On the Persistence of Income Shocks over the Life Cycle: Evidence, Theory, and Implications,Second Version

How does the persistence of earnings change over the life cycle? Do workers at different ages face the same variance of idiosyncratic shocks? This paper proposes a novel specification for residual earnings that allows for an age profile in the persistence and variance of labor income shocks. We show that the statistical model is identified and estimate it using PSID data. We find that shocks to earnings are only moderately persistent (around 0:75) for young workers. Persistence rises with age up to unity until midway in life. The variance of persistent shocks exhibits a U-shaped profile over the life cycle (with a minimum of 0:01 and a maximum of 0:05). These results suggest that the standard specification in the literature (with constant persistence and variances) cannot capture the earnings dynamics of young workers. We also argue that a calibrated job turnover model can account for these non-at profiles. The key idea is that workers sort into better jobs and settle down as they age; in turn, magnitudes of wage growth rates decline, thereby decreasing variance of shocks. Furthermore the decline in job mobility results in higher persistence. Finally, we investigate the implications of age profiles for consumption-savings behavior. The welfare cost of idiosyncratic risk implied by the age-dependent income process is 34 percent lower compared with its age-invariant counterpart. This difference is mostly due to a higher degree of consumption insurance for young workers, for whom persistence is moderate. These results suggest that age profilles of persistence and variances should be taken into account when calibrating life-cycle models.Idiosyncratic income risk, Incomplete markets models, Earnings persistence, onsumption insurance

On the Persistence of Income Shocks over the Life Cycle: Evidence and Implications, Second Version

How does the persistence of earnings change over the life cycle? Do workers at different ages face the same variance of idiosyncratic shocks? This paper proposes a novel specification for residual earnings that allows for a lifetime profile in the persistence and variance of labor income shocks. We show that the statistical model is identified and estimate it using PSID data. We strongly reject the hypothesis of a at life-cycle profile for persistence and variance of persistent shocks, but not for the variance of transitory shocks. Shocks to earnings are only moderately persistent (around 0.75) for young individuals. Persistence rises with age up to unity until midway in life. On the other hand, the variance of persistent shocks exhibits a Ushaped profile over the life cycle (with a minimum of 0.01 and a maximum of 0.045). Our estimate of persistence, for most of the working life, is substantially lower than typical estimates in the literature. We investigate the implications of these profiles for consumption-savings behavior with a standard life-cycle model. The welfare cost of idiosyncratic risk implied by the age-dependent income process is 32% lower compared to an AR(1) process without age profiles. This is mostly due to a higher degree of consumption insurance for young workers, for whom persistence is moderate. We conclude that the welfare cost of idiosyncratic risk will be overstated if one does not account for the age profiles in the persistence and variance of shocks.: Idiosyncratic income risk, Incomplete markets models, Earnings persistence, Consumption insurance

On the Persistence of Income Shocks over the Life Cycle: Evidence and Implications

This paper proposes a novel specification for residual earnings that allows for a lifetime profile in the persistence and variance of labor income shocks. We show theoretically that the statistical model is identified and estimate it using data from the PSID. We strongly reject the hypothesis of a flat life-cycle profile for persistence and variance of persistent shocks, but not for the variance of transitory shocks. Shocks to earnings are only moderately persistent (around 0.75) for young individuals. Persistence rises with age up to unity until midway in life and decreases to around 0.95 toward the end of the life cycle. On the other hand, the variance of persistent shocks exhibits a U-shaped profile over the life cycle (with a minimum of 0.01 and a maximum of 0.045). Our estimate of persistence, for most of the working life, is substantially lower than typical estimates in the literature. We investigate the implications of these profiles for consumption-savings behavior with a standard life-cycle model. Under natural borrowing limits, the welfare cost of idiosyncratic risk implied by the age dependent income process is 32% lower compared to an AR(1) process without age profiles. This is mostly due to a higher degree of consumption insurance for young workers, for whom persistence is moderate. The results hold qualitatively for an economy with no borrowing, although the difference between specifications is smaller (23%). We conclude that the welfare cost of idiosyncratic risk is overstated.Idiosyncratic income risk, Incomplete markets models, Earnings persistence, Consumption insurance

Essays on the Macroeconomics of Income Inequality

This thesis consists of three chapters, each of which focuses on different aspects of economic inequality. First, we investigate the differences in wage inequality between the United States and continental European countries (CEU). Wage inequality has been significantly higher in the US compared to the CEU since the 1970s. Moreover, this inequality gap has further widened in the last three decades. We study the role of redistributive institutions, particularly progressive income tax policies, in understanding these facts in a human capital accumulation setting. Second, we focus on statistical modeling of labor income risk over the life cycle. Using the PSID data, we estimate a novel specification for idiosyncratic income risk that allows for both the persistence and variance of earnings shocks vary by age. We find, contrary to the previous literature, that persistence is only moderate for young workers (around 0.70) and variance of persistence shocks follows a pronounced U-shaped pattern over the life cycle. These non-flat profiles have significant welfare implications. Third, we study differences in health care usage between low- and high-income households. We find that early in life the rich spend more on health care, whereas midway through life until old age medical spending of the poor exceeds that of the rich. We explain these differences using life-cycle model of health capital. We then use the model to evaluate the recent health care reform in the US. We find that policies encouraging the use of health care by the poor early in life have significant welfare gains

Taxation of human capital and wage inequality: a cross-country analysis

Wage inequality has been significantly higher in the United States than in continental European countries (CEU) since the 1970s. Moreover, this inequality gap has further widened during this period as the US has experienced a large increase in wage inequality, whereas the CEU has seen only modest changes. This paper studies the role of labor income tax policies for understanding these facts. We begin by documenting two new empirical facts that link these inequality differences to tax policies. First, we show that countries with more progressive labor income tax schedules have significantly lower before-tax wage inequality at different points in time. Second, progressivity is also negatively correlated with the rise in wage inequality during this period. We then construct a life cycle model in which individuals decide each period whether to go to school, work, or be unemployed. Individuals can accumulate skills either in school or while working. Wage inequality arises from differences across individuals in their ability to learn new skills as well as from idiosyncratic shocks. Progressive taxation compresses the (after-tax) wage structure, thereby distorting the incentives to accumulate human capital, in turn reducing the cross-sectional dispersion of (before-tax) wages. We find that these policies can account for half of the difference between the US and the CEU in overall wage inequality and 76% of the difference in inequality at the upper end (log 90-50 differential). When this economy experiences skill-biased technological change, progressivity also dampens the rise in wage dispersion over time. The model explains 41% of the difference in the total rise in inequality and 58% of the difference at the upper end.Wages ; Human capital ; Taxation

Taxation of human capital and wage inequality: a cross-country analysis

Wage inequality has been significantly higher in the United States than in continental European countries (CEU) since the 1970s. Moreover, this inequality gap has further widened during this period as the US has experienced a large increase in wage inequality, whereas the CEU has seen only modest changes. This paper studies the role of labor income tax policies for understanding these facts. We begin by documenting two new empirical facts that link these inequality differences to tax policies. First, we show that countries with more progressive labor income tax schedules have significantly lower before-tax wage inequality at different points in time. Second, progressivity is also negatively correlated with the rise in wage inequality during this period. We then construct a life cycle model in which individuals decide each period whether to go to school, work, or be unemployed. Individuals can accumulate skills either in school or while working. Wage inequality arises from differences across individuals in their ability to learn new skills as well as from idiosyncratic shocks. Progressive taxation compresses the (after-tax) wage structure, thereby distorting the incentives to accumulate human capital, in turn reducing the cross-sectional dispersion of (before-tax) wages. We find that these policies can account for half of the difference between the US and the CEU in overall wage inequality and 76% of the difference in inequality at the upper end (log 90-50 differential). When this economy experiences skill-biased technological change, progressivity also dampens the rise in wage dispersion over time. The model explains 41% of the difference in the total rise in inequality and 58% of the difference at the upper end.Wage inequality, human capital, skill-biased technical change, tax policies

Taxation of Human Capital and Wage Inequality: A Cross-Country Analysis

Wage inequality has been significantly higher in the United States than in continental European countries (CEU) since the 1970s. Moreover, this inequality gap has further widened during this period as the US has experienced a large increase in wage inequality, whereas the CEU has seen only modest changes. This paper studies the role of labor income tax policies for understanding these facts, focusing on male workers. We construct a life cycle model in which individuals decide each period whether to go to school, work, or stay non-employed. Individuals can accumulate skills either in school or while working. Wage inequality arises from differences across individuals in their ability to learn new skills as well as from idiosyncratic shocks. Progressive taxation compresses the (after-tax) wage structure, thereby distorting the incentives to accumulate human capital, in turn reducing the cross-sectional dispersion of (before-tax) wages. Consistent with the model, we empirically document that countries with more progressive labor income tax schedules have (i) significantly lower before-tax wage inequality at different points in time and (ii) experienced a smaller rise in wage inequality since the early 1980s. We then study the calibrated model and find that these policies can account for half of the difference between the US and the CEU in overall wage inequality and 84% of the difference in inequality at the upper end (log 90-50 differential). In a two-country comparison between the US and Germany, the combination of skill-biased technical change and changing progressivity of tax schedules explains all the difference between the evolution of inequality in these two countries since the early 1980s.

Use of analgesics in adults with pain complaints: prevalence and associated factors, Turkey

OBJECTIVE: Use of analgesics has been increasingly recognized as a major public health issue with important consequences in Turkey. The objective of the study was to determine the prevalence and patterns of analgesics usage and associated factors in adults with pain complaints. METHODS: A cross-sectional study was conducted in 15 cities selected from five demographic regions in Turkey. The study sample population comprised 1.909 adults 18-65 age groups suffering from pain. The sampling method was multi-step stratified weighted quota-adjusted sampling. Data were collected by face-to-face interviews using a semi-structured survey questionnaire consisting of 28 questions. Odds ratios were produced by logistic regression analyses. RESULTS: The prevalence of analgesic use was 73.1%, and it was higher in females (75.7%; pOBJETIVO: El uso de analgésicos ha sido reconocido como el mayor problema de salud pública con importantes consecuencias en Turquía. El objetivo del estudio fue determinar la prevalencia y patrones de uso de analgésicos y factores asociados en adultos que padecen de dolores. MÉTODOS: Se condujo un estudio transversal en 15 ciudades seleccionadas de cinco regiones demográficas en Turquía. La muestra poblacional comprendió 1.909 adultos agrupados en edades entre 18-65 años que sufrían de dolor. Se realizó un muestreo multi-etapa estratificado ajustado. Los datos fueron colectados en entrevistas cara a cara usando un cuestionario semi-estructurado que consistía de 28 preguntas. Los Odds ratio fueron obtenidos por análisis de regresión logística. RESULTADOS: La prevalencia en el uso de analgésicos fue de 73,1% y fue superior en mujeres (75,7%; pOBJETIVO: O uso de analgésicos tem sido amplamente reconhecido com um grande problema de saúde pública com importantes conseqüências na Turquia. O objetivo do estudo foi determinar a prevalência e os padrões de uso de analgésicos por adultos e os fatores associados às queixas de dores. MÉTODOS: Estudo transversal conduzido em 15 cidades selecionadas de cinco regiões demográficas da Turquia. A amostra estudada incluiu grupos etários de 1.909 adultos (18-65 anos) que sofrem de dores. O método de amostragem seguiu estratificação com pesos ajustados para cada estrato amostrado. Os dados foram coletados em entrevistas face-a-face, usando um questionário de levantamento semi-estruturado, composto por 28 questões. Foram calculados os odds raios por meio de regressão logística. RESULTADOS: A prevalência de uso de analgésicos foi de 73,1%, sendo significativamente (

Taxation of Human Capital and Cross-country Trends in Wage Inequality *

Abstract Since the 1970's, wage inequality has been consistently higher in the U.S. and the U.K. than in most continental European countries (CEU). Furthermore, this "inequality gap" has further widened during this period as the U.S. and the U.K. have experienced large increases in wage inequality, whereas CEU countries have seen only modest changes. This paper studies the role of labor income tax policies in explaining these different trends. We begin by documenting two new empirical facts that link these inequality trends to tax policies. First, we show that countries with a more progressive labor income tax schedule have significantly lower before-tax wage inequality at different points in time. Second, progressivity is also negatively correlated with the rise of wage inequality during this period. We next construct a life-cycle model in which individuals decide each period whether to go to school, to work, or to be unemployed. Individuals can accumulate skills either in school or while working. Wage inequality arises from differences across individuals in their ability to learn new skills as well as from idiosyncratic shocks. Progressive taxation compresses the wage structure, thereby distorting the incentives to accumulate human capital, in turn reducing the cross-sectional dispersion of wages. Furthermore, these effects of progressivity are compounded by differences in average labor income tax rates: the higher taxes in the CEU reduces labor supply-and, thus, the benefit of human capital investmentsfurther compressing the wage structure. When this economy experiences skill-biased technical change (SBTC), progressivity also dampens the rise in wage dispersion over time. We find that differences in tax policies can account for 44% of the difference in the level of, and 61% of the rise in, wage inequality between US-UK and the CEU since 1980

CEO turnover and corporate performance relationship in pre- and post- IFRS period: evidence from Turkey

This study investigates CEO turnover and corporate performance relationship as a measure of the effectiveness of a corporate governance system. The impact of different financial accounting regimes on the turnover/performance relationship is also analyzed. If systems replace poorly performing managers, they are considered as not ineffective. The results provide evidence that corporate governance systems with poor governance characteristics may not be ineffective, due to the existence of alternative governance mechanisms. The disciplinary CEO turnover is found to be more strongly associated with corporate performance compared to voluntary CEO turnover, whereas in the IFRS subsample the relationship is stronger with contemporaneous performance measures