Labor Force Dynamics and Household Economics
‘Actors in the Child Development Process,’ Flinn, C. (with D. Del Boca), 2019.
We construct and estimate a model of child development in which both the parents and children make investments in the child’s skill development. In each period of the development process, partially altruistic parents act as the Stackelberg leader and the child the follower when setting her own study time. We then extend this non-cooperative form of interaction by allowing parents to offer incentives to the child to increase her study time, at some monitoring cost. As in Del Boca et al. (2016), we find that the most effective set of policies are (external) conditional cash transfers, in which the households receives an income transfer given that the child’s cognitive ability exceeds a prespecified threshold. We find that the possibility of households using internal conditional cash transfer greatly increases the cost-effectiveness of external conditional cash transfer policies.
‘Free to Leave? A Welfare Analysis of Divorce Regimes,’ Fernandez, R. (with J.C. Wong), 2016.
We construct and estimate a model of child development in which both the parents and children make investments in the child’s skill development. In each period of the development process, partially altruistic parents act as the Stackelberg leader and the child the follower when setting her own study time. We then extend this non-cooperative form of interaction by allowing parents to offer incentives to the child to increase her study time, at some monitoring cost. As in Del Boca et al. (2016), we find that the most effective set of policies are (external) conditional cash transfers, in which the households receives an income transfer given that the child’s cognitive ability exceeds a prespecified threshold. We find that the possibility of households using internal conditional cash transfer greatly increases the cost-effectiveness of external conditional cash transfer policies.
‘The Disappearing Gender Gap: The Impact of Divorce, Wages, and Preferences on Education Choices and Women’s Work,’ Fernandez, R. (with J.C. Wong), 2011.
Women born in 1935 went to college significantly less than their male counterparts and married women’s labor force participation (LFP) averaged 40% between the ages of thirty and forty. The cohort born twenty years later behaved very differently. The education gender gap was eliminated and married women’s LFP averaged 70% over the same ages. In order to evaluate the quantitative contributions of the many significant changes in the economic environment, family structure, and social norms that occurred over this period, this paper develops a dynamic life-cycle model calibrated to data relevant to the 1935 cohort. We find that the higher probability of divorce and the changes in wage structure faced by the 1955 cohort are each able to explain, in isolation, a large proportion (about 60%) of the observed changes in female LFP. After combining all economic and family structure changes, we find that a simple change in preferences towards work can account for the remaining change in LFP. To eliminate the education gender gap requires, on the other hand, for the psychic cost of obtaining higher education to change asymmetrically for women versus men
‘Personality Traits, Intra-household Allocation and the Gender Wage Gap,’ Flinn, C. (with E. Petra, and W. Zhang), 2017.
A model of how personality traits affect household time and resource allocation decisions and wages is developed and estimated. In the model, households choose between two modes of behavior: cooperative or noncooperative. Spouses receive wage offers and allocate time to supplying labor market hours and to producing a public good. Personality traits, measured by the so-called Big Five traits, can affect household bargaining weights and wage offers. Model parameters are estimated by Simulated Method of Moments using the Household Income and Labor Dynamics in Australia (HILDA) data. Personality traits are found to be important determinants of household bargaining weights and of wage offers and to have substantial implications for understanding the sources of gender wage disparities.
‘Family Law Effects on Divorce, Fertility, and Child Investment,’ Flinn, C. (with M. Brown, and J. Mullins), 2015.
In order to assess the child welfare impact of policies governing divorced parenting, such as child support orders, child custody and placement regulations, and marital dissolution standards, one must consider their influence not only on the divorce rate but also on spouses’ fertility choices and child investments. We develop a model of marriage, fertility and parenting, with the main goal being the investigation of how policies toward divorce influence outcomes for husbands, wives and children. Estimates of preferences and the technology of child development are disciplined by data on parental time inputs, and simulations based on the model explore the effects of changes in custody allocations and child support standards on outcomes for intact and divided families. Simulations indicate that, while a small decrease in the divorce rate may be induced by a significant child support hike, the major effect of child support levels for both intact and divided households is on the distribution of welfare between parents. Simulated divorce, fertility, test scores and parental welfare all increase with a move toward shared physical placement. Finally, the simulations indicate that children’s interests are not necessarily best served by minimizing divorced parenting.
‘Unemployment fluctuations, match quality, and the wage cyclicality of new hires,’ Gertler, M. (with C. Huckfeldt and A. Trigari), 2018.
We revisit the issue of the high cyclicality of wages of new hires. We show that after controlling for composition effects likely involving procyclical upgrading of job match quality, the wages of new hires are no more cyclical than those of existing workers. The key implication is that the sluggish behavior of wages for existing workers is a better guide to the cyclicality of the marginal cost of labor than is the high measured cyclicality of new hires wages unadjusted for composition effects. Key to our identification is distinguishing between new hires from unemployment versus those who are job changers. We argue that to a reasonable approximation, the wages of the former provide a composition free estimate of the wage flexibility, while the same is not true for the latter. We then develop a quantitative general equilibrium model with sticky wages via staggered contracting, on-the-job search, and variable match quality, and show that it can account for both the panel data evidence and aggregate evidence on labor market volatility.
‘Robust Decisions for Incomplete Models of Strategic Interaction,’ Menzel, K. (with T. Salz), 2013.
We propose Monte Carlo Markov Chain (MCMC) methods for estimation and inference in game-theoretic models with a particular focus on settings in which only a small number of observations for a given type of game is available. In particular we do not assume that it is possible to concentrate out or estimate consistently an equilibrium selection mechanism linking a parametric distribution of unobserved payoffs to observable choices. The algorithm developed in this paper can in particular be used to analyze structural models of social interactions with multiple equilibria using data augmentation techniques. This study adapts the multiple prior framework from Gilboa and Schmeidler (1989) to compute Gamma-posterior expected loss (GPEL) optimal decisions that are robust with respect to assumptions on equilibrium selection, and gives conditions under which it is possible to solve the GPEL problem using one single Markov chain. The practical usefulness of the generic MCMC algorithm is illustrated with an application to revealed preference analysis of two-sided marriage markets with non-transferable utilities.
‘Genes, Education, and Labor Market Outcomes: Evidence from the Health and Retirement Study,’ Thom, K. (with N.W. Papageorge), 2016.
Recent advances have led to the discovery of specific genetic variants that predict educational attainment. We study how these variants, summarized as a genetic score variable, are associated with human capital accumulation and labor market outcomes in the Health and Retirement Study (HRS). We demonstrate that the same genetic score that predicts education is also associated with higher wages, but only among individuals with a college education. Moreover, the genetic gradient in wages has grown in more recent birth cohorts, consistent with interactions between technological change and labor market ability. We also show that individuals who grew up in economically disadvantaged households are less likely to go to college when compared to individuals with the same genetic score, but from higher-SES households. Our findings provide support for the idea that childhood SES is an important moderator of the economic returns to genetic endowments. Moreover, the finding that childhood poverty limits the educational attainment of high-ability individuals suggests the existence of unrealized human potential.
‘Genetic Ability, Wealth, and Financial Decision-Making,’ Thom, K. (with D. Bath, and N.W. Papageorge), 2017.
Recent advances in behavioral genetics have enabled the discovery of genetic scores linked to a variety of economic outcomes, including education. We build on this progress to demonstrate that the same genetic variants that predict educational attainment independently predict household wealth in the Health and Retirement Study (HRS). This relationship is partly explained by higher earnings, but a substantial portion of this association cannot be explained mechanically by income flows or bequests. This leads us to explore the role of beliefs, financial literacy and portfolio decisions in explaining this genetic gradient in wealth. We show that individuals with lower genetic scores are more prone to reporting “extreme beliefs” (e.g., reporting that there is a 100% chance of a stock market decline in the near future) and they invest their savings accordingly (e.g., avoiding the stock market). Our findings suggest that genetic factors that promote human capital accumulation contribute to wealth disparities not only through education and higher earnings, but also through their impact on the ability to process information and make good financial decisions. The association between genetic ability and wealth is substantially lower among households receiving a defined benefit pension. Policies that transfer greater responsibility to individuals to manage their wealth might therefore exacerbate the consequences of labor market inequality.