Essays in Macroeconomics

Abstract

This thesis is composed of three separate essays. In the first essay of this thesis, I study the underlying mechanism behind the decision on living arrangements and household formation. The decisions to leave home and to marry are critical decisions that are at the foundation of family formation with tradeoffs between the benefits from parental altruism and the advantages of marriage. This research uses large-scale micro data on Japan to study both issues jointly. This paper proposes three possible drivers in the mechanism: (1) the strong economy of scale in Japan generated by high living cost, (2) the weak bargaining position of women on the living arrangements when they marry, and (3) the gender wage gap and the career interruption cost for women. The results suggest that high living cost discourage people to marry and live without parents and the bargaining structure encourage them to stay single and live with their own parents. The wage structure seems to have relatively weaker effects. In addition, the estimates on the preference suggest that individuals dislike living with parents-in-law and desire to leave parents' home, while marrying potential spouse is preferable. In the second essay of this thesis, Satoshi Tanaka and I study the implication of the child support enforcement (CSE) policy. The child support enforcement policies, aimed at protecting out-of-wedlock children from financial disadvantages, brought unexpected changes in individuals' marriage and fertility behaviors during the 1980s and the 1990s. Our estimates from state-year panel data show that in states with strict CSE there has been a significant decrease in non-marital births and a significant increase in marital births. Taking into account all these changes, what are the effects of CSE on children's welfare? To answer this question, we build a heterogeneous-agent model that features endogenous marriage and child-investment decisions. Exploiting the state-level variation in enforcement, we estimate it using the National Vital Statistics Report data. We find that men's increased willingness to marry is the driving force behind the shift from non-marital births to marital births. As evidence for the mechanism, we show that the number of marriages has risen in the states with strict CSE during the same period, consistent with the model's implication. Our model predicts that a large increase in child investment comes through a secondary effect of CSE: the shift from non-marital births to marital births increases child investment through its income effect. In the last essay of this thesis, Bernabe Lopez-Martin and I study the long-run consequences of recessions for young individuals and the impact of government taxation. Recessions generate large increases in youth unemployment rates and young unemployed workers suffer significant losses in terms of the expected present discounted value of their labor earnings. We build a life cycle model with on-the-job human capital accumulation and aggregate and idiosyncratic productivity shocks (extended to consider ex-ante heterogeneous workers). The unemployment rate for young workers is higher and we find an important quantitative impact of the tax-wedge (consistent with cross-country empirical estimates): in countries where the tax-wedge is higher, unemployment rates are amplified, particularly for young workers. We compute the long-term earnings losses of individuals that lose their job in different states of the economy and find that losses are bigger: (1) in worse aggregate states of the economy, (2) for younger individuals, (3) in economies with a higher tax wedge, (4) for ex-ante lower ability individuals.