New: Diminishing Margins: Housing Market Declines and Family Financial Responses
Date Posted: Jan 24, 2013
We utilize data from the Panel Study of Income Dynamics (PSID) to study borrowing decisions and other factors related to the run-up in housing prices in 1999-2007, their precipitous decline in 2007-2009, and how they contributed to mortgage distress and foreclosures as of 2009-2011. Difficulties were concentrated in selected real estate markets where the Case Shiller home index declined more than 35% from 2007 to 2009. Often expecting further price appreciation or responding to a positive family
New: Within-City Variation in Urban Decline: The Case of Detroit
Date Posted: Feb 02, 2012
When a city experiences a decline in income or population, do all neighborhoods within the city decline equally? Or do some neighborhoods decline more than others? What are the characteristics of the neighborhoods that decline the most? We answer these questions by looking at what happened to neighborhoods within Detroit as the city experienced a sharp decline in income and population from the 1980s to the late 2000s. We find patterns of changes in income and population that are consistent with
REVISION: Endogenous Gentrification and Housing-Price Dynamics
Date Posted: Feb 01, 2012
In this paper, we begin by documenting substantial variation in house price growth across neighborhoods within a city during citywide housing price booms. We then present a model which links house price movements across neighborhoods within a city and the gentrification of those neighborhoods in response to a citywide housing demand shock. A key ingredient in our model is a positive neighborhood externality: Individuals like to live next to richer neighbors. This generates an equilibrium where h
New: Making Savers Winners: An Overview of Prize-Linked Saving Products
Date Posted: Nov 13, 2010
For over three centuries and throughout the globe, people have enthusiastically bought savings products that incorporate lottery elements. In lieu of paying traditional interest to all investors proportional to their balances, these Prize Linked Savings (PLS) accounts distribute periodic sizeable payments to some investors using a lottery-like drawing where an investor’s chances of winning are proportional to one’s account balances. This paper describes these products, provides examples of the
Consumption Vs. Expenditure
Date Posted: Sep 03, 2009
Standard tests of the permanent income hypothesis (PIH) using data on nondurables typically equate expenditures with consumption. However, as noted by Becker (1965), consumption is the output of a home production' function that uses both expenditure and time as inputs. With this in mind, we revisit the retirement consumption puzzle by documenting that the dramatic decline in expenditures at the time of retirement is matched by an equally dramatic rise in time spent on home production. The innov
New: Conspicuous Consumption and Race
Date Posted: Feb 19, 2009
Using nationally representative data on consumption, we show that Blacks and Hispanics devote larger shares of their expenditure bundles to visible goods (clothing, jewelry, and cars) than do comparable Whites. We demonstrate that these differences exist among virtually all sub-populations, that they are relatively constant over time, and that they are economically large. While racial differences in utility preference parameters might account for a portion of these consumption differences, we em
Liquidity Constraints, Household Wealth and Entrepreneurship
Date Posted: Nov 18, 2008
Using data from the Panel Study of Income Dynamics (PSID), we show that the propensity to become a business owner in the United States is a non-linear function of wealth. The relationship between wealth and entry into entrepreneurship is essentially flat over the majority of the wealth distribution. It is only at the top of the wealth distribution - after the 95th percentile - that a positive relationship can be found. Segmenting businesses into industries with high and low starting capital requ
Liquidity Constraints, Household Wealth, and Entrepreneurship
Date Posted: Nov 18, 2008
The propensity to become a business owner is a nonlinear function of wealth. The relationship between wealth and entry into entrepreneurship is essentially flat over the majority of the wealth distribution. It is only at the top of the wealth distribution -- after the ninety-fifth percentile -- that a positive relationship can be found. Segmenting businesses into industries with high- and low-starting capital requirements, we find no evidence that wealth matters more for businesses requiring hig
New: Parental Education and Parental Time with Children
Date Posted: May 16, 2008
Parents invest both their material resources and their time into raising their children. Time investment in children is thought to be critical to the development of "quality" children who will become productive adults. This paper has three goals related to the examination of parental time allocated to the care of their children. First, using data from the recent American Time Use Surveys (ATUS), we highlight what we think are the most interesting, and perhaps surprising, cross sectional pattern
New: Deconstructing Lifecycle Expenditure
Date Posted: Apr 14, 2008
In this paper we revisit two well-known facts regarding lifecycle expenditures. The first is the familiar hump shaped lifecycle profile of nondurable expenditures. We document that the behavior of total nondurables masks surprising heterogeneity in the lifecycle profile of individual sub-components. We find, for example, that while food expenditures decline after middle age, expenditures on entertainment continue to increase throughout the lifecycle. These patterns pose a challenge to models tha
New: The Increase in Leisure Inequality
Date Posted: Mar 28, 2008
This paper examines the changing allocation of time within the United States that has occurred between 1965 and 2003-2005. We find that the time individuals have allocated to leisure has increased in the U.S. for both men and women during this period, with almost the entire gain occurring prior to 1985. We also find that post 1985 there has been a substantial increase in leisure inequality, particularly for men. Over the last 20 years, less educated men increased the time they allocated to leisu
New: The Retirement of a Consumption Puzzle
Date Posted: Mar 14, 2008
This paper summarizes five facts that have emerged from the recent literature on consumption behavior during retirement. Collectively, the recent literature has shown that there is no puzzle with respect to the spending patterns of most households as they transition into retirement. In particular, the literature has shown that there is substantial heterogeneity in spending changes at retirement across consumption categories. The declines in spending during retirement for the average household ar
New: Deconstructing Lifecycle Expenditure
Date Posted: Feb 26, 2008
In this paper we revisit two well-known facts regarding lifecycle expenditures. The first is the familiar "hump" shaped lifecycle profile of nondurable expenditures. We document that the behavior of total nondurables masks surprising heterogeneity in the lifecycle profile of individual sub-components. We find, for example, that while food expenditures decline after middle age, expenditures on entertainment continue to increase throughout the lifecycle. These patterns pose a challenge to familiar
New: Grasshoppers, Ants and Pre-Retirement Wealth: A Test of Permanent Income Consumers
Date Posted: Feb 15, 2008
This paper shows that households who enter retirement with low wealth consistently followed non-permanent income consumption rules during their working years. Using the Panel Study of Income Dynamics (PSID), household wealth in 1989 is predicted for a sample of 50-65 year olds using both current and past income, occupation, demographic, employment, and health characteristics. Using the residuals from this first stage regression, the sample of pre-retired households is subsetted into households w
Social Security and Unsecured Debt
Date Posted: Apr 20, 2007
Most young households simultaneously hold both unsecured debt on which they pay an average of 10 percent interest and social security wealth on which they earn less than 2 percent. We document this fact using data from the Panel Study of Income Dynamics. We then consider a life-cycle model with optimizing and 'rule-of-thumb' households and explore ways to reduce this inefficiency. We show that both allowing households to use social security wealth to pay off debt and exempting young households f
REVISION: Social Security and Unsecured Debt
Date Posted: Feb 21, 2007
Most young households simultaneously hold both unsecured debt on which they pay an average of 10 percent interest and social security wealth on which they earn less than 2 percent. We document this fact using data from the Panel Study of Income Dynamics. We then consider a life-cycle model with "tempted" households, who find it impossible to commit to an optimal consumption plan and "disciplined" households who have no such problem, and we explore ways to reduce this inefficiency. We show that a
REVISION: Lifecycle Prices and Production
Date Posted: Feb 21, 2007
Using scanner data and time diaries, we document how households substitute time for money through shopping and home production. We find evidence that there is substantial heterogeneity in prices paid across households for identical consumption goods in the same metro area at any given point in time. For identical goods, prices paid are highest for middleaged, rich, and large households, consistent with the hypothesis that shopping intensity is low when the cost of time is high. The data suggest
New: Precautionary Savings and the Importance of Business Owners
Date Posted: Jun 23, 2006
In this paper, we show the pivotal role business owners play in estimating the importance of the precautionary saving motive. The fact that business owners hold higher-than-average wealth while facing higher income risk than other households leads to a correlation between wealth and labor income risk regardless of whether or not a precautionary motive is important. Using data from the Panel Study of Income Dynamics in the 1980s and the 1990s, we show that within separate samples of both business
New: Do Household Savings Encourage Entrepreneurship? Household Wealth, Parental Wealth, and the Transiti
Date Posted: Jun 13, 2006
Using data from three different surveys, we report several important facts about entrepreneurship and household savings. Moreover, we show that the propensity to become a business owner in the United States is a non-linear function of wealth. The relationship between wealth and entry into entrepreneurship is essentially flat over the majority of the wealth distribution. It is only at the top of the wealth distribution - after the 95th percentile - that a positive relationship can be found. Segme
New: Measuring Trends in Leisure: The Allocation of Time Over Five Decades
Date Posted: May 11, 2006
In this paper, we use five decades of time-use surveys to document trends in the allocation of time. We find that a dramatic increase in leisure time lies behind the relatively stable number of market hours worked (per working-age adult) between 1965 and 2003. Specifically, we show that leisure for men increased by 6-8 hours per week (driven by a decline in market work hours) and for women by 4-8 hours per week (driven by a decline in home production work hours). This increase in leisure corresp
Measuring Trends in Leisure: The Allocation of Time over Five Decades
Date Posted: Mar 04, 2006
In this paper, we use five decades of time-use surveys to document trends in the allocation of time. We document that a dramatic increase in leisure time lies behind the relatively stable number of market hours worked (per working-age adult) between 1965 and 2003. Specifically, we document that leisure for men increased by 6-8 hours per week (driven by a decline in market work hours) and for women by 4-8 hours per week (driven by a decline in home production work hours). This increase in leisure
Precautionary Savings and the Importance of Business Owners
Date Posted: Jan 25, 2006
In this paper, we show the pivotal role business owners play in estimating the importance of the precautionary saving motive. Since business owners hold larger amounts of wealth than other households for non-precautionary reasons and also face highly volatile income, they induce a correlation between wealth and income risk regardless of whether or not a precautionary saving motive exists. Using data from the Panel Study of Income Dynamics in the 1980s and the 1990s, we show that among both busin
Lifecycle Prices and Production
Date Posted: Oct 27, 2005
Using scanner data and time diaries, we document how households substitute time for money through shopping and home production. We find evidence that there is substantial heterogeneity in prices paid across households for identical consumption goods in the same metro area at any given point in time. For identical goods, prices paid are highest for middle age, rich, and large households, consistent with the hypothesis that shopping intensity is low when the cost of time is high. The data suggest
Consumption versus Expenditure
Date Posted: Sep 15, 2005
Previous authors have documented a dramatic decline in food expenditures at the time of retirement. We show that this is matched by an equally dramatic rise in time spent shopping for and preparing meals. Using a novel data set that collects detailed food diaries for a large cross section of U.S. households, we show that neither the quality nor the quantity of food intake deteriorates with retirement status. We also show that unemployed households experience a decline in food expenditure and foo
Do Welfare Asset Limits Affect Household Saving? Evidence from Welfare Reform
Date Posted: May 26, 2004
In this paper, we use household-level data from the Panel Study of Income Dynamics to examine the impact of new saving incentives that were implemented as part of the overhaul of U.S. welfare policy during the mid-1990s on the saving of households at risk of entering welfare. The Temporary Assistance to Needy Families program devolved responsibility of program rules to the states, and many states have responded by relaxing liquid asset and vehicle-equity limits that determine program eligibility
Grasshoppers, Ants, and Pre-Retirement Wealth: A Test of Permanent Income
Date Posted: Jan 12, 2004
This paper shows that households who enter retirement with low wealth consistently followed non-permanent income consumption rules during their working years. Using the Panel Study of Income Dynamics (PSID), household wealth in 1989 is predicted for a sample of 50-65 year olds using both current and past income, occupation, demographic, employment, and health characteristics. Using the residuals from this first stage regression, the sample of pre-retired households is subsetted into households w
The Correlation of Wealth across Generations
Date Posted: Jan 08, 2004
In this paper, we find that the age-adjusted elasticity of child wealth with respect to parental wealth is 0.37 before the transfer of bequests. Lifetime income and asset ownership jointly explain nearly two-thirds of the wealth elasticity. Education, past parental transfers, and expected future bequests account for little of the remaining elasticity. Survey measures of risk correlate strongly between parents and children. However, they explain little of the intergenerational similarity in the p
The Correlation of Wealth Across Generations
Date Posted: Nov 07, 2002
This paper examines the similarity in wealth between parents and their children, and explores alternative explanations for this relationship. We find that the age-adjusted elasticity of child wealth with respect to parental wealth is 0.37, before the transfer of bequests. Lifetime income and ownership of particular assets, both of which exhibit strong intergeneration similarity, jointly explain nearly two-thirds of the wealth elasticity. Education, past parental transfers, and expected future be
The Bankruptcy Decision: Does Stigma Matter?
Date Posted: May 22, 1998
In this paper, we model and estimate the effects of both bankruptcy stigma and financial benefit on households' decisions to file for bankruptcy. We show that the probability of debtors filing for bankruptcy rises when the level of bankruptcy stigma falls. We also show that the level of bankruptcy stigma has external effects, so that individual households are better off if their own bankruptcy stigma level is lower than that of others in the same credit pool and are worse off if their own bankru