November 7, 2014
Christian Dustmann, University College London, and
Victor Lavy, University of Warwick, Hebrew University of Jerusalem, and NBER;
Avraham Ebenstein, Hebrew University of Jerusalem; and
Sefi Roth, Royal Holloway, University of London
Cognitive performance during high-stakes exams can be affected by random disturbances that, even if transitory, may have permanent consequences for long-term schooling attainment and labor market outcomes. Lavy, Ebenstein, and Roth evaluate this hypothesis among Israeli high school students who took a series of high stakes matriculation exams between 2000 and 2002. As a source of random (transitory) shocks to high-stakes matriculation test scores, the researchers use exposure to ambient air pollution during the day of the exam. First, the authors document a significant and negative relationship between average PM 2.5 exposure during exams and student composite scores, post-secondary educational attainment, and earnings during adulthood. Second, using PM 2.5 as an instrument, they estimate a large economic return to each point on the exam and each additional year of post-secondary education. Third, they examine the return to exam scores and schooling across sub-populations, and find the largest effects among boys, better students, and children from higher socio-economic backgrounds. The results suggest that random disturbances during high-stakes examinations can have long-term consequences for schooling and labor market outcomes, while also highlighting the drawbacks of using high-stakes examinations in university admissions.
John Haltiwanger, University of Maryland and NBER, and
Henry Hyatt and Erika McEntarfer, U.S. Census Bureau
Search-and-matching models with on-the-job search and firm size yield the prediction that job-to-job flows reallocate workers from smaller to larger firms. Recent papers have extended such models to explain the cyclicality of employment at large vs. small firms. These models also predict a tight relationship between employer size and employer wages yielding analogous predictions of reallocation of workers from low wage to high wage firms that should become more intense in booms. In this paper, Haltiwanger, Hyatt, and McEntarfer use linked employer-employee data for the U.S. to provide direct evidence on worker reallocation by firm size and firm wage. The researchers find that average net poaching of large firms is negative and small while net poaching of small firms is positive and small. In contrast, net poaching of high wage firms is (on average) positive and large while net poaching of low wage firms is negative and large. Regarding the cyclical nature of this reallocation, the authors find that poaching hires are highly procyclical for firms of all firm sizes and wages. Yet despite the cyclical nature of poaching, net reallocation across firm size classes via poaching is relatively stable across the business cycle. In contrast, net reallocation via poaching from low wage to high wage firms is highly procyclical.
Huailu Li, Boston University;
Kevin Lang, Boston University and NBER; and
Kaiwen Leong, Nanyang Technological University
In this paper, Li, Lang, and Leong study the highly competitive, street sex-worker market in Geylang, Singapore, which clients can search legally at negligible cost. The researchers find that sex workers discriminate based on client ethnicity despite an excess supply of sex workers. Workers are more (less) likely to approach and ask a higher (lower) price of Caucasians (Bangladeshis), based on their perceived willingness to pay. They avoid Indians, set a significantly higher price and are less likely to reach an agreement with them, suggesting that Indians face taste discrimination. These findings remain even after controlling for sex-worker fixed effects and are consistent with the workers' self-reported attitudes and beliefs.
David Cesarini, New York University;
Erik Lindqvist, Stockholm School of Economics;
Matthew Notowidigdo, Northwestern University and NBER; and
Robert Östling, Stockholm University
Cesarini, Lindqvist, Notowidigdo, and Östling study the effect of wealth on individual and household labor supply using administrative data for approximately three million lottery players in Sweden. The researchers find that winning a lump-sum lottery prize modestly reduces labor earnings, with roughly 10 percent of the prize spent reducing labor earnings over the first 10 years. Earnings reductions are fairly similar by age and gender, but increase with pre-win earnings levels. The authors show that a calibrated dynamic labor supply model can account for their results both over the life cycle and across the earnings distribution, and they use the model to estimate key labor supply elasticities. Lastly, they find much larger earnings responses for winners than for their spouses, regardless of the gender of the winner; this is inconsistent with unitary household labor supply models which pool exogenous unearned income within the household.
Nathaniel Hilger, Brown University
Intergenerational mobility is a major social objective but its long-term evolution is poorly understood. Hilger estimates intergenerational mobility based on children's final schooling in U.S. census data back to 1940. The estimates rely on a novel strategy to account for the large share of children who leave home before final schooling can be observed. The researcher successfully replicates recent findings of stable mobility since 1980, but uncovers a large increase in mobility after WWII. This pattern is similar for men and women, and is more dramatic in the South and for blacks. Relative gains in education among poor children plausibly increased aggregate annual earnings growth by 0.125 - 0.25 percentage points over the 1940 - 1980 period. High school rather than college enrollment accounts for nearly all of the pre-1980 increase in mobility.