Abstract: Our paper documents the large labor market wedges created by taxes, subsidies, and regulations included in the Affordable Care Act. The law changes terms of trade in both goods and factor markets for firms offering health insurance coverage. We use a multi-sector (intra-national) trade model to predict and quantify consequences of the Affordable Care Act for the patterns of output, labor usage, and employee compensation. We find that the law will significantly redistribute from high-wage workers to low-wage workers and to non-workers, reduce total factor productivity about one percent, reduce per-capita labor hours about three percent (especially among low-skill workers), reduce output per capita about two percent, and reduce employment less for sectors that ultimately pay employer penalties.
Abstract: A central goal of labor economics is explaining cyclical variation in hours worked. Procyclical hours can always be explained in a market clearing model with a residual tax wedge, the ``labor wedge." Convincing progress has been made in reducing the cyclical volatility in the labor wedge and therefore explaining movements in hours worked by amplifying technology shocks with endogenously rigid wages Hall (2005), Shimer (2010), and rigid wages in general. This paper demonstrates that the cyclical component of labor hours for the self-employed, who are not vulnerable to such frictions, is of comparable cyclicality and volatility as the cyclical component of labor hours for wage and salary workers, even conditioning on wages, consumption, and occupation-industry composition. This finding suggests that explaining the labor hours of the self-employed presents a new test for amplification mechanisms.
Abstract: How much of a role must differences in taste play in income inequality? Filtering out idiosyncratic hours and income shocks from the NLSY79, and focusing on highly-attached prime-age males, we establish two important facts: both the standard deviation of hours by age and the correlation of hours and earnings by age are high and non-declining. We argue that both of these facts are inconsistent with a model in which talent plays a primary role in determining income variation. Fitting a simple model of human capital accumulation inspired by Neal and Rosen 2005 in which workers are heterogeneous in (i) their ability to accumulate human capital (talent) (ii) their preferences over consumption vs. leisure (taste) and (iii) their initial human capital in order to estimate the joint distribution of taste and talent, we find that heterogeneneity in taste plays a large role: 68% of income variation at age 44 is due solely to taste, rather than talent or initial conditions. We find that the moments driving this result are a high standard deviation in ``permanent" labor hours and a positive correlation between labor hours and earnings which does not decline over the lifecycle. Finally, we show that exchanging the sources of income variation changes utilitarian optimal tax rates significantly, particularly when heterogeneity is due to differences in the marginal utility of consumption, rather than leisure.
Abstract: Repeated use of the same instrumental variable by a literature can “collectively invalidate" an instrument. This paper examines two ways in which this can happen. First, when the same instrumental variable is used to instrument multiple distinct covariates, it is more likely to violate the exclusion restriction. Second, when a variable is documented to affect many outcomes that are likely to be highly or even mildly persistent, using lagged values of that variable as an instrument is likely to violate the exclusion condition. This paper produces a dataset of approximately 960 instrumental variables papers from 1995-2019 in highly-ranked economics general interest and field journals. We find six commonly-used instruments whose literatures, taken together, suggest they are likely to fail the strict exogeneity condition: (i) elevation and bodies of water (ii) sibling structure (iii) ethnicity/ethnolinguistic fractionalization (iv) religion (v) weather and (vi) immigrant enclaves. Taken together, these instruments have been used in 86 “top five" publications and 317 well-ranked field or general interest journals, with 189 total uses cataloged from 2011 onwards. We conduct Monte Carlo exercises and suggest methods to determine whether or not an IV regression’s point estimates are likely to be correct.
Abstract: We analyze the effect of the transportation system on U.S. economic activity by building a dynamic computable general equilibrium model with a publicly provided transportation capital stock, which affects firm productivity, worker and shopping commute times, and government expenditures, thereby affecting households' labor and consumption decisions. Our model highlights stark differences between the effect of infrastructure spending on GDP and welfare in the long run, and its effects when we account for the transition (time and delay) costs to build. Calibrating our model to the U.S. economy, we find that $37 billion in additional annual spending on the transportation capital stock increases annual welfare net of taxes by $17 billion in the long run, but that the addition has a negative present value due to transition costs. Our paper highlights the importance of general equilibrium when considering transportation infrastructure, showing that three quarters of the response to GDP comes from the endogenous responses of capital and labor. Finally, an extension of our model finds possible GDP multipliers below one for high-investment countries like Japan.
Abstract: In this paper, we present the results of a natural field experiment in which workers operated telephones soliciting funds for a major charity in the US. We find that incentives increase targeted performance at the cost of other dimensions of a worker’s task. Incentivized workers were paid for the fraction of pledges—promises to donate at a later date—which they secured. Pledges were 50% higher for callers paid a commission relative to callers paid a flat rate. However actual donations (excluding outliers) were 17% lower when a donor was called by a caller paid a commission rather than a flat rate. Incentives also caused workers to break the rules of their employment in order to increase their pay. Commission-based pay caused rule-breaking to nearly double. Finally, in our experiment, workers with different types of compensation worked at the same time and could observe one another’s performance. We use the randomization-induced variation in worker performance to study whether incentives benefit firms via peer-effects. We find no evidence that productivity increases spill over onto peers, however, we find that rule-breaking generated by incentives does spill over onto peers.
Abstract: Social programs frequently have two effects on labor supply: an income effect and a wage effect. Programs produce a wage effect by linking benefits or program premiums to income, generating an implicit marginal tax rate on labor. Programs produce an income effect through the actual cash or in-kind transfer they provide. Conditional on wage and nonwage income elasticities, labor market responses to program structure ( or the lack thereof) reveal the value of program participation to beneficiaries. I study a public policy change in Tennessee that disenrolled 12% of its Medicaid population, and use simple calculations to estimate a cash value to beneficiaries of $0.26 cents per dollar spent. Using this same policy change, I estimate a richer model that allows for heterogeneity in family structure, wages, property income, and preferences over healthcare types. This method yields a value of Medicaid of $0.35 per dollar of spending. I find a high variance in the implied distribution of Medicaid's value to beneficiaries, but this high variance can be almost fully explained by the large variation in Medicaid expenditures across recipients.
Abstract: This paper derives and discusses a set of formulas to help researchers bridge the gap between heterogeneous-agent and representative agent models. Even studying the same phenomenon with the same basic setup, these two types of models can generate significantly different quantitative predictions for agent behavior. However, understanding the reasons for difference has been largely model specific, relating to economic, rather than mathematically mechanical reasons. This paper shows that differences in responsiveness can be closely mod- eled by a second-order approximations to heterogeneous- and representative-agent response functions, which yields a convenient analytical formula that describing the mechanical causes of divergence. Applying the toolkit to four common models in Macroeconomics, I find mis- calibration (different initial elasticities with respect to a shock), covariance between agent responsiveness and magnitude of the shock, and differences in the response of endogenous macroeconomic aggregates are first-order sources of divergence between these two models. I argue that the types of models are unlikely to be reconciled as a consequence.
Abstract: I study four provisions of the Affordable Care Act (ACA) in a calibrated computable general equilibrium model of labor markets with heterogeneous agents and firms: 1) the individual mandate to purchase health insurance 2) the size-based, healthcare-offering based levy on firms, 3) the income-contingent non group insurance subsidies, and 4) the Medicaid expansion. I find that the large sectorally dispersed implicit and explicit marginal tax rates imposed by the ACA reduce employer sponsored insurance by 6.3 million individuals, while increasing high- quality healthcare coverage by 50 million, slightly less than double the Congressional Budget Office’s current estimate. These tax rates reduce aggregate hours by 9.22 million full time equivalent workers, particularly among low-skilled workers. Equivalent variation of the ACA displays dramatic variation within population, with the ACA’s 10% worst off households losing by $1568 and the ACA’s 10% best off gaining by $2472. An unpaid-for ACA is valued at $25 per capita, driven by a large number of people who are relatively indifferent to the ACA.
Abstract: The Affordable Care Act’s taxes, subsidies, and regulations significantly alter terms of trade in both goods and factor markets. We use a multi-sector (intra-national) trade model to predict and quantify consequences of the Affordable Care Act for the incidence of health insurance coverage and patterns of labor usage. If and when the new exchange plans are competitive with employer-sponsored insurance (ESI), our model suggests that more than 20 million people will leave ESI as a consequence of the law. Behavioral changes that are captured in the model could add about 3 million participants to the new exchange plans: beyond those that would participate solely as the result of employer decisions to stop offering coverage and beyond those who would have been uninsured. Industries and regions will grow, decline, and change coverage on the basis of their relative demand for skilled labor.
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