Education and Crime over the Life Cycle

In this paper we ask whether policies targeting a reduction in crime rates through changes in education outcomes can be considered an effective and cost-viable alternative to interventions based on harsher punishment alone. In particular we study the effect of subsidizing high school completion. Most econometric studies of the impact of crime policies ignore equilibrium effects and are often reduced-form. This paper provides a framework within which to study the equilibrium impact of alternative policies. We develop an overlapping generation, life-cycle model with endogenous education and crime choices. Education and crime depend on different dimensions of heterogeneity, which takes the form of differences in innate ability and wealth at birth as well as employment shocks. PSID, NIPA and CPS data are used to estimate the parameters of a production function with different types of human capital and to approximate a distribution of permanent heterogeneity. These estimates are used to pin down some of the model's parameters. The model is calibrated to match education enrolments, aggregate (property) crime rate and some features of the wealth distribution. In our numerical experiments we find that policies targeting crime reduction through increases in high school graduation rates are more cost-effective than simple incapacitation policies. Furthermore, the cost-effectiveness of high school subsidies increases significantly if they are targeted at the wealth poor. We also find that financial incentives to high school graduation have radically different implications in general and partial equilibrium (i.e. the scale of the programmes can substantially change its outcomes).Crime, Education, Subsidies

Household Responses to Individual Shocks: Disability and Labor Supply

What are idiosyncratic shocks and how do people respond to them? This paper starts from the observation that idiosyncratic shocks are experienced at the individual level, but responses to shocks can encompass the whole household. Understanding and accurately modeling these responses is essential to the analysis of intra-household allocations, especially labor supply. Using longitudinal data from the Canadian Survey of Labour and Income Dynamics (SLID) we exploit information about disability and health status to develop a life-cycle framework which rationalizes observed responses of household members to idiosyncratic shocks. Two puzzling findings associated to disability onset motivate our work: (1) the almost complete absence of `added worker' effects within households and, (2) the fact that single agents' labor supply responses to disability shocks are larger and more persistent than those of married agents. We show that a first-pass, basic model of the household has predictions about dynamic labor supply responses which are at odds with these facts; despite such failure, we argue that these facts are consistent with optimal household behavior when we account for two simple mechanisms: the first mechanism relates to selection into and out of marriage, while the second hinges on insurance transfers taking place within households. We show that these mechanisms arise naturally when we allow for three features: a linkage between human capital accumulation and life-cycle labor supply, endogenous marriage contracts and the possibility of time transfers between partners. We also report evidence that the extended model with endogenous marriage contracts can fit divorce patterns observed in Canadian data, as well as correlations between disability prevalence and marital status, providing an ideal framework to study intra-household risk-sharing with limited commitment.Idiosyncratic Risk, Disability, Life Cycle Labor Supply, Intrahousehold Insurance

Education and Crime over the Life Cycle

In this paper we ask whether policies targeting a reduction in crime rates through changes in education outcomes can be considered an effective and cost-viable alternative to interventions based on harsher punishment alone. In particular we study the effect of subsidizing high school completion. Most econometric studies of the impact of crime policies ignore equilibrium effects and are often reduced-form. This paper provides a framework within which to study the equilibrium impact of alternative policies. We develop an overlapping generation, life-cycle model with endogenous education and crime choices. Education and crime depend on different dimensions of heterogeneity, which takes the form of differences in innate ability and wealth at birth as well as employment shocks. PSID, NIPA and CPS data are used to estimate the parameters of a production function with different types of human capital and to approximate a distribution of permanent heterogeneity. These estimates are used to pin down some of the modelÕs parameters. The model is calibrated to match education enrolments, aggregate (property) crime rate and some features of the wealth distribution. In our numerical experiments we find that policies targeting crime reduction through increases in high school graduation rates are more cost-effective than simple incapacitation policies. Furthermore, the cost-effectiveness of high school subsidies increases significantly if they are targeted at the wealth poor. We also find that financial incentives to high school graduation have radically different implications in general and partial equilibrium (i.e. the scale of the programmes can substantially change its outcomes).

Household Responses to Individual Shocks: Disability and Labour Supply

What are idiosyncratic shocks and how do people respond to them? This paper starts from the observation that idiosyncratic shocks are experienced at the individual level, but responses to shocks can encompass the whole household. Understanding and accurately modeling these responses is essential to the analysis of intra-household allocations, especially labour supply. Using longitudinal data from the Canadian Survey of Labour and Income Dynamics (SLID) we exploit information about disability and health status to develop a life-cycle framework which rationalizes observed responses of household members to idiosyncratic shocks. Two puzzling findings associated to disability onset motivate our work: (1) the almost complete absence of ‘added worker’ effects within households and, (2) the fact that single agents’ labour supply responses to disability shocks are larger and more persistent than those of married agents. We show that a first-pass, basic model of the household has predictions about dynamic labour supply responses which are at odds with these facts; despite such failure, we argue that these facts are consistent with optimal household behaviour when we account for two simple mechanisms: the first mechanism relates to selection into and out of marriage, while the second hinges on insurance transfers taking place within households. We show that these mechanisms arise naturally when we allow for three features: a linkage between human capital accumulation and life-cycle labour supply, endogenous marriage contracts and the possibility of time transfers between partners. We also report evidence that the extended model with endogenous marriage contracts can fit divorce patterns observed in Canadian data, as well as correlations between disability prevalence and marital status, providing an ideal framework to study intra-household risk-sharing with limited commitment.Idiosyncratic Risk, Disability, Household Behaviour, Marriage, Insurance

Household Responses to Individual Shocks: Disability and Labor Supply

What are idiosyncratic shocks and how do people respond to them? This paper starts from the observation that idiosyncratic shocks are experienced at the individual level, but responses to shocks can encompass the whole household. Understanding and accurately modeling these responses is essential to the analysis of intra-household allocations, especially labor supply. Using longitudinal data from the Canadian Survey of Labour and Income Dynamics (SLID) we exploit information about disability and health status to develop a life-cycle framework which rationalizes observed responses of household members to idiosyncratic shocks. Two puzzling findings associated to disability onset motivate our work: (1) the almost complete absence of 'added worker' effects within households and, (2) the fact that single agents' labor supply responses to disability shocks are larger and more persistent than those of married agents. We show that a first-pass, basic model of the household has predictions about dynamic labor supply responses which are at odds with these facts; despite such failure, we argue that these facts are consistent with optimal household behavior when we account for two simple mechanisms: the first mechanism relates to selection into and out of marriage, while the second hinges on insurance transfers taking place within households. We show that these mechanisms arise naturally when we allow for three features: a linkage between human capital accumulation and life-cycle labor supply, endogenous marriage contracts and the possibility of time transfers between partners. We also report evidence that the extended model with endogenous marriage contracts can fit divorce patterns observed in Canadian data, as well as correlations between disability prevalence and marital status, providing an ideal framework to study intra-household risk-sharing with limited commitment.tourism specialisation, economic growth, developing countries

Aggregate Shocks vs Reallocation Shocks: an Appraisal of the Applied Literature

This paper critically appraises the di erent approaches that have characterized the literature on the macroeconomic e ects of job reallocations from Lilien's seminal work to recent developments rooted in structural general equilibrium models, nonlinear econometric techniques and the concepts of job creation and destruction. Despite a ourishing of empirical analysis no unifying theoretical framework has obtained consensus in the scienti c debate. We face a corpus of research which is heterogeneous in variables' selection and experimental design. This widespread heterogeneity makes the evaluation of results a daunting task. Reliability of outcomes becomes almost impossible to assess when, even within models of the same generation, the lack of a rigorous theoretical background hinders well de ned experimental design and makes comparisons di cult. The strong pace at which the empirical literature on the macroeconomic e ects of job reallocations has been growing in recent years suggests that a general assessment of the state of the art is valuable and maybe indispensable. As a guiding principle for our excursion we track down the methodological development of the proposed solutions to the crucial problem of observational equivalence. We do not linger on speci c econometric methods nor on strictly theoretical issues not relevant to our main purpose. We draw the conclusion that the asymmetric and non-directional nature of allocative shocks, which holds the key to the solution of the problem, is better captured by multivariate, non-linear, dynamic econometric models and numerical simulation techniques. Davis and Haltiwanger's perspective on job creation and destruction seems to us of paramount importance for future research because of its potential to encompass a wealth of micro-level data sets within a rigorous analytical framework.Sectoral shifts, methodology, measurement, assessment

Education and Crime over the Life Cycle

This paper provides a framework within which to study the equilibrium impact of alternative policies. We develop an overlapping generation, life-cycle model with endogenous education and crime choices. Education and crime depend on different dimensions of heterogeneity, which takes the form of differences in innate ability and wealth at birth as well as employment shocks. The model is calibrated to match education enrolments, aggregate (property) crime rate and some features of the wealth distribution. In our numerical experiments we find that policies targeting crime reduction through increases in high school graduation rates are more cost-effective than simple incapacitation policies. The cost-effectiveness of high school subsidies increases significantly if they are targeted at the wealth poor. Financial incentives to high school graduation have radically different implications in general and partial equilibriumCrime, Education, Life Cycle

Education Decisions, Equilibrium Policies and Wages Dispersion

Education, Inequality, Equilibrium, Policy

Skill Dispersion and Trade Flows

Is skill dispersion a source of comparative advantage? While it is established that a country's aggregate endowment of human capital is an important determinant of comparative advantage, this paper investigates whether the distribution of skills in the labor force can play a role in the determination of trade flows. We develop a multi-country, multi-sector model of trade in which comparative advantage derives from (i) differences across sectors in the complementarity of workers' skills, (ii) the dispersion of skills in the working population. First, we show how higher dispersion in human capital can trigger specialization in sectors characterized by higher substitutability among workers' skills. We then use industry-level bilateral trade data to show that human capital dispersion, as measured by a standard international metric, has a signi…cant effect on trade flows. We …nd that the effect is of a magnitude comparable to that of aggregate endowments. The result is robust to the introduction of several controls for other proximate causes of comparative advantage

Ability, Parental Valuation of Education and the High School Dropout Decision

We use a large, rich Canadian micro-level dataset to examine the channels through which family socio-economic status and unobservable characteristics affect children's decisions to drop out of high school. First, we document the strength of observable socio-economic factors: our data suggest that teenage boys with two parents who are themselves high school dropouts have a 16% chance of dropping out, compared to a dropout rate of less than 1% for boys whose parents both have a university degree. We examine the channels through which this socio-economic gradient arises using an extended version of the factor model set out in Carneiro, Hansen, and Heckman (2003). Specifically, we consider the impact of cognitive and non-cognitive ability and the value that parents place on education. Our results support three main conclusions. First, cognitive ability at age 15 has a substantial impact on dropping out. Second, parental valuation of education has an impact of approximately the same size as cognitive ability effects for medium and low ability teenagers. A low ability teenager has a probability of dropping out of approximately .03 if his parents place a high value on education but .36 if their education valuation is low. Third, parental education has no direct effect on dropping out once we control for ability and parental valuation of education. Our results point to the importance of whatever determines ability at age 15 (including, potentially, early childhood interventions) and of parental valuation of education during the teenage years. We also make a small methodological contribution by extending the standard factor based estimator to allow a non-linear relationship between the factors and a covariate of interest. We show that allowing for non-linearities has a substantial impact on estimated effects.Idiosyncratic Shocks, Disability, Insurance, Marriage