Stephen A. Woodbury

Taxes, Fringe Benefits and Faculty

The growth of employee benefits in academe has closely paralleled their economy-wide growth. This study estimates a complete system describing the demand for benefits and wages using panel data on 1477 institutions of higher learning. the demand for benefits is very responsive to changes in real income and the tax price of benefits. These conclusions are robust with respect to varying definitions of the tax price, treating it as endogenous, and accounting for unmeasured individual effects on demand. Simulations suggest that the Tax Reform Act of 1986 sharply reduced the demand for benefits. Extrapolating the impact to the entire economy, the annual flow of compensation shifted away from benefits by at least

Culture and Human Capital: Theory and Evidence or Theory Versus Evidence?

15 billion. Copyright 1992 by MIT Press.

Search Theory and Unemployment

The economic analysis of wages took a variety of new turns during the 1980s, but none more important than the reinterpretation of wage gaps that were once viewed as discriminatory. At the beginning of the ’80s, wage gaps between minority groups and whites that could not be explained by differences in observable characteristics—such as years of schooling or experience in the labor market—were widely attributed to discrimination. By the end of the decade these unexplained wage gaps were being viewed as a reflection of underlying unobservable differences in human capital or “culture”.

Economics, economists, and public policy

1. Search Theory And Unemployment: An Introduction C. Davidson, S.A. Woodbury. 2. Search Theory Rediscovered: Recent Development in the Macroeconomics of the Labour Market M. Merz. 3. Searching, Bargaining, and the Business Cycle D.A. Black, M.A. Loewenstein. 4. Search Externalities in an Imperfectly Competitive Economy A. John. 5. Empirical Search Models J.J. Canals, S. Stern. 6. Variation in the Impact of Benefit Exhaustion on Unemployment Duration J.B. Engberg. 7. Other Arrivals Versus Acceptance T.J. Devine. 8. Optimal Unemployment Insurance with Risk Aversion and Job Destruction C. Davidson, S.A. Woodbury. 9. Macroeconomic Policy and the Theory of Job Search B.C. Fallick, W.L. Wascher. Index.

Retiree Health Benefit Coverage and Retirement

Abstract This article examines the role of economics and economists in shaping public policy by, first, examining the employment of economists in government, academe, and the private sector. In the United States, only a minority of Ph.D. economists (about 12 percent) are employed in government, and several important departments of the federal government employ few economists. The article goes on to illustrate the pitfalls that economists face in assisting and advising with public policy by examining the adoption of statistical profiling in Unemployment Insurance. The article concludes that, if the economics profession and economic research are to be effective in shaping public policy, then academic economists must become more directly involved with policy makers in government and decision makers in business.

Health Insurance Tax Credits, the Earned Income Tax Credit, and Health Insurance Coverage of Single Mothers

Employer-provided health benefits for workers who retire before age 65 has fallen over the last decade. We examine a cohort of male workers from the Health and Retirement Survey to explore the dynamics of retiree health benefits and the relationship between retiree health benefits and retirement behavior. A better understanding of this relationship is important to the policy debate over the best way to increase health coverage for older Americans without reducing work incentives. Concerning the dynamics at work, we find that, between 1992 and 1996, 24 percent of full-time workers who had retiree health benefits lost their coverage, while 15 percent of full-time workers who lacked coverage gained it. Also, of the full-time employed men who were covered by retiree health benefits in 1992 and had retired by 1996, 3 percent were uninsured, and 15 percent were covered by health insurance other than employer-provided insurance. On the relationship between retiree health benefits and retirement, we find that workers with retiree benefits were 29 to 55 percent more likely to retire than those without. We also find that workers who are eligible for retiree health benefits tend to take advantage of them when they are relatively young.

Technology, Labor Interests and the Law: Some Fundamental Points and Problems

The Omnibus Budget Reconciliation Act of 1990 enacted a refundable tax credit for low-income working families who purchased health insurance coverage for their children. This health insurance tax credit (HITC) existed during tax years 1991, 1992, and 1993, and was then rescinded. A difference-in-differences estimator applied to Current Population Survey data suggests that adoption of the HITC, along with accompanying increases in the Earned Income Tax Credit (EITC), was associated with a relative increase of about 4.7 percentage points in the private health insurance coverage of working single mothers with high school or less education. Also, a difference-in-difference-in-differences estimator, which attempts to net out the possible influence of the EITC increases but which requires strong assumptions, suggests that the HITC was responsible for about three-quarters (3.6 percentage points) of the total increase. The latter estimate implies a price elasticity of health insurance take-up of -0.42.

Optimal Unemployment Insurance with Risk Aversion and Job Destruction

The symposium of which this essay is a part deals with technology and law with particular reference to the interests of workers. Perhaps needless to say but nonetheless important, each of the three topics — technology, law and worker in erests — has had a long history of controversy about factual or positive and normative considerations. It is not our intention, and certainly no our expectation, either to resolve the thorny issues involved in the three topics and their interconnections or to solve the difficult, complex and delicate policy problems through some concrete programme or panacea. It is our objective to identify the critical issues, something of what we know about them, and something of what is involved in any effort to work them out. We come, that is to say, neither to propose nor to render complete policy analysis of others’ proposals but to advise as to what is involved, inevitably, in any efforts somehow to reconcile, whether through law or otherwise, the conflicts between technology and labour interests.

Sources of Displaced Workers’ Long-Term Earnings Losses

This paper extends earlier research on optimal unemployment insurance (UI) by developing an equilibrium search model that encompasses simultaneously several theoretical and institutional features that have been treated one-by-one (or not at all) in previous discussions of optimal UI. In particular, the model developed determines both the optimal potential duration of UI benefits and the optimal UI benefit amount, assumes (realistically) that not all workers are eligible for UI benefits, allows examination of various degrees of risk aversion by workers, models labor demand so that the job destruction effects of UI are taken into account, and treats workers as heterogeneous. The model suggests that the current statutory replacement rate of 50 percent provided by most states in the United States is close to optimal, but that the current potential duration of benefits (which is usually 26 weeks) is probably too short. This main result—that the optimal UI system is characterized by a fairly low replacement rate and a long potential duration—conflicts with most of the existing literature on optimal UI. However, the result is consistent with a large literature on optimal insurance contracts in the presence of moral hazard.

Search Theory and Unemployment: An Introduction

We estimate the magnitudes of reduced earnings, work hours, and wage rates of workers displaced during the Great Recession using linked employer-employee panel data from Washington State. Displaced workers’ earnings losses occurred mainly because hourly wage rates dropped at the time of displacement and recovered sluggishly. Lost employer-specific premiums explain only 17 percent of these losses. Fully 70 percent of displaced workers moved to employers paying the same or higher wage premiums than the displacing employers, but these workers nevertheless suffered substantial wage rate losses. Loss of valuable specific worker-employer matches explain more than half of the wage losses.