The Impact Of Economic Policies On Household Financial And Labor Supply Behavior

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Doctor of Philosophy (PhD)
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Applied Economics
Automatic enrollment retirement plans
Behavioral public policy
Optimal retirement saving policies
Unemployment insurance
Labor Economics
Public Policy
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Zhong, Mingli

Economic policies significantly influence household financial and labor supply decisions. In return, household responses to the policy change inform policy design. In this dissertation, I document how individuals respond to economic policies by adjusting their critical economic decisions: how much to save and how much to work. I also combine the welfare analysis of optimal economic policies that maximize individual welfare with empirical evidence on household and individual responses to economic policies. In the first chapter, I document the differential impacts of unemployment insurance on unemployment duration for older and younger workers. I find that older workers tend to receive longer periods of unemployment insurance than younger workers during economic downturns. This is partly because older workers have a harder time finding a job during economic downturns than younger workers. This age-specific difference is not salient in boom periods. I conclude that, since the purpose of unemployment insurance is to provide financial support for unemployed workers until they find a job, the optimal design of unemployment insurance needs to consider the differential job prospects across age groups. The policy implication is that it could be socially welfare improving to extend unemployment insurance for older workers so that they have a longer time period of time to find a new job. This could prevent older workers from leaving the workforce too early while they are still capable of working. Additionally, older workers might start claiming Social Security or withdrawing from their retirement accounts earlier than planned. Claiming Social Security at the earliest possible time could lead to a lower level of Social Security benefits for the rest of their life. Either withdrawing retirement savings too early or claiming a lower level of Social Security benefits potentially increases retirees' chances of late-life poverty and their reliance on means-tested social transfers. In the second chapter based on a working paper co-authored with John Chalmers, Olivia S. Mitchell, and Jonathan Reuter, we investigate the impact of a savings mandate imposed on private sector employers on expanding access to automatic enrollment retirement plans. Starting in 2017, the state of Oregon required that all private sector employers provide either an employer-sponsored retirement plan or enroll their employees into a state-sponsored retirement plan, called OregonSaves. We find about half of the workers who were automatically enrolled in OregonSaves chose to participate in the plan. The majority of participants stayed at the 5 percent default savings rate. In the third chapter, I investigate the impact of the default savings rate in automatic enrollment retirement plans on individual welfare. I propose a unified framework to analyze the welfare effects of the default savings rate and derive a formula for the optimal default savings rate that depends on observable statistics. Using individual-level administrative and survey data and an exogenous increase in the default savings rate from 5% to 6% in the OregonSaves program, I estimate key statistics in the optimal default formula and find that the optimal default savings rate to be 8%.

Olivia S. Mitchell
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