Labor Studies Program Meeting

October 26, 2012
David Card of the University of California, Berkeley, Organizer

Hunt Allcott, New York University and NBER, and Sendhil Mullainathan, Harvard University and NBER

External Validity and Partner Selection Bias (NBER Working Paper No. 18373)

Program evaluation often involves generalizing internally valid site-specific estimates to a different target population. While many analyses have tested the assumptions required for internal validity (for example, LaLonde 1986), there has been little empirical assessment of external validity in any context, because identical treatments are rarely evaluated in multiple sites. Allcott and Mullainathan examine a remarkable series of 14 energy conservation field experiments run by a company called Opower, involving 550,000 households in different cities across the United States. They show that the site-specific treatment effect heterogeneity is statistically and economically significant. They then show that Opower partners are selected on partner-level characteristics that are correlated with the treatment effect. This "partner selection bias" implies that replications with additional partners have not given an unbiased estimate of the distribution of treatment effects in non-partner sites. Augmenting these results in a different context, the authors show that partner microfinance institutions (MFIs) carrying out randomized experiments are selected on observable characteristics from the global pool of MFIs. Finally, they propose two simple suggestive tests of external validity that can be used in the absence of data from many sites: comparison of observable sample and target site characteristics and an F-test of heterogeneous treatment effects across "sub-sites" within a site.

Stefan Bender, Institute for Employment Research; Johannes Schmieder, Boston University and NBER; Till von Wachter, Columbia University and NBER

The Effect of Unemployment Insurance Extensions on Reemployment Wages

Does the search subsidy provided by unemployment insurance (UI) help workers to find better jobs, or does the resulting increased time out of work lead to skill depreciation and lower reemployment wages? Bender, Schmieder, and von Wachter investigate this question by exploiting strict age thresholds in the German UI system that determine workers' maximum potential UI benefit duration. Using a large administrative dataset with a regression discontinuity (RD) design, the authors show that longer potential benefit durations lead to sharp increases in non-employment durations, while lowering post-unemployment wages. In order to interpret this finding, they present a new theoretical result that shows how the average effect of UI extensions on reemployment wages can be decomposed into a reservation wage effect and an effect coming from changes in the wage offer distribution throughout the non-employment spell. They show that wages conditional on non-employment durations are affected by UI extensions. This theoretical result implies that the negative effect of UI extensions on average wages is due entirely to changes in the wage offer distribution over time. They can estimate the change in mean offered wages over time by regressing re-employment wages on non-employment durations and instrumenting for time out of work with the increase in potential UI durations at the age discontinuity. This IV estimate implies that each month out of work reduces wage offers (and reemployment wages) by 0.9 percent, pointing to very high costs of long-term unemployment. Furthermore, about half of the average wage loss of 25 percent of the unemployed in this sample is explained by time spent out of work.

Thomas Buser and Hessel Oosterbeek, University of Amsterdam, and Muriel Niederle, Stanford University and NBER

Gender, Competitiveness, and Career Choices

Gender differences in competitiveness often are discussed as a potential explanation for gender differences in labor market outcomes. Buser, Niederle, and Oosterbeek correlate an incentivized measure of competitiveness with the first important career choice of secondary school students in the Netherlands: at the age of 15, these students have to pick one of four study profiles, which vary in how prestigious they are. While boys and girls have very similar levels of academic ability, the boys are substantially more likely than the girls to choose a more prestigious profile. The authors find that up to 23 percent of this gender difference can be attributed to gender differences in competitiveness. This supports the extrapolation of laboratory findings on competitiveness to labor market settings.

Richard Blundell, University College, London, and Andrew Shephard, Princeton University

Taxation in an Empirical Life-Cycle Model of Labor Supply

Blundell and Shephard examine the optimal structure of taxation using a empirical life-cycle model of labor supply. The approach incorporates intensive and extensive labor supply decisions, savings, and endogenous human capital accumulation, in a rich dynamic environment where individuals are subject to preference and productivity shocks, and changes in family structure. The authors estimate the model using an extensive UK panel data set that spans a series of reforms to the tax and transfer system, and then use the estimated model to explore dynamic optimal taxation problems.

Supreet Kaur, Harvard University

Nominal Wage Rigidity in Village Labor Markets

Kaur tests for downward nominal wage rigidity in markets for casual daily agricultural labor within a developing country context. Wage and employment responses to rainfall shocks in 500 Indian districts from 1956-2008 provide evidence that such rigidities distort labor market outcomes. First, there is asymmetric wage adjustment to labor demand shocks: nominal wages rise in response to positive shocks, but do not fall during droughts. Second, after transitory positive shocks have dissipated, nominal wages do not return to their previous levels—they remain high in future years. Third, inflation moderates these effects: when inflation is higher, real wages are more likely to fall during droughts and after transitory positive shocks. Fourth, wage distortions generate employment distortions: employment is lower in the year after a transitory positive shock than if the positive shock had not occurred. Landless laborers experience a 6 percent reduction in employment — twice as large as the employment decrease during a drought. Fifth, consistent with separation failures, households with smaller landholdings increase labor supply to their own farms when they are rationed out of the external labor market. Sixth, there is some evidence that wages are less rigid in areas where rigidity is likely to cause larger profit losses because of crop characteristics. Finally, data from a new survey Kaur conducted in two Indian states suggests that agricultural workers and employers: view nominal wage cuts as unfair; are considerably less likely to regard real wage cuts as unfair if they are achieved through inflation rather than nominal cuts; and believe that nominal wage cuts cause effort reductions.

Costas Meghir, Yale University and NBER; Renata Narita, World Bank; and Jean-Marc Robin, Sciences Po

Wages and Informality in Developing Countries (NBER Working Paper No. 18347)

It is often argued that informal labor markets in developing countries promote growth by reducing the impact of regulation. On the other hand, informality may reduce the amount of social protection offered to workers. Meghir, Narita, and Robin extend the wage-posting framework of Burdett and Mortensen (1998) to allow heterogeneous firms to decide whether to locate in the formal or the informal sector, as well as to set wages. Workers engage in off-the-job and on-the-job search. The authors estimate the model using Brazilian micro data and evaluate the labor market and welfare effects of policies towards informality.