Showing papers in "The American Economic Review in 2013"

The China Syndrome: Local Labor Market Effects of Import Competition in the United States

Abstract: We analyze the effect of rising Chinese import competition between 1990 and 2007 on US local labor markets, exploiting cross-market variation in import exposure stemming from initial diffe...

The Growth of Low-Skill Service Jobs and the Polarization of the US Labor Market

Abstract: We offer an integrated explanation and empirical analysis of the polarization of U.S. employment and wages between 1980 and 2005, and the concurrent growth of low skill service occupations. We attribute polarization to the interaction between consumer preferences, which favor variety over specialization, and the falling cost of automating routine, codifiable job tasks. Applying a spatial equilibrium model, we derive, test, and confirm four implications of this hypothesis. Local labor markets that were specialized in routine activities differentially adopted information technology, reallocated low skill labor into service occupations (employment polarization), experienced earnings growth at the tails of the distribution (wage polarization), and received inflows of skilled labor.

Understanding the Mechanisms through Which an Influential Early Childhood Program Boosted Adult Outcomes

Abstract: A growing literature establishes that high quality early childhood interventions targeted toward disadvantaged children have substantial impacts on later life outcomes. Little is known about the mechanisms producing these impacts. This paper uses longitudinal data on cognitive and personality traits from an experimental evaluation of the influential Perry Preschool program to analyze the channels through which the program boosted both male and female participant outcomes. Experimentally induced changes in personality traits explain a sizable portion of adult treatment effects.

Cross-Country Differences in Productivity: The Role of Allocation and Selection

Abstract: This paper investigates the effect of idiosyncratic ( firm-le vel) policy distortions on aggregate outcomes. Exploiting harmonized firm - level data for a number of countries, we show that there is substantial and systematic cross - country variation in the within-industry covariance between size and productivity. We develop a model in which heterogeneous firms face adjustment frictions (overhead labor and quasi-fixed capital) and distortions. The model can be readily calibrated so that variations in the distribution of distortions allow matching the observed cross-country moments. We show that the differences in the distortions that account for the size-productivity covariance imply substantial differences in aggregate performance. (JEL D24, L25, O47) A vast theoretical and empirical literature has been devoted to identify the sources of the large and persistent differences in productivity across countries. At the same time, a parallel strand of research has emerged over the past decade suggesting large and persistent heterogeneity in firm-level productivity, even in narrowly defined industries, in a variety of countries (e.g., Bartelsman, Haltiwanger, and Scarpetta 2004).

The 'Out of Africa' Hypothesis, Human Genetic Diversity, and Comparative Economic Development

Abstract: This research advances and empirically establishes the hypothesis that, in the course of the prehistoric exodus of Homo sapiens out of Africa, variation in migratory distance to various settlements across the globe affected genetic diversity and has had a persistent humpshaped effect on comparative economic development, reflecting the trade-off between the beneficial and the detrimental effects of diversity on productivity. While the low diversity of Native American populations and the high diversity of African populations have been detrimental for the development of these regions, the intermediate levels of diversity associated with European and Asian populations have been conducive for development. (JEL N10, N30, N50, O10, O50, Z10) Prevailing hypotheses of comparative economic development highlight various determinants of the remarkable inequality in income per capita across the globe. The significance of geographical, institutional, and cultural factors, human capital, ethnolinguistic fractionalization, colonialism, and globalization has been at the heart of a debate concerning the genesis of the astounding transformation in the pattern of comparative development over the past few centuries. While early research focused on the proximate forces that contributed to the divergence in living

Consumer Spending and the Economic Stimulus Payments of 2008

Abstract: We measure the change in household spending caused by receipt of the economic stimulus payments of 2008, using questions added to the Consumer Expenditure Survey and variation from the ran...

Adverse Selection and Inertia in Health Insurance Markets: When Nudging Hurts

Abstract: This paper investigates consumer inertia in health insurance markets, where adverse selection is a potential concern. We leverage a major change to insurance provision that occurred at a large firm to identify substantial inertia, and develop and estimate a choice model that also quantifies risk preferences and ex ante health risk. We use these estimates to study the impact of policies that nudge consumers toward better decisions by reducing inertia. When aggregated, these improved individual-level choices substantially exacerbate adverse selection in our setting, leading to an overall reduction in welfare that doubles the existing welfare loss from adverse selection. (JEL D82, G22, I13) A number of potential impediments stand in the way of efficient health insur ance markets. The most noted of these is adverse selection, first studied by Akerlof (1970) and Rothschild and Stiglitz (1976). In insurance markets, prices reflect the expected risk (costs) of the insured pool. Whether the reason is price regulation or private information, when insurers cannot price all risk characteristics riskier consumers choose more comprehensive health plans. This causes the equilibrium prices of these plans to rise and healthier enrollees to select less comprehensive coverage than they would otherwise prefer.

The Surprisingly Swift Decline of U.S. Manufacturing Employment

Abstract: This paper links the sharp drop in US manufacturing employment after 2000 to a change in US trade policy that eliminated potential tariff increases on Chinese imports. Industries more exposed to the change experience greater employment loss, increased imports from China, and higher entry by US importers and foreign-owned Chinese exporters. At the plant level, shifts toward less labor-intensive production and exposure to the policy via input-output linkages also contribute to the decline in employment. Results are robust to other potential explanations of employment loss, and there is no similar reaction in the European Union, where policy did not change. (JEL D72, E24, F13, F16, L24, L60, P33)

Why Don't the Poor Save More? Evidence from Health Savings Experiments

Abstract: Using data from a field experiment in Kenya, we document that providing individuals with simple informal savings technologies can substantially increase investment in preventative health and reduce vulnerability to health shocks. Simply providing a safe place to keep money was sufficient to increase health savings by 66 percent. Adding an earmarking feature was only helpful when funds were put toward emergencies, or for individuals that are frequently taxed by friends and relatives. Group-based savings and credit schemes had very large effects.

The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States

Abstract: This paper estimates the dynamic effects of changes in taxes in the United States. We distinguish between changes in personal and corporate income taxes and develop a new narrative account of federal tax liability changes in these two tax components. We develop an estimator which uses narratively identified tax changes as proxies for structural tax shocks and apply it to quarterly post-WWII data. We find that short run output effects of tax shocks are large and that it is important to distinguish between different types of taxes when considering their impact on the labor market and on expenditure components.

Time as a Trade Barrier

Abstract: International trade occurs in physical space and moving goods requires time. This paper examines the importance of time as a trade barrier, estimates the magnitude of time costs, and relates these to patterns of trade and the international organization of production. Estimates indicate that each additional day spent in transport reduces the probability that the US will source from that country by 1 – 1.5 percent. Conditional on exporting country, estimates directly identify a willingness-to-pay for time savings using variation across exporters and commodities in the relative price / speed tradeoff for air and ocean shipping. Each day saved in shipping time is worth 0.8 percent ad-valorem for manufactured goods. Relative declines over time in air shipping prices make time-savings less expensive, providing a compelling explanation for aggregate trade growth, compositional effects in trade growth, as well as growth in time-intensive forms of integration such as vertical specialization. Specifically, the advent of fast transport (air shipping and faster ocean vessels) is equivalent to reducing tariffs on manufactured goods from 32% to 9% between 1950-1998.

Intermediary Asset Pricing

Abstract: We model the dynamics of risk premia during crises in asset markets where the marginal investor is a financial intermediary. Intermediaries face an equity capital constraint. Risk premia r...

Growth Forecast Errors and Fiscal Multipliers

Abstract: This paper investigates the relation between growth forecast errors and planned fiscal consolidation during the crisis. We find that, in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected. The relation is particularly strong, both statistically and economically, early in the crisis. A natural interpretation is that fiscal multipliers were substantially higher than implicitly assumed by forecasters. The weaker relation in more recent years may in part reflect learning by forecasters and in part smaller multipliers than in the early years of the crisis.

The Effect of Education on Adult Mortality and Health: Evidence from Britain

Abstract: There is a strong, positive, and well-documented correlation between education and health outcomes. In this paper, we attempt to understand to what extent this relationship is causal. Our approach exploits two changes to British compulsory schooling laws that generated sharp across-cohort differences in educational attainment. Using regression discontinuity methods, we find the reforms did not affect health although the reforms impacted educational attainment and wages. Our results suggest caution as to the likely health returns to educational interventions focused on increasing educational attainment among those at risk of dropping out of high school, a target of recent health policy efforts.

Using Differences in Knowledge across Neighborhoods to Uncover the Impacts of the EITC on Earnings

Abstract: We develop a new method of estimating the impacts of tax policies that uses areas with little knowledge about the policy’s marginal incentives as counterfactuals for behavior in the absence of the policy. We apply this method to characterize the impacts of the Earned Income Tax Credit (EITC) on earnings using administrative tax records covering all EITC-eligible …lers from 19962009. We begin by developing a proxy for local knowledge about the EITC schedule –the degree of “sharp bunching”at the exact income level that maximizes EITC refunds by individuals who report self-employment income. The degree of self-employed sharp bunching varies signi…cantly

Are Consumers Myopic? Evidence from New and Used Car Purchases

Abstract: We investigate whether car buyers are myopic about future fuel costs. We estimate the effect of gasoline prices on short-run equilibrium prices of cars of different fuel economies. We then compare the implied changes in willingness-to-pay to the associated changes in expected future gasoline costs for cars of different fuel economies in order to calculate implicit discount rates. Using different assumptions about annual mileage, survival rates, and demand elasticities, we calculate a range of implicit discount rates similar to the range of interest rates paid by car buyers who borrow. We interpret this as showing little evidence of consumer myopia. (JEL D12, H25, L11, L62, L71, L81)

Identifying Supply and Demand Elasticities of Agricultural Commodities: Implications for the US Ethanol Mandate

Abstract: We present a new framework to identify supply elasticities of storable commodities where past shocks are used as exogenous price shifters. In the agricultural context, past yield shocks change inventory levels and futures prices of agricultural commodities. We use our estimated elasticities to evaluate the impact of the 2009 Renewable Fuel Standard on commodity prices, quantities, and food consumers’ surplus for the four basic staples: corn, rice, soybeans, and wheat. Prices increase 20 per cent if one-third of commodities used to produce ethanol are recycled as feedstock, with a positively skewed 95 percent confidence interval that ranges from 14 to 35 per cent. (JEL Q11, Q16, Q42, Q48)

Two perspectives on preferences and structural transformation

Abstract: We assess the empirical importance of changes in income and relative prices for structural transformation in the postwar United States. We explain two natural approaches to the data: sectors may be categories of final expenditure or value added; e.g., the service sector may be the final expenditure on services or the value added from service industries. We estimate preferences for each approach and find that with final expenditure income effects are the dominant force behind structural transformation, whereas with value-added categories price effects are more important. We show how the inputoutput structure of the United States can reconcile these findings. (JEL E21, L16)

The Effect of Language on Economic Behavior: Evidence from Savings Rates, Health Behaviors, and Retirement Assets.

Abstract: Languages differ widely in the ways they encode time. I test the hypothesis that the languages that grammatically associate the future and the present, foster future-oriented behavior. This prediction arises naturally when well-documented effects of language structure are merged with models of intertemporal choice. Empirically, I find that speakers of such languages: save more, retire with more wealth, smoke less, practice safer sex, and are less obese. This holds both across countries and within countries when comparing demographically similar native households. The evidence does not support the most obvious forms of common causation. I discuss implications for theories of intertemporal choice.

Time Use during the Great Recession

Abstract: Using data from the American Time Use Survey between 2003 and 2010, we document that home production absorbs roughly 30 percent of foregone market work hours at business cycle frequencies. Leisure absorbs roughly 50 percent of foregone market work hours, with sleeping and television watching accounting for most of this increase. We document significant increases in time spent on shopping, child care, education, and health. Job search absorbs between 2 and 6 percent of foregone market work hours. We discuss the implications of our results for business cycle models with home production and non-separable preferences. JEL-Codes: D13, E32, J22.

The Political Resource Curse

Abstract: This paper studies the effect of additional government revenues on political corruption and on the quality of politicians, both with theory and data. The theory is based on a political agency model with career concerns and endogenous entry of candidates. The data refer to Brazil, where federal transfers to municipal governments change exogenously at given population thresholds, allowing us to implement a regression discontinuity design. The empirical evidence shows that larger transfers increase observed corruption and reduce the average education of candidates for mayor. These and other more specific empirical results are in line with the predictions of the theory. (JEL D72, D73, H77, O17, O18)

Trade Liberalization and Embedded Institutional Reform: Evidence from Chinese Exporters

Abstract: If trade barriers are managed by inefficient institutions, trade liberalization can lead to greater-than-expected gains. We examine Chinese textile and clothing exports before and after the elimination of externally imposed export quotas. Both the surge in export volume and the decline in export prices following quota removal are driven by net entry. This outcome is inconsistent with a model in which quotas are allocated based on firm productivity, implying misallocation of resources. Removing this misallocation accounts for a substantial share of the overall gain in productivity associated with quota removal. (JEL F13, F14, L67, O14, O19, P23, P33) Institutions that distort the efficient allocation of resources across firms can have a sizable effect on economic outcomes. Hsieh and Klenow (2009), for example, estimate that distortions in the Chinese economy reduce manufacturing productivity by 30 to 50 percent relati ve to an optimal distribution of capital and labor across existing manufacturers. While research in this area often concentrates on misallocation among existing firms, distortions can also favor incumbents at the expense of entrants. Trade barriers such as tariffs and quotas can obviously distort resource allocation along these “intensive” and “extensive” margins, and estimation of the productivity growth associated with their removal is a traditional line of inquiry in international trade. But gains from trade liberalization may be larger than expected if the institutions created to manage the barriers impose their own, additional drag on productivity (e.g., arbitrary enforcement of quotas and tariffs). In that case, trade liberalization induces two gains: the first from the elimination of the embedded institution, and the second from the removal of the trade barrier itself. In this article, we examine productivity growth among Chinese exporters following the removal of externally imposed quotas. Under the global Agreement on Textile and Clothing, previously known (and referred to in this article) as the Multifiber Arrangement (MFA), textile and clothing exports from China and other de veloping

Regional Effects of Trade Reform: What Is the Correct Measure of Liberalization?

Abstract: A growing body of research examines the regional effects of trade liberalization using a weighted average of trade policy changes across industries. This paper develops a specific-factors model of regional economies that provides a theoretical foundation for this intuitively appealing empirical approach and also provides guidance on treatment of the nontraded sector. In the context of Brazil's early 1990s trade liberalization, I find that regions facing a 10 percentage point larger liberalization-induced price decline experienced a 4 percentage point larger wage decline. The results also confirm the empirical relevance of appropriately dealing with the nontraded sector.

Selection, Agriculture, and Cross-Country Productivity Differences

Abstract: Cross-country labor productivity differences are larger in agriculture than in non-agriculture. We propose a new explanation for these patterns in which the self-selection of heterogeneous workers determines sector productivity. We formalize our theory in a general-equilibrium Roy model in which preferences feature a subsistence food requirement. In the model, subsistence requirements induce workers that are relatively unproductive at agricultural work to nonetheless select into the agriculture sector in poor countries. When parameterized, the model predicts that productivity differences are roughly twice as large in agriculture as non-agriculture even when countries differ by an economy-wide efficiency term that affects both sectors uniformly. (JEL J24, J31, J43, O11, O13, O40)

Long-Term Neighborhood Effects on Low-Income Families: Evidence from Moving to Opportunity

Abstract: We examine long-term neighborhood effects on low-income families using data from the Moving to Opportunity (MTO) randomized housing-mobility experiment. This experiment offered to some public-housing families but not to others the chance to move to less-disadvantaged neighborhoods. We show that ten to 15 years after baseline, MTO: (i) improves adult physical and mental health; (ii) has no detectable effect on economic outcomes or youth schooling or physical health; and (iii) has mixed results by gender on other youth outcomes, with girls doing better on some measures and boys doing worse. Despite the somewhat mixed pattern of impacts on traditional behavioral outcomes, MTO moves substantially improve adult subjective well-being.

Culture as Learning: The Evolution of Female Labor Force Participation over a Century

Abstract: Married women's labor force participation increased dramatically over the last cen- tury. Why this occurred has been the subject of much debate. This paper investigates the role of changes in culture arising from learning in generating this increase. To do so, it develops a dynamic model of culture in which individuals hold heterogeneous beliefs regarding the relative long-run payos for women who work in the market versus the home. These beliefs evolve rationally via an intergenerational learning process. Women are assumed to learn about the long-term payos of working by observing (noisy) pri- vate and public signals. This process generically generates an S-shaped …gure for female labor force participation, which is what is found in the data. The S shape results from the dynamics of learning. I calibrate the model to several key statistics and show that it does a good job in replicating the quantitative evolution of female LFP in the US over the last 120 years. The model highlights a new dynamic role for changes in wages via their eect on intergenerational learning. The calibration shows that this role was quantitatively important in several decades.

Going to a Better School: Effects and Behavioral Responses

Abstract: This paper applies a regression discontinuity design to the Romanian secondary school system, generating two findings. First, students who have access to higher achievement schools perform better in a (high stakes) graduation test. Second, the stratification of schools by quality in general, and the opportunity to attend a better school in particular, result in significant behavioral responses: (i) teachers sort in a manner consistent with a preference for higher achieving students; (ii) children who make it into more selective schools realize they are relatively weaker and feel marginalized; (iii) parents reduce effort when their children attend a better school.

Assessing the Incidence and Efficiency of a Prominent Place Based Policy

Abstract: This paper empirically assesses the incidence and efficiency of Round I of the federal urban Empowerment Zone (EZ) program using confidential microdata from the Decennial Census and the Longitudinal Business Database. Using rejected and future applicants to the EZ program as controls, we find that EZ designation substantially increased employment in zone neighborhoods and generated wage increases for local workers without corresponding increases in population or the local cost of living. The results suggest the efficiency costs of first Round EZs were relatively modest. (JEL H26, H77, J31, R23, R58)

Impatience and Uncertainty: Experimental Decisions Predict Adolescents' Field Behavior

Abstract: We study risk attitudes, ambiguity attitudes, and time preferences of 661 children and adolescents, aged ten to eighteen years, in an incentivized experiment and relate experimental choices to field behavior. Experimental measures of impatience are found to be significant predictors of health-related field behavior, saving decisions and conduct at school. In particular, more impatient children and adolescents are more likely to spend money on alcohol and cigarettes, have a higher body mass index, are less likely to save money and show worse conduct at school. Experimental measures for risk and ambiguity attitudes are only weak predictors of field behavior.

Ownership Consolidation and Product Characteristics: A Study of the US Daily Newspaper Market †

Abstract: This paper develops a structural model of newspaper markets to analyze the effects of ownership consolidation, taking into account not only firms’ price adjustments but also the adjustments in newspaper characteristics. A new dataset on newspaper prices and characteristics is used to estimate the model. The paper then simulates the effect of a merger in the Minneapolis newspaper market and studies how welfare effects of mergers vary with market characteristics. It finds that ignoring adjustments of product characteristics causes substantial differences in estimated effects of mergers. (JEL G32, L13, L82, M37) Do mergers affect product characteristics? Standard merger analyses typically study price effects only and ignore changes in product characteristics. This paper endogenizes both. It is likely that firms would adjust the features of their products after a merger. Ignoring this aspect of firm decisions in a merger analysis can lead to a bias in estimated welfare effects. Specifically, I study how ownership consolidation affects product characteristics and welfare in the US daily newspaper market. The newspaper market provides an ideal environment for analyzing the effect of mergers on product features for both econometric and economic reasons. First of all, individual newspapers often circulate in local markets. There is substantial variation in demographics and ownership structure across these markets. This variation is crucial for this study. Secondly, the characteristics of newspapers are obviously important for welfare. For example, after an ownership consolidation, do newspaper publishers improve or diminish the content quality? Do they enlarge or shrink the local news ratio? Do they increase or decrease content variety? To address these questions, I set up a structural model of the US daily newspaper