We study frictions in adjusting earnings to changes in the Social Security Annual Earnings Test (AET) using a panel of Social Security Administration microdata on one percent of the U.S. population from 1961 to 2006. Individuals continue to "bunch" at the convex kink the AET creates even when they are no longer subject to the AET, consistent with the existence of earnings adjustment frictions in the U.S. We develop a novel framework for estimating an earnings elasticity and an adjustment cost using information on the amount of bunching at kinks before and after policy changes in earnings incentives around the kinks. We apply this method in settings in which individuals face changes in the AET bene.t reduction rate, and we estimate in a baseline case that the earnings elasticity with respect to the implicit net-of-tax share is 0.23, and the .xed cost of adjustment is $152.08.
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Labor Market Effects of the Affordable Care Act: Evidence from a Tax Notch
July 2017
Working Paper Number:
carra-2017-07
States that declined to raise their Medicaid income eligibility cutoffs to 138 percent of the federal poverty level (FPL) under the Affordable Care Act (ACA) created a "coverage gap'' between their existing, often much lower Medicaid eligibility cutoffs and the FPL, the lowest level of income at which the ACA provides refundable, advanceable "premium tax credits'' to subsidize the purchase of private insurance. Lacking access to any form of subsidized health insurance, residents of those states with income in that range face a strong incentive, in the form of a large, discrete increase in post-tax income (i.e. an upward notch) at the FPL, to increase their earnings and obtain the premium tax credit. We investigate the extent to which they respond to that incentive. Using the universe of tax returns, we document excess mass, or bunching, in the income distribution surrounding this notch. Consistent with Saez (2010), we find that bunching occurs only among filers with self-employment income. Specifically, filers without children and married filers with three or fewer children exhibit significant bunching. Analysis of tax data linked to labor supply measures from the American Community Survey, however, suggests that this bunching likely reflects a change in reported income rather than a change in true labor supply. We find no evidence that wage and salary workers adjust their labor supply in response to increased availability of directly purchased health insurance.
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Who Values Human Capitalists' Human Capital? Healthcare Spending and Physician Earnings
July 2020
Working Paper Number:
CES-20-23
Is government guiding the invisible hand at the top of the labor market? We study this question among physicians, the most common occupation among the top one percent of income earners, and whose billings comprise one-fifth of healthcare spending. We use a novel linkage of population-wide tax records with the administrative registry of all physicians in the U.S. to study the characteristics of these high earnings, and the influence of government payments in particular. We find a major role for government on the margin, with half of direct changes to government reimbursement rates flowing directly into physicians' incomes. These policies move physicians' relative and absolute incomes more than any reasonable changes to marginal tax rates. At the same time, the overall level of physician earnings can largely be explained by labor market fundamentals of long work and training hours. Competing occupations also pay well and provide a natural lower bound for physician earnings. We conclude that government plays a major role in determining the value of physicians' human capital, but it is unrealistic to use this power to reduce healthcare spending substantially.
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Are the Lasting Effects of Employee-Employer Separations induced by Layoff and Disability Similar? Exploring Job Displacement using Survey and Administrative Data
October 2005
Working Paper Number:
tp-2005-03
This paper integrates the existing literatures on displacement and health by examining the enduring
effects of job dislocations that are induced by firm and individual shocks to employment. A joint estimation of
hourly wage rates and weekly hours illuminates the disparities in these economic outcomes
that exist between those who have reestablished themselves in the workplace subsequent to a layoff and
those who have returned to work following the onset of a disability relative to those with uninterrupted
job histories. As an extension of these ideas, employment transitions and workplace adjustments are
modeled to capture spousal reactions to these shocks. Multiple indicators of health from the Survey of
Income and Program Participation and Social Security Administrative benefits records are incorporated
into the analyses of those with impairments that prompted job loss. These measures allow knowledge
to be gleaned regarding the qualitative di'erences in the lasting impacts of job cessation resulting from
medically diagnosed illnesses as compared to estimates uncovered using survey data sources alone. By
considering time durations following these periods of separation in light of these indicators of well-being,
a more comprehensive understanding of the long-run repercussions of employee-employer separation is
acquired.
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Trends in Earnings Inequality and Earnings Instability among U.S. Couples: How Important is Assortative Matching?
January 2015
Working Paper Number:
CES-15-04
We examine changes in inequality and instability of the combined earnings of married couples over the 1980-2009 period using two U.S. panel data sets: Social Security earnings data matched to Survey of Income and Program Participation panels (SIPP-SSA) and the Panel Study of Income Dynamics. Relative to male earnings inequality, the inequality of couples' earnings is both lower in levels and rises by a smaller amount. We also find that couples' earnings instability is lower in levels compared to male earnings instability and actually declines in the SIPP-SSA data. While wives' earnings played an important role in dampening the rise in inequality and year-to-year variation in resources at the family level, we find that marital sorting and coordination of labor supply decisions at the family level played a minor role. Comparing actual couples to randomly paired simulated couples, we find very similar trends in earnings inequality and instability.
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The Distributional Effects of Minimum Wages: Evidence from Linked Survey and Administrative Data
March 2018
Working Paper Number:
carra-2018-02
States and localities are increasingly experimenting with higher minimum wages in response to rising income inequality and stagnant economic mobility, but commonly used public datasets offer limited opportunities to evaluate the extent to which such changes affect earnings growth. We use administrative earnings data from the Social Security Administration linked to the Current Population Survey to overcome important limitations of public data and estimate effects of the minimum wage on growth incidence curves and income mobility profiles, providing insight into how cross-sectional effects of the minimum wage on earnings persist over time. Under both approaches, we find that raising the minimum wage increases earnings growth at the bottom of the distribution, and those effects persist and indeed grow in magnitude over several years. This finding is robust to a variety of specifications, including alternatives commonly used in the literature on employment effects of the minimum wage. Instrumental variables and subsample analyses indicate that geographic mobility likely contributes to the effects we identify. Extrapolating from our estimates suggests that a minimum wage increase comparable in magnitude to the increase experienced in Seattle between 2013 and 2016 would have blunted some, but not nearly all, of the worst income losses suffered at the bottom of the income distribution during the Great Recession.
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The Work Disincentive Effects of the Disability Insurance Program in the 1990s
February 2006
Working Paper Number:
CES-06-05
In this paper we evaluate the work disincentive effects of the Disability Insurance program during the 1990s. To accomplish this we construct a new large data set with detailed information on DI application and award decisions and use two different econometric evaluation methods. First, we apply a comparison group approach proposed by John Bound to estimate an upper bound for the work disincentive effect of the current DI program. Second, we adopt a Regression-Discontinuity approach that exploits a particular feature of the DI eligibility determination process to provide a credible point estimate of the impact of the DI program on labor supply for an important subset of DI applicants. Our estimates indicate that during the 1990s the labor force participation rate of DI beneficiaries would have been at most 20 percentage points higher had none received benefits. In addition, we find even smaller labor supply responses for the subset of 'marginal' applicants whose disability determination is based on vocational factors.
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Every Breath You Take, Every Dollar You'll Make: The Long-Term Consequences of the Clean Air Act of 1970
September 2013
Working Paper Number:
CES-13-52
This paper examines the long-term impacts of in-utero and early childhood exposure to ambient air pollution on adult labor market outcomes. We take advantage of a new administrative data set that is uniquely suited for addressing this question because it combines information on individuals' quarterly earnings together with their counties and dates of birth. We use the sharp changes in ambient air pollution concentrations driven by the implementation of the 1970 Clean Air Act Amendments as a source of identifying variation, and we compare cohorts born in counties that experienced large changes in total suspended particulate (TSP) exposure to cohorts born in counties that had minimal or no changes. We nd a signi cant relationship between TSP exposure in the year of birth and adult labor market outcomes. A 10 unit decrease in TSP in the year of birth is associated with a 1 percent increase in annual earnings for workers aged 29-31. Most, but not all, of this effect is driven by an increase in labor force participation. In present value, the gains from being born into a county affected by the 1970 Clean Air Act amount to about $4,300 in lifetime income for the 1.5 million individuals born into
these counties each year.
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Income Effects in Labor Supply: Evidence from Child-Related Tax Benefits
May 2016
Working Paper Number:
CES-16-24
A parent whose child is born in December can claim child-related tax benefits when she files her tax return a few months later. Parents of children born in January must wait more than a year before they can receive child-related tax benefits. As a result, families with December births have higher after-tax income in the first year of a child's life than otherwise similar families with January births. This paper estimates the corresponding income effect on maternal labor supply, testing whether mothers who give birth in December work and earn less in the months following birth. We use data from the American Community Survey, the Survey of Income and Program Participation, and the 2000 Decennial Census. We find that December mothers have a lower probability of working, particularly in the third month after a child's birth. Earnings data from the SIPP indicate that an additional dollar of child-related tax benefits reduces annual maternal earnings in the year following a child's birth by approximately one dollar.
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Earnings Inequality and Mobility Trends in the United States: Nationally Representative Estimates from Longitudinally Linked Employer-Employee Data
January 2017
Working Paper Number:
CES-17-24
Using earnings data from the U.S. Census Bureau, this paper analyzes the role of the employer in explaining the rise in earnings inequality in the United States. We first establish a consistent frame of analysis appropriate for administrative data used to study earnings inequality. We show that the trends in earnings inequality in the administrative data from the Longitudinal Employer-Household Dynamics Program are inconsistent with other data sources when we do not correct for the presence of misused SSNs. After this correction to the worker frame, we analyze how the earnings distribution has changed in the last decade. We present a decomposition of the year-to-year changes in the earnings distribution from 2004-2013. Even when simplifying these flows to movements between the bottom 20%, the middle 60% and the top 20% of the earnings distribution, about 20.5 million workers undergo a transition each year. Another 19.9 million move between employment and nonemployment. To understand the role of the firm in these transitions, we estimate a model for log earnings with additive fixed worker and firm effects using all jobs held by eligible workers from 2004-2013. We construct a composite log earnings firm component across all jobs for a worker in a given year and a non-firm component. We also construct a skill-type index. We show that, while the difference between working at a low-or middle-paying firm are relatively small, the gains from working at a top-paying firm are large. Specifically, the benefits of working for a high-paying firm are not only realized today, through higher earnings paid to the worker, but also persist through an increase in the probability of upward mobility. High-paying firms facilitate moving workers to the top of the earnings distribution and keeping them there.
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Race and Economic Opportunity in the United States: An Intergenerational Perspective
September 2018
Working Paper Number:
CES-18-40R
We study the sources of racial and ethnic disparities in income using de-identified longitudinal data covering nearly the entire U.S. population from 1989-2015. We document three sets of results. First, the intergenerational persistence of disparities varies substantially across racial groups. For example, Hispanic Americans are moving up significantly in the income distribution across generations because they have relatively high rates of intergenerational income mobility. In contrast, black Americans have substantially lower rates of upward mobility and higher rates of downward mobility than whites, leading to large income disparities that persist across generations. Conditional on parent income, the black-white income gap is driven entirely by large differences in wages and employment rates between black and white men; there are no such differences between black and white women. Second, differences in family characteristics such as parental marital status, education, and wealth explain very little of the black-white income gap conditional on parent income. Differences in ability also do not explain the patterns of intergenerational mobility we document. Third, the black-white gap persists even among boys who grow up in the same neighborhood. Controlling for parental income, black boys have lower incomes in adulthood than white boys in 99% of Census tracts. Both black and white boys have better outcomes in low-poverty areas, but black-white gaps are larger on average for boys who grow up in such neighborhoods. The few areas in which black-white gaps are relatively small tend to be low-poverty neighborhoods with low levels of racial bias among whites and high rates of father presence among blacks. Black males who move to such neighborhoods earlier in childhood earn more and are less likely to be incarcerated. However, fewer than 5% of black children grow up in such environments. These findings suggest that reducing the black-white income gap will require efforts whose impacts cross neighborhood and class lines and increase upward mobility specifically for black men.
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