The annual meeting of the Allied Social Science Associations is this weekend in Chicago. The conference features hundreds of sessions covering a wide variety of economics research. Interesting papers are all over the place, so below are some of the papers that caught the eyes of Equitable Growth staffers during the second day. Check out the highlights from yesterday and come back tomorrow for more from the last day of the conference.

Long-Term Care Insurance and the Family

Corina Mommaerts , Yale University

Abstract: I examine whether informal care by family members explains the limited demand for long-term care insurance. Motivated by evidence that the availability of potential informal caregivers is correlated with lower insurance demand and that informal caregivers substitute for formal care, I estimate a dynamic model of long-term care decisions between an elderly parent and her adult child. The availability of informal care lowers the demand for insurance by 14 percentage points overall. An insurance policy that compensates informal care can generate substantial increases in insurance demand and family welfare, and decreases in Medicaid spending.

How Does For-Profit College Attendance Affect Student Loans, Defaults and Earnings

Luis Armona , Federal Reserve Bank of New York; Rajashri Chakrabarti , Federal Reserve Bank of New York;Michael Lovenheim , Cornell University

Abstract: Over the past decade and a half, the for-profit sector of higher education has seen unprecedented growth, markedly changing the higher education landscape. In this paper, we investigate the impact of attending for-profit colleges (relative to their public counterparts) on a variety of outcomes such as student loans, default, graduation, employment, and earnings. Using a fifteen-year panel, we exploit local labor demand shocks and their interactions with the pre-existing supply of for-profit colleges in these local areas to obtain plausibly exogenous variation in for-profit enrollment. We find that for a given labor demand shock, enrollment in for-profit colleges rises considerably relative to enrollment in other colleges when for-profit supply is higher. Our instrumental variables estimates reveal that students attending for-profit colleges are more likely to originate student loans, originate a larger volume of student loans, and are more likely to default. However, for-profit students are equally likely to graduate, and their earnings six years after graduation are no different from their public counterparts. These findings hold both for students attending two year/less than two year colleges as well as four-year colleges. Overall, our analysis suggests that for-profit attendance leads to relatively worse outcomes, despite considerably higher tuition costs.

Inequality and Aggregate Demand

Adrien Auclert, Stanford University; Matthew Rognlie, Northwestern University

Abstract: We explore the quantitative effects of transitory and persistent increases in income inequality on equilibrium interest rates and output. Our starting point is a Bewley-Huggett-Aiyagari model featuring rich heterogeneity and earnings dynamics as well as downward nominal wage rigidities. A temporary rise in inequality, if not accommodated by monetary policy, has an immediate effect on output that can be quantified using the empirical covariance between income and marginal propensities to consume. A permanent rise in inequality can lead to a permanent Keynesian recession, which is not fully offset by monetary policy due to a lower bound on interest rates. We show that the magnitude of the real interest rate fall and the severity of the steady-state slump can be approximated by simple formulas involving quantifiable elasticities and shares, together with two parameters that summarize the effect of idiosyncratic uncertainty and real interest rates on aggregate savings. For plausible parametrizations the rise in inequality can push the economy into a liquidity trap and create a deep recession. Capital investment and deficit-financed fiscal policy mitigate the fall in real interest rates and the severity of the slump.

The Performance Pay Premium, Human Capital, and Inequality: Evidence From Over Forty Years of Microdata

Christos Makridis, Stanford University

Abstract: This paper studies the rise of performance pay contracts and their aggregate effects on the labor market. First, using the Panel Study of Income Dynamics (PSID) and National Longitudinal Survey of Youth (NLSY), I document several stylized facts: (i) the share of performance pay workers grew from 15% in 1970 to nearly 50% by 2000, (ii) performance pay workers experience higher earnings levels and growth rates, work longer hours, and invest more in human capital, and (iii) performance pay workers face lower (higher) permanent (transitory) income shocks, relative to their fixed wage worker counterparts. Second, using the National Compensation Survey (NCS), I show that increases in performance pay are associated with increases in inequality at the micro-level and accelerate the rate of skill-biased technical change. Third, I structurally model the rise of performance pay contracts by solving a dynamic model with unobserved person-specific heterogeneity, discrete sector-occupation job choices, time-varying sector-occupation probabilities of performance pay, and human capital accumulation. The model is estimated using simulated method of moments. Fourth, I use the model to characterize the contribution of performance pay to aggregate inequality and examine the counterfactual effects of making the U.S. marginal tax code as progressive as the one in France.

Revisiting the Relationship Between Unemployment and Wages

Giovanni Gallipoli , University of British Columbia; Yaniv Yedid-Levi , University of British Columbia

Abstract: We investigate the empirical relationship between wages and labor market conditions. Following work histories in the NLSY79 we document that the relationship between wages and unemployment rate differs across occupations. The results hold after controlling for unobserved match quality. This suggests that evidence about history dependence of wages obtained from pooled samples conceals significant differences and provides an imprecise description of earning dynamics. We examine these discrepancies and offer new evidence suggesting that the sensitivity of wages to current unemployment is linked to the prevalence of performance pay.

Childcare Arrangements in the United States and Parental Engagement With Children at Home: Distributional Analysis

Tamar Khitarishvili , Levy Economics Institute of Bard College; Kijong Kim , Levy Economics Institute of Bard College; Nancy Folbre, University of Massachusetts-Amherst

Abstract: Differences in children’s outcomes by parents’ socioeconomic background are evident by as early as their third birthday and are transmitted into adult labor market outcomes, perpetuating socioeconomic inequality. This is to a large degree because parents from high-income families tend to spend more time with their children and engage more in enrichment activities than parents from low-income families. Quality childcare provisioning can reduce the resulting inequality by improving the outcomes of children from low-income families. Analyses of the mechanisms through which this happens have focused on the direct educational and social benefits of childcare on children’s development. However, we know relatively little about the impact of childcare on children’s outcomes vis-à-vis parental engagement. In this paper, we investigate the extent to which the amount and quality of parental engagement with children is affected by the type and quality of childcare arrangements in families of different economic means, with a particular focus on the role of child-care provider/parent interactions. We use the American Time Use Survey (ATUS) data and the Birth Cohort data of the Early Childhood Longitudinal Study (ECLS-B). Our analysis provides a meaningful contribution to the policy debate regarding the role of childcare provisioning in reducing the inequality in children’s outcomes vis-à-vis parental engagement.

The Rise of Domestic Outsourcing and the Evolution of the German Wage Structure

Deborah Goldschmidt, Boston University; Johannes F. Schmieder, Boston University

Abstract: The nature of the relationship between employers and employees has been changing over the last three decades, with firms increasingly relying on contractors, temp agencies and franchises rather than hiring employees directly. We investigate the impact of this transformation on the wage structure by following jobs that are moved outside of the boundary of lead employers to contracting firms. For this end we develop a new method for identifying outsourcing of food, cleaning, security and logistics services in administrative data using the universe of social security records in Germany. We document a dramatic growth of domestic outsourcing in Germany since the early 1990s. Event-study analyses show that wages in outsourced jobs fall by approximately 10-15% relative to similar jobs that are not outsourced. We find evidence that the wage losses associated with outsourcing stem from a loss of firm-specific rents, suggesting that labor cost savings are an important reason why firms choose to contract out these services. Finally, we tie the increase in outsourcing activity to broader changes in the German wage structure, in particular showing that outsourcing of cleaning, security and logistics services alone accounts for around 9 percent of the increase in German wage inequality since the 1980s.

Job-to-Job Flows and Earnings Growth

Joyce Hahn, U.S. Census Bureau; Henry R. Hyatt, U.S. Census Bureau; Hubert Janicki, U.S. Census Bureau; Stephen Tibbets, U.S. Census Bureau

Abstract: In the U.S. in the late 1990s, there was a sudden, long-lasting upward shift in real wage and salary compensation per worker in the U.S. labor market, and little growth in the following decade and a half. In this paper, we provide a compositional analysis that distinguishes between three channels for earnings growth: job stayers, workers undergoing job-to-job flows, and workers transitioning between employment and nonemployment. To do so, we use a unique dataset of matched employer-employee data that permits the measurement of earnings changes for different employment types. We find modest cyclical earnings changes for job stayers, job switchers, and net nonemployment. There also was a large increase in the earnings of long-tenure job stayers during the late 1990s. Our data permit measurement of whether these changes come from hours or wages. We find that job-to-job flows have a strong role to play in increases in hours worked. Stayer earnings growth dominates growth in hourly wages. We also find that earnings and wage growth of those with short job tenure is less cyclical than longer-tenure job stayers.”

Living the “American Dream” in Finland: The Social Mobility of Inventors

Philippe Aghion, College of France; Ufuk Akcigit, University of Chicago; Ari Hyytinen, University of Jyvaskyla; Otto Toivanen, University of Leuven

Abstract: In this paper we merge individual census data, individual patenting data, and individual IQ data from Finnish Defence Force to look at whether social origins or innate ability command the selection into becoming an innovator as well as the income mobility of an innovator. First, when looking at the determinants of the probability of becoming an inventor, we find that: (i) parental income impacts on the probability of becoming an inventor, even after controlling for IQ and education; (ii) parental education also impacts on the probability of becoming an inventor, and controlling for parental education reduces substantially the effect of parental income; (iii) total and visiospatial IQ matter for the probability of becoming an inventor. Second, when regressing son’s IQ on parental characteristics, we found that overall, the latter explain less than 10% of variation in son IQ, thereby suggesting that our IQ measures largely reflect innate ability. Third, when looking at how becoming an innovator affects an individual’s income mobility, we find that being an inventor enhances both, intragenerational and intergenerational social mobility, and that being an inventor very effectively reduces the father-son income relation.

The Rise and Nature of Alternative Work Arrangements in the United States

Lawrence Katz, Harvard University; Alan Krueger, Princeton University

Abstract: To monitor trends in alternative work arrangements, we conducted a version of the Contingent Worker Survey as part of the RAND American Life Panel (ALP) in late 2015. The findings point to a significant rise in the incidence of alternative work arrangements in the U.S. economy from 2005 to 2015. The percentage of workers engaged in alternative work arrangements – defined as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers – rose from 10.7 percent in February 2005 to 15.8 percent in late 2015. Longitudinal and time-series evidence point to a limited role for unemployment in the rise of alternative work. Instead, secular changes, such as technological innovations that standardize work and rising inequality, are creating incentives for a fissuring of workplaces.

Global Inequality Dynamics: New Findings from WID.world

Facundo Alvaredo, Paris School of Economics; Anthony B. Atkinson, University of Oxford; Lucas Chancel, Paris School of Economics; Thomas Piketty, Paris School of Economics; Emmanuel Saez, University of California-Berkeley; Gabriel Zucman, University of California-Berkeley

Abstract: This paper presents new findings on global inequality dynamics from the World Wealth and Income Database (WID.world), with particular emphasis on the contrast between the trends observed in the United States, China, France, and the United Kingdom. We observe rising top income and wealth shares in nearly all countries in recent decades. But the magnitude of the increase varies substantially, thereby suggesting that different country-specific policies and institutions matter considerably. Long-run wealth inequality dynamics appear to be highly unstable. We stress the need for more democratic transparency on income and wealth dynamics and better access to administrative and financial data.

Systematic Earnings Risk

Fatih Guvenen, University of Minnesota; Samuel Schulhofer-Wohl, Federal Reserve Bank of Chicago; Jae Song, U.S. Social Security Administration; Motohiro Yogo, Princeton University

Abstract: We use administrative data on earnings to estimate how aggregate risk exposure to GDP and stock returns varies across gender, age, earnings level, and industry. Aggregate risk exposure is U-shaped with respect to the earnings level. In the middle of the earnings distribution, males, younger individuals, and those in construction and durable manufacturing are more exposed to aggregate risk. At the top of the earnings distribution, older individuals and those in finance are more exposed to aggregate risk. We then extend the analysis to study how individuals’ earnings covary jointly with average industry wage, average firm wage, in addition to GDP and find interesting variation across the population and firms with different characteristics. We discuss some implications of our findings for macroeconomics and finance.