Age Profiles Of Income Research Articles

How Taxes and Welfare Benefits Affect Work Incentives: A Life‐Cycle Perspective

AbstractPersonal taxes and benefits affect the incentive to work over the life cycle by altering income–age profiles, insuring against adverse shocks and changing the returns to human capital. In this paper, we show how a life‐cycle perspective alters our impression of how the UK tax and benefit system affects women's work incentives. Given that actual longitudinal data conflate age effects, cohort effects and policy effects, and, in the UK, are not available covering the full life cycle, we use simulated data produced by a rich, dynamic structural model of female labour supply and human capital that incorporates family formation and fertility. We find that individuals experience considerable variability in work incentives across life that outweighs the variability across individuals. Changes in the presence of children and a partner, as well as the level of any partner's earnings, are key to explaining these patterns: work incentives vary dramatically depending on family composition and the earnings of any partner, especially for the lower‐skilled, and most women experience a number of different family types during the course of their lives.

The Effect of Education on the Demographic Dividend

The impact of population structure on economic growth has been studied in recent decades using different methods to estimate the so‐called demographic dividend. Besides, education has been pointed out as a key factor in economic growth. We propose a decomposition of the demographic dividend, into age and education effects. We illustrate the potentialities of the method, deriving an application to Mexico and Spain over the period 1970‐2100. To that end, we estimate the National Transfer Accounts age profiles by schooling level and apply them to recently available population projections stratified by education level. Our results confirm the role of population age structure in the demographic dividend, but also reveal that education attainment can be even more crucial. Moreover, we find that how both age and education effects finally impact on economic growth depends to a great extent on the specific consumption and labor income age profiles in each country.

The Gender and Generational Consequences of the Demographic Transition and Population Policy: An Assessment of the Micro and Macro Linkages

The demographic transition changes the age composition of a population, affecting resource allocations at the household and aggregate level. If age profiles of income, consumption, savings and investments were stable and estimable for the entire population, they might suggest how the demographic transition would affect inputs to growth. However, existing macro and micro simulations are estimated from unrepresentative samples of wage earners that do not distinguish sex, schooling, etc. The “demographic dividend” is better evaluated through case studies of household surveys and long-run social experiments. Matlab, Bangladesh, extended a family planning and maternal and child health program to half the villages in its district in 1977, and recorded fertility in the program villages was 16 percent lower than in control villages for the following two decades until 1996. Households in program villages realized health and productivity gains that were concentrated among women, while child survival and schooling increased, and household physical assets were 25 percent greater per adult than in control villages.

The Gender and Intergenerational Consequences of the Demographic Dividend: An Assessment of the Micro- and Macrolinkages between the Demographic Transition and Economic Development

The demographic transition changes the age composition of a population, potentially affecting resource allocation at the household level and exerting general equilibrium effects at the aggregate level. If age profiles of income, consumption, and savings were stable and estimable for the entire population, they might imply how the demographic transition will affect national savings rates, but there is little agreement on the impact of age composition. These age profiles differ by gender and are affected by human capital investments, whereas an existing micro-simulation are estimated from samples of wage earners that are not distinguished by sex or schooling and make no effort to model family labor supply behavior or physical and human capital accumulation. Considering these shortcomings of assessments of the 'demographic dividend,' a case study based on household surveys and long-run social experiments may be more informative. Matlab, Bangladesh, extended a family planning and maternal and child health program to half the villages in the district in 1977, and recorded fertility in the program villages was 15-16 percent lower than in the control villages for two decades. Households in the program villages realized health and productivity gains that were concentrated among women, survival and schooling increased among children, and after 19 years household physical assets were 25 percent greater per adult than in the control villages. These large gains in the wake of the program-induced demographic transition suggest reasons for designing new labor market and microcredit policies to help women during the demographic transition invest in productive skills; shift their time more efficiently from child care to home production, self-employment, and wage labor; and invest more in the human capital of their children.

The Rewards to Entrepreneurship

The study examines differences in the incomes of entrepreneurs and paid employees and considers alternative explanations for such differences. We do so with the help of National Science Foundation surveys of recipients of BA/BS or higher degrees in science and engineering for the years 1995, 1997 and 1999. In contrast to the results of earlier studies, we find that entrepreneurs earned more on average than paid employees. However, they earned less at the low end of the income distribution. The difference in results for average income is explained by whom the various studies sampled. We offer a model of asymmetric information, with a partial incorporation of risks in the context of a minimum wage. The differences in income dispersion reflect variations in the marginal products of entrepreneurial effort, which are, in part, a consequence of asymmetric information. Asymmetric information is also held to explain differences in the age profiles of income between entrepreneurs and paid employees with convergence in information and incomes at later ages. Our empirical results show the effects of many observed variables such as age, experience in a specific job, MA and Ph.D. degrees, undergraduate grade point averages, marital status, gender, race, the education of parents and still other variables. We then examine the pattern of residuals from the regressions of income on the observed variables. An attempt is made to decompose the effects of the principal unobserved variables, namely talent and luck, with the help of an instrument for talent in the context of two-stage least square regressions. In general, the conclusion is that talent plays a much greater role in explaining the incomes of entrepreneurs than of paid employees.

Consumption, Income, and Retirement

The authors use Canadian Family Expenditure Survey data to estimate consumption and income age profiles for married-couple families, paying attention to the transition between work and retirement. The common presumptions of numerical-simulation life-cycle models--upward-sloping consumption-age profiles and dissaving in retirement--are not supported. There is some evidence that the consumption of certain (blue-collar) households declines discontinuously near retirement, which casts doubt upon the frequently encountered assumption that the marginal utility of consumption is independent of the quantity of leisure consumed. The results also imply that the functional form of Euler equations should be sufficiently flexible to permit preretirement consumption to have an inverted U-shape. In addition, the paper shows that the uncertain lifetime model, with the addition of a bequest motive, can rationalize the empirical results.