Labor Studies

Members of the NBER's Labor Studies Program met place in Cambridge on December 1. Program Co-Directors David Autor of MIT and Alexandre Mas of Princeton University organized the meeting. These researchers' papers were presented and discussed:

Peter Q. Blair and Bobby Chung, Clemson University

Occupational Licensing Reduces Racial and Gender Wage Gaps

In order to work legally, 29% of U.S. workers require an occupational license. Blair and Chung show that occupational licensing reduces the racial wage gap between white and black men by 43%, and the gender wage gap between women and white men by 36%-40%. For black men, a license is a positive indicator of non-felony status that aids in firm screening of workers, whereas women experience differentially higher returns to the human capital that is bundled with occupational licenses. The information and human capital content of licenses enable firms to rely less on race and gender as predictors of worker productivity.

Atila Abdulkadiroglu, Duke University and NBER; Parag A. Pathak, Massachusetts Institute of Technology and NBER; Jonathan T. Schellenberg, the University of California at Berkeley; and Christopher R. Walters, the University of California at Berkeley and NBER

Do Parents Value School Effectiveness? (NBER Working Paper No. 23912)

School choice may lead to improvements in school productivity if parents' choices reward effective schools and punish ineffective ones. This mechanism requires parents to choose schools based on causal effectiveness rather than peer characteristics. Abdulkadiroglu, Pathak, Schellenberg, and Walters study relationships among parent preferences, peer quality, and causal effects on outcomes for applicants to New York City's centralized high school assignment mechanism. They use applicants' rank-ordered choice lists to measure preferences and to construct selection-corrected estimates of treatment effects on test scores and high school graduation. The researchers also estimate impacts on college attendance and college quality. Parents prefer schools that enroll high-achieving peers, and these schools generate larger improvements in short- and long-run student outcomes. Abdulkadiroglu, Pathak, Schellenberg, and Walters find no relationship between preferences and school effectiveness after controlling for peer quality.

Rebecca Diamond, Stanford University and NBER, and Timothy McQuade and Franklin Qian, Stanford University

The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco

In this paper, Diamond, McQuade, and Qian exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants, landlords, and the rental market as a whole. Leveraging new micro data which tracks an individual's migration over time, they find that rent control increased the probability a renter stayed at their address by close to 20 percent. At the same time, the researchers find that landlords whose properties were exogenously covered by rent control reduced their supply of available rental housing by 15%, by either converting to condos/TICs, selling to owner occupied, or redeveloping buildings. This led to a city-wide rent increase of 7% and caused $5 billion of welfare losses to all renters. Diamond, McQuade, and Qian develop a dynamic, structural model of neighborhood choice to evaluate the welfare impacts of our reduced form effects. They find that rent control offered large benefits to impacted tenants during the 1995-2012 period, averaging between $2300 and $6600 per person each year, with aggregate benefits totaling over $390 million annually. The substantial welfare losses due to decreased housing supply could be mitigated if insurance against large rent increases was provided as a form of government social insurance, instead of a regulated mandate on landlords.

Joakim Ruist, Gothenburg University; Jan Stuhler, University Carlos III; and David A. Jaeger, City University of New York and NBER

Shift-Share Instruments and the Impact of Immigration

Many studies in the immigration literature rely on geographic variation in the concentration of immigrants to identify their impact on the labor market. National inflows of immigrants are interacted with their past geographic distribution to create an instrument, in the hopes of breaking the endogeneity between labor market conditions and the location choice of immigrants. Jaeger, Ruist, and Stuhler present evidence that estimates based on this shift-share instrument are subject to bias from the conflation of short- and long-run responses to local shocks. The bias stems from the interplay of two factors. First, local shocks may trigger adjustment processes that gradually offset their initial impact. Second, the spatial distribution of immigrant inflows typically changes little over time. In the U.S., both the country-of-origin composition and spatial distribution of immigrant arrivals have been almost perfectly serially correlated in recent decades, with the same cities repeatedly receiving large immigrant inflows. Estimates based on the conventional shift-share instrument are therefore unlikely to identify a causal effect. The researchers propose a "double instrumentation" solution to the problem that — by isolating spatial variation that stems from changes in the country-of-origin composition on the national level — produces estimates that are likely to be less biased than those in the previous literature. Their results are a cautionary tale for a large body of empirical work, not just on immigration, that rely on shift-share instruments for causal identification.

Bo Cowgill, Columbia University

The Value of an Additional Job Offer

Damon Jones, University of Chicago and NBER, and Ioana Marinescu, the University of Pennsylvania and NBER

The Labor Market Impacts of Universal and Permanent Cash Transfers: Evidence from the Alaska Permanent Fund

Jones and Marinescu study the impact of universal and permanent cash transfers on the labor market, using the introduction of the Alaska Permanent Fund Dividend. Since 1982, all Alaskan residents are entitled to a yearly cash dividend from the Alaska Permanent Fund. They use the Current Population Survey and a synthetic control method to show that the dividend had no effect on employment, and increased part-time work by 1.8 percentage points. Theory and prior empirical research suggests that cash transfers decrease household labor supply. The researchers interpret their results as evidence that general equilibrium effects of widespread and permanent transfers tend to offset this labor supply effect, at least on the extensive margin.

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