Greg Kaplan

Moving Back Home: Insurance against Labor Market Risk

This paper demonstrates that the option to move in and out of the parental home is a valuable insurance channel against labor market risk, which facilitates the pursuit of jobs with the potential for high earnings growth. Using monthly panel data, I document an empirical relationship among coresidence, individual labor market events, and subsequent earnings growth. I estimate the parameters of a dynamic game between youths and parents to show that the option to live at home can account for features of aggregate data for low-skilled young workers: small consumption responses to shocks, high labor elasticities, and low savings rates.

The Wealthy Hand-to-Mouth

The “wealthy hand-to-mouth” are households that hold little or no liquid wealth, whether in cash or in checking or savings accounts, despite owning sizable amounts of illiquid assets (assets that carry a transaction cost, such as housing or retirement accounts). We use survey data on household portfolios for the United States, Canada, Australia, the United Kingdom, Germany, France, Italy, and Spain to document the share of such households across countries, their demographic characteristics, the composition of their balance sheets, and the persistence of hand-to-mouth status over their life cycle. The portfolio configuration of the wealthy hand-to-mouth suggests that these households may have a high marginal propensity to consume out of transitory income changes, a prediction for which we find empirical support in PSID data. We explain the implications of this group of consumers for macroeconomic modeling and fiscal policy analysis.

Interstate Migration Has Fallen Less than You Think: Consequences of Hot Deck Imputation in the Current Population Survey

We show that much of the recent reported decrease in interstate migration is a statistical artifact. Before 2006, the Census Bureau’s imputation procedure for dealing with missing data in the Current Population Survey inflated the estimated interstate migration rate. An undocumented change in the procedure corrected the problem starting in 2006, thus reducing the estimated migration rate. The change in imputation procedures explains 90% of the reported decrease in interstate migration between 2005 and 2006, and 42% of the decrease between 2000 (the recent high-water mark) and 2010. After we remove the effect of the change in procedures, we find that the annual interstate migration rate follows a smooth downward trend from 1996 to 2010. Contrary to popular belief, the 2007–2009 recession is not associated with any additional decrease in interstate migration relative to trend.

Higher Education Funding Reforms in England: The Distributional Effects and the Shifting Balance of Costs*

This article undertakes a quantitative analysis of substantial reforms to the system of higher education (HE) finance in England, first announced in 2004 and revised in 2007. The reforms introduced deferred fees for HE, payable by graduates through the tax system via income-contingent repayments on loans subsidised by the government. The article uses lifetime earnings simulated by the authors to consider the likely distributional consequences of the reforms for graduates. It also considers the costs of the reforms for taxpayers, and how the reforms are likely to shift the balance of funding for HE between the public and private sectors.

Inequality and the life cycle

I structurally estimate an incomplete markets life-cycle model with endogenous labor supply using data on the joint distribution of wages, hours, and consump- tion. The model is successful at matching the evolution of both the first and sec- ond moments of the data over the life cycle. The key challenge for the model is to generate declining inequality in annual hours worked over the first half of the working life, while respecting the constraints imposed by the data on consump- tion and wages. I argue that this is a robust feature of the data on life-cycle labor supply that is strongly at odds with the intratemporal first-order condition for la- bor. Allowing for a realistic degree of involuntary unemployment, coupled with preferences that feature nonseparability in the disutility of the extensive and in- tensive margins of hours worked, allows the model to overcome this challenge. The results imply that labor market frictions are important in jointly account- ing for observed cross-sectional inequality in labor supply and consumption, and may have quantitative relevance for analyses that exploit the intratemporal first- order condition for labor. Keywords. Inequality, life cycle, hours worked, intensive and extensive labor sup- ply, structural estimation, precautionary savings. JEL classification. C13, D21, E21, E24, J22.

Inequality and the Lifecycle

This paper investigates the sources of cross-sectional differences in consumption, labor supply, wealth and welfare over the lifecycle. I document the existence of rich and informative lifecycle patterns in the joint distribution of wages, hours, consumption and wealth. I then estimate a structural model of precautionary savings with endogenous labor supply and uninsurable wage risk in an attempt to assess the ability of the standard incomplete markets model to simultaneously account for the various dimensions of lifecycle inequality. I find that in many dimensions the model provides a coherent explanation. However, the combination of certain features of the data provides an inherent challenge for this class of models. Structural estimates of parameter values are obtained using Monte-Carlo Markov Chain techniques. These are then used to decompose inequality at different points in the lifecycle into differences in preferences, differences in initial wealth endowments, differences in fixed labor productivity and the accumulated effects of shocks realized after entry to the labor market. I find that around 40% of the cross-sectional differences in lifetime welfare are due to fixed skills and around 60% are due to lifecycle productivity shocks. Differences in financial wealth endowments, however, account for almost none of the inequality in lifetime welfare.

Human capital values and returns: Bounds implied by earnings and asset returns data

We provide theory for calculating bounds on both the value of an individual[modifier letter apostrophe]s human capital and the return on an individual[modifier letter apostrophe]s human capital, given knowledge of the process governing earnings and financial asset returns. We calculate bounds using U.S. data on male earnings and financial asset returns. The large idiosyncratic component of earnings risk implies that bounds on values and returns are quite loose. However, when aggregate shocks are the only source of earnings risk, both bounds are tight.

The Money Value of a Man

This paper posits a notion of the value of an individual’s human capital and the associated return on human capital. These concepts are examined using U.S. data on male earnings and financial asset returns. We decompose the value of human capital into a bond, a stock and a residual value component. We find that (1) the bond component of human capital is larger than the stock component at all ages, (2) the value of human capital is far below the value implied by discounting earnings at the risk-free rate, (3) mean human capital returns exceed stock returns early in life and decline with age and (4) human capital returns and stock returns have a small positive correlation over the working lifetime.

The Housing Boom and Bust: Model Meets Evidence

We build a model of the U.S. economy with multiple aggregate shocks (income, housing finance conditions, and beliefs about future housing demand) that generate fluctuations in equilibrium house prices. Through a series of counterfactual experiments, we study the housing boom and bust around the Great Recession and obtain three main results. First, we find that the main driver of movements in house prices and rents was a shift in beliefs. Shifts in credit conditions do not move house prices but are important for the dynamics of home ownership, leverage, and foreclosures. The role of housing rental markets and long-term mortgages in alleviating credit constraints is central to these findings. Second, our model suggests that the boom-bust in house prices explains half of the corresponding swings in non-durable expenditures and that the transmission mechanism is a wealth effect through household balance sheets. Third, we find that a large-scale debt forgiveness program would have done little to temper the collapse of house prices and expenditures, but would have dramatically reduced foreclosures and induced a small, but persistent, increase in consumption during the recovery.

When Inequality Matters for Macro and Macro Matters for Inequality

We develop an efficient and easy to use computational method for solving a wide class of general equilibrium heterogeneous agent models with aggregate shocks together with an open source suite of codes that implement our algorithms in an easy to use toolbox. Our method extends standard linearization techniques and is designed to work in cases when inequality matters for the dynamics of macroeconomic aggregates. We present two applications that analyze a two asset incomplete markets model parameterized to match the distribution of income, wealth, and marginal propensities to consume. First, we show that our model is consistent with two key features of aggregate consumption dynamics that are difficult to match with representative agent models: (1) the sensitivity of aggregate consumption to predictable changes in aggregate income, and (2) the relative smoothness of aggregate consumption. Second, we extend the model to feature capital-skill complementarity and show how factor-specific productivity shocks shape dynamics of income and consumption inequality.