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Abstract

This thesis is focused on the responses of workers through labor supply adjustment, transfer program participation and human capital investment to a changing labor market. Specifically, the papers that comprise this dissertation use state and metropolitan area-level variation to analyze the effects of changes in employment growth, income growth and income dispersion on participation in disability insurance, first time enrollments in community college and four-year universities, and residential sorting. The first paper employs a shift-share design to establish a causal link between declining labor demand in low wage, highly automated (“routine”) occupations and rising disability participation. From 2000 to 2011, moving from the 10th to the 90th percentile of the predicted decline in routine employment corresponded to a 0.82 percentage point increase in disability. The model explains 78.6% of the increase in disability for all prime-age workers from 2000 to 2011. This accounts for 10.3% of the employment decline over the 2000s. Notably, this paper presents the first causal evidence that the effects are stronger for those with harder-to-verify diagnostic claims. The second paper, coauthored with Lancelot Henry de Frahan, fills the gap in the existing literature on the causal effects of rising inequality on human capital investment. First, we propose an instrumentation strategy that yields a vector of instruments from a predicted local wage distribution by interacting initial industry employment shares at the metropolitan level with changes to the within-industry distribution of wages at the national level. With this instrumentation strategy, we are able to separately analyze the causal impact of changing inequality from changes in mean income on postsecondary enrollments. This paper establishes an empirical fact: predicted increases in local wage inequality depress rates of enrollment in postsecondary schooling. In our main analysis on community college enrollments, we find that moving from the 10th to the 90th percentile of changes in wage inequality corresponds to a 2.05 percentage point decrease in first-year, full-time aggregate community college enrollments. Further, we find evidence of a causal relationship between rising local inequality and residential sorting on an income basis which sheds light on a possible mechanism driving our main result. The instrumentation strategy introduced in this paper could allow researchers to assess the causal relationship between inequality and other economic phenomena.

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