Showing papers in "American Economic Journal: Applied Economics in 2010"

Dynamics of the Gender Gap for Young Professionals in the Financial and Corporate Sectors

Abstract: The careers of MBAs from a top US business school are studied to understand how career dynamics differ by gender. Although male and female MBAs have nearly identical earnings at the outset of their careers, their earnings soon diverge, with the male earnings advantage reaching almost 60 log points a decade after MBA completion. Three proximate factors account for the large and rising gender gap in earnings: differences in training prior to MBA graduation, differences in career interruptions, and differences in weekly hours. The greater career discontinuity and shorter work hours for female MBAs are largely associated with motherhood.

Information from Markets Near and Far: Mobile Phones and Agricultural Markets in Niger

Abstract: Price dispersion across markets is common in developing countries. Using novel market and trader-level data, this paper provides esti mates of the impact of mobile phones on price dispersion across grain markets in Niger. The introduction of mobile phone service between 2001 and 2006 explains a 10 to 16 percent reduction in grain price dispersion. The effect is stronger for market pairs with higher transport costs. (JEL 013, 033, Qll, Q13)

Present-Biased Preferences and Credit Card Borrowing

Abstract: Some individuals borrow extensively on their credit cards. This paper tests whether present-biased time preferences correlate with credit card borrowing. In a field study, we elicit individual time pref- erences with incentivized choice experiments, and match resulting time preference measures to individual credit reports and annual tax returns. The results indicate that present-biased individuals are more likely to have credit card debt, and to have significantly higher amounts of credit card debt, controlling for disposable income, other socio-demographics, and credit constraints. (

Barriers to Household Risk Management: Evidence from India

Abstract: Why do many households remain exposed to large exogenous sources of nonsystematic income risk? We use a series of randomized field experiments in rural India to test the importance of price and non-price factors in the adoption of an innovative rainfall insurance product. Demand is significantly price sensitive, but widespread take-up would not be achieved even if the product offered a payout ratio comparable to US insurance contracts. The author’s present evidence suggesting that lack of trust, liquidity constraints, and limited salience are significant non-price frictions that constrain demand. The authors suggest possible contract design improvements to mitigate these frictions.

Malaria Eradication in the Americas: A Retrospective Analysis of Childhood Exposure

Abstract: This study uses the malaria-eradication campaigns in the United States (circa 1920), and in Brazil, Colombia and Mexico (circa 1955) to measure how much childhood exposure to malaria depresses labor productivity The campaigns began because of advances in health technology, which mitigates concerns about reverse causality Malarious areas saw large drops in the disease thereafter Relative to non-malarious areas, cohorts born after eradication had higher income as adults than the preceding generation These cross-cohort changes coincided with childhood exposure to the campaigns rather than to pre-existing trends Estimates suggest a substantial, though not predominant, role for malaria in explaining cross-region differences in income

Identification of Social Interactions through Partially Overlapping Peer Groups

Abstract: In this paper, we demonstrate that, in a context where peer groups do not overlap fully, it is possible to identify all the relevant parameters of the standard linear-in-means model of social interactions. We apply this novel identifi cation structure to study peer effects in the choice of college major. Results show that one is more likely to choose a major when many of her peers make the same choice. We also show that peers can divert students from majors in which they have a relative ability advantage, with adverse consequences on academic performance, entry wages, and job satisfaction. (JEL I23, J24, J31, Z13)

Why Have College Completion Rates Declined? An Analysis of Changing Student Preparation and Collegiate Resources

Abstract: Rising college enrollment over the last quarter century has not been met with a proportional increase in college completion. Comparing the high school classes of 1972 and 1992, we show declines in college completion rates have been most pronounced for men who first enroll in less selective public universities and community colleges. We decompose the decline into the components due to changes in preparedness of entering students and due to changes in collegiate characteristics, including type of institution and resources per student. While both factors play some role, the supply-side characteristics are most important in explaining changes in college completion. (JEL I23)

Factor Immobility and Regional Impacts of Trade Liberalization: Evidence on Poverty from India

Abstract: This paper uses the 1991 Indian trade liberalization to measure the impact of trade liberalization on poverty, and to examine the mechanisms underpinning this impact. Variation in sectoral composition across districts and liberalization intensity across production sectors allows a difference-in-difference approach. Rural districts, in which production sectors more exposed to liberalization were concentrated, experienced slower decline in poverty and lower consumption growth. The impact of liberalization was most pronounced among the least geographically mobile at the bottom of the income distribution, and in Indian states where inflexible labor laws impeded factor reallocation across sectors.

An Empirical Analysis of the Gender Gap in Mathematics

Abstract: We document and analyze the emergence of a substantial gender gap in mathematics in the early years of schooling using a large, recent, and nationally representative panel of US children. There are no mean differences between boys and girls upon entry to school, but girls lose more than two-tenths of a standard deviation relative to boys over the first six years of school. The ground lost by girls relative to boys is roughly half as large as the black-white test score gap that appears over these same ages. We document the presence of this gender math gap across every strata of society. We explore a wide range of possible explanations in the data, including less investment by girls in math, low parental expectations, and biased tests, but find little support for these theories. Moving to cross-country comparisons, we find earlier results linking the gender gap in math to measures of gender equality are sensitive to the inclusion of Muslim countries, where, in spite of women's low status, there is little or no gender gap in math.

Information, Direct Access to Farmers, and Rural Market Performance in Central India

Abstract: This paper estimates the impact of a change in procurement strategy of a private buyer in the central Indian state of Madhya Pradesh. Beginning in October 2000, internet kiosks and warehouses were established that provide wholesale price information and an alternative marketing channel to soy farmers in the state. Using a new market-level dataset, the estimates suggest a significant increase in soy price after the introduction of kiosks, supporting the predictions of the theoretical model. Moreover, there is a robust increase in area under soy cultivation. The results point towards an improvement in the functioning of rural agricultural markets.

Over)insuring Modest Risks

Abstract: Despite the large literature on anomalies in risky choice, very little research has explored the relevance of these insights in real insurance markets. This paper uses new data on consumers' choices of deductibles for home insurance to provide evidence that a surprising level of risk aversion over modest stakes is a reality in the market. Most customers purchase low deductibles despite costs significantly above the expected value. Fitting these choices to a standard model of risk aversion yields implausibly large measures of risk parameters. Potential explanations and the implications of these results for understanding the market for insurance are discussed.

Parental Education and Child Health: Evidence from a Natural Experiment in Taiwan

Abstract: In 1968, the Taiwanese government extended compulsory education from six to nine years and opened over 150 new junior high schools at a differential rate among regions. Within each region, we exploit variations across cohorts in new junior high school openings to construct an instrument for schooling and employ it to estimate the causal effects of mother’s or father’s schooling on infant birth outcomes in the years 1978–1999. Parents’ schooling does indeed cause favorable infant health outcomes. The increase in schooling associated with the reform saved almost 1 infant life in 1,000 live births. “The one social factor that researchers agree is consistently linked to longer lives in every country where it has been studied is education. It is more important than race; it obliterates any effects of income.” Gina Kolata, “A Surprising Secret to Long Life: Stay in School,” New York Times, January 3, 2007, p. 1. This paper is a contribution to the literature on the relationship between years of formal schooling completed and good health. In particular we investigate whether the positive relationship between these two variables implies causality from the former to the latter. As the quotation from Kolata indicates, there is a large literature, reviewed in detail by Michael Grossman and Robert Kaestner (1997) and Grossman (2000, 2006), that shows that an individual’s own schooling is the most important correlate of his or her health and that parents’ schooling, especially mother’s schooling, is the most important correlate of child health. This finding emerges whether health levels are measured by mortality rates, morbidity rates, self-evaluation of health status, or physiological indicators of health, and whether the units of observation are individuals or groups. Improvements in child health are widely accepted public policy goals in developing and developed countries. The positive correlation between mother’s schooling and child health in numerous studies was one factor behind the World Bank’s campaign in the 1990s to encourage increases in maternal education in developing countries (World Bank 1993). In a 2002 issue of Health Affairs devoted primarily to the nonmedical determinants of health, Angus Deaton (2002) argues that policies to increase education in the U.S. and to increase income in developing countries are very likely to have larger payoffs in terms of health than those that focus on health care, even if inequalities in health rise. The same proposition with regard to the U.S. can be found in a much earlier study by Richard Auster, Irving Leveson, and Deborah Sarachek (1969). Since more education typically leads to higher income, policies to increase the former appear to have large returns for more than one generation throughout the world. Efforts to improve the health of an individual by increasing the amount of formal schooling that he or she acquires or that try to improve child health by raising maternal schooling assume that the schooling effects reported in the literature are causal. A number of investigators have argued, however, that reverse causality from health to schooling or omitted “third variables” may cause schooling and health to vary in the same direction. Governments can employ a variety of policies to raise the educational levels of their citizens. These include compulsory schooling laws, new school construction, and targeted subsidies to parents and students. If proponents of the third-variable hypothesis are correct or if health causes schooling, evaluations of these policies should not be based on studies that relate adult health or child health to actual measures of schooling because these measures may be correlated with unmeasured determinants of the outcomes at issue. In this paper we propose to use techniques that correct for biases due to the endogeneity of schooling to evaluate the effects of a policy initiative that radically altered the school system in Taiwan and led to an increase in the amount of formal schooling acquired by the citizens of that country during a period of very rapid economic growth. In 1968 Taiwan extended compulsory schooling from six years to nine years. In the period from that year through 1973, many new junior high schools were opened at a differential rate among regions of the country. We form treatment and control groups of women or men who were age 12 or under on the one hand and between the ages of 13 and 20 or 25 on the other hand in 1968. Within each region, we exploit variations across cohorts in new junior high school openings to construct an instrument for schooling. We employ this instrument to estimate the causal effects of mother’s or father’s schooling on the incidence of low birthweight and mortality of infants born to women in the treatment and control groups or the wives of men in these groups in the period from 1978 through 1999. The paper proceeds as follows. Section I outlines a conceptual framework, followed by a review of the related literature. Section II provides some background on education reform in 1968 in Taiwan. Section III indicates how we exploit aspects of the reform to construct instruments for parents’ schooling, presents estimates of the effects of the instrument on schooling, and discusses the specification of infant health outcome equations. Section IV contains reduced form and structural estimates of these equations, and Section V concludes.

Promoting Healthy Choices: Information versus Convenience

Abstract: Success in slowing obesity trends would benefit from policies aimed at reducing calorie consumption. In a field experiment at a fast-food sandwich chain, we address the effects ofproviding calorie information, mimicking recent legislation, and test an alternative approach that makes ordering healthier slightly more convenient. We find that calorie information reduces calorie intake. Providing a daily calorie target does as well, but only for non-overweight individuals. Making healthy choices convenient reduces intake when the intervention is strong. However, a milder implementation reduces sandwich calories, but does not reduce total calories due to compensatory effects on side orders and drinks.

Parents' Incomes and Children's Outcomes: A Quasi-Experiment Using Transfer Payments from Casino Profits †

Abstract: We examine the role an exogenous increase in household income, due to a government transfer unrelated to household characteristics, plays in children's long-run outcomes. Children in affected house - holds have higher levels of education in their young adulthood and a lower incidence of criminality for minor offenses. Effects differ by initial household poverty status. An additional $4,000 per year for the poorest households increases educational attainment by one year at age 21, and reduces the chances of committing a minor crime by 22 percent for 16 and 17 year olds. Our evidence suggests improved parental quality is a likely mechanism for the change. (JEL D14, H23, I32, I38, J13)

Malaria Eradication and Educational Attainment: Evidence from Paraguay and Sri Lanka

Abstract: Mid-twentieth century malaria eradication campaigns largely eliminated malaria from Paraguay and Sri Lanka. Using these interventions as quasi-experiments, I estimate malaria's effect on lifetime female educational attainment through the combination of pre-existing geographic variation in malarial intensity and cohort exposure based on the timing of the national anti-malaria campaigns. The estimates from Sri Lanka and Paraguay are similar and indicate that malaria eradication increased years of educational attainment and literacy. The similarity of the estimates across the countries reinforces our confidence in the validity of the identification strategy.

Do Temporary Help Jobs Improve Labor Market Outcomes for Low-Skilled Workers? Evidence from 'Work First'

Abstract: Temporary-help jobs offer rapid entry into paid employment, but they are typically brief and it is unknown whether they foster longer term employment. We utilize the unique structure of Detroit's welfare-to-work program to identify the effect of temporary-help jobs on labor market advancement. Exploiting the rotational assignment of welfare clients to numerous nonprofit contractors with differing job placement rates, we find that temporary-help job placements do not improve and may diminish subsequent earnings and employment outcomes among participants. In contrast, job placements with direct-hire employers substantially raise earnings and employment over a seven quarter follow-up period.

Externalities in the Classroom: How Children Exposed to Domestic Violence Affect Everyone's Kids

Abstract: There is widespread perception that externalities from troubled children are significant, though measuring them is difficult due to data and methodological limitations. We estimate the negative spillovers caused by children from troubled families by exploiting a unique data set in which children’s school records are matched to domestic violence cases. We find that children from troubled families significantly decrease their peers’ reading and math test scores and increase misbehavior in the classroom. The achievement spillovers are robust to within-family differences and when controlling for school-by-year effects, providing strong evidence that neither selection nor common shocks are driving the results.

Early-life Malaria Exposure and Adult Outcomes: Evidence from Malaria Eradication in India

Abstract: We examine the effects of exposure to malaria in early childhood on educational attainment and economic status in adulthood by exploiting geographic variation in malaria prevalence in India prior to a nationwide eradication program in the 1950s. We find that the program led to modest increases in household per capita consumption for prime age men, and the effects for men are larger than those for women in most specifications. We find no evidence of increased educational attainment for men and mixed evidence for women.

The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization on Corporate Hierarchies

Abstract: This paper establishes a causal effect of product market competition on various characteristics of organizational design. Using a unique panel dataset on firm hierarchies of large US firms (1986-1999) and a quasi-natural experiment (trade liberalization), we find that competition leads firms to flatten their hierarchies: firms reduce the number of positions between the CEO and division managers, and firms increase the number of positions reporting directly to the CEO. The results illustrate how firms redesign their organizational struc ture through a set of complementary choices in response to changes in their environment. We discuss several possible interpretations of these changes. (JEL D23, F13, G34, M12, M51)

Age at arrival, english proficiency, and social assimilation among us immigrants

Abstract: The increase in immigration to the United States in recent decades, much of it from non-English-speaking countries, has drawn attention to the role of English-language skills in immigrant assimilation.1 There is evidence that English proficiency helps immigrants integrate economically into their new home—English proficiency raises wages, narrowing the wage gap between immigrants and U.S. natives. Less studied is whether sounding more “American” makes immigrants act more American as well. (Section I.A discusses the related literature.) This study addresses the connection between English proficiency and social integration. The relationship between English proficiency and social assimilation among immigrants is a controversial topic in contemporary society. A commonplace hypothesis—often stated as fact—is that these variables are interrelated solely because of the culture or preferences of the immigrants themselves; that is, they choose not to integrate into U.S. society and they choose not to learn English. On the other side of the coin is the view that poor English proficiency is a constraint that impedes assimilation. In the present study, we examine this latter channel by quantifying the impact of English proficiency on marriage, fertility and residential location choices. Understanding the effects of English proficiency on social outcomes also has important policy implications. Children of immigrants comprise a large and growing share of the U.S. population—in 2002, they made up 18.7% of the U.S. population under 18 (Randy Capps, Michael Fix and Jane Reardon-Anderson, 2003)—and their lower average education and earnings in adulthood have aroused concern.2 Better knowledge about the family and neighborhood environment in which the children of immigrants grow up should improve our ability to design policies and programs to help them. Additionally, our ability to make demographic forecasts should improve; accurate population estimates are needed for a variety of policies, not just ones concerning immigrants. A considerable challenge to estimating the effect of English proficiency on marriage, fertility and residential location outcomes is the endogeneity of English proficiency. English-language skills are correlated with many other variables that also affect these outcomes, such as ability and cultural attitudes. Additionally, reverse causality is possible. For example, immigrants who are married to U.S. natives may improve their English-language skills through interactions with their spouses, or immigrants who live in ethnic enclaves may develop worse English-language skills for the very reason that they live in enclaves. Thus, ordinary least squares regressions of social outcomes on English proficiency will mostly likely not estimate the causal effect. Our strategy to identify the causal effect is based on a well-documented phenomenon from psychology: the critical period of language acquisition. Simply stated, young children learn languages more easily than older children and adults. We show in Section II that there is a strong association between immigrants’ age at arrival in the U.S. and their English-language skills in adulthood using 2000 Census data on immigrants from non-English-speaking countries. (These data are described in Section I.C.) Indeed, the relationship we find is supportive of the critical period hypothesis: immigrants who arrive before age nine are uniformly fluent in English while those arriving later tend to have worse proficiency. Furthermore, we find no significant age-at-arrival effects on English proficiency for immigrants from countries where English is the dominant language. This is reassuring because, for these immigrants, age at arrival is decoupled from age at first exposure to English. Age at arrival is also related to various social outcomes, especially for those immigrants from non-English-speaking countries. In Section III, we present these results in detail. For immigrants from Anglophone countries, marital status, various spousal characteristics (English proficiency among them), and fertility are, on average, all flat across age at arrival. In contrast, for immigrants from non-Anglophone countries, arriving later predicts higher marriage rates, higher fertility, and having spouses with lower human capital. Immigrants of either origin group are more likely to live in an “enclave” if they arrived later, which suggests a more general cultural (i.e., not just linguistic) mechanism at work, although the effect of age at arrival is a bit stronger for those from non-English-speaking countries. We note a striking similarity in the age-at-arrival profile for English proficiency and the social outcomes. This fact suggests the following mechanism: childhood immigrants with first exposure to English after the critical period attain poorer English proficiency as adults, and their lower English proficiency in turn influences their socioeconomic outcomes. One complication with this interpretation, however, is that age at arrival probably affects immigrants’ socioeconomic outcomes through channels other than language, such as through better knowledge of American culture and institutions. We therefore use immigrants from English-speaking countries to control for non-language-related effects of age at arrival. Again, arriving after the critical period predicts various social outcomes for immigrants of non-Anglophone origin, over and above that seen that seen for immigrants from Anglophone countries. This analysis leads us to use an instrumental variable for English proficiency that is an interaction between immigrants’ age at arrival and having a non-English-speaking country of birth. We implement this instrumental-variables strategy in Section IV. We start by considering marriage outcomes, and find that higher English proficiency decreases the probability of being married, both by decreasing the probability of ever having married and increasing the probability of being divorced. For those immigrants currently married with spouse present, we also examine spousal characteristics. We find that better English leads to more assimilation along several dimensions. Immigrants with greater English proficiency marry people who have better fluency in English, more education and higher earnings. Additionally, intermarriage (marrying outside one’s nationality and ethnicity) is more likely. Next, we consider fertility outcomes, and find that immigrants with better English proficiency have fewer children though they are not significantly less likely to have a child. Finally, we consider residential location outcomes and find that immigrants with greater English proficiency are significantly less likely to live in “ethnic enclaves.” We then extend this analysis along several dimensions in Section V. We show that our main results are not sensitive to altering the specification or sample in ways that should increase the comparability between immigrants from English-speaking and non-English-speaking countries. Finally, we argue that language is, therefore an important constraint in immigrants’ social outcomes, and offer other conclusions in Section VI.

Child Gender And Parental Investments In India: Are Boys And Girls Treated Differently?

Abstract: There is considerable debate in the literature as to whether boys and girls are treated differently in India. But son-biased stopping rules imply that previous estimates are likely to be biased. We propose a novel identification strategy to properly identify the effects of child gender on parental investments. Using data from a time use survey we document gender differences in childcare time which have not been studied before in developing countries. We find that boys receive on average 10% more time than girls. They are also more likely to be breastfed for longer, given vaccinations and vitamin supplementation.

US Environmental Regulation and FDI: Evidence from a Panel of US-Based Multinational Firms

Abstract: This paper measures the response of US-based multinationals to the Clean Air Act Amendments (CAAA). Using a panel of firm-level data over the period 1966―1999, I estimate the effect of regulation on a multinational's foreign production decisions. The CAAA induced substantial variation in the degree of regulation faced by firms, allowing for the estimation of econometric models that control for firm-specific characteristics and industrial trends. I find that the CAAA caused regulated multinational firms to increase their foreign assets by 5.3 percent and their foreign output by 9 percent. Heavily regulated firms did not disproportionately increase foreign investment in developing countries.

Beyond Signaling and Human Capital: Education and the Revelation of Ability †

Abstract: We provide evidence that college graduation plays a direct role in revealing ability to the labor market. Using the NLSY79, our results suggest that ability is observed nearly perfectly for college graduates, but is revealed to the labor market more gradually for high school graduates. Consequently, from the beginning of their careers, college graduates are paid in accordance with their own ability, while the wages of high school graduates are initially unrelated to their own ability. This view of ability revelation in the labor market has considerable power in explaining racial differences in wages, education, and returns to ability.

The Effect of Bans and Taxes on Passive Smoking

Abstract: We evaluate the effect of smoking bans and excise taxes on the exposure to tobacco smoke of nonsmokers, and we show their unintended consequences on children. Smoking bans perversely increase nonsmokers' exposure by displacing smokers to private places where they contaminate nonsmokers. We exploit data on bio-samples of cotinine, time use, and smoking cessation, as well as state and time variation in anti-smoking policies across US states. We find that higher taxes are an efficient way to decrease exposure to tobacco smoke.

The Contribution of the Minimum Wage to US Wage Inequality over Three Decades: A Reassessment

Abstract: We reassess the effect of minimum wages on US earnings inequality using additional decades of data and an IV strategy that addresses potential biases in prior work. We find that the minimum wage reduces inequality in the lower tail of the wage distribution, though by substantially less than previous estimates, suggesting that rising lower tail inequality after 1980 primarily reflects underlying wage structure changes rather than an unmasking of latent inequality. These wage effects extend to percentiles where the minimum is nominally nonbinding, implying spillovers. We are unable to reject that these spillovers are due to reporting artifacts, however. (JEL J22, J31, J38, K31)

Trade Adjustment and Human Capital Investments: Evidence from Indian Tariff Reform

Abstract: Does trade policy influence schooling and child labor in low-income countries? We examine this question in the context of India's 1991 tariff reforms. While schooling increased and child labor declined in rural India in the 1990s, these trends are attenuated in districts with employment concentrated in industries losing tariff protection. As the loss of protection causes a relative rise in poverty in affected districts, families reduce schooling to save schooling costs. Girls dis proportionately bear the burden of helping their families cope with poverty. (JEL F13, F16,121, J13, J82, 015, 019)

Minimum Wages and Earnings Inequality in Urban Mexico

Abstract: This paper analyzes the contribution of the minimum wage to the well documented rise in earnings inequality in Mexico between the late 1980s and the early 2000s. We find that a substantial part of the growth in inequality, and essentially all of the growth in inequality in the bottom end of the distribution, is due to the steep decline in the real value of the minimum wage.

Intergenerational Networks, Unemployment, and Persistent Inequality in South Africa

Abstract: This paper examines the importance of network-based intergen erational correlations in South Africa. I use longitudinal data on young South Africans to examine the covariance of children's employment with the usefulness of parents in their job search. I find that fathers serve as useful network connections to their sons {not daughters), and that mothers do not seem to be useful network con nections. The father-son effect is robust to alternate explanations of specific human capital and correlated networks. The size of this effect is large. Present fathers' utility as network connections may be responsible for a one-third increase in their sons' employment rates. (JEL D31, J12, J13, J24, J62, 015, Z13)

Government Spending and Legislative Organization: Quasi-experimental Evidence from Germany

Abstract: In this paper we present empirical evidence that council size has a positive efiect on government spending. We use data of 2056 municipalities in the German state of Bavaria over a time period of 22 years. In particular, we make use of law-induced changes in the council size, triggered by slight changes in population size (\one more inhabitant"), to identify a causal relationship between council size and spending. The regressiondiscontinuity design, thereby, circumvents problems of endogeneity of previous studies. The paper also shows that (i) politically strong mayors do not break the relationship between the size of government and council size, (ii) municipalities rely on property taxes (rather than public debt) to flnance pork-barrel spending, and (iii) political fragmentation does not magnify the pro-spending bias inherent to legislature size.

Disclosure by Politicians

Abstract: We collect data on the rules and practices of financial and conflict disclosure by politicians in 175 countries. Although two thirds of the countries have some disclosure laws, less than a third make disclosures available to the public. Disclosure is more extensive in richer and more democratic countries. Disclosure is correlated with lower perceived corruption when it is public, when it identifies sources of income and conflicts of interest, and when a country is a democracy.