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Structural Models in Labor Economics

Paper Session

Sunday, Jan. 8, 2017 3:15 PM – 5:15 PM

Hyatt Regency Chicago, McCormick
Hosted By: Econometric Society
  • Chair: Chao Fu, University of Wisconsin-Madison

Wandering Astray: Teenagers' Choices of Schooling and Crime

Chao Fu
,
University of Wisconsin-Madison
Nicolas Grau
,
University of Chile
Jorge Rivera
,
University of Chile

Abstract

We build and estimate a dynamic model of teenagers' decisions of schooling and crime. Our model incorporates four groups of forces into a coherent framework: heterogeneous endowments, unequal opportunities, uncertainties faced by teenagers about themselves, and contemporaneous shocks. We estimate the model using administrative data from Chile that link school records with criminal records in teenage years. We use the estimated model to examine the effectiveness of counterfactual policies that aim at keeping teenagers "on track" and reducing inequality.

A Dynamic Model of Health, Education, and Wealth With Credit Constraints and Rational Addiction

Rong Hai
,
University of Miami
James J. Heckman
,
University of Chicago

Abstract

This paper develops and structurally estimates a life-cycle model where health, education, and wealth are endogenous accumulated processes depending on the history of an individual's optimal behaviors, on parental factors, and on cognitive and noncognitive abilities. The model investigates different pathways between education, health, and wealth by introducing endogenous human capital production, health production, and addictive preferences of unhealthy behavior in the presence of credit constraints. The effects of education on health include both the direct benefits of improving health production efficiency and the indirect benefits of reducing unhealthy behavior and raising earnings. Using data from National Longitudinal Survey of Youth 97, we estimate the model using a two-step estimation procedure based on factor analysis and simulated method of moments. Using estimated model, we quantify the relative importance of socioeconomic determinants of human capital inequality and health inequality. We also use to model to conduct counterfactual policy experiments.

Dynamic Responses to the Earned Income Tax Credit

Gizem Kosar
,
Federal Reserve Bank of New York

Abstract

In order to understand the impact of the EITC on life-cycle experience and asset paths of single women, I build and estimate a dynamic labor supply model that takes into account human capital accumulation, borrowing constraints, and unobserved heterogeneity in skills and preferences. In the model, the EITC has an impact on
women's current labor supply and savings decisions through altering the rewards from work. Furthermore, through the change in the experience stock and the dynamic structure of the credit schedule, the EITC also alters future rewards from work and modifies future labor supply and savings decisions. The results indicate that EITC is effective in promoting human capital accumulation through learning-by-doing for single women over the life-cycle. Further analysis reveals that through this change in the experience stock, rather than its immediate effect on the per-period budget constraint, the EITC plays a prominent role in generating wage growth in a frictionless economy. Finally, the change in net worth as a result of the tax credit indicates that EITC provides debt relief for women with negative net worth while leading to an increase in the consumption expenditures for others.
JEL Classifications
  • I0 - General