learning your earning are labor income shocks really very persistent in this paper we examine the risk situation facing individuals in the labor market the current consensus in the literature is that the labor income process has a large random walk component we argue two points first the estimates of persistence from income data appear to be upward biased due to the omission of heterogeneity in income pro les across the population that would be implied for example by a human capital model with heterogeneity when we allow for dierences in pro les the estimated persistence falls from 0 99 to about 0 8 moreover the main evidence against pro le heterogeneity in the existing literature that the autocorrelations of income changes are small and typically negative is also replicated by the pro le heterogeneity model we estimate casting doubt on the previous interpretation of this evidence second we embed this process in a life cycle model to examine how it alters individuals consumption saving decision we assume that as seems plausible individuals do not know their pro les exactly at the beginning of life but learn in a bayesian way with successive income observations we nd that learning is very slow and aects consumption decision throughout the life cycle the model generates substantial rise in consumption inequality over the life cycle which matches empirical observations deaton and paxson 1994 moreover the shape of the age inequality pro le is non concave as in the data but unlike in a model with very persistent shocks finally the consumption pro les of college graduates are steeper than those of high school graduates in the model consistent with the data because they face a wider dispersion of and hence uncertainty about income growth rates overall this evidence indicates that income shocks may be signi cantly less persistent than what is currently assumed

does politics make a difference at the eeoc stability and responsiveness are features of bureaucracy that affect both policy success and policy consistency with dynamic public values this article explores the stability and responsiveness of a bureaucracy which according to normative theory should be less responsive to political stimuli the u s equal employment opportunity commission measures are constructed across time of political support for commission policies as well as agency outputs and their effect on the client community linear time series regression methods are then applied in quantifying changes through time in policy implementation and their consistency with the ideology of incumbent political administrations the findings demonstrate that equal employment opportunity policy is unstable undergoing frequent transformations in response to changing political conditions

bounding the labor supply responses to a randomized welfare experiment a revealed preference approach we study the impact of connecticut s jobs first jf welfare reform experiment on the labor supply decisions of a sample of welfare applicants and recipients although the experiment identies the distribution of choices made in the absence and presence of reform each woman s counterfactual choice is unknown we show that economic theory restricts the set of counterfactual choices compatible with each woman s actual choice we use these restrictions to develop bounds on the frequency of intensive and extensive margin responses to reform our results indicate that the jf experiment led some women to work and others to reduce their earnings

the added worker effect the term added worker effect usually refers to a temporary increase in the labor supply of married women whose husbands have become unemployed this paper presents a new approach to the empirical study of the added worker effect which emphasizes the role of employment uncertainty and credit constraints in generating short run participation and employment patterns the estimates are based on employment transition probabilities rather than static measures of labor supply and are used in a dynamic simulation of changes in the employment and participation rates of wives following an exogenous increase in unemployment among their husbands the results show a small but significant added worker effect at least for white families and suggest that the apparent disagreement among previous studies may stem from different approaches to measuring responses to a transitory event such as an unemployment spell

rising u s earnings inequality and family labor supply the covariance structure of intrafamily earnings this paper studies the labor supply contributions to individual and family earnings inequality during the period of rising wage inequality in the early 1980 s working couples have positively correlated labor market outcomes which are almost entirely attributable to permanent factors an intertemporal family labor supply model with this feature is used to estimate labor supply elasticities for husbands of 0 05 and wives of 0 40 this implies that labor supply explains little of the rising annual earnings inequality for married men but over 20 percent of the rise in family inequality and 50 percent of the modest rise in female inequality

labor supply and the extensive margin forty years ago the french and british used to work more than the americans they now work less the aim of this paper is to provide a coher ent picture of these changes to do so we split the overall level of work activity into the number of individuals in work and the intensity of work supplied by those in work this reflects the dis tinction between whether to work and how much to work at the individual level this is referred to respectively as the extensive and intensive mar gin of labor supply the difference between the extensive and intensive margins has been highlighted in recent research attempting to resolve differ

evidence on the validity of cross sectional and longitudinal labor market data this article investigates error properties of survey reports of labor market variables we use the panel study of income dynamics psid validation study a two wave panel survey of workers employed by a large firm that shared its detailed payroll records individuals reports of annual earnings are fairly accurate errors are negatively related to true earnings reducing bias due to measurement error when earnings are used as an independent variable biases are moderately larger for changes in earnings earnings per hour are less reliably reported than annual earnings biases in estimating earnings functions are relatively small but those in labor supply functions may be important

consumption inequality and family labor supply we examine the link between wage and consumption inequality using a life cycle model incorporating consumption and family labor supply decisions we derive analytical expressions for the dynamics of consumption hours and earnings of two earners in the presence of correlated wage shocks nonseparability progressive taxation and asset accumulation the model is estimated using panel data for hours earnings assets and consumption we focus on family labor supply as an insurance mechanism and find strong evidence of smoothing of permanent wage shocks once family labor supply assets and taxes are properly accounted for there is little evidence of additional insurance jel d12 d14 d91 j22 j31

finite sample bias in iv estimation of intertemporal labor supply models is the intertemporal substitution elasticity really small the empirical literature on intertemporal labor supply behavior documents that the intertemporal elasticity of substitution of labor supply is very low with a plausible range of zero to 0 2 drawing upon the literature on the distribution of instrumental variables iv estimators this paper demonstrates that this conventional wisdom is erroneous because it does not take into account the severe finite sample bias in these estimates that arise from weak instruments this paper adopts several approaches to adjust for the problems induced by these weak instruments the empirical results show that when uncorrected for finite sample bias the two stage least squares 2sls estimate of the elasticity is essentially zero as in most of the previous studies with its valid confidence interval being open ended however when corrected for finite sample bias the estimate becomes approximately 0 5 with a much tighter confidence interval

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

inferring labor income risk and partial insurance from economic choices this paper uses the information contained in the joint dynamics of individuals labor earnings and consumption choice decisions to quantify both the amount of income risk that individuals face and the extent to which they have access to informal insurance against this risk we accomplish this task by using indirect inference to estimate a structural consumption savings model in which individuals both learn about the nature of their income process and partly insure shocks via informal mechanisms in this framework we estimate i the degree of partial insurance ii the extent of systematic differences in income growth rates iii the precision with which individuals know their own income growth rates when they begin their working lives iv the persistence of typical labor income shocks v the tightness of borrowing constraints and vi the amount of measurement error in the data in implementing indirect inference we find that an auxiliary model that approximates the true structural equations of the model which are not estimable works very well with negligible small sample bias the main substantive findings are that income shocks are moderately persistent systematic differences in income growth rates are large individuals have substantial amounts of information about their income growth rates and about one half of income shocks are smoothed via partial insurance putting these findings together the amount of uninsurable lifetime income risk that individuals perceive is substantially smaller than what is typically assumed in calibrated macroeconomic models with incomplete markets

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

consumption inequality and income uncertainty this paper places the debate over using consumption or income in studies of inequality growth in a formal intertemporal setting it highlights the importance of permanent and transitory income uncertainty in the evaluation of growth in consumption inequality we derive conditions under which the growth of variances and covariances of income and consumption can be used to separately identify the growth in the variance of permanent and transitory income shocks household data from britain for the period 1968 1992 are used to show a strong growth in transitory inequality toward the end of this period while younger cohorts are shown to face significantly higher levels of permanent inequality

the effects of male and female labor supply on commodity demands we examine the effects of male and female labor supply on household demands and present a simple and robust test for the separability of commodity demands from labor supply using data on individual households from six years of the uk fes we estimate a demand system for seven goods which includes hours and participation dummies as conditioning variables allowance is made for the possible endogeneity of these conditioning labor supply variables we find that separability is rejected furthermore we present evidence that ignoring the effects of labor supply leads to bias in the parameter estimates

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

consumption and labor supply with partial insurance an analytical framework we develop a model with partial insurance against idiosyncratic wage shocks to quantify risk sharing closed form solutions are obtained for equilibrium allocations and for moments of the joint distribution of consumption hours and wages we prove identification and demonstrate how labor supply data are informative about risk sharing the model estimated with us data over the period 1967 2006 implies that i 39 percent of permanent wage shocks pass through to consumption ii the share of wage risk insured increased until the early 1980s and iii preference heterogeneity is important in accounting for observed dispersion in consumption and hours jel e21 e23 e31 e52

disentangling insurance and information in intertemporal consumption choices the textbook version of the life cycle perma nent income hypothesis with no liquidity con straints predicts that consumption should react very mildly to unanticipated transitory income changes and very strongly to permanent ones this prediction has important policy implica tions in understanding the response of consum ers to tax rebates or increases that are made for stabilization purposes in recent years there has been a resurgence of interest in estimating these important parameters either using quasi experimental data such as randomization of the timing when tax rebate checks are received by households see david johnson jonathan parker and nicholas souleles 2006 or imposing struc tural restrictions on the stochastic income pro cess faced by consumers orazio attanasio and nicola pavoni 2008 richard blundell luigi pistaferri and ian preston 2008 jonathan heathcote kjetil storesletten and giovanni l violante 2007 giorgio primiceri and thijs van rens forthcoming the main objection of quasi experimental stud ies is that the results may be context specific the main problem with the second strand of the litera ture is that estimates of the response of consump tion to income shocks may confound two issues insurance and information on the one hand the estimate reflects the ability or lack thereof of the household to smooth consumption through a variety of channels such as self insurance gov ernment provided insurance credit markets or other informal mechanisms on the other hand the identification strategy requires the ability to statistically separate what is a shock from what is an anticipated event when seen from the point of

tax expenditures for owner occupied housing deductions for property taxes and mortgage interest and the exclusion of imputed rental income federal income tax policy affects the cost of homeowner ship for many households popular discussions of the favorable tax treatment of owner occupied housing usually focus on the tax deductibility of mortgage interest and prop erty tax payments as well as the specialized tax rules that affect housing capital gains academic discussions in contrast emphasize the exclusion of the imputed rental income on owner occupied housing as the key tax benefit for homeowners this paper summarizes the current distribution of the tax benefits associated with the mortgage interest and property tax deductions it contrasts this with the distribution of tax benefits asso ciated with the current tax regime for imputed rental income relative to one that taxes home

labor income dynamics and the insurance from taxes transfers and the family article i nfo what do labor income dynamics look like over the life cycle what is the relative importance of persistent shocks transitoryshocksandheterogeneousprofiles to what extent dotaxes transfers and thefamilyattenuate these various factors in the evolution of life cycle inequality in this paper we use rich norwegian population panel data to answer these important questions we let individuals with different education levels have a sepa rate income process and within each skill group we allow for non stationarity in age and time heterogeneous experience profiles and shocksof varying persistence we findthattheincomeprocesses differ systematically by age skill level and their interaction to accurately describe labor income dynamics over the life cycle it is neces sary toallow for heterogeneity by education levelsand account for non stationarity inage and time our findings suggest that the redistributive nature of the norwegian tax transfer system plays a key role in attenuating the magnitude and persistence of income shocks especially among the low skilled by comparison spouse s income matters less for the dynamics of inequality over the life cycle

consumption puzzles and precautionary savings abstract when marginal utility is convex agents accumulate savings as a precautionary measure against labor income eventualities this paper shows that precautionary savings can go a long way in making the excess growth excess smoothness and excess sensitivity features of consumption consistent with the stochastic processes of labor income observed in the u s at the microeconomic level

duopolists don t wish to share information abstract this paper shows that in a full bayes cournot equilibrium duopolists would prefer to keep their market information private rather than share it with their opponent this is in contrast to a fulfilled expectations bayes cournot equilibrium where firms are indifferent to sharing

from earnings inequality to consumption inequality this paper studies the paths from inequality in earnings to inequality in household consumption we show that careful study of the evolution of the variances and covariances of earnings and consumption within cohorts across time can identify permanent and transitory shocks we present an application to the evolution of inequality in the united kingdom we extend previous results to recognise separate earnings of partners in couples

consumption versus expenditure previous authors have documented a dramatic decline in food expenditures at the time of retirement we show that this is matched by an equally dramatic rise in time spent shopping for and preparing meals using a novel data set that collects detailed food diaries for a large cross section of u s households we show that neither the quality nor the quantity of food intake deteriorates with retirement status we also show that unemployed households experience a decline in food expenditure and food consumption commensurate with the impact of job displacement on permanent income these results highlight how direct measures of consumption distinguish between anticipated and unanticipated shocks to income whereas measures of expenditures obscure the distinction