Labor Supply and Life-Cycle Risk

Technological and social changes in recent decades have affected the economic risks people face over their lives and their ability to work to earn money and insure against such risks. This dissertation examines two such shifts: the increasing age-friendliness of work and women’s increasing attachment to the labor force. The first chapter examines the labor force participation of older Americans, which has been increasing since the 1990s. I measure the contribution of the changing nature of American work to the increase in older labor force participation, its impacts on the distribution of welfare at older ages, and implications for Social Security policy. Using the relationship in the Health and Retirement Study between occupation in one’s early 50s and later labor force participation, I find that 10-16% of the increase from 1990 to 2010 in the labor force participation of 60-to-69-year-old men can be explained by changes in occupation characteristics, while this amount is 5.8-9% for women. Exploiting differential changes in occupation characteristics across commuting zones and using the commuting zone’s predicted routineness in 1950 as an instrument, I confirm there is a causal relationship between occupation characteristics and old-age labor force participation. Estimating a structural model of male old-age labor supply with occupation difference, I find that men face a higher disutility of work from more physical occupations. As a result, in my model, raising the retirement age is especially harmful for low-income workers because it induces those in the most physical jobs to continue working.

The second chapter, which is joint work with Altonji, Hysnjö, and Vidangos, studies Americans’ family income. We estimate a dynamic model of the family income that individuals in the baby boom cohort experienced over their adult lives. We use the model to measure the dynamic responses of marital status, earnings, and family income to various labor market shocks, education, and permanent wage heterogeneity. We also provide gender-specific estimates of the contribution of education, permanent wages, labor market shocks, spouse characteristics, spouse wage shocks, and marital histories to the variance of family income by age and over a lifetime. For both the dynamic responses and the variance decompositions, we isolate the importance of effects on marriage probabilities and spouse characteristics (sorting). Marital status has a much larger effect on family income for women than men, while labor market shocks are more important for men than for women. Marital sorting plays a major role in the return to education and permanent wages, especially for women. Marital sorting on education and the wage components substantially increases the family income variance, especially for women. Random variation in marital histories accounts for 25.9% of the variance in lifetime family income for women and 7.5% for men.

The third chapter, which is also joint work with Altonji, Hysnjö, and Vidangos,
builds on the second chapter by studying how the dynamics and sources of variation
for family income have changed across cohorts. To do so, we augment the model
from the second chapter to allow for differences across cohorts and use more data and
cohorts to estimate it. We find that gender asymmetries are substantially smaller for
more recent cohorts. The decline reflects the increase in the labor supply of married
women as well as other changes. We also find that own characteristics have become
increasingly important in the determination of lifetime family income for women,
while variation in spouse characteristics has become less important. The opposite is
true for men. Gender differences in the sources of inequality in lifetime family income
have narrowed.