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Creator: Guvenen, Fatih, Schulhofer-Wohl, Sam, Song, Jae, and Yogo, Motohiro Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 546 Abstract:
The magnitude of and heterogeneity in systematic earnings risk has important implications for various theories in macro, labor, and ﬁnancial economics. Using administrative data, we document how the aggregate risk exposure of individual earnings to GDP and stock returns varies across gender, age, the worker’s earnings level, and industry. Aggregate risk exposure is U-shaped with respect to the earnings level. In the middle of the earnings distribution, aggregate risk exposure is higher for males, younger workers, and those in construction and durable manufacturing. At the top of the earnings distribution, aggregate risk exposure is higher for older workers and those in ﬁnance. Workers in larger employers are less exposed to aggregate risk, but they are more exposed to a common factor in employer-level earnings, especially at the top of the earnings distribution. Within an employer, higher-paid workers have higher exposure to employer-level risk than lower-paid workers.
Sujeito: G11 - Portfolio Choice; Investment Decisions and D31 - Personal Income, Wealth, and Their Distributions
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.
Palavra-chave: Divorce, Divorce law reform, College-gender gap, Remarriage, Marriage, and Female labor supply Sujeito: D13 - Household Production and Intrahousehold Allocation, J12 - Marriage; Marital Dissolution; Family Structure; Domestic Abuse, and E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
Creator: Bridgman, Benjamin, Maio, Michael, Schmitz, James Andrew, and Teixeira, Arilton Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 477 Abstract:
Beginning in the early 1900s, Puerto Rican sugar has entered the U.S. mainland tariff free. Given this new status, the Puerto Rican sugar industry grew dramatically, soon far outstripping Louisiana’s production. Then, in the middle 1960s, something amazing happened. Production collapsed. Manufacturing sugar in Puerto Rico was no longer profitable. Louisiana, in contrast, continued to produce and grow sugar. We argue that local economic policy was responsible for the industry’s demise. In the 1930s and 1940s, the local Puerto Rican government enacted policies to stifle the growth of large cane-farms. As a result, starting in the late 1930s, farm size fell, mechanization of farms essentially ceased, and the Puerto Rican sugar industry’s productivity (relative to Louisiana) rapidly declined until the industry collapsed. The overall Puerto Rican economy also began to perform poorly in the late 1930s. In particular, Puerto Rico’s per capita income was converging to that of the poorest U.S. states until the late 1930s, but since then it has lost ground to these states. One naturally wonders: was the poor overall performance of the Puerto Rican economy also the result of policy? We show that Puerto Rico embarked on other economic policies in the early 1940s that proved to be major setbacks to its economic development.
Palavra-chave: Sugar, Land, Industrial policy, and Puerto Rico Sujeito: L52 - Industrial Policy; Sectoral Planning Methods and N56 - Economic History: Agriculture, Natural Resources, Environment, and Extractive Industries: Latin America; Caribbean
Creator: Guvenen, Fatih, Karahan, Fatih, Ozkan, Serdar, and Song, Jae Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 719 Abstract:
We study the evolution of individual labor earnings over the life cycle using a large panel data set of earnings histories drawn from U.S. administrative records. Using fully nonparametric methods, our analysis reaches two broad conclusions. First, earnings shocks display substantial deviations from lognormality–the standard assumption in the incomplete markets literature. In particular, earnings shocks display strong negative skewness and extremely high kurtosis–as high as 30 compared with 3 for a Gaussian distribution. The high kurtosis implies that in a given year, most individuals experience very small earnings shocks, and a small but non-negligible number experience very large shocks. Second, these statistical properties vary significantly both over the life cycle and with the earnings level of individuals. We also estimate impulse response functions of earnings shocks and find important asymmetries: positive shocks to high-income individuals are quite transitory, whereas negative shocks are very persistent; the opposite is true for low-income individuals. Finally, we use these rich sets of moments to estimate econometric processes with increasing generality to capture these salient features of earnings dynamics.
Palavra-chave: Non-Guassian shocks, Skewness, Earnings dynamics, Kurtosis, Nonparametric estimation, Life-cycle earnings risk, and Normal mixture Sujeito: J24 - Human Capital; Skills; Occupational Choice; Labor Productivity, E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity, and J31 - Wage Level and Structure; Wage Differentials
Creator: Schmitz, James Andrew Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 286 Abstract:
Great Lakes iron ore producers had faced no competition from foreign iron ore in the Great Lakes steel market for nearly a century as the 1970s closed. In the early 1980s, as a result of unprecedented developments in the world steel market, Brazilian producers were offering to deliver iron ore to Chicago (the heart of the Great Lakes market) at prices substantially below local iron ore prices. The U.S. and Canadian iron ore industries faced a major crisis that cast doubt on their future. In response to the crisis, these industries dramatically increased productivity. Labor productivity doubled in a few years (whereas it had changed little in the preceding decade). Materials productivity increased by more than half. Capital productivity increased as well. I show that most of the productivity gains were due to changes in work practices. Work practice changes reduced overstaffing and hence increased labor productivity. Changes in work practices, by increasing the fraction of time equipment was in operating mode, also significantly increased materials and capital productivity.
Palavra-chave: Work Rules, Effort, Competition, and Labor Productivity Sujeito: J24 - Human Capital; Skills; Occupational Choice; Labor Productivity, J50 - Labor-Management Relations, Trade Unions, and Collective Bargaining: General, O40 - Economic Growth and Aggregate Productivity: General, O35 - Social Innovation, and L70 - Industry Studies: Primary Products and Construction: General
Creator: Danforth, John P. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 069 Palavra-chave: Risk, Income distribution, Employment, and Wealth Sujeito: J31 - Wage Level and Structure; Wage Differentials and J01 - Labor Economics: General
Creator: Heathcote, Jonathan and Perri, Fabrizio Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 508 Abstract:
Between 2007 and 2013, U.S. households experienced a large and persistent decline in net worth. The objective of this paper is to study the business cycle implications of such a decline. We first develop a tractable monetary model in which households face idiosyncratic unemployment risk that they can partially self-insure using savings. A low level of liquid household wealth opens the door to self-fullfilling fluctuations: if wealth-poor households expect high unemployment, they have a strong precautionary incentive to cut spending, which can make the expectation of high unemployment a reality. Monetary policy, because of the zero lower bound, cannot rule out such expectations-driven recessions. In contrast, when wealth is sufficiently high, an aggressive monetary policy can keep the economy at full employment. Finally, we document that during the U.S. Great Recession wealth-poor households increased saving more sharply than richer households, pointing towards the importance of the precautionary channel over this period.
Palavra-chave: Precautionary saving, Business cycles, Multiple equilibria, Aggregate demand, Zero lower bound, and Self-fulfilling crises Sujeito: E12 - General Aggregative Models: Keynes; Keynesian; Post-Keynesian, E21 - Macroeconomics: Consumption; Saving; Wealth, and E52 - Monetary Policy
Creator: Geweke, John Series: New methods in business cycle research Abstract:
A simple stochastic model of the firm is constructed in which a dynamic monopolist who maximizes a discounted profits stream subject to labor adjustment costs and given factor prices sets output price as a distributed lag of past wages and input prices. If the observed relation of wages and prices in manufacturing arises solely from this behavior then wages and input prices are exogenous with respect to output prices. In tests using quarterly and monthly series for the straight time wage, an index of raw materials prices and the wholesale price index for manufacturing and its durable and nondurable subsectors this hypothesis cannot be refuted for the period 1955:1 to 1971:11. During the period 1926:1 to 1940:11, however, symmetrically opposite behavior is observed manufacturing wholesale prices are exogenous with respect to the wage rate, a relation which can arise if dynamically monopsonistic firms compete in product markets. Neither structural relation has withstood direct wage and price controls.
Palavra-chave: Wholesale, Labor, Wages, Prices, and Manufacturing Sujeito: E32 - Business Fluctuations; Cycles, E31 - Price Level; Inflation; Deflation, and L60 - Industry Studies: Manufacturing: General