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

how financial incentives induce disability insurance recipients to return to work using a local randomized experiment that arises from a sharp discontinuity in disability insurance di policy in norway we provide transparent and credible identification of how financial incentives induce di recipients to return to work we find that many di recipients have considerable capacity to work that can be effectively induced by providing financial work incentives we further show that providing work incentives to di recipients may both increase their disposable income and reduce program costs our findings also suggest that targeted policies may be the most effective in encouraging di recipients to return to work

house prices home equity based borrowing and the u s household leverage crisis us household leverage sharply increased in the years preceding the 2007 eco nomic recession the top panel of figure 1 shows the steady rise in household debt since 1975 which accelerated beginning in 2002 in just five years the household sector doubled its debt balance in comparison the contemporaneous increase in corporate debt was modest the middle panel shows that the increase in household debt from 2002 to 2007 translated into a striking rise in household leverage as mea sured by the debt to income ratio during the same time period corporate leverage declined the dramatic absolute and relative rise in us household leverage from 2002 to 2007 is unprecedented compared to the last 25 years one reason for the rapid expansion in household leverage during this period is that mortgage credit became more easily available to new home buyers mian and sufi 2009 strong house price appreciation from 2002 to 2006 however which may have been fueled by the availability of mortgage credit to a riskier set of new home buyers could also have had an important feedback effect on household lever age through existing homeowners given that 65 percent of us households already owned their primary residence before the acceleration in house prices the feedback from house prices to borrowing may be an important source of the rapid rise in household leverage that preceded the economic downturn our central goals in this study are to estimate how homeowner borrowing responded to the increase in house prices and to identify which homeowners responded most aggressively we examine this home equity based borrowing channel using a dataset consisting of anonymous individual credit files of a national consumer credit bureau agency we follow a random sample of over 74 000 us homeowners who owned their homes as of 1997 at an annual frequency from the end of 1997 until the end of 2008 the bottom panel of figure 1 plots the growth in debt of 1997 homeowners over time and shows that existing homeowners borrow significantly more debt as their house prices appreciate from 2002 to 2006 while the aggregate trend is suggestive

real wage rigidities and the new keynesian model most central banks perceive a trade off between stabilizing inflation and stabilizing the gap between output and desired output however the standard new keynesian framework implies no such trade off in that framework stabilizing inflation is equivalent to stabilizing the welfare relevant output gap in this paper we argue that this property of the new keynesian framework which we call the divine coincidence is due to a special feature of the model the absence of nontrivial real imperfections we focus on one such real imperfection namely real wage rigidities when the baseline new keynesian model is extended to allow for real wage rigidities the divine coincidence disappears and central banks indeed face a trade off between stabilizing inflation and stabilizing the welfare relevant output gap we show that not only does the extended model have more realistic normative implications but it also has appealing positive properties in particular it provides a natural interpretation for the dynamic inflation unemployment relation found in the data

disability transfers and the work decision of older men the potential causal relationship between the availability and generosity of disability transfers and the nonparticipation rates of older men is often asserted and much studied parsons 1980 haveman and wolfe 1984 leonard 1986 however estimates of the magnitude of this linkage vary widely the growth in transfer availability and generosity has been credited with from 30 to 100 percent of the significant post 1960 fall in older male participation rates the disparity in these research results stems primarily from 1 alternative sources of data that differentially constrain estimation of relevant expected wage and transfer incomes 2 specifications that are unable to distinguish income transfer from labor market effects and 3 reliance on measures of health status that are endogenous to the work leisure decision this study seeks to narrow the range of estimates by addressing each of these issues our utility maximization model of work status choice assumes that workers who differ in health status choose between the mutually exclusive options of working at the wage offered for their characteristics and accepting public or private disability transfers because the income flows in the two options are censored they are estimated using switching regression techniques as expectations conditional on exogenous individual characteristics hence accounting for the potentially endogenous process that separates wage earners from transfer recipients the marginal utilities of income from the two sources are allowed to differ because of stigma effects in the estimation we adjust the choice based nature of our sample employ longitudinal earnings data to measure expected changes in as distinct from the expected level of income in the two options and use a separately estimated latent health status measure largely purged of its endogeneity with the participation decision

the rise in the disability rolls and the decline in unemployment between 1984 and 2001 the share of nonelderly adults receiving social security disability insurance income di rose by 60 percent to 5 3 million beneficiaries rapid program growth despite improving aggregate health appears to be explained by reduced screening stringency declining demand for less skilled workers and an unforeseen increase in the earnings replacement rate we estimate that the sum of these forces doubled the labor force exit propensity of displaced high school dropouts after 1984 lowering measured u s unemployment by one half a percentage point steady state calculations augur a further 40 percent increase in the rate of di receipt

sectoral shifts and cyclical unemployment a substantial fraction of cyclical unemployment is better characterized as fluctuations of the frictional or natural rate than as deviations from some relatively stable natural rate shifts of employment demand between sectors of the economy necessitate continuous labor reallocation since it takes time for workers to find new jobs some unemployment is unavoidable this paper presents evidence that most of the unemployment fluctuations of the seventies unlike those in the sixties were induced by unusual structural shifts within the u s economy simple time series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market these models are estimated and a derived natural rate series is constructed

the employment effect of stricter rules for eligibility for di evidence from a natural experiment in sweden we study the effect of a reform of the swedish disability insurance di program whereby the special eligibility rules for workers in the age group 60 to 64 were abolished first we use a differences in differences approach to study changes in the disability take up as compared to the age group 55 to 59 then we use a similar approach to study to what extent the employment effect of the reform is crowded out by an increase in the utilization of the sickpay insurance si and or the unemployment insurance ui in an extended analysis we study the effect of firm closure on employment and the utilization of different labor market insurance programs in different age groups before and after the reform

on the economic impacts of constraining second home investments abstract we investigate how political backlash against wealthy second home investors in high natural amenity places affects local residents we exploit a quasi natural experiment the swiss second home initiative which banned the construction of new second homes in desirable seasonal tourist locations consistent with our model we find that the ban substantially lowered increased the price growth of primary second homes and increased the unemployment growth rate in the affected areas our findings suggest that the negative effect on local economies dominated the positive amenity preservation effect we conclude that constraining second home construction in seasonal tourist locations where primary and second homes are not close substitutes may reinforce wealth inequality

the role of unemployment insurance in an economy with liquidity constraints and moral hazard the potential welfare benefits of unemployment insurance along with the optimal replacement ratio are studied using a quantitative dynamic general equilibrium model to provide a role for unemployment insurance agents in our economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets in the absence of moral hazard replacement ratios as high as 65 are optimal and the welfare benefits of unemployment insurance are quite large however if there is moral hazard and the replacement ratio is not set optimally but is instead set to an empirically plausible value the economy can be much worse off than it would be without unemployment insurance

optimal unemployment insurance with human capital depreciation and duration dependence this paper studies the effect of human capital depreciation and duration dependence on the design of an optimal unemployment insurance ui scheme our results partially confirm those obtained in most previous studies benefits should decrease with unemployment duration the optimal program also generates two main novel features which are not present in stationary models first if human capital depreciates rapidly enough during unemployment ui transfers are bounded below by a minimal assistance level that arises endogenously in the efficient program second we study the optimality of imposing a history contingent wage tax after reemployment our numerical simulations based on the spanish and us economies show that the wage tax should decrease with the length of worker s previous unemployment spell and become a wage subsidy for long term unemployed workers as a by product of our study we develop a systematic approach suitable for studying recursively a wide range of dynamic moral hazard problems and other models with similar characteristics

disability earnings income and consumption using longitudinal data for the period 1968 2005 for a sample of male household heads we determine the prevalence of disability during the working years and examine how the extent of disability affects a range of outcomes including earnings income and consumption we have seven main findings first disability rates are high we divide the disabled along two dimensions based on the persistence and severity of their work limiting condition we estimate that a person reaching age 56 has a 53 percent chance of having been disabled at least once during his working years and a 19 percent chance that he has begun a chronic and severe disability second the economic consequences of disability are frequently profound ten years after disability onset a person with a chronic and severe disability on average experiences a 68 percent decline in earnings a 32 percent decline in after tax income a 22 percent decline in food and housing consumption and a 21 percent decline in food consumption third the various economic consequences differ sharply across disability groups the outcome declines for those with a chronic and severe disability are often more than twice as large as those for the average disabled fourth our findings show the partial and incomplete roles that individual savings family support and social insurance play in reducing the consumption drop that follows disability only about half of this most disabled group reports receiving social security disability insurance or supplemental security income fifth we find a noticeable fall in earnings and income prior to the onset of a reported disability consumption also falls somewhat suggesting that future disability is partially but incompletely predictable in the short run sixth time use and detailed consumption data further indicate that disability is associated with a decline in well being seventh the quantities we have estimated combined with elasticities from the literature allow us to examine the optimality of current compensation for the disabled we find that the current compensation for our most disabled group appears to be lower than is optimal

disability insurance rejection rates and the labor supply of older workers abstract we investigate the effects of trying to mitigate moral hazard in the disability insurance di program by raising the stringency of the screening process for applicants we do so by studying a dramatic increase in rejection rates for the di program in the late 1970s which varied substantially across the us states we find that each 10 rise in denial rates led to a statistically significant 2 8 fall in labor force non participation among 45 64 year old males we also find that the denial rate increases effectively targeted their incentive effects to more able individuals according to an anthropometric measure of disability

labor market institutions and aggregate fluctuations in a search and matching model abstract this paper explores the influence of labor market institutions on aggregate fluctuations it uses a dynamic stochastic general equilibrium model characterized by search and matching frictions in the labor market and nominal rigidities in the goods market it finds that firing costs and unemployment benefits can have substantial effects on aggregate fluctuations increasing firing costs decreases the volatility of output employment and job flows due to the reduction in the mass of jobs sensitive to disturbances and lower incentives for firms to hire and fire workers hence firms adjust to shocks mainly through prices causing inflation to become more volatile raising unemployment benefits has the reverse effect on aggregate fluctuations

distributional and regional economic impact of energy taxes in belgium we analyse the macroeconomic and distributional effects of increased oil excises in belgium by combining a regional computable general equilibrium cge model with a microsimulation framework that exploits the rich detail of household level data the link between the cge model and the microlevel is top down feeding changes in commodity prices factor returns and employment by sector into a microsimulation model the results suggest that policymakers face an equity efficiency trade off driven by the choice of revenue recycling options when the additional revenue is used to raise welfare transfers to households the reform is beneficial for lower income groups but output levels decrease in all regions however when the energy tax revenue is used to lower distortionary labour taxes the tax shift is slightly regressive in this case national gdp is hardly affected but regional production levels diverge the impact of the environmental tax reform on income distribution depends strongly on changes in factor prices and welfare payments whereas sector composition is an important determinant for regional impact variation

an equilibrium model of health insurance provision and wage determination we investigate the effect of employer provided health insurance on job mobility rates and economic welfare using a search matching and bargaining framework in our model health insurance coverage decisions are made in a cooperative manner that recognizes the productivity effects of health insurance as well as its nonpecuniary value to the employee the resulting equilibrium is one in which not all employment matches are covered by health insurance wages at jobs providing health insurance are larger in a stochastic sense than those at jobs without health insurance and workers at jobs with health insurance are less likely to leave those jobs even after conditioning on the wage rate we estimate the model using the 1996 panel of the survey of income and program participation and find that the employer provided health insurance system does not lead to any serious inefficiencies in mobility decisions

unemployment insurance and capital accumulation abstract in this paper i examine a model economy with production search and unemployment insurance the introduction of capital into the economy of wang and williamson j monetary econom 49 7 2001 1337 generates the result that optimal replacement ratios are always zero the result arises from the decline in aggregate activity caused by unemployment insurance both capital and labor inputs to production fall when benefits rise unlike most of the literature i compute explicitly the cost of the transition path agents are made better off by switching to a steady state with no unemployment insurance but the welfare gain is approximately cut in half only the very poor and unemployed suffer welfare losses along the transition path i then briefly investigate the implications of negative replacement ratios

two questions about european unemployment a general equilibrium search model makes layoff costs affect the aggregate unemployment rate in ways that depend on equilibrium proportions of frictional and structural unemployment that in turn depend on the generosity of government unemployment benefits and skill losses among newly displaced workers the model explains how before the 1970s lower flows into unemployment gave europe lower unemployment rates than the united states and also how after 1980 higher durations have kept unemployment rates in europe persistently higher than in the united states these outcomes arise from the way europe s higher firing costs and more generous unemployment compensation make its unemployment rate respond to bigger skill losses among newly displaced workers those bigger skill losses also explain why u s workers have experienced more earnings volatility since 1980 and why especially among older workers hazard rates of gaining employment in europe now fall sharply with increases in the duration of unemployment

screening disability insurance applications this paper investigates the effects of stricter screening of disability insurance applications a large scale experiment was setup where in two of the 26 dutch regions case workers of the disability insurance administration were instructed to screen applications more stringently the empirical results show that stricter screening reduces long term sickness absenteeism and disability insurance applications we find evidence for direct effects of stricter screening on work resumption during the period of sickness absence and for self screening by potential disability insurance applicants stricter screening seems to improve targeting efficiency without inducing negative spillover effects to the inflow into unemployment insurance the costs of stricter screening are only a small fraction of the monetary benefits

the impact of stricter criteria for disability insurance on labor force participation this paper studies the effect of a large scale policy change in the austrian disability insurance program which tightened eligibility criteria for men above a certain age using administrative data on the universe of austrian private sector employees the results of difference in difference regressions suggest a substantial and statistically significant decline in disability enrollment of 6 to 7 4 percentage points and an increase in employment of 1 6 to 3 4 percentage points the policy change had important spillover effects into the unemployment and sickness insurance program specifically the share of individuals receiving unemployment benefits increased by 3 5 to 3 9 percentage points and the share receiving sickness insurance benefits by roughly 0 7 percentage points

industrial shifts skills levels and the labor market for white and black males in this paper we estimate the effects of industrial shifts in the 1970s and 1980s on the wages and employment of black and white males we use micro census data for 52 msa s and estimate effects separately by age and education group the results show that industrial shifts did reduce demand for blacks and for less skilled males in the 1970s and 1980s demand shifts away from manufacturing in particular reduced employment and wages for black and white males while the magnitudes of these effects are fairly small for many groups they can account for one third to one half of the employment decline for less educated young blacks in the 1970s these results imply fairly large effects on the earnings of less skilled males in the 1980s as well authors

optimal unemployment insurance in ge a robust calibration approach abstract a simple monte carlo calibration approach is implemented in a ge model with uninsurable employment risk to quantitatively study the optimal replacement rate of a public unemployment insurance ui scheme the optimal ui sampling distribution is found to be bimodal

disability screening and labor supply evidence from south africa yet research that examines the poverty reduction and labor supply effects of disability programs has taken place exclu sively in developed countries with relatively low unemployment and high labor force participa tion rates in developing countries with high unemployment rates the disincentive effect of cash transfers on labor supply has often been assumed to be economically insignificant anne case and angus deaton 1998 in this paper i provide initial evidence on and draw attention to the effect of the south africa disability grant dg program on labor supply in the context of a policy change in disability screening i use a difference in differences estimator to assess the effect of a change toward a less intensive dis ability screening on labor force nonparticipation for older individuals if screening for disability benefit programs were perfect the supply of disability benefits would be independent of labor supply decisions and only those unable to work due to health con ditions would receive benefits however the dis ability screening process is imperfect because it is in practice difficult to determine whether a person is able to work which is the typical test of eligibility for disability benefit programs recent evidence suggests that the work disincen tive effects of disability benefits are expected to

immigration and inequality immigration is often viewed as a proximate cause of the rising wage gap between highand low skilled workers nevertheless there is controversy over the appropriate theoretical and empirical framework for measuring the presumed effect and over the precise magnitudes involved this paper offers an overview and synthesis of existing knowledge on the relationship between immigration and inequality focusing on evidence from cross city comparisons in the u s while some researchers have claimed that a cross city research design is inherently flawed i argue that the evidence from cross city comparisons is remarkably consistent with recent findings based on aggregate time series data in particular cross city and aggregate time series comparisons provide support for three key conclusions 1 workers with below high school education are perfect substitutes for those with a high school education 2 high school equivalent and college equivalent workers are imperfect substitutes with an elasticity of substitution on the order of 2 3 within education groups immigrants and natives are imperfect substitutes together these results imply that the average impacts of recent immigrant inflows on the relative wages of u s natives are small the effects on overall wage inequality including natives and immigrants are larger reflecting the concentration of immigrants in the tails of the skill distribution and higher residual inequality among immigrants than natives even so immigration accounts for a small share 5 of the increase in u s wage inequality between 1980 and 2000

the ir relevance of real wage rigidity in the new keynesian model with search frictions we explore the role of real wage dynamics in a new keynesian business cycle model with search and matching frictions in the labor market both job creation and destruction are endogenous we show that the model generates counterfactual inflation and labor market dynamics in particular it fails to generate a beveridge curve vacancies and unemployment are positively correlated introducing real wage rigidity leads to a negative correlation and increases the magnitude of labor market flows to more realistic values however inflation dynamics are only weakly affected by real wage rigidity this is because of the presence of labor market frictions which generate long run employment relationships the measure of real marginal cost that is relevant for inflation dynamics via the phillips curve contains a dynamic component that does not necessarily move with real wages

consumption externalities and monetary policy with limited asset market participation this article explores the interaction between consumption externalities and limited asset market participation lamp in the standard new keynesian model we assess the performance of simple taylor type interest rate rules with respect to a equilibrium determinacy b the model s ability to simultaneously generate output and inflation volatility similar to the pre volcker era and c the model s response to a technology shock we find that when individual preferences are affected by average household consumption aggregate consumption externality stronger externalities increase the range of lamp for which multiple equilibria arise even if the policy rule satisfies the taylor principle the interaction of lamp and externalities can generate vast inflation output relative volatility in line with the one observed in the data in the 1970s according to our analysis consumption externalities also affect the responses of endogenous variables to total factor productivity shocks jel e4 e5

labor market matching with precautionary savings and aggregate fluctuations we analyze a bewley huggett aiyagari incomplete markets model with labor market frictions consumers are subject to idiosyncratic employment shocks against which they cannot insure directly the labor market has a diamond mortensen pissarides structure firms enter by posting vacancies and match with workers bilaterally with match probabilities given by an aggregate matching function wages are determined through nash bargaining we also consider aggregate productivity shocks and a complete set of contingent claims conditional on this risk we use the model to evaluate a tax financed unemployment insurance scheme higher insurance is beneficial for consumption smoothing but because it raises workers outside option value it discourages firm entry we find that the latter effect is more potent for welfare outcomes we tabulate the effects quantitatively for different kinds of consumers we also demonstrate that productivity changes in the model in steady state as well as stochastic ones generate rather limited unemployment effects unless workers are close to indifferent between working and not working thus recent findings are corroborated in our more general setting

investment matching and persistence in a modified cash in advance economy abstract we simulate and estimate a new keynesian search and matching model with sticky wages in which capital has to be financed with cash at least partially our objective is to assess the ability of this framework to account for the persistence of output and inflation observed in the data we find that our setup generates enough output and inflation persistence with standard stickiness parameters the key factor driving these results is the inclusion of investment in the cia constraint rather than any other nominal or real rigidity the model reproduces labor market dynamics after a positive increase in productivity hours fall nominal wages hardly react and real wages go up with some delay regarding money supply shocks we investigate the conditions under which our model specification generates the liquidity effect a fact which is absent in most sticky price models

social security disability insurance applications awards and lifetime income flows this article provides new evidence about the impact of social security disability insurance on male labor force participation decisions based on estimates from a structural model of applications awards and state contingent lifetime income flows the lifetime framework makes it possible to consider long term opportunity costs associated with early labor force withdrawal and the disincentive to applications resulting from the statutory waiting period before benefits may be received estimation techniques account for the self selected nature of the pool of applicants when predicting the individual specific probability of acceptance and the opportunity costs of applying

the consequences of rigid wages in search models the standard theory of equilibrium unemployment the mortensen pissarides search and matching model cannot explain the magnitude of the business cycle fluctuations in two of its central elements unemployment and vacancies modifying the model to make the present value of wages unresponsive to current labor market conditions amplifies fluctuations in unemployment and vacancies by an order of magnitude significantly improving the performance of the model despite this the welfare consequences of such rigid wages is negligible jel e24 e32 j30 j41 j63 j64

tax subsidies to owner occupied housing an asset market approach inflation reduces the effective cost of homeownership and raises the tax subsidy to owner occupation this paper presents an asset market model of the housing market and estimates how changes in the expected inflation rate affect the real price of houses and the equilibrium size of the housing capital stock simulation results suggest that the accelerating inflation of the 1970s which substantially reduced homeowners user costs could have accounted for as much as a 30 percent increase in real house prices persistent high inflation rates could lead ultimately to a sizable increase in the stock of owner occupied housing

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

does privatisation of vocational rehabilitation improve labour market opportunities evidence from a field experiment in sweden this paper analyses if privatisation of vocational rehabilitation can improve labour market opportunities for individuals on long term sickness absence we use a field experiment performed by the p

disability insurance benefits and labor supply a critical input for assessing the optimal size of disability insurance programs is the elasticity of labor force participation with respect to the generosity of benefits unfortunately this parameter has been difficult to estimate in the context of the u s disability insurance program since all workers face an identical benefits schedule i surmount this problem by studying the experience of canada which operates two distinct disability insurance programs for quebec and for the rest of canada the latter program raised its benefits by 36 percent in january 1987 whereas benefits in quebec were constant i find a sizable labor supply response to the policy change my central estimates imply an elasticity of labor force nonparticipation with respect to disability insurance benefits of 0 28 0 36

misinformed speculators and mispricing in the housing market this paper examines the contribution of out of town second house buyers to mispricing in the housing market we show that demand from out of town second house buyers during the mid 2000s predicted not only house price appreciation rates but also implied to actual rent ratio appreciation rates a proxy for mispricing we then apply a novel identification strategy to address the issue of reverse causality we give supporting evidence that out of town second house buyers behaved like misinformed speculators earning lower capital gains misinformed and consuming smaller dividends speculators

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

unemployment insurance takeup rates and the after tax value of benefits the recent decline in the unemployment insurance ui takeup rate has puzzled researchers using administrative data with accurate information on the potential level and duration of benefits we examine whether a separating employee receives ui we find a strong positive effect of the benefit level on takeup and smaller effects of the potential duration and the tax treatment of benefits simulations indicate that the recent inclusion of ui in the income tax base can account for most of the previously unexplained decline in ui receipt

disability transfers self reported health and the labor force attachment of older men evidence from the historical record we use trends in self reported disability to gauge the impact of the growth of disability transfer programs on the labor force attachment of older working aged men our tabulations suggest that between 1949 and 1987 about half of the 4 9 percentage point drop in the labor force participation of men aged 45 54 and between one quarter and one third of the 19 9 point drop among men aged 55 64 represented a movement of men out of the labor force and onto the rolls of transfer programs targeted at the disabled since the expansion of transfer programs represents only one of the forces behind this movement these figures represent upper bounds on the impact of such programs on work force attachment

liquidity and insurance for the unemployed we study the optimal design of unemployment insurance for workers sampling job opportunities over time we focus on the optimal timing of benefits and the desirability of allowing workers to freely access a riskless asset when workers have constant absolute risk aversion preferences it is optimal to use a very simple policy a constant benefit during unemployment a constant tax during employment that does not depend on the duration of the spell and free access to savings using a riskless asset away from this benchmark for constant relative risk aversion preferences the welfare gains of more elaborate policies are minuscule our results highlight two largely distinct roles for policy toward the unemployed a ensuring workers have sufficient liquidity to smooth their consumption and b providing unemployment benefits that serve as insurance against the uncertain duration of unemployment spells

foreclosure contagion and the neighborhood spillover effects of mortgage defaults in this paper i identify shocks to interest rates resulting from two administrative details in adjustable rate mortgage contract terms the choice of financial index and the choice of lookback period i find that a 1 percentage point increase in interest rate at the time of adjustable rate mortgage arm reset results in a 2 5 percentage increase in the probability of foreclosure in the following year and that each foreclosure filing leads to an additional 0 3 to 0 6 completed foreclosures within a 0 10 mile radius in explaining this result i emphasize price effects bank supply responses and borrower responses arising from peer effects

optimal unemployment insurance this paper considers the design of an optimal unemployment insurance system the problem is modeled as a repeated principalagent problem involving a risk averse agent the unemployed worker and a risk neutral principal which cannot monitor the agent s search effort the optimal long term contract subject to the associated incentive constraints is characterized this contract involves a replacement ratio that decreases throughout the unemployment spell and a wage tax after reemployment that under some mild regularity conditions increases with the lenght of the unemployment spell some numerical results are presented that suggest that the gains from switching to this optimal unemployment insurance scheme could be quite large the performance of this optimal contract is also compared to alternative liquidity provision mechanisms

incarceration and racial inequality in men s employment to estimate employment population ratios for black and white men with an adjustment for incarceration a factor overlooked by most research on employment inequality the authors combine data from sur

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

improved information shock and price dispersion a natural experiment in the housing market abstract this study employs data from a natural experiment to assess the effect of an improved price information shock on subsequent real estate transaction price dispersion while transaction data in the israeli real estate market had not previously been available to the public in 2010 an israeli court ordered the israel tax authority to post all real estate transaction data on its website we employ all housing transactions in the period prior and subsequent to this event to assess its effect on housing price dispersion results provide evidence of significant decrease in the dispersion of quality adjusted prices further we find evidence that the information shock effect on price dispersion varies with household and market characteristics

what determines the value of corporate votes this paper studies the determinants of the value of voting rights in u s corporations results support the hypothesis that the price of a vote is determined by the expected additional payment vote holders will receive for their votes in case of a control contest the size of this differential payment is a function of the probability that a vote is pivotal in a control contest and the magnitude of the private benefits obtainable by controlling the company simple proxies for these two factors explain up to 30 percent of the variation of the voting premium across companies and through time my findings also suggest that the value of managerial perquisites are at least partially reflected in the price of votes

optimal unemployment insurance with heterogeneous agents the framework of a general equilibrium heterogeneous agent model is used to study the optimal design of an unemployment insurance ui scheme and preferences for unemployment policy reforms in a first step the optimal defined benefit and defined replacement ratio ui systems are obtained in simulations then the question whether switching to such an optimal system from the status quo would be approved by a majority of the population is explored finally the transitional dynamics following a policy change are analysed accounting for this transition has an important influence on the support for a policy change

the measurement of unemployment an empirical approach although the unemployment rate is one of the most widely cited and closely monitored economic statistics the definition and measurement of unemployment remain controversial an important issue is whether non employed persons who display a marginal attachment to the labor force for example those who are available for and desire work but are not searching for work should be classified as unemployed or non participants although this issue has been extensively debated it has never been tested empirically this paper carries out empirical tests of this and related hypotheses using a unique longitudinal data set from canada we find within the marginally attached a waiting group whose behavior indicates that they would be more appropriately classified as unemployed rather than out of the labor force the remainder of the marginally attached exhibit behavior between that of the unemployed and the balance of non participants suggesting that the desire for work among non searchers conveys substantial information about labor force attachment and future employment status our methods also apply to heterogeneity within the unemployed and we investigate behavioral variation linked to differences in job search methods and reasons for entry into unemployment although those using passive job search do exhibit behavior somewhat distinct from active searchers our results reject the practice of classifying passive job searchers as out of the labor force overall our results indicate that the non employed are very heterogeneous so that any single division into unemployment and out of the labor force is unlikely to fully capture the variety of degrees of labor force attachment this abstract was borrowed from another version of this item

the impact of economic conditions on participation in disability programs evidence from the coal boom and bust abstract we examine the impact of the coal boom of the 1970 s and the coal bust of the 1980 s on disability program participation these shocks provide clear evidence that as the value of labor market participation increases disability program participation falls for the disability insurance program the elasticity of payments with respect to local earnings is between 0 3 and 0 4 and for supplemental security income the elasticity is between 0 4 and 0 7 consistent with a model where qualifying for disability programs is costly the relationship between economic conditions and program participation is much stronger for permanent than for transitory economic shocks

firm leverage consumer demand and employment losses during the great recession this article argues that firms balance sheets were instrumental in the transmission of consumer demand shocks during the great recession using micro level data from the u s census bureau we find that establishments of more highly levered firms experienced significantly larger employment losses in response to declines in local consumer demand these results are not driven by firms being less productive having expanded too much prior to the great recession or being generally more sensitive to fluctuations in either aggregate employment or house prices likewise at the county level we find that counties with more highly levered firms experienced significantly larger declines in employment in response to local consumer demand shocks accordingly firms balance sheets also matter for aggregate employment our results suggest a possible role for employment policies that target firms directly besides conventional stimulus

local level incapacity benefits rolls in britain correlates and convergence mcvicar d local level incapacity benefits rolls in britain correlates and convergence regional studies there is considerable variation across british local authority districts in the proportion of the working age population claiming incapacity benefits ranging from 2 in hart to 16 in merthyr tydfil and easington in 2008 these claimant rates are strongly correlated with local unemployment rates and self reported disability rates but spatial differences in claimant rates for incapacity benefits were even greater a decade ago this paper describes the extent of this claimant rate convergence and discusses possible explanations for it mcvicar d 2008 hart 2 merthyr tydfil easington 16 10 mcvicar d la liste des demandeurs des prestations d incapacite en grande bretagne a l echelle loc

nonstationarity in job search theory generally structural job search models are taken to be stationary in this paper models are examined in which every exogenous variable can cause nonstationarity for instance because its value is dependent on unemployment duration a general differential equation that describes the evolution of the reservation wage over time is derived as an empirical illustration a nonstationary structural model is estimated that focuses on the consequences of a downward shift in the level of benefits it appears that the elasticity of duration with respect to the level of benefits after the shift is much larger than the elasticity with respect to the level before the shift this paper examines the movement of a job seeking individual s reservation wage over time in a general nonstationary job search model also results concerning comparative dynamics of the reservation wage and the distribution of the duration of unemployment are derived as an empirical illustration a nonstationary structural model is estimated the nonstationarity originates from the decrease in the level of benefits when unemployment duration equals two years from the results some detailed policy recommendations can be deduced as one is able to distinguish the effect of a change in the level of benefits in the first two years of unemployment from the effect of a change in the level after that period recently the use of job search models for the analysis of unemployment duration has become widespread the reduced form approach in empirical studies see e g lancaster 1979 in which only the hazard of the duration distribution is estimated is gradually being replaced by a more structural approach the latter way of modelling is characterized by the explicit use in empirical analysis of the reservation wage equation as stated by the theory e g yoon 1981 lancaster and chesher 1983 lynch 1983 narendranathan and nickell 1985 and van den berg 1988 use the complete theoretical framework of job search theory to make inferences about search behaviour however the structural models used in these studies are stationary this implies that variables like unemployment benefits or the rate of arrival of job offers are assumed to be constant over the spell of unemployment which is often at variance with reality what is more various reduced form empirical studies indicate a significant durationdependence of the re employment probability which is generally interpreted as evidence in favour of the presence of nonstationarity see e g blau and robins 1986 kooreman and ridder 1983 lancaster 1979 and narendranathan nickell and stern 1985 consequently there is a need to model reservation wage movements over time based on a nonstationary theoretical framework

arrested development theory and evidence of supply side speculation in the housing market this paper incorporates speculation into the standard supply and demand framework used to analyze housing booms and busts speculation reverses the common intuition that elastic housing supply attenuates housing booms housing market frictions make land a more attractive speculative investment than housing as a result undeveloped land both facilitates construction and intensies

from sick man of europe to economic superstar germany s resurgent economy in the late 1990s and into the early 2000s germany was often called the sick man of europe indeed germany s economic growth averaged only about 1 2 percent per year from 1998 to 2005 including a recession in 2003 and unemployment rates rose from 9 2 percent in 1998 to 11 1 percent in 2005 today after the great recession germany is described as an economic superstar in contrast to most of its european neighbors and the united states germany experienced almost no increase in unemployment during the great recession despite a sharp decline in gdp in 2008 and 2009 germany s exports reached an all time record of 1 738 trillion in 2011 which is roughly equal to half of germany s gdp or 7 7 percent of world exports even the euro crisis seems not to have been able to stop germany s strengthening economy and employment how did germany with the fourth largest gdp in the world transform itself from the sick man of europe to an economic superstar in less than a decade we present evidence that the specific governance structure of the german labor market institutions allowed them to react flexibly in a time of extraordinary economic circumstances and that this distinctive characteristic of its labor market institutions has been the main reason for germany s economic success over the last decade

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

optimal monetary policy with labor market frictions the role of the wage channel this paper introduces right to manage bargaining into a labor search model with sticky prices instead of standard efficient bargaining and examines the ramsey optimal monetary policy without real wage rigidity even when the steady state is inefficient price stability is nearly optimal in response to technology or government shocks right to manage bargaining creates the wage channel to inflation because there is a direct relationship between real wages and real marginal cost in the presence of the wage channel price markups consist of only real marginal cost and real wages and hours per worker are determined such as in the walrasian labor market

inflation dynamics and labor market specifications a bayesian dynamic stochastic general equilibrium approach for japan s economy i introduction inflation dynamics have been investigated using dynamic stochastic general equilibrium dsge models with sticky prices in the models inflation is determined by the new keynesian phillips curve nkpc where real marginal cost of producing output is the main driving force and varies with changes in labor cost therefore the specification of the labor market plays a crucial role in describing inflation dynamics many previous studies use sticky wage models e g christiano eichenbaum and evans 2005 levin et al 2006 smets and wouters 2003 2007 in this specification of the labor market workers set wages on a staggered basis la calvo 1983 while firms employ all workers and adjust labor input by changing hours per worker i e intensive margin of labor consequently the cost involved to adjust employment is absent in sticky wage models recently there has been a surge of interest in the role of the extensive margin of labor i e employment for inflation dynamics walsh 2005 krause and lubik 2007 and trigari 2009 for instance incorporate sticky prices in a labor market search model that has been analyzed in the literature starting from mortensen and pissarides 1994 merz 1995 and andolfatto 1996 1 in this labor market specification firms adjust labor input by changing employment while wages are determined through bargaining between workers and firms these characteristics of the labor market differ radically from those in sticky wage models despite this fundamental difference existing literature lacks the formal comparison of sticky wage models and labor market search models the present article fills this gap specifically we estimate a sticky wage model and a labor market search model with japan s data using a bayesian likelihood approach and compare these two models in terms of marginal likelihood and out of sample forecast performance the estimation results show that the labor market search model is superior to the sticky wage model in terms of both marginal likelihood and out of sample forecast performance particularly regarding inflation why is the former model better able to fit the data and forecast inflation because the non labor market part is identical between these two models the key difference is the relationship between real wages and inflation or output in the sticky wage model real wages are highly correlated with output in the presence of monopolistically competitive labor markets and unit labor cost under full employment is identical with real marginal cost and thus drives inflation dynamics however the cross correlation between real wages and output in the data is not so high as in the sticky wage model besides the data of real wages and output determine the unit labor cost which lags far behind inflation by more than 3 years whereas a high contemporaneous correlation between inflation and real marginal cost is represented in the nkpc in the labor market search model labor bargaining generates a mild cross correlation between real wages and output moreover real marginal cost is determined by both hiring cost and unit labor cost that varies with employment fluctuations which gives rise to a high contemporaneous correlation between inflation and real marginal cost therefore the labor market search model is better able to fit the data and forecast inflation in related literature rabanal and rubio ramirez 2005 show that a sticky wage model matches u s data far better in terms of marginal likelihood than a flexible wage model christoffel linzert and linzert 2006 gertler sala and trigari 2008 and krause lopez salido and lubik 2008 estimate a labor market search model with u s or euro area data to our knowledge the present article is the first to compare a sticky wage model and a labor market search model in terms of marginal likelihood and out of sample forecast performance

loan originations and defaults in the mortgage crisis the role of the middle class this paper highlights the importance of middle class and high fico borrowers for the mortgage crisis contrary to popular belief which focuses on subprime and poor borrowers we show that mortgage originations increased for borrowers across all income levels and fico scores the relation between mortgage growth and income growth at the individual level remained positive throughout the pre 2007 period finally middle income high income and prime borrowers all sharply increased their share of delinquencies in the crisis these results are consistent with a demand side view where homebuyers and lenders bought into increasing house values and borrowers defaulted after prices dropped

speculating on home improvements we develop a speculation based theory of home improvements housing services are produced from a mix of land and structures homeowners have an option to increase their structures i e make improvements holding xed their land speculative improvements arise because overcondent homeowners mistakenly believe they can add to structures for a lower cost than a competitive construction industry improvements are increasing and convex in home prices there is excessive home remodeling in equilibrium and the change in the recoup ratio the ratio of resale value of improvements to construction costs is negatively correlated with construction cost growth controlling for home price appreciation we provide evidence consistent with our theory using data on the costs and recoup values of remodeling projects across u s cities

debt relief and slow recovery a decade after lehman abstract we follow a representative panel of millions of consumers in the united states from 2007 to 2017 and document new facts on the long term effects of the great recession there were about six million foreclosures over this period only a quarter of foreclosed households regained homeownership taking an average four years to do so this persistent loss of homeownership accounts for most of the decline in the u s homeownership rate despite massive stimulus and debt relief policies house prices consumption and unemployment remained below precrisis levels in about half of the zip codes in the united states regions that recovered to precrisis levels took on average four to five years regional variation in the extent and speed of recovery is strongly and persistently associated with frictions affecting the pass through of lower interest rates and debt relief to households

employment in the great recession how important were household credit supply shocks i pool data from all large multimarket lenders in the united states to estimate how many of the over 7 million jobs lost in the great recession can be explained by reductions in the supply of mortgage credit i construct a mortgage credit supply instrument at the county level the weighted average by prerecession mortgage market shares of liquidity driven lender shocks during the recession the reduction in mortgage supply explains about 15 of the employment decline the job losses are concentrated in construction and finance

personal experiences and expectations about aggregate outcomes using novel survey data we document that individuals extrapolate from recent personal experiences when forming expectations about aggregate economic outcomes recent locally experienced house price movements affect expectations about future u s house price changes and higher experienced house price volatility causes respondents to report a wider distribution over expected u s house price movements when we exploit within individual variation in employment status we find that individuals who personally experience unemployment become more pessimistic about future nationwide unemployment the extent of extrapolation is unrelated to how informative personal experiences are is inconsistent with risk adjustment and is more pronounced for less sophisticated individuals

unemployment in the great recession a comparison of germany canada and the united states this paper looks at the surprisingly different labor market performance of the united states canada germany and several other oecd countries during and after the great recession of 2008 9 a first important finding is that the large employment swings in the construction sector linked to the boom and bust in us housing markets is an important factor behind the different labor market performances of the three countries we also find that cross country differences among oecd countries are consistent with a conventional okun relationship linking gross domestic product growth to employment performance

equilibrium heterogeneous agent models as measurement tools some monte carlo evidence abstract this paper discusses a series of monte carlo experiments designed to evaluate the empirical properties of heterogeneous agent macroeconomic models in the presence of sampling variability the calibration procedure leads to the welfare analysis being conducted with the wrong parameters the ability of the calibrated model to correctly predict the long run welfare changes induced by a set of policy experiments is assessed the results show that for the policy reforms with sizable welfare effects i e more than 0 2 the model always predicts the right sign of the welfare effects however the welfare effects can be evaluated with the wrong sign when they are small and when the sample size is fairly limited quantitatively the maximum errors made in evaluating a policy change are very small for some reforms in the order of 0 02 percentage points but bigger for others in the order of 0 6 percentage points finally having access to better data in terms of larger samples does lead to substantial increases in the precision of the welfare effects estimates though the rate of convergence can be slow

economic consequences of housing speculation by exploiting variation in state capital gains taxation as an instrument we analyze the economic consequences of housing speculation during the u s housing boom in the 2000s we find that housing speculation anchored in part on extrapolation of past housing price changes led not only to greater price appreciation economic expansions and housing construction during the boom in 2004 2006 but also to more severe economic downturns during the subsequent bust in 2007 2009 our analysis supports supply overhang and local household demand as two key channels for transmitting these adverse effects

panel estimates of the determinants of british regional male incapacity benefits rolls 1998 2006 this article explores the determinants of the proportion of the working age male population claiming incapacity benefits ib across the 11 british government office regions for the period 1998 to 2006 three different approaches are adopted to modelling register dynamics first treating ib stocks as if they were trend stationary albeit with persistence and estimating reduced form models for their logs second treating ib stocks as if they were nonstationary and examining their long run determinants plus short run equilibrium reversion properties third focusing on the determinants of gross inflows and outflows that together drive ib stocks given the nature of the data no approach is ideal yet the models provide reasonably robust evidence that labour market changes specifically falling unemployment rates and rising real earnings have contributed to falling male ib stocks over the period

efficiency in a search and matching model with right to manage bargaining abstract in a search and matching model with right to manage bargaining matched workers and firms bargain over wages given the firm s demand schedule for hours per worker wages and hours per worker are determined as if they are determined in a competitive labor market with a distortion to wage markups a positive inefficiency gap in the labor market diminishes workers effective bargaining power relative to firms because firms can adjust labor input and wage schedule via the intensive margin the hosios condition does not necessarily hold even when workers actual bargaining power is equal to the unemployment elasticity of matches

residential income segregation a behavioral model of the housing market abstract we represent the functioning of the housing market and study the relation between income segregation income inequality and house prices by introducing a spatial agent based model abm differently from traditional models in urban economics we explicitly specify the behavior of buyers and sellers and the price formation mechanism buyers who differ by income select among heterogeneous neighborhoods using a probabilistic model of residential choice sellers employ an aspiration level heuristic to set their reservation offer price prices are determined through a continuous double auction we first provide an approximate analytical solution of the abm shedding light on the structure of the model and on the effect of the parameters we then simulate the abm and find that i a more unequal income distribution lowers the prices globally but implies stronger segregation ii a spike in demand in one part of the city increases the prices all over the city iii subsidies are more efficient than taxes in fostering social mixing

monetary policy stock prices and consumption externalities abstract we study interest rate rules responding to stock prices in a sticky price sticky wage new keynesian framework subject to consumption externalities for given wage rigidity such rules are beneficial to equilibrium determinacy if households preferences feature sufficiently strong keeping up with the joneses externalities

job polarization and jobless recoveries job polarization refers to the shrinking share of employment in middle skill routine occupations experienced over the past 35 years jobless recoveries refers to the slow rebound in aggregate empl

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

the effect of implicit contracts on the movement of wages over the business cycle evidence from micro data in this paper we address the question of whether wages are affected by labor market conditions in a manner more consistent with a contract approach than with a standard spot market model from a simple implicit contract model we derive implications about the links between wages and past labor market conditions using individual data from the current population survey and the panel study of income dynamics we find that an implicit contract model with costless mobility describes these links better than either a simple spot market model or an implicit contract model with costly mobility

wages rents and the quality of life this study focuses on the role of wages and rents in allocating workers to locations with various quantities of amenities the theory demonstrates that if the amenity is also productive then the sign of the wage gradient is unclear while the rent gradient is positive the theory is extended to include the housing market and nontraded goods these extensions require little modification of the conclusion the empirical work on wages shows that the regional wage differences can be explained largely by these local attributes with the use of site price data implicit prices are estimated and quality of life rankings for the cities are computed

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

the role of real wage rigidity and labor market frictions for inflation persistence we analyze the transmission mechanism of wages to inflation within a new keynesian business cycle model with wage rigidities and labor market frictions our main focus is on the channel of real wage rigidities on inflation persistence for which we find the specification of the wage bargaining process to be of crucial importance under the standard efficient nash bargaining the feedback of wage rigidities on inflation is ambiguous and depends on other labor market variables however under the alternative right to manage bargaining we find that more rigid wages translate directly into more persistent movements of aggregate inflation

assessing the effect of payroll taxes on formal employment the case of the 2012 tax reform in colombia in 2013 colombia implemented a tax reform that reduced payroll taxes by a total of 13 5 percentage points of wages this paper evaluates the effects of this component of the 2012 colombian tax reform on firms formal employment and average wages we construct a panel of firms based on their employees administrative records to account for the endogeneity of the treatment we use an instrumental variables technique that exploits the exogenous variation from the decisions of firms that are similar to each other in several dimensions but belong to different economic sectors based on our preferred specification we estimate a positive and significant increase in formal employment as a result of the implementation of the reform of approximately 213 000 jobs in existing pre reform firms in the long run these effects will increase to more than 600 000 jobs the effect of the reform on the average wages paid by firms was also found to be positive for some sizes of firms but the overall effect in the short run is rather small

distinguishing income from substitution effects in disability insurance a set of studies conducted over the last 15 years has produced a near consensus that the social security disability insurance system ssdi has substantial disincentive effects on the labor supply of near elderly males diminishing labor force participation increasing the sensitivity of labor force exit decisions to adverse economic shocks and encouraging those nearing retirement to claim disability benefits and subsequently transfer into the social security retirement program yet efforts by the social security administration ssa to encourage labor supply among the disabled by removing the work disincentives built into ssdi have been almost entirely unsuccessful most notably in 1999 congress authorized the ticket to work program which provides an array of inducements for current ssdi beneficiaries to take up employment including permitting a trial work period of up to nine months providing 7 75 years of ongoing medicare eligibility following return to work and providing three years of automatic benefit reinstatement when claimants workplace earnings fall below a threshold level each of these steps reduces the implicit tax placed on labor supply by the ssdi program despite these lures fewer than 1 400 0 01 percent of the 12 2 million tickets issued to date have led to successful workforce integration autor and duggan 2006

greater wage inequality reduces average hours of work i argue that rising inequality in offered wages lowers average working hours if labour supply is concave in wages a decrease in the working hours of low paid workers is greater than an increase in working hours of high paid workers furthermore due to low market opportunities some low paid workers may leave the labour force using cps morg data for prime age men i find evidence in support of this explanation i establish empirically the concavity of the labour supply and find evidence that after controlling for the average wage wage inequality has a negative effect on labour supply