Knowledge that Transforms

This paper examines the driving forces of family income dynamics by developing a unified framework to estimate permanent and transitory variation in head earnings, spouse earnings, and transfer income, as well as permanent and transitory correlations between these income sources. A complete decomposition using the PSID 1970–2018 shows that transitory variation in head earnings alone accounts for more than half of the total family income inequality. Insurance against transitory shocks to head earnings comes primarily from transfer income rather than spouse earnings. Both permanent and transitory variations in spouse earnings have an equalizing effect on family income inequality.

We show that occupational licensing has significant negative effects on labor market fluidity, defined as cross-occupation mobility, and positive effects on wage growth. We find that occupational licensing represents a barrier to entry for both nonemployed workers and employed ones. The effect is more prominent for employed workers than those entering from nonemployment. We also find that average wage growth is higher for licensed workers than nonlicensed workers. We find significant heterogeneity in the licensing effect across different occupation groups. These results hold across various data sources, time spans, and indicators of being licensed.

We study the impact of classroom rank on children’s learning using a unique experiment from Ecuador. Within each school, students were randomly assigned to classrooms in every grade between kindergarten and sixth grade. Students with the same ability can have different classroom ranks because of the (random) peer composition of their classroom. Children with higher beginning-of-grade classroom rank have significantly higher test scores at the end of that grade. The impact of classroom rank is larger for younger children and grows over time. Higher classroom rank also improves executive function, child happiness, and teacher perceptions of student ability.

Policymakers continuously debate the current U.S. Housing Voucher Program, which features a high degree of rationing and decreasing subsidy amount as income increases. This paper studies the effect of the Housing Voucher Program on low-income household labor supply and welfare. Using several datasets, I estimate a dynamic lifecycle model to study the long-term impacts of housing vouchers on employment, and examine how a set of policy reforms affect household labor supply and well-being. I show that voucher usage (as opposed to no vouchers) decreases female labor supply by 17% and male labor supply by 7% in the long run. Compared to the current program, a proposed reform that provides every recipient with a flat-rate subsidy increases female labor supply by 4% and leads to higher welfare. Policies that offer a lower subsidy to a larger population decrease labor supply by 3-4% and increase household welfare. Time-limited subsidies increase female employment by 4% and improve overall welfare.

Incomplete observability of data generates an identification problem. What one can learn about a population parameter depends on the assumptions one finds credible. Rubin has promoted random multiple imputation (RMI) as a general way to deal with missing values. The recommendation has been influential to researchers who seek a simple fix to the nuisance of missing data. This paper provides a transparent assessment of the mix of Bayesian and frequentist thinking used by Rubin to argue for RMI. It evaluates random imputation to replace missing outcome or covariate data when the objective is to learn a conditional expectation.

US social transfer programs vary substantially across states, incentivizing households to locate in states with more generous transfer programs. Furthermore, transfer formulas often decrease in income, thereby rewarding low-income households for living in low-paying cities. We quantify these distortions by combining a spatial equilibrium model with a detailed model of transfer programs in the United States. The current system leads to locational inefficiency of 4.88% of total transfer spending. A reform that both harmonizes transfer policies across states and indexes household income to local average earnings reduces this inefficiency by more than 60% while preserving the programs’ means-tested nature.

We estimate the impact of parental health on adult children’s labor market outcomes. We focus on health shocks that increase care dependency abruptly. Our estimation strategy exploits the variation in the timing of shocks across treated families. Empirical results based on administrative data show a significant negative impact on the labor market activities of children. This effect is more pronounced for daughters and for children who live close to their parents. Informal caregiving is the most likely mechanism. The effect is significantly muted after a liberalization of the formal care market, which sharply increased the supply of foreign care workers.

This paper studies the legalization of 600,000 non-EU immigrants by the unexpectedly elected Spanish government following the terrorist attacks of 2004. By comparing non-EU to EU immigrants we first estimate that the policy did not lead to magnet effects. We then show that the policy change increased labor market opportunities for immigrants by allowing them to enter sectors of the economy with fewer informal employment. We rely on cross-province comparisons to document that payroll-tax revenues increased by around 4,000 euros per legalized immigrant, and the heterogeneous effect of the policy on various groups of workers. We provide a theoretical framework based on monopsonistic competition to guide our empirical work and interpret our findings.

For birth cohorts 1935–44, 1945–62, and 1964–74, we estimate the contribution of education; permanent heterogeneity in wage rates, employment, and hours; labor market shocks; spouse characteristics and shocks; nonlabor income shocks; and marital histories to the age profiles of the variance of family income per adult equivalent. Education and employment heterogeneity are key sources of the rise in variance with age and across cohorts. Wage heterogeneity is important at all ages. Own characteristics and shocks matter more for men than women, while spouse characteristics and shocks matter more for women. Gender differences have declined across cohorts.