Theses Doctoral

Essays on Economic Inequality

Prados, María José

This dissertation consists of three chapters on different aspects of economic inequality. In the first chapter, I study the aggregate implications of health risk and access to health care. At the individual level, health influences earnings potential, while income affects access to medical care. I investigate how this interaction shapes the joint dynamics of inequality in health and earnings over the life cycle, and I measure the redistributive impact of policies that improve access to health care. For that, I introduce health shocks and health care spending in an incomplete markets model with heterogeneous agents. Earnings risk is partially determined within the model due to the health-income feedback, and negative shocks may drive agents into a low income-low health trap, thus magnifying inequality along the life cycle. I estimate the process for health shocks and I calibrate the key parameters of the model using survey data. The calibrated model successfully reproduces the joint dynamics in health and earnings inequality in the life cycle. Like in the data, it predicts that life cycle inequality in health is driven by a sharp decline in health status for the lowest percentiles of the health distribution. I find that the health-income feedback accounts for 9 percent of total earnings inequality at retirement age as measured by the coefficient of variation of earnings, and that it increases by almost seven times the persistence of shocks to productivity. I also find that health care policies that facilitate access to health care have redistributive effects, mostly through earnings improvements for those at the bottom of the earnings distribution.
The second chapter, joint with Stefania Albanesi, studies the connection between recent trends in earnings inequality and the behavior of labor supply of married women in the U.S. The entry of married women into the labor force and the rise in women's relative wages are amongst the most notable economic developments of the twentieth century. These phenomena were particularly pronounced in the 1970s and 1980s, when participation of married women grew from 38\% in 1975 to a peak of 60\% in 1996 and the male to female ratio in hourly wages dropped from 1.60 to 1.34. Since the early 1990s, the growth in these indicators has stalled, especially for college graduates. This development is puzzling in light of the continued rise in women's educational investments relative to men and their entry into professional occupations. In this paper, we link the decline in married women's participation and wages relative to trend since the early 1990s to the growth of the skill premium, which substantially accelerated in those years. Our hypothesis is that the growth in wages for highly educated men generated a negative wealth effect on the labor supply of their female spouses, reducing their labor supply and their wages relative to men. Disaggregated evidence on skill premia by gender, gender wage gaps by education and labor force participation of wives provides descriptive support for this mechanism. Specifically, starting in the early 1990s, the growth in the skill premium was lower for women, while convergence in wages across gender slowed more for college graduates. Finally, participation of married women declined starting in the early 1990s especially for college women, women married to men with a college degree or to men in the top percentiles of the earnings distribution. We develop a model of household labor supply which can qualitatively reproduce a negative effect on wives' participation of a rise in husbands' earnings. We show that a calibrated version of the model can account for more than half the decline relative to trend in married women's participation in 1995-2005, and more than two thirds for college women. The model can also account for one third of the rise in the gender wage gap for college graduates relative to trend in the same period.
In the third chapter I study the dynamics of earnings risk and inequality over the life cycle for women, and document the gender differences in earnings stochastic processes faced by workers. Female workers have a weaker average attachment to the labor force than their male counterparts, and career interruptions have an impact on earnings. Therefore, it is to be expected that the average earnings process differ by gender, and in this paper I study if this is the case. The main empirical gender asymmetries I find in the profiles of earnings are: i) inequality is lower amongst women than amongst men, ii) inequality peaks twice over the life cycle for women: once during the fertile years, and the again later at retirement age, iii) the differences in inequality evolution between educational groups are larger for men than for women. I estimate the statistical properties of the earnings process, with and without heterogeneity in age profiles, and find that the specification without profile heterogeneity seems to fit the female workers dynamics better.



More About This Work

Academic Units
Thesis Advisors
Salanie, Bernard
Ph.D., Columbia University
Published Here
January 6, 2014