Eric French

Why Do the Elderly Save? The Role of Medical Expenses

This paper constructs a rich model of saving for retired single people. Our framework allows for bequest motives and heterogeneity in medical expenses and life expectancies. We estimate the model using AHEAD data and the method of simulated moments. The data show that out-of-pocket medical expenses rise quickly with both age and permanent income. For many elderly people the risk of living long and requiring expensive medical care is a more important driver of old age saving than the desire to leave bequests. Social insurance programs such as Medicaid rationalize the low asset holdings of the poorest. These government programs, however, also benefit the rich because they insure them against their worst nightmares about their very old age: either not being able to afford the medical care that they need, or being left destitute by huge medical bills.

On the distribution and dynamics of health care costs

Using data from the Health and Retirement Survey (HRS) and Assets and Health Dynamics of the Oldest Old (AHEAD), this paper presents estimates of the stochastic process that determines both the distribution and dynamics of health costs. We nd that the data generating process for health costs is well represented by an ARMA(1,1). Furthermore, innovations to this process are close to lognormally distributed. In any given year, .1% of our sample receives a health cost shock that costs at least

The Effect of Disability Insurance Receipt on Labor Supply

80,000 in present value. Lastly, we discuss the accuracy of numerical solutions when integrating over health costs. Assuming lognormality, simple approximation rules work well.

The Minimum Wage, Restaurant Prices, and Labor Market Structure

This paper exploits the effectively random assignment of judges to Disability Insurance cases to estimate the causal impact of Disability Insurance receipt on labor supply. We find that benefit receipt reduces labor force participation by 26 percentage points three years after a disability determination decision, although the reduction is smaller for older people, college graduates, and those with mental illness. OLS and instrumental variables estimates are similar. Furthermore, over 60 percent of those denied benefits by an administrative law judge are subsequently allowed benefits within ten years, showing that most applicants apply, reapply, and appeal until they get benefits.

Life Expectancy and Old Age Savings

Using store-level and aggregated Consumer Price Index data, we show that restaurant prices rise in response to minimum wage increases under several sources of identifying variation. We introduce a general model of employment determination that implies minimum wage hikes cause prices to rise in competitive labor markets but potentially fall in monopsonistic environments. Furthermore, the model implies employment and prices are always negatively related. Therefore, our empirical results provide evidence against the importance of monopsony power for understanding small observed employment responses to minimum wage changes. Our estimated price responses challenge other explanations of the small employment response, too.

The Effect of Part‐Time Work on Wages: Evidence from the Social Security Rules

Rich people, women, and healthy people live longer. We document that this heterogeneity in life expectancy is large, and we use an estimated structural model to assess its effect on the elderlys saving. We find that the differences in life expectancy related to observable factors such as income, gender, and health have large effects on savings, and that these factors contribute by similar amounts. We also show that the risk of outliving ones expected lifespan has a large effect on the elderlys saving behavior.

The labor supply response to (mismeasured but) predictable wage changes

This paper presents estimates of the part-time wage effect. It also shows that failure to account for the part-time wage effect leads to a downward biased estimate of labor supply elasticities of interest. Using three different datasets, we show that both work hours and wages drop sharply at ages 62 and 65. The Social Security rules produce strong incentives to reduce work hours at these ages. We present evidence that these sharp drops in work hours cause a drop in wages for men, although we find little evidence for a similar effect among women. Estimates indicate that, holding all else equal, cutting the workweek from 40 to 20 hours results in roughly a 25 percent wage penalty for male workers at these older ages. Given these estimates, the labor supply response to a tax change, for example, is downward biased by about 26 percent.

Medical Spending of the US Elderly

Problems with measurement error have led many researchers to criticize panel data studies of intertemporal labor supply. In this study I address the measurement error problems explicitly. I estimate the properties of measurement error in the Panel Study of Income Dynamics Validation Study. I then use this information about measurement error to purge measurement error from the Panel Study of Income Dynamics. I show there exists a large transitory component to wages, even after accounting for measurement error. I then show that while wage changes may not be predictable, transitory wage changes predictably disappear. When estimating the labor supply response to these predictable wage changes, I account for serially correlated measurement error and for measurement error that is correlated with true hours and wages. I find almost no correlation between hours worked and predictable wage changes. Therefore, failure to control for measurement error cannot explain the low estimated labor supply elasticities in other papers.

The changing pattern of wage growth for low skilled workers

Abstract We use data from the Medicare Current Beneficiary Survey (MCBS) to document the medical spending of Americans aged 65 and older. We find that medical expenses more than double between ages 70 and 90 and that they are very concentrated: the top 10 per cent of all spenders are responsible for 52 per cent of medical spending in a given year. In addition, those currently experiencing either very low or very high medical expenses are likely to find themselves in the same position in the future. We also find that the poor consume more medical goods and services than the rich and have a much larger share of their expenses covered by the government. Overall, the government pays for over 65 per cent of the elderlys medical expenses. Despite this, the expenses that remain after government transfers are even more concentrated among a small group of people. Thus, government health insurance, while potentially very valuable, is far from complete. Finally, while medical expenses before death can be large, on average they constitute only a small fraction of total spending, both in the aggregate and over the life cycle. Hence, medical expenses before death do not appear to be an important driver of the high and increasing medical spending found in the US.

The Effects of Progressive Taxation on Labor Supply when Hours and Wages Are Jointly Determined

We examine the key components that determine an individuals early career wage growth and how these factors have changed for less skilled workers over the last twenty years. In particular, we examine the relative importance of accumulating work experience as compared to the quality of job matches in influencing wage growth. Our main finding is that over this period, the vast majority of the variation in wage growth is due to variability in the return to experience.