fall if they fall at all until one s late 60s the data suggest that many workers start a smooth transition into retirement by working progressively fewer hours while still facing an upward sloping wage profile this pattern is not an artifact of staggered abrupt retirement or selection this evidence imposes restrictions on dynamic models of the aggregate economy and provide updated numerical profiles that can be readily used in quantitative macroeconomic analysis to incorporate this new pattern into aggregate models

marriage stability taxation and aggregate labor supply in the u s vs europe americans work more than europeans using micro data from the united states and 17 european countries we document that women are typically the largest contributors to the cross country differences in work hours we also show that there is a negative relation between taxes and annual hours worked driven by men and a positive relation between divorce rates and annual hours worked driven by women in a calibrated life cycle model with heterogeneous agents marriage and divorce we find that the divorce and tax mechanisms together can explain 45 of the variation in labor supply between the united states and the european countries

competitive search equilibrium in this paper i construct an equilibrium for markets with frictions which is competitive in the sense that all agents are price takers and maximize utility subject to a set of market parameters i show that the equilibrium allocation is socially optimal i also show how the competitive search equilibrium can be achieved if employers with vacancies can advertise publicly the wages they pay

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

sources of lifetime inequality is lifetime inequality mainly due to differences across people established early in life or to differences in luck experienced over the working lifetime we answer this question within a model that features idiosyncratic shocks to human capital estimated directly from data as well as heterogeneity in ability to learn initial human capital and initial wealth we find that as of age 23 differences in initial conditions account for more of the variation in lifetime earnings lifetime wealth and lifetime utility than do differences in shocks received over the working lifetime jel d31 d91 j24 j31 to what degree is lifetime inequality due to differences across people established early in life as opposed to differences in luck experienced over the working lifetime among the individual differences established early in life which ones are the most important a convincing answer to these questions is of fundamental importance first and most simply an answer serves to contrast the potential importance of the myriad policies directed at modifying or at providing insurance for initial conditions e g public education against those directed at shocks over the working lifetime e g unemployment insurance second a discussion of lifetime inequality cannot go too far before discussing which specific type of initial condition is the most critical for determining how one fares in life third a useful framework for answering these questions should also be central in the analysis of a wide range of policies considered in macroeconomics public finance and labor economics we view lifetime inequality through the lens of a risky human capital model agents differ in terms of three initial conditions initial human capital learning ability and financial wealth initial human capital can be viewed as controlling the intercept of an agent s mean earnings profile whereas learning ability acts to rotate

structural transformation and the deterioration of european labor market outcomes this paper examines hours worked in continental europe and the united states from 1956 to 2003 the empirical work establishes two results first hours worked in europe decline by almost 45 percent compared to the united states over this period second this decline is almost entirely accounted for by the fact that europe develops a much smaller market service sector than the united states a simple model of time allocation is used to understand these patterns i find that relative increases in taxes and technological catch up can account for most of the differences between the european and american time allocations over this period

taxation and household labor supply we evaluate reforms to the u s tax system in a life cycle setup with heterogeneous married and single households and with an operative extensive margin in labor supply we restrict our model with observations on gender and skill premia labor force participation of married females across skill groups children and the structure of marital sorting we concentrate on two revenue neutral tax reforms a proportional income tax and a reform in which married individuals flle taxes separately separate flling our flndings indicate that tax reforms are accompanied by large increases in labor supply that difier across demographic groups with the bulk of the increase coming from married females under a proportional income tax reform married females account for more than 50 of the changes in hours across steady states while under separate flling reform married females account for all the change in hours

the evolutionary theory of time preferences and intergenerational transfers at each age an organism produces energy by foraging and allocates this energy among reproduction survival growth and intergenerational transfers we characterize the optimal set of allocation decisions that maximizes fitness time preference the discount rate is derived from the marginal rate of substitution between energy obtained at two different times or ages holding fitness constant time preference varies with age in different ways depending on whether an individual is immature or mature and during the transition between these stages we conclude that time preference and discount rates are likely to be u shaped across age

quantifying the disincentive effects of joint taxation on married women s labor supply we quantify the disincentive effects of elements of joint taxation in the labor income tax codes of 17 european countries and the us we analyze the extent to which hours worked of married men and women would change if each country switched to a system of separate taxation of married couples in this hypothetical tax reform we keep the average tax burden of married households constant with the exception of four countries featuring already a system of separate taxation the model predicts that married women s hours worked increase on average by 115 hours or 10 5 percent through this reform

on the allocation of time a quantitative analysis of the roles of taxes and productivities basic theory suggests that increases in labor income taxes induce people to substitute household production for market work time use surveys for 12 oecd countries during 1970 2010 however show that instead people substituted leisure for market work to understand why this happened we carefully measure the labor productivity of household production and find that it grew strongly in many countries of our sample employing a calibrated model of household production we show that strong growth in the labor productivity of household production implies that leisure absorbs the reductions in market work after labor income tax increases

long term changes in married couples labor supply and taxes evidence from the us and europe since the 1980s abstract we document the time series of employment rates and hours worked per employed by married couples in the us and seven european countries belgium france germany italy the netherlands portugal and the uk from the early 1980s through 2016 relying on a model of joint household labor supply decisions we quantitatively analyze the role of non linear labor income taxes for explaining the evolution of hours worked of married couples over time using as inputs the full country and year specific statutory labor income tax codes we further evaluate the role of consumption taxes gender and educational wage premia and the educational composition the model is quite successful in replicating the time series behavior of hours worked per employed married woman with labor income taxes being the key driving force it does however capture only part of the secular increase in married women s employment rates in the 1980s and early 1990s suggesting an important role for factors not considered in this paper an independent and important contribution of the paper is that we make the non linear tax codes used as an input into the analysis available as a user friendly and easily integrable set of matlab codes

social security and retirement across the oecd abstract employment to population ratios differ markedly across organization for economic cooperation and development oecd countries especially for people aged over 55 years in addition social security features differ markedly across the oecd particularly with respect to features such as generosity entitlement ages and implicit taxes on social security benefits this study postulates that differences in social security features explain many differences in employment to population ratios at older ages this conjecture is assessed quantitatively with a life cycle general equilibrium model of retirement at ages 60 64 years the correlation between the simulations of this study s model and observed data is 0 67 generosity and implicit taxes are key features to explain the cross country variation whereas entitlement age is not

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

cross country differences in unemployment fiscal policy unions and household preferences in general equilibrium we develop a five period overlapping generations model with individuals who differ by ability and with an imperfect labour market union wage setting for the individuals of lower ability the model explains human capital formation hours worked and unemployment within one coherent framework its predictions match the differences in the unemployment rate across 12 oecd countries remarkably well a shapley decomposition of these differences reveals an almost equal role for fiscal policy variables and union preferences as to fiscal policy differences in unemployment benefits play a much more important role than tax differences differences in households taste for leisure are unimportant

taxation of human capital and wage inequality a cross country analysis wage inequality has been significantly higher in the united states than in continental european countries ceu since the 1970s moreover this inequality gap has further widened during this period as the us has experienced a large increase in wage inequality whereas the ceu has seen only modest changes this paper studies the role of labor income tax policies for understanding these facts we begin by documenting two new empirical facts that link these inequality differences to tax policies first we show that countries with more progressive labor income tax schedules have significantly lower before tax wage inequality at different points in time second progressivity is also negatively correlated with the rise in wage inequality during this period we then construct a life cycle model in which individuals decide each period whether to go to school work or be unemployed individuals can accumulate skills either in school or while working wage inequality arises from differences across individuals in their ability to learn new skills as well as from idiosyncratic shocks progressive taxation compresses the after tax wage structure thereby distorting the incentives to accumulate human capital in turn reducing the cross sectional dispersion of before tax wages we find that these policies can account for half of the difference between the us and the ceu in overall wage inequality and 76 of the difference in inequality at the upper end log 90 50 differential when this economy experiences skill biased technological change progressivity also dampens the rise in wage dispersion over time the model explains 41 of the difference in the total rise in inequality and 58 of the difference at the upper end

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

a biological theory of social discounting we consider a growth model in which intergenerational transfers are made via stocks of private and public capital private capital is the outcome of individuals private savings while decisions regarding public capital are made collectively we hypothesize that private saving choices evolve through individual selection while public saving decisions are the result of group selection the main result of the paper is that the equilibrium rate of return to private capital is at least 2 3 percent more than the rate of return to public capital in other words social choices involving intertemporal trade offs exhibit much more patience than individual choices do jel d11 d71 d91 h43 policy issues often involve intergenerational trade offs one highly publicized and polarizing example concerns the appropriate response to global warming while nordhaus 1994 concluded that there was no need to enact draconian policies to reduce co 2 emissions immediately stern 2006 insisted that the situation was in fact dire the difference in position can be attributed almost exclusively to the rates of time preference assumed by these two authors nordhaus used a few percent based on estimates deriving from private economic behavior while stern essentially set it equal to zero on the basis of a philosophical stance it then becomes clear that co 2 emissions should be taken seriously if for some reason private rates of time preference are too high when applied to public decisions since such decisions should then be made on the basis of a lower rate 1

search frictions real wage rigidities and the optimal design of unemployment insurance abstract in this paper we study the optimal unemployment benefits financing scheme when the economy is subject to labor market imperfections characterized by real wage rigidities and search frictions the us unemployment insurance financing is such that firms are taxed proportionately to their layoffs to finance unemployment benefits using dsge methodology we investigate how policy instruments should interact with labor market imperfections it is shown that wage rigidities in a search and matching environment cause welfare costs especially in the absence of an incentive based unemployment insurance this cost is mainly due to the distorting effect of wage rigidities which generate inefficient separations we show that the optimal unemployment benefits financing scheme corresponding to the ramsey policy offsets labor market imperfections and allows implementation of the pareto allocation the second best allocation brings the economy close to the ramsey allocation the implementation of the optimal policies clearly highlights the role of labor market institutions for short run stabilization

german income taxation and the timing of marriage i investigate how the german income tax code affects the timing of marriages the german income tax code allows married couples to benefit from full income splitting relative to unmarried couples

unequal pay or unequal employment a cross country analysis of gender gaps we analyze gender wage gaps correcting for sample selection induced by nonemployment we recover wages for the nonemployed using alternative imputation techniques simply requiring assumptions on the position of imputed wages with respect to the median we obtain higher median wage gaps on imputed rather than actual wage distributions for several oecd countries however this difference is small in the united states the united kingdom and most central and northern eu countries and becomes sizable in southern eu countries where gender employment gaps are high selection correction explains nearly half of the observed negative correlation between wage and employment gaps

taxes and marriage a two sided search analysis this article analyzes the effects of differential tax treatment of married and single individuals in the united states on marriage formation and composition divorce and labor supply we develop a marriage market model with search frictions and heterogeneous agents that is sufficiently rich to capture key elements of the problem under consideration we then calibrate the model and use it to evaluate the quantitative effects of several tax reforms aimed at making the tax law neutral with respect to marital status we find that these reforms i systematically increase the labor supply of married females with changes ranging from 0 3 to 10 1 percent ii have substantial effects on the correlation of spouses incomes which changes from 0 2 to values between 0 185 and 0 334 iii can lead to either an increase or decrease in the fraction of people married with changes that range from 0 6 to 2 4 percent

time preference and life cycle consumption with endogenous survival we provide a structural theory of time preference and derive a functional form of intertemporal preferences by postulating that individuals make their life cycle consumption choices as if to maximize expected lifetime this yields a nontime separable expected utility representation where the inverse of the coefficient of intertemporal substitution exceeds the coefficient of relative risk aversion the rate of time preference depends on the inverse of expected remaining lifetime and the effect of age on the productivity of consumption in affecting health the preference formulation is applied in a standard intertemporal consumption model to illustrate the implied life cycle consumption choices

structural transformation marketization and household production around the world we provide evidence on household and market production in 36 countries since 1960 on average the household sector accounts for almost half of total hours worked as gdp per capita increases the employment share of household production in total hours worked initially declines and then hardly changes while the employment shares of market goods and services decrease and increase estimating the value added of household production yields similar patterns labor productivity of household production is lower than and positively correlated with that in the market these findings can be used as an input into quantitative work involving household production

the effects of the unemployment insurance payroll tax on wages employment claims and denials abstract following a 13 year period when all employers in washington paid the same unemployment insurance ui tax rate washington was forced to adopt an experience rated tax system in 1985 we use this natural experiment to explore both tax incidence and the effects of experience rating we find that industry average tax rates are largely passed on to workers through lower earnings however our estimates imply that a firm can shift much less of the difference between its tax rate and the industry average rate our results also indicate that experience rating reduces turnover and ui claims and increases claim denials

on the evolution of attitudes towards risk in winner take all games abstract a long standing conjecture is that winner take all games such as patent races lead to the survival of risk takers and the extinction of risk averters in many species a winner take all game determines the males right to reproduce and the same argument suggests that males will evolve to be risk takers psychological and sociological evidence buttresses the argument that males are more risk taking than females using an evolutionary model of preference formation we investigate to what extent evolution leads to risk taking in winner take all environments journal of economic literature classification numbers c7 d8

a welfare analysis of social security in a dynastic framework in this article we study the welfare effects of unfunded social security in a general equilibrium model populated with overlapping generations of altruistic individuals that differ in lifetime expectancy and earnings ability contrary to previous research our results indicate that steady state welfare increases with social security for most households although by very different amounts this result is mainly due to two factors first the presence of two sided altruism significantly mitigates the crowding out effect of unfunded social security second ability shocks and uncertain lifetimes generate significant heterogeneity among households to yield different induced preferences for social security

the employment effect of reforming a public employment agency by how much does an increase in operating effectiveness of a public employment agency pea and a reduction of unemployment benefits reduce unemployment using a recent labour market reform in germany as background we find that an enhanced effectiveness of the pea explains about 20 of the observed post reform unemployment decline the role of unemployment benefit reduction explains just about 5 of the observed decline due to disincentive effects resulting from the reform the reform of the pea could have had an even higher impact on unemployment reduction if there had been less focus on long term unemployed workers

engines of liberation electricity was born at the dawn of the last century households were inundated with a flood of new consumer durables what was the impact of this consumer durable goods revolution it is argued here that the consumer goods revolution was conducive to liberating women from the home to analyse this hypothesis a beckerian model of household production is developed households must decide whether or not to adopt the new technologies and whether a married woman should work can such a model help to explain the rise in married female labour force participation that occurred in the last century yes the housewife of the future will be neither a slave to servants nor herself a drudge she will give less attention to the home because the home will need less she will be rather a domestic engineer than a domestic labourer with the greatest of all handmaidens electricity at her service this and other mechanical forces will so revolutionize the woman s world that a large portion of the aggregate of woman s energy will be conserved for use in broader more constructive fields thomas alva edison as interviewed in good housekeeping magazine lv no 4 october 1912 p 436

labor supply and taxes a survey i survey the male and female labor supply literatures focusing on implications for effects of wages and taxes for males i describe and contrast results from three basic types of model static models especially those that account for nonlinear taxes life cycle models with savings and life cycle models with both savings and human capital for women more important distinctions are whether models include fixed costs of work and whether they treat demographics like fertility and marriage and human capital as exogenous or endogenous the literature is characterized by considerable controversy over the responsiveness of labor supply to changes in wages and taxes at least for males it is fair to say that most economists believe labor supply elasticities are small but a sizeable minority of studies that i examine obtain large values hence there is no clear consensus on this point in fact a simple average of hicks elasticities across all the studies i examine is 0 30 several simulation studies have shown that such a value is large enough to generate large welfare costs of income taxation for males i conclude that two factors drive many of the differences in results across studies one factor is use of direct vs ratio wage measures with studies that use the former tending to find larger elasticties another factor is the failure of most studies to account for human capital returns to work experience i argue that this may lead to downward bias in elasticity estimates in a model that includes human capital i show how even modest elasticities as conventionally measured can be consistent with large welfare costs of taxation

the evolution of intertemporal preferences where do preferences come from what determines their properties though traditionally reluctant to ask such questions economists have recently turned to evolutionary models for answers we focus on intertemporal preferences here arising out of the evolutionary implications of different reproductive strategies or life histories an agent s life history specifies the agent s number and timing and in a richer model quality of offspring evolution will select the life history that maximizes the growth rate of the associated group of individuals we begin with the simplest possible biological life history that of a semelparous agent that if it survives a fixed number of years reproduces and then dies we show the evolutionary criterion for success in this case entails hyperbolic time discounting of the log of the number of offspring produced the rate of time preference is a function of age however not of time relative to the present and there are no preference reversals in the sense of behavioral economics at the same time the optimal strategy maximizes the exponentially discounted number of offspring provided we discount at the sum of the death rate and the maximal growth rate conventional discounting thus suffices to induce optimal choices from the agent more generally if the animal is iteroparous that is has a nondegenerate profile of offspring we show the evolutionary indifference curves over offspring of various ages are hyperplanes that are not parallel but tilt to reflect greater impatience as the growth rate increases there is no additively separable function of the age profile of expected offspring that is globally equivalent to this basic biological growth rate the evolution of intertemporal preferences

child related transfers household labour supply and welfare what are the macroeconomic effects of transfers to households with children how do alternative policies fare in welfare terms we answer these questions in an equilibrium life cycle model with household labour supply decisions skill losses of females associated to non participation and heterogeneity in terms of fertility childcare expenditures and access to informal care calibrating our model to the u s economy we first provide a roadmap for policy evaluation by contrasting transfers that are conditional on market work childcare subsidies and childcare credits with those that are not child credits when both types can be means tested or universal we then evaluate expansions of current arrangements for the u s and find that expansions of conditional transfers have substantial positive effects on female labour supply that are largest at the bottom of the skill distribution expanding childcare credits leads to long run increases in the participation of married females of 10 6 while an equivalent expansion of child credits leads to the opposite 2 4 expanding existing programs generates substantial welfare gains for newborn households which are largest for less skilled households expanding childcare credits leads to the largest welfare gains for newborns and achieves majority support

unemployment insurance and short time compensation the effects on layoffs hours per worker and wages we analyze two unemployment insurance systems in one unemployed workers receive benefits while those on reduced hours do not as in north america at least until recently in the other short time compensation is paid to workers on reduced hours as in europe the first system causes inefficient temporary layoffs for some parameters the latter does not but implies inefficient hours per worker some evidence is presented regarding these effects despite policymakers recent enthusiasm for short time compensation the clear implication of this project is that changes should come on the tax not benefit side of the system

social security and cross country differences in hours a general equilibrium analysis abstract i develop a general equilibrium life cycle model with an intensive and extensive margin of labor supply and endogenous human capital accumulation i use the model to assess the effects of changes to various features of social security on labor supply outcomes of particular interest are changes to the scale of the program and to the relevant eligibility rules i find that the cross country differences in social security programs account for at least 79 of the differences in employment rates of people aged 55 64 and 17 31 of the differences in aggregate hours worked between the us and continental europe

the quantitative role of child care for female labor force participation and fertility consistent with facts for a cross section of oecd countries i document that the labor force participation rate of west german mothers with children aged zero to two exceeds the corresponding child care enrollment rate whereas the opposite is true for mothers with children aged three to mandatory school age i develop a life cycle model that explicitly accounts for this age dependent relationship through various types of non paid and paid child care the calibrated version of the model is used to evaluate two policy reforms concerning the supply of subsidized child care for children aged zero to two these counterfactual policy experiments suggest that the lack of subsidized child care constitutes indeed for some females a barrier to participate in the labor market and depresses fertility

saving and pension reform in general equilibrium models in this paper we study saving and pension reform in the context ofgeneral equilibrium models we discuss some of the reasons for the existence of a social security system we highlight the key features of the us data that a general equilibrium model of saving and social security should match the life cycle profiles of savings con sumption and hours worked and the aggregate capital output ratio and saving rate we describe the structure of a general equilibrium model and discuss how its parameters are estimated or calibratedfrom the data we present the quantitative results from some policy experiments previously computed in the literature first in the context of stationary demographics and then with an ageing population and highlight the key policy prescrip tions that we learn from these experiments we conclude by providing some directions for future research

does religion constrain the risky sex behaviour associated with hiv aids this article examines the likely effectiveness of public health interventions designed to change the risky sexual behaviour associated with human immunodeficiency virus acquired immune deficiency syndrome hiv aids by faith based organizations fbos we utilize data from the general social survey gss to estimate an economic model of sexual behaviour our theoretical approach proceeds by rationalizing on evolutionary grounds the existence of sexual activity in individual preference functions with unobservable costs imposed by religious beliefs and participation given the objective of utility maximization we justify the existence of demand functions for sexual activity that generate empirically testable hypotheses about the effects of religion and religious participation on risky sexual activity our results suggest that at least in the case of heterosexuals fbos can indeed influence the risky sexual behaviour that is associated with the transmission of hiv aids

the evolution of preferences and competition a rationalization of veblen s theory of invidious comparisons we examine how preferences evolve by natural selection in a competitive environment similar to that characterizing much of our evolutionary past we find that the evolutionarily stable preferences in this context exhibit a concern not only for absolute payoffs but also for relative payoffs and that this intensifies the degree of competition relative to what obtains when players consider only absolute payoffs we argue that this has consequences for the equilibrium population size we argue that the premise of this analysis is consistent with the available anthropological evidence and that the prediction is broadly consistent with the findings of experimental game theory

unemployment compensation finance and labor market rigidity abstract the systematic use of experience rating is an original feature of the u s unemployment benefits system at first glance experience rating does not appear to be a desirable choice for a lot of european labor markets which are characterized by high firing costs we provide a simple matching model of a rigid labor market that includes firing costs temporary jobs and a minimum wage in order to analyze this issue our analysis leads us to argue that experience rating is likely to reduce unemployment and improve the welfare of low skilled workers in france and more generally for low skilled workers in a typical rigid continental european labor market

on the growth maximizing distribution of income this paper presents an unconventional argument based on population growth to bolster marginal productivity theory there is an economy with a single output produced from a number of different types of labor each type of labor is reproduced from that type itself and from the amount of the output devoted to it under some income distributional norm any norm which fails to induce convergence to maximal balanced growth is growth dominated in that the population and income it induces can be overwhelmed eventually on the maximal balanced growth path the norm divides output according to marginal productivity copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

optimum income taxation and layoff taxes this paper analyzes optimum income taxation in a model with endogenous job destruction that gives rise to unemployment it is shown that optimal tax schemes comprise both payroll and layoff taxes when the state provides public unemployment insurance and aims at redistributing income the optimal layoff tax is equal to the social cost of job destruction which amounts to the sum of unemployment benefits that the state pays to unemployed workers and payroll taxes that the state does not get when workers are unemployed

evolution of preferences we endogenize preferences using the indirect evolutionary approach individuals are randomly matched to play a two person game individual subjective preferences determine their behaviour and may differ from the actual objective pay offs that determine fitness matched individuals may observe the opponents preferences perfectly not at all or with some in between probability when preferences are observable a stable outcome must be efficient when they are not observable a stable outcome must be a nash equilibrium and all strict equilibria are stable we show that for pure strategy outcomes these conclusions are robust to allowing almost perfect and almost no observability with the notable exception that inefficient strict equilibria may fail to be stable with any arbitrarily small degree of observability despite being stable with no observability

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

a theory of time preference grant a taylor this article proposes that people generally prefer present consumption to future consumption because their expected utility from consumption eventually falls as their mental and physical abilities eventually decline with age moreover contrary to the ubiquitous intertemporal formulation with a constant rate of time preference and contrary to three recent theories of time preference that predict decreasing discounting as people age this article asserts that discounting increases over the life cycle this hypothesis is supported by data from the panel study of income dynamics as well as evidence from numerous previous studies jel d91 1 introduction despite the almost universal assumption of time preference in models of intertemporal choice an adequate explanation of why people discount the future has not been provided 1 olsen and bailey 1981 make a convincing case for positive time preference by contradiction i e without time preference models of intertemporal choice do not yield predictions consistent with observed behavior but they do not explain why individuals would rationally discount the future 2 three recent studies have attempted to provide the explanation rogers 1994 argues that societies that discount the future at a rate of about 2 will be the long run survivors in an evolutionary fitness situation 3 posner 1995 argues that discounting occurs because individuals have multiple selves that is people are weighting their present consumption far more heavily than their future consumption because the present self and the future self are in some meaningful sense separate persons 92 becker and mulligan 1997 argue that discounting occurs because of a rational defective recognition of future utilities 730 but as will be shown these three theories are inconsistent with empirical evidence on consumption over the life cycle in at least one important aspect this article constructs and empirically supports a new theory of time preference the hypothesis is that people do not have an intrinsic preference for present consumption relative to future consumption instead the instantaneous utility function also known as the felicity function is expected to vary with age just as people s physical and mental abilities vary with age in other words the ability to enjoy consumption eventually deteriorates over the life cycle along with other abilities this life cycle view of the expected utility function causes people to rationally devalue consumption in periods of low expected felicity that is discount future consumption perhaps this is what is meant by the cliche don t wait until you are too old to enjoy it moreover this causes individuals implicit discount rates to vary systematically with age 4 in fact this provides the testable implication of the theory the standard specification of intertemporal preferences holds the discount rate constant over th e life cycle 5 to be more precise in the early stage of the life cycle the capacity to enjoy consumption may be expected to rise hence a young individual s discount rate may be negative figure 1 illustrates this possibility with a hypothetical adult life cycle marginal felicity function for a given level of consumption u sub c c a c denotes consumption and a denotes age and its corresponding discount rate function rho a the vast majority of wealth is held by older people that is those in the declining stage of their abilities thus the preference for present consumption over future consumption appears to hold in the aggregate this view of intertemporal preferences may at first seem inconsistent with practically all dynamic analyses which are based on the notion of stationary utility on further consideration however the hypothesis is quite consistent with modern consumer theory since becker 1965 it has been widely accepted that households derive utility from commodities that are produced with market goods combined with household time and skills i

the role of intergenerational transfers in aggregate capital accumulation this paper uses historical u s data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation the evidence presented indicates that intergenerational transfers account for the vast majority of aggregate u s capital formation only a negligible fraction of actual capital accumulation can be traced to life cycle or hump savings a major difference between this study and previous investigations of this issue is the use of more accurate longitudinal age earnings and age consumption profiles these profiles are simply too flat to generate substantial life cycle savings this paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers life cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers

tax and education policy in a heterogeneous agent economy what levels of redistribution maximize growth and efficiency this paper studies the effects of progressive income taxes and education finance in a dynamic heterogeneous agent economy such redistributive policies entail distortions to labor supply and savings but also serve as partial substitutes for missing credit and insurance markets the resulting tradeoffs for growth and efficiency are explored both theoretically and quantitatively in a model that yields complete analytical solutions progressive education finance always leads to higher income growth than taxes and transfers but at the cost of lower insurance overall efficiency is assessed using a new measure that properly reflects aggregate resources and idiosyncratic risks but unlike a standard social welfare function does not reward equality per se simulations using empirical parameter estimates show that the efficiency costs and benefits of redistribution are generally of the same order of magnitude resulting in plausible values for the optimal rates aggregate income and aggregate welfare provide only crude lower and upper bounds around the true efficiency tradeoff

unemployment insurance and employment this article examines the impact of unemployment insurance ui on the allocation of labor across industries an overlooked aspect of ui is the effect of imperfect experience rating on hiring firms in more stable industries generally pay more into the ui system than their workers ever receive in benefits thus subsidizing more volatile industries the results indicate that industry employment shares are significantly affected by ui and that there is a net shift of resources from the service industry to the construction industry the estimates also imply that layoff unemployment is increased by about 5 because of ui induced employment shifts

retirement and consumption in a life cycle model consumption expenditure declines sharply at the time of retirement for many households but the majority maintain a smooth consumption path a simple life cycle model with uncertainty about the time of retirement can account for this pattern a richer version of the model is calibrated to data from the health and retirement study hrs the median change in consumption expenditure at retirement generated by the model is zero while the mean is negative matching the hrs data however the magnitude of the drop in consumption among households that experience a decline is too small in the model compared to the data

does social security privatization produce efficiency gains while privatizing social security can improve labor supply incentives it can also reduce risk sharing we analyze a 50 privatization using an overlapping generations model where heterogeneous agents with elastic labor supply face idiosyncratic earnings shocks and longevity uncertainty when wage shocks are insurable privatization produces about 18 100 of extra resources for each future household after all transitional losses have been compensated for with lump sum taxes when wages are not insurable privatization reduces efficiency by about 2 400 per future household we check the robustness of these results to different model specifications as well as policy reforms and arrive at several surprising conclusions first privatization performs better in a closed economy where interest rates decline with capital accumulation than in an open economy second privatization also performs better when an actuarially fair private annuity market does not exist third government matching of private contributions on a progressive basis is not very effective at restoring efficiency and can actually cause harm

taxing women a macroeconomic analysis based on well known evidence on labor supply elasticities several authors have concluded that women should be taxed at lower rates than men we evaluate the quantitative implications and merits of this proposition relative to the current system of taxation setting a proportional tax rate on married females equal to 4 8 increases output and married female labor force participation by about 3 9 3 4 and 6 9 4 0 respectively gender based taxes improve welfare and are preferred by a majority of households nevertheless welfare gains are higher when the u s tax system is replaced by a proportional gender neutral income tax 2011 published by elsevier b v

unemployment insurance in theory and practice a hallmark of modern labor economics is the close interplay between the development of theory data sources and econometric testing the evolution of the economic analysis of unemployment insurance provides a good illustration new theoretical approaches in particular job search theory have inspired a large amount of empirical research some of it methodologically innovative and most of it highly relevant for economic policy the paper presents a broad survey and an assessment of the economic analysis of unemployment insurance as it has evolved since the 1970s

wage risk and employment risk over the life cycle we specify a structural life cycle model of consumption labour supply and job mobility in an economy with search frictions that allows us to distinguish between different sources of risk and to estimate their effects the sources of risk are shocks to productivity job destruction the process of job arrival when employed and unemployed and match level heterogeneity our model allows for four main social insurance programmes in contrast to simpler models that attribute all income fluctuations to shocks our framework allows us to disentangle the effects of the shocks from the responses to these shocks estimates of productivity risk once we control for employment risk and for individual labour supply choices are substantially lower than estimates that attribute all wage variation to productivity risk increases in productivity risk impose a considerable welfare loss on individuals and induce substantial precautionary saving increases in employment risk have large effects on output and primarily through this channel affect welfare the welfare value of government programs such as food stamps which partially insure productivity risk is greater than the value of unemployment insurance which provides partial insurance against employment risk and no insurance against persistent shocks

how trade saved humanity from biological exclusion an economic theory of neanderthal extinction abstract one of the great puzzles in science concerns the rise of early modern humans and the fall of neanderthals a number of theories exist and many support the biological principle of competitive exclusion but the evidence for such mechanistic theories in which biology is destiny is limited in response this paper develops a behavioral model of neanderthal extinction we show how the endogenous division of labor and subsequent trading among early modern humans could have helped them to overcome potential biological deficiencies we discuss the relation between economics and natural selection and show how trade may partially offset natural selection

towards a quantitative theory of automatic stabilizers the role of demographics employment volatility is larger for young and old workers than for the prime aged at the same time in countries with high tax rates the share of total hours supplied by young old workers is lower these two observations imply a negative correlation between government size and business cycle volatility this paper assesses in a heterogeneous agent olg model the quantitative importance of these two facts to account for the empirical relation between government size and macroeconomic stability

the definition of part time employment a switching regression model with unknown sample selection rejecting the standard less than thirty five hours per week categorization of part time workers this paper offers an empirically justified definition of the part time employed the definition is based on the distinction through wage payments that employers make between a high hours full time and a low hours part time group of workers a switching regression model of wage equations with deterministic but unknown sample selection is estimated resulting in a significant split between high hours and low hours workers that is higher than the standard definition wage differentials are calculated and decomposed and estimates from the structural choice model are presented copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

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

prosperity and depression prosperity and depression are relative concepts today both france and japan are depressed relative to the united states equivalently the united states is prosperous relative to these countries i say these countries are depressed relative to the united states because their output per working age person is 30 percent less than the u s level an interesting and important policy question is why are these countries depressed the answers for these two countries turn out to be very different the united states is prosperous relative to france because the u s intratemporal tax wedge that distorts the trade off between consumption and leisure is much smaller than the french wedge i will show that if france modified its intratemporal tax wedge so that its value was the same as the u s value french welfare in consumption equivalents would increase by 19 percent consumption would have to increase by 19 percent now and in all future periods to achieve as large a welfare gain as that resulting from this tax reform the united states is prosperous relative to japan because production efficiency is higher in the united states in the united states total factor productivity is approximately 20 percent higher than in japan if japan suddenly became as efficient in production as the united states its welfare gain in consumption equivalents would be 39 percent equally interesting and important are big changes over time in relative output per working age person across countries why are new zealand s and switzerland s economies depressed by over 30 percent relative to their 1970 trend corrected levels both of these countries have small populations but depressions are not restricted to small countries japan with its 125 million people is now depressed by 20 percent relative to its 1991 trend corrected level on the prosperity side why are ireland and south korea so prosperous now relative to their 1970 trend corrected levels this lecture is concerned primarily with big international differences among relatively rich industrial countries and changes in these differences over time the countries that receive primary attention all have market economies and healthy well educated populations in the countries considered the variations in aggregate output per working age person are large and reasonably good measures of the factor inputs are available this permits in many cases the identification of the change in policy or the difference in policy that gave rise to prosperity or depression this is in contrast to business cycle theory which provides little guidance to policy except for the important policy implication that a stabilization effort will have either no effect or a perverse effect the output variations studied and analyzed in this lecture are big an order of magnitude larger than the much studied business cycle fluctuations the variations studied however are an order of magnitude smaller than the muchstudied differences between the richest and poorest countries surprisingly only recently have depressions been systematically studied from the perspective of growth theory which is the theory used university of minnesota and federal reserve bank of minneapolis i thank my colleagues at the university of minnesota and the federal reserve bank of minneapolis for helpful discussions and comments in particular i thank tim kehoe ellen mcgrattan and nancy stokey for their help i also thank martin weale and franck portier for providing some british and french tax information used in this lecture thanks also go to sami alpanda and james macgee for research assistance and helpful discussions this lecture draws heavily on collaborative research with fumio hayashi i thank the economic and social research institute cabinet office government of japan and the u s national science foundation for financial support the views expressed herein are those of the author and not necessarily those of the federal reserve bank of minneapolis or the federal reserve system

taxation and labor supply of married couples across countries a macroeconomic analysis we document contemporaneous dierences in the aggregate labor supply of married couples across 18 oecd countries relative to their us counterparts european married men work on average 9 to 17 percent and married women in western and southern europe 26 and 31 percent fewer hours married women in scandinavia and eastern europe however work almost as many hours as us married women we nd that a model of joint household decision making can largely replicate these facts if the full non linearity of labor income taxes and the tax treatment of married couples are taken into account going to a system of strictly separate taxation would increase labor supply of married women by more than 100 hours annually in a third of our sample countries

why are married men working so much an aggregate analysis of intra household bargaining and labour supply are macro economists mistaken in ignoring bargaining between spouses this paper argues that models of intra household allocation could be useful for understanding aggregate labor supply trends in the us since the 1970s a simple calculation suggests that the standard model without bargaining predicts a 19 decline in married male labor supply in response to the narrowing of the gender gap in wages since the 1970s however married men s paid labor remained stationary over the period from the mid 1970s to the recession of 2001 this paper develops and calibrates to us time use survey data a model of marital bargaining in which time allocations are determined jointly with equilibrium marriage and divorce rates the results suggest that bargaining effects raised married men s labor supply by about 2 1 weekly hours over the period and reduced that of married women by 2 7 hours bargaining therefore has a relatively small impact on aggregate labor supply but is critical for trends in female labor supply also the narrowing of the gender wage gap is found to account for a weekly 1 5 hour increase in aggregate labor supply

cultural constraints on innovation based growth to what extent does the cultural composition of a society impose a constraint on its long run growth potential we study this question in the context of an innovation based model of growth where cultural attitudes are endogenously transmitted from one generation to the next focusing on attitudes regarding patience we analyze the two way interaction between economic growth and the intergenerational transmission of patience exploiting this interaction we compare the long run growth performance of a culturally heterogeneous society where patience is initially underrepresented in the population with a culturally homogeneous society where all agents are perfectly patient our main result is that in the absence of any intrinsic preferences of patient parents to transmit their attitudes to their children the development paths of the two societies are bound to diverge with the culturally heterogeneous society experiencing lower growth rates yet if patient parents ceteris paribus prefer their children to be patient like them we show that the two societies can in the long run grow at the same rate jel d91 e24 o30 o40 z10

old sick alone and poor a welfare analysis of old age social insurance programmes all individuals face some risk of ending up old sick alone and poor is there a role for social insurance for these risks and if so what is a good programme a large literature has analysed the costs and benefits of pay as you go public pensions and found that the costs exceed the benefits this article instead considers means tested social insurance mtsi programmes for retirees such as medicaid and supplemental security income we find that the welfare gains from these programmes are large moreover the current scale of mtsi in the u s is too small in the following sense if we condition on the current social security programme increasing the scale of mtsi by 1 3 benefits both the poor and the affluent when a payroll tax is used to fund the increase

the u s demographic transition between 1800 and 1940 the u s went through a dramatic demographic transition in 1800 the average woman had 7 children and 94 percent of the population lived in rural areas by 1940 the average woman birthed just 2 kids and only 43 percent of populace lived in the country the question is what accounted for this shift in the demographic landscape the answer given here is that technological progress in agriculture and manufacturing explains these facts

the origin of utility sexual selection and conspicuous consumption abstract this paper proposes an explanation for the universal human desire for increasing consumption and the associated propensity to trade survival opportunity off conspicuous consumption i argue that this desire was moulded in evolutionary times by a mechanism known to biologists as sexual selection whereby an observable trait conspicuous consumption in this case is used by members of one sex to signal their unobservable characteristics valuable to members of the opposite sex it then shows that the standard economics problem of utility maximisation is formally equivalent to the standard biology problem of the maximisation of individual fitness the ability to pass genes to future generations and thus establishes a rigorous theoretical foundation for including conspicuous consumption in the utility function

unemployment insurance in the united states layoff incentives and cross subsidies we survey unemployment insurance ui in the united states and provide new evidence on the ui payroll tax most ui receipt is due to firms that pay part of the ui costs of their layoffs but weak experience rating leads most firms to pay considerably less than the full costs industries consistently receiving subsidies from the ui system are construction manufacturing and mining finally a large fraction of layoffs resulting in payment of ui are made by firms that are not charged for the costs of the claim because they have employed the individual for less than 2 quarters

evolution of time preferences and attitudes toward risk this paper explores a general model of the evolution and adaption of hedonic utility it is shown that optimal utility will be increasing strongly in regions where choices have to be made often and decision mistakes have a severe impact on fitness several applications are suggested in the context of intertemporal preferences the model offers an evolutionary explanation for the existence of conflicting short and long run interests that lead to dynamic inconsistency concerning attitudes toward risk an evolutionary explanation is given for s shaped value functions that adjust to the decision maker s environment jel d81 d83 this paper is based on the hypothesis that individual decisions are guided by hedonic util ity an individual who faces several alternatives will choose the one that promises the greatest pleasure or happiness then given that the properties of a hedonic utility function determine individual behavior and individual behavior determines biological fitness evolutionary forces will have shaped our utility during the long time in which the modern human being evolved in this sense hedonic utility can be considered as a reward system that induces individuals to make optimal choices a view that is supported both by theory and evidence from neuroscience 1 as irving kupfermann eric r kandel and susan iversen 2000 express it pleasure is unques tionably a key factor in controlling the motivated behaviors of humans 1007 for the econo mist the interesting question is then about the properties of the evolutionary optimal reward system and how these properties adapt to the environment in which individuals make choices the present paper reconsiders and solves a general model of the evolution of utility suggested by arthur j robson 2001a which predicts how cardinal properties of utility functions should adapt to the decision environment it turns out that the optimal utility function will be steep in regions where decisions have to be made frequently and where wrong decisions would lead to large losses in fitness in those regions even small changes in consumption will cause large changes in happiness the evolution of context specific utility functions is then shown to be optimal whenever the decisions our ancestors had to make arrived in distinct choice situations the model can also be extended to incorporate learning about evolutionary relevant attributes of available options

efficient unemployment insurance this paper constructs a tractable general equilibrium model of search with risk aversion an increase in risk aversion reduces wages unemployment and investment unemployment insurance has the opposite effect insured workers seek high wage jobs with high unemployment risk an economy with risk neutral workers achieves maximal output without any unemployment insurance but an economy with risk averse workers requires a positive level of unemployment insurance to maximize output therefore moderate unemployment insurance not only improves risk sharing but also increases output

employment protection reform in search economies the design of employment protection legislation epl is of particular importance in the european debate on the contours of labor market reform in this article we appeal to an equilibrium unemployment model to investigate the virtues of epl reform which reduces the red tape and legal costs associated with layo s and introduces a u s style experiencerating system which we model as a combination of a layo tax and a payroll subsidy the reform considered shows that it is possible to improve the e ciency of employment protection policies without a ecting the extent of worker protection on the labor market these results are consistent with the conventional wisdom that experience rating is desirable not only as an integral component of unemployment compensation nance as most studies acknowledge but also as part and parcel of a virtuous epl system

malthusian selection of preferences the authors study natural selection of preferences using a golden age model with endogenous population in equilibrium all agents have preferences with maximum biological fitness given resource constraints and total population is the maximum the environment can sustain naturally selected agents follow the golden rule acting as if they maximize the undiscounted sum of per capita felicities of current and future generations selected preferences and hence work saving consumption and population density vary predictably with environmental differences copyright 1990 by american economic association

does medicare benefit the poor abstract measuring the progressivity of age targeted government programs is difficult because no single data set measures income and benefit use throughout life previous research using zip code as a proxy for lifetime income has found that medicare benefits flow primarily to the most economically advantaged groups and that the financial returns to medicare are often higher for the rich than the poor however our analysis produces the starkly opposed result that medicare is an extraordinarily progressive public program in dollar terms or welfare terms these new results owe themselves to our measurement of socioeconomic status as an individual s education rather than the geographically aggregated measures of income used by previous research we argue that individual education has important practical and conceptual advantages over geographically aggregated measures of income our results suggest the crucial importance of accurate poverty measurement in evaluating the progressivity of complex government programs like medicare or social security

unemployment insurance and market structure abstract this paper examines the impact of unemployment insurance ui on employment and unemployment in an industry in which the prices can vary due to some market power some non conventional results are obtained it is shown that if there is free entry and exit average industrial employment may be a decreasing function of the experience rating because the number of firms in the industry is itself a decreasing function of this parameter this contradicts the conventional view which was arrived at using models of a perfectly competitive industry with no entry and according to which employment should be an increasing function of the experience rating the general conclusion is that for industries with different degrees of market power the same ui scheme has different impacts on employment and unemployment

malthus was right after all poor relief and birth rates in southeastern england the payment of child allowances to laborers with large families was widespread in early nineteenth century england this paper tests thomas malthus s hypothesis that child allowances caused the birth rate to increase a cross sectional regression model is estimated to explain variations in birth rates across parishes in 1826 30 birth rates are found to be related to child allowances income and the availability of housing as malthus contended the paper concludes by examining the role played by the adoption of child allowances after 1795 in the fertility increase of the early nineteenth century

should day care be subsidized in the presence of distortionary taxes on labor can subsidies on childcare flnanced by a further increase in taxes raise welfare by encouraging women with small children to work we approach this question in two difierent ways first we consider a set of stylized models where we prove analytically that under some conditions the ramsey optimal policy consists in making childcare expenses tax deductible then we construct a calibrated stochastic dynamic life cycle model of household decision making designed to capture some facts about labor supply in germany we flnd that the welfare gains associated with subsidizing childcare are considerable and that the maximum gains are realized when childcare is subsidized to an even greater extent than what tax deductibility implies