Essays on the Economics of Local Labor Markets: Dissertation Summary

This thesis studies the economics of local labor markets. There are three chapters in the thesis, and each one examines how economic outcomes are affected by local labor market conditions

Liquidity Constraints and Consumer Bankruptcy: Evidence from Tax Rebates

This paper estimates the extent to which legal fees prevent liquidity-constrained households from declaring bankruptcy. To do so, it studies how the 2001 and 2008 tax rebates affected consumer bankruptcy filings. We exploit the randomized timing of the rebate checks and estimate that the rebates caused a significant, short-run increase in consumer bankruptcies in both years, with larger effects in 2008 when the rebates were more generous and more widely distributed. Using hand-collected data from individual bankruptcy petitions, we document that the rebates caused an increase in the average liabilities and the liabilities-to-income ratios of filers.

The Incidence of Local Labor Demand Shocks

Low-skill workers are comparatively immobile: when labor demand slumps in a city, low-skill workers are disproportionately likely to remain to face declining wages and employment. This paper estimates the extent to which (falling) housing prices and (rising) social transfers can account for this fact using a spatial equilibrium model. Nonlinear reduced form estimates of the model using U.S. Census data document that positive labor demand shocks increase population more than negative shocks reduce population, this asymmetry is larger for low-skill workers, and such an asymmetry is absent for wages, housing values, and rental prices. GMM estimates of the full model suggest that the comparative immobility of low-skill workers is not due to higher mobility costs per se, but rather a lower incidence of adverse labor demand shocks.

Approaches to Estimating the Health State Dependence of the Utility Function

If the marginal utility of consumption depends on health status, this will affect the economic analysis of a number of central problems in public finance, including the optimal structure of health insurance and optimal life cycle savings. In this paper, we describe the promises and challenges of various approaches to estimating the effect of health on the marginal utility of consumption. Our basic conclusion is that while none of these approaches is a panacea, many offer the potential to shed important insights on the nature of health state dependence.insurance, health, state dependence, marginal utility

Should Unemployment Insurance Vary With the Unemployment Rate? Theory and Evidence

We study how the level of unemployment insurance (UI) benefits that trades off the consumption smoothing benefit with the moral hazard cost of distorting job search behavior varies over the business cycle. Empirically, we find that the moral hazard cost is procyclical, greater when the unemployment rate is relatively low. By contrast, our evidence suggests that the consumption smoothing benefit of UI is acyclical. Using these estimates to calibrate our model, we find that a one standard deviation increase in the unemployment rate leads to a roughly 14 to 27 percentage point increase in the welfare-maximizing wage replacement rate.

Approaches to Estimating the Health State Dependence of the Utility Function

If the marginal utility of consumption depends on health status, this will affect the economic analysis of a number of central problems in public finance, including the optimal structure of health insurance and optimal life cycle savings. In this paper, we describe the promises and challenges of various approaches to estimating the effect of health on the marginal utility of consumption. Our basic conclusion is that while none of these approaches is a panacea, many offer the potential to shed important insights on the nature of health state dependence.

Income and Health Spending: Evidence from Oil Price Shocks

Health expenditures as a share of GDP have more than tripled over the last half century. A common conjecture is that this is primarily a consequence of rising real per capita income, which more than doubled over the same period. We investigate this hypothesis empirically by instrumenting for local area income with time-series variation in global oil prices between 1970 and 1990 interacted with cross-sectional variation in the oil reserves across different areas of the Southern United States. This strategy enables us to capture both the partial equilibrium and the local general equilibrium effects of an increase in income on health expenditures. Our central estimate is an income elasticity of 0.7, with an elasticity of 1.1 as the upper end of the 95 percent confidence interval. Point estimates from alternative specifications fall on both sides of our central estimate, but are almost always less than 1. We also present evidence suggesting that there are unlikely to be substantial national or global general equilibrium effects of rising income on health spending, for example through induced innovation. Our overall reading of the evidence is that rising income is unlikely to be a major driver of the rising health share of GDP.

User-directed sketch interpretation

Thesis (M. Eng.)--Massachusetts Institute of Technology, Dept. of Electrical Engineering and Computer Science, 2004.Includes bibliographical references (p. 91-92).I present a novel approach to creating structured diagrams (such as flow charts and object diagrams) by combining an off-line sketch recognition system with the user interface of a traditional structured graphics editor. The system, called UDSI (user-directed sketch interpretation), aims to provide drawing freedom by allowing the user to sketch entirely off-line using a pure pen-and-paper interface. The results of the drawing can then be presented to UDSI, which recognizes shapes and lines and text areas that the user can then polish as desired. The system can infer multiple interpretations for a given sketch, to aid during the user's polishing stage. The UDSI program offers three novel features. First, it implements a greedy algorithm for determing alternative interpretations of the user's original pen drawing. Second, it introduces a user interface for selecting from these multiple candidate interpretations. Third, it implements a circle recognizer using a novel circle-detection algorithm and combines it with other hand-coded recognizers to provide a robust sketch recognition system.by Matthew J. Notowidigdo.M.Eng

What Good Is Wealth Without Health? The Effect of Health on the Marginal Utility of Consumption

We estimate how the marginal utility of consumption varies with health. To do so, we develop a simple model in which the impact of health on the marginal utility of consumption can be estimated from data on permanent income, health, and utility proxies. We estimate the model using the Health and Retirement Study’s panel data on the elderly and near-elderly, and proxy for utility with measures of subjective well-being. We find robust evidence that the marginal utility of consumption declines as health deteriorates. Our central estimate is that a one-standard deviation increase in the number of chronic diseases is associated with an 11 percent decline in the marginal utility of consumption relative to this marginal utility when the individual has no chronic diseases. The 95 percent confidence interval allows us to reject declines in marginal utility of less than 2 percent or more than 17 percent. Point estimates from a wide range of alternative specifications tend to lie within this confidence interval. We present some simple, illustrative calibration results that suggest that state dependence of the magnitude we estimate can have a substantial effect on important economic problems such as the optimal level of health insurance benefits and the optimal level of life-cycle savings.

Approaches to Estimating the Health State Dependence of the Utility Function

In this paper, we outline what we believe are the main possible approaches to estimating health state dependence. We distinguish two broad classes of empirical approaches: approaches based on individuals’ revealed demand for moving resources across health states, and approaches based on observed utility changes associated with health changes for individuals of different consumption or resource levels. We discuss the appeals and challenges of each, in turn. Our basic conclusion is that while none of these approaches is a panacea, many offer the potential to shed important insights on the nature of health state dependence.U.S. Social Security Administration (grant #10-P-98363-1-05