Econ 8503 Wages and Employment Spring 2009

José-Víctor Ríos-Rull:,

  • Department of Economics, University of Minnesota, Minneapolis, MN 55455
  • Tue and Th 12:20 pm to 14:15. In Hanson Hall, 4-168. Off Hours: Before and after class and by appointment., email:, Phone-(612) 625-0941 Fax: (612) 624-0209 Fed Phone (612) 204-5528

  • The web page to sign up for homework presentations is ready. Click here

    Third Homework batch is ready and due the 30th.

    What are we doing? A class by class ex-post diary.

    1. May 7.

      Hitoshi told us about the outlook of the economy with shocks by posing sample averages. I then finished talking about Credit Lines and the contracts that occur when all is public information, shocks are iid and there is a holdup problem.

    2. May 5.

      Hitoshi was very kind and presented the second homework batch. I started to talk about credit lines.

    3. Apr 30.

      We went go Corbae's talk at the fed. We discussed a bit afterwards what are the issues involved in unsecured lending.

    4. Apr 28.

      We talked about how to do empirical work. What are econometric and calibration strategies. What are the differences (of principle) and action (less so). How we think of inferring things from data. We also talked about how life insurance purchases teaches us somethings about preferences in different marital status and altruism.

    5. Apr 23.

      We discussed in painful detail the value functions of males and females as well as how decisions are made (we added consumption games). We talked about family planners and bargaining.

    6. Apr 21.

      We talked about computing statistics out of the model. We talked about approximating the stationary distribution by means of a piecewiise linear CDF and also by means of creating a sample. We then discussed various ways in which agents actions (hours worked, accepting or rejecting jobs, staying or switching occupations, education, human capital investment) affect the earnings distribution. We went over what types of marital status it is worth to distinguish.

    7. Apr 16.

      We reviewed the problem of the household with those shocks and discussed how to solve it in the computer. Specifically, we discussed piecewise linear decision rules that are set to exactly satisfy the Euler equation at the grid points. We talked about what it was a base family of functions. Things should be pretty done by Tue Ap 21 when we will talk about computing statistics out of the model.

    8. Apr 14.

      Illenin was very kind and described the book about people's uses of time. Two things came to mind. That there it is useful to think in terms of multitasking and in terms of of amenities. We then discussed the simple problem of saving with shocks and how to solve them which will be the material of the next homework.

    9. Apr 9.

      We talked about the problem of the married household. After finishing a discussion of what is consumption (private or public) we moved on to discuss what could be the mechanism to generate decision rules. We saw that agreement is unlikely to happen and we discussed the merits (evidence convenience and the like of) the Pareto weights versus a bargaining problem.

    10. Apr 7.

      Pedro was very kind and discussed the homework. We then talked about the budget onstraint of a married household. From there we went into a brief discussion of property regimes and the meaning of marriage (and what is gay marriage) and other contentious issues such as politics and smoking bans. We made plans to get into the modeling of a household problem with and without shocks.

    11. Apr 2.

      We discussed the extent to whether the fact that the "the dice roll early" in life necessarily implied that "it's all genetics". We argued that issues like whether (or better with whom) to conceive and the actual time of pregnancy indicates that it does not. We then moved back to time allocation and home production. We ended with a discussion of marriage as a form of social organization.

    12. Mar 31.

      We continued talking about the Life Cycle model. We talked about how to solve it. We discussed the modeling of early death and of the allocation of time. We also talked about how to solve models where the issue is a second order difference equation with two terminal conditions.

    13. Mar 26.

      We talked about the Life Cycle model. How to write it, what are its properties and how it aggregates into a macro model. We discussed various items: equivalence scales, the relation with the interest rate, social security and others.

    14. Mar 24.

      We talked about the class, and what it is about. We discussed very lightly a few issues (differences between men and women and other things of this sort.

  • Third Homework batch. Do it by April 30.
    1. Compute the stationary distribution of agents (by means of approximating the CDF with piecewise linear functions) for two economies: The life cycle economy of problem 5 and an infinitely lived economy where all agents have the decision rule that you obtained for age 4 in homework 5.

    2. Compute 5 relevant statistics of income and wealth dispersion and persistence. For the latter you may have to generate the large samples. Make some comments about what you see.

  • Second Homework batch. Do it by April 30.
    1. Solving problem 4 with the added feature that there are shocks to income. Ignore issues of multiperson households, and pose a process for earnings that is consistent with the data. Take a simple specification, say something that Fatih taught. Random walks, AR1, fixed effects, whatever, just defend your choice.

  • First Homework batch.
    • 1 2 and 3 Due March 31st. These ones should only be done if you think that you do not know how to do them. I will assume that you can do this type of things but will not check that you did them.
    • Homework 4 due April 1.

    1. Data manipulation.

      1.A Fetch and plot US quarterly GDP Employment, Total hours worked, Hours per worker, Hours per adult of working age and Hourse per person not in jail over 18 years of age both from CPS and from the firm survey (see Cooley chapter 1, page 30). Store it in pdf, eps, and emf or wmf formats.

      1.B HP filter and plot US quarterly (log) GDP and the series in 1.A. Store it in postcript or pdf. Compute the same table as in the Cooley book for those 4 variables using data up to 2003:4 or later.

      1.C Calculate a linear trend and decompose log GDP in the linear trend the hp trend and the hp residual.

      1.D Plot the growth rates together with the hp residual and comment the differences.

      1.E Compute a VAR of GDP, Total Hours and Labor Productivity and plot the impulse responses. Make sure that you explicitly state what are the identifying assumptions that you make.

    2. Interpolation.

      Write a routine that linearly interpolates. Apply it by storing the value of exp (x) between 0 and 1. in intervals of .1 and assessing the value by interpolation in intervals of .05. Plot the function and what results from using approximation.

    3. Solving Equations of one unknown.

      (Parts of Homework 1 of Chapter 5 of Judd's book.) Solve sin 2 p x- 2x=0 using bisection between x 0 =-5 and x 1 =5 (If this interval is a bad one change it).

    4. A life cycle problem.

      4.A Solve for the assets and consumption of the houeholds in an economy where they live 90 years (assume they are born at 16) and have the wage profile and of American persons. (Find it from somewhere in the literature, later we will compute it from data). Let the agents have standard per period preferences over consumption with risk aversion coefficient of 2, discount rate of 1. and interest rate of 3\%. Plot them. You should use the theree methods we discussed in class to solve this problem (if you want you can solve in five year intervals, for which you have to adjust the interest and discount rates). These methods were forward and backward iterations that transform the problem into one equation and one unknown and brute force.

      4.B Now make changes in preferences so that the induced profiles for consumption are inversed U-shaped. Plot them too.

      4.C Briefly explain the computationally logic that you followed. (I will talk a bit in class for this on TUesday but start now).

    Course Description

    This course should be thought of as a Labor course with a close link to Macro that should be of interest to people with interest in both areas. Its main purpose is to learn the map from models to data i.e. to answer quantitative questions that we are interested in (in the process of doing so, some interesting theoretical questions arise). We will develop tools by stating general questions, and then discussing how to approach its answer.

    The tools that we will be developing beyond those already covered in the first year can be grouped into:

    This is a Ph.D. course not a Masters course. As such students are not expected to learn what other people have discovered, but the tools that are needed in order to discover things by themselves. Because of this reason the active work of the students is crucial to achieve the objective of mastering the tools that are described above. This is a course to learn to do things, and, therefore, it requires to do some things.

    Every class except the first one we will devote the first twenty minutes or so to students presentations of homeworks. I expect professional competence in this regard.

    Course Requirements

    Students will place the solution to the homeworks and to other requirements in electronic form in some place to be described

    There are various types of requirements that are a necessary part of the course, all of which have to be fulfilled.
    • Regular Homeworks.There are two types of homeworks. The ones that are set up in this page and that are due each Tuesday and are set usually well in advance, and those that I ask in class (that I may try to post in this page soon thereafter but are anyway due whenever I say in class). Homeworks have due dates that are enforced by the date of the file. As of now there are homeworks due next Tuesday.
    • Class Presentations Every student will make at least two class presentations with at least one being of a subset of a homework. The first presentation should take no more than 15 minutes and it will be absolutely professional. Every second wasted, every statement not planned, every bad thing will be highlighted. The second presentation (that will depend on class size and interests) maybe on a paper or on another homework.
    • Referee Report. I will assign a paper to each of you as we go along to write a referee report and perhaps also to present the paper in no more than 20 minutes. The refere report should be no longer than five pages and should contain a clear and concise exposition of the main points of the article as well as a critical evaluation of the article's contributions.
    • Wikipedia Article. This is something that should be done by the end of the course. The moment you post it email me and place a copy in your directory. Think of a topic of the course no matter how silly.

    This course believes drastically in Learning by Doing. To learn the material that we cover requires that students do all the homeworks in a timely manner. Given the way to collect the homeworks, timeliness is automatically recorded. I will look at what is done weekly.

    Class schedules.

    There are regular lectures on every foreseeable Tuesday and Thursday.

    What about knowledge of Computers?

    This is not a course in computer languages so students are responsible to learn to write computer programs. Students are also responsible for learning their way around McNeil computational facilities. I do not expect anybody to have a computer at home or anything like that. It is better to work in McNeill's computer room because you can talk to each other.

    There are three general classes of computer languages.

    Students should be able to write code in F90 in addition to matlab or gauss and to stata. Most students tell me in later years that I should have enforced harder the learning of F90, but I am willing to consider exceptions. If somebody has a serious reason not to use F90, please come and talk to me. At least one homework should be answered in f90.

    Look at Tips for Doing Computational Work in Economics by Tony Smith for insights.

    Grading Rules.

    To satisfactorily complete the course, students have to do all the requirements well.

    For those that do not register but take the course, I recommend that they do the homeworks. We learn to solve problems by facing them. Learning jointly with others greatly speeds the process. The deadline for the Empirical Requirement is the last day of class.

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