HEALTH CARE IN THE UNITED STATES: WHY IS SUPPLY SO PRICE INSENSITIVE?

Health spending as a percentage of gross domestic product in the U.S. economy is growing, from 5% in 1960 to about 16% in the current period, and it is predicted to grow to as much as 30% in 2050. Then why is the supply of health care in the United States so insensitive to steeply rising prices? This paper conducts an econometric study to show that high health‐care costs have an adverse impact on labor productivity, causing a negative production externality in all industries. So, can the rising cost of health‐care affect the U.S. comparative advantage? The paper seeks answers to these questions in a general equilibrium model and finds that the labor productivity shock is responsible for the sluggish or declining supply of health care. Consumers are able to afford less health care due to a possible decline in real wages. U.S. comparative advantage becomes a nonissue, provided that the equilibrium is stable in spite of a negatively sloped health‐care supply curve. Negative externality, leading to market failure, may be addressed in two alternative ways. (JEL F11, I11, I12, I18)     

Does providing informal elderly care hasten retirement? Evidence from Japan

This paper examines the implications of providing care to elderly parents for adult children's retirement plans using micro data from a Japanese survey. We find no significant effect of caregiving on family caregivers’ planned retirement age if we do not take into account caregiving intensity but find a negative and significant effect on retirement plans for intensive caregivers, particularly among women. These findings suggest that relying on family members to provide elderly care can pose a serious challenge to the ongoing efforts of the government to promote the labor supply of women and the elderly as a way of addressing the shrinkage of the working‐age population in Japan. The estimation results suggest that ensuring access to formal care services can help family members reconcile their paid work with caregiving requirements, thereby alleviating the adverse effect of caregiving on their retirement plans. The results also suggest that the financial burden of formal care services could require caregivers to postpone retirement in some cases.     

Gender Inequalities in Labor Market Outcomes of Informal Caregivers near Retirement Age in Urban China

ABSTRACT

This study examines the impacts of unpaid family care on labor supply and earnings of women and men near retirement age in urban China. Using the 2011 China Health and Retirement Longitudinal Study (CHARLS) and ordinary least squares (OLS) and instrumental variable approaches, it finds that grandchild care is negatively associated with both women's and men's labor force participation, while there are no effects for eldercare. For women caregivers, caring for grandchildren substantially lowers paid labor hours compared to noncaregivers. No significant relationships are found between eldercare and paid labor hours of women workers. For men workers, neither grandchild care nor eldercare is significantly associated with labor hours. The study also finds no statistically significant relationships between grandchild care and labor earnings for either women or men. Eldercare, however, is positively associated with the earnings of men workers.     

WHY DO EUROPEANS WORK SO LITTLE?*

Market work per person is roughly 10% higher in the United States than in Sweden. However, if we include the work carried out in home production, the total amount of work only differs by 1%. I set up a model and show that differences in policy—mainly taxes—can account for the discrepancy in both labor supply and home production between Sweden and the United States. These results are independent of the elasticity of labor supply.     

Availability of Long‐term Care Facilities and Middle‐aged People's Labor Supply in Japan

This paper estimates the effect of the availability of long‐term care facilities in the prefecture or medical district where middle‐aged men and women reside on their labor supply. Prefecture‐ and medical district‐ level panel datasets of the capacity of long‐term care facilities are merged with individual level employment data, and each individual's employment status is regressed on the capacities of long‐term care facilities. I find no evidence for a positive impact of the long‐term care availability on labor supply, although the estimates are unstable in sign and not estimated precisely enough to draw any strong conclusions.     

Distortions,infrastructure, and female labor supply in developing countries

In this paper I document cross-country gaps between gross domestic product (GDP) per capita and GDP per worker. The gaps are driven mostly by a lower female labor force participation (LFP) in developing countries. Females began to participate more in the labor markets of these countries when more households acquired access to basic infrastructure and when distortive policies affecting the prices of household appliances were partially removed. I use a model of home production with endogenous labor force participation to account for these facts. I find that the prices of household appliances and access to infrastructure are quantitatively important in explaining cross-country labor supply differences.     

Home production and Social Security reform

This paper incorporates home production into a dynamic general equilibrium model of overlapping generations with endogenous retirement to study Social Security reforms. Specifically, home production takes housing, home input, and home hours as inputs and produces a good that is substitutable with market good. As such, the model differentiates both consumption goods and labor effort according to their respective roles in home production and market activities. Using a calibrated model, we conduct a policy experiment where we eliminate the current pay-as-you-go Social Security system. We find that the experiment has important implications for labor supply as well as consumption decisions and that these decisions are influenced by the presence of the home production technology. More importantly, comparing our economy to a one-good economy without home production, the welfare gains of eliminating Social Security are magnified significantly especially in the long run. The reasons are twofold and related to the general aspects of home production. First, home production implies a more elastic labor supply rendering the payroll labor tax more distortionary. Second, home production introduces insurance possibilities that are not present when only market-produced goods are available and, thus, reduces the need for government redistributive policies.     

The Prospect of Migration,Sticky Wages,and “Educated Unemployment”

An increase in the probability of work abroad, where the returns to schooling are higher than at home, induces more individuals in a developing country to acquire education, which leads to an increase in the supply of educated workers in the domestic labor market. Where there is a sticky wage rate, the demand for labor at home will be constant. With a rising supply and constant demand, the rate of unemployment of educated workers in the domestic labor market will increase. Thus, the prospect of employment abroad causes involuntary “educated unemployment” at home. A government that is concerned about “educated unemployment” and might therefore be expected to encourage unemployed educated people to migrate will nevertheless, under certain conditions, elect to restrict the extent of the migration of educated individuals.     

Child Gender,Intergenerational Kinship and Parental Labor Market Outcomes

This paper provides new evidence of the effects of child gender on parental labor market outcomes. Using data from the China Health and Nutrition Survey, I document a son premium on the intensive margin of parental labor supply in two‐parent families with one child. Parents with a newborn to a 6‐year‐old son have higher labor supply than parents with a daughter in the same age group. A further examination indicates that boys are likely to have better access to grandparent‐provided childcare than girls owing to grandson preference, and this allows parents with a preschool‐aged son to work more. The intensification of market work associated with having a son may affect economic outcomes over the lifecycle of parents through labor market attachment. This paper thus sheds light on the important distributional effects of family ties and culture on economic outcomes.     

Liquidity constraints and labor supply

In this paper we shed some light on how restrictions in financial markets, the so-called liquidity constraints, might act in affecting labour supply decisions of Italian workers. One way to neutralize the existence of binding liquidity constraints is simply by supplying additional labor, instead of reducing consumption. We estimate whether resorting to additional labor supply as a smoothing consumption device is at work by using the Italian Survey of Households Income and Wealth (SHIW). The longitudinal dimension of the SHIW dataset allows us to control for individual unobserved heterogeneity. We also use an IV strategy to address the endogeneity of our measure for credit constraints in labor supply equations due to time varying factors.Our results show that liquidity constraints increase the intensity in the supply of men׳s labor. Constrained men work, on average, 4 hours more than their unconstrained counterpart. Self-employed workers turn out to be more sensitive to binding liquidity constraints, possibly because they are more flexible in adjusting the intensity of their labor supply.     

“Ending Welfare as We Know It”: The Symbolic Importance of Welfare Policy in America

In this paper, I offer a framework for analyzing non-market oriented household activities in a way that overcomes some issues about defining the boundaries among household activities. I utilize the concept of a social process and discuss how unpaid household activities are part of labor, care, recreation, and consumption processes. Next, I explain the importance of introducing economic class and social class processes into the framework, as well as the importance of making a distinction between the two. Economic class accounts for the basics of the capitalist economy, and social class opens contexts of variation. The framework allows for a multidimensionality of individuals and opens the question of unpaid activities varying in categorization based on economic class. Also, it helps the economic analysis of capitalism consider that maintaining a household lifestyle directly involves and pertains to unpaid household activities that are part of each of the delineated labor, care, recreation, and consumption processes.     

Life expectancy and economic development: Evidence from microdata

This study examines the effect of life expectancy on fertility, education, and labor force participation. Using birth and sibling histories from the Demographic Health Surveys conducted in sub‐Saharan Africa, I construct a time series of age‐specific birth rates and mortality rates at the country‐region level. I use these data to test the implications of a general equilibrium model linking life expectancy to fertility, human capital, and labor supply. My results suggest that increases in life expectancy reduce fertility, increase education, and increase labor force participation. Overall, my empirical results suggest that in sub‐Saharan Africa, increases in life expectancy will have a positive impact on growth through fertility, education, and labor supply but that the effect will be small. My results also rule out the possibility that recent shocks to adult mortality in high HIV prevalence countries will reduce fertility, increase labor productivity, and lead to faster growth.     

Changes in women's hours of market work: The role of returns to experience

Over the past several decades, married women's hours of market work increased significantly in the US. I argue that changes in behavior by married women with children account for much of this change. In particular, the pattern of married women's work hours has changed substantially over the life cycle. In the past, married women in childbearing age tended to specialize in childrearing and home production activities at the expense of engaging in market work. Now they do not curb the hours they work in the market.What factors contribute to this change in behavior? In this paper, I focus on relative changes in returns to experience as an explanation. I use PSID data for the 1970s and the 1990s to estimate the extent to which relative returns to experience have changed. I then use a life-cycle model with human capital accumulation and home production to quantitatively assess the consequences of this increase for married women's hours of work over the life cycle.The estimates of the human capital production function show that women's marginal returns to experience increased by 25% across decades, whereas men's increased by only 6%. I show that this relative change accounts for 96% of the observed variation in married women's hours of work. Moreover, according to the model, the increase in returns to experience accounts for roughly half of the increase in the female/male wage ratio that is found in the data. I also show that a decline in the gender wage gap, holding returns to experience constant, accounts for only 18% of the total increase in hours of work. As a consequence, it cannot explain the change in the shape of women's life-cycle profiles. Although the focus of the analysis is the labor supply behavior of women, the model also allows predictions about the behavior of men and single women. These predictions are consistent with the data.     

Why is the public sector more labor-intensive? A distortionary tax argument

Government-run entities are often more labor-intensive than private companies, even with identical production technologies. This need not imply slack in the public sector, but may reflect a wage tax advantage, stemming from the fact that government entities (partly) pay their taxes to themselves. A tax-induced cost advantage of public production precludes production efficiency and reduces welfare when labor supply is inelastic. With an elastic labor supply, a wage tax advantage of the public sector may improve welfare if it allows for a higher net wage.      

Does trade liberalization increase global pollution?

In this paper we consider a simple duopoly market in which a home firm and a foreign firm use labor to produce an identical product and supply it to the home market. Firms emit pollution as a by-product of production. We show conditions under which international trade liberalization decreases (increases) the global pollution.     

The Distributive and Labor Supply Impact of the Minimum Insertion Income: The Case of Italy

This paper analyzes the redistributive and labor supply effects of extending at national level the Minimum Insertion Income, introduced experimentally in 1999 in some Italian municipalities. We develop a behavioral microsimulation tax-benefit model that allows for simultaneous labor supply decisions by household members, endogenous choice between dependent employment and self-employment, complete representation of the current Italian tax-benefit system. The results show a positive impact on both inequality and poverty, while overall labor supply reduces. On average magnitude of labor supply disincentive is small for married individuals, relatively larger for single persons and, within this category, for women than men.     

Health insurance and the labor supply decisions of older workers: Evidence from a U.S. Department of Veterans Affairs expansion

This paper exploits a major mid-1990s expansion in the U.S. Department of Veterans Affairs health care system to provide evidence on the labor market effects of expanding health insurance availability. Using data from the Current Population Survey, we employ a difference-in-differences strategy to compare the labor market behavior of older veterans and non-veterans before and after the VA health benefits expansion to test the impact of public health insurance on labor supply. We find that older workers are significantly more likely to decrease work both on the extensive and intensive margins after receiving access to non-employer based insurance. Workers with some college education or a college degree are more likely to transition into self-employment, a result consistent with “job-lock” effects. However, less-educated workers are more likely to leave self-employment, a result suggesting that the positive income effect from receiving public insurance dominates the “job-lock” effect for these workers. Some relatively disadvantaged sub-populations may also increase their labor supply after gaining greater access to public insurance, consistent with complementary positive health effects of health care access or decreased work disincentives for these groups. We conclude that this reform has affected employment and retirement decisions, and suggest that future moves toward universal coverage or expansions of Medicare are likely to have significant labor market effects.     

Work supply and constitutional order

James Buchanan has suggested resolving the issue of labor supply and increasing returns by introducing the concept of a work ethic. This paper offers some additional thoughts to the solution that Buchanan has developed by taking a historical perspective. It was the choice between labor supply to the market and self-employment rather than a choice between work and leisure that the early worker in the transitional period to industrialized labor was confronted with. Starting with this point of view, I argue that the critical motivation for increasing labor supply to the market was the prospect of reaping more benefits under the newly organized firms compared to the benefits that the system of simple labor-ownership rule generated. The paper concludes that entrepreneurship, which promotes the division of labor both within firms as well as among firms, performs a decisive role in increasing labor supply. This in turn made possible the transformation of the constitutional order from the pre-industrialized society to the more advanced civil society of today.     

Economic development, growth of human capital, and the dynamics of the wage structure

In this paper I elucidate the sources of growth of human capital in the course of economic development. On the supply side (Section 1) I include the growth of family income, urbanization, the demographic transition, and the rising cost of time.The supply side alone cannot explain the continuous growth of human capital as it implies a self limiting decline in rates of return below those in alternative investments. Such declines are offset by growing demands for human capital in the labor market. Growth of demand for labor skills is a function of capital accumulation and of technological changes. Evidence on this hypothesis is summarized in Section 2 and on supply responses to growing demand for human capital in Section 3. Changes in the skill and wage structures in the labor market are an important part of the evidence.The reciprocal relation between economic growth and the growth of human capital is likely to be an important key to sustained economic growth. A caveat applies to indirect effects of economic growth on family instability, which may lead to a deterioration of childhood human capital in some sectors of society.     

The effect of the timing and spacing of births on the level of labor market involvement of married women

We analyze the effect of the timing and spacing of births on the labor supply of married women in a framework that accounts for the endogeneity of the labor market and fertility decisions, for the heterogeneity of the effects of children on labor supply and their correlation with the fertility decisions, and for the correlation of sequential labor market decisions. Delaying the first birth leads to higher pre-natal levels of labor market involvement and reduces the negative effect of the first child on labor supply. The effect of the second child increases with the spacing of the two births as women, returning to work after the first birth, finance child care time increasingly through reductions in market time. Individual heterogeneity is considerable; women with lower propensity for children have the first birth later in life and space subsequent births more closely together, work more before the birth of the first child, but face larger effects of children on their labor supply.