Marriage, Labor Supply and the Dynamics of the Social Safety Net

March 6, 2018
By: Hamish Low (University Cambridge) ; Costas Meghir (Cowles Foundation, Yale University) ; Luigi Pistaferri (Stanford University, NBER, CEPR and SIEPR) ; Alessandra Voena (University of Chicago, NBER, CEPR and BREAD)
The 1996 PRWORA reform introduced time limits on the receipt of welfare in the United States. We use variation by state and across demographic groups to provide reduced form evidence showing that such limits led to a fall in welfare claims (partly due to \banking” benefits for future use), a rise in employment, and a decline in divorce rates. We then specify and estimate a life-cycle model of marriage, labor supply and divorce under limited commitment to better understand the mechanisms behind these behavioral responses, carry out counterfactual analysis with longer run impacts and evaluate the welfare effects of the program. Based on the model, which reproduces the reduced form estimates, we show that among low educated women, instead of relying on TANF, single mothers work more, more mothers remain married, some move to relying only on food stamps and, in ex-ante welfare terms, women are worse off.
Keywords: Time limits, Welfare reform, Life-cycle, Marriage and divorce
JEL: D91 H53 J12 J21

People versus Machines: The Impact of Minimum Wages on Automatable Jobs

March 6, 2018
By: Lordan, Grace (London School of Economics) ; Neumark, David (University of California, Irvine)
We study the effect of minimum wage increases on employment in automatable jobs – jobs in which employers may find it easier to substitute machines for people – focusing on low-skilled workers for whom such substitution may be spurred by minimum wage increases. Based on CPS data from 1980–2015, we find that increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers, and increases the likelihood that low-skilled workers in automatable jobs become nonemployed or employed in worse jobs. The average effects mask significant heterogeneity by industry and demographic group, including substantive adverse effects for older, low-skilled workers in manufacturing. We also find some evidence that the same changes improve job opportunities for higher-skilled workers. The findings imply that groups often ignored in the minimum wage literature are in fact quite vulnerable to employment changes and job loss because of automation following a minimum wage increase.
Keywords: minimum wage, employment, automation
JEL: J23 J38

Do Economic Recessions Squeeze the Middle-Class?

February 27, 2018
By: Alberto Batinti ; Joan Costa-i-Font
Economic downturns give rise to unexpected employment shocks that can reshape the distribution of population income, and hence produce a “middle-class squeeze”. However, there is limited empirical evidence testing the latter. This paper aims at testing the ‘middle-class squeeze’ hypothesis drawing from unique data from the Luxembourg Income Study (LIS) for several years, including the period of the Great Recession, and the Integrated Values Study (IVS) obtained by merging data from the World Value Survey (WVS) and the European Values Study (EVS). We examine the association between changes in unemployment in a recession drawing upon a heterogeneous set of both income and middle-class definitions as well as an extensive list of controls and different recession periods. Our findings suggest no robust evidence that recessions produce a middle-class squeeze, though they increase the share of the population regarding itself as ‘middle class’. The effect is heterogeneous to the baseline unemployment at the time of a recession, country spending on social protection and middle-class measurements and definitions. However, when we restrict our analysis to the recent Great Recession, we do find some evidence of a ‘middle-class squeeze’.
Keywords: middle-class size, economic recessions, employment shocks, income distribution
JEL: F22 I30 J64

The Effects of Youth Labor Market Reforms: Evidence from Italian Apprenticeships

February 27, 2018
By: Andrea Albanese ; Lorenzo Cappellari ; Marco Leonardi
This paper estimates the causal effects of the 2003 reform of the Italian apprenticeship contract which aimed at introducing the “dual system†in Italy by allowing on-the-job training. The reform also increased the age eligibility of the apprenticeship contract and introduced a minimum floor to apprentices’ wages. Using administrative data and balancing techniques we find that five years after hiring, the new contract improves the chances of moving to a permanent job in the same firm, yet this happens mostly in large firms. There are also sizeable long-run wage effects of the reform, well beyond the legal duration of apprenticeships, compatible with increased human capital accumulation probably due to the training provisions of the reform.
Keywords: apprenticeship, permanent work, youth employment, covariate balancing propensity score
JEL: J24 J41 C21

Uber vs. Taxi: A Driver’s Eye View

February 27, 2018
By: Joshua D. Angrist ; Sydnee Caldwell ; Jonathan V. Hall
Ride-hailing drivers pay a proportion of their fares to the ride-hailing platform operator, a commission-based compensation model used by many internet-mediated service providers. To Uber drivers, this commission is known as the Uber fee. By contrast, traditional taxi drivers in most US cities make a fixed payment independent of their earnings, usually a weekly or daily medallion lease, but keep every fare dollar net of expenses. We assess these compensation models from a driver’s point of view using an experiment that offered random samples of Boston Uber drivers opportunities to lease a virtual taxi medallion that eliminates the Uber fee. Some drivers were offered a negative fee. Drivers’ labor supply response to our offers reveals a large intertemporal substitution elasticity, on the order of 1.2. At the same time, our virtual lease program was under-subscribed: many drivers who would have benefitted from buying an inexpensive lease chose to opt out. We use these results to compute the average compensation required to make drivers indifferent between ride-hailing and a traditional taxi compensation contract. The results suggest that ride-hailing drivers gain considerably from the opportunity to drive without leasing.
JEL: J18 J22 J41 J58

Are the Spanish Long-Term Unemployed Unemployable?

February 21, 2018
By: Samuel Bentolila ; J. Ignacio García-Pérez ; Marcel Jansen
Long-term unemployment reached unprecedented levels in Spain in the wake of the Great Recession and it still affects around 57% of the unemployed. We document the sources that contributed to the rise in long-term unemployment and analyze its persistence using state-of-the-art duration models. We find pervasive evidence of negative duration dependence, while personal characteristics such as mature age, lack of experience, and entitlement to unemployment benefits are key to understand the cross-sectional differences in the incidence of long-term unemployment. The negative impact of low levels of skill and education is muted by the large share of temporary contracts, but once we restrict attention to employment spells lasting at least one month these factors also contribute to a higher risk of long-term unemployment. Surprisingly, workers from the construction sector do not fare worse than similar workers from other sectors. Finally, self-reported reservation wages are found to respond strongly to the cycle, but much less to individual unemployment duration. In view of these findings, we argue that active labour market policies should play a more prominent role in the fight against long-term unemployment while early activation should be used to curb inflows.
Keywords: long-term unemployment, great recession, duration models, survival probability, Spain
JEL: J63 J64 J65 C41

The ‘Healthy Worker Effect’: Do Healthy People Climb the Occupational Ladder?

February 21, 2018
By: Costa Font, Joan (London School of Economics) ; Ljunge, Martin (Research Institute of Industrial Economics (IFN))
The association between occupational status and health has been taken to reveal the presence of health inequalities shaped by occupational status. However, that interpretation assumes no influence of health status in explaining occupational standing. This paper documents evidence of non-negligible returns to occupation status on health (which we refer to as the ‘healthy worker effect’). We use a unique empirical strategy that addressed reverse causality, namely an instrumental variable strategy using the variation in average health in the migrant’s country of origin, a health measure plausibly not determined by the migrant’s occupational status. Our findings suggest that health status exerts significant effects on occupational status in several dimensions; having a supervising role, worker autonomy, and worker influence. The effect size of health is larger than that of an upper secondary education.
Keywords: Occupational status; Self-reported health; Immigrants; Work autonomy; Supervising role
JEL: I18 J50