Labor Studies

February 24, 2017
David Card of the University of California at Berkeley, Organizer

Raj Chetty, Stanford University and NBER; David Grusky and Maximilian Hell, Stanford University; Nathaniel Hendren, Harvard University and NBER; Robert Manduca, Harvard University; and Jimmy Narang, the University of California at Berkeley

The Fading American Dream: Trends in Absolute Income Mobility Since 1940 (NBER Working Paper No. 22910)

Chetty, Grusky, Hell, Hendren, Manduca, and Narang estimate rates of "absolute income mobility" — the fraction of children who earn more than their parents — by combining historical data from Census and CPS cross-sections with panel data for recent birth cohorts from de-identified tax records. Their approach overcomes the key data limitation that has hampered research on trends in intergenerational mobility: the lack of large panel datasets linking parents and children. The researchers find that rates of absolute mobility have fallen from approximately 90% for children born in 1940 to 50% for children born in the 1980s. The result that absolute mobility has fallen sharply over the past half century is robust to the choice of price deflator, the definition of income, and accounting for taxes and transfers. In counterfactual simulations, they find that increasing GDP growth rates alone cannot restore absolute mobility to the rates experienced by children born in the 1940s. In contrast, changing the distribution of growth across income groups to the more equal distribution experienced by the 1940 birth cohort would reverse more than 70% of the decline in mobility. These results imply that reviving the "American Dream" of high rates of absolute mobility would require economic growth that is spread more broadly across the income distribution.

Seth D. Zimmerman, the University of Chicago and NBER

Making the One Percent: The Role of Elite Universities and Elite Peers (NBER Working Paper No. 22900)

In this paper, Zimmerman estimates the effect of elite college admission on students' chances of attaining top positions in the economy, and explores the importance of peer ties as an underlying mechanism. Zimmerman combines administrative data on income and the census of directors and top managers at publicly traded firms with a regression discontinuity design based on admissions rules at elite business-focused degree programs in Chile. Admission to elite programs raises the number of firm leadership positions students hold by 50% and the share with incomes in the top 0.1% of the distribution by 45%. Effects are larger for students from high-tuition private high school backgrounds and near zero for students from other backgrounds. Consistent with the hypothesis that peer ties play an important role in driving the observed effects, private high school students admitted to top universities become more likely to work in leadership roles with peers from similar backgrounds, but no more likely to work with non-peers from the same program in different cohorts or different programs in the same field.

Lars Lefgren, David Sims, and Olga B. Stoddard, Brigham Young University

The Other 1%: Class Leavening, Contamination and Voting for Redistribution

Lefgren, Sims, and Stoddard perform an experiment to measure how changes in the effort exerted by a small fraction of a low-reward group affect the willingness of the high-reward group to vote for redistributive taxation. They find that a substantial fraction of high reward subjects vote in favor of greater redistribution when a very small fraction of high-effort individuals is added to a pool of otherwise low-effort poor. Also, contaminating a group of high-effort poor with a small number of low-effort individuals causes the most generous rich subjects to vote for less redistribution. These results suggest that anecdotes about the deservedness of a small group of transfer recipients may be effective in changing support for redistribution. The researchers find large gender differences in the results. Relative to men, women respond three times more strongly to the existence of deserving individuals among the poor. This behavior may help explain gender differences in support for redistribution more generally.

David Neumark, the University of California at Irvine and NBER; Ian Burn, the University of California at Irvine; and Patrick Button, Tulane University

Is It Harder for Older Workers to Find Jobs? New and Improved Evidence from a Field Experiment (NBER Working Paper No. 21669)

Neumark, Burn, and Button design and implement a large-scale field experiment — a resume correspondence study — to address a number of potential limitations of existing field experiments testing for age discrimination, which may bias their results. One limitation that may bias these studies towards finding discrimination is the practice of giving older and younger applicants similar experience in the job to which they are applying, making them "otherwise comparable." The second limitation arises because greater unobserved differences in human capital investment of older applicants may bias existing field experiments against finding age discrimination. The researchers also study ages closer to retirement than in past studies, and use a richer set of job profiles for older workers to test for differences associated with transitions to less demanding jobs ("bridge jobs") at older ages. Based on evidence from over 40,000 job applications, they find robust evidence of age discrimination in hiring against older women, especially those near retirement age. But the researchers find that there is considerably less evidence of age discrimination against men after correcting for the potential biases this study addresses.

George Bulman, the University of California at Santa Cruz; Robert W. Fairlie, the University of California at Santa Cruz and NBER; Sarena Goodman, Federal Reserve Board of Governors; and Adam Isen, Department of the Treasury

Parental Resources and College Attendance: Evidence from Lottery Wins(NBER Working Paper No. 22679)

Bulman, Fairlie, Goodman, and Isen examine more than one million children whose parents won a state lottery to trace out the effect of additional household resources on college attendance. The analysis links the universe of federal tax records to federal financial aid records and leverages substantial variation in the size and timing of wins. The results reveal modest, increasing, and only weakly concave effects of resources on the transition to college: wins less than $100,000 have little influence (i.e., effects greater than 0.3 percentage point can be ruled out) while very large wins that exceed the cost of college imply a high upper bound (e.g., wins over $1,000,000 increase attendance by 10 percentage points). The effects are smaller among low-SES households. Further, while lottery wins reduce financial aid, attendance patterns are not moderated by this crowd-out. Overall, the results suggest that households derive consumption value from college and, in the current policy environment, credit constraints do not inhibit college attendance.

Rachel B. Baker, the University of California at Irvine; Eric Bettinger, Stanford University and NBER; Brian Jacob, the University of Michigan and NBER; and Ioana Marinescu, the University of Chicago and NBER

The Effect of Labor Market Information on Community College Students' Major Choice

An important goal of community colleges is to prepare students for the labor market. But are students aware of the labor market outcomes in different majors? And how much do students weigh labor market outcomes when choosing a major? In this study Baker, Bettinger, Jacob, and Marinescu find that less than 40% of community college students in California rank broad categories of majors accurately in terms of labor market outcomes. However, students believe that salaries are 13 percent higher than they actually are, on average, and students underestimate the probability of being employed by almost 25 percent. The researchers find that the main determinants of major choice are beliefs about course enjoyment and grades, but expected labor market outcomes also matter. Experimental estimates of the impact of expected labor market outcomes are larger than OLS estimates and show that a 1% increase in salary is associated with a 1.4 to 1.8% increase in the probability of choosing a given broad category of majors.

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