Essays in Macroeconomics and Labor Economics

Abstract

This dissertation studies topics at the intersection of macroeconomics and labor economics, focusing on three areas: (1) inequality and intergenerational mobility, (2) macroeconomic crises and labor markets, and (3) employment effects of expansions of public healthcare. In Chapter I, I evaluate driving forces of trends in inequality and intergenerational mobility in the United States. Parents devote considerable resources towards their children's development, making trade-offs between time and education investments and working, consumption, and leisure. In recent decades, families in the United States experienced rising rates of single parenthood, increasing education prices, and changes to taxes and transfers, which altered available resources and trade-offs to investments across families. This chapter explores the implications of these trends for inequality and intergenerational mobility. After documenting changes in family resources and parental investments over time, I develop a dynastic model of human capital investment to quantify the contributions of these trends to increases in inequality and intergenerational persistence. I find that single parenthood is a major contributor through two channels: (1) less available time for single parents limits work hours, family income, and investments for their children’s human capital development and (2) the resulting lower human capital comes with a greater probability of becoming a single parent as an adult, as single parents tend to have less education and lower wages. Education prices, on the other hand, had only minimal effects as families reduce investments at similar rates in response to price increases. Moreover, changes to taxes and transfers had heterogeneous impacts on parental investments by producing differing income and substitution effects depending on family characteristics. The results highlight the importance of considering parental investments when designing assistance programs. In Chapter II, in joint work with Kevin Donovan, Will Jianyu Lu, and Todd Schoellman, we characterize how labor markets transmit aggregate shocks to idiosyncratic earnings risk experienced by households. This chapter uses both aggregate and micro data from quarterly labor force surveys to document four new findings about how they do so. First, the distribution of unemployment responses to recessions includes a long tail. In the most severe decile of recessions, unemployment rates rise by 5--20 percentage points and take 16--33 quarters to begin to recover. Second, there is a close relationship between these severe crises and a small set of shocks, including financial crises, house price busts, and sudden stops. Third, manufacturing and construction play a key role in all recessions, including crises, accounting for more than half of employment losses. Fourth, crises fall most on young and less-educated workers, who are likely to have low income and wealth and hence be less able to self-insure against idiosyncratic earnings risk. Taking into account both the large aggregate shocks and their incidence, the welfare costs of business cycles are likely to be larger than standard calculations imply. In Chapter III, in joint work with Sean Bassler, we measure the effect of Medicaid Expansion on the work arrangements of low-income adults. Before the expansion, many of these individuals only had access to subsidized health insurance through a traditional full-time job. After the expansion, they also had access to Medicaid, potentially allowing them to change their labor supply decisions. Using American Community Survey data, we built a sample of low-income adults who only had access to subsidized health plans through a typical full-time job or the Medicaid Expansion. Adults in the sample are childless, spouseless, non-disabled, and reside in states without confounding state-level policies. To identify the effect of newly-found Medicaid access on this sample, we use a difference-in-difference design from Callaway and Sant’Anna (2021). We find that the expansion had a statistically insignificant effect on the share of our sample in several labor market arrangements: traditional full-time employment, part-time employment, self-employment, unemployment, and not participating in the labor force. These results are robust to including pre-treatment covariates and adjustments to our underlying sample framework. We further decompose treatment effects into short- and long-term effects and find both are statistically insignificant. We conclude that Medicaid Expansion had a negligible impact on both the work arrangements for low-income workers.