Essays on macroeconomics of health and labor

This dissertation consists of three essays on quantitative macroeconomics that study labor and health. The first essay uses data from Panel Study of Income Dynamics (PSID) to document a non-decreasing wage profile as reported by Rupert and Zanella (2010) compares the implications of this profile on the life cycle hours allocation of households to the widely used hump-shaped wage profile. Results suggest that even using the non-decreasing wage-efficiency profile, the income effect dominates the substitution effect coming from higher wages, hence after making a peak at prime ages, hours worked start declining far before reaching retirement. These results are robust to different intertemporal elasticities of substitution for labor and different utility functions.;The second essay makes use of the wage-efficiency profile generated in the first essay and develops an overlapping generations model that incorporates bad behaviors (such as smoking and unhealthy eating habits that lead to obesity) to investigate the equilibrium effects of different cost sharing mechanisms and excise taxation on bad behaviors and medical expenditures. I show that higher cost sharing may induce individuals to refrain from bad behaviors. For example, if coinsurance rate is increased by 10 percentage points, smoking prevalence goes down by about 2 percentage points and medical expenditures to GDP ratio slightly declines. Welfare analysis of different policies shows that although higher cost sharing increases the overall welfare in the economy, unhealthy individuals are either worse off or have much less welfare gains compared to healthy individuals. The quantitative implications of the model are consistent with the variation in smoking prevalence and excise taxes across tobacco and non-tobacco states.;The third essay builds upon the second essay and examines the insurer aspect of the health policy by introducing an age-dependent health shock. Inclusion of this aspect addresses two functions of health insurance: insurance against controllable health outcomes which stem from risky health behaviors and uncontrollable outcomes that randomly hit individuals. By comparing two settings with and without risky health behaviors, I look for the optimal co-pay mechanism that maximizes welfare and find that in the presence of risky health behaviors, 10% co-pay is optimal while when risky health behaviors are absent, 0% co-pay is optimal. This result is consistent with the notion that some risk sharing mechanism is needed when moral hazard exists because of risky health behaviors.