A General Equilibrium Analysis of Parental Leave Policies

An important feature of the U.S. labor market is that, even after controlling for measurable differences in education and experience, the average wage of women with children is 89 percent of the average wage of women without children. This ``family gap\\\" in wages accounts for almost half the gender gap in wages. Proponents of mandatory-leave policies argue that career interruptions associated with fertility have long-lasting effects on female employment and are costly in terms of human-capital losses for females. Despite the fact that mandatory leaves are widely applied in developed countries, their effects on the economy are not well understood. We develop and calibrate a general-equilibrium model of fertility and labor-market decisions to study the quantitative impact of such policies. We build on the Mortensen and Pissarides (1994) labor-market framework by introducing male and female workers, general and specific human-capital accumulation on the job, and temporary separations between the worker and a job. We find that: ($i$) the loss of specific human capital accounts for a small fraction of the wage gaps and ($ii$) mandatory-leave policies have substantial aggregate and redistributive effects on fertility, employment, and welfare. Interestingly, we find that the general-equilibrium effect of mandatory-leave policies is a reduction in the amount of time females spend at home with children.Parental leaves, fertility, specific human capital, temporary separations.

How important is human capital? A quantitative theory assessment of world income inequality

We develop a quantitative theory of human capital investments in order to evaluate the magnitude of cross-country differences in total factor productivity (TFP) that explains the variation in per-capita incomes across countries. We build a heterogeneous-agent economy with cross-sectional variation in ability, schooling, and expenditures on schooling quality. By embedding our analysis in a growth model with tradable and non-tradable sectors, we model sectorial productivity differences across countries, as documented in Hsieh and Klenow (2007). The parameters governing human capital production and random ability and taste processes are restricted by a set of cross-sectional data moments such as variances and intergenerational correlations of earnings and schooling, as well as slope coefficient and R2 in a Mincer regression. Our main finding is that human capital accumulation strongly amplifies TFP differences across countries: To explain a 20-fold difference in the output per worker the model requires a 5-fold difference in the TFP of the tradable sector, versus an 18-fold difference if human capital is fixed across countries. Moreover, we find that sectorial productivity differences play a prominent role in quantitative implications of the theory.

A general equilibrium analysis of parental leave policies

Despite mandatory parental-leave policies being a prevalent feature of labor markets in developed countries, the aggregate effects of leave policies are not well understood. In order to assess the quantitative impact of mandated leave policies in the economy, we develop ageneral-equilibrium model of fertility and labor-market decisions that builds on the labormarket framework of Mortensen and Pissarides (1994). We find that females gain substantially with generous policies, but this benefit occurs at the expense of a reduction in the welfare of males. Mandated leave policies have important effects on fertility, leave taking decisions, and employment rate of mothers with infants. These effects are driven by how policy affects bargaining in job matches: Young females anticipate that there are some states in the future in which their threat point in bargaining will be higher. Because the realization of these states depend on the decisions of females to give birth and take a leave, the change in the threat point induced by the policy subsidizes fertility and leave taking. Unpaid parental leaves have a small impact on the time that mothers spend with their children but paid parental leaves can be an effective tool to encourage mothers to spend time with theirchildren after giving birth.human capital; labor-market equilibrium; parental-leave policies; fertility; temporary separations

A Quantitative Theory of the Gender Gap in Wages

Using panel data from the National Longitudinal Survey of Youth (NLSY), we document that gender differences in wages almost double during the first 20 years of labor market experience and that there are substantial gender differences in employment and hours of work during the life cycle. A large portion of gender differences in labor market attachment can be traced to the impact of children on the labor supply of women. We develop a quantitative life-cycle model of fertility, labor supply, and human capital accumulation decisions. We use this model to assess the role of fertility on gender differences in labor supply and wages over the life cycle. In our model, fertility lowers the lifetime intensity of market activity, reducing the incentives for human capital accumulation and wage growth over the life cycle of females relative to males. We calibrate the model to panel data of men and to fertility and child related labor market histories of women. We find that fertility accounts for most of the gender differences in labor supply and wages during the life cycle documented in the NLSY data.Gender wage gap, employment, experience, fertility, human capital

Financial frictions, occupational choice and economic inequality

The Lucas (1978) model is extended to incorporate heterogeneity in working ability and a time allocation decision by entrepreneurs (work versus manage). Financial frictions dis- tort not only the average skill of entrepreneurs but also the average skill of workers. The model economy accounts for half of the association between entrepreneurship and exter- nal finance to GDP in the data, whereas a standard span of control model explains only about one tenth. The variation in entrepreneurship is mostly due to the variation in self- employed entrepreneurs rather than in employers. Moreover, financial frictions have larger effects on output per worker, TFP, and inequalityAuthors acknowledge financial support from CAF-Development Bank of Latin America. Erosa acknowledges financial support from the Ministerio de Economia y Competitividad of Spain (grants ECO2015-68615-P and MDM 2014-0431) and Comunidad de Madrid, MadEco-CM (S2015/HUM-3444

Taxation and the life cycle of firms

The Hopenhayn and Rogerson (1993) framework is extended to understand how different forms of taxing capital income affect fi rms’ investment and fi nancial policies over their life cycle. Corporate income taxation slows down fi rm growth over the life cycle by reducing after-tax profi ts available for reinvesting, and it distorts optimal fi rms’ size. Dividend income taxation reduces external equity fi nancing, but it does not affect size at maturity. Capital gains taxes make fi rms start larger, so that internal growth is lower. With these mechanisms in mind, we calibrate our economy to the US and discuss different revenue-neutral tax reforms that might lead to increases in aggregate output and capital.En este trabajo extendemos el modelo de Hopenhayn y Rogerson (1993) para entender cómo distintos impuestos sobre capital afectan a las decisiones de inversión y de fi nanciación de las empresas, así como a su ciclo de vida. El impuesto sobre sociedades ralentiza el crecimiento interno de las empresas, ya que estas tienen menos benefi cios después de impuestos para reinvertir, y distorsiona su tamaño óptimo. El impuesto sobre los dividendos reduce la fi nanciación a través de la emisión de acciones, pero no afecta a su tamaño en la madurez. El impuesto sobre las ganancias de capital hace que las empresas empiecen con un tamaño mayor para que el crecimiento interno sea menor. Teniendo en cuenta estos mecanismos, calibramos nuestra economía a Estados Unidos y discutimos reformas impositivas neutrales para el presupuesto del Gobierno que podrían incrementar la producción y el capital agregados

Liquidity, money creation and destruction, and the returns to banking

We build on our earlier model of money in which bank liabilities circulate as medium of exchange, and investigate the provision of liquidity for a range of central-bank regulations dealing with the potential of bank failure. In our model, banks issue inside money under fractional reserves, facing the event of excess redemptions. They monitor the float of their money issue and make reserve-management decisions which affect aggregate liquidity conditions. Numerical examples demonstrate bank failure when returns to banking are low. Central-bank interventions, injecting more funds or making interest payments proportional to holdings of reserves, may improve banks’ returns and society’s welfare, followed by a reduction in bank failure. JEL Classification: E4, E5liquidity, private money creation

Taxation and the life cycle of firms

The Hopenhayn and Rogerson (1993) framework is extended to understand how different forms of taxing capital income affect firms' investment and financial policies over their life cycle. Relative to dividends and capital gains taxation, corporate income taxation slows down firm growth over the life cycle by reducing after-tax profits available for reinvesting. It also diminishes entry by negatively affecting the value of entrants relative to that of incumbent firms. After a tax reform eliminating the corporate income tax in a revenue neutral way, output and capital increase by 12% and 32%. The large response of firm entry is crucial.Erosa acknowledges financial support from the Ministerio de Economia y Competitividad of Spain (grants ECO2015-68615-P and MDM 2014-0431) and Comunidad de Madrid, MadEco-CM (S2015/HUM-3444). Erosa also acknowledges financial support from the Banco de España. González gratefully acknowledges support from Fundación La Caixa (ID 100010434), grant number LCF/BQ/ES15/1036000

Financial frictions, occupational choice and economic inequality

We develop a quantitative theory of entrepreneurship, income inequality, and financial frictions disciplined with household data from Brazil. The theory extends Lucas (1978) by modeling heterogeneity in two skills: -working and managerial skills. Consistently with the evidence, the theory implies three occupational categories: workers, employers, and self-employed entrepreneurs. We find that the removal of financial frictions decreases self-employment rates from 24% to 11% (with small effects on the number of employers), increases aggregate output by 48%, and has non- trivial effects on the distribution of income. We also find that while most households benefit from a reform that eliminates enforcement problems, the majority of employers (about two thirds) lose from the reform. By depressing the demand for labor, limited enforcement depresses the equilibrium wage rate, increasing the profits of employers. Our theory thus suggests that employers in Brazil may have a vested interested in maintaining a status quo with low enforcement.Erosa acknowledges financial support from the European Commission through Marie Curie International Reintegration Grants PIRG03- GA-2008-23109

A quantitative theory of the gender gap in wages

This paper measures how much of the gender wage gap over the life cycle is due to the fact that working hours are lower for women than for men. We build a quantitative theory of fertility, labor supply, and human capital accumulation decisions to measure gender differences in human capital investments over the life cycle. We assume that there are no gender differences in the human capital technology and calibrate this technology using wage-age profiles of men. The calibration of females assumes that children reduce the hours of work of mothers and that there is an exogenous gendergap in hours of work. We find that our theory accounts for all of the increase in the gender wage gap over the life cycle in the NLSY79 data. The impact of children on the labor supply of females accounts for 56% and 45% of the increase in the gender wage gap over the life cycle among non-college and college individuals. We also find that children play an important role in understanding the variation of the gender wage gap across recent cohorts of women and the slower wage growth faced by black women relative to non-black women in the U.S. economy.gender wage gap; employment; experience; fertility; human capital