Mary C. Daly

Using 35 years of data from the Current Population Survey we decompose fluctuations in real median weekly earnings growth into the part driven by movements in the intensive margin-wage growth of individuals continuously full-time employed-and movements in the extensive margin-wage differences of those moving into and out of full-time employment. The relative importance of these two margins varies significantly over the business cycle. When labor markets are tight, continuously full-time employed workers drive wage growth. During labor market downturns, the procyclicality of the intensive margin is largely offset by net exits out of full-time employment among workers with lower earnings. This leads aggregate real wages to be largely acyclical. Most of the extensive margin effect works through the part-time employment margin. Notably, the unemployment margin accounts for little of the variation or cyclicality of median weekly earnings growth.

The manner firms respond to shocks reflects fundamental features of labor, capital, and commodity markets, as well as advances in finance and technology. Such features are integral to constructing models of the macroeconomy. In this paper we document secular shifts in the margins firms use, in aggregate, to adjust to shocks that have consequences for the economy’s cyclical behavior. These new business cycle facts on the comovement of output and its inputs are a natural complement to analyzing output and its expenditure components. Our findings shed light on the changing cyclicality of productivity in response to different shocks.

A large body of past research, looking across countries, states, and metropolitan areas, has found positive and statistically significant associations between income inequality and mortality. By contrast, in recent years more robust statistical methods using larger and richer data sources have generally pointed to little or no relationship between inequality and mortality. This paper aims both to document how methodological shortcomings tend to positively bias this statistical association and to advance this literature by estimating the inequality-mortality relationship. We use a comprehensive and rich new data set that combines U.S. county-level data for 1990 and 2000 on age-race-gender-specific mortality rates, a rich set of observable covariates, and previously unused Census data on local income inequality (Gini index and three income percentile ratios). Using panel data estimation techniques, we find evidence of a statistically significant negative relationship between mortality and inequality. This finding that increased inequality is associated with declines in mortality at the county level suggests a change in course for the literature. In particular, the emphasis to date on the potential psychosocial and resource allocation costs associated with higher inequality is likely missing important offsetting positives that may dominate.

Using data from the Current Population Survey from 1980 through 2011 we examine what drives the variation and cyclicality of the growth rate of real wages over time. We employ a novel decomposition technique that allows us to divide the time series for median weekly earnings growth into the part associated with the wage growth of persons employed at the beginning and end of the period (the wage growth effect) and the part associated with changes in the composition of earners (the composition effect). The relative importance of these two effects varies widely over the business cycle. When the labor market is tight job switchers get large wage increases, making them account for half of the variation in median weekly earnings growth over our sample. Their wage growth, as well as that of job-stayers, is procyclical. During labor market downturns, this procyclicality is largely offset by the change in the composition of the workforce, leading aggregate real wages to be almost non-cyclical. Most of this composition effect works through the part-time employment margin. Remarkably, the unemployment margin neither accounts for much of the variation in nor much of the cyclicality of median weekly earnings growth.

wp11-23bk_sept2011supplement.pdf – September 2011 WP version

This paper empirically assesses the theory of interpersonal income comparison using a unique data set on suicide deaths in the United States. We treat suicide as a choice variable, conditional on exogenous risk
factors, reflecting one’s assessment of current and expected future utility. Using this framework we examine whether differences in group-specific suicide rates are systematically related to income dispersion, controlling for socio-demographic characteristics and income level. The results strongly
support the notion that individuals consider relative income in addition to absolute income when evaluating their own utility. Importantly, the findings suggest that relative income affects utility in a two-sided manner, meaning that individuals care about the incomes of those above them (the Joneses) and those below them (the Smiths). Our results complement and extend those from studies using subjective survey data or data from controlled experiments.

How much larger would the US economic pie be if labor
market outcomes were more equitably distributed by race and ethnicity? Using data from the Current Population Survey (1990–2019), we estimate the improvements in labor contribution to aggregate output associated with making the
outcomes for Black, Hispanic, and other minority groups at least as favorable as those for non-Hispanic white individuals in employment, hours worked, educational attainment, educational utilization, and earnings. We find significant
economic gains, measured in trillions of dollars of GDP. Our results indicate that ensuring all Americans have an equitable opportunity to participate in the economy is an economically significant way to increase aggregate prosperity.

People with disabilities face substantial barriers to sustained employment and stable, adequate income. We assess how they and their families fared during the long economic expansion that followed the Great Recession of 2007-09, using data from the monthly Current Population Survey (CPS) and the March CPS annual income supplement. We find that the expansion bolstered the well-being of people with disabilities and in particular their relative labor market engagement. We also find that applications and awards for federal disability benefits fell during the expansion. On balance, our results suggest that sustained economic growth can bolster the labor market engagement of people with disabilities and potentially reduce their reliance on disability benefits.

wp2021-05_appendix.pdf – Supplemental appendix

Earnings gaps between black and white workers have widened over the past 30-40 years. This increase is not explained by differences in observed demographics or the industry and occupational composition of employment. We suggest that variation in labor market dynamics between black and white workers are important. Disparities in job switching, job loss, and associated wage growth result in flatter career wage profiles for black workers and widening earnings gaps over the work life.

Previous research has shown that the labor market experiences of less advantaged groups are more cyclically sensitive than the labor market experiences of more advantaged groups; in other words, less advantaged groups experience a high-beta version of the aggregate fluctuations in the labor market. For example, when the unemployment rate of whites increases by 1 percentage point, the unemployment rates of African Americans and Hispanics rise by well more than 1 percentage point, on average. This behavior is observed across other labor market indicators, and is roughly reversed when the unemployment rate declines. We update this work to include the post-Great Recession period and extend the analysis to consider whether these high-beta relationships change when the labor market is especially tight. We find suggestive evidence that when the labor market is already strong, a further increment of strengthening provides a modest extra benefit to some disadvantaged groups, relative to earlier in the labor market cycle. In addition, we provide preliminary evidence suggesting that these gains are somewhat persistent for African Americans and women.

Over the past 15 years, labor-quality growth has been very strong–defying nearly all
earlier projections–and has added around 0.5 percentage points to an otherwise modest
U.S. productivity picture. Going forward, labor quality is likely to add considerably less
and may even be a drag on productivity growth in the medium term. Using a variety of
methods, we project that potential labor-quality growth in the longer run (7 to 10 years
out) is likely to fall in the range of 0.1 to 0.25 percent per year. In the medium term, labor-
quality growth could be lower or even negative, should employment rates of low-skilled
workers make a cyclical rebound towards pre-recession levels. The main uncertainties
in the longer run are whether the secular decline in employment of low-skilled workers
continues and whether the Great Recession pickup in educational attainment represents
the start of a new boom or is simply a transitory reaction to a poor economy.

Aggregate real wages exhibit less procyclicality than most macroeconomic models predict. We use 35 years of Current Population Survey data to confirm that the puzzling behavior of wages largely owes to changes in the composition of the employed over the business cycle. This composition effect relates to changes in both the number and the relative wage levels of those entering and exiting. The changing gap in wages of entrants and exiters is especially important for the unemployed. A large part of this wage gap is due to differences in average Mincer residuals between entrants and exiters.

Although industrialized nations have long provided public protection to working-age individuals with disabilities, the form has changed over time. The impetus for change has been multi-faceted: rapid growth in program costs; greater awareness that people with impairments are able and willing to work; and increased recognition that protecting the economic security of people with disabilities might best be done by keeping them in the labor market. Here we describe the evolution of disability programs in four countries: Germany, the Netherlands, Sweden, and the United States. We show how growth in the receipt of publically provided disability benefits has fluctuated over time and discuss how policy choices played a role. Based on our descriptive comparative analysis we summarize shared experiences that potentially benefit policymakers in all countries.

Regional wage differences in China appear to be persistent and even to have grown over the past two decades. We study potential explanations for this phenomenon. After adjusting for the difference in the cost of living across provinces, we find that some of the cross-province differences in real wages could be related to the quality of labour, industry composition and geographic location of provinces. These factors, taken together, explain approximately half of the cross-province real wage variation. Interestingly, we find that interprovincial government transfers have not offset regional wage differences during the time period we consider. We also demonstrate that interprovincial migration, while driven in part by levels and changes in wage differences across provinces, did not help offset these differences. These results are consistent with findings in the literature that cross-province labour mobility in China is still limited.

Unsustainable growth in program costs and beneficiaries, together with a growing recognition that even people with severe impairments can work, led to fundamental disability policy reforms in the Netherlands, Sweden, and Great Britain. In Australia, rapid growth in disability recipiency led to more modest reforms. Here we describe the factors driving unsustainable DI program growth in the U.S., show their similarity to the factors that led to unsustainable growth in these other four OECD countries, and discuss the reforms each country implemented to regain control over their cash transfer disability program. Although each country took a unique path to making and implementing fundamental reforms, shared lessons emerge from their experiences.

We introduce a model of monetary policy with downward nominal wage rigidities and show that both the slope and curvature of the Phillips curve depend on the level of inflation and the extent of downward nominal wage rigidities. This is true for the both the long-run and the short-run Phillips curve. Comparing simulation results from the model with data on U.S. wage patterns, we show that downward nominal wage rigidities likely have played a role in shaping the dynamics of unemployment and wage growth during the last three recessions and subsequent recoveries.

This note examines labor market performance across countries through the lens of Okun’s Law. We find that after the 1970s but prior to the global financial crisis of the 2000s, the Okun’s Law relationship between output and unemployment became more homogenous across countries. These changes presumably reflected institutional and technological changes. But, at least in the short term, the global financial crisis undid much of this convergence, in part because the affected countries adopted different labor market policies in response to the global demand shock.

We assess the importance of interpersonal income comparisons using data on suicide deaths. We examine whether suicide risk is related to others’ income, holding own income and other individual and environmental factors fixed. We estimate models of the suicide hazard using two independent data sets: (1) the National Longitudinal Mortality Study and (2) the National Center for Health Statistics’ Multiple Cause of Death Files combined with the 5 percent Public Use Micro Sample of the 1990 decennial census. Results from both data sources show that, controlling for own income and individual characteristics, individual suicide risk rises with others’ income.

Blowout in disability-based cash transfer programs resulted in fundamental reforms over the last decade in several OECD countries. Similar reforms are being proposed in the United States in the wake of their disability program growth following the Global Financial Crisis. We compare trends in U.S. and Australian disability receipt with those of the Netherlands and Sweden and argue that Australia’s current Disability Support Pension program is vulnerable to the same forces that caused unsustainable program growth in these countries. Absent fundamental reforms focused on return to work over benefit receipt, Australia could be one recession away from disability benefit blowout.

This chapter examines the relationship between disability and subjective well-being. The findings show that having a work-limiting disability is associated with lower levels of self-reported life satisfaction and subjective well-being. Although the effect is mitigated somewhat by employment, income, and wealth, it remains a salient determinant of differences in subjective well-being between those with and without disabilities.

The U.S. unemployment rate has remained stubbornly high since the 2007-2009 recession, leading some observers to conclude that structural rather than cyclical factors are to blame. Relying on a standard job search and matching framework and empirical evidence from a wide array of labor market indicators, we examine whether the natural rate of unemployment has increased since the recession began, and if so, whether the underlying causes are transitory or persistent. Our analyses suggest that the natural rate has risen over the past several years, with our preferred estimate implying an increase of close to a percentage point above its pre-recession level. An assessment of the underlying factors responsible for this increase, including labor market mismatch, extended unemployment benefits, and uncertainty about overall economic conditions, implies that only a small fraction is likely to be persistent.

wp11-05bk.pdf – September 2011 version
wp11-05bkJanuary2011.pdf – January 2011 version
JEP-slides.pdf – Slides with updated results covering data through August 7, 2012

Suicide kills more Americans than die in motor accidents. Its causes remain poorly understood. We suggest in this paper that the level of others’ happiness may be a risk factor for suicide (although one’s own happiness likely protects one from suicide). Using U.S. and international data, the paper provides evidence for a paradox: the happiest places tend to have the highest suicide rates. The analysis appears to be the first published study to be able to combine rich individual-level data sets–one on life satisfaction in a newly available random sample of 1.3 million Americans and another on suicide decisions among an independent random sample of about 1 million Americans–to establish this dark-contrasts paradox in a consistent way across U.S. states. The study also replicates the finding for the Western industrialized nations. The paradox, which holds individual characteristics constant, is not an artifact of population composition or confounding factors (or of the ecological fallacy). We conclude with a discussion of the possible role of relative comparisons of utility.

The use of subjective well-being (SWB) data for investigating the nature of individual preferences has increased tremendously in recent years. There has been much debate about the cross-sectional and time-series patterns found in these data, particularly with respect to the relationship between SWB and relative status. Part of this debate concerns how well SWB data measures true utility or preferences. In a recent paper, Daly, Wilson, and Johnson (2007) propose using data on suicide as a revealed preference (outcome-based) measure of well-being and find strong evidence that reference-group income negatively affects suicide risk. In this paper, we compare and contrast the empirical patterns of SWB and suicide data. We find that the two have very little in common in aggregate data (time series and cross-sectional), but have a strikingly strong relationship in terms of their determinants in individual-level, multivariate regressions. This latter result cross-validates suicide and SWB micro data as useful and complementary indicators of latent utility.

We compare trends in earnings inequality in the United States, Germany, and Great Britain. Estimation of a heterogeneous growth model of permanent and transitory earnings variation reveals substantial convergence in the permanent component of inequality in these countries during the 1990s.

The idea that a bank’s overall performance is influenced by the regional economy in which it operates is intuitive and broadly consistent with historical bank performance. Yet, micro-level research on the topic has borne mixed results, failing to find a consistent link between various measures of bank performance and regional economic variables. This chapter attempts to reconcile the intuition with the micro-level data by aggregating bank performance, as measured by nonperforming loans, up to the state level. This level of aggregation reduces the influence of idiosyncratic bank effects sufficiently so as to examine more clearly the influence of state-level economic variables. We show that regional variables, such as employment growth and changes in real estate prices, are not particularly useful for predicting changes in bank performance, but that coincident indicators developed to track a state’s gross output are quite useful. We find that these coincident indicators have a statistically significant and economically important influence on state-level, aggregate bank performance. In addition, the coincident indicators potentially contribute to the out-of-sample forecasts of the relative riskiness of state-level bank portfolios, which should be of interest to bankers and bank supervisors.

Using semiparametric density estimation techniques, we analyze the effect of rising dispersion of men’s earnings and related changes in family behavior on increasing inequality in the distribution of family income in the United States. For the period 1969-1989, the growing dispersion of men’s earnings and changing family structure can account for most of the rise in family income inequality. By contrast, the increase in labor force participation by women offset this trend. Inequality grew at a slower rate in the 1990s than in earlier decades, largely because of stabilization in the relative earnings of men from low-income families.

Using data from the Current Population Survey, we examine recent trends
in the relative economic status of black men. Our findings point to gains in the relative wages of black men (compared to whites) during the 1990s, especially among younger workers. In 1989, the average black male worker (experienced or not) earned about 69 percent as much per week as the average white male worker. In 2001, the average younger black worker was earning about 86 percent as much as an equally experienced white male; black males at all experience levels earned 72 percent as much as the average white in 2001. Greater occupational diversity and a reduction in unobserved skill differences and/or labor market discrimination explain much of the trend. For both younger and older workers, general wage inequality tempered the rate of wage convergence between blacks and whites during the 1990s, although the effects were less pronounced than during the 1980s.

SSI was established in 1972, born out of a compromise at the time between those wanting to provide a guaranteed income floor and those wishing to limit it to individuals not expected to work: the aged, blind, and disabled. SSI is now the largest federal means-tested program in the United States, serving a population dominated by low-income adults and children with disabilities. With other forms of federal support devolving to state programs (e.g., welfare), policymakers pressing to redefine social expectations about who should and should not work, and the Americans with Disabilities Act guaranteeing people with disabilities the right to employment, the goals and design of SSI have come under scrutiny. In this article we review the role that SSI has played to this point and consider the directions SSI might take in a work-dominated welfare environment where people with disabilities increasingly wish to be included in the labor market.

We look beyond the overall decline in employment among working-age
people with disabilities in the 1990s to track the importance of three factors on the observed changes: (1) trends among key subgroups, especially those with employment-risk factors other than disability; (2) population shifts towards subgroups with lower-than-average employment rates; and (3) changes in self-reported health status. Our analysis is based on crosssectional data from the Current Population Survey. Our results suggest that the decline was broad-based, present in a wide range of demographic and educational subgroups. In terms of population shifts, we find no evidence that compositional changes in the population with disabilities account for the average employment decline during the 1990s. In contrast, we find that compositional changes were important to the increase in employment among those with disabilities during the 1980s. Finally, we show that self-reported health among those with disabilities remained relatively stable in the latter half of the 1990s, making changes in health status an unlikely cause of declining employment rates.

Data constraints make the long-term monitoring of the working-age
population with disabilities a difficult task. Indeed, the Current Population Survey (CPS) is the only national data source that offers detailed work and income questions and consistently asked measures of disability over a 20-year period. Despite its widespread use in the literature, the CPS and surveys like it have come under attack of late, with critics discounting the results of any research obtained from such data. We put these criticisms in perspective by systematically examining what the CPS data can and cannot be used for in disability research. Based on comparisons with the National Health Interview Survey (NHIS), a data set with much more information on health than the CPS, we find that the work limitation-based definition of disability available in the CPS underestimates the size of the broader population with health impairments in the NHIS, but that the employment trends in these two populations in the NHIS are not significantly different from one another. We then show that the trends in employment observed for the NHIS population defined by self-reported work limitation are not statistically different from those found in the CPS. Based on these findings, we argue (1) that the CPS and other nationally representative employment-based data sets can be used to monitor trends in outcomes of those with disabilities and, (2) that the dramatic decline in the employment of people with disabilities we describe in the CPS during the 1990s is not an artifact of the data.

In this paper we provide a broader perspective from which to evaluate
current disability policy. We begin by reviewing the major aspects of the
Disability Insurance and Supplemental Security Income programs. We then
examine trends in employment and disability benefit receipt among those
with disabilities, paying particular attention to the last 15 years. Within this
framework we summarize the primary difficulties in crafting an efficient
and equitable assistance program for a heterogeneous population that
changes with its environment. Finally, we place disability policy in the
context of the broader United States social welfare system and consider
how changes in other social welfare programs likely will affect disability program usage in the future.

Using Current Population Survey data, we find that the gap between the wages of black and white males declined during the 1990s at a rate of about .60 percentage point per year. Wage convergence was most rapid among workers with less than 10 years of potential experience, with declines in the gap averaging 1.40 percentage points per year. Using standard decomposition methods, we find that greater occupational diversity and reductions in unobserved or residual differences are important in explaining this trend. General wage inequality tempered the rate of wage convergence between blacks and whites during the 1990s.

This paper examines the relationship between various measures of socioeconomic status (SES) and mortality for a representative sample of individuals. We use data from the Panel Study of Income Dynamics, sampling 3,734 individuals aged 45 and older who participated in the 1984 interview and tracking them between 1984 and 1994 using Cox event-history regression models. We found that wealth and recent family income were the indicators that were most strongly associated with subsequent mortality. These associations persisted after we controlled for the other SES indicators and were stronger for women than for men and for nonelderly than for elderly individuals. We found that the economic indicators of SES were usually as strongly associated with mortality as, if not more strongly associated with mortality than, the more conventional indicators of completed schooling and occupation.

Using data from the March Current Population Survey (CPS) we show that
while the longest peacetime economic expansion in the United States’ history has increased the economic well-being of most Americans, the majority of working-age men and women with disabilities have been left behind. Robust economic growth since the recession of the early 1990s has lifted nearly all percentiles of the income distribution of working-age men and women without disabilities beyond their previous business cycle peak levels of 1989. In contrast, the majority of working-age men and women with disabilities did not share in economic growth over this period. Not only did their employment and labor earnings fall during the recession of the early 1990s, but their employment and earnings continued to fall during the economic expansion that followed.

An intriguing finding in the literature on the role of education in the labor market concerns workers who have acquired either more or less education than they say their jobs require. Contrary to predictions from a rigid, structural view of jobs, several authors have found that the labor market rewards workers for having completed more schooling than their jobs require and penalizes workers who have “too little” schooling. We investigate whether the structural changes in the labor market in the United States over the 1970s and 1980s (see Levy, F., and Murnane, R. 1992. “U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations” Journal of Economic Literature 30, pp. 1,333-1,381) affected the rewards and penalties associated with having too much or too little schooling for a job. We then examine whether the same rewards and penalties for surplus and deficit education observed in the United States apply in Germany, a country with a much more structured educational system and labor market. We test explicitly for differences over time in the United States and at a point in time between the United States and Germany. We find, consistent with a universalistic view of labor markets, more similarities across countries than over time.

We provide estimates of a reduced-form model of the allocation of household time and money resources. We consider four demands for these resources: time spent working, time spent providing care for non-coresident elderly parents, time spent performing housework, and monetary transfers to non-coresident elderly parents. We focus on the effects of wage rates and parental characteristics on the allocation decisions of adult children and their households concerning these four demands. We find that households with individuals earning high wages rely relatively more on cash transfers and relatively less on time transfers than do lower-wage households. We also find evidence consistent with an unmeasured tendency of some families to provide multiple sources of support.

This paper demonstrates that since the early 1980s automatic changes embedded in SSI-disabled adults and SSDI program benefit formula together with some specific changes in program rules have resulted in the unintended consequence that less work is required for each new cohort of children transitioning off the SSI-disabled children program to earn SSDI benefits greater than their SSI-disabled adults program benefits. This does not appear to be matched with systematic increases in the work of categorically eligible youth, suggesting that the full returns to work may not be fully understood by young adults and their advocates.

Among the factors that affect individual retirement decisions, previous research has identified the timing of social security payments, private pension eligibility, health status, and health insurance coverage as key determinants. In this chapter, we first review existing research on the links between retirement outcomes and these key determinants. We then examine the impact of the first three factors (excluding health insurance) relying primarily on data from the 1998 California Work and Health Survey. We also compare results from the California survey with results based on nationally representative samples from the Current Population Survey and the Health and Retirement Survey. The empirical results indicate substantial effects of social security, private pensions, and poor health on retirement decisions in California and in the nation as a whole.

A new and highly controversial literature argues that the employment of working-age people with disabilities fell dramatically relative to the rest of the working-age population in the 1990s. Some dismiss these results as fundamentally flawed because they come from a self-reported work limitation-based disability population that captures neither the actual population with disabilities nor its employment trends. In this paper, we examine the merits of these criticisms. We first consider some of the difficulties of defining and consistently measuring the population with disabilities. We then discuss how these measurement difficulties potentially bias empirical estimates of the prevalence of disability and of the employment behavior of those with disabilities. Having provided a context for our analysis, we use data from the National Health Interview Survey (NHIS) to compare the prevalence and employment rates across two empirical populations of those with disabilities: one defined by self-reported impairments and one defined by self-reported work limitations. We find that although traditional work limitation-based definitions underestimate the size of the broader population with health impairments, the employment trends in the populations defined by work limitations and impairments are not significantly different from one another over the 1980s and 1990s. We then show that the trends in employment observed for the NHIS population defined by self-reported work limitations are statistically similar to those found in the Current Population Survey (CPS). Based on this analysis, we argue that nationally representative employment-based data sets like the CPS can be used to monitor the employment trends of those with disabilities over the past two decades.

We examine trends in family income inequality through 1999, focusing in
particular on the relationship between inequality and population movement into and out of California. We find that international immigration explains about one-third of California’s growing inequality over the past three decades, while the substantial exodus from the state in the 1990s had little effect, since out-migrants tended to be in families at all levels of the income distribution.

We examine the rate of employment and the household income of the working-age population (aged 25-61) with and without disabilities over the business cycles of the 1980s and 1990s using data from the March Current Population Survey and the National Health Interview Survey. In general, we find that while the employment of working-age men and women with and without disabilities exhibited a procyclical trend during the 1980s business cycle, this was not the case during the 1990s expansion. During the 1990s, the employment of working-age men and women without disabilities continued to be procyclical, but the employment rates of their counterparts with disabilities declined over the entire 1990s business cycle. Although increases in disability transfer income replaced a significant fraction of their lost earnings, the household income of men and women with disabilities fell relative to the rest of the population over the decade.