We develop, estimate, and test a tractable general equilibrium model of oligopsony with differentiated jobs and concentrated labor markets. We estimate key model parameters by matching new evidence on the relationship between firms’ local labor market share and their employment and wage responses to state corporate tax changes. The model quantitatively replicates quasi-experimental evidence on imperfect productivity-wage pass-through and strategic wage setting of dominant employers. Relative to the efficient allocation, welfare losses from labor market power are 7.6 percent, while output is 20.9 percent lower. Lastly, declining local concentration added 4 percentage points to labor’s share of income between 1977 and 2013. (JEL E25, H71, J24, J31, J42, R23)
more »
« less
Consumption Insurance against Wage Risk: Family Labor Supply and Optimal Progressive Income Taxation
We show that a calibrated life cycle two-earner household model with endogenous labor supply can rationalize the extent of consumption insurance against shocks to male and female wages, as estimated empirically by Blundell, Pistaferri, and Saporta-Eksten (2016) in US data. In the model, 35 percent of male and 18 percent of female permanent wage shocks pass through to consumption, compared to the empirical estimates of 32 percent and 19 percent. Most of the consumption insurance against permanent male wage shocks is provided through the presence and labor supply response of the female earner. Abstracting from this private intrahousehold income insurance mechanism strongly biases upward the welfare losses from idiosyncratic wage risk as well as the desired extent of public insurance through progressive income taxation. Relative to the standard one-earner life cycle model, the optimal degree of tax progressivity is significantly lower and the welfare gains from implementing the optimal system are cut roughly in half. (JEL D15, H21, H24, J16, J22, J31)
more »
« less
- Award ID(s):
- 1757084
- NSF-PAR ID:
- 10221885
- Date Published:
- Journal Name:
- American Economic Journal: Macroeconomics
- Volume:
- 13
- Issue:
- 1
- ISSN:
- 1945-7707
- Page Range / eLocation ID:
- 79 to 113
- Format(s):
- Medium: X
- Sponsoring Org:
- National Science Foundation
More Like this
-
-
This paper argues that high marginal labor income tax rates on top earners are an effective tool for social insurance even when households have high labor supply elasticity, households make dynamic savings decisions, and policies have general equilibrium effects. We construct a large-scale overlapping generations model with uninsurable labor productivity risk, show that it has a realistic wealth distribution, and numerically characterize the optimal top marginal rate. We find that marginal tax rates for top 1 percent earners of 79 percent are optimal as long as the model earnings and wealth distributions display a degree of concentration as observed in US data. (JEL D15, D31, H21, H24, H55, J22, J31)more » « less
-
null (Ed.)We study the spending profile of workers who experience both a positive transitory income shock (lump-sum severance pay) and a negative permanent income shock (layoff). Using de-identified expenditure and employment data from Brazil, we show that workers increase spending at layoff by 35 percent despite experiencing a 14 percent long-term loss. We find high sensitivity of spending to cash-on-hand across consumption categories and for several sources of variation, including predictable income drops. A model with present-biased workers can rationalize our findings, and highlights the importance of the timing of benefit disbursement for the consumption-smoothing gains of job displacement insurance policies. (JEL D12, G51, J65, J63, O12)more » « less
-
Abstract Using a structural life-cycle model, we quantify the heterogeneous impact of school closures during the corona crisis on children affected at different ages and coming from households with different parental characteristics. In the model, public investment through schooling is combined with parental time and resource investments in the production of child human capital at different stages in the children’s development process. We quantitatively characterise the long-term consequences from a COVID-19-induced loss of schooling, and find average losses in the present discounted value of lifetime earnings of the affected children of $2.1\%$, as well as welfare losses equivalent to about $1.2\%$ of permanent consumption. Because of self-productivity in the human capital production function, younger children are hurt more by the school closures than older children. The negative impact of the crisis on children’s welfare is especially severe for those with parents with low educational attainment and low assets.more » « less
-
more » « less
Abstract We present and empirically implement a dynamic discrete choice model of life insurance decisions to assess the importance of various factors in explaining life insurance lapsation. We estimate a model using information on life insurance holdings from the Health and Retirement Study. Counterfactual simulations using the estimates of our model suggest that a large fraction of life insurance lapsations are driven by idiosyncratic shocks, uncorrelated with health, income, and bequest motives, particularly when policyholders are relatively young. As the remaining policyholders get older, however, the role of such independent and identically distributed (i.i.d.) shocks gets smaller, and more of their lapsation is driven by income, health, or bequest motive shocks. As anticipated, income and health shocks are relatively more important than bequest motive shocks in explaining lapsation when policyholders are young, with bequest motive shocks playing a more important role as we age.
- Free Publicly Accessible Full Text
-
Accepted Manuscript1.0
- Journal Article:
- https://doi.org/10.1257/mac.20180125
