A Finite‐Time‐Horizon Model of Suicide When a Person's Income is at Risk: A Research Note

The risk of income fluctuations affects the suicidal behaviour. First, an increase in this risk makes risk‐averse individuals more likely to commit suicide by reducing their expected utility. Second, the increased risk makes them less likely to commit suicide by creating a value to waiting for the economic conditions to improve. I lay out a theoretical model of suicide to assess the net impact of income fluctuations on suicidal behaviour by taking into account an individual's ability to delay the action. I also address the question of whether there are generational differences in the suicidal behaviour.     

Labor supply with stochastic wage rate and non-labor income uncertainty

This paper deals with the labor supply problem in the contemporaneous presence of wage rate and non-labor income uncertainties. We examine the effect of a stochastic wage rate(a non-labor income uncertainty) on labor supply in the presence of a non-labor income uncertainty(a stochastic wage rate) and provide some conditions of utility function for assuring larger labor supply. We study the joint effect of two types of uncertainty on labor supply when two risks are either small or positive quadrant dependent. Our work extends the previous model of labor supply to two-risk framework and shows some new explorations on the classical issue of labor supply under uncertainty.     

Reverse Capital Deepening and the Numeraire: a note

The orthodox theory of precautionary saving fails to distinguish risk from uncertainty, and thus assumes the existence of a probability distribution governing an individual's future income prospects. The individual is assumed to be motivated to save by the dispersion in the distribution of future income, and researchers have therefore attempted to correlate saving with income variance. However, the empirical evidence tends to refute any such correlation. This paper proposes a concept of futility to describe actions that cannot affect the external environment, and demonstrates that precautionary saving in the orthodox sense is futile inasmuch as saving cannot alter the dispersion of resources around an expected future value. Despite the inadequacy of orthodox theory, the theory is perpetuated because even futile behaviour is consistent with the neoclassical notion of rationality. The retention of an invalid theory of precaution provides a faulty basis for both empirical research and policy analysis; thus, the present paper suggests an alternative approach to precaution based on the work of Knight and Shackle, in which decisions are made under conditions of uncertainty rather than risk.     

Life Satisfaction,Income Comparisons and Individual Traits

People gain utility from occupying a higher ranked position in the income distribution of the reference group. This paper investigates whether these gains depend on an individual's set of personality and affective traits. Using the 2000 to 2013 waves of the German Socio‐economic Panel dataset (SOEP), a subjective question on Life Satisfaction, and three different measures of personal and affective traits, we find significant and robust differences across groups and conclude that traits determine the relationship between rank and life satisfaction. The heterogeneity on the importance of income comparisons is relevant, for example, when building economic models, predicting individuals' behavior, or making welfare judgments.     

Moonlighting: multiple motives and gender differences

This paper examines the incidence and reasons for moonlighting with a focus on gender differences. The study specifies and estimates a bivariate probit model of labour supply and the decision to hold more than one job. It is found that the factors leading men and women to moonlight are similar. A wage decomposition analysis reveals that 93 percent of the differential between male and female moonlighters' wages is not explained by differences in characteristics, and little connection is found between an individual's human capital and their moonlighting wage. Finally, it is found that moonlighters are less likely to report their income.     

Marginal Tax Rate Uncertainty and Wage Indexation

Frequent changes in American tax laws over the last 30 years have led to uncertainty regarding the marginal tax rate on labour income. Using a multisector framework, this paper considers the implications of the tax rate uncertainty for wage flexibility. The Fiscal Authority sets the marginal wage tax rate, and is assumed to be the leader in a Stackelberg game. Wage setters in this game determine the degree of optimal indexation and are assumed to be followers. Increases in tax rate uncertainty lead to greater nominal wage flexibility, and a decrease in optimal progressivity. Additionally, indexation to nominal shocks is complete even if the product market is monopolistically competitive.     

An essay on the Life Cycle: Characterizing intertemporal behavior with uncertainty,human capital,taxes, durables,imperfect capital markets,and non-separable preferences

This paper formulates a general characterization of a household's portfolio choice and savings behavior in an environment with uncertain future interest rates, prices, wages, and factors influencing tastes. Savings may be invested in three types of assets: financial assets; human capital, which is non-tradable; and consumer durables, in which investment may be partially irreversible. Risk-return relations determine the optimal allocation of resources across assets at a point in time. The optimal intertemporal allocation of resources is determined by a restriction on the planned growth rate for the marginal utility of after-tax wealth, where growth rates depend on rates of time preference and measures of long-term riskless rates of interest. Given special assumptions, this marginal utility follows a martingale process as a consequence of optimizing behavior. Pricing formulae are developed for evaluating shifts in uncertain future income, wage, and price profiles. The relations characterizing portfolio and savings behavior presented here do not rely on particular distributional assumptions; they account for all forms of uncertainty including wage uncertainty induced by human capital investment; they allow for the non-marketability of assets; and the main results apply for very general functional form assumptions for preferences. In later sections, results are extended to incorporate income taxes and to account for a wide variety of imperfections in asset markets.     

CASH TRANSFERS,INTERGENERATIONAL MOBILITY,AND THE PROCESS OF DEVELOPMENT

We examine how cash transfers affect an individual's education investment, intergenerational mobility, and economic growth. We find that providing larger transfer amounts to higher ability children is desirable to foster growth if the economy has relatively low wage inequality.     

A mathematical note on Msgr. John A. Ryan's thought on the minimum wage

This paper examines Msgr. John A. Ryan's economic thought regarding the mechanics by which an increase in the minimum wage is funded. In particular, a mathematical comparative-static model is used to explore Msgr. Ryan's economic assumptions concerning the channels by which income is redistributed to workers from other factor owners. The analysis shows that Msgr. Ryan's approach includes assumptions regarding economic relationships and implies specific values of wage elasticities.     

Towards a More Complete Efficiency Wage Theory

The efficiency wage is an important topic in the theory of employment. In a traditional efficiency wage model, only the representative firm is optimizing against an assumed S‐shaped effort supply function. This S‐shaped supply curve is critical for the model and the absence of a derivation of the curve in the literature means that it is an incomplete theory. In the present paper, we extend the model by specifying a worker's representative utility function so that the corresponding argmax function will be the S‐shaped effort supply curve. This will make the worker's decision process endogenous and will produce a more complete model. The importance of this extension is clear. The characterization of the utility function will make explicit the necessary conditions and crucial assumptions of the traditional model. More importantly, the extension will allow researchers to introduce employment compensation factors into the worker's utility function for analysis. This has important bearings on future development in employment theory. For example, a worker's satisfaction from shirking (net of dismissal risks), or his or her willingness to search for jobs (net of search cost), can now be included in his or her utility function to form an optimal work or search strategy. Incorporating the worker's optimization behaviour into the model will also enable researchers to study policy directed not just towards firms but also towards the worker's decision process. Furthermore, this approach provides a framework for researchers to generate comparative statics. These comparative statics can lead to interesting topics for econometric models or to further research within this field.     

AN APPROXIMATION FOR THE OPTIMAL LINEAR INCOME TAX RATE

This paper derives a convenient method of calculating an approximation to the optimal tax rate in a linear income tax structure. Individuals are assumed to have Cobb-Douglas preferences and the wage rate distribution is lognormal. First, the optimal tax rate is shown, for a general form of social welfare function, to be the smallest root of a quadratic equation involving a welfare-weighted average wage rate. Second, an approximation to this average is derived for an isoelastic social welfare function. This average depends on the degree of inequality aversion of the welfare function and the coefficient on consumption in individuals' utility functions. Calculations show that the method performs well in comparison with standard simulation methods of computing the optimal tax rate.     

The effects of stochastic wages and non-labor income on labor supply: update and extensions

The analysis of labor supply under risk has a long history dating back to Hicks (The theory of wages, St. Martin’s Press, New York, 2003) and Knight (Risk, uncertainty and profit, Kelly, New York, 1964). In the 1980s more technical papers investigated the impact of stochastic non-labor income and/or wage rate upon labor supply. In this paper, we show that the effect of a mean-preserving increase in risk in wage rate or non-labor income on labor supply is best understood as a special case of an Nth degree risk increase (as defined by Ekern (Econ Lett 6:329–333, 1980)) and the conditions for signing the effect of a higher-order risk increase in wage rate or non-labor income on labor supply are analogous to those for signing the effect of a simple non-stochastic decrease in wage rate or non-labor income. We thus extend, and provide new and more intuitive interpretations for, related earlier results.     

Trade liberalisation,market competition and wage inequality in China's manufacturing sector

Economic reforms of the late 1980s have contributed to rapid economic growth in China. While the overall standard of living has improved, economic growth has also resulted in an increase in income inequality. Rising income inequality can increase social tensions that can impede further economic growth. By making use of firm level panel data, this paper focuses on the impact of increased market competition and trade liberalisation on skilled–unskilled wage inequality in China's manufacturing sector. A theoretical model is used to argue that trade liberalisation and market competition can affect skilled–unskilled wage inequality. Based on this result, an econometric model is specified. The empirical analysis presented in this paper shows that increased trade liberalisation has contributed to an increase in skilled–unskilled wage inequality in China's manufacturing sector. However, increase in market competition has the opposite effect.     

A utility-based analysis of the wage subsidy program

Because the poverty line is usually defined in terms of income, two families may be classified as having poverty-level incomes even though their hours of work and, therefore, their utilities may be very different. This paper compares a government income support program that defines the poverty line in terms of utility with several other support programs that define the poverty line in terms of income. Through the use of the wage solution of the indirect utility function, we find the amount of wage subsidy required to raise a subpoverty-line family to the poverty line as defined by the utility function. This subsidy is compared with wage subsidies based on directly observable quantities such as income.     

AN ECONOMIC INTERPRETATION OF SUICIDE CYCLES IN JAPAN

Suicide rates in Japan have increased dramatically in recent years, making Japan's male rate the highest among developed economies. This study revises the standard economic model of suicide to accommodate Japan's experience, focusing on the change in human capital for the unemployed. We then use the new model and detrended data to empirically investigate the relationship between the suicide cycle and the unemployment cycle. Unlike previous aggregate time series studies, we find that the relationship between the suicide rate and the unemployment rate is significantly and robustly positive for both men and women even after controlling for several social variables. ( JEL I12, J60, E30)     

Wage Determination in Rural Russia: A Stochastic Frontier Model

This article examines wages in rural Russia after the first decade of economic transition using data from a nationally representative household survey. The stochastic frontier analysis reveals that Russia's rural labour markets place high value on human capital. The overall level of rural wages, however, is very low, with the median wage 10% below the official subsistence level. The gender pay gap severely depresses women's wages. A woman with the same skills as a man is paid only 47% of the man's wage. Rural workers who receive income from their personal plots accept significantly lower wages. Private firms pay considerably higher wages than state or collectively owned firms, but account only for one fifth of rural workers.     

Wages,work, and unemployment

This paper provides new evidence on unemployment durations for individuals in Great Britain using a three state Markov framework in a competing risk setting and a nationally representative data set. The analysis is based on the premise that an individual's movements between labour market states can be represented by a Markov process. The modelling procedure combines the dynamic properties of the search approach to unemployment while using the labour supply decision at each moment in time in response to the expected wage to include participation decisions. Using this framework, we are able to determine the effect of individual characteristics, including the expected wage, on labour market behaviour. The model is estimated separately for men and women, and for young and mature workers, to investigate whether labour market behaviour differs for these groups. The validity of the Markov assumptions are tested using different model specifications, and changes in the model over calendar time are also presented.     

INEQUALITY COMPARISONS IN A MULTI‐PERIOD FRAMEWORK: THE ROLE OF ALTERNATIVE WELFARE METRICS

This paper considers the use of alternative welfare metrics in evaluations of income inequality in a multi‐period context. Using Norwegian longitudinal income data, it is found, as in many studies, that inequality is lower when each individual's annual average income is used as welfare metric, compared with the use of a single‐period accounting framework. However, this result does not necessarily hold when aversion to income fluctuations is introduced. Furthermore, when actual incomes are replaced by expected incomes (conditional on an initial period), using a model of income dynamics, higher values of inequality over longer periods are typically found, although comparisons depend on inequality and variability aversion parameters. The results are strongly influenced by the observed high degree of systematic regression toward the (geometric) mean, combined with a large extent of individual unexpected effects.     

Income,health and health care utilization in the UK

The aim of this paper is to analyse the links between income, health and health care utilisation behaviour using longitudinal data from the British Household Panel Survey. The emphasis is to frame the analysis as a social phenomenon, so that the dynamics of individual health production in the social context can be understood. The study estimates the relationships between income, health and health care utilisation with lag effects. The empirical results support the hypothesis that these three variables influence each other with lag effects and that many social and economic factors influence an individual's probability of having a health problem or making use of health care facilities, even when such facilities are free at the point of use.     

Moral Hazard,Income Taxation and Prospect Theory*

The standard theory of optimal income taxation under uncertainty has been developed under the assumption that individuals maximise expected utility. However, prospect theory has now been established as an alternative model of individual behaviour, with empirical support. This paper explores the theory of optimal income taxation under uncertainty when individuals behave according to the tenets of prospect theory. It is seen that many of the standard results are modified in interesting ways. The first‐order approach for solving the optimisation problem is not valid over the domain of losses, and the marginal tax schedule offers full insurance around the reference consumption level. The implications of non‐welfarist objectives under income uncertainty are also examined.