Working Papers

Parental Choices and the Labor Market Outcome of Children   [PDF]

(Job Market Paper)

This paper investigates the dynamics of the effect of parental behavior on the labor market outcome of children and provides a framework for evaluating several policies in an inter-generational context. I focus on the ultimate effect of parental behavior on how children perform once they enter the labor market rather than on the more widely studied effect on children's cognitive achievement. Using the Panel Study of Income Dynamics, I find that the family disruption and parents' labor market supply play significant roles in determining the future wage of children. Based on this finding, I analyze the choices of parents using a dynamic structural model in which forward looking agents make decisions about labor supply, fertility and family disruption. Parents adjust their behavior taking into consideration not only their own preferences but also the effect these decisions have on the labor market outcomes of their children. The recovered preferences are used to conduct policy experiments that evaluate the effects of a baby bonus, a marriage bonus, a parental training program and changes in the generational incidence of taxes. The results imply that the marriage bonus and the parental training program are effective policies to enhance both the quantity and quality of the next generation while a cash grant for a child birth is less effective. Deficit financing alters the behavior of parents in a way that could potentially undo the benefits of these policies.

Family Structure and Labor Market Outcome: Estimating a Dynamic Game

(with George-Levi Gayle and Robert A. Miller)

This paper examines how cohabitation and family structure patterns affect human capital accumulation and the resulting labor market outcome. Instead of taking spouse's decisions as given, we present a dynamic noncooperative game between spouses over the choices of labor supply and child bearing. The model also includes singles who solve a single-agent optimization problem. To avoid ad-hoc assignment of the scope of private information, the paper develops how to empirically test the scope of private information that individuals use to optimize their behavior. The nature of the noncooperative game makes deterministic finite state dependence employed in previous discrete choice literature unapplicable; hence, we also develop a new strategy to identify the model using stochastic invariance. The structural preferences of each gender will be estimated and used to study several policies.