Life-cycle earnings,cohort size effects and social security: a quantitative exploration

One of the features of the large overlapping generations model pioneered by Auerbach and Kotlikoff (1987) Dynamic Fiscal Policy is that individuals with different experience levels are perfect substitutes in production. This paper replaces this assumption with a labor market characterized by imperfect substitutability between less and more experienced workers. By comparing the quantitative properties of both cases in a calibrated model for Spain, it is found that in the model economy with imperfect substitution, the effects of aging on the financial viability of the pension system are less severe than in the standard model economy with perfect substitution.     

Equilibria in a dynamic global game: the role of cohort effects

Summary. We introduce strategic waiting in a global game setting with irreversible investment. Players can wait in order to make a better informed decision. We allow for cohort effects, which arise endogenously in technology adoption problems with positive contemporaneous network effects. Formally, cohort effects lead to intra-period network effects being greater than inter-period network effects. Depending on the nature of the cohort effects, our game may or may not satisfy dynamic increasing differences. If it does, our model has a unique rationalizable outcome. Otherwise, multiple equilibria may exist as players want to invest at the same point in time others do.Received: 13 July 2004, Revised: 20 May 2005, JEL Classification Numbers: C72, C73, D82, D83.We thank George-Marios Angeletos, Helmut Bester, Andreas Blume, Estelle Cantillon, Frank Heinemann, Christian Hellwig, Larry Karp, Tobias Kretschmer, In Ho Lee, Robin Mason and an anonymous referee for helpful comments. We also thank seminar participants at the EEA-meeting in Stockholm 2003, ESRC Workshop in Warwick 2004, Free University Berlin, IAE (Barcelona), Keele, MIT, Southampton, University of Pittsburgh, and at a CEPR-conference in Brussels 2002 for comments, and the European Union for providing financial support through the TMR network on network industries (Contract number FMRX-CT98-0203). This paper was completed while the first author visited the Department of Economics at MIT, whose hospitality he gratefully acknowledges.     

Errors in self-reported earnings: The role of previous earnings volatility and individual characteristics

I report the measurement error in self-reported earnings for a developing country using a novel data set. The data set consists of two cross-sections of the Federated States of Micronesia (FSM) wage and salary sectors; additionally, a subset of the two cross-sections may be linked to create a panel. Administrative data from FSM Social Security office are matched to the FSM Census data for the wage and salary sectors. I find that the error in annual self-reported earnings is centered on zero. Additionally, I find strong evidence for mean reversion in the data suggesting non-classical measurement error. I identify the impact of prior years' earnings variability on the current reporting of earnings using administrative data on earnings histories. Prior earnings volatility strongly affects measurement error in current period. However, the effect of prior shocks diminish significantly over time—suggesting that first-differencing and fixed-effects techniques will not improve accuracy.     

Cohort patterns in Canadian earnings: assessing the role of skill premia in inequality trends

In this paper we document the pattern of change in age-earnings profiles across cohorts and evaluate its implications. Using synthetic cohorts from the survey of Consumer Finances over the period 1971 to 1993, wwe show that the age-earnings profiles of Canadian men have been deteriorating for more recentcohorts in comparison with older cohorts. We find this pattern for both high school and university educated workers. In no case do we find evidence that the return to gaining experience has been increasing over time, nor do we find increased within-cohort dispersion of earnings. We view these findings as conflicting with the hypothesis that increased skill premia largely explain the observed increase in dispersion of male weekly earnings. JEL Classification: J31, O33
Ce mémoire documente le pattern de changements dans les relations âges-gains d'une cohorte à l'autre, et en analyse les implications. Utilisant des cohortes synthétiques pour la période 1971–93, on montre que les profils âges-gains des hommes au Canada se sont détériorés dans les cohortes les plus récentes. On ne trouve pas de résultats qui montreraient que le rendement sur l'expérience accumulée s'est accru dans le temps ou qu'il y a dispersion accrue des gains à l'intérieur des cohortes. Les auteurs suggèrent que ces résultats contredisent l'hypothèse que des primes accrues pour les habiletés expliqueraient l'accroissement qu'on a observé dans la dispersion des gains des hommes au Canada.     

The changing role of education in the distribution of earnings and household income

This article draws on income surveys from the last two decades to report on trends in earnings disparities and household income inequality in the Czech Republic. Education has been the main axis of change in this area, having acquired a much greater role in the entire process of collecting and distributing income. First, an increasing influence of education is evident in the personal earnings of employees, returns to education having doubled. Second, in couples, education has an important impact on both women’s employment and their earnings. Third, the importance of marital partners’ education levels on household income grew even more than its effect on earnings.     

The earnings effects of health and health-related activities: a panel data approach

We investigate the effects of health and health-related habits on earnings in China using panel data to control for unobserved heterogeneity related to individual traits and job characteristics. Health-related habits include smoking cigarettes, drinking tea, frequency of drinking alcohol and physical exercising. We find a significant and large impact of health status on earnings, controlling for schooling, experience and the unobserved individual heterogeneity and job heterogeneity. We also find that smoking has a strong negative effect on earnings net of health status, while the estimated effects of other health-related activities are statistically insignificant.     

Investment and interruption: effects of the US experience on the earnings of return migrants in Mexico

Migration is widely viewed as an investment in human capital. However, due to the imperfect transferability of skills and knowledge across countries, migration trips are also career interruptions, especially for return migrants who may meanwhile experience depreciation of home country-specific skills. This article demonstrates that migration experience increases return migrants’ earnings in the home country on the condition that the migration stay is sufficiently long and mostly uninterrupted. Employing the revised human capital earnings function, the empirical study shows that only a barely interrupted US experience longer than five years, regardless of the legal status of the migration trips, predicts higher earnings of male return migrants in Mexico than comparable non-migrants. Robust findings emerge controlling for unobserved individual \]acteristics or using instrumental variables to deal with the self-selection and endogeneity. Short migration stays in the US and frequent traveling provide return migrants no wage premium in Mexico.     

Optimal size of the government: the role of the elasticity of substitution

This paper analyzes the optimal fiscal policy in an endogenous growth model with productive public services. Government expenditure, which may be subject to different degrees of congestion, is financed by distortionary income taxation. The standard result on the equality between the growth-maximizing, welfare-maximizing and first-best income tax rates holds if and only if production is Cobb–Douglas or there is proportional congestion. With non-proportional (or in the absence of) congestion, the first-best income tax is lower than the (second-best) welfare-maximizing income tax which, in turn, is lower than the growth-maximizing income tax if the elasticity of substitution is below unity. Under mild conditions these relations are reversed if the elasticity of substitution is above unity. Intuition on these results is also provided.     

Immigrant earnings differentials in Canada: A more general specification of age and experience effects

This paper investigates empirically the role of age and arrival cohort effects on immigrant earnings differentials. The dataset used consists of a sample of 5,069 adult Canadian male employees from the 1973 Job Mobility Survey, a non-census dataset that provides information on actual work experience, language attributes, and numerous parental family background characteristics. It thus allows a more general specification of foreign-born/native-born earnings differentials, particularly the effects of age, work experience and years since immigration. The results confirm the importance of cross-sectional age cohort effects and refine previous findings on arrival cohort effects. Sample selectivity bias is investigated and found to be significant only when respondent's occupation is not controlled for. Adjustment for sample selection bias leaves essentially unchanged the main findings.For their helpful comments on an earlier version of this paper presented at a Labour Economics Conference at The University of Western Ontario, the authors would like to thank Martin Dooley, John Vanderkamp, Hank Farber, David Card and John Abowd. The authors also gratefully acknowledge the useful comments offered by members of the Labor Economics/Institute for Research on Poverty Workshop at the University of Wisconsin-Madison and an anonymous referee. The authors, of course, retain full responsibility for all remaining errors and shortcomings. The first version of this paper was written while the second author was visiting the Industrial Relations Section at Princeton University and the Institute for Research on Poverty at the University of Wisconsin-Madison.     

Measuring the extent of earnings discrimination: an update

Ordinary least squares (OLS) regression and data from the March 1990 Current Population Survey are used to estimate yearly earnings averages for white males, white females, black males and black females. In order to test for the possible existence or gender and/or race discrimination, earnings estimates are decomposed, using the tradional Oaxaca (1973) and Blinder (1973) methodology. In comparing these results with those from Carlson and Swartz (1988, using 1979 data), we find that overall and unexplained residual differences have declined quite substantially, but that they still favour white males. We then incorporate an extension of the traditional methodology (Jackson and Lindley, 1989) which allows for testing for the significance of enexplained residuals, and for jointly testing for the significance of residual effect components, the constant and coefficient effects. These results call into question the unambiguous conclusion that earnings differentials uniformly favour white males. Strong support is found for the Jackson–Lindley contention that significant and positive residuals may have have offsetting signs. More specifically, where males appear to receive an entry level premium, as measured by constant effect differentials, but other groups appear to receive favourable treatment as measured by response rates to changes in independent variables (the coefficient effect). This result suggests that efforts may be underway to ‘make up’ for the entry level white male premium.     

Fiscal decentralization and government size: The role of democracy

This paper examines how the level of democracy in a country affects the relationship between fiscal decentralization and government size. We argue that political regimes, proxied by their democracy levels, are important for different decentralization theories to predict the impact of fiscal decentralization on government size. We test this argument using panel data from 76 developed and developing countries during 1972–2013. We find strong and robust evidence that fiscal decentralization is negatively associated with government size and that a higher level of democracy tends to mitigate the negative impact of fiscal decentralization. Therefore, our study contributes to the literature by offering a novel insight on mixed results regarding the relationship between fiscal decentralization and government size in the literature.     

Panel estimates of the earnings gap in Norway: do female immigrants experience a double earnings penalty?

This study explores the possibility that being both a ‘female’ and an ‘immigrant’ will impose an earnings disadvantage on immigrant women in Norway. Well-known techniques are used to decompose the earnings gap between Norwegian men and immigrant women into portions attributable to productivity differentials, portions attributable to a gender effect, and portions attributable to an ethnic effect. The analysis supports the following conclusions: First, there is evidence of a double negative effect on female immigrant earnings. Second, gender effect is more important than ethnic effect. Finally, the discrimination estimates are robust to the alternative methods used in decomposing Norwegian men-immigrant women earnings gap.     

The macroeconomic effects of the LTV and LTI ratios in Ireland

We use the Central Bank of Ireland’s Dynamic Stochastic General Equilibrium model to investigate the introduction of regulatory loan-to-value and loan-to-income ratios in 2015, which form part of the Central Bank’s macroprudential measures. The main finding is that while the measures dampen economic activity in the short run, they bring benefits in the medium and long run. Household leverage declines, which lowers the default rate on bank loans. Households deleverage and foreign debt decreases significantly.     

Accounting practices,earnings volatility,and earnings forecast: The case of the oil and gas producing companies

International Advances in Economic Research -     

Understanding the size and profitability of firms: The role of a biological factor

In a large sample of entrepreneurs, 2D:4D (second-to-fourth digit) ratio and managerial performance are studied. Entrepreneurs with lower ratio manage larger firms, manage larger firms when acquire control and experience faster average growth. Firms run by high prenatal testosterone entrepreneurs have lower profitability as measured by return on assets and return on sales. Prenatal testosterone is correlated with elicited measures of entrepreneurial skills, like work effort and optimism and the latter are correlated with firm size. This evidence suggests entrepreneurial ability has a biological component and is consistent with models of the size distribution of firms based on entrepreneurial ability.     

Profit sharing and firm size: The role of team production

This paper presents a model showing that profit sharing is subject to the 1/N problem in the case of independent worker productivity but not in the case of interdependent worker productivity. This implies the role of firm size on the likelihood of profit sharing will differ by the nature of the underlying technology. We test this implication using German establishment data and using a proxy for interdependent worker productivity. The results conform to the theory showing that firm size is associated with reduced profit sharing use when technology is independent but not when technology is interdependent.     

The long-term effects of civil conflicts on education,earnings, and fertility: Evidence from Cambodia

This paper examines the long-term effects of exposure to civil war and genocide on the educational attainment, earnings, and fertility of individuals in Cambodia. Given the well-documented causal links between schooling and labor productivity, it is surprising that past studies show that civil conflicts reduce educational attainment, but generally not earnings of individuals. Using variation in the degree of Cambodians’ exposure to civil conflicts during primary school age, we find that disruption to primary education during civil conflicts decreases educational attainment and earnings, increases fertility, and has negligible effects on health of individuals several decades later. Our findings suggest that the effect of conflict on schooling disruption has adverse consequences on long-term labor productivity and economic development.     

Trade in imperfectly competitive industries: the role of market size and consumer preferences

This study presents theoretical and empirical analyses of market size and consumer preference asymmetries to examine the implications of trade and trade policies for imperfectively competitive food manufacturing sectors. The results show that the effects of trade reforms on imperfectly competitive product trade are counter intuitive if a significant portion of food trade is attributed to market size and preference asymmetries. For example, countries with smaller market gain relatively more from trade liberalization than countries with larger markets because export market opportunities are greater for small countries than for large countries.