Electronic Thesis and Dissertation Repository

Thesis Format

Integrated Article

Degree

Doctor of Philosophy

Program

Economics

Supervisor

Bowlus, Audra

2nd Supervisor

Navarro, Salvador

3rd Supervisor

Lochner, Lance

Abstract

This thesis consists of three empirical studies of heterogeneous individual and household behaviour in response to shocks that occur in the labour market and in the consumer marketplace. Chapter 2 contributes to the labour literature by examining the long-term effects of firings on subsequent labour market outcomes from an ability learning perspective. Chapter 3 contributes to the household savings and personal finance literature by studying how households navigate temporary liquidity shocks due to income disruption. Chapter 4 contributes to our understanding of online sales tax policy in the context of the rural-urban divide. In Chapter 2, I develop a search model featuring public learning about worker ability. I then derive and empirically test a set of model implications for fired workers in which the severity of the effect depends upon the ex ante expectations of match success. I find that firings have a lasting effect on wages after controlling for experience, tenure, and unemployment. Further, this permanent effect is far more severe for university-educated workers relative to high school graduates. This is consistent with the model predictions, but is contrary to previous studies which found no evidence of learning among university graduates. In Chapter 3, I perform a detailed analysis of various proposed channels by which households might be able to smooth consumption by comparing the behaviour of furloughed U.S. federal government employees to their unaffected counterparts working for fully-funded federal agencies over the course of the 2018-19 government shutdown, the longest in U.S. history. Using a difference-in-differences approach, I find that the shutdown-induced delay in the arrival of regular bi-weekly paychecks caused a significant reduction in household expenditures related to both consumption and recurring debt payments. The extent of this reduction is strongly correlated with the level of liquid savings households held prior to the shutdown. Among households with the least liquid savings, I fail to find evidence that households incur additional costs to smooth consumption-related expenditures (as captured by debit and credit card transactions), raising questions about how much effort from a policy standpoint should be made to specifically support consumption during temporary liquidity shocks. In Chapter 4, I examine consumer purchasing behaviour in six states before and after the 2015 implementation of state sales taxes in Ohio and Michigan on purchases at Amazon.com, with a specific focus on identifying differential effects along major demographic dimensions. Using a difference-in-differences approach, I find that lower-income households and those living in more remote geographic areas are the most heavily impacted by a relative increase in the cost of online goods. Further, there is significant evidence of interaction between both income and geography. In terms of Amazon.com purchases alone, rural households absorb the entirety of the tax on online purchases, urban households absorb about half, and suburban households do not significantly increase total expenditures at all following the implementation of state sales tax collection on Amazon.com purchases.

Summary for Lay Audience

Disruptive events can have widely varying effects on workers and consumers depending upon an individual or household's unique circumstances. I examine three particular types of these events and how their impacts differ across various policy-relevant dimensions. First, I study the role job firings may play in revealing permanent characteristics of workers and find that university-educated workers suffer larger subsequent earnings reductions relative to high school graduates, a fact I attribute to larger downward revisions of expectations of worker ability. Next, I examine the consumer financial response to a short-term delay in the arrival of biweekly paychecks and show that without a sufficient level of liquid savings or some form of direct relief, households reduce spending on food and services in order to keep debt obligations such as mortgages current. Finally, I study how consumers behave after an increase in sales taxes on online goods and find that lower-income rural and urban households are the most disproportionately affected. I propose that this is due to higher transportation costs faced by these households when making visits to physical retailers. Taken together, this work is particularly useful in light of the recent COVID-19 pandemic and can help direct future research into the economic impact and the policy responses of governments worldwide.

Creative Commons License

Creative Commons Attribution-Noncommercial 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 4.0 License.

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