Congressional Budget Oce

Bio: Congressional Budget Oce is an academic researcher. The author has contributed to research in topics: Incomplete markets & Omitted-variable bias. The author has an hindex of 1, co-authored 1 publications receiving 15 citations.

Assessing the Empirical Validity of the Intertemporal Labor Supply Response from a Stochastic Overlapping Generations Model with Incomplete Markets

Abstract: We evaluate the labor supply response in a stochastic overlapping generations model with incomplete markets and a non separable utility function in labor and consumption. Using a simulated panel from the model, we calculate the labor supply response to anticipated changes in wages (holding the marginal utility of wealth constant-that is, the Frisch elasticity) and to unanticipated change in wages (which describes the effect of uncertainty in labor supply responses). The model’s Frisch elasticity estimate is 0.33, which is slightly higher than the empirical estimates in the earlier literature but somewhat lower than more recent estimates. The paper also shows that the borrowing constraints in the model reduce substantially the estimates of the Frisch elasticity. The labor supply response to an unanticipated change in wages is small because of large wealth effects. Having all the variables required and no measurement error, we calculate the omitted variable bias of not controlling for the level and variance (risk) of the unexpected changes in wages. Omitting both variables biases the estimates of the Frisch elasticity downward by a factor of 8; omitting measures of wage risk alone biases it by a factor of 1.4. JEL CODES: J22, D91, D58

Reconciling micro and macro estimates of the frisch labor supply elasticity

Abstract: This paper explores the large gap between the microeconometric estimates of the Frisch labor supply elasticity (0–.5) and the values used by macroeconomists to calibrate general equilibrium models (2–4). These two ranges identify two fundamentally different notions, the micro and macro Frisch elasticity, respectively. Due to the different definitions, there are two restrictions in the micro Frisch elasticity that are relaxed in the macro Frisch elasticity. First, the micro Frisch elasticity focuses only on prime-aged married males who are the head of their household, while the macro Frisch elasticity represents the whole population. Second, the micro Frisch elasticity only incorporates intensive margin fluctuations in hours, while the macro Frisch elasticity includes both intensive and extensive margin fluctuations. This paper finds that relaxing these two restrictions causes estimates of the Frisch elasticity to increase from 0.2 to between 2.9 and 3.1, indicating that these two restrictions can explain the gap between the microeconometric estimates and the calibration values. However, this paper demonstrates that these estimates of the macro Frisch elasticity are sensitive to the estimation procedure and also the exclusion of older individuals, implying that calibration values used for macroeconomic models should be selected carefully. (JEL E24, J22)

A life-cycle model of female labor supply time allocation among work general and specific human capital accumulation and fertility.

Abstract: This paper presents a formal life-cycle model of female labor supply in which a woman alters her human capital decision-making in accordance with the expected changes in marital status and family life. Within such a model observed state dependence is considered a result from either heterogeneity in human capital and child service stock (i.e. permanent income and wages) or from constraints on a womans decision-making (i.e. bang-bang controls). This dynamic life-cycle model allows a woman to allocate time among work children and general or specific human capital accumulation. The latter allocation makes the permanent wage an endogenous decision. Results of the model showed that without continuous decision-making options a woman might be forced to choose a suboptimal time allocation path and exhibit state dependence in participation. Likewise a womans stock of human capital and non-market income play a key role in her participation decision and also implicitly create state dependence in participation. The model specifically identifies the direct relationship between children and general human capital accumulation.

How well did social security mitigate the effects of the great recession

Abstract: This paper quantifies the welfare implications of the U.S. Social Security program during the Great Recession. We find that the average welfare losses due to the Great Recession for agents alive at the time of the shock are notably smaller in an economy with Social Security relative to an economy without a Social Security program. Moreover, Social Security is particularly effective at mitigating the welfare losses for agents who are poorer, less productive, or older at the time of the shock. Importantly, in addition to mitigating the welfare losses for these potentially more vulnerable agents, we do not find any specific age, income, wealth or ability group for which Social Security substantially exacerbates the welfare consequences of the Great Recession. Taken as a whole, our results indicate that the U.S. Social Security program is particularly effective at providing insurance against business cycle episodes like the Great Recession.

The Frisch Elasticity in the Mercosur Countries: A Pseudo‐Panel Approach

Abstract: This paper provides estimates for the Mercosur countries of the Frisch elasticity – i.e., the elasticity of substitution between worked hours and real wages holding constant the marginal utility of wealth. We find a strong heterogeneity, with estimated elasticities ranging from 12.8 in Argentina to -13.1 in Paraguay. Brazil and Uruguay are in between, both with negative values of -1.9 and -1.4, respectively. We argue that the existence of severe liquidity constraints is the main reason behind the negative estimates found in Brazil, Paraguay and Uruguay. The heterogeneity of these estimates is the outcome of differences in many relevant economic dimensions – ranging from sectorial specialization to welfare state provisions and labor market specificities – all of them crucially affecting the socioeconomic situation of individuals. The diversity of Frisch elasticities calls for the development of a cross-country (rather than a within-country) policy approach, since they crucially affect the dynamics of the business cycle and business cycle synchronization is a step prior to the design of macro-convergence policies in the Mercosur context.