The B.E. Journal of Economic Analysis & Policy

Organizational Redesign, Information Technologies and Workplace Productivity

Benoit Dostie et al. — Fri, 03 Feb 2012 07:31:47 PST

Using a large, longitudinal, nationally representative workplace-level data-set, we explore the productivity gains associated with computer use and organizational redesign. The empirical strategy involves the estimation of a production function, augmented to account for technology use and organizational design, correcting for unobserved heterogeneity. Our first-difference and GMM estimates suggest that the productivity premium associated with computer use is not statistically different from zero. Neither is there any evidence to support the idea that complementarities between computer use and organizational redesign have any substantial bearing on productivity.

Graduating High School in a Recession: Work, Education, and Home Production

Brad J. Hershbein — Tue, 31 Jan 2012 05:11:06 PST

This paper explores how high school graduate men and women vary in their behavioral responses to beginning labor market entry during a recession. In contrast with previous related literature that found a substantial negative wage impact but minimal employment impact in samples of highly educated men, the empirical evidence presented here suggests a different outcome for the less well educated, and between the sexes. Women, but not men, who graduate high school in an adverse labor market are less likely to be in the workforce for the next four years, but longer-term effects are minimal. Further, while men increase their enrollment as a short-run response to weak labor demand, women do not; instead, they appear temporarily to substitute into home production. Women's wages are less affected than men's, and both groups' wages are less affected than the college graduates previously studied.

Health Dynamics and the Evolution of Health Inequality over the Life Course: The Importance of Neighborhood and Family Background

Rucker C. Johnson — Sat, 21 Jan 2012 17:12:47 PST

This paper investigates the extent and ways in which childhood family and neighborhood quality influence later-life health outcomes. The study analyzes the health trajectories of children born between 1950 and 1970 followed through 2005. Data from the Panel Study of Income Dynamics (PSID) spanning four decades are linked with information on neighborhood attributes and school quality resources that prevailed at the time these children were growing up.

There are several key findings. First, estimates of sibling and child neighbor correlations in health are used to bound the proportion of inequality in health status in childhood through mid-life that are attributable to childhood family and neighborhood quality. Estimates based on four-level hierarchical random effects models (neighborhoods, families, individuals, over time) consistently show a significant scope for both childhood family and neighborhood background (including school quality). The results imply substantial persistence in health status across generations that are linked in part to low intergenerational economic mobility. Sibling correlations are large throughout at least the first 50 years of life: roughly three-fifths of adult health disparities may be attributable to family and neighborhood background. Childhood neighbor correlations in adult health are also substantial (net of the similarity arising from similar family characteristics), suggesting that disparities in neighborhood background account for more than one-third of the variation in health status in mid life.

Second, exposure to concentrated neighborhood poverty during childhood has significant deleterious impacts on adult health. The results reveal that even a large amount of selection on unobservable factors does not eliminate the significant effect of child neighborhood poverty on health status later in life. Thus, racial differences in adult health can be accounted for by childhood family, neighborhood, and school quality factors, while contemporaneous economic factors account for relatively little of this gap.

Cyclicality of Real Wages in Korea

Donggyun Shin — Fri, 20 Jan 2012 12:20:53 PST

On the basis of the Korea Labor & Income Panel Study data over the period 1997 to 2008, this paper finds that real wages are strongly procyclical. For the same period, government-published aggregate real wages also show substantial procyclicality. Overall, measured real wage procyclicality in Korea is comparable to that in the international literature. The analysis also explores between-group heterogeneity in real wage cyclicality, such as the contrast between job changers and stayers.

Demand-Based Cost-of-Children Estimates and Child Poverty

Rocio Garcia-Diaz — Sat, 07 Jan 2012 18:31:04 PST

This paper compares alternative demand-based equivalence scales for the cost of children to assess child poverty in Mexico. The models estimated here range from single-equation models, such as those of Engel and Rothbarth, to a complete demand system approach with fixed price effects. The results found in this study favor the generalization of the complete demand system equivalence scales over the other models. Despite the differences in the alternative models, the ranking of households with children and overall populations is insensitive to different equivalence scales and poverty lines used. However, variation in the composition of poor households with children has a different effect depending on the particular choice of equivalence scale. We found that, for households with more than the country's average number of children, poverty incidence is considerably higher than in the population as a whole.

Medicaid and Ethnic Networks

Emily R. Gee et al. — Fri, 30 Dec 2011 18:09:33 PST

Many low-income immigrants are uninsured yet eligible for public health insurance. In this paper, we examine whether language barriers and network effects can explain disparities in insurance Medicaid participation. Using the 2008 and 2009 American Community Survey, we show that linguistic networks facilitate Medicaid enrollment among non-English speaking adults. Our identification method follows Bertrand et al. (2000) and employs local variation in the density of immigrant populations and nationwide variation in Medicaid participation among ethnic groups. Given a hypothetical policy to increase Medicaid enrollment, for every 1 percentage point of direct increase, networks generate a multiplier effect that boosts participation by an additional 0.26 percentage points. Networks have greatest influence on individuals who are not proficient in English or who arrived in the United States more recently. Our results are robust to alternative specifications, including using an ex ante indicator of group-level participation. We also find that the availability of foreign-language Medicaid information online is associated with significantly higher participation.

The Economics of the Long Tail

Todd D. Kendall et al. — Fri, 30 Dec 2011 11:47:07 PST

Anderson (2006) argues that e-commerce and other new technologies improve efficiency by encouraging the entry of new producers and innovations, creating a “long tail” of niche products while reducing the market share of previously popular products. We study the strategic interaction between hits and niches in their pricing, entry, and innovation decisions using a model of competition under product differentiation and generalized cost structure. In contrast to the popular view, we show that improvements in information and communication technology can lead to either the long tail effect or an opposite “superstar” effect (Rosen, 1981), depending on (a) how the structure (not simply the level) of producer costs changes, and (b) how disparate are consumer preferences. These two factors also determine whether there is excessive or insufficient product diversity. Post-entry product and technology innovation incentives may be inefficient in the long tail market structure because producers can soften price competition by engaging in excessive product differentiation and adopting technologies with high variable costs. These results have implications for various competition-related policies.

Why Don't Taxpayers Maximize their Tax-Based Student Aid? Salience and Inertia in Program Selection

Nicholas Turner — Thu, 22 Dec 2011 14:13:27 PST

Tax-based federal student aid is designed to increase postsecondary attendance and ease the financial burden of higher education enrollment by offering students and their families a menu of tax incentives. However, many taxpayers who are eligible for more than one tax-based aid program, and who are limited to one program per student each year, fail to select the single program that offers the largest reduction in taxes. Analyzing a panel dataset of individual income tax returns, I find that in roughly one out of four returns taxpayers and paid preparers fail to select the tax-minimizing tax-based aid program. I find evidence that greater salience of federal tax effects, and inertia in program selection, leads some taxpayers and paid preparers to make non-tax-minimizing selections. Streamlining the set of tax-based aid programs into a single tax incentive is likely to be a more effective way of lowering the costs of postsecondary attendance for students and their families.

Empirical Analyses of U.S. Congressional Voting on Recent FTA

Hyejoon Im et al. — Thu, 22 Dec 2011 14:13:17 PST

This paper addresses the manner in which political and economic factors affect the voting behavior of House representatives on free trade agreement (FTA) implementation bills in the 108th and 109th Congresses in the U.S., using a simultaneous probit-tobit model consisting of contribution and voting equations. We find that representatives whose districts have relatively higher employment in ‘trade-sensitive’ sectors are likely to oppose FTA bills. By comparing our results with the reports of the U.S. International Trade Commission, we discover that the voting behavior of representatives is more receptive to the sectors predicted to be adversely affected by an FTA than to those predicted otherwise. Another finding is that when FTA bills, for which partner countries do not share commonalities, are considered on the same day in the House, members’ voting behavior may be similar.

Are Entry Threats Always Credible?

Utteeyo Dasgupta — Tue, 13 Dec 2011 10:58:14 PST

This paper studies the efficacy of entry threats in a contestable environment using experiments. It is hypothesized here that the entrant firm’s home market profits influence the entrant’s competitive behavior even when entry is costless and completely reversible. In the experiment, entrants and incumbents tacitly collude when each has its own monopoly market. In contrast, an entrant from a competitive market practices hit-and-run entry whenever such opportunities exist, forcing the incumbent monopolist to price at average cost. The experiment results suggest that the usefulness of hit-and-run competitive threat in a contestable environment depends crucially on the relative profits in the entrant’s and the incumbent’s home and entry markets.

Economic Decision-Making in Poverty Depletes Behavioral Control

Dean Spears — Sun, 11 Dec 2011 10:19:04 PST

Economic theory and conventional wisdom suggest that time preference can cause or perpetuate poverty. Might poverty also or instead cause impatient or impulsive behavior? This paper reports a randomized lab experiment and a partially randomized field experiment, both in India, and analysis of the American Time Use Survey. In all three studies, poverty is associated with diminished behavioral control. The primary contribution of this empirical paper is to isolate the direction of causality from poverty to behavior. Three similar possible theoretical mechanisms, found in the psychology and behavioral economics literatures, cannot be definitively separated. One supported theoretical explanation is that poverty, by making economic decision-making more difficult, depletes cognitive control.

Estimating Dynamic Income Responses to Tax Reform

Bertil Holmlund et al. — Mon, 28 Nov 2011 17:08:21 PST

We study income responses to income tax changes by using a large panel of Swedish tax payers over the period 1991–2002. Changes in statutory tax rates as well as changes in tax bracket thresholds provide exogenous variations in tax rates that can be used to identify income responses. We estimate dynamic income models which allow us to distinguish between short-run and long-run effects in a straightforward fashion. For men, the estimates of the long-run elasticity of income with respect to the net-of-tax rate hover in a range between 0.10 and 0.30. The estimates for women are statistically insignificant. We simulate the fiscal consequences of a tax reform that reduces the top marginal tax rate by five percentage points. Such a reform may have negligible effects on tax revenues when the interactions between income taxes and other taxes are taken into account.

The Progressivity of Social Security

Julia Lynn Coronado et al. — Wed, 23 Nov 2011 07:05:19 PST

How much does the current social security system redistribute from rich to poor? We propose alternative concepts of well-being that can be used to classify individuals from rich to poor, and we show how social security redistributes differently under each concept. We use the PSID to estimate lifetime wage profiles and actual earnings each year for a sample of 1778 individuals, and we use mortality probabilities to calculate expected payroll taxes and social security benefits. For a given set of “facts” about the net flows experienced each year by each individual, measured progressivity depends on many assumptions. This paper attempts to capture and to quantify all of the data and characteristics relevant to determine each individual’s “income” under several definitions. We then use each definition of income to classify individuals from rich to poor and to calculate the progressivity of social security.

We proceed in seven steps. First, we classify individuals by annual income and use Gini coefficients to find that social security is highly progressive. Second, we reclassify individuals on the basis of lifetime income and find that social security is less progressive. Third, we remove the cap on measured earnings and find that social security is even less progressive. Fourth, we switch from actual to potential lifetime earnings (the present value of the wage rate times 4000 hours each year). This measure captures the value of leisure and home production, so those out of the labor force are less poor, and net payments to them are less progressive. Fifth, we assign to each married individual half of the couple’s income. The low-wage spouse is then not so poor, and social security becomes even less progressive. Sixth, we incorporate mortality probabilities that differ by potential lifetime income. Since the rich live longer and collect benefits longer, social security is no longer progressive. Finally, we increase the discount rate from 2% to 4%, which puts relatively more weight on the earlier-but-regressive payroll tax and less weight on the later-but-progressive benefit schedule.

Depending on the definition of income used to classify people, the overall social security system could be deemed progressive, only mildly progressive, or neutral. With an even-higher discount rate, it could even be deemed regressive.

Comment on “On the Economics of Climate Policy”: Is Climate Change Mitigation the Ultimate Arbitrage Opportunity?

Manasi Deshpande et al. — Thu, 17 Nov 2011 12:26:01 PST

Medicaid and Wealth: A Re-Examination

Maury Gittleman — Tue, 15 Nov 2011 06:30:45 PST

Do public insurance programs crowd out private savings? I examine the relationship between Medicaid and wealth and make a contribution to the literature on this issue in two primary ways. First, I apply the instrumental-variables approach developed by Gruber and Yelowitz (1999) to a different dataset, the National Longitudinal Survey of Youth, 1979 (NLSY79), while at the same time examining an alternative instrument. The results turn out to differ depending on the instrument and, for one of the instruments, to be sensitive to assumptions needed to identify Medicaid’s effects. Second, I make use of the SIPP data employed by Gruber and Yelowitz themselves, and examine the sensitivity of their conclusions to omitted factors that may be related to both Medicaid eligibility and to wealth accumulation. While more robust than the results using the NLSY79, the SIPP estimates are found to depend both on the sample used and on certain specification restrictions. Taken together, the results suggest caution in making inferences about the impact of Medicaid on wealth.

Ambiguity Aversion and Portfolio Choice in Small-Scale Peruvian Farming

James C. Engle Warnick et al. — Fri, 04 Nov 2011 05:59:30 PDT

While the effect of risk aversion on farmers' decision-making has long been documented, far less is known about the effect of ambiguity aversion. We argue that ambiguity aversion is just as relevant to their decision-making process because they are uncertain about the yield distributions generated by new technologies. By experimentally measuring risk and ambiguity aversion in rural Peru, we provide new evidence on the role of ambiguity aversion on farm decisions in developing countries: ambiguity aversion, not risk aversion, reduces the likelihood that farmers plant more than one variety of their main crop.

Measuring the Impact of Anti-SLAPP Legislation on Monitoring and Enforcement

Bevin Ashenmiller et al. — Thu, 03 Nov 2011 16:57:13 PDT

We examine changes in environmental monitoring and enforcement activity in the presence of state legislation prohibiting Strategic Lawsuits Against Public Participation (anti-SLAPP laws). Using data on the Clean Air Act from the Environmental Protection Agency’s ECHO database, we find evidence that state inspections increase by almost 50% after a state passes anti-SLAPP legislation. In addition, we find strong evidence that the ratio of findings of noncompliance to inspections more than doubles in the presence of anti-SLAPP legislation.

Health Inequality over the Life-Cycle

Timothy Halliday — Thu, 20 Oct 2011 17:09:28 PDT

We estimate a dynamic model of health that is rooted in "stress models" from Epidemiology. Health is determined by time-invariant endowments, permanent shocks, and transitory shocks. We estimate that the variance in health at age 60 ranges between 2.5 and five times its variance at age 25 depending on which demographic group we consider. We show that the stress model performs better than a simple alternative, the random effects Probit, particularly for less educated people.

Natural Disasters and Vulnerability: Evidence from the 1997 Forest Fires in Indonesia

Po Yin Wong et al. — Fri, 14 Oct 2011 08:43:27 PDT

Few studies have attempted to investigate the link between poverty and vulnerability with respect to natural disasters. By applying a utility model to panel data from Indonesia that brackets a major forest fire, this paper estimates and analyzes households’ vulnerability in both total consumption and food consumption. We find that households with a high degree of exposure to smoke from the fires were more vulnerable in total consumption than households with lower exposure, but that they were no more vulnerable in food consumption.

Overestimating the Effect of Complementarity on Skill Demand

Brian K. Kovak — Fri, 07 Oct 2011 18:17:33 PDT

Many recent studies estimate cost function parameters to measure the influence of capital-skill complementarity on changes in skill demand. This paper argues that standard cost function estimates assuming quasi-fixed capital systematically overestimate the effect of complementarity when subject to skill-biased technological change. While previous work has considered bias due to measurement error or general endogeneity concerns, this paper shows that upward bias results directly from cost minimizing behavior. I also develop a novel instrumental variables strategy based on the tax treatment of capital to more accurately measure the effect of complementarity. Although somewhat imprecise, the IV results support the model's prediction that the standard approach overestimates the effect of complementarity.