The Economic Journal Current Issue

20 Dec 2018

Nation-building Through Compulsory Schooling during the Age of Mass Migration

Bandiera O, Mohnen M, Rasul I, et al.

Abstract
Why did America introduce compulsory schooling laws at a time when financial investments in education and voluntary school attendance were high? We provide qualitative and quantitative evidence that states adopted compulsory schooling laws as a nation-building tool to instil civic values to the culturally diverse migrants during the ‘Age of Mass Migration’ between 1850 and 1914. We show the adoption of compulsory schooling laws occurred significantly earlier in states that hosted European migrants with lower exposure to civic values in their home countries. Using cross-county data, we show that these migrants had significantly lower demand for American schooling pre-compulsion.
20 Dec 2018

Tackling Social Exclusion: Evidence from Chile

Carneiro P, Galasso E, Ginja R.

Abstract
We study a Chilean programme that combines home visits to households in extreme poverty with guaranteed access to social services. Its goal was to connect marginalised families to the social system to improve their living conditions. Programme impacts are identified using regression discontinuity exploring the fact that eligibility is a discontinuous function of an index of family income and assets. There is no evidence of short or long-term effects on employment or housing. However, we find short and medium-term impacts on the take-up of subsidies and employment services among families without access to the welfare system prior to the intervention.
20 Dec 2018

Culture, Institutions and the Gender Gap in Competitive Inclination: Evidence from the Communist Experiment in China

Zhang Y.

Abstract
Can policy change competitive preferences? This study uses controlled laboratory settings to compare the gender gap in competitive inclination in ethnic groups exposed and exempted from communist institutional reforms that have radically changed the lives of women in China in the areas of marriage, education, work and fertility. Results suggest that exogenously imposed reforms may increase female competitive inclination, although they do not eliminate the gender gap in all cultural contexts. Potential confounding factors are minimised through random selection of subjects from the same high school, resulting in similarity across ethnic groups in demographics, socio-economic status and academic performance.
20 Dec 2018

Public-sector Employment in an Equilibrium Search and Matching Model

Albrecht J, Robayo-Abril M, Vroman S.

Abstract
We extend the Diamond–Mortensen–Pissarides model of equilibrium unemployment to incorporate public-sector employment. We calibrate our model to Colombian data and analyse the effects of public-sector wage and employment policy on the unemployment rate, on the division of employment between the private and public sectors, and on the distributions of wages in the two sectors.
20 Dec 2018

Increasing the Electoral Participation of Immigrants: Experimental Evidence from France

Pons V, Liegey G.

Abstract
Improving the political participation of immigrants could advance their interests and foster their integration into receiving countries. In this study, 23,800 citizens were randomly assigned to receive visits from political activists during the lead-up to the 2010 French regional elections. Treatment increased the turnout of immigrants without having any statistically significant effect on non-immigrants, while turnout was roughly equal in the control group. A post-electoral survey reveals that immigrants initially had less political information, which could explain the heterogeneous impact. Although the effect decays over subsequent elections, our findings suggest that voter outreach efforts can successfully increase immigrants' political participation, even when they do not specifically target their communities and concerns.
20 Dec 2018

The Effect of Social Networks on Students' Academic and Non-cognitive Behavioural Outcomes: Evidence from Conditional Random Assignment of Friends in School

Lavy V, Sand E.

Abstract
We investigate the impacts of separating students in Israel from pre-existing social relationships during the transition from elementary to middle school on their academic progress. We define several types of friendships using students' self-defined friendship nomination and rely for identification on the random assignment of students to classes within a given school. Our results suggest that the number of friends has positive or negative effects on students' educational outcomes, depending on the type of and on friends' socio-economic background. These gains might be partly mediated through greater cooperation, reduction in violent behaviour and improvements in social satisfaction in class.
11 Dec 2018

Transmission of Quantitative Easing: The Role of Central Bank Reserves

Christensen J, Krogstrup S.

Abstract
This article presents empirical evidence of a reserve-induced transmission channel of quantitative easing to long-term interest rates. Reserve-induced effects are independent of the assets purchased and run through the impact of reserve expansions on bank balance sheets and the resulting bank portfolio rebalancing. For evidence, we analyse the reaction of Swiss long-term government bond yields to announcements by the Swiss National Bank to expand central bank reserves without acquiring any long-lived securities. The data suggest that declines in long-term yields following the announcements mainly reflected reduced term premiums, consistent with reserve-induced portfolio balance effects.
07 Jun 2018

Housing Booms, Manufacturing Decline and Labour Market Outcomes

Charles K, Hurst E, Notowidigdo M.

Abstract
We study how manufacturing decline and local housing booms contributed to changes in labour market outcomes during the 2000s, focusing on the distributional consequences across geographical areas and demographic groups. Using a local labour markets design, we estimate that manufacturing decline significantly reduced employment between 2000 and 2006, while local housing booms increased employment. These results suggest that housing booms ‘masked’ employment declines that would have occurred earlier in the absence of the booms. This ‘masking’ occurred both within and between cities and demographic groups. We find that roughly 40% of the reduction in employment during the 2000s can be attributed to manufacturing decline and that these negative effects would have appeared earlier had it not been for the large, temporary increases in housing demand.
22 May 2018

Self-selection of Emigrants: Theory and Evidence on Stochastic Dominance in Observable and Unobservable Characteristics

Borjas G, Kauppinen I, Poutvaara P.

Abstract
The Roy model has more precise predictions about the self-selection of migrants than previously realised. The conditions shown to result in positive or negative selection in terms of expected earnings also imply a stochastic dominance relationship between the earnings distributions of migrants and non-migrants. We test these predictions using the Danish full population administrative data. We find strong evidence of positive self-selection of emigrants in terms of pre-emigration earnings and residual earnings: the income distribution for the migrants almost stochastically dominates the distribution for the non-migrants. Decomposing the self-selection in total earnings reveals that unobserved abilities play the dominant role.
19 May 2018

A Theory of Socio-economic Disparities in Health over the Life Cycle

Galama T, van Kippersluis H.

Abstract
Motivated by the observation that medical care explains only a relatively small part of the socio-economic status (SES)-health gradient, we present a life-cycle model that incorporates several additional behaviours that potentially explain (jointly) a large part of observed disparities. As a result, the model provides not only a conceptual framework for the SES-health gradient but more generally an improved framework for the production of health. We derive novel predictions from the theory by performing comparative dynamic analyses. More generally, our comparative dynamic method can be applied to models of similar form, e.g. human capital, health deficits, firm investment, to name a few.
19 May 2018

Friedman Redux: External Adjustment and Exchange Rate Flexibility

Ghosh A, Qureshi M, Tsangarides C.

Abstract
Milton Friedman argued that flexible exchange rates facilitate external adjustment. Recent studies find surprisingly little robust evidence that they do. We argue that this is because they use composite (‘multilateral’) exchange rate regime classifications, which often mask heterogeneous bilateral relationships between countries. Constructing a novel bilateral exchange rate regimes data set for 181 countries over 1980–2011, we find a statistically strong relationship between exchange rate flexibility and the speed of external adjustment. Our results are supported by several ‘natural experiments’ of exogenous changes in bilateral exchange rate regimes, and by Monte Carlo simulations, which show that tests based on standard multilateral regime classifications tend to have low statistical power.
14 Dec 2017

The Effect of Savings Accounts on Interpersonal Financial Relationships: Evidence from a Field Experiment in Rural Kenya

Dupas P, Keats A, Robinson J.

Abstract
The welfare impact of expanding access to bank accounts depends on whether accounts crowd out pre-existing financial relationships, or whether private gains from accounts are shared within social networks. In this experiment, we provided free bank accounts to a random subset of 885 households. Across households, we document positive spillovers: treatment households become less reliant on grown children and siblings living outside their village, and become more supportive of neighbours and friends within their village. Within households, we randomised which spouse was offered an account and find no evidence of negative spillovers.
13 Dec 2017

Motivating Knowledge Agents: Can Incentive Pay Overcome Social Distance?

Berg E, Ghatak M, Manjula R, et al.

Abstract
This article studies the interaction of incentive pay with intrinsic motivation and social distance. We analyse theoretically as well as empirically the effect of incentive pay when agents have not only pro-social objectives but also preferences over dealing with one social group relative to another. In a randomised field experiment undertaken across 151 villages in South India, local agents were hired to spread information about a public health insurance programme. In the absence of incentive pay, social distance impedes the flow of information. Incentive pay increases overall agent effort and appears to cancel the negative effects of social distance.
20 Nov 2017

Wage Shocks and the Technological Substitution of Low‐wage Jobs

Aaronson D, Phelan B.

Abstract
We extend the task‐based empirical framework used in the job polarisation literature to analyse the susceptibility of low‐wage employment to technological substitution. We find that increases in the cost of low‐wage labour, via minimum wage hikes, lead to relative employment declines at cognitively routine occupations but not manually‐routine or non‐routine low‐wage occupations. This suggests that low‐wage routine cognitive tasks are susceptible to technological substitution. While the short‐run employment consequence of this reshuffling on individual workers appears to be economically small, due to concurrent employment growth in other low‐wage jobs, workers previously employed in cognitively routine jobs experience relative wage losses.
20 Nov 2017

Identification of Financial Factors in Economic Fluctuations

Furlanetto F, Ravazzolo F, Sarferaz S.

Abstract
We estimate demand, supply, monetary, investment and financial shocks in a VAR identified with a minimum set of sign restrictions on US data. We find that financial shocks are major drivers of fluctuations in output, stock prices and investment but have a limited effect on inflation. In a second step, we disentangle shocks originating in the housing sector, shocks originating in credit markets and uncertainty shocks. In the extended set‐up, financial shocks are even more important and a leading role is played by housing shocks that have large and persistent effects on output.