Jobs Package
Workers, Warriors, and Criminals: Social Conflict in General Equilibrium
Ernesto Dal Bó & Pedro Dal Bó
Journal of the European Economic Association, forthcoming
Abstract:
We incorporate appropriation activities (social conflict) into canonical models of trade and study how economic shocks and policies affect the intensity of conflict. We show that not all shocks that could make society richer reduce conflict: positive shocks to labor-intensive industries diminish conflict, while positive shocks to capital-intensive industries increase it. The key requirement is that conflict activities be more labor intensive than the economy as this determines how shocks affect the returns and costs of conflict. Our theory is consistent with several observed patterns of conflict and implies that empirical work should take into account the relative factor intensities of the productive and conflict sectors in each country. Incorporating appropriation into a canonic general equilibrium model affects what policies may be deemed desirable: in order to reduce conflict and generate Pareto-improvements policy must be distortionary, while reforms that appear efficiency-enhancing under the unrealistic assumption of perfect property rights may backfire. This offers one explanation for why reforms based on traditional models without appropriation may be delayed and become unpopular when implemented, and why societies may sympathize with seemingly inefficient redistribution.
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Financially Fragile Households: Evidence and Implications
Annamaria Lusardi, Daniel Schneider & Peter Tufano
NBER Working Paper, May 2011
Abstract:
This paper examines households' financial fragility by looking at their capacity to come up with $2,000 in 30 days. Using data from the 2009 TNS Global Economic Crisis survey, we document widespread financial weakness in the United States: Approximately one quarter of Americans report that they would certainly not be able to come up with such funds, and an additional 19% would do so by relying at least in part on pawning or selling possessions or taking payday loans. If we consider the respondents who report being certain or probably not able to cope with an ordinary financial shock of this size, we find that nearly half of Americans are financially fragile. While financial fragility is more severe among those with low educational attainment and no financial education, families with children, those who suffered large wealth losses, and those who are unemployed, a sizable fraction of seemingly "middle class" Americans also judge themselves to be financially fragile. We examine the coping methods people use to deal with shocks. While savings is used most often, relying on family and friends, using formal and alternative credit, increasing work hours, and selling items are also used frequently to deal with emergencies, especially for some subgroups. Household finance researchers must look beyond precautionary savings to understand how families cope with risk. We also find evidence of a "pecking order" of coping methods in which savings appears to be first in the ordering. Finally, the paper compares the levels of financial fragility and methods of coping among eight industrialized countries. While there are differences in coping ability across countries, there is general evidence of a consistent ordering of coping methods.
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Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act
Dhammika Dharmapala, Fritz Foley & Kristin Forbes
Journal of Finance, June 2011, Pages 753-787
Abstract:
The Homeland Investment Act provided a tax holiday for the repatriation of foreign earnings. Advocates argued the Act would alleviate financial constraints by reducing the cost to U.S. multinationals of accessing internal capital. This paper shows that repatriations did not increase domestic investment, employment, or R&D - even for firms that appeared to be financially constrained or lobbied for the holiday. Instead, a $1 increase in repatriations was associated with a $0.60 to $0.92 increase in shareholder payouts. Regulations intended to restrict such payouts were undermined by the fungibility of money. Results indicate that U.S. multinationals were not financially constrained and were well-governed.
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Geography, skills or both: What explains Fed watchers' forecast accuracy of US monetary policy?
Helge Berger, Michael Ehrmann & Marcel Fratzscher
Journal of Macroeconomics, September 2011, Pages 420-437
Abstract:
The paper shows that there is a substantial degree of heterogeneity in the ability of Fed watchers to forecast US monetary policy decisions. Based on a novel database for 268 individual professional forecasters since 1999, the average absolute forecast error of FOMC decisions varies 5-10 basis points between the best and worst-performers across the sample. This heterogeneity is found to be related to both the skills of analysts - such as their educational and employment backgrounds - and to geography. In particular, forecasters located in regions which experience more idiosyncratic economic conditions perform worse in anticipating monetary policy. This evidence is indicative that limited attention and heterogeneous priors are present even for anticipating important events such as monetary policy decisions.
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Does Appreciation of the Renminbi Decrease Imports to the United States from China?
Miaojie Yu
Contemporary Economic Policy, forthcoming
Abstract:
In 2005, China abated its fixed exchange rate against the U.S. dollar and began to appreciate the Renminbi (RMB). In this paper, I explore the effect of the appreciation of the RMB on imports to the United States from China by augmenting the gravity model with the exchange rate. Using an industrial panel data set during the period 2002-2008 and controlling for the endogeneity of the bilateral exchange rate, this extensive empirical analysis suggests that the appreciation of the RMB against the U.S. dollar significantly reduced imports to the United States from China. This finding is robust to a variety of econometric methods and to coverage in different periods.
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Is New Economic Geography Right? Evidence from Price Data
Jessie Handbury & David Weinstein
NBER Working Paper, May 2011
Abstract:
The agglomeration force behind the New Economic Geography literature initiated by Krugman is based on the notion that larger markets should have a lower variety adjusted price index. Despite his Nobel Prize, there have been no tests of this idea. This paper represents the first such test. Using a rich dataset covering 10-20 million purchases of grocery items, we find that after controlling for store and shopping effects: 1) Aggregate grocery prices are lower in larger cities; 2) Residents of larger cities have access to substantially more varieties than residents of smaller cities; and 3) These forces combine to substantially lower variety adjusted prices in large cities. In short, Krugman was right.
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Household Consumption and Personal Bankruptcy
Ning Zhu
Journal of Legal Studies, January 2011, Pages 1-37
Abstract:
This paper utilizes the population of personal bankruptcy filers in the state of Delaware during 2003 and finds that household expenditures on durable consumption goods, such as houses and automobiles, contribute significantly to personal bankruptcy filings. Medical conditions also lead to personal bankruptcy filings, but other adverse events, such as divorce and unemployment, have marginal effects. My findings suggest that consumption patterns make households financially overstretched and more susceptible to adverse events, and these results reconcile the strategic filing and adverse event explanations for the increase in bankruptcy filings.
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Offshoring Bias in U.S. Manufacturing
Susan Houseman et al.
Journal of Economic Perspectives, Spring 2011, Pages 111-132
Abstract:
In this paper, we show that the substitution of imported for domestically produced goods and services - often known as offshoring - can lead to overestimates of U.S. productivity growth and value added. We explore how the measurement of productivity and value added in manufacturing has been affected by the dramatic rise in imports of manufactured goods, which more than doubled from 1997 to 2007. We argue that, analogous to the widely discussed problem of outlet substitution bias in the literature on the Consumer Price Index, the price declines associated with the shift to low-cost foreign suppliers are generally not captured in existing price indexes. Just as the CPI fails to capture fully the lower prices for consumers due to the entry and expansion of big-box retailers like Wal-Mart, import price indexes and the intermediate input price indexes based on them do not capture the price drops associated with a shift to new low-cost suppliers in China and other developing countries. As a result, the real growth of imported inputs has been understated. And if input growth is understated, it follows that the growth in multifactor productivity and real value added in the manufacturing sector have been overstated. We estimate that average annual multifactor productivity growth in manufacturing was overstated by 0.1 to 0.2 percentage points and real value added growth by 0.2 to 0.5 percentage points from 1997 to 2007. Moreover, this bias may have accounted for a fifth to a half of the growth in real value added in manufacturing output excluding the computer and electronics industry.
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Jo Ann Abe
Journal of Language and Social Psychology, June 2011, Pages 212-223
Abstract:
This study examined changes in Alan Greenspan's language use across the economic cycle by analyzing his testimonies and speeches using the Linguistic Inquiry and Word Count Program (LIWC), which is a widely used text analysis program. Consistent with expectations, Greenspan showed an increase in the composite measure of psychological distancing as well as a decline in the measure of cognitive complexity between the economic expansion and downturn periods. Interestingly, these patterns of changes became more pronounced during the purported economic recovery period. In contrast to the measures of psychological distancing and cognitive complexity, the measure of emotionality remained relatively stable across the economic cycle.
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Understanding Small Business Heterogeneity
Erik Hurst & Benjamin Wild Pugsley
NBER Working Paper, May 2011
Abstract:
In this paper, we show that substantial heterogeneity exists among U.S. small businesses owners with respect to their ex-ante expectations of future performance, their ex-ante desire for future growth, and their initial motives for starting a business. Specifically, using new data that samples early stage entrepreneurs just prior to business start up, we show that few small businesses intend to bring a new idea to market. Instead, most intend to provide an existing service to an existing customer base. Further, using the same data, we find that most small businesses have no desire to grow big or to innovate in any observable way. We show that such behavior is consistent with the industry characteristics of the overwhelming majority of small businesses, which are concentrated among skilled craftsmen, lawyers, real estate agents, doctors, small shopkeepers, and restaurateurs. Lastly, we show non pecuniary benefits (being one's own boss, having flexibility of hours, etc.) play a first-order role in the business formation decision. We conclude by discussing how failing to acknowledge the ex-ante heterogeneity can lead to biased inferences of the importance of entrepreneurial talent, entrepreneurial luck, and financial frictions from the ex-post distribution of firm size.
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Return on Capital Analysis: U.S.-Based Multinational Corporations versus U.S. Domestic Corporations
Zhimin Wang & Ike Mathur
Journal of Multinational Financial Management, forthcoming
Abstract:
We study the difference between U.S.-based multinational corporations (MNCs) and U.S. domestic corporations (DCs) in terms of management efficiency with return on capital as the measure of management efficiency. We use a fixed effect model to account for heterogeneity and/or the time-specific effect and find that MNCs have lower management efficiency than DCs, which holds after we control for the effects of firm size, GDP growth rate, and growth opportunity on management efficiency. One reason for the low efficiency is the MNCs' inability to manage their assets well relative to DCs. We also find that there is an inverted U-shaped relationship between return on capital and degree of internationalization, which implies an optimal degree of internationalization. Our result does not confirm the recently proposed three-stage model.
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Should Firms Spend More on Research and Development and Advertising During Recessions?
Raji Srinivasan, Gary Lilien & Shrihari Sridhar
Journal of Marketing, May 2011, Pages 49-65
Abstract:
Whenever a recession occurs, there is a heated dialog among marketing academics and practitioners about the appropriate levels of marketing spending. In this article, the authors investigate whether firms should spend more on research and development (R&D) and advertising in recessions. They propose that the effects of changes in firms' R&D and advertising spending in recessions on profits and stock returns are contingent on their market share, financial leverage, and product-market profile (i.e., business-to-consumer goods, business-to-business services, business-to-business goods, or business-to-consumer services). They estimate the model using a panel of more than 10,000 firm-years of publicly listed U.S. firms from 1969 to 2008, during which there were seven recessions. Their results support the contingency approach. The authors compute the marginal effects, which show how the effects of changes in R&D and advertising spending in recessions vary across firms. The marginal effects provide evidence of inadequate spending (e.g., 98% of business-to-consumer goods firms underspend on R&D), proactivity (e.g., 96% of business-to-business services firms are at approximately the right levels on advertising). and excess spending (e.g., 92% of business-to-consumer services firms overspend on advertising). Using the authors' approach and publicly available data, managers can estimate the effects of their firms' and competitors' R&D and advertising spending on profits and stock returns in recessions.
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Employment in Black Urban Labor Markets: Problems and Solutions
Judith Hellerstein & David Neumark
NBER Working Paper, April 2011
Abstract:
Blacks in the United States are poorer than whites and have much lower employment rates. "Place-based" policies seek to improve the labor markets in which blacks - especially low-income urban blacks - tend to reside. We first review the literature on spatial mismatch, which provides much of the basis for place-based policies. New evidence demonstrates an important racial dimension to spatial mismatch, and this "racial mismatch" suggests that simply creating more jobs where blacks live, or moving blacks to where jobs are located, is unlikely to make a major dent in black employment problems. We also discuss new evidence of labor market networks that are to some extent stratified by race, which may help explain racial mismatch. We then turn to evidence on place-based policies. Many of these, such as enterprise zones and Moving to Opportunity (MTO), are largely ineffective in increasing employment, likely because spatial mismatch is not the core problem facing urban blacks, and because, in the case of MTO, the role of labor market networks was weakened. Finally, we discuss policies focused on place that also target incentives and other expenditures on the residents of the targeted locations, which may do more to take advantage of labor market networks.
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When Is Intellectual Property Needed as a Carrot for Innovators?
Christoph Engel
Journal of Competition Law & Economics, June 2011, Pages 277-299
Abstract:
Policymakers all over the world claim that there can be no innovation without protection. For more than a century, critics have objected that the case for intellectual property is far from clear. This article uses a game theoretic model to organize the debate. It is possible to model innovation as a prisoner's dilemma between potential innovators and to interpret intellectual property as a tool for making cooperation the equilibrium. However, this model rests on assumptions about costs and benefits that are unlikely to hold, or have even been shown to be wrong, in many empirically relevant situations. Moreover, even if the problem is indeed a prisoner's dilemma, in many situations, intellectual property is an inappropriate solution. It sets incentives to race to be the first, or the last, to innovate, as the case may be. In equilibrium, the firms would need to randomize between investment and noninvestment, which is unlikely to work out in practice. Frequently, firms would need to invent cooperatively, which proves difficult in larger industries.
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The consequences of midnight regulations and other surges in regulatory activity
Patrick McLaughlin
Public Choice, June 2011, Pages 395-412
Abstract:
Is the midnight regulations phenomenon real and what are its consequences? This paper finds that when an administration's time is almost up, submissions of economically significant regulations nearly double. Such surges in regulatory activity decrease the duration of regulatory review at the Office of Information and Regulatory Affairs (OIRA), likely because of political pressure to quickly approve new rules. Specifically, one additional economically significant regulation submitted to OIRA decreases the mean review time for all regulations by about two thirds of a day. If OIRA review improves regulation quality, then regulatory surges that decrease review time could hinder such improvement.
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How people perceive the Welfare State: A real-effort experiment
Stefania Ottone & Ferruccio Ponzano
International Review of Economics, June 2011, Pages 165-183
Abstract:
The main activity of a Welfare State is to impose taxes in order to collect money to provide services. In this paper, we want to test subjects' perception of these two issues in the laboratory. In particular, using a real-effort experiment as a tool, we aim at measuring both the labor supply and the consensus as the level of taxation and the efficiency of the Welfare State vary. Our finding is that subjects significantly react to a change in the tax rate, while the performance of the Welfare State affects subjects' preferences but not their labor supply.
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Henry Hyatt
B.E. Journal of Economic Analysis & Policy, May 2011
Abstract:
Studies of moral hazard in employment-limiting social insurance programs such as Unemployment Insurance or Workers Compensation have demonstrated that higher benefits discourage work, emphasizing the price distortion inherent in benefit provision. Utilizing administrative data linking Workers' Compensation claim records to wage records from an Unemployment Insurance payroll tax database, I explore a different explanation and implement tests for "income effects" that exploit the fact that claimants no longer experience a distorted price of non-employment after an employment-limiting benefit ends. A pair of legislative changes to a Workers' Compensation benefit rate show little or no evidence of income effects and moderate evidence of income effects, respectively.
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Gender and Racial Training Gaps in Oregon Apprenticeship Programs
Günseli Berik, Cihan Bilginsoy & Larry Williams
Labor Studies Journal, June 2011, Pages 221-244
Abstract:
This study uses microdata to measure three types of training gaps by gender and minority status in Oregon apprenticeship programs: probability of graduation, time to graduation, and the quantity of training acquired by quitters. Apprentices who started training between 1991 and 2002 are tracked through 2007. After adjusting for individual, institutional, and occupational attributes, the authors find that white women apprentices were substantially less likely to graduate than white men, but the duration of training was shorter for the few women who graduated. White women dropouts received a much lower quantity of skills than white men although they stayed in the program as long as the white men did. Minority men did not face significant disadvantages relative to white men. Apprentices in union-management jointly sponsored programs were more likely to complete requirements than those in unilateral employer programs. White women and minority men benefited disproportionately more from training in union programs. However, the time to graduation is shorter in nonunion programs, which suggests that the latter allocate resources more selectively across apprentices. Yet those who quit do not appear to have acquired a sufficient quantity of skills to be able to obtain high-skill jobs.
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Offshoring and firm performance: Self-selection, effects on performance, or both?
Joachim Wagner
Review of World Economics, June 2011, Pages 217-247
Abstract:
This paper uses unique new data for German manufacturing enterprises from matched regular surveys and a special purpose survey to investigate the causal effect of relocation of activities to a foreign country on firm performance. Compared to non-offshoring firms, firms that relocated activities were larger and more productive, and had a higher share of exports in total sales. These differences existed the year before some firms started to relocate, and this points to self-selection of "better" firms into offshoring. To investigate the causal effects of offshoring, six different variants of a matching approach are used. Contrary to what is often argued we find no evidence for a large negative causal effect of offshoring on employment in Germany.
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Child Labor in the World Polity: Decline and Persistence, 1980-2000
Rob Clark
Social Forces, March 2011, Pages 1033-1055
Abstract:
From 1980 to 2000, child labor rates across the world fell by more than a quarter. Much of the explanation for this decrease resides in development processes broadly associated with the demographic transition. Net of these internal dynamics, however, globalization may also have played a role. Previous studies have examined the effect of trade and investment flows on child labor rates. However, the impact of cultural models spread by world polity institutions has yet to be examined. In this study, I argue that international organizations have confronted child labor practices, diffusing a "labor-to-schooling" model of child development. Analyzing an unbalanced dataset with 428 observations from 116 states across four waves during the 1980-2000 period, I assess the impact of economic and cultural globalization on a state's child labor rate using random effects tobit models. Net of a country's development experience, I find that foreign investment exerts a small, positive effect on child labor, while international organizations exert a larger negative effect. These results are robust to a number of specifications, including first-difference models that restrict attention to longitudinal variation.
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The Human Cost of China's Industrial Growth
Hongbin Li, Lingsheng Meng & Wenqing Pan China
Economic Review, forthcoming
Abstract:
This paper examines whether industrial growth during economic development is associated with a high workplace fatality rate by using panel data from China. Controlling for provincial and year fixed effects, our estimations show that provincial industrial growth has a positive impact on the workplace fatality rate. We also find that both the growth of industrial labor productivity and the growth of industrial employment have an impact on workplace fatalities. Our instrumental variable fixed effects estimations, which control for simultaneity, show an even greater effect of industrial growth on the fatality rate. Our empirical findings suggest that the Chinese government ought to reconsider its growth-centered policies to save lives.
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Can Entrepreneurial Activity be Taught? Quasi-Experimental Evidence from Central America
Bailey Klinger & Matthias Schündeln
World Development, forthcoming
Abstract:
Business training is a widely used development tool, yet little is known about its impact. We study the effects of such a business training program held in Central America. To deal with endogenous selection into the training program, we use a regression discontinuity design, exploiting the fact that a fixed number of applicants are taken into the training program based on a pre-training score. Business training significantly increases the probability that an applicant to the workshop starts a business or expands an existing business. Results also suggest gender heterogeneity as well as the presence of financial constraints.
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Getting Credit to High Return Microentrepreneurs: The Results of an Information Intervention
Suresh de Mel, David McKenzie & Christopher Woodruff
World Bank Economic Review, forthcoming
Abstract:
Small-scale entrepreneurs typically cite access to finance as the most important constraint to growth. Recent randomized experiments have shown the return to capital to be very high for the average microenterprise in Sri Lanka. An intervention was designed to improve access to credit among these high-return microenterprises without subsidizing interest rates or requiring group lending. The intervention consisted of information sessions providing details of the microfinance loan product offered by a regional development bank and a reduction from two to one in the number of personal guarantors required for these loans. Ten percent of the microenterprises invited to the information meetings received a new loan, doubling the proportion of firms receiving loans over this period. However, the loans do not appear to be going to particularly high-return firms but rather to firms with more household assets. Many more firms would like loans but are constrained by an inability to find personal guarantors and by other bureaucratic procedures. The results suggest that information alone is unlikely to be enough for most firms and point to the need for credit bureaus that cover microfinance loans and for continuing innovation in loan products that can reach the urban microenterprise sector.