Is Marriage for White People? Incarceration, Unemployment, and the Racial Marriage Divide

The difference in marriage rates between black and white Americans is striking. Wilson (1987) suggests that a skewed sex ratio and higher rates of incarceration and unemployment are responsible for lower marriage rates among the black population. In this paper, we take a dynamic look at the Wilson Hypothesis. Incarceration rates and labor market prospects of black men make them riskier spouses than white men. We develop an equilibrium search model of marriage, divorce, and labor supply in which transitions between employment, unemployment, and prison differ by race, education, and gender. The model also allows for racial differences in how individuals value marriage and divorce. We estimate the model and investigate how much of the racial divide in marriage is due to the Wilson Hypothesis and how much is due to differences in preferences for marriage. We find that the Wilson Hypothesis accounts for more than three quarters of the model's racial-marriage gap. This suggests policies that improve employment opportunities and/or reduce incarceration for black men could shrink the racial-marriage gap

Sticky Prices, Competition and the Phillips Curve

This study analyzes how competition affects price stickiness at the micro level. On the theoretical side, I develop what I call a micro Phillips curve, i.e. a product-specific relation between inflation and economic activity conditional on inflation expectations. I find two opposing effects of competition on the slope of the micro Phillips curve. On the one hand, stronger competition leads to a higher frequency of price revaluations, implying a steeper slope. On the other hand, the stronger competition is, the less firms can transmit changes in economic activity into price changes, implying a flatter slope. Using unique product-level manufacturing panel data, I find that the latter effect clearly dominates and plays an important role in explaining price stickiness. The effect of a marginal increase in economic activity on the likelihood of a price increase is between 63% and 85% lower for products, that face very strong competition, compared to products, that face very weak competition. In line with the theory, prices of products, that face very strong competition, are also less likely to decrease in response to marginal decreases in economic activity. Moreover, it heavily depends on the degree of competition that a product faces whether, and to what extent, the micro Phillips curve is non-linear. The stronger the competition the weaker will be the non-linearity of the micro Phillips curve. My findings imply that effective business cycle policy necessitates good competition policy. Reforms which strengthen the competition in an economy will make stimulus or stabilization policy more effective. Furthermore, the results imply that stimulus or stabilization measures, that target specifically high competition firms or sectors, may be more effective than programs, that follow an indiscriminate all-round principle

The Farm, the city, and the emergence of social security

We study the social, demographic and economic origins of social security. The data for the U.S. and for a cross section of countries suggest that urbanization and industrialization are associated with the rise of social insurance. We describe an OLG model in which demographics, technology, and social security are linked together in a political economy equilibrium. In the model economy, there are two locations (sectors), the farm (agricultural) and the city (industrial) and the decision to migrate from rural to urban locations is endogenous and linked to productivity differences between the two locations and survival probabilities. Farmers rely on land inheritance for their old age and do not support a pay-as-you-go social security system. With structural change, people migrate to the city, the land loses its importance and support for social security arises. We show that a calibrated version of this economy, where social security taxes are determined by majority voting, is consistent with the historical transformation in the United States

Intergenerational Transmission of Skills During Childhood and Optimal Public Policy

The paper characterizes the optimal tax policy and the optimal quality of day care services in a OLG model with warm-glow altruism where parental choices over child care arrangements affect the probability that the child becomes a high-skilled adult in a type-specific way. With respect to previous contributions, optimal tax formulas include type-specific Pigouvian terms which correct for the intergenerational externality in human capital accumulation. Our numerical simulations suggest that a public policy that disregards the effects of parental time on children's human capital entails a welfare loss that ranges from 0:2% to 5:7% of aggregate consumption

First-Time Home Buyers and Residential Investment Volatility

Like other macroeconomic variables, residential investment has become much less volatile since the mid-1980s (recent experience notwithstanding.) This paper explores the role of structural change in this decline. Since the the early 1980s there have been many changes in the underlying structure of the economy, including those in the mortgage market which have made it easier to acquire a home. We examine how these changes affect residential investment volatility in a life-cycle model consistent with micro evidence on housing choices. We find that a decline in the rate of household formation, increased delay in marriage, and an increase in the cross-sectional variance of earnings drive the decline in volatility. Our findings provide support for the view that the Great Moderation in aggregate fluctuations is not just due to smaller aggregate shocks, but is driven at least in part by structural change