Matthew Notowidigdo

Moving to Opportunity, Together
Date Posted:Wed, 25 Sep 2024 11:11:20 -0500

Moving to Opportunity, Together
Date Posted:Tue, 24 Sep 2024 09:45:33 -0500
Many couples face a trade-off between advancing one spouse?s career or the other?s. We study this trade-off using administrative data from Germany and Sweden. We first conduct an event-study analysis of couples moving across commuting zones and find that relocation increases men?s earnings more than women?s, with strikingly similar patterns in Germany and Sweden. Using a sample of mass layoff events, we then find that couples in both countries are more likely to relocate in response to the man being laid off compared to the woman. We investigate whether these gendered patterns reflect men?s higher potential earnings or a gender norm that prioritizes men?s career advancement. We provide suggestive evidence of a gender norm using variation in norms within Germany. We then develop and estimate a model of household decision-making in which households can place more weight on the income earned by the man compared to the woman. In both countries, the estimated model can accurately reproduce the reduced-form results, including those not used to estimate the model. The results point to a role for gender norms in explaining the gender gap in the returns to joint moves.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Consumer-Financed Fiscal Stimulus: Evidence from Digital Coupons in China
Date Posted:Mon, 29 Apr 2024 13:17:40 -0500
In 2020, local governments in China began issuing digital coupons to stimulate spending in targeted categories such as restaurants and supermarkets. Using data from a large e-commerce platform and a bunching estimation approach, we find that the coupons caused large increases in spending of 3.1?3.3 yuan per yuan spent by the government. The large spending responses do not come from substitution away from non-targeted spending categories or from short-run intertemporal substitution. To rationalize these results, we develop a dynamic consumption model showing how coupons? minimum spending thresholds create temporary notches that lead to large spending responses.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Lives vs. Livelihoods: The Impact of the Great Recession on Mortality and Welfare
Date Posted:Tue, 06 Feb 2024 16:11:44 -0600
We leverage spatial variation in the severity of the Great Recession across the United States to examine its impact on mortality and to explore implications for the welfare consequences of recessions. We estimate that an increase in the unemployment rate of the magnitude of the Great Recession reduces the average, annual age-adjusted mortality rate by 2.3 percent, with effects persisting for at least 10 years. Mortality reductions appear across causes of death and are concentrated in the half of the population with a high school degree or less. We estimate similar percentage reductions in mortality at all ages, with declines in elderly mortality thus responsible for about three-quarters of the total mortality reduction. Recession-induced mortality declines are driven primarily by external effects of reduced aggregate economic activity on mortality, and recession-induced reductions in air pollution appear to be a quantitatively important mechanism. Incorporating our estimates of pro-cyclical mortality into a standard macroeconomics framework substantially reduces the welfare costs of recessions, particularly for people with less education, and at older ages where they may even be welfare-improving.

Lives vs. Livelihoods: The Impact of the Great Recession on Mortality and Welfare
Date Posted:Mon, 05 Feb 2024 11:19:46 -0600
We leverage spatial variation in the severity of the Great Recession across the United States to examine its impact on mortality and to explore implications for the welfare consequences of recessions. We estimate that an increase in the unemployment rate of the magnitude of the Great Recession reduces the average, annual age-adjusted mortality rate by 2.3 percent, with effects persisting for at least 10 years. Mortality reductions appear across causes of death and are concentrated in the half of the population with a high school degree or less. We estimate similar percentage reductions in mortality at all ages, with declines in elderly mortality thus responsible for about three-quarters of the total mortality reduction. Recession-induced mortality declines are driven primarily by external effects of reduced aggregate economic activity on mortality, and recession-induced reductions in air pollution appear to be a quantitatively important mechanism. Incorporating our estimates of pro-cyclical mortality into a standard macroeconomics framework substantially reduces the welfare costs of recessions, particularly for people with less education, and at older ages where they may even be welfare-improving.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

REVISION: Salience and Taxation with Imperfect Competition
Date Posted:Thu, 11 Aug 2022 10:10:37 -0500
This paper studies commodity taxation in a model featuring heterogeneous consumers, imperfect competition, and tax salience. We derive new formulas for the incidence and marginal excess burden of commodity taxation, and we find that tax salience and market structure interact when considering tax incidence and the marginal excess burden. We estimate the necessary inputs to the formulas by combining Nielsen Retail Scanner data from grocery stores in the US with detailed sales tax data. We calibrate our new formulas and conclude that essentially all of the incidence of sales taxes falls on consumers, and the marginal excess burden of taxation is larger than estimates based on standard formulas that ignore imperfect competition and tax salience.

A Welfare Analysis of Tax Structures with Love-of-Variety Preferences
Date Posted:Tue, 25 May 2021 15:13:19 -0500
This paper reassesses the general trade-off between ad valorem and specific taxation using an economic model that features love-of-variety preferences and encompasses a wide range of market conduct ?including both quantity and price competition ? while allowing for firm entry and exit. We derive formulas for efficiency and incidence of both types of taxes that depend on the responsiveness of product variety to taxes and the effect of a change in product variety on consumer surplus. We use our formulas to derive a desirability condition for when ad valorem taxes are more efficient than specific taxes and a condition for when ad valorem taxes lead to greater pass-through than specific taxes. We identify and estimate the model parameters using a quasi-experimental ``county border pair'' research design that uses state-level and county-level variation in sales taxes combined with detailed scanner data covering grocery stores in the U.S. Our empirical results indicate that sales taxes are slightly overshifted onto consumer prices, have a large effect on quantity demanded, and have a more modest effect on the variety of products available to consumers. Using the estimated parameters, we recover consumers' love-of-variety, infer whether or not product variety is socially optimal (at current tax rates), and implement our desirability condition. We find that specific taxes are more efficient at the margin than ad valorem taxes given the estimated love-of-variety. This suggests that po

Efficiency and Incidence of Taxation with Free Entry and Love-of-Variety Preferences
Date Posted:Mon, 24 May 2021 05:21:29 -0500
This paper develops a theory of commodity taxation with love-of-variety preferences and endogenous firm entry and exit. We consider a framework that encompasses a wide range of firm conduct and derive formulas for efficiency and pass-through of specific and ad valorem taxes. These formulas unify existing canonical ones in the literature and lead to novel economic insights for both welfare and incidence. We use them to derive a desirability condition for when ad valorem taxation is more efficient than specific taxation and a condition for when ad valorem taxation leads to greater pass-through than specific taxation. Finally, we consider an empirical application that illustrates how to estimate the key parameters of the tax formulas in a theoretically consistent way. Our results indicate that specific taxes are more efficient at the margin than ad valorem taxes and that product variety is below the socially optimal level.

Salience and Taxation with Imperfect Competition
Date Posted:Tue, 27 Apr 2021 16:28:35 -0500
This paper studies commodity taxation in a model featuring heterogeneous consumers, imperfect competition, and tax salience. We derive new formulas for the incidence and marginal excess burden of commodity taxation, and we find that tax salience and market structure interact when considering tax incidence and the marginal excess burden. We estimate the necessary inputs to the formulas by combining Nielsen Retail Scanner data from grocery stores in the US with detailed sales tax data. We calibrate our new formulas and conclude that essentially all of the incidence of sales taxes falls on consumers, and the marginal excess burden of taxation is larger than estimates based on standard formulas that ignore imperfect competition and tax salience.

A Welfare Analysis of Tax Structures with Love-of-variety Preferences
Date Posted:Tue, 27 Apr 2021 16:28:34 -0500
This paper reassesses the general trade-off between ad valorem and specific taxation
using an economic model that features love-of-variety preferences and encompasses a
wide range of market conduct ? including both quantity and price competition ? while
allowing for firm entry and exit. We derive formulas for efficiency and incidence of
both types of taxes that depend on the responsiveness of product variety to taxes and
the effect of a change in product variety on consumer surplus. We use our formulas to
derive a desirability condition for when ad valorem taxes are more efficient than specific
taxes and a condition for when ad valorem taxes lead to greater pass-through than
specific taxes. We identify and estimate the model parameters using a quasi-experimental
?county border pair? research design that uses state-level and county-level variation in
sales taxes combined with detailed scanner data covering grocery stores in the U.S. Our
empirical results indicate that sales taxes are slightly overshifted onto consumer prices,
have a large effect on quantity demanded, and have a more modest effect on the variety of
products available to consumers. Using the estimated parameters, we recover consumers?
love-of-variety, infer whether or not product variety is socially optimal (at current tax
rates), and implement our desirability condition. We find that specific taxes are more
efficient at the margin than ad valorem taxes given the e

The Economic Consequences of Bankruptcy Reform
Date Posted:Thu, 19 Nov 2020 20:24:31 -0600
A more generous consumer bankruptcy system provides greater insurance against financial risks but may also raise the cost of credit. We study this trade-off using the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which increased the costs of filing for bankruptcy. We identify the effects of BAPCPA on borrowing costs using variation in the effects of the reform across credit scores. We find that a one-percentage-point reduction in bankruptcy-filing risk decreased credit-card interest rates by 70{90 basis points. Conversely, BAPCPA reduced the insurance value of bankruptcy, with uninsured hospitalizations 70 percent less likely to obtain bankruptcy relief after the reform.

New: The Economic Consequences of Bankruptcy Reform
Date Posted:Thu, 19 Nov 2020 10:26:37 -0600
A more generous consumer bankruptcy system provides greater insurance against financial risks but may also raise the cost of credit. We study this trade-off using the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which increased the costs of filing for bankruptcy. We identify the effects of BAPCPA on borrowing costs using variation in the effects of the reform across credit scores. We find that a one-percentage-point reduction in bankruptcy-filing risk decreased credit-card interest rates by 70{90 basis points. Conversely, BAPCPA reduced the insurance value of bankruptcy, with uninsured hospitalizations 70 percent less likely to obtain bankruptcy relief after the reform.

REVISION: Who Profits from Amateurism? Rent-Sharing in Modern College Sports
Date Posted:Thu, 01 Oct 2020 03:54:54 -0500
Intercollegiate amateur athletics in the US largely bars student-athletes from sharing in any of the profits generated by their participation, which creates substantial economic rents for universities. These rents are primarily generated by men’s football and men’s basketball programs. We characterize these economic rents using comprehensive revenue and expenses data for college athletic departments between 2006 and 2019, and we estimate rent-sharing elasticities to measure how rents flow to women’s sports and other men’s sports and lead to increased spending on facilities, coaches’ salaries, and other athletic department personnel. Using complete roster data for every student-athlete playing sports at these schools in 2018, we find that the rent-sharing effectively transfers resources away from students who are more likely to be black and more likely to come from poor neighborhoods towards students who are more likely to be white and come from higher-income neighborhoods. To ...

Temporary Unemployment and Labor Market Dynamics During the COVID-19 Recession
Date Posted:Wed, 30 Sep 2020 20:32:49 -0500
This paper develops a search-and-matching model that incorporates temporary unemployment and applies the model to study the labor market dynamics of the COVID-19 recession in the US. We calibrate the model using panel data from the Current Population Survey for 2001-2019, and we find that the model-based job finding rates match observed job finding rates during the entire sample period and out-of-sample up through July 2020. We also find that the Beveridge curve is well-behaved and displays little change in market tightness in 2020 once we use the calibrated model to adjust for changes in the composition of the unemployed. We then use the model to project the path of unemployment over the next 18 months. Under a range of assumptions about job losses and labor demand, our model predicts a more rapid recovery compared to a model that does not distinguish between temporary and permanent unemployment and compared to professional and academic forecasts. We find that in order to rationalize the professional forecasts of the unemployment rate, some combination of the vacancy rate, job separation rate, and the recall rate of workers on temporary layoff must deteriorate substantially from current levels in the next several months.

New: Temporary Unemployment and Labor Market Dynamics During the COVID-19 Recession
Date Posted:Wed, 30 Sep 2020 11:34:40 -0500
This paper develops a search-and-matching model that incorporates temporary unemployment and applies the model to study the labor market dynamics of the COVID-19 recession in the US. We calibrate the model using panel data from the Current Population Survey for 2001-2019, and we find that the model-based job finding rates match observed job finding rates during the entire sample period and out-of-sample up through July 2020. We also find that the Beveridge curve is well-behaved and displays little change in market tightness in 2020 once we use the calibrated model to adjust for changes in the composition of the unemployed. We then use the model to project the path of unemployment over the next 18 months. Under a range of assumptions about job losses and labor demand, our model predicts a more rapid recovery compared to a model that does not distinguish between temporary and permanent unemployment and compared to professional and academic forecasts. We find that in order to ...

Who Profits from Amateurism? Rent-Sharing in Modern College Sports
Date Posted:Fri, 04 Sep 2020 15:01:18 -0500
Intercollegiate amateur athletics in the US largely bars student-athletes from sharing in any of the profits generated by their participation, which creates substantial economic rents for universities. These rents are primarily generated by men?s football and men?s basketball programs. We characterize these economic rents using comprehensive revenue and expenses data for college athletic departments between 2006 and 2019, and we estimate rent-sharing elasticities to measure how rents flow to women?s sports and other men?s sports and lead to increased spending on facilities, coaches? salaries, and other athletic department personnel. Using complete roster data for every student-athlete playing sports at these schools in 2018, we find that the rent-sharing effectively transfers resources away from students who are more likely to be black and more likely to come from poor neighborhoods towards students who are more likely to be white and come from higher-income neighborhoods. To understand the magnitude of the available rents, we calculate a wage structure for college athletes using the collective bargaining agreements in professional sports leagues as a benchmark. We also discuss how our results help understand how universities have responded to recent threats to these rents arising from litigation, legislation, and the global coronavirus pandemic.

REVISION: Who Profits from Amateurism? Rent-Sharing in Modern College Sports
Date Posted:Fri, 04 Sep 2020 06:02:27 -0500
Intercollegiate amateur athletics in the US largely bars student-athletes from sharing in any of the profits generated by their participation, which creates substantial economic rents for universities. These rents are primarily generated by men’s football and men’s basketball programs. We characterize these economic rents using comprehensive revenue and expenses data for college athletic departments between 2006 and 2019, and we estimate rent-sharing elasticities to measure how rents flow to women’s sports and other men’s sports and lead to increased spending on facilities, coaches’ salaries, and other athletic department personnel. Using complete roster data for every student-athlete playing sports at these schools in 2018, we find that the rent-sharing effectively transfers resources away from students who are more likely to be black and more likely to come from poor neighborhoods towards students who are more likely to be white and come from higher-income neighborhoods. To ...

Parallel Inverse Aggregate Demand Curves in Discrete Choice Models
Date Posted:Mon, 29 Jun 2020 14:30:16 -0500
This paper highlights a previously-unnoticed property of commonly-used discrete choice models, which is that they feature parallel demand curves. Specifically, we show that in random utility models, inverse aggregate demand curves shift in parallel with respect to variety if and only if the random utility shocks follow the Gumbel distribution. Using results from Extreme Value Theory, we provide conditions for other distributions to generate parallel demands asymptotically, as the number of varieties increase. We establish these results in the benchmark case of symmetric products, illustrate them using numerical simulations and show that they hold in extended versions of the model with correlated tastes and asymmetric products. Lastly, we provide a ?proof of concept? of parallel demands as an economic tool by showing how to use parallel demands to identify the change in consumer surplus from an exogenous change in product variety.

Salience and Taxation with Imperfect Competition
Date Posted:Mon, 22 Jun 2020 22:12:07 -0500
This paper studies commodity taxation in a model featuring heterogeneous consumers, imperfect competition, and tax salience. We derive new formulas for the incidence and marginal excess burden of commodity taxation, and we find that tax salience and market structure interact when considering tax incidence but do not directly interact when considering the marginal excess burden. We estimate the necessary inputs to the formulas by combining Nielsen Retail Scanner data from grocery stores in the US with detailed sales tax data. We calibrate our new formulas and conclude that the incidence of sales taxes on consumers is increasing in tax salience, and the marginal excess burden of taxation is larger than standard formulas that ignore imperfect competition and tax salience.

All Medicaid Expansions are Not Created Equal: The Geography and Targeting of the Affordable Care Act
Date Posted:Mon, 14 Oct 2019 12:56:02 -0500
We use comprehensive patient-level discharge data to study the effect of Medicaid on the use of hospital services. Our analysis relies on cross-state variation in the Affordable Care Act?s Medicaid expansion, along with within-state variation across ZIP Codes in exposure to the expansion. We find that the Medicaid expansion increased Medicaid visits and decreased uninsured visits. The net effect is positive for all visits, suggesting that those who gain coverage through Medicaid consume more hospital services than they would if they remained uninsured. The increase in emergency department visits is largely accounted for by ?deferrable? medical conditions. Those who gained coverage under the Medicaid expansion appear to be those who had relatively high need for hospital services, suggesting that the expansion was well targeted. Lastly, we find significant heterogeneity across Medicaid-expansion states in the effects of the expansion, with some states experiencing a large increase in total utilization and other states experiencing little change. Increases in hospital utilization were larger in Medicaid-expansion states that had more residents gaining coverage and lower pre-expansion levels of hospital uncompensated care costs.

The Economic Consequences of Bankruptcy Reform
Date Posted:Wed, 18 Sep 2019 11:44:48 -0500
A more generous consumer bankruptcy system provides greater insurance against financial risks, but it may also raise the cost of credit to consumers. We study this trade-off using the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which raised the costs of filing for bankruptcy. We identify the effects of BAPCPA on borrowing costs by exploiting variation in the effects of the reform on bankruptcy risk across credit-score segments. Using a combination of administrative records, credit reports, and proprietary market-research data, we find that the reform reduced bankruptcy filings, and reduced the likelihood that an uninsured hospitalization received bankruptcy relief by 70 percent. BAPCPA led to a decrease in credit card interest rates, with an implied pass-through rate of 60?75 percent. Overall, BAPCPA decreased the gap in offered interest rates between prime and subprime consumers by roughly 10 percent.

Long Time Out: Unemployment and Joblessness in Canada and the United States
Date Posted:Mon, 12 Nov 2018 18:23:38 -0600
We compare patterns of unemployment and joblessness between Canada and the U.S. during the Great Recession. Similar to previous findings for the U.S. in Kroft et al. [2016], we document a rise in long-term unemployment in Canada. This increase is not accounted for by changes in the observable composition of the unemployed. We then extend the matching model in Kroft et al. [2016] to exploit the restricted-access panel data from the Canadian Labor Force Survey which contains information on the time since the last job (?joblessness duration?) for both unemployed individuals and non-participants. This allows us to model duration dependence in all labor force flows involving either unemployment or non-participation. To calibrate the extended matching model, we create a new historical vacancy series for Canada based on relative employment in ?recruiting industries?, allowing us to construct a monthly Beveridge curve for Canada. We find that the calibrated model matches the time series of unemployment fairly well, but does less well matching non-participation. Our results also indicate that allowing for duration dependence in flows between unemployment and non-participation is crucial for explaining overall levels in long-term joblessness, and that changes in the duration distribution among the unemployed and non-participants contributed less to the deterioration of labor market conditions in Canada, relative to the U.S. In part, this difference comes from the fact that the U.S. rec

What Does (Formal) Health Insurance Do, and for Whom?
Date Posted:Fri, 07 Sep 2018 14:51:11 -0500
Health insurance confers benefits to the previously uninsured, including improvements in health, reductions in out-of-pocket spending, and reduced medical debt. However, because the nominally uninsured pay only a small share of their medical expenses, health insurance also provides substantial transfers to nonrecipient parties who would otherwise bear the costs of providing uncompensated care to the uninsured. The prevalence of uncompensated care helps explain the limited take-up of heavily subsidized public health insurance and the evidence that many recipients value formal health insurance at substantially less than the cost to insurers of providing that coverage. The distributional implications of public subsidies for health insurance depend critically on the ultimate economic incidence of the transfers that they deliver to providers of uncompensated care.

Take-Up and Targeting: Experimental Evidence from Snap
Date Posted:Mon, 11 Jun 2018 08:14:02 -0500
This paper develops a framework for evaluating the welfare impact of various interventions designed to increase take-up of social safety net programs in the presence of potential behavioral biases. We calibrate the key parameters using a randomized field experiment in which 30,000 elderly individuals not enrolled in ? but likely eligible for ? the Supplemental Nutrition Assistance Program (SNAP) are either provided with information that they are likely eligible, provided with this information and also offered assistance in applying, or are in a "status quo" control group.Only 6 percent of the control group enrolls in SNAP over the next 9 months, compared to 11 percent of the Information Only group and 18 percent of the Information Plus Assistance group. The individuals who apply or enroll in response to either intervention receive lower benefits and are less sick than the average enrollee in the control group. The results are consistent with the existence of optimization frictions that are greater for needier individuals, suggesting that the poor targeting properties of the interventions reduce their welfare gains.

Take-Up and Targeting: Experimental Evidence from Snap
Date Posted:Wed, 30 May 2018 08:51:24 -0500
This paper develops a framework for evaluating the welfare impact of various interventions designed to increase take-up of social safety net programs in the presence of potential behavioral biases. We calibrate the key parameters using a randomized field experiment in which 30,000 elderly individuals not enrolled in ? but likely eligible for ? the Supplemental Nutrition Assistance Program (SNAP) are either provided with information that they are likely eligible, provided with this information and also offered assistance in applying, or are in a ?status quo? control group. Only 6 percent of the control group enrolls in SNAP over the next 9 months, compared to 11 percent of the Information Only group and 18 percent of the Information Plus Assistance group. The individuals who apply or enroll in response to either intervention receive lower benefits and are less sick than the average enrollee in the control group. The results are consistent with the existence of optimization frictions that are greater for needier individuals, suggesting that the poor targeting properties of the interventions reduce their welfare gains.

What Does (Formal) Health Insurance Do, and for Whom?
Date Posted:Sat, 27 Jan 2018 20:52:56 -0600
Health insurance confers benefits to the previously uninsured, including improvements in health, reductions in out-of-pocket spending, and reduced medical debt. But because the nominally uninsured pay only a small share of their medical expenses, health insurance also provides substantial transfers to non-recipients (those parties who would otherwise bear the costs of providing uncompensated care to the uninsured). These facts help explain the limited take-up of heavily-subsidized public health insurance, as well as estimates that show that for many recipients the value of formal health insurance coverage is substantially less than the cost to the insurers of providing that coverage. The distributional implications of public subsidies for health insurance depend critically on the ultimate economic incidence of the transfers they deliver to providers of uncompensated care.

New: What Does (Formal) Health Insurance Do, and for Whom?
Date Posted:Sat, 27 Jan 2018 10:52:57 -0600
Health insurance confers benefits to the previously uninsured, including improvements in health, reductions in out-of-pocket spending, and reduced medical debt. But because the nominally uninsured pay only a small share of their medical expenses, health insurance also provides substantial transfers to non-recipients (those parties who would otherwise bear the costs of providing uncompensated care to the uninsured). These facts help explain the limited take-up of heavily-subsidized public health insurance, as well as estimates that show that for many recipients the value of formal health insurance coverage is substantially less than the cost to the insurers of providing that coverage. The distributional implications of public subsidies for health insurance depend critically on the ultimate economic incidence of the transfers they deliver to providers of uncompensated care.

What Does (Formal) Health Insurance Do, and for Whom?
Date Posted:Mon, 21 Aug 2017 09:54:42 -0500
Health insurance confers benefits to the previously uninsured, including improvements in health, reductions in out-of-pocket spending, and reduced medical debt. But because the nominally uninsured pay only a small share of their medical expenses, health insurance also provides substantial transfers to non-recipient parties who would otherwise bear the costs of providing uncompensated care to the uninsured. The prevalence of uncompensated care helps explain the limited take-up of heavily-subsidized public health insurance and the evidence that many recipients value formal health insurance at substantially less than the cost to insurers of providing that coverage. The distributional implications of public subsidies for health insurance depend critically on the ultimate economic incidence of the transfers they deliver to providers of uncompensated care.

The Marginal Propensity to Consume Over the Business Cycle
Date Posted:Mon, 22 Aug 2016 10:57:06 -0500
This paper estimates how the marginal propensity to consume (MPC) varies over the business cycle by exploiting exogenous variation in credit card borrowing limits. Ten years after an individual declares Chapter 7 bankruptcy, the record of the bankruptcy is removed from her credit report, generating an immediate and persistent increase in credit score. We study the effects of ?bankruptcy flag? removal using a sample of over 160,000 bankruptcy filers whose flags were removed between 2004 and 2011. We document that in the year following flag removal, credit card limits increase by $780 and credit card balances increase by roughly $290, implying an ?MPC out of liquidity? of 0.37. We find a significantly higher MPC during the Great Recession, with an average MPC roughly 20?30 percent larger between 2007 and 2009 compared to surrounding years. We find no evidence that the counter-cyclical variation in the average MPC is accounted for by compositional changes or by changes over time in the supply of credit following bankruptcy flag removal. These results are consistent with models where liquidity constraints bind more frequently during recessions.

The Economic Consequences of Hospital Admissions
Date Posted:Wed, 01 Jun 2016 12:05:07 -0500
We examine some economic impacts of hospital admissions using an event study approach in two datasets: survey data from the Health and Retirement Study, and hospital admissions data linked to consumer credit reports. We report estimates of the impact of hospital admissions on out-of-pocket medical spending, unpaid medical bills, bankruptcy, earnings, income (and its components), access to credit, and consumer borrowing. The results point to three primary conclusions: non-elderly adults with health insurance still face considerable exposure to uninsured earnings risk; a large share of the incremental risk exposure for uninsured non-elderly adults is borne by third parties who absorb their unpaid medical bills; the elderly face very little economic risk from adverse health shocks.

The Effect of Wealth on Individual and Household Labor Supply: Evidence from Swedish Lotteries
Date Posted:Mon, 30 Nov 2015 17:11:08 -0600
We study the effect of wealth on labor supply using the randomized assignment of monetary prizes in a large sample of Swedish lottery players. We find winning a lottery prize modestly reduces labor earnings, with the reduction being immediate, persistent, and similar by age, education, and sex. A calibrated dynamic model of individual labor supply implies an average lifetime marginal propensity to earn out of unearned income of -0.11, and labor-supply elasticities in the lower range of previously reported estimates. The earnings response is stronger for winners than their spouses, which is inconsistent with unitary household labor supply models.

Housing Booms and Busts, Labor Market Opportunities, and College Attendance
Date Posted:Mon, 28 Sep 2015 10:43:15 -0500
We study how the recent national housing boom and bust affected college enrollment and attainment during the 2000s. We exploit cross-city variation in local housing booms, and use a variety of data sources and empirical methods, including models that use plausibly exogenous variation in housing demand identified by sharp structural breaks in local housing prices. We show that the housing boom improved labor market opportunities for young men and women, thereby raising their opportunity cost of college-going. According to standard human capital theories, this effect should have reduced college-going overall, but especially for persons at the margin of attendance. We find that the boom substantially lowered college enrollment and attainment for both young men and women, with the effects concentrated at two-year colleges. We find that the positive employment and wage effects of the boom were generally undone during the bust. However, attainment for the particular cohorts of college-going age during the housing boom remain persistently low after the end of the bust, suggesting that reduced educational attainment may be an enduring effect of the housing cycle. We estimate that the housing boom explains roughly 30 percent of the recent slowdown in college attainment.

Hospitals as Insurers of Last Resort
Date Posted:Mon, 22 Jun 2015 14:26:03 -0500
American hospitals are required to provide emergency medical care to the uninsured. We use previously confidential hospital financial data to study the resulting uncompensated care, medical care for which no payment is received. We use both panel-data methods and case studies from state-wide Medicaid disenrollments and find that the uncompensated care costs of hospitals increase in response to the size of the uninsured population. The results suggest that each additional uninsured person costs local hospitals $900 each year in uncompensated care. Similarly, the closure of a nearby hospital increases the uncompensated care costs of remaining hospitals. Increases in the uninsured population also lower hospital profit margins, which suggests that hospitals cannot simply pass along all increased costs onto privately insured patients. For-profit hospitals are less affected by these factors, suggesting that non-profit hospitals serve a unique role as part of the social insurance system.

Long-Term Unemployment and the Great Recession: The Role of Composition, Duration Dependence, and Non-Participation
Date Posted:Tue, 08 Jul 2014 09:18:26 -0500
We explore the extent to which composition, duration dependence, and labor force non-participation can account for the sharp increase in the incidence of long-term unemployment (LTU) during the Great Recession. We first show that compositional shifts in demographics, occupation, industry, region, and the reason for unemployment jointly account for very little of the observed increase in LTU. Next, using panel data from the Current Population Survey for 2002-2007, we calibrate a matching model that allows for duration dependence in the exit rate from unemployment and for transitions between employment (E), unemployment (U), and non-participation (N). We model the job-finding rates for the unemployed and non-participants, and we use observed vacancy rates and the transition rates from E-to-U, E-to-N, N-to-U, and U-to-N as the exogenous "forcing variables'' of the model. The calibrated model can account for almost all of the increase in the incidence of LTU and much of the observed outward shift in the Beveridge curve between 2008 and 2013. Both negative duration dependence in the job-finding rate for the unemployed and transitions to and from non-participation contribute significantly to the ability of the model to match the data after 2008.

Public Health Insurance, Labor Supply, and Employment Lock
Date Posted:Fri, 12 Jul 2013 10:39:33 -0500
We study the effect of public health insurance eligibility on labor supply by exploiting the largest public health insurance disenrollment in the history of the United States. In 2005, approximately 170,000 Tennessee residents abruptly lost public health insurance coverage. Using both across- and within-state variation in exposure to the disenrollment, we estimate large increases in labor supply, primarily along the extensive margin. The increased employment is concentrated among individuals working at least 20 hours per week and receiving private, employer-provided health insurance. We explore the dynamic effects of the disenrollment and find an immediate increase in job search behavior and a steady rise in both employment and health insurance coverage following the disenrollment. Our results suggest a significant degree of "employment lock" - workers employed primarily in order to secure private health insurance coverage. The results also suggest that the Affordable Care Act - which similarly affects adults not traditionally eligible for public health insurance - may cause large reductions in the labor supply of low-income adults.

Manufacturing Decline, Housing Booms, and Non-Employment
Date Posted:Tue, 04 Jun 2013 19:50:34 -0500
We exploit cross-city variation in manufacturing decline and housing market changes during the 2000s, and jointly estimate their effects on non-employment. Both forces strongly affected non- employment between 2000 and 2007, with the increase from manufacturing decline almost exactly offset by reductions attributable to housing. We show that this offsetting occurred both in the aggregate and at the individual level. Moreover, we show that the housing bust undid the effects of the preceding housing boom, such that over the entire 2000s housing explains little of the aggregate non-employment increase, while manufacturing explains roughly 40 percent.

Duration Dependence and Labor Market Conditions: Evidence from a Field Experiment
Date Posted:Tue, 04 Jun 2013 18:32:04 -0500
This paper studies the role of employer behavior in generating ?negative duration dependence? - the adverse effect of a longer unemployment spell - by sending fictitious resumes to real job postings in 100 U.S. cities. Our results indicate that the likelihood of receiving a callback for an interview significantly decreases with the length of a worker?s unemployment spell, with the majority of this decline occurring during the first eight months. We explore how this effect varies with local labor market conditions and find that duration dependence is stronger when the local labor market is tighter. This result is consistent with the prediction of a broad class of screening models in which employers use the unemployment spell length as a signal of unobserved productivity and recognize that this signal is less informative in weak labor markets.

New: Manufacturing Decline, Housing Booms, and Non-Employment
Date Posted:Tue, 04 Jun 2013 14:50:34 -0500
We exploit cross-city variation in manufacturing decline and housing market changes during the 2000s, and jointly estimate their effects on non-employment. Both forces strongly affected non- employment between 2000 and 2007, with the increase from manufacturing decline almost exactly offset by reductions attributable to housing. We show that this offsetting occurred both in the aggregate and at the individual level. Moreover, we show that the housing bust undid the effects of the preceding ...

New: Duration Dependence and Labor Market Conditions: Evidence from a Field Experiment
Date Posted:Tue, 04 Jun 2013 13:32:04 -0500
This paper studies the role of employer behavior in generating “negative duration dependence” - the adverse effect of a longer unemployment spell - by sending fictitious resumes to real job postings in 100 U.S. cities. Our results indicate that the likelihood of receiving a callback for an interview significantly decreases with the length of a worker’s unemployment spell, with the majority of this decline occurring during the first eight months. We explore how this effect varies with ...

Housing Booms, Manufacturing Decline, and Labor Market Outcomes
Date Posted:Fri, 05 Apr 2013 17:54:57 -0500
We study the extent to which manufacturing decline and local housing booms contributed to changes in labor market outcomes during the 2000s, focusing primarily on the distributional consequences across geographical areas and demographic groups. Using a local labor markets design, we estimate that manufacturing decline significantly reduced employment between 2000 and 2006, while local housing booms increased employment by roughly the same magnitude. The effects of manufacturing decline persist through 2012, but we find no persistent employment effects of local housing booms, likely because housing booms were associated with subsequent busts of similar magnitude. These results suggest that housing booms ?masked? negative employment growth that would have otherwise occurred earlier in the absence of the booms. This ?masking? occurred both within and between cities and demographic groups. For example, manufacturing decline disproportionately affected older men without a college education, while the housing boom disproportionately affected younger men and women, as well as immigrants. Applying our local labor market estimates to the national labor market, we find that roughly 40 percent of the reduction in employment during the 2000s can be attributed to manufacturing decline and that these negative effects would have appeared in aggregate employment statistics earlier had it not been for the large, temporary increases in housing demand.

Duration Dependence and Labor Market Conditions: Theory and Evidence from a Field Experiment
Date Posted:Sat, 15 Sep 2012 13:15:18 -0500
This paper studies the role of employer behavior in generating "negative duration dependence" -- the adverse effect of a longer unemployment spell -- by sending fictitious resumes to real job postings in 100 U.S. cities. Our results indicate that the likelihood of receiving a callback for an interview significantly decreases with the length of a worker's unemployment spell, with the majority of this decline occurring during the first eight months. We explore how this effect varies with local labor market conditions, and find that duration dependence is stronger when the labor market is tighter. We develop a theoretical framework that shows how the sign of this interaction effect can be used to discern among leading models of duration dependence based on employer screening, employer ranking, and human capital depreciation. Our results suggest that employer screening plays an important role in generating duration dependence; employers use the unemployment spell length as a signal of unobserved productivity and recognize that this signal is less informative in weak labor markets.

REVISION: Liquidity Constraints and Consumer Bankruptcy: Evidence from Tax Rebates
Date Posted:Thu, 10 May 2012 10:43:44 -0500
This paper estimates the extent to which legal fees prevent liquidity-constrained households from declaring bankruptcy. To do so, it studies how the 2001 and 2008 income tax rebates affected consumer bankruptcy filings. We exploit the randomized timing of the rebate checks and estimate that the rebates caused a significant, short-run increase in consumer bankruptcies in both years, with larger effects in 2008 when the rebates were more generous and more widely distributed. Using ...

Liquidity Constraints and Consumer Bankruptcy: Evidence from Tax Rebates
Date Posted:Fri, 03 Feb 2012 09:29:57 -0600
This paper estimates the extent to which legal fees prevent liquidity-constrained households from declaring bankruptcy. To do so, it studies how the 2001 and 2008 tax rebates affected consumer bankruptcy filings. We exploit the randomized timing of the rebate checks and estimate that the rebates caused a significant, short-run increase in consumer bankruptcies in both years, with larger effects in 2008 when the rebates were more generous and more widely distributed. Using hand-collected data from individual bankruptcy petitions, we document that the rebates caused an increase in the average liabilities and the liabilities-to-income ratios of filers.

REVISION: Liquidity Constraints and Consumer Bankruptcy: Evidence from Tax Rebates
Date Posted:Sun, 15 Jan 2012 13:16:35 -0600
This paper estimates the extent to which legal fees prevent liquidity-constrained households from declaring bankruptcy. To do so, it studies how the 2001 and 2008 income tax rebates affected consumer bankruptcy filings. We exploit the randomized timing of the rebate checks and estimate that the rebates caused a significant, short-run increase in consumer bankruptcies in both years, with larger effects in 2008 when the rebates were more generous and more widely distributed. Using ...

Liquidity Constraints and Consumer Bankruptcy: Evidence from Tax Rebates
Date Posted:Sun, 15 Jan 2012 00:00:00 -0600
This paper estimates the extent to which legal fees prevent liquidity-constrained households from declaring bankruptcy. To do so, it studies how the 2001 and 2008 income tax rebates affected consumer bankruptcy filings. We exploit the randomized timing of the rebate checks and estimate that the rebates caused a significant, short-run increase in consumer bankruptcies in both years, with larger effects in 2008 when the rebates were more generous and more widely distributed. Using hand-collected data from individual bankruptcy petitions, we document that the rebates caused an increase in the total liabilities and debt-to-income ratios of filers.

Should Unemployment Insurance Vary with the Unemployment Rate? Theory and Evidence
Date Posted:Tue, 05 Jul 2011 10:12:26 -0500
We study how the level of unemployment insurance (UI) benefits that trades off the consumption smoothing benefit with the moral hazard cost of distorting job search behavior varies over the business cycle. Empirically, we find that the moral hazard cost is procyclical, greater when the unemployment rate is relatively low. By contrast, our evidence suggests that the consumption smoothing benefit of UI is acyclical. Using these estimates to calibrate our model, we find that a one standard deviation increase in the unemployment rate leads to a roughly 14 to 27 percentage point increase in the welfare-maximizing wage replacement rate.

The Incidence of Local Labor Demand Shocks
Date Posted:Sat, 25 Jun 2011 18:12:17 -0500
Low-skill workers are comparatively immobile: when labor demand slumps in a city, low-skill workers are disproportionately likely to remain to face declining wages and employment. This paper estimates the extent to which (falling) housing prices and (rising) social transfers can account for this fact using a spatial equilibrium model. Nonlinear reduced form estimates of the model using U.S. Census data document that positive labor demand shocks increase population more than negative shocks reduce population, this asymmetry is larger for low-skill workers, and such an asymmetry is absent for wages, housing values, and rental prices. GMM estimates of the full model suggest that the comparative immobility of low-skill workers is not due to higher mobility costs per se, but rather a lower incidence of adverse labor demand shocks.

New: What Good is Wealth Without Health? The Effect of Health on the Marginal Utility of Consumption
Date Posted:Tue, 14 Jul 2009 02:34:45 -0500
We estimate how the marginal utility of consumption varies with health. To do so, we develop a simple model in which the impact of health on the marginal utility of consumption can be estimated from data on permanent income, health, and utility proxies. We estimate the model using the Health and Retirement Study’s panel data on the elderly and near-elderly, and proxy for utility with measures of subjective well-being. We find robust evidence that the marginal utility of consumption declines as ...

Income and Health Spending: Evidence from Oil Price Shocks
Date Posted:Tue, 19 May 2009 16:20:27 -0500
Health expenditures as a share of GDP have more than tripled over the last half century. A common conjecture is that this is primarily a consequence of rising real per capita income, which more than doubled over the same period. We investigate this hypothesis empirically by instrumenting for local area income with time-series variation in global oil prices between 1970 and 1990 interacted with cross-sectional variation in the oil reserves across different areas of the Southern United States. This strategy enables us to capture both the partial equilibrium and the local general equilibrium effects of an increase in income on health expenditures. Our central estimate is an income elasticity of 0.7, with an elasticity of 1.1 as the upper end of the 95 percent confidence interval. Point estimates from alternative specifications fall on both sides of our central estimate, but are almost always less than 1. We also present evidence suggesting that there are unlikely to be substantial national or global general equilibrium effects of rising income on health spending, for example through induced innovation. Our overall reading of the evidence is that rising income is unlikely to be a major driver of the rising health share of GDP.

New: Income and Health Spending: Evidence from Oil Price Shocks
Date Posted:Tue, 19 May 2009 07:20:27 -0500
Health expenditures as a share of GDP have more than tripled over the last half century. A common conjecture is that this is primarily a consequence of rising real per capita income, which more than doubled over the same period. We investigate this hypothesis empirically by instrumenting for local area income with time-series variation in global oil prices between 1970 and 1990 interacted with cross-sectional variation in the oil reserves across different areas of the Southern United States ...

New: Income and Health Spending: Evidence from Oil Price Shocks
Date Posted:Tue, 24 Feb 2009 23:19:15 -0600
Health expenditures as a share of GDP have more than tripled over the last half century. A common conjecture is that this is primarily a consequence of rising real per capita income, which more than doubled over the same period. We investigate this hypothesis empirically by instrumenting for local area income with time-series variation in global oil prices between 1970 and 1990 interacted with cross-sectional variation in the oil reserves across different areas of the Southern United States ...

Income and Health Spending: Evidence from Oil Price Shocks
Date Posted:Sat, 21 Feb 2009 19:30:46 -0600
Health expenditures as a share of GDP have more than tripled over the last half century. A common conjecture is that this is primarily a consequence of rising real per capita income, which more than doubled over the same period. We investigate this hypothesis empirically by instrumenting for local area income with time-series variation in global oil prices between 1970 and 1990 interacted with cross-sectional variation in the oil reserves across different areas of the Southern United States. This strategy enables us to capture both the partial equilibrium and the local general equilibrium effects of an increase in income on health expenditures. Our central estimate is an income elasticity of 0.7, with an elasticity of 1.1 as the upper end of the 95 percent confidence interval. Point estimates from alternative specifications fall on both sides of our central estimate, but are almost always less than 1. We also present evidence suggesting that there are unlikely to be substantial national or global general equilibrium effects of rising income on health spending, for example through induced innovation. Our overall reading of the evidence is that rising income is unlikely to be a major driver of the rising health share of GDP.

Approaches to Estimating the Health State Dependence of the Utility Function
Date Posted:Mon, 19 Jan 2009 15:55:09 -0600
If the marginal utility of consumption depends on health status, this will affect the economic analysis of a number of central problems in public finance, including the optimal structure of health insurance and optimal life cycle savings. In this paper, we describe the promises and challenges of various approaches to estimating the effect of health on the marginal utility of consumption. Our basic conclusion is that while none of these approaches is a panacea, many offer the potential to shed important insights on the nature of health state dependence.

New: Approaches to Estimating the Health State Dependence of the Utility Function
Date Posted:Mon, 19 Jan 2009 05:55:09 -0600
If the marginal utility of consumption depends on health status, this will affect the economic analysis of a number of central problems in public finance, including the optimal structure of health insurance and optimal life cycle savings. In this paper, we describe the promises and challenges of various approaches to estimating the effect of health on the marginal utility of consumption. Our basic conclusion is that while none of these approaches is a panacea, many offer the potential to shed ...

New: Approaches to Estimating the Health State Dependence of the Utility Function
Date Posted:Wed, 14 Jan 2009 06:40:47 -0600
If the marginal utility of consumption depends on health status, this will affect the economic analysis of a number of central problems in public finance, including the optimal structure of health insurance and optimal life cycle savings. In this paper, we describe the promises and challenges of various approaches to estimating the effect of health on the marginal utility of consumption. Our basic conclusion is that while none of these approaches is a panacea, many offer the potential to shed ...

Approaches to Estimating the Health State Dependence of the Utility Function
Date Posted:Wed, 14 Jan 2009 00:00:00 -0600
If the marginal utility of consumption depends on health status, this will affect the economic analysis of a number of central problems in public finance, including the optimal structure of health insurance and optimal life cycle savings. In this paper, we describe the promises and challenges of various approaches to estimating the effect of health on the marginal utility of consumption. Our basic conclusion is that while none of these approaches is a panacea, many offer the potential to shed important insights on the nature of health state dependence.

What Good is Wealth Without Health? The Effect of Health on the Marginal Utility of Consumption
Date Posted:Sun, 22 Jun 2008 21:00:29 -0500
We estimate how the marginal utility of consumption varies with health. To do so, we develop a simple model in which the impact of health on the marginal utility of consumption can be estimated from data on permanent income, health, and utility proxies. We estimate the model using the Health and Retirement Study's panel data on the elderly and near-elderly, and proxy for utility with measures of subjective well-being. We find robust evidence that the marginal utility of consumption declines as health deteriorates. Our central estimate is that a one-standard deviation increase in the number of chronic diseases is associated with an 11 percent decline in the marginal utility of consumption relative to this marginal utility when the individual has no chronic diseases. The 95 percent confidence interval allows us to reject declines in marginal utility of less than 2 percent or more than 17 percent. Point estimates from a wide range of alternative specifications tend to lie within this confidence interval. We present some simple, illustrative calibration results that suggest that state dependence of the magnitude we estimate can have a substantial effect on important economic problems such as the optimal level of health insurance benefits and the optimal level of life-cycle savings.

New: Peer Effects in the Workplace: Evidence from Random Groupings in Professional Golf Tournaments
Date Posted:Mon, 12 Nov 2007 01:25:38 -0600
This paper uses the random assignment of playing partners in professional golf tournaments to test for peer effects in the workplace. We find no evidence that the ability of playing partners affects the performance of professional golfers, contrary to recent evidence on peer effects in the workplace from laboratory experiments, grocery scanners, and soft-fruit pickers. In our preferred specification, we can rule out peer effects larger than 0.045 strokes for a one stroke increase in playing ...

Peer Effects in the Workplace: Evidence from Random Groupings in Professional Golf Tournaments
Date Posted:Mon, 24 Sep 2007 13:20:09 -0500
This paper uses the random assignment of playing partners in professional golf tournaments to test for peer effects in the workplace. We find no evidence that the ability of playing partners affects the performance of professional golfers, contrary to recent evidence on peer effects in the workplace from laboratory experiments, grocery scanners, and soft-fruit pickers. In our preferred specification, we can rule out peer effects larger than 0.045 strokes for a one stroke increase in playing partners' ability, and the point estimates are small and actually negative. We offer several explanations for our contrasting findings: that workers seek to avoid responding to social incentives when financial incentives are strong; that there is heterogeneity in how susceptible individuals are to social effects and that those who are able to avoid them are more likely to advance to elite professional labor markets; and that workers learn with professional experience not to be affected by social forces. We view our results as complementary to the existing studies of peer effects in the workplace and as a first step towards explaining how these social effects vary across labor markets, across individuals and with changes in the form of incentives faced. In addition to the empirical results on peer effects in the workplace, we also point out that many typical peer effects regressions are biased because individuals cannot be their own peers, and suggest a simple correction.