Creator: Doepke, Matthias and Zilibotti, Fabrizio Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 354 Abstract:
We develop a positive theory of the adoption of child labor laws. Workers who compete with children in the labor market support the introduction of a child labor ban, unless their own working children provide a large fraction of family income. Since child labor income depends on family size, fertility decisions lock agents into specific political preferences, and multiple steady states can arise. The introduction of child labor laws can be triggered by skill-biased technological change that induces parents to choose smaller families. The model replicates features of the history of the U.K. in the nineteenth century, when regulations were introduced after a period of rising wage inequality, and coincided with rapidly declining fertility rates.
Keyword: Child Labor, Inequality, Fertility, and Voting Subject (JEL): J24 - Human Capital; Skills; Occupational Choice; Labor Productivity, J13 - Fertility; Family Planning; Child Care; Children; Youth, and J82 - Labor Standards: Labor Force Composition
Creator: Han, Suyoun and Kleiner, Morris Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 556 Abstract:
The length of time from the implementation of an occupational licensing statute (i.e., licensing duration) may matter in influencing labor market outcomes. Adding to or raising the entry barriers are likely easier once an occupation is established and has gained influence in a political jurisdiction. States often enact grandfather clauses and ratchet up requirements that protect existing workers and increase entry costs to new entrants. We analyze the labor market influence of the duration of occupational licensing statutes for 13 major universally licensed occupations over a 75-year period. These occupations comprise the vast majority of workers in these regulated occupations in the United States. We provide among the first estimates of potential economic rents to grandfathering. We find that duration years of occupational licensure are positively associated with wages for continuing and grandfathered workers. The estimates show a positive relationship of duration with hours worked, but we find moderately negative results for participation in the labor market. The universally licensed occupations, however, exhibit heterogeneity in outcomes. Consequently, unlike some other labor market public policies, such as minimum wages or direct unemployment insurance benefits, occupational licensing would likely influence labor market outcomes when measured over a longer period of time.
Keyword: Duration and grandfathering effects on wage determination, Labor market regulation, Hours worked, Occupational licensing, and Workforce participation Subject (JEL): L88 - Industry Studies: Services: Government Policy, J80 - Labor Standards: General, L38 - Public Policy, J38 - Wages, Compensation, and Labor Costs: Public Policy, J30 - Wages, Compensation, and Labor Costs: General, L51 - Economics of Regulation, K00 - Law and Economics: General, J08 - Labor Economics Policies, J44 - Professional Labor Markets; Occupational Licensing, K20 - Regulation and Business Law: General, L12 - Monopoly; Monopolization Strategies, J88 - Labor Standards: Public Policy, and L84 - Personal, Professional, and Business Services
Creator: Kleiner, Morris and Soltas, Evan J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 590 Abstract:
We assess the welfare consequences of occupational licensing for workers and consumers. We estimate a model of labor market equilibrium in which licensing restricts labor supply but also affects labor demand via worker quality and selection. On the margin of occupations licensed differently between U.S. states, we find that licensing raises wages and hours but reduces employment. We estimate an average welfare loss of 12 percent of occupational surplus. Workers and consumers respectively bear 70 and 30 percent of the incidence. Higher willingness to pay offsets 80 percent of higher prices for consumers, and higher wages compensate workers for 60 percent of the cost of mandated investment in occupation-specific human capital.
Keyword: Labor supply, Welfare analysis, Human capital, and Occupational licensing Subject (JEL): J24 - Human Capital; Skills; Occupational Choice; Labor Productivity, D61 - Allocative Efficiency; Cost-Benefit Analysis, K31 - Labor Law, J44 - Professional Labor Markets; Occupational Licensing, and J38 - Wages, Compensation, and Labor Costs: Public Policy
Creator: Johnson, Janna and Kleiner, Morris Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 561 Abstract:
Occupational licensure, one of the most significant labor market regulations in the United States, may restrict the interstate movement of workers. We analyze the interstate migration of 22 licensed occupations. Using an empirical strategy that controls for unobservable characteristics that drive long-distance moves, we find that the between-state migration rate for individuals in occupations with state-specific licensing exam requirements is 36 percent lower relative to members of other occupations. Members of licensed occupations with national licensing exams show no evidence of limited interstate migration. The size of this effect varies across occupations and appears to be tied to the state specificity of licensing requirements. We also provide evidence that the adoption of reciprocity agreements, which lower re-licensure costs, increases the interstate migration rate of lawyers. Based on our results, we estimate that the rise in occupational licensing can explain part of the documented decline in interstate migration and job transitions in the United States.
Keyword: Interstate migration, Labor market regulation, and Occupational licensing Subject (JEL): L38 - Public Policy, K00 - Law and Economics: General, J44 - Professional Labor Markets; Occupational Licensing, J10 - Demographic Economics: General, and J01 - Labor Economics: General
Creator: Guvenen, Fatih and Rendall, Michelle Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 704 Abstract:
In this paper, we study the role of education as insurance against a bad marriage. Historically, due to disparities in earning power and education across genders, married women often found themselves in an economically vulnerable position, and had to suffer one of two fates in a bad marriage: either they get divorced (assuming it is available) and struggle as low-income single mothers, or they remain trapped in the marriage. In both cases, education can provide a route to emancipation for women. To investigate this idea, we build and estimate an equilibrium search model with education, marriage/divorce/remarriage, and household labor supply decisions. A key feature of the model is that women bear a larger share of the divorce burden, mainly because they are more closely tied to their children relative to men. Our focus on education is motivated by the fact that divorce laws typically allow spouses to keep the future returns from their human capital upon divorce (unlike their physical assets), making education a good insurance against divorce risk. However, as women further their education, the earnings gap between spouses shrinks, leading to more unstable marriages and, in turn, further increasing demand for education. The framework generates powerful amplification mechanisms, which lead to a large rise in divorce rates and a decline in marriage rates (similar to those observed in the US data) from relatively modest exogenous driving forces. Further, in the model, women overtake men in college attainment during the 1990s, a feature of the data that has proved challenging to explain. Our counterfactual experiments indicate that the divorce law reform of the 1970s played an important role in all of these trends, explaining more than one-quarter of college attainment rate of women post-1970s and one-half of the rise in labor supply for married women.
Keyword: Divorce law reform, Marriage, College-gender gap, Divorce, Female labor supply, and Remarriage Subject (JEL): D13 - Household Production and Intrahousehold Allocation, E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity, and J12 - Marriage; Marital Dissolution; Family Structure; Domestic Abuse
Creator: İmrohoroglu, Ayşe Ökten, Merlo, Antonio, and Rupert, Peter Charles, 1952- Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 216 Abstract:
In this paper we propose a general equilibrium model where heterogeneous agents specialize either in legitimate market activities or in criminal activities and majority rule determines the share of income redistributed and the expenditures devoted to the apprehension of criminals. We calibrate our model to the U.S. economy in 1990, and we conduct simulation exercises to evaluate the effectiveness of expenditures on police protection and income redistribution at reducing crime. We find that while expenditures on police protection reduce crime, it is possible for the crime rate to increase with redistribution. We also show that economies that adopt relatively more generous redistribution policies may have either higher or lower crime rates than economies with relatively less generous redistribution policies, depending on the characteristics of their wage distribution and on the efficiency of their apprehension technology.
Subject (JEL): D58 - Computable and Other Applied General Equilibrium Models, K14 - Criminal Law, and J24 - Human Capital; Skills; Occupational Choice; Labor Productivity
Creator: Livshits, Igor, MacGee, James C., and Tertilt, Michèle Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 617 Abstract:
American consumer bankruptcy provides for a Fresh Start through the discharge of a household’s debt. Until recently, many European countries specified a No Fresh Start policy of life-long liability for debt. The trade-off between these two policies is that while Fresh Start provides insurance across states, it drives up interest rates and thereby makes life-cycle smoothing more difficult. This paper quantitatively compares these bankruptcy rules using a life-cycle model with incomplete markets calibrated to the U.S. and Germany. A key innovation is that households face idiosyncratic uncertainty about their net asset holdings (expense shocks) and labor income. We find that expense uncertainty plays a key role in evaluating consumer bankruptcy laws.
Subject (JEL): D14 - Household Saving; Personal Finance, K35 - Personal Bankruptcy Law, and D91 - Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
Creator: Chodorow-Reich, Gabriel and Karabarbounis, Loukas Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 733 Abstract:
By how much does an extension of unemployment benefits affect macroeconomic outcomes such as unemployment? Answering this question is challenging because U.S. law extends benefits for states experiencing high unemployment. We use data revisions to decompose the variation in the duration of benefits into the part coming from actual differences in economic conditions and the part coming from measurement error in the real-time data used to determine benefit extensions. Using only the variation coming from measurement error, we find that benefit extensions have a limited influence on state-level macroeconomic outcomes. We use our estimates to quantify the effects of the increase in the duration of benefits during the Great Recession and find that they increased the unemployment rate by at most 0.3 percentage point.
Keyword: Unemployment, Unemployment insurance, and Measurement error Subject (JEL): E62 - Fiscal Policy, J64 - Unemployment: Models, Duration, Incidence, and Job Search, J65 - Unemployment Insurance; Severance Pay; Plant Closings, and E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity