Essays in Applied Microeconomics

Abstract

This thesis consists of three self-contained essays in applied microeconomics. The third chapter is co-authored with Penka Kovacheva.

The first chapter estimates the effect of adverse economic conditions at different stages of a worker's career on expected lifetime earnings. A model of earnings dynamics with individual job search decisions is estimated. I find that adverse economic conditions have a greater negative effect on expected lifetime earnings if they occur early in a worker's career. Most of this negative effect could be explained by variation of employment mobility over time rather than variation of earnings mobility. These results point to the potential benefits of active labor market policies that reduce excessive employment instability during recessions for younger workers.

The second chapter studies the effect of health insurance (HI) price and availability on the likelihood of self-employment by examining the Massachusetts health care reform enacted in 2006. The model predicts the reform to have an ambiguous effect on the likelihood of self-employment. The Medicaid expansion and subsidized private HI increase the likelihood by lowering the cost of HI for self-employed workers; and the individual and employer mandates lower the likelihood by lowering the relative cost of paid-employment. The reform leads to a large and significant increase in HI coverage. The estimated effect on the likelihood of self-employment is small and driven by an increase that lasts only for a year after the enactment. Empirical evidence suggests that the lack of persistent effect on self-employment is due to the offsetting effects of different components of the reform.

The third chapter investigates the impact of the 1996 pension crisis in Russia on several measures of subjective well-being (SWB). This exogenous shock to the redistribution system leads to a significant decline in the SWB of pensioners who fail to receive their pensions. The effect of the shock on SWB extends to non-pensioners living with pensioners in arrears. Evidence suggests that the pension crisis affects SWB beyond the monetary size of pension loss. Policies aimed to fully compensate for such disruptions in the redistribution system would need to take these externalities into account.