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Article

Population Issues in Welfare Economics, Ethics, and Policy Evaluation  

Kevin Kuruc, Mark Budolfson, and Dean Spears

Nearly all large policy decisions influence not only the quality of life for existing individuals but also the number—and even identities—of yet-to-exist individuals. Accounting for these effects in a policy evaluation framework requires taking difficult stances on concepts such as the value of existence. These issues are at the heart of a literature that sits between welfare economics and philosophical population ethics. Despite the inherent challenges of these questions, this literature has produced theoretical insights and subsequent progress on variable-population welfare criteria. A surprisingly bounded set of coherent alternatives exists for practitioners once a set of uncontroversial axioms is adopted from the better-studied welfare criteria for cases where populations are assumed to be fixed. Although consensus has not yet been reached among these remaining alternatives, their recommendations often agree. The space has been sufficiently restricted and well explored that applications of the theoretical insights are possible and underway in earnest. For reasons both theoretical and empirical, the applied literature studying optimal policy and its robustness to welfare criteria has documented a surprising degree of convergence between recommendations under quite different ethical stances on existence value. This convergence has appeared even in cases where population size itself is the choice variable. Although it may not always be the case that policy recommendations are invariant to population welfare criteria, tools have been developed that allow researchers to easily and transparently move between such criteria to study the robustness in their context of interest. The broader point is that the remaining theoretical uncertainties need not prevent population ethics from playing a role in policy evaluation—the tools are available for determining whether and which policies are broadly supported among a range of ethical views.

Article

Poverty and Social Policy in the United States  

James P. Ziliak

The interaction between poverty and social policy is an issue of longstanding interest in academic and policy circles. There are active debates on how to measure poverty, including where to draw the threshold determining whether a family is deemed to be living in poverty and how to measure resources available. These decisions have profound impacts on our understanding of the anti-poverty effectiveness of social welfare programs. In the context of the United States, focusing solely on cash income transfers shows little progress against poverty over the past 50 years, but substantive gains are obtained if the resource concept is expanded to include in-kind transfers and refundable tax credits. Beyond poverty, the research literature has examined the effects of social welfare policy on a host of outcomes such as labor supply, consumption, health, wealth, fertility, and marriage. Most of this work finds the disincentive effects of welfare programs on work, saving, and family structure to be small, but the income and consumption smoothing benefits to be sizable, and some recent work has found positive long-term effects of transfer programs on the health and education of children. More research is needed, however, on how to measure poverty, especially in the face of deteriorating quality of household surveys, on the long-term consequences of transfer programs, and on alternative designs of the welfare state.

Article

Quantile Regression for Panel Data and Factor Models  

Carlos Lamarche

For nearly 25 years, advances in panel data and quantile regression were developed almost completely in parallel, with no intersection until the work by Koenker in the mid-2000s. The early theoretical work in statistics and economics raised more questions than answers, but it encouraged the development of several promising new approaches and research that offered a better understanding of the challenges and possibilities at the intersection of the literatures. Panel data quantile regression allows the estimation of effects that are heterogeneous throughout the conditional distribution of the response variable while controlling for individual and time-specific confounders. This type of heterogeneous effect is not well summarized by the average effect. For instance, the relationship between the number of students in a class and average educational achievement has been extensively investigated, but research also shows that class size affects low-achieving and high-achieving students differently. Advances in panel data include several methods and algorithms that have created opportunities for more informative and robust empirical analysis in models with subject heterogeneity and factor structure.

Article

Race and the Economics Professoriate in the United States  

Gregory N. Price

In 1894, W. E. B. Dubois completed coursework for a doctorate in economics at the University of Berlin, and in 1921, Sadie Alexander was the first Black American to earn a doctorate in economics at the University of Pennsylvania. Notwithstanding these rare early accomplishments by Black Americans in economics, there seems to be a more than one century “color line” in the hiring of Black economists in the United States academic labor market. The persistence of Black economist underrepresentation in economics faculties in the United States suggests that a color line constraining the hiring of Black economics faculty endures. In general, and in particular among economics doctorate–granting institutions in the United States, when sorting them by the number of Black Americans on the economics faculty, the median economics department has no Black economics faculty. Findings from the extant literature on the hiring and representation of Black economists suggest that the underrepresentation of Black PhD economists in economics faculties is consistent with, and conforms to, a history of racially discriminatory employment exclusion. This color line could be constraining the production of economics knowledge that can inform public policies that would reduce racial inequality and improve the material living standards of Black Americans in the United States. Future research on the underrepresentation of Black PhD economists in economics faculties in the United States could potentially benefit from accounting for unobservables that may matter for the supply and demand of Black PhD economists. This includes, but is not limited to, what is not observed about individual PhD economist mentoring experiences and parental occupational backgrounds.

Article

Race, Ethnicity, and Retirement Security in the United States  

Dania V. Francis and Christian E. Weller

U.S. workers need to save substantial amounts to supplement Social Security, a near-universal but basic public retirement benefit. Yet wealth inequality is widespread by race and ethnicity, so that households of color often have less wealth than White households. This wealth inequality is reflected in a massive retirement savings gap by race and ethnicity, so that households of color often have less wealth than White households. In 2016 Black households had a median retirement savings account balance of $23,000, compared to $67,000 for White households. Many people of color will face substantial and potentially harmful cuts to their retirement spending. They may, for example, find it more difficult to pay for housing or healthcare. This retirement gap is the result of several factors. Households of color, especially Black and Latino households, are less likely to receive large financial gifts and inheritances from their families. They have less wealth decades and often centuries of discrimination and exploitation in society. They thus have to save more for retirement on their own. Yet Black, Latino, and many Asian American workers face greater obstacles in saving for retirement than is the case for White workers. These obstacles are especially pronounced in retirement savings accounts. People of color have less access to these retirement benefits through their employers, contribute less due to greater concurrent economic risks, and build less wealth over time due to less stable earnings and more career disruptions. As a result, people of color often use home equity as a form of retirement savings, but they also face more financial risks associated with homeownership. In addition, many people of color face higher costs during retirement, especially higher healthcare costs and more widespread caregiving and financial responsibilities for family members. The coronavirus pandemic has exacerbated many of the obstacles and risks associated with retirement saving for people of color, who experienced sharper increases in unemployment and more widespread healthcare challenges due to greater exposure to the virus. Many Black, Latino, and Asian families had to rely more heavily on their own savings during the pandemic than was the case for White households. A range of public policies have been proposed or implemented, especially at the state level, to address some of the obstacles that people of color face in saving for retirement. Retirement researchers will need to investigate whether and how the pandemic has affected racial differences in retirement security as well as analyze how new policy efforts could shrink the racial differences in retirement wealth.

Article

Racial Inequality Across Income Volatility and Employment  

Michael Carr and Bradley L. Hardy

Volatility is an under-explored facet of economic insecurity, and it further helps to characterize otherwise omitted nuance in the economic situation facing many socioeconomically disadvantaged groups. Defined as a measure of short-run intragenerational mobility, standard measures of volatility leverage panel data in order to estimate higher moments of the growth rate of earnings or income, most often as variance transformations. Broadly, volatility can arise from one of two sources: instability in earnings among the continuously employed due to variable hours, hourly earnings, or salary changes; and/or instability in employment. The current literature shows that while both sources play an important role in the level of volatility for both men and women, trends are similar whether or not employment instability is accounted for, with overall declines in volatility for women and a largely flat trend for men over the last 40 years. The overall flat trend in volatility for men does seem at odds with other evidence that shows falling labor force participation for working-age men, and for Black men in particular. The link between these two processes—earnings changes over short periods of time and weekly or monthly snapshots of employment and labor force participation—remains largely absent from the literature because the most commonly used panel data sets are unable to capture within-year fluctuations in employment instability. Whether declining labor force participation for men increases or decreases volatility depends on whether there is a bifurcation in employment where some men are consistently employed over longer time horizons and some are not employed at all, or if declines in labor force participation at a point in time reflect increasing instability in employment over time. If the latter is true, then volatility could increase and could result in notably different trends in volatility over time by both race and gender.

Article

A Review of Gender Differences in Negotiation  

Iñigo Hernandez-Arenaz and Nagore Iriberri

Gender differences, both in entering negotiations and when negotiating, have been proved to exist: Men are usually more likely to enter into negotiation than women and when negotiating they obtain better deals than women. These gender differences help to explain the gender gap in wages, as starting salaries and wage increases or promotions throughout an individual’s career are often the result of bilateral negotiations. This article presents an overview of the literature on gender differences in negotiation. The article is organized in four main parts. The first section reviews the findings with respect to gender differences in the likelihood of engaging in a negotiation, that is, in deciding to start a negotiation. The second section discusses research on gender differences during negotiations, that is, while bargaining. The third section looks at the relevant psychological literature and discusses meta-analyses, looking for factors that trigger or moderate gender differences in negotiation, such as structural ambiguity and cultural traits. The fourth section presents a brief overview of research on gender differences in non- cognitive traits, such as risk and social preferences, confidence, and taste for competition, and their impact in explaining gender differences in bargaining. Finally, the fifth section discusses some policy implications. An understanding of when gender differences are likely to arise on entering into negotiations and when negotiating will enable policies to be created that can mitigate current gender differences in negotiations. This is an active, promising research line.

Article

School Choice and Accountability  

Simon Burgess and Ellen Greaves

School choice and accountability are both mechanisms initially designed to improve standards of education in publicly provided schools, although they have been introduced worldwide with alternative motivations such as to promote equality of access to “good” schools. Economists were active in the initial design of school choice and accountability systems, and continue to advise and provide evidence to school authorities to improve the functioning of the “quasi-market.” School choice, defined broadly, is any system in which parents’ preferences over schools are an input to their child’s allocation to school. Milton Friedman initially hypothesized that school choice would increase the diversity of education providers and improve schools’ productivity through competition. As in the healthcare sector and other public services, “quasi-markets” can respond to choice and competition by improving standards to attract consumers. Theoretical and empirical work have interrogated this prediction and provided conditions for this prediction to hold. Another reason is to promote equality of access to “good” schools and therefore improve social mobility. Rather than school places being rationed through market forces in the form of higher house prices, for example, school choice can promote equality of access to popular schools. Research has typically considered the role of school choice in increasing segregation between different groups of pupils, however, due to differences in parents’ preferences for school attributes and, in some cases, the complexity of the system. School accountability is defined as the public provision of school-performance information, on a regular basis, in the same format, and using independent metrics. Accountability has two functions: providing incentives for schools, and information for parents and central authorities. School choice and accountability are linked, in that accountability provides information to parents making school choices, and school choice multiplies the incentive effect of public accountability. Research has studied the effect of school accountability on pupils’ attainment and the implications for teachers as an intermediate mechanism.

Article

Stock-Flow Models of Market Frictions and Search  

Eric Smith

Stock-flow matching is a simple and elegant framework of dynamic trade in differentiated goods. Flows of entering traders match and exchange with the stocks of previously unsuccessful traders on the other side of the market. A buyer or seller who enters a market for a single, indivisible good such as a job or a home does not experience impediments to trade. All traders are fully informed about the available trading options; however, each of the available options in the stock on the other side of the market may or may not be suitable. If fortunate, this entering trader immediately finds a viable option in the stock of available opportunities and trade occurs straightaway. If unfortunate, none of the available opportunities suit the entrant. This buyer or seller now joins the stocks of unfulfilled traders who must wait for a new, suitable partner to enter. Three striking empirical regularities emerge from this microstructure. First, as the stock of buyers does not match with the stock of sellers, but with the flow of new sellers, the flow of new entrants becomes an important explanatory variable for aggregate trading rates. Second, the traders’ exit rates from the market are initially high, but if they fail to match quickly the exit rates become substantially slower. Third, these exit rates depend on different variables at different phases of an agent’s stay in the market. The probability that a new buyer will trade successfully depends only on the stock of sellers in the market. In contrast, the exit rate of an old buyer depends positively on the flow of new sellers, negatively on the stock of old buyers, and is independent of the stock of sellers. These three empirical relationships not only differ from those found in the familiar search literature but also conform to empirical evidence observed from unemployment outflows. Moreover, adopting the stock-flow approach enriches our understanding of output dynamics, employment flows, and aggregate economic performance. These trading mechanics generate endogenous price dispersion and price dynamics—prices depend on whether the buyer or the seller is the recent entrant, and on how many viable traders were waiting for the entrant, which varies over time. The stock-flow structure has provided insights about housing, temporary employment, and taxicab markets.

Article

The Economic and Political Effects of Immigration: Evidence from the Age of Mass Migration  

Marco Tabellini

Between 1850 and 1920, during the Age of Mass Migration, more than 30 million Europeans moved to the United States. European immigrants provided an ample supply of cheap labor as well as specific skills and know-how, contributing to American economic growth. These positive effects were not short-lived, but are still evident in the 21st century: areas of the United States that received more European immigrants during the Age of Mass Migration have higher income per capita, a more educated population, and lower poverty rates. Despite its economic benefits, immigration triggered hostile political reactions, which were driven by cultural differences between immigrants and natives, and culminated in the introduction of country-specific quotas. In contrast to the concerns prevailing at the time, European immigrants eventually assimilated. The process was facilitated by the inflow of 1.5 million African Americans who left the rural South to move to northern and western cities between 1915 and 1930. Black in-migration increased the salience of skin color, as opposed to that of religion and nativity, as a defining feature of in- and out-groups of the society. This reduced the perceived distance between native whites and European immigrants, thereby facilitating the integration of the latter. European immigrants also had long-lasting effects on American ideology. Parts of the country that hosted more immigrants during the Age of Mass Migration have a more liberal ideology and stronger preferences for redistribution well into the 21st century. This resulted from the transmission of political ideology from (more left-leaning) immigrants to natives.

Article

The Economic Implications of Training for Firm Performance  

Pedro S. Martins

A small literature on the relationship between employee training and firm performance is currently emerging. This line of research is particularly promising given the underexplored potential of training to drive productivity, wages, and employment. Until recently, training was regarded as a costly and risky investment because workers may leave their firm after being trained. However, studies on labor and education economics have found that training results in high returns for firms and that the costs of training can be recouped in a relatively short time. These results follow from different econometric identification approaches, including a small but growing number of randomized controlled trials. Moreover, most training is of a general nature and therefore applicable in other firms, which is at odds with the original theory of training but consistent with novel models that emphasize labor market power. There are a number of possibilities for future research, including a better understanding of the heterogeneity and patterns of training contents and formats across firms and workers, the differentiation of the effects of training along such dimensions, the role of labor market competition in driving training, the extent to which the productivity effects of training are shared with employees, the role of labor market institutions (including minimum wage, collective bargaining, and occupational licensing) in the dimensions above, and the firm performance effects of training provided to unemployed job seekers (as opposed to employees). Evaluation of the public training programs developed during the Covid-19 pandemic crisis and new forms of training in the context of the growth of remote work also merit further investigation.

Article

The Economics of Gender and Educational Achievement: Stylized Facts and Causal Evidence  

Judith M. Delaney and Paul J. Devereux

There are two well-established gender gaps in education. First, females tend to have higher educational attainment and achievement than males, and this is particularly the case for children from less advantaged backgrounds. Second, there are large differences in the fields of specialization chosen by males and females in college and even prior to college, and females disproportionately enter less highly paid fields. Gender differences in noncognitive traits, behavior, and interests have been shown to relate to differences in educational outcomes; however, this evidence cannot generally be given a causal interpretation. In contrast, the literature has been creative in estimating causal impacts of a wide range of factors using experimental and quasiexperimental variation. While the approaches are compelling, the findings vary widely across studies and are often contradictory. This may partly reflect methodological differences across studies, but it also may result from substantial true heterogeneity across educational systems and time periods. Lower educational achievement of males has been linked to gender differences in attitudes, behaviors, and educational aspirations as well as the tendency of males to mature at older ages. Differential field choices by gender are related to differences in comparative advantage by gender and gender differences in preferences for types of study and work and for nonpecuniary aspects of jobs, such as their flexibility and gender mix. There are reasons to believe that policy should address the two gender gaps, and many possible policy approaches exist. However, their effectiveness is unclear, and there is scope for further work to determine which policies are likely to be effective and in which circumstances.

Article

The Economics of Health and Migration  

Osea Giuntella and Timothy J. Halliday

Migration and health are intimately connected. It is known that migrants tend to be healthier than non-migrants. However, the mechanisms for this association are elusive. On the one hand, the costs of migration are lower for healthier people, thereby making it easier for the healthy to migrate. Empirical evidence from a variety of contexts shows that the pre-migration health of migrants is better than it is for non-migrants, indicating that there is positive health-based selection in migration. On the other hand, locations can be viewed as a bundle of traits including but not limited to environmental conditions, healthcare quality, and violence. Each of these can impact health. Evidence shows that moving from locations with high mortality to low mortality can reduce mortality risks. Consistent with this, migration can increase mortality risk if it leads to greater exposure to risk factors for disease. The health benefits enjoyed by migrants can also be found in their children. However, these advantages erode with successive generations.

Article

The Economics of International Wage Differentials and Migration  

Lant Pritchett and Farah Hani

The key question for the economics of international migration is whether observed real wage differentials across countries for workers with identical intrinsic productivity represent an economic inefficiency sustained by legal barriers to labor mobility between geographies. A simple comparison of the real wages of workers with the same level of formal schooling or performing similar occupations across countries shows massive gaps between rich and poorer countries. These gaps persist after adjusting for observed and unobserved human capital characteristics, suggesting a “place premium”—or space-specific wage differentials that are not due to intrinsic worker productivity but rather are due to a misallocation of labor. If wage gaps are not due to intrinsic worker productivity, then the incentive for workers to move to richer countries is high. The idea of a place premium is corroborated by macroeconomic evidence. National accounts data show large cross-country output per worker differences, driven by the divergence of total factor productivity. The lack of convergence in total factor productivity and corresponding spatial productivity differentials create differences in the marginal product of factors, and hence persistent gaps in the wages of equal productivity workers. These differentials can equalize with factor flows; however their persistence and large magnitude in the case of labor, suggest legal barriers to migration restricting labor flows are in fact constraining significant return on human capital, and leaving billions in unrealized gains to the world’s workers and global economy. A relaxation of these barriers would generate worker welfare gains that dwarf gold-standard poverty reduction programs.

Article

Trade Liberalization and Informal Labor Markets  

Lourenço S. Paz and Jennifer P. Poole

In recent decades, economic reforms and technological advances have profoundly altered the way employers do business—for instance, the nature of employment relationships, the skills firms demand, and the goods and services they produce and export. In many developing economies, these changes took place concurrently with a substantive rise in work outside of the formal economy. According to International Labour Organization estimates, informal employment can be as high as 88% of total employment in India, almost 50% in Brazil, and around 35% of employment in South Africa. Such informal employment is typically associated with lower wages, lower productivity, poorer working conditions, weaker employment protections, and fewer job benefits and amenities, and these informal workers are often poorer and more vulnerable than their counterparts in the formalized economy. Informal jobs are a consequence of labor market policies—like severance payments or social security contributions—that make the noncompliant informal job cheaper for the employer than a compliant formal job. Each model has a different benefit (or lack of punishment) for employing formal workers, and a distinct mechanism through which international trade shocks alter the benefit-cost of these types of jobs, which in turn results in a change in the informality share. The empirical literature concerning international trade and formality largely points to an unambiguous increase in informal employment in the aftermath of increased import competition. Interestingly, increased access to foreign markets, via liberalization of major trading partners, offers strongly positive implications for formal employment opportunities, decreasing informality. Such effects are moderated by the de facto enforcement of labor regulations. Expansions toward the formal economy and away from informal wage employment in the aftermath of increased access to foreign markets are smaller in strictly enforced areas of the country.

Article

Trade Shocks and Labor-Market Adjustment  

John McLaren

When international trade increases, either because of a country’s lowering its trade barriers, a trade agreement, or productivity surges in a trade partner, the surge of imports can cause dislocation and lowered incomes for workers in the import-competing industry or the surrounding local economy. Trade economists long used static approaches to analyze these effects on workers, assuming either that workers can adjust instantly and costlessly, or (less often) that they cannot adjust at all. In practice, however, workers incur costs to adjust, and the adjustment takes time. An explosion of research, mostly since about 2008, has explored dynamic worker adjustment through change of industry, change of occupation, change of location, change of labor-force participation, adjustment to change in income, and change in marital status or family structure. Some of these studies estimate rich structural models of worker behavior, allowing for such factors as sector-specific or occupation-specific human capital to accrue over time, which can be imperfectly transferable across industries or occupations. Some allow for unobserved heterogeneity across workers, which creates substantial technical challenges. Some allow for life-cycle effects, where adjustment costs vary with age, and others allow adjustment costs to vary by gender. Others simplify the worker’s problem to embed it in a rich general equilibrium framework. Some key results include: (a) Switching either industry or occupation tends to be very costly; usually more than a year’s average wages on average. (b) Given that moving costs change over time and workers are able to time their moves, realized costs are much lower, but the result is gradual adjustment, with a move to a new steady state that typically takes several years. (c) Idiosyncratic shocks to moving costs are quantitatively important, so that otherwise-identical workers often are seen moving in opposite directions at the same time. These shocks create a large role for option value, so that even if real wages in an industry are permanently lowered by a trade shock, a worker initially in that industry can benefit. This softens or reverses estimates of worker losses from, for example, the China shock. (d) Switching costs vary greatly by occupation, and can be very different for blue-collar and white-collar workers, for young and old workers, and for men and women. (e) Simple theories suggest that a shock results in wage overshooting, where the gap in wages between highly affected industries and others opens up and then shrinks over time, but evidence from Brazil shows that at least in some cases the wage differentials widen over time. (f) Some workers adjust through family changes. Evidence from Denmark shows that some women workers hit by import shocks withdraw from the labor market at least temporarily to marry and have children, unlike men. Promising directions at the frontier include more work on longitudinal data; the role of capital adjustment; savings, risk aversion and the adjustment of trade deficits; responses in educational attainment; and much more exploration of the effects on family.

Article

Value-Added Estimates of Teacher Effectiveness: Measurement, Uses, and Limitations  

Jessalynn James and Susanna Loeb

Since the turn of the 21st century, an abundant body of research has demonstrated that teachers meaningfully contribute to their students’ learning but that teachers vary widely in their effectiveness. Measures of teachers’ “value added” to student achievement have become common, and sometimes controversial, tools for researchers and policymakers hoping to identify and differentiate teachers’ individual contributions to student learning. Value-added measures aim to identify how much more a given teacher’s students learn than what would be expected based on how much other, similar students learn with other teachers. The question of how to measure value added without substantial measurement error and without incorrectly capturing other factors outside of teachers’ control is complex and sometime illusory, and the advantages and drawbacks to any particular method of estimating teachers’ value added depend on the specific context and purpose for their use. Traditionally, researchers have calculated value-added scores only for the subset of teachers with students in tested grades and subjects—a relatively small proportion of the teaching force, in a narrow set of the many domains on which teachers may influence their students. More recently, researchers have created value-added estimates for a range of other student outcomes, including measures of students’ engagement and social-emotional learning such as attendance and behavioral incidences, which may be available for more teachers. Overall, teacher value-added measures can be useful tools for understanding and improving teaching and learning, but they have substantial limitations for many uses and contexts.