Search Results
Working Paper
Health Shocks, Health Insurance, Human Capital, and the Dynamics of Earnings and Health
We specify and calibrate a life-cycle model of labor supply and savings incorporating health shocks and medical treatment decisions. Our model features endogenous wage formation via human capital accumulation, employer-sponsored health insurance, and means-tested social insurance. We use the model to study the effects of health shocks on health, labor supply and earnings, and to assess how health shocks contribute to earnings inequality. We also simulate provision of public insurance to agents who lack employer-sponsored insurance. The public insurance program substantially increases medical ...
Report
Statistical inference in the multinomial multiperiod probit model
Statistical inference in multinomial multiperiod probit models has been hindered in the past by the high dimensional numerical integrations necessary to form the likelihood functions, posterior distributions, or moment conditions in these models. We describe three alternative approaches to inference that circumvent the integration problem: Bayesian inference using Gibbs sampling and data augmentation to compute posterior moments, simulated maximum likelihood (SML) estimation using the GHK recursive probability simulator, and method of simulated moment (MSM) estimation using the GHK simulator. ...
Report
An empirical analysis of income dynamics among men in the PSID: 1968-1989
This study uses data from the Panel Survey of Income Dynamics (PSID) to address a number of questions about life cycle earnings mobility. It develops a dynamic reduced form model of earnings and marital status that is nonstationary over the life cycle. The study reaches several firm conclusions about life cycle earnings mobility. Incorporating non-Gaussian shocks makes it possible to account for transitions between low and higher earnings states, a heretofore unresolved problem. The non-Gaussian distribution substantially increases the lifetime return to post-secondary education, and ...
Report
The solution and estimation of discrete choice dynamic programming models by simulation and interpolation: Monte Carlo evidence
Over the past decade, a substantial literature on the estimation of discrete choice dynamic programming (DC-DP) models of behavior has developed. However, this literature now faces major computational barriers. Specifically, in order to solve the dynamic programming (DP) problems that generate agents' decision rules in DC-DP models, high dimensional integrations must be performed at each point in the state space of the DP problem. In this paper we explore the performance of approximate solutions to DP problems. Our approximation method consists of: 1) using Monte Carlo integration to simulate ...
Discussion Paper
The relation between skill levels and the cyclical variability of employment, hours and wages
This paper uses micro data to examine differences in the cyclical variability of employment, hours, and wages for skilled and unskilled workers. Contrary to conventional wisdom, we find that, at the aggregate level, skilled and unskilled workers are subject to essentially the same degree of cyclical variation in wages. That is, relative offer wage differentials between skilled and unskilled workers are acyclical. However, we do find important differences in the patterns of employment and hours variation for skilled vs. unskilled workers when a college degree is used as a proxy for skill. ...
Discussion Paper
The employment and wage effects of oil price shocks: a sectoral analysis
In this paper we use micro panel data to examine the effects of oil price shocks on employment and real wages, at the aggregate and industry levels. We also measure differences in the employment and wage responses for workers differentiated on the basis of skill level. We find that oil price increases result in a substantial decline in real wages for all workers, but raise the relative wage of skilled workers. The use of panel data econometric techniques to control for unobserved heterogeneity is essential to uncover this result, which is completely hidden in OLS estimates. While the ...
Working Paper
A structural model of multiple welfare program participation and labor supply
One of the long-standing issues in the literature on transfer programs for the U.S. low-income population concerns the high cumulative marginal tax rate on earnings induced by participation in the multiplicity of programs offered by the government. Empirical work on the issue has reached an impasse partly because the analytic solution to the choice problem is intractable and partly because the model requires the estimation of multiple sets of equations with limited dependent variables, an estimation problem which until recently has been computationally infeasible. In this paper we estimate a ...
Report
Alternative computational approaches to inference in the multinomial probit model
This research compares several approaches to inference in the multinomial probit model, based on Monte-Carlo results for a seven choice model. The experiment compares the simulated maximum likelihood estimator using the GHK recursive probability simulator, the method of simulated moments estimator using the GHK recursive simulator and kernel-smoothed frequency simulators, and posterior means using a Gibbs sampling-data augmentation algorithm. Each estimator is applied in nine different models, which have from 1 to 40 free parameters. The performance of all estimators is found to be ...
Journal Article
A new idea for welfare reform
This article analyzes several proposals to build work incentives into the U.S. welfare system. It concludes that the most cost effective way to do that is to offer a work subsidy to all low-income single parents?in other words, to simply pay them for working in the labor market. This conclusion is based on a model of the labor force participation behavior of low-income single mothers that the author developed with Robert Moffitt. Among the proposals evaluated in the article, besides the work subsidy, are proposals to reduce the rate that welfare benefits are reduced when welfare recipients ...