Cormac O'Dea

Using a digitized sample of thousands of essays written by 11-year-olds in 1969, we construct an index which measures the extent to which girls’ imagined futures conform to gender norms in Britain at the time. We link this index to outcomes over the life-cycle. Conditional on a large set of age-11 covariates, a one standard deviation increase in our index is associated with a decrease in lifetime earnings of 3.5%, due to both lower wages and fewer hours worked. Half of this earnings decline is mediated by reduced educational attainment, selection into lower-paid occupations, and earlier family formation of those who conform more strongly to prevalent gender norms. Holding skills constant, girls whose essays conform less to gender norms, live in regions with higher female employment and educational attainment. This highlights that the wider environment in which girls grow up shapes gender conformity.

U.S. employers and the federal government devote over 1.5% of GDP annually toward promoting defined contribution (DC) retirement saving. Using a new employer– employee linked dataset covering millions of Americans, we show that this system of saving incentives benefits White workers and those with richer parents more than their similar-income coworkers who are Black or Hispanic or from lower-income families. Breaking the link between contribution choices and saving subsidies—through revenue neutral reforms—can close the gaps in DC wealth between Black and White workers, between Hispanic and White workers, and between those with the richest and those with the poorest parents by close to a third.

Parental investments significantly impact children’s outcomes. Exploiting panel data covering individuals from birth to retirement, we estimate child skill production functions and embed them into an estimated dynastic model in which altruistic mothers and fathers make investments in their children. We find that time investments, educational investments, and assortative matching have a greater impact on generating inequality and intergenerational persistence than cash transfers. While education subsidies can reduce inequality, due to an estimated dynamic complementarity between time investments and education, it is crucial to announce them in advance to allow parents to adjust their investments when their children are young.

We estimate the impact of public pension systems on labor supply far from the normal retirement age by exploiting Poland's switch from a Defined Benefit to a Notional Defined Contribution scheme for men born after 1948. Using the universe of taxpayers and this sharp cohort-based discontinuity in the link between current contributions and future benefits, we estimate an employment elasticity with respect to the return to work of 0.44 for ages 51-54. We estimate a lifecycle model that matches these results. The model implies that the change in the contribution-benefit link from the reform increases employment among those in their 30s but decreases it at older ages, reducing overall labor supply across the lifecycle by 2 months.

How do education, skills, investments of parental time and school quality, and family circumstances during childhood contribute to the persistence of earnings across generations? Building on a classic literature in sociology and a more recent literature in economics, our model allows each of the above variables to affect lifetime earnings directly, as well as through their contribution to human capital formation. The model allows us to decompose the intergenerational elasticity of earnings (IGE) into its drivers. Using data from a representative British cohort followed from birth to age 55, we show the above variables explain most of the IGE. A key driver is the increased levels of parental investments received by children of high income parents early in their lives, and the resulting cognitive development.

We analyze lifecycle saving using a recursive utility model calibrated to match estimates of the value of a statistical life. The novelty of our approach is that we require preferences to be monotone with respect to first-order stochastic dominance while disentangling risk aversion and the intertemporal elasticity of substitution. We show that, with a positive value of life, risk aversion reduces each of savings, stock market participation, and annuity purchase. Risk averse agents insure against early death by consuming more when young and retaining wealth for bequests. These results contrast with those of previous studies using non-monotonic recursive models.

Government pension spending in advanced economies can be divided into two types: (1) Social Security- style benefits that depend on working-life earnings and (2) means-tested old-age income floors. Spend- ing on the former type of benefit is substantially greater than spending on the latter in most countries. Using an estimated lifecycle model that accounts for these, as well as endogenous labor supply, private savings and realistic uncertainty, this paper investigates the optimal combination of the two types of pensions. For countries that provide public pensions that depend on career-average earnings, I show that large (revenue-neutral) welfare gains can be obtained by increases in means-tested old-age income floors. While such transfers cause costly distortions, these are more than offset by the value of the insurance provided. The optimality of greater means-tested support is specific to older individuals: I find that such support to younger households should be much lower. These results imply that govern- ments should provide strong work incentives for the young, but provide pensions with good insurance properties for the old.

We study how couples allocate retirement-saving contributions across each spouse’s account. In a new dataset covering over a million U.S. individuals, we find retirement contributions are not allocated to the account with the highest employer match rate. This lack of coordination—which goes against the assumptions of most models of household decision-making—is common, costly, persistent over time, and cannot be explained by inertia, auto-enrollment, or simple heuristics. Complementing the administrative evidence with an online survey, we find that inefficient allocations reflect both financial mistakes as well as deliberate choices—especially when trust and commitment inside the households are weak.

The “annuity puzzle” refers to the fact that annuities are rarely purchased despite the longevity insurance they provide. Most explanations for this puzzle assume that individuals have accurate expectations about their future survival. We provide evidence that individuals misperceive their mortality risk and study the demand for annuities in a setting where annuities are priced by insurers on the basis of objectively-measured survival probabilities but in which individuals make purchasing decisions based on their own subjective survival probabilities. Subjective expectations have the capacity to explain significant rates of nonannuitization, yielding a quantitatively important explanation for the annuity puzzle.

A growing literature uses now widely-available data on beliefs and expectations in the estimation of structural models. In this chapter, we review this literature, with an emphasis on models of individual and household behavior. We first show how expectations data have been used to relax strong assumptions about beliefs and outline how they can be used in estimation to substitute for, or as a complement to, data on choices. Next, we discuss the literature that uses different types of expectations data in the estimation of structural models. We conclude by noting directions for future research.

Using a lifecycle model of consumption, saving and portfolio choice combined with linked survey and administrative data on wealth and lifetime earnings we evaluate measures of retirement preparedness. We estimate heterogeneous discount factors for households and compare these estimates of their patience to their replacement rates—the simple measure often used to evaluate the adequacy of retirement savings. We find first that the specification of the model's asset structure matters quantitatively for preference parameter estimates—households appear to be much more patient when they are assumed to have access only to a risk-free asset compared to when we account for the fact that much of their wealth is stored in higher-return tax-advantaged private pensions and in housing. Second, we find that only the most patient households achieve the replacement rates out of final earnings that are often recommended by policymakers and industry as sensible benchmarks for retirement preparedness. Notwithstanding this, we find that even quite impatient households in the population we study achieve high replacement rates out of lifetime average income—a more sensible summary measure of preparedness for retirement.

We document that households in the UK with extremely low measured income tend to spend much more than those with merely moderately low income. This phenomenon is evident throughout three decades worth of microdata and across different employment states, levels of education and marital statuses. Of the likely explanations, we provide several arguments that discount over-reporting of expenditure and argue that under-reporting of income plays the major role. In particular, by using a dynamic model of consumption and saving, and paying special attention to poverty dynamics, we show that consumption smoothing cannot explain all the apparent dissaving.

The nature of the relationship between lifetime income and saving rates is a longstanding empirical question and one that has been surprisingly difficult to answer. We use a new data set containing both individual survey data on wealth holdings and administrative data on earnings histories to examine this question. We find, for a sample of English households, evidence of a positive relationship between the rate of private wealth accumulation and levels of lifetime earnings. Even when state pension wealth is included, the top quintile of lifetime earnings have significantly higher wealth to lifetime earnings ratios than the other quintiles. Under this broad measure of wealth, those in the middle of the distribution of lifetime earnings accumulate the least wealth relative to their earnings.

We put forward a method for estimating discount rates using wealth and income data. We build consumption from these data using the budget constraint. Consumption transitions yield discount rates by household groups. Applying this technique to a sample of older households, we find a similar distribution to those previously estimated using field data, though with a much lower mean than those found using experiments. Surprisingly, among this older population, patience is negatively correlated with education and numeracy. This goes against the positive correlation found for younger populations in experiments and some field studies. We discuss potential explanations for this result.

Government transfers to individuals are often given labels indicating that they are designed to support the consumption of particular goods. Standard economic theory implies that the labeling of cash transfers or cash- equivalents should have no effect on spending patterns. We study the UK Winter Fuel Payment, a cash transfer to older households. Our empirical strategy nests a regression discontinuity design within an Engel curve framework. We find robust evidence of a behavioral effect of labeling. On average households spend 47% of the WFP on fuel. If the payment were treated as cash, we would expect households to spend 3% of the payment on fuel.

This paper examines trends in household consumption and saving behaviour in each of the last three recessions in the UK. The ‘Great Recession’ has been different from those that occurred in the 1980s and 1990s. It has been both deeper and longer, but also the composition of the cutbacks in expenditure differs, with a greater reliance on cuts to nondurable expenditure than was seen in previous recessions, and the distributional pattern across individuals differs. The young have cut back expenditure more than the old, as have mortage holders compared to renters. By contrast, the impact of the recession has been similar across education groups. We present evidence that suggests that two aspects of fiscal policy in the UK in 2008 and 2009 – the temporary reduction in the rate of VAT and a car scrappage scheme – had some success in encouraging households to increase durable purchases.

This paper examines the extent to which cognitive abilities relate to differences in trajectories for key economic outcomes as individuals move towards and through their retirement. We look at whether differences in baseline numeracy (measured in the English Longitudinal Study of Ageing in 2002) and broader cognitive ability predict the subsequent trajectories of outcomes such as wealth, retirement income and key dimensions of retirement expectations. Those with lower numeracy are shown to have different wealth trajectories both pre- and post-retirement than their more numerate counterparts, but the distributions of retirement expectations and net replacement rates are similar across numeracy groups.

For many years, survey data on household wealth have been somewhat limited, but the situation is improving in the UK and internationally. This paper uses the new Wealth and Assets Survey (WAS) to document some key features of the distribution of household wealth in Great Britain. We quantify the extent of inequality in total wealth and in its broad components (financial wealth, housing wealth and pension wealth). Exploiting the fact that WAS is a longitudinal survey, we show trajectories of wealth and its components over the period 2006 to 2012 for different birth cohorts. Total wealth on average increased in real terms over this period for working-age households and fell for retirement-age households. However, wealth held outside pensions fell on average over this period for all except the youngest cohort.