Showing papers by "Institute for the Study of Labor published in 2014"

People, Places, and Public Policy: Some Simple Welfare Economics of Local Economic Development Programs

Abstract: Most countries exhibit large and persistent geographical differences in wages, income, and unemployment rates. A growing class of place-based policies attempts to address these differences through public investments and subsidies that target disadvantaged neighborhoods, cities, or regions. Place-based policies have the potential to profoundly affect the location of economic activity, along with the wages, employment, and industry mix of communities. These programs are widespread in the United States and throughout the world but have only recently been studied closely by economists. We consider the following questions: Who benefits from place-based interventions? Do the national benefits outweigh the costs? What sorts of interventions are most likely to be effective? To study these questions, we develop a simple spatial equilibrium model designed to characterize the welfare effects of place-based policies on the local and the national economy. Using this model, we critically evaluate the economic rationale...

The Environmental Kuznets Curve and Sustainability: A Panel Data Analysis

Abstract: In recent years, sustainability has represented one of the most important policy goals explored in the environmental Kuznets curve (EKC) literature. But related hypotheses, performance measures and results continue to present a challenge. The present paper contributes to this ongoing literature by studying two different EKC specifications for 10 Middle East and North African (MENA) countries over the period 1990-2010 using panel data methods. For the first specification, namely EKC, we show that there is an inverted U-shape relationship between environmental degradation and income; while for the second specification, namely modified EKC (MEKC), we show that there is an inverted U-shape relationship between sustainability and human development (HD). The relationships are shaped by other factors such as energy, trade, manufacture added value and the role of law. More interestingly, findings from the estimation show that EKC hypothesis, HD and sustainability are crucial to build effective environmental policies.

Polanyi's Paradox and the Shape of Employment Growth

Abstract: In 1966, the philosopher Michael Polanyi observed, "We can know more than we can tell... The skill of a driver cannot be replaced by a thorough schooling in the theory of the motorcar; the knowledge I have of my own body differs altogether from the knowledge of its physiology." Polanyi's observation largely predates the computer era, but the paradox he identified--that our tacit knowledge of how the world works often exceeds our explicit understanding--foretells much of the history of computerization over the past five decades. This paper offers a conceptual and empirical overview of this evolution. I begin by sketching the historical thinking about machine displacement of human labor, and then consider the contemporary incarnation of this displacement--labor market polarization, meaning the simultaneous growth of high-education, high-wage and low-education, low-wages jobs--a manifestation of Polanyi's paradox. I discuss both the explanatory power of the polarization phenomenon and some key puzzles that confront it. I then reflect on how recent advances in artificial intelligence and robotics should shape our thinking about the likely trajectory of occupational change and employment growth. A key observation of the paper is that journalists and expert commentators overstate the extent of machine substitution for human labor and ignore the strong complementarities. The challenges to substituting machines for workers in tasks requiring adaptability, common sense, and creativity remain immense. Contemporary computer science seeks to overcome Polanyi's paradox by building machines that learn from human examples, thus inferring the rules that we tacitly apply but do not explicitly understand.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Comparing Labor Supply Elasticities in Europe and the United States: New Results

Abstract: We suggest the first large-scale international comparison of labor supply elasticities for 17 European countries and the United States using a harmonized empirical approach. We find that own-wage elasticities are relatively small and more uniform across countries than previously considered. Nonetheless, such differences do exist, and are found not to arise from different tax-benefit systems, wage/hour levels, or demographic compositions across countries, suggesting genuine differences in work preferences across countries. Furthermore, three other findings are consistent across countries: The extensive margin dominates the intensive margin; for singles, this leads to larger responses in low-income groups; and income elasticities are extremely small.

Downward Nominal Wage Rigidities Bend the Phillips Curve

Abstract: We introduce a model of monetary policy with downward nominal wage rigidities and show that both the slope and curvature of the Phillips curve depend on the level of inflation and the extent of downward nominal wage rigidities. This is true for the both the long-run and the short-run Phillips curve. Comparing simulation results from the model with data on U.S. wage patterns, we show that downward nominal wage rigidities likely have played a role in shaping the dynamics of unemployment and wage growth during the last three recessions and subsequent recoveries.

Heterogeneous Peer Effects in Education

Abstract: We develop a network model looking at the role of different types of peers in education. The empirical salience of the model is tested using a very detailed longitudinal dataset of adolescent friendship networks. We find that there are strong and persistent peer effects in education but peers tend to be influential only when their friendships last more than a year and not a shorter period of time. In the short run, however, both types of ties have an impact on current grades.

The labour market integration of refugee and family reunion immigrants : a comparison of outcomes in Canada and Sweden

Abstract: This paper assesses the employment and earnings trajectories of refugee and family reunion category immigrants in Canada and Sweden using two national level sources of data. The Canadian Immigration Database (IMDB) is a file that links the intake record of post-1979 immigrants with annual taxation records. The 2007 Swedish Register Data includes information on all legal permanent residents. Using standard regression methods, we compare labour force outcomes of age–sex–schooling–place of birth cohorts looking specifically at non-economic (family reunion and refugee intake) immigrants from Iran, Iraq, Afghanistan and the former Yugoslavia. We find that the employment and earning trajectories of the selected non-economic migrant groups are quite similar in the two host countries, although earnings are higher in Canada than in Sweden.

Made in China, Sold in Norway: Local Labor Market Effects of an Import Shock

Abstract: We analyze whether regional labor markets are affected by exposure to import competition from China. We find negative employment effects for low-skilled workers, and observe that low-skilled workers tend to be pushed into unemployment or leave the labor force altogether. We find no evidence of wage effects. We partly expect this in a Nordic welfare state where firms are flexible at the employment margin, while centralized wage bargaining provides less flexibility at the wage margin. Our estimates suggest that import competition from China explains almost 10% of the reduction in the manufacturing employment share from 1996 to 2007 which is half of the effect found by Autor, Dorn and Hanson (2013) for the US.

Behavioral Economics of Education

Abstract: During the last decade knowledge about human behavior from psychology and sociology has enhanced the field of economics of education. By now research recognizes cognitive skills (as measured by achievement tests) and soft skills (personality traits not adequately measured by achievement tests) as equally important drivers of later economic outcomes, and skills are seen as multi-dimensional rather than one-dimensional. Explicitly accounting for soft skills often implies departing from the standard economic model by integrating concepts studied in behavioral and experimental economics, such as self-control, willingness to compete, intrinsic motivation, and self-confidence. We review how approaches from behavioral economics help our understanding of the complexity of educational investments and outcomes, and we discuss what insights can be gained from such concepts in the context of education.

A Reconsideration of Gender Differences in Risk Attitudes

Abstract: This paper reconsiders the wide agreement that females are more risk averse than males providing a leap forward in its understanding. Thoroughly surveying the experimental literature we first find that gender differences are less ubiquitous than usually depicted. Gathering the microdata of an even larger sample of Holt and Laury replications we boost the statistical power of the test and show that the magnitude of gender differences, although significant, is economically unimportant. We conclude that gender differences systematically correlate with the features of the elicitation method used and in particular the availability of a safe option and fixed probabilities.

Economic Growth and Political Integration: Estimating the Benefits from Membership in the European Union Using the Synthetic Counterfactuals Method

Abstract: This paper presents new estimates of the economic benefits from economic and political integration. Using the synthetic counterfactuals method, we estimate how GDP per capita and labour productivity would have behaved for the countries that joined the European Union (EU) in the 1973, 1980s, 1995 and 2004 enlargements, if those countries had not joined the EU. We find large positive effects from EU membership but these differ across countries and over time (they are only negative for Greece). We calculate that without deep economic and political integration, per capita incomes would have been, on average, approximately 12 percent lower.

Public-Private Sector Wage Differentials by Type of Contract: Evidence from Spain

Abstract: The article examines public-private sector wage differentials in Spain using microdata from the Structure of Earnings Survey (Encuesta de Estructura Salarial). When applying various decomposition techniques, we find that it is important to distinguish by gender and type of contract. Our results also highlight the presence of a positive wage premium for public sector workers that can be partially explained by their better endowment of characteristics, in particular by the characteristics of the establishment where they work. The wage premium is greater for female and fixed-term employees and falls across the wage distribution, being negative for more highly skilled workers.

Children of War: The Long-Run Effects of Large-Scale Physical Destruction and Warfare on Children

Abstract: This paper provides causal evidence on the long-term consequences of large-scale physical destruction on educational attainment, health status, and labor market outcomes of children. I exploit the plausibly exogenous region-by-cohort variation in the intensity of World War Two (WWII) destruction as a unique quasi-experiment. I find that exposure to destruction had long-lasting detrimental effects on the human capital formation, health, and labor market outcomes of Germans who were at school-age during WWII. An important channel for the effect of destruction on educational attainment is the destruction of schools whereas malnutrition is partly behind the estimated impact on health.

Does Education Improve Cognitive Performance Four Decades After School Completion

Abstract: We study the effect of secondary education on cognitive performance toward the end of working age. We exploit the exogenous variation in years of schooling arising from compulsory schooling reforms implemented in six European countries during the 1950s and 1960s. Using data of individuals, approximately age 60, from the Survey of Health, Ageing and Retirement in Europe (SHARE), we assess the causal effect of education on memory, fluency, numeracy, and orientation-to-date. Furthermore, we study education effects on cognitive decline. We find a positive impact of schooling on memory scores. One year of education increases the memory score approximately four decades later by about 0.2, which amounts to 10 % of a standard deviation. Furthermore, we find some evidence for a protective effect of schooling on cognitive decline in terms of verbal fluency.

The Own-Wage Elasticity of Labor Demand: A Meta-Regression Analysis

Abstract: Firms' labor demand responses to wage changes are of key interest in empirical research and policy analysis However, despite extensive research, estimates of labor demand elasticities remain subject to considerable heterogeneity In this paper, we conduct a comprehensive meta-regression analysis to re-assess the empirical literature on labor demand elasticities Building on 942 elasticity estimates from 105 different studies, we identify sources of variation in the absolute value of this elasticity Heterogeneity due to the theoretical and empirical specification of the labor demand model, different datasets used or sectors and countries considered explains more than 80% of the variation in the estimates We further find substantial evidence for the presence of publication selection bias, as estimates of the own-wage elasticity of labor demand are upwardly inflated

Like Father, Like Son? Intergenerational Education Mobility in India

Abstract: Using nationally representative and publicly available India Human Development Survey (IHDS), we create a unique son-father matched data that is representative of the entire adult male population (aged 20-65) in India. We use this data to document the evolution of intergenerational transmission of educational attainment in India over time, among different castes, and states for the birth cohorts of 1940-85. We find that educational persistence, as measured by the regression coefficient of fathers’ education as a predictor of schooling in the next generation, has declined over time. This implies increases in average educational attainment are driven primarily by increases among children of less educated fathers. However, we do not find such declining trend in the correlation between sons and fathers education, another commonly used measure of persistence. To understand the source of such a discrepancy between the two measures of educational persistence we decompose the intergenerational correlation and find that although persistence has declined at the lower end of fathers’ educational distribution, it has increased at the top end of the fathers’ educational distribution.

What Do Field Experiments of Discrimination in Markets Tell Us? A Meta Analysis of Studies Conducted Since 2000

Abstract: Sixty-seven field experiments of discrimination in markets conducted since 2000 across seventeen countries were surveyed. Significant and persistent discrimination was found on all bases in all markets. High levels of discrimination were recorded against ethnic groups, older workers, men applying to female-dominated jobs and homosexuals in labour markets. Minority applicants for housing needed to make many more enquiries to view properties. Geographical steering of African-Americans in US housing remained significant. Higher prices were quoted to minority applicants buying products. More information made no significant improvement to minority applicant outcomes. Clear evidence of statistical discrimination was found only in product markets.

The Effects of Paid Family Leave in California on Labor Market Outcomes

Abstract: Using data from the 1997 cohort of the National Longitudinal Survey of Youth (NLSY-97), we examine the effects of California's paid family leave program (CA-PFL) on mothers' and fathers' use of leave during the period surrounding child birth, and on the timing of mothers' return to work, the probability of eventually returning to pre-childbirth jobs, and subsequent labor market outcomes.Our results show that CA-PFL raised leave-taking by around three weeks for the average mother and approximately one week for the average father. The timing of the increased leave use – immediately after birth for men and around the time that temporary disability insurance benefits are exhausted for women – is consistent with causal effects of CA-PFL. Rights to paid leave are also associated with higher work and employment probabilities for mothers nine to twelve months after birth, possibly because they increase job continuity among those with relatively weak labor force attachments. We also find positive effects of California's program on hours and weeks of work during their child's second year of life and possibly also on wages.

Cash Transfers and Child Labor

Abstract: Cash transfer programs are widely used in settings where child labor is prevalent Although many of these programs are explicitly implemented to improve children’s welfare, in theory their impact on child labor is undetermined This paper systematically reviews the empirical evidence on the impact of cash transfers, conditional and unconditional, on child labor The authors find no evidence that cash transfer interventions increase child labor in practice On the contrary, there is broad evidence that conditional and unconditional cash transfers lower both children’s participation in child labor and their hours worked and that these transfers cushion the effect of economic shocks that may lead households to use child labor as a coping strategy Boys experience particularly strong decreases in economic activities, whereas girls experience such decreases in household chores The authors findings underline the usefulness of cash transfers as a relatively safe policy instrument to improve child welfare but also point to knowledge gaps, for instance regarding the interplay between cash transfers and other interventions, that should be addressed in future evaluations to provide detailed policy advice The remainder of this review is organized as follows Section 1 provides the necessary background It heuristically describes why the effects of cash transfers on child labor are theoretically undetermined, and it introduces the procedure that we used to identify the relevant studies for this review Section 2 discusses the impact of two subsets of unconditional cash transfers: programs designed to support poor households’ investments in children’s human capital and old age pension schemes Section 3 discusses the average impact of conditional cash transfer schemes on the intensive and extensive margin of child labor, the impact of conditional cash transfers on child labor compared to their impact on school participation, heterogeneity by poverty, age, and gender, spillover effects, long-run effects, determinants of program effects, protection from shocks, and variations on the basic conditional cash transfer scheme Section 4 discusses and concludes

By Choice and by Necessity: Entrepreneurship and Self-Employment in the Developing World

Abstract: Over half of all workers in the developing world are self-employed. Although some self-employment is chosen by entrepreneurs with well-defined projects and ambitions, roughly two thirds results from individuals having no better alternatives. The importance of self-employment in the overall distribution of jobs is determined by many factors, including social protection systems, labor market frictions, the business environment, and labor market institutions. However, self-employment in the developing world tends to be low productivity employment, and as countries move up the development path, the availability of wage employment grows and the mix of jobs changes.

The Math Gender Gap: The Role of Culture

Abstract: This paper explores the role of cultural attitudes towards women in determining math educational gender gaps using the epidemiological approach. To identify whether culture matters, we estimate whether the math gender gap for each immigrant group living in a particular host country (and exposed to the same host country's laws and institutions) is explained by measures of gender equality in the parents' country of ancestry. We find that the higher the degree of gender equality in the country of ancestry, the higher the performance of second-generation immigrant girls relative to boys. This result is robust to alternative specifications, measures of gender equality and the inclusion of other human development indicators in the country of ancestry. The transmission of culture is higher among those in schools with a higher proportion of immigrants or in co-educational schools. Our results suggest that policies aimed at changing beliefs can prove effective in reducing the gender gap in mathematics.

Why Don't Remittances Appear to Affect Growth?

Abstract: Although measured remittances by migrant workers have soared in recent years, macroeconomic studies have difficulty detecting their effect on economic growth. This paper reviews existing explanations for this puzzle and proposes three new ones. First, it offers evidence that a large majority of the recent rise in measured remittances may be illusory -- arising from changes in measurement, not changes in real financial flows. Second, it shows that even if these increases were correctly measured, cross-country regressions would have too little power to detect their effects on growth. Third, it points out that the greatest driver of rising remittances is rising migration, which has an opportunity cost to economic product at the origin. Net of that cost, there is little reason to expect large growth effects of remittances in the origin economy. Migration and remittances clearly have first-order effects on poverty at the origin, on the welfare of migrants and their families, and on global gross domestic product; but detecting their effects on growth of the origin economy is likely to remain elusive.

Do Female Executives Make a Difference? The Impact of Female Leadership on Gender Gaps and Firm Performance

Abstract: We analyze a matched employer-employee panel data set and find that female leadership has a positive effect on female wages at the top of the distribution, and a negative one at the bottom. Moreover, performance in firms with female leadership increases with the share of female workers. This evidence is consistent with a model where female executives are better equipped at interpreting signals of productivity from female workers. This suggests substantial costs of under-representation of women at the top: for example, if women became CEOs of firms with at least 20% female employment, sales per worker would increase 6.7%.

Linguistic Barriers in the Destination Language Acquisition of Immigrants

Abstract: There are various degrees of similarity between the languages of different immigrants and the language of their destination country. This linguistic distance is an obstacle to the acquisition of a language, which leads to large differences in the attainments of the language skills necessary for economic and social integration in the destination country. This study aims at quantifying the influence of linguistic distance on the language acquisition of immigrants in the US and in Germany. Drawing from comparative linguistics, we derive a measure of linguistic distance based on the automatic comparison of pronunciations. We compare this measure with three other linguistic and non-linguistic approaches in explaining self-reported measures of language skills. We show that there is a strong initial disadvantage from the linguistic origin for language acquisition, while the effect on the steepness of assimilation patterns is ambiguous in Germany and the US.

A Review of Renewable Energy Supply and Energy Efficiency Technologies

Abstract: Electricity consumption will comprise an increasing share of global energy demand during the next two decades. In recent years, the increasing prices of fossil fuels and concerns about the environm ...

Gender Differences in Honesty: Groups Versus Individuals

Abstract: Extending the die rolling experiment of Fischbacher and Follmi-Heusi (2013), we compare gender effects with respect to unethical behavior by individuals and by two-person groups. In contrast to individual decisions, gender matters strongly under group decisions. We find more lying in male groups and mixed groups than in female groups.

Personality, IQ, and Lifetime Earnings

Abstract: Talented individuals are seen as drivers of long-term growth, but how do they realize their full potential? In this paper, I show that even in a group of high-IQ men and women, lifetime earnings are substantially influenced by their education and personality traits. I identify a previously undocumented interaction between education and traits in earnings generation, which results in important heterogeneity of the net present value of education.Personality traits directly affect men's earnings, with effects only developing fully after age 30. These effects play a much larger role for the earnings of more educated men. Personality and IQ also influence earnings indirectly through educational choice. Surprisingly, education and personality skills do not always raise the family earnings of women in this cohort, as women with very high education and IQ are less likely to marry, and thus have less income through their husbands. To identify personality traits, I use a factor model that also serves to correct for prediction error bias, which is often ignored in the literature. This paper complements the literature on investments in education and personality traits by showing that they also have potentially high returns at the high end of the ability distribution.

The Economic Impact of Non-communicable Disease in China and India: Estimates, Projections, and Comparisons

Abstract: This study provides estimates of the macroeconomic impact of non-communicable diseases (NCDs) in China and India for the period 2012–2030. Our estimates are derived using the World Health Organization’s EPIC model of economic growth, which focuses on the negative effects of NCDs on labor supply and capital accumulation. We present results for the five main NCDs (cardiovascular disease, cancer, chronic respiratory disease, diabetes, and mental health). Our undiscounted estimates indicate that the cost of the five main NCDs will total USD 23.03 trillion for China and USD 4.58 trillion for India (in 2010 USD). For both countries, the most costly domain is cardiovascular disease. Our analyses also reveal that the costs are much larger in China than in India mainly because of China’s higher and steeper income trajectory, and to a lesser extent its older population. Rough calculations also indicate that WHO’s best buys for addressing the challenge of NCDs are highly cost-beneficial.

Birth Order and Human Capital Development: Evidence from Ecuador

Abstract: In this paper we examine the effect of birth order on human capital development in Ecuador. Using family fixed effects models we find positive and persistent birth order effects; earlier-born children stay behind in their human capital development from infancy to adolescence. Turning to potential mechanisms, we find that earlier-born children receive less quality time from their mothers. Additionally, they are breastfed shorter. Poverty plays a key role in explaining these birth order patterns; we observe the largest birth order effects in poor and low-educated families, accompanied with reversed birth order effects in rich and high-educated families.

Measuring Student Debt and Its Performance

Abstract: Studies continue to indicate that higher education is frequently a worthwhile investment for individuals and that it raises the productivity of the workforce as a whole. While the rising cost of post-secondary education has not eliminated this "college premium," it has raised new questions about how growing numbers of students can make these investments. One solution to this problem is student loans, which have come to play an increasingly important role in financing higher education. Yet, despite its importance, educational debt is not well understood. Among the reasons is that there exist few central repositories of information on the characteristics and performance of all student loans, which currently include loans made by both government and private lenders. In this paper, we bring a new data set to bear on this important issue and present a brief analysis of the historical and current levels of student debt and how those loans are performing. We also briefly discuss the implications of student loans for borrowers and the economy.