Lucky Stores, Gambling, and Addiction: Empirical Evidence from State Lottery Sales

There is a large body of literature in both psychology and economics documenting mistaken perceptions of randomness. In this paper we demonstrate that people appear to believe that "lightning will strike twice" when it comes to lottery jackpots. First, we show that in the week following the sale of a winning ticket, retailers that sell a winning jackpot ticket experience relative increases in game-specific ticket sales of between 12 and 38 percent, with the sales response increasing in the size of the jackpot. In addition, the increase in sales experienced by the winning vendor increases with the proportion of the local population comprised of high school dropouts, elderly adults, and households receiving public assistance. We further show that this increase in retail-game sales initially reflects an increase in total sales at the retail and zip code level. Second, we show that the increase in sales is persistent at the winning retailer. However, the data no not provide clear evidence that the increase in sales at the zip code level is persistent. It thus appears that in the long run, consumers are persistent in their habit of buying lottery tickets at the "lucky" store; however, as the shock to total gambling dissipates, there is no evidence that lottery gambling itself is habit forming or addictive.

Socioeconomic Disadvantage and Early Childbearing

We examine the empirical relationship between socioeconomic disadvantage and rates of early childbearing. First, we use data from the Panel Study of Income Dynamics (PSID) to confirm a strong correlation at the individual level - women who grow up "disadvantaged" are much more likely to give birth as teens. Then we aggregate Vital Statistics microdata from 1968 through 2003 to conduct a cohort-based analysis of the relationship between rates of socioeconomic disadvantage of a birth cohort and the cohort's subsequent early childbearing experiences. Our cohort level analysis implies an even tighter intergenerational correlation between rates of background disadvantage and early childbearing. But, when our analysis econometrically controls for fixed state and year of birth effects in the model to account for cultural and other differences across cohorts, the relationship between rates of disadvantage and early childbearing is found to be quite modest. For example, the elasticity of early childbearing rates by age 18 with respect to the probability of being born to a mother under age 18 is only 0.05. This suggests that broader, societal forces are far more important in determining rates of early childbearing than rates of socioeconomic disadvantage per se.

Subsidized Contraception, Fertility, and Sexual Behavior

This paper examines the impact of recent state-level Medicaid policy changes that expanded eligibility for family planning services to higher income women and to Medicaid clients whose benefits would expire otherwise. We begin by establishing that the income-based policy change led to a substantial increase in the number of program recipients. We then examine Vital Statistics birth data from 1990 to 2003 and determine that it also reduced overall births to non-teens by about two percent and to teens by over four percent. Our estimates suggest a nearly nine percent reduction in births to women age 20-44 made eligible by the policy change. We supplement our state-level analysis with an investigation of individual-level data from the 1988, 1995, and 2002 National Surveys of Family Growth (NSFG) to examine the impact of these policies on sexual behavior and contraceptive use. Evidence from this analysis suggests that the reduction in fertility associated with raising income thresholds for eligibility was accomplished via greater use of contraception. Our calculations indicate that allowing higher income women to receive federally-funded family planning cost on the order of $6,800 for each averted birth.

Ten Economic Facts About Crime and Incarceration in the United States

Crime and high rates of incarceration impose tremendous costs on society, with lasting negative effects on individuals, families, and communities. Rates of crime in the United States have been falling steadily, but still constitute a serious economic and social challenge. At the same time, the incarceration rate in the United States is so high -- more than 700 out of every 100,000 people are incarcerated -- that both crime scholars and policymakers alike question whether, for nonviolent criminals in particular, the social costs of incarceration exceed the social benefits

Trends in U.S. Wage Inequality: Re-Assessing the Revisionists

A recent "revisionist " literature characterizes the pronounced rise in U.S. wage inequality since 1980 as an "episodic " event of the first-half of the 1980s driven by non-market factors (particularly a falling real minimum wage) and concludes that continued increases in wage inequality since the late 1980s substantially reflect the mechanical confounding effects of changes in labor force composition. Analyzing data from the Current Population Survey for 1963 to 2005, we find limited support for these claims. The slowing of the growth of overall wage inequality in the 1990s hides a divergence in the paths of upper-tail (90/50) inequality -- which has increased steadily since 1980, even adjusting for changes in labor force composition -- and lower tail (50/10) inequality, which rose sharply in the first-half of the 1980s and plateaued or contracted thereafter. Fluctuations in the real minimum wage are not a plausible explanation for these trends since the bulk of inequality growth occurs above the median of the wage distribution. Models emphasizing rapid secular growth in the relative demand for skills -- attributable to skill-biased technical change -- and a sharp deceleration in the relative supply of college workers in the 1980s do an excellent job of capturing the evolution of the college/high-school wage premium over four decades. But these models also imply a puzzling deceleration in relative demand growth for college workers in the early 1990s, also visible in a recent "polarization" of skill demands in which employment has expanded in high-wage and low-wage work at the expense of middle-wage jobs. These patterns are potentially reconciled by a modified version of the skill-biased technical change hypothesis that emphasizes the role of information technology in complementing abstract (high-education) tasks and substituting for routine (middle-education) tasks.

Trends in U. S. Wage Inequality: Re-Assessing the Revisionists

A large literature documents a substantial rise in U. S. wage inequality and educational wage differentials over the past several decades and finds that these trends can be primarily accounted for by shifts in the supply of and demand for skills reinforced by the erosion of labor market institutions affecting the wages of low- and middle-wage workers. Drawing on an additional decade of data, a number of recent contributions reject this consensus to conclude that (1) the rise in wage inequality was an “episodic” event of the first-half of the 1980s rather than a "secular” phenomenon, (2) this rise was largely caused by a falling minimum wage rather than by supply and demand factors; and (3) rising residual wage inequality since the mid-1980s is explained by confounding effects of labor force composition rather than true increases in inequality within detailed demographic groups. We reexamine these claims using detailed data from the Current Population Survey and find only limited support. Although the growth of overall inequality in the U. S. slowed in the 1990s, upper tail inequality rose almost as rapidly during the 1990s as during the 1980s. A decomposition applied to the CPS data reveals large and persistent rise in within-group earnings inequality over the past several decades, controlling for changes in labor force composition. While changes in the minimum wage can potentially account for much of the movement in lower tail earnings inequality, strong time series correlations of the evolution of the real minimum wage and upper tail wage inequality raise questions concerning the causal interpretation of such relationships. We also find that changes in the college/high school wage premium appear to be well captured by standard models emphasizing rapid secular growth in the relative demand for skills and fluctuations in the rate of growth of the relative supply of college workers – though these models do not accurately predict the slowdown in the growth of the college/high-school gap during the 1990s. We conclude that these patterns are not adequately explained by either a ‘unicausal’ skill-biased technical change explanation or a revisionist hypothesis focused primarily on minimum wages and mechanical labor force compositional effects. We speculate that these puzzles can be partially reconciled by a modified version of the skill-biased technical change hypothesis that generates a polarization of skill demands.

Rising Wage Inequality: The Role of Composition and Prices

During the early 1980s, earnings inequality in the U.S. labor market rose relatively uniformly throughout the wage distribution. But this uniformity gave way to a significant divergence starting in 1987, with upper-tail (90/50) inequality rising steadily and lower tail (50/10) inequality either flattening or compressing for the next 16 years (1987 to 2003). This paper applies and extends a quantile decomposition technique proposed by Machado and Mata (2005) to evaluate the role of changing labor force composition (in terms of education and experience) and changing labor market prices to the expansion and subsequent divergence of upper- and lower-tail inequality over the last three decades We show that the extended Machado-Mata quantile decomposition corrects shortcomings of the original Juhn-Murphy-Pierce (1993) full distribution accounting method and nests the kernel reweighting approach proposed by DiNardo, Fortin and Lemieux (1996). Our analysis reveals that shifts in labor force composition have positively impacted earnings inequality during the 1990s. But these compositional shifts have primarily operated on the lower half of the earnings distribution by muting a contemporaneous, countervailing lower-tail price compression. The steady rise of upper tail inequality since the late 1970s appears almost entirely explained by ongoing between-group price changes (particularly increasing wage differentials by education) and residual price changes.

The Polarization of the U.S. Labor Market

This paper analyzes a marked change in the evolution of the U.S. wage structure over the past fifteen years: divergent trends in upper-tail (90/50) and lower-tail (50/10) wage inequality. We document that wage inequality in the top half of distribution has displayed an unchecked and rather smooth secular rise for the last 25 years (since 1980). Wage inequality in the bottom half of the distribution also grew rapidly from 1979 to 1987, but it has ceased growing (and for some measures actually narrowed) since the late 1980s. Furthermore we find that occupational employment growth shifted from monotonically increasing in wages (education) in the 1980s to a pattern of more rapid growth in jobs at the top and bottom relative to the middles of the wage (education) distribution in the 1990s. We characterize these patterns as the %u201Cpolarization%u201D of the U.S. labor market, with employment polarizing into high-wage and low-wage jobs at the expense of middle-wage work. We show how a model of computerization in which computers most strongly complement the non-routine (abstract) cognitive tasks of high-wage jobs, directly substitute for the routine tasks found in many traditional middle-wage jobs, and may have little direct impact on non-routine manual tasks in relatively low-wage jobs can help explain the observed polarization of the U.S. labor market.