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Job Market Paper (Download a complete version in *.pdf)
"The Insurance Value of Progressive Taxation with Heterogeneous Risk Aversion"
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Investment in human capital is lower when the returns to it are subject to uninsurable risk. Progressive income taxation offers a degree of insurance against such risk. Offsetting this effect are the two well-known distortions imposed by progressive taxation: lower expected net-of-tax returns to human-capital acquisition and distortion of the labor-supply decision. The net efficiency effect of progressive income taxation is therefore ambiguous, but there is a presumption that some degree of progressivity can be welfare-improving for risk-averse individuals. To derive the degree of progressivity that may be desirable on efficiency grounds, I
construct a general-equilibrium model of an economy with two sectors, calibrated to approximate the U.S. labor market, that differ in terms of the productivity of human capital and the variability of lifetime earnings. Individuals, who differ only in terms of their risk aversion, sort themselves into the two sectors. The simple version of this model, which ignores the labor-leisure choice, suggests that a relatively high degree of income-tax progressivity maximizes aggregate welfare as measured by workers’ willingness to pay for the insurance being provided. When each workers’ supply of labor is allowed to vary in response to marginal tax rates, the efficient degree of progressivity is similar to that of the U.S. tax code.
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Working Paper
"Worker Quality, Wages and the Education Premium in the United States, 1980-2005"
(Download a complete version in *.pdf) under review
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The education premium in the U.S. has been increasing since the 1980s, but the rate of increase has slowed. One explanation for the slowdown is the decrease in the quality of workers who attended some college relative to the quality of workers who obtained a high school diploma. This paper develops a measure of worker quality to estimate the impact of college and high school graduates’ quality on wages and the education premium. The measure of worker quality uses a weighted average of an occupational skill index. I link occupational skill to the measurement of quality because the variance of college wages is increasing over time and is directly related to occupational choice. I find that a 1 percent increase in the quality of both high school and college graduates results in a 0.36 percent increase in the education premium, which is an economically meaningful change. One reason for the decline in the quality of college graduates comes from the increasing college enrollment over time. I find that a 1 percent increase in college enrollment leads to a decline in the quality of college graduates by 0.11 percent, and has nearly no effect on the quality of high school graduates.
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"Top-coded Earnings Using Non-Public Census Microdata" (with Chungsang Lam)
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Wage and salary earnings, above a particular value, are censored in the ACS, March CPS and Decennial Census. If authors use the top codes to represent real earnings value, it may lead to misleading results. We explore this issue by using RDC internal data, while focusing on wage and earnings variables. Others have addressed the issue of top-coding, and also used non-public data to develop various alternative multipliers, like 1.4 or 1.5. We improve on this research, which focuses on producing multipliers for the whole population, by developing multipliers that are demographic and region specific. It is not unreasonable to expect that the earnings distribution varies across racial, gender, and education dimensions, and even across geographies. These various adjustment factors will improve the usefulness of the Census Bureau public data for evaluating demographic, social, and economic issues that rely on information for very high earners.
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