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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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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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Transitions in Welfare Participation and Female Headship
February 2004
Working Paper Number:
CES-04-01
This study uses data from the 1990, 1992, 1993, and 1996 panels of the Survey of Income and Program Participation to examine how welfare policies and local economic conditions contribute to women's transitions into and out of female headship and into and out of welfare participation. It also examines whether welfare participation is directly associated with longer spells of headship. The study employs a simultaneous hazards approach that accounts for unobserved heterogeneity in all of its transition models and for the endogeneity of welfare participation in its headship model. The estimation results indicate that welfare participation significantly reduces the chances of leaving female headship. The estimates also reveal that more generous welfare benefits contribute indirectly to headship by increasing the chances that mothers will enter welfare. More generous Earned Income Tax Credit benefits are associated with longer spells of headship, nonheadship, and welfare participation and nonparticipation. Other measures of welfare policies, including indicators for the adoption of welfare waivers and the implementation of Temporary Assistance for Needy Families programs, are generally not significantly associated with headship or welfare receipt. Better economic opportunities are estimated to increase headship but reduce welfare participation among unmarried mothers.
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Displaced workers, early leavers, and re-employment wages
November 2002
Working Paper Number:
tp-2002-18
In this paper, we lay out a search model that takes explicitly into account the
information flow prior to a mass layoff. Using universal wage data files that allow
us to identify individuals working with healthy and displacing firms both at
the time of displacement as well as any other time period, we test the predictions
of the model on re-employment wage differentials. Workers leaving a "distressed"
firm have higher re-employment wages than workers who stay with the
distressed firm until displacement. This result is robust to the inclusion of controls
for worker quality and unobservable firm characteristics.
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Agent Heterogeneity and Learning: An Application to Labor Markets
October 2002
Working Paper Number:
tp-2002-20
I develop a matching model with heterogeneous workers, rms, and worker-firm
matches, and apply it to longitudinal linked data on employers and employees. Workers
vary in their marginal product when employed and their value of leisure when unemployed.
Firms vary in their marginal product and cost of maintaining a vacancy. The
marginal product of a worker-firm match also depends on a match-specific interaction
between worker and rm that I call match quality. Agents have complete information
about worker and rm heterogeneity, and symmetric but incomplete information about
match quality. They learn its value slowly by observing production outcomes. There
are two key results. First, under a Nash bargain, the equilibrium wage is linear in a
person-specific component, a firm-specific component, and the posterior mean of beliefs
about match quality. Second, in each period the separation decision depends only on
the posterior mean of beliefs and person and rm characteristics. These results have
several implications for an empirical model of earnings with person and rm e ects.
The rst implies that residuals within a worker-firm match are a martingale; the second
implies the distribution of earnings is truncated.
I test predictions from the matching model using data from the Longitudinal
Employer-Household Dynamics (LEHD) Program at the US Census Bureau. I present
both xed and mixed model specifications of the equilibrium wage function, taking
account of structural aspects implied by the learning process. In the most general
specification, earnings residuals have a completely unstructured covariance within a
worker-firm match. I estimate and test a variety of more parsimonious error structures,
including the martingale structure implied by the learning process. I nd considerable
support for the matching model in these data.
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The interactions of workers and firms in the low-wage labor market
August 2002
Working Paper Number:
tp-2002-12
This paper presents an analysis of workers who persistently have low earnings in
the labor market over a period of three or more years. Some of these workers manage to
escape from this low-earning status over subsequent years, while many do not. Using
data from the Longitudinal Employer Household Dynamics (LEHD) project at the U.S.
Census Bureau, we analyze the characteristics of persons and especially of their firms and
jobs that enable some to improve their earnings status over time.
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Is it Who You Are, Where You Work, or With Whom You Work? Reassessing the Relationship Between Skill Segregation and Wage Inequality
June 2002
Working Paper Number:
tp-2002-10
In a recent paper, Kremer & Maskin (QJE, forthcoming) develop an assignment model in
which increases in the dispersion and mean of the skill distribution can lead simultaneously
to increases in wage inequality and skill segregation. They then present evidence that,
concurrent with rising wage inequality, wage segregation increased for production workers in
the United States between 1975 and 1986. My paper argues that relying on wages as a proxy
for skill may be problematic. Using a newly developed longitudinal dataset linking virtually
the entire universe of workers in the state of Illinois to their employers, I decompose wages
into components due, not only to person and firm heterogeneity, but also to the characteristics
of their co-workers. Such "co-worker effects" capture the impact of a weighted sum of the
characteristics of all workers in a firm on each individual employee's wage. While rising wage
segregation can result from greater skill segregation, it may also be due to changes in the
variance of co-worker effects in the economy, or to changes in the covariance between the
person, firm, and co-worker components of wages.
Due to the limited availability of demographic information on workers, I rely on the
person specific component of wages to proxy for co-worker "skills." Because these person
effects are unknown ex ante, I implement an iterative estimation approach where they are
first obtained from a preliminary regression that excludes any role for co-workers. Because
virtually all person and firm effects are identified, the approach yields consistent estimates
of the co-worker parameters. My estimates imply that a one standard deviation increase
in both a firm's average person effect and experience level is associated, on average, with
wage increases of 3% to 5%. Firms that increase the wage premia they pay workers appear
to do so in conjunction with upgrading worker quality. Interestingly, the average effect
masks considerable variation in the relative importance of co-workers across industries. After
allowing the co-worker parameters to vary across 2 digit industries, I find that industry
average co-worker effects explain 26% of observed inter-industry wage differentials. Finally,
I decompose the overall distribution of wages into components due to persons, firms, and coworkers.
While co-worker effects do indeed serve to exacerbate wage inequality, the tendency
for high and low skilled workers to sort non-randomly into firms plays a considerably more
prominent role.
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Modeling Labor Markets with Heterogeneous Agents and Matches
May 2002
Working Paper Number:
tp-2002-19
I present a matching model with heterogeneous workers, firms, and worker-fim
matches. The model generalizes the seminal Jovanovic (1979) model to the case of
heterogeneous agents. The equilibrium wage is linear in a person-specific component,
a firm-specific component, and a match specific component that varies with tenure.
Under certain conditions, the equilibrium wage takes a simpler structure where the
match specific component does not vary with tenure. I discuss fixed- and mixedeffect
methods for estimating wage models with this structure on longitudinal linked
employer-employee data. The fixed effect specification relies on restrictive identification
conditions, but is feasible for very large databases. The mixed model requires less
restrictive identification conditions, but is feasible only on relatively small databases.
Both the fixed and mixed models generate empirical person, firm, and match effects
with characteristics that are consistent with predictions from the matching model; the
mixed model moreso than the fixed model. Shortcomings of the fixed model appear to
be artifacts of the identification conditions.
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