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96
Estimating the Employer Switching Costs and Wage Responses of ForwardLooking Engineers
 Journal of Labor Economics
, 2010
"... This article estimates worker switching costs and how much the employer switching of experienced engineers responds to outside wage offers. I use data on engineers across Swedish private sector firms to estimate the relative importance of employer wage policies and switching costs in a dynamic progr ..."
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This article estimates worker switching costs and how much the employer switching of experienced engineers responds to outside wage offers. I use data on engineers across Swedish private sector firms to estimate the relative importance of employer wage policies and switching costs in a dynamic programming, discrete choice model of employer choice. The differentiated firms are modeled in employer characteristic space, and each firm has its own agewage profile. A majority of engineers have moderately high switching costs and a minority of experienced workers are responsive to outside wage offers. Younger workers are more sensitive to outside wage offers. I.
Human Capital Risk in Lifecycle Economies
, 2008
"... I study the effect of market incompleteness on the aggregate economy in a model where agents face idiosyncratic, uninsurable human capital investment risk. The environment is a general equilibrium lifecycle model with a version of a BenPorath (1967) human capital accumulation technology, modified t ..."
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I study the effect of market incompleteness on the aggregate economy in a model where agents face idiosyncratic, uninsurable human capital investment risk. The environment is a general equilibrium lifecycle model with a version of a BenPorath (1967) human capital accumulation technology, modified to incorporate risk. A CARAnormal specification keeps endogenous decisions independent of individual shock realizations. I study stationary equilibria of calibrated cases in which idiosyncratic uninsurable risk arises from specialization risk and career risk. Specialization risk is such that both mean and variance of the return from training are increasing in the endogenous decision to invest in human capital. In the case of career risk, however, only the mean return is increasing in the decision to invest in human capital. With career risk only, stationary equilibria resemble those studied by Aiyagari (1994), and one concludes that the impact of uninsurable idiosyncratic risk is relatively small. With a significant amount of specialization risk however, stationary equilibria are severely distorted relative to a complete markets benchmark. One aspect of this distortion is that human capital is only about 57 percent as large as its complete markets counterpart. This suggests that the two types of risk have very different and quantitatively significant general equilibrium implications. Keywords: Human capital risk, lifecycle, incomplete
Lifecycle Dynamics of Income Uncertainty and Consumption
, 2008
"... Uninsurable income risk is often cited as an explanation for empirical deviations from the Lifecycle/PermanentIncome Hypothesis such as the observation that the lifecycle profile of mean consumption is humpshaped. Most methods used for estimating the uncertainty of income actually measure the cross ..."
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Uninsurable income risk is often cited as an explanation for empirical deviations from the Lifecycle/PermanentIncome Hypothesis such as the observation that the lifecycle profile of mean consumption is humpshaped. Most methods used for estimating the uncertainty of income actually measure the crosssectional variance over a subpopulation rather than the true uncertainty faced by members of this population. In this paper, we estimate the degree of idiosyncratic income risk by using a nonparametric approach to measure the variance and correlation of forecasting errors at different ages and over different time horizons. We then use these estimates to calibrate a (timeinconsistent) lifecycle model to see what kind of a consumption hump can be produced by precautionary saving given more robust measures of income uncertainty. JEL Classification: E21
How Much Insurance in Bewley Models? *
, 2008
"... The standard lifecycle incompletemarkets model, where households face idiosyncratic earnings shocks and trade a noncontingent asset, is a workhorse of quantitative macroeconomics. In this paper, we assess the degree of consumption insurance implicit in a plausibly calibrated version of the model, ..."
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The standard lifecycle incompletemarkets model, where households face idiosyncratic earnings shocks and trade a noncontingent asset, is a workhorse of quantitative macroeconomics. In this paper, we assess the degree of consumption insurance implicit in a plausibly calibrated version of the model, and we compare it to the data. On both actual and simulated data, we apply a technique recently developed by Blundell, Pistaferri and Preston (2006, BPP thereafter). We find that households in Bewley models have access to less consumption smoothing against permanent shocks than what is measured in the data. BPP estimate that 36 % of permanent earnings shocks are insurable (i.e., do not translate into consumption growth), while in the model this insurance coefficient is only 17%. The lifecycle profile of insurance coefficients is sharply increasing and convex in the model, while BPP document that it is roughly flat in the data. Taken at face value, these results would suggest that macroeconomists should develop models with more avenues of insurance than a riskfree asset. Allowing for “advance information ” about earnings changes in the model does not affect this conclusion. However, we also find that if earnings shocks are not modelled to be permanent, as assumed by BPP, but they display an autocorrelation coefficient
Nonparametric Heteroskedasticity in Persistent Panel Processes: An Application to Earnings Dynamics∗
, 2015
"... In a standard model of earnings dynamics, we allow heterogeneous earnings risk to depend on unobserved permanent earnings. We show the nonparametric identification of earnings risk, as well as of the densities of the permanent and transitory components of earnings. Applying our model to the Panel Su ..."
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In a standard model of earnings dynamics, we allow heterogeneous earnings risk to depend on unobserved permanent earnings. We show the nonparametric identification of earnings risk, as well as of the densities of the permanent and transitory components of earnings. Applying our model to the Panel Survey of Income Dynamics (PSID), we find that earnings dispersion depends in a nontrivial way on the past permanent earnings. During the three recent recessions we analyze, we find that workers with lower prerecession permanent earnings have higher earnings risk. One important implication of our findings is pathdependent heterogeneous consumption growth rates under precautionary savings.
Chapter 12 INTERPRETING THE EVIDENCE ON LIFE CYCLE SKILL FORMATION
"... 2. A summary of the empirical evidence on life cycle skill formation 709 ..."
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2. A summary of the empirical evidence on life cycle skill formation 709
Specification Test for Panel Data Models with Interactive Fixed Effects
, 2014
"... In this paper, we propose a consistent nonparametric test for linearity in a large dimensional panel data model with interactive fixed effects. Both lagged dependent variables and conditional heteroskedasticity of unknown form are allowed in the model. We estimate the model under the null hypothesis ..."
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In this paper, we propose a consistent nonparametric test for linearity in a large dimensional panel data model with interactive fixed effects. Both lagged dependent variables and conditional heteroskedasticity of unknown form are allowed in the model. We estimate the model under the null hypothesis of linearity to obtain the restricted residuals which are then used to construct the test statistic. We show that after being appropriately centered and standardized, the test statistic is asymptotically normally distributed under both the null hypothesis and a sequence of Pitman local alternatives by using the concept of conditional strong mixing that was recently introduced by Prakasa Rao (2009). To improve the finite sample performance, we propose a bootstrap procedure to obtain
TREATMENT EFFECTS: A BAYESIAN PERSPECTIVE Econometric Reviews Special Issue in Honor of Arnold Zellner
, 2011
"... This paper contributes to the emerging Bayesian literature on treatment effects by deriving treatment parameters in the framework of a potential outcomes model with a latent factor structure. This approach has attractive features from both theoretical and practical points of view. Not only does it n ..."
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This paper contributes to the emerging Bayesian literature on treatment effects by deriving treatment parameters in the framework of a potential outcomes model with a latent factor structure. This approach has attractive features from both theoretical and practical points of view. Not only does it naturally address the fundamental identification problem due to the unobserved correlation between the potential outcomes, but it also turns out to be very simple to implement and to produce reliable results. Full technical details are provided to compute mean treatment effects as well as their distributional versions, and a simple Monte Carlo simulation study is carried out to illustrate how the methodology can easily be applied. JEL classification: C11, C15, C31.
A Framework for the Analysis of Timevarying Treatment Effects: How The Timing of Grade Retention Affects Outcomes
, 2009
"... In this paper, we develop a method to estimate timevarying treatment effects in situations where dynamic selection into treatment may confound estimates of the treatment effect. In so doing, we draw attention to an important policy tool, the timing of treatment, and the associated challenges with d ..."
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In this paper, we develop a method to estimate timevarying treatment effects in situations where dynamic selection into treatment may confound estimates of the treatment effect. In so doing, we draw attention to an important policy tool, the timing of treatment, and the associated challenges with determining how treatment effects vary over time. Our preferred method assumes that the unobservables that jointly determine selection into treatment and the treatment effects can be modeled through a factor structure. Importantly, this allows for heterogeneous treatment effects across unobservable types and recovers a much richer set of counterfactuals than can be recovered with existing methods. We then apply our method to the study of grade retention using the Early Childhood Longitudinal Study of Kindergartners. We find evidence of dynamic selection and that the effect depends both on the time at which the student is retained and the time elapsed since retention.
Heterogeneity vs Uncertainty in Anticipation of a Borrowing Constraint
, 2009
"... Precautionary saving in response to uninsurable income risk can explain the stylized fact that aggregate saving increases with the crosssectional variation in income, but it is di ¢ cult to measure risk. Borrowing constraints o¤er an alternative explanation for this observation that does not requi ..."
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Precautionary saving in response to uninsurable income risk can explain the stylized fact that aggregate saving increases with the crosssectional variation in income, but it is di ¢ cult to measure risk. Borrowing constraints o¤er an alternative explanation for this observation that does not require consumers to be uncertain about their future income. The possibility of facing a binding borrowing constraint in the future induces saving. This saving increases with the crosssectional variation in income regardless of whether there is uncertainty, though it increases more with uncertainty. JEL Classi
cation: E21