Dirk Krueger - Academia.edu (original) (raw)
Papers by Dirk Krueger
In all major industrialized countries the population is aging over time, reducing the fraction of... more In all major industrialized countries the population is aging over time, reducing the fraction of the population in working age. Consequently labor is expected to be scarce, relative to capital, with an ensuing decline in real returns on capital and increases in real wages. This paper employs a large scale OLG model with intra-cohort heterogeneity to ask what are the distributional consequences of these changes in factor prices induced by changes in the demographic structure. Since these demographic changes occur at different speed in industrialized economies we develop a multi-region (the US, the European Union, the rest of the OECD and the rest of the world) openeconomy model that allows for international capital flows. This allows us to evaluate to what extent the distributional consequences of changing factor prices for the US and Europe are mitigated or accentuated by the fact that the population is aging at different rates elsewhere in the world
SSRN Electronic Journal
The Affordable Care Act (ACA) is one of the most important reforms of the US health insurance sys... more The Affordable Care Act (ACA) is one of the most important reforms of the US health insurance system since the introduction of Medicare. Since employment is a main source of health insurance for the working age population in the United States, this sweeping health insurance reform also has important implications for the labor market and the macro economy. In this paper, we survey the prototype models that are used in the macro and labor literature, extended to integrate health and health insurance, to study the short-and long-run consequences of the ACA. We also suggest open areas for future research.
Using a structural life-cycle model, we quantify the long-term impact of school closures during t... more Using a structural life-cycle model, we quantify the long-term impact of school closures during the Corona crisis on children affected at different ages and coming from households with different parental characteristics. In the model, public investment through schooling is combined with parental time and resource investments in the production of child human capital at different stages in the children's development process. We quantitatively characterize both the long-term earnings consequences on children from a Covid-19 induced loss of schooling, as well as the associated welfare losses. Due to self-productivity in the human capital production function, skill attainment at a younger stage of the life cycle raises skill attainment at later stages, and thus younger children are hurt more by the school closures than older children. We find that parental reactions reduce the negative impact of the school closures, but do not fully offset it. The negative impact of the crisis on children's welfare is especially severe for those with parents with low educational attainment and low assets. The school closures themselves are primarily responsible for the negative impact of the Covid-19 shock on the long-run welfare of the children, with the pandemic-induced income shock to parents playing a secondary role.
The goal of this chapter is to study how, and by how much, household income, wealth, and preferen... more The goal of this chapter is to study how, and by how much, household income, wealth, and preference heterogeneity amplify and propagate a macroeconomic shock. We focus on the U.S. Great Recession of 2007-2009 and proceed in two steps. First, using data from the Panel Study of Income Dynamics, we document the patterns of household income, consumption and wealth inequality before and during the Great Recession. We then investigate how households in different segments of the wealth distribution were affected by income declines, and how they changed their expenditures differentially during the aggregate downturn. Motivated by this evidence, we study several variants of a standard heterogeneous household model with aggregate shocks and an endogenous cross-sectional wealth distribution. Our key finding is that wealth inequality can significantly amplify the impact of an aggregate shock, and it does so if the distribution features a sufficiently large fraction of households with very little net worth that sharply increase their saving (i.e. they are not hand-to mouth) as the recession hits. We document that both these features are observed in the PSID. We also investigate the role that social insurance policies, such as unemployment insurance, play in shaping the cross-sectional income and wealth distribution, and through it, the dynamics of business cycles.
European economic growth has been weak, compared to the US, since the 80s. In previous work (Krue... more European economic growth has been weak, compared to the US, since the 80s. In previous work (Krueger and Kumar (2003)), we argued that the European focus on specialized, vocational education might have been effective during the 60s and 70s, but resulted in a growth gap relative to the US during the subsequent information age, when new technologies emerged more rapidly. In this paper, we extend this framework to assess the importance of education policy, when compared to labor market rigidity and product market regulation, which have also been suggested as reasons for US-Europe differences. Households decide between acquiring general education, which allows them to work in high-tech firms, and less costly skill-specific education, which is of value only to lowtech firms that use established production methods. High-tech firms draw a workforcespecific productivity for the new technology, and decide on whether to proceed with production and pay a portion of profits toward regulation costs, or fire the workers at a cost, and redraw a new productivity-workforce combination. Analytical characterization of the balanced growth equilibrium shows that lower firing or regulation cost increases expected growth, but causes the adopting firm to set a higher productivity threshold before it proceeds with production. A higher subsidy for general education can increase expected growth, but reduces the productivity threshold. An increased rate of technology availability can increase the gap in the growth rates of economies that differ in their policies. A "decomposition" exercise using a calibrated version of our model assigns a major role to education policy in explaining US-Europe growth differences.
Using data from the Consumer Expenditure Survey, we first document that the recent increase in in... more Using data from the Consumer Expenditure Survey, we first document that the recent increase in income inequality in the United States has not been accompanied by a corresponding rise in consumption inequality. Much of this divergence is due to different trends in within-group inequality, which has increased significantly for income but little for consumption. We then develop a simple framework that allows us to analytically characterize how within-group income inequality affects consumption inequality in a world in which agents can trade a full set of contingent consumption claims, subject to endogenous constraints emanating from the limited enforcement of intertemporal contracts (as in Kehoe and Levine, 1993). Finally, we quantitatively evaluate, in the context of a calibrated general equilibrium production economy, whether this setup, or alternatively a standard incomplete markets model (as in Aiyagari, 1994), can account for the documented stylized consumption inequality facts from the U.S. data. * We thank the editor, Fabrizio Zilibotti, three anonymous referees, and seminar participants at numerous institutions and conferences for their many and very helpful comments. Many thanks also to Harris Dellas and Pierre-Olivier Gourinchas for their thoughtful discussions and to Carlos Serrano and Cristobal Huneeus for outstanding research assistance. Krueger gratefully acknowledges financial support from the National Science Foundation under grant SES-0004376. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.
Evidence and Theory, lReview of Economic Studies, 2006
Journal of Monetary Economics, 2004
European economic growth has been weak, compared to the US, since the 80s. In previous work (Krue... more European economic growth has been weak, compared to the US, since the 80s. In previous work (Krueger and Kumar, 2003), we argued that the European focus on specialized, vocational education might have been effective during the 60s and 70s, but resulted in a growth gap relative to the US during the subsequent information age, when new technologies emerged more rapidly. In this paper, we extend our framework to assess the quantitative importance of education policy, when compared to labor market rigidity and product market regulation, other policy differences more commonly suggested to be responsible for US-Europe differences. A "decomposition" exercise using a calibrated version of our model assigns a major role to education policy in explaining US-Europe growth differences.
This Paper analyses dynamic equilibrium risk sharing contracts between profit-maximizing intermed... more This Paper analyses dynamic equilibrium risk sharing contracts between profit-maximizing intermediaries and a large pool of ex-ante identical agents that face idiosyncratic income uncertainty that makes them heterogeneous ex-post. In any given period, after having ...
Consumption models with endogenous debt constraints differ from standard incomplete mar- kets mod... more Consumption models with endogenous debt constraints differ from standard incomplete mar- kets models in their predictions about an individual household's ability to smooth consumption across time and states of the world. In this paper we develop these differences, both theoreti- cally and quantitatively. We then use data from the US Consumer Expenditure Survey (CE) to assess along which dimensions the
In this paper we quantitatively characterize the optimal capital and labor income tax in an overl... more In this paper we quantitatively characterize the optimal capital and labor income tax in an overlapping generations model with idiosyncratic, uninsurable income shocks, where households also differ permanently with respect to their ability to generate income. The welfare criterion we employ is ex-ante (before ability is realized) expected (with respect to uninsurable productivity shocks) utility of a newborn in a
We explore the welfare consequences of different taxation schemes in an economy where agents are ... more We explore the welfare consequences of different taxation schemes in an economy where agents are debt-constrained. If agents default on their debt, they are banned from future credit markets, but retain their private endowments which are subject to income taxation. A change in the tax system changes the severity of punishment from default and, hence, leads to a limitation of
This paper first documents the evolution of the cross-sectional income and consumption distributi... more This paper first documents the evolution of the cross-sectional income and consumption distribution in the US in the past 25 years. Using data from the Consumer Expenditure Survey we find that a rising income inequality has not been accompanied by a corresponding rise in consumption inequality. Over the period from 1972 to 1998 the standard deviation of the log of
SSRN Electronic Journal, 2000
Housing and the Macroeconomy: The Role of Bailout Guarantees for Government Sponsored Enterprises... more Housing and the Macroeconomy: The Role of Bailout Guarantees for Government Sponsored Enterprises* This paper evaluates the macroeconomic and distributional effects of government bailout guarantees for Government Sponsored Enterprises (such as Fannie Mae and Freddy Mac) in the mortgage market. In order to do so we construct a model with heterogeneous, infinitely lived households and competitive housing and mortgage markets. Households have the option to default on their mortgages, with the consequence of having their homes foreclosed. We model the bailout guarantee as a government provided and tax-financed mortgage interest rate subsidy. We find that eliminating this subsidy leads to substantially lower equilibrium mortgage origination and increases aggregate welfare, but has little effect on foreclosure rates and housing investment. The interest rate subsidy is a regressive policy: eliminating it benefits low-income and low-asset households who did not own homes or had small mortgages, while lowering the welfare of high-income, high-asset households.
We investigate the welfare consequences of the stark increase in wage and earnings inequality in ... more We investigate the welfare consequences of the stark increase in wage and earnings inequality in the US over the last 30 years. Our data stems from the Consumer Expenditure Survey, which is the only US data set that contains information on wages, hours worked, earnings and consumption for the same cross section of US households. We first document that, while the cross-sectional variation in wages and disposable earnings has significantly increased, the overall dispersion in consumption has not significantly changed. We also show that households at the bottom of the consumption distribution have increased their working hours to a larger extent than the rest of the population. In order to assess the magnitude and the incidence of the welfare consquences of these trends we stimate stochastic processes for earnings, consumption and leisure that are consistent with observed cross-sectional variability (both within and between education groups) and with household mobility patterns. In a standard lifetime utility framework, using consumption and leisure processes, as opposed to earnings processes, results in fairly robust estimates of these consequences. We find that about 60 percent of US households face welfare losses and that the size of these losses ranges from one to six percent of lifetime consumption for different groups.
In all major industrialized countries the population is aging over time, reducing the fraction of... more In all major industrialized countries the population is aging over time, reducing the fraction of the population in working age. Consequently labor is expected to be scarce, relative to capital, with an ensuing decline in real returns on capital and increases in real wages. This paper employs a large scale OLG model with intra-cohort heterogeneity to ask what are the distributional consequences of these changes in factor prices induced by changes in the demographic structure. Since these demographic changes occur at different speed in industrialized economies we develop a multi-region (the US, the European Union, the rest of the OECD and the rest of the world) openeconomy model that allows for international capital flows. This allows us to evaluate to what extent the distributional consequences of changing factor prices for the US and Europe are mitigated or accentuated by the fact that the population is aging at different rates elsewhere in the world
SSRN Electronic Journal
The Affordable Care Act (ACA) is one of the most important reforms of the US health insurance sys... more The Affordable Care Act (ACA) is one of the most important reforms of the US health insurance system since the introduction of Medicare. Since employment is a main source of health insurance for the working age population in the United States, this sweeping health insurance reform also has important implications for the labor market and the macro economy. In this paper, we survey the prototype models that are used in the macro and labor literature, extended to integrate health and health insurance, to study the short-and long-run consequences of the ACA. We also suggest open areas for future research.
Using a structural life-cycle model, we quantify the long-term impact of school closures during t... more Using a structural life-cycle model, we quantify the long-term impact of school closures during the Corona crisis on children affected at different ages and coming from households with different parental characteristics. In the model, public investment through schooling is combined with parental time and resource investments in the production of child human capital at different stages in the children's development process. We quantitatively characterize both the long-term earnings consequences on children from a Covid-19 induced loss of schooling, as well as the associated welfare losses. Due to self-productivity in the human capital production function, skill attainment at a younger stage of the life cycle raises skill attainment at later stages, and thus younger children are hurt more by the school closures than older children. We find that parental reactions reduce the negative impact of the school closures, but do not fully offset it. The negative impact of the crisis on children's welfare is especially severe for those with parents with low educational attainment and low assets. The school closures themselves are primarily responsible for the negative impact of the Covid-19 shock on the long-run welfare of the children, with the pandemic-induced income shock to parents playing a secondary role.
The goal of this chapter is to study how, and by how much, household income, wealth, and preferen... more The goal of this chapter is to study how, and by how much, household income, wealth, and preference heterogeneity amplify and propagate a macroeconomic shock. We focus on the U.S. Great Recession of 2007-2009 and proceed in two steps. First, using data from the Panel Study of Income Dynamics, we document the patterns of household income, consumption and wealth inequality before and during the Great Recession. We then investigate how households in different segments of the wealth distribution were affected by income declines, and how they changed their expenditures differentially during the aggregate downturn. Motivated by this evidence, we study several variants of a standard heterogeneous household model with aggregate shocks and an endogenous cross-sectional wealth distribution. Our key finding is that wealth inequality can significantly amplify the impact of an aggregate shock, and it does so if the distribution features a sufficiently large fraction of households with very little net worth that sharply increase their saving (i.e. they are not hand-to mouth) as the recession hits. We document that both these features are observed in the PSID. We also investigate the role that social insurance policies, such as unemployment insurance, play in shaping the cross-sectional income and wealth distribution, and through it, the dynamics of business cycles.
European economic growth has been weak, compared to the US, since the 80s. In previous work (Krue... more European economic growth has been weak, compared to the US, since the 80s. In previous work (Krueger and Kumar (2003)), we argued that the European focus on specialized, vocational education might have been effective during the 60s and 70s, but resulted in a growth gap relative to the US during the subsequent information age, when new technologies emerged more rapidly. In this paper, we extend this framework to assess the importance of education policy, when compared to labor market rigidity and product market regulation, which have also been suggested as reasons for US-Europe differences. Households decide between acquiring general education, which allows them to work in high-tech firms, and less costly skill-specific education, which is of value only to lowtech firms that use established production methods. High-tech firms draw a workforcespecific productivity for the new technology, and decide on whether to proceed with production and pay a portion of profits toward regulation costs, or fire the workers at a cost, and redraw a new productivity-workforce combination. Analytical characterization of the balanced growth equilibrium shows that lower firing or regulation cost increases expected growth, but causes the adopting firm to set a higher productivity threshold before it proceeds with production. A higher subsidy for general education can increase expected growth, but reduces the productivity threshold. An increased rate of technology availability can increase the gap in the growth rates of economies that differ in their policies. A "decomposition" exercise using a calibrated version of our model assigns a major role to education policy in explaining US-Europe growth differences.
Using data from the Consumer Expenditure Survey, we first document that the recent increase in in... more Using data from the Consumer Expenditure Survey, we first document that the recent increase in income inequality in the United States has not been accompanied by a corresponding rise in consumption inequality. Much of this divergence is due to different trends in within-group inequality, which has increased significantly for income but little for consumption. We then develop a simple framework that allows us to analytically characterize how within-group income inequality affects consumption inequality in a world in which agents can trade a full set of contingent consumption claims, subject to endogenous constraints emanating from the limited enforcement of intertemporal contracts (as in Kehoe and Levine, 1993). Finally, we quantitatively evaluate, in the context of a calibrated general equilibrium production economy, whether this setup, or alternatively a standard incomplete markets model (as in Aiyagari, 1994), can account for the documented stylized consumption inequality facts from the U.S. data. * We thank the editor, Fabrizio Zilibotti, three anonymous referees, and seminar participants at numerous institutions and conferences for their many and very helpful comments. Many thanks also to Harris Dellas and Pierre-Olivier Gourinchas for their thoughtful discussions and to Carlos Serrano and Cristobal Huneeus for outstanding research assistance. Krueger gratefully acknowledges financial support from the National Science Foundation under grant SES-0004376. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.
Evidence and Theory, lReview of Economic Studies, 2006
Journal of Monetary Economics, 2004
European economic growth has been weak, compared to the US, since the 80s. In previous work (Krue... more European economic growth has been weak, compared to the US, since the 80s. In previous work (Krueger and Kumar, 2003), we argued that the European focus on specialized, vocational education might have been effective during the 60s and 70s, but resulted in a growth gap relative to the US during the subsequent information age, when new technologies emerged more rapidly. In this paper, we extend our framework to assess the quantitative importance of education policy, when compared to labor market rigidity and product market regulation, other policy differences more commonly suggested to be responsible for US-Europe differences. A "decomposition" exercise using a calibrated version of our model assigns a major role to education policy in explaining US-Europe growth differences.
This Paper analyses dynamic equilibrium risk sharing contracts between profit-maximizing intermed... more This Paper analyses dynamic equilibrium risk sharing contracts between profit-maximizing intermediaries and a large pool of ex-ante identical agents that face idiosyncratic income uncertainty that makes them heterogeneous ex-post. In any given period, after having ...
Consumption models with endogenous debt constraints differ from standard incomplete mar- kets mod... more Consumption models with endogenous debt constraints differ from standard incomplete mar- kets models in their predictions about an individual household's ability to smooth consumption across time and states of the world. In this paper we develop these differences, both theoreti- cally and quantitatively. We then use data from the US Consumer Expenditure Survey (CE) to assess along which dimensions the
In this paper we quantitatively characterize the optimal capital and labor income tax in an overl... more In this paper we quantitatively characterize the optimal capital and labor income tax in an overlapping generations model with idiosyncratic, uninsurable income shocks, where households also differ permanently with respect to their ability to generate income. The welfare criterion we employ is ex-ante (before ability is realized) expected (with respect to uninsurable productivity shocks) utility of a newborn in a
We explore the welfare consequences of different taxation schemes in an economy where agents are ... more We explore the welfare consequences of different taxation schemes in an economy where agents are debt-constrained. If agents default on their debt, they are banned from future credit markets, but retain their private endowments which are subject to income taxation. A change in the tax system changes the severity of punishment from default and, hence, leads to a limitation of
This paper first documents the evolution of the cross-sectional income and consumption distributi... more This paper first documents the evolution of the cross-sectional income and consumption distribution in the US in the past 25 years. Using data from the Consumer Expenditure Survey we find that a rising income inequality has not been accompanied by a corresponding rise in consumption inequality. Over the period from 1972 to 1998 the standard deviation of the log of
SSRN Electronic Journal, 2000
Housing and the Macroeconomy: The Role of Bailout Guarantees for Government Sponsored Enterprises... more Housing and the Macroeconomy: The Role of Bailout Guarantees for Government Sponsored Enterprises* This paper evaluates the macroeconomic and distributional effects of government bailout guarantees for Government Sponsored Enterprises (such as Fannie Mae and Freddy Mac) in the mortgage market. In order to do so we construct a model with heterogeneous, infinitely lived households and competitive housing and mortgage markets. Households have the option to default on their mortgages, with the consequence of having their homes foreclosed. We model the bailout guarantee as a government provided and tax-financed mortgage interest rate subsidy. We find that eliminating this subsidy leads to substantially lower equilibrium mortgage origination and increases aggregate welfare, but has little effect on foreclosure rates and housing investment. The interest rate subsidy is a regressive policy: eliminating it benefits low-income and low-asset households who did not own homes or had small mortgages, while lowering the welfare of high-income, high-asset households.
We investigate the welfare consequences of the stark increase in wage and earnings inequality in ... more We investigate the welfare consequences of the stark increase in wage and earnings inequality in the US over the last 30 years. Our data stems from the Consumer Expenditure Survey, which is the only US data set that contains information on wages, hours worked, earnings and consumption for the same cross section of US households. We first document that, while the cross-sectional variation in wages and disposable earnings has significantly increased, the overall dispersion in consumption has not significantly changed. We also show that households at the bottom of the consumption distribution have increased their working hours to a larger extent than the rest of the population. In order to assess the magnitude and the incidence of the welfare consquences of these trends we stimate stochastic processes for earnings, consumption and leisure that are consistent with observed cross-sectional variability (both within and between education groups) and with household mobility patterns. In a standard lifetime utility framework, using consumption and leisure processes, as opposed to earnings processes, results in fairly robust estimates of these consequences. We find that about 60 percent of US households face welfare losses and that the size of these losses ranges from one to six percent of lifetime consumption for different groups.