Working Papers:
Federal Student Aid and College Premium
(Resubmission Macroeconomics Dynamics)
(Resubmission Macroeconomics Dynamics)
Since the 1970s, there has been a strong increase in the college premium. This paper explores federal student aid (FSA) as a possible source of inequality. I build an education selection model where each high-school graduate chooses either to attend college first or start work immediately. His choice is largely determined by his three initial characteristics: human capital, innate ability, and family endowments. The human capital production function in college requires two inputs: human capital and goods. The choice of goods input is influenced by his budget constraint. Using the budget constraint, I bring in the legislative aspect of FSA and establish ‘need’ in the model context. This modeling of FSA is novel and it is important because (1) FSA is a need-based program (2) from the perspective of need, the true subsidy rate is a larger number. A calibrated version of the model delivers the correct college premium and FSA has a negative effect on college premium.
Economies of Scale within a Family and Marriage Premium
(Preliminary Draft coming soon!)
(Preliminary Draft coming soon!)
Using Census data, I build synthetic cohorts and track average annual real earnings for married and never-married men at ages 25, 35, 45, and 55. I find that for all cohorts, marriage premium across the life cycle is v-shaped with the lowest point at age 35. I build a theory base on economies of scale to explain the source of marriage premium. The marriage union provides gain for the couple because the cost of providing home goods for two people is cheaper than providing for them separately. Therefore the time saved from home production contributes to men becoming more efficient on the labor market. The variations across age is explained by couples having children. Child investment requires time. Therefore, time spent working and human capital accumulation has to be cut back. This explains the dip in marriage premium at age 35. When children leave the household, time spend on child care is eased and marriage premium goes back up. To understand the causal mechanism, I construct a structural model to mimic the interaction within the married household. The model is able to generate the v-shape in life-cycle marriage premium for both men and women.
Publications:
Explaining Cross-Cohort Difference in Life Cycle Earnings (Joint with B. Ravikumar and Guillaume Vandenbroucke)
(European Economic Review, Vol. 107 (Aug 2018), p157-184)
(European Economic Review, Vol. 107 (Aug 2018), p157-184)
College-educated workers entering the labor market in 1940 experienced a 4-fold increase in their labor earnings between the ages of 25 and 55; in contrast, the increase was 2.6-fold for those entering the market in 1980. For workers without a college education these figures are 3.6-fold and 1.5-fold, respectively. Why are earnings profiles flatter for recent cohorts? We build a parsimonious model of schooling and human capital accumulation on the job and calibrate it to earnings statistics of workers from the 1940 cohort. The model accounts for 99 percent of the flattening of earnings profiles for workers with a college education between the 1940 and the 1980 cohorts (52 percent for workers without a college education). The flattening in our model results from a single exogenous factor: the increasing price of skills. The higher skill price induces (i) higher college enrollment for recent cohorts and thus a change in the educational composition of workers and (ii) higher human capital at the start of work life for college-educated workers in the recent cohorts, which implies lower earnings growth over the life cycle.