Are There Returns to Experience at Low-Skill Jobs? Evidence from Single Mothers in the United States over the 1990s

Policy changes in the United States in the 1990s resulted in sizable increases in employment rates of single mothers. We show that this increase led to a large and abrupt increase in work experience for single mothers with young children. We then examine the economic return to this increase in experience for affected single mothers. Despite the increases in experience, single mothers’ real wages and employment have remained relatively unchanged. The empirical analysis suggests that an additional year of experience increases single mothers’ wage rates by less than 2 percent, a percentage lower than previous estimates in the literature

Nonparametric Evidence on the Effects of Financial Incentives on Retirement Decisions

This paper presents new empirical evidence on the effects of retirement benefits on labor force participation decisions. We use administrative data on the census of private sector employees in Austria and variation from mandated discontinuous changes in retirement benefits from the Austrian pension system. We present graphical evidence documenting labor supply responses to the policy discontinuities. Next, we develop nonparametric procedures to estimate labor supply elasticities based on the graphical evidence and mandated financial incentives. We estimate elasticities of 0.12 for men and 0.38 for women. These relatively low elasticities highlight that many retirement decisions are likely to be affected by factors beyond only financial incentives from retirement benefits.

Does Indivisible Labor Explain the Difference Between Micro and Macro Elasticities? A Meta-Analysis of Extensive Margin Elasticities

Macroeconomic calibrations imply much larger labor supply elasticities than microeconometric studies. One prominent explanation for this divergence is that indivisible labor generates extensive margin responses that are not captured in micro studies of hours choices. We evaluate whether existing calibrations of macro models are consistent with micro evidence on extensive margin responses using two approaches. First, we use a standard calibrated macro model to simulate the impacts of tax policy changes on labor supply. Second, we present a meta-analysis of quasi-experimental estimates of extensive margin elasticities. We find that micro estimates are consistent with macro evidence on the steady-state (Hicksian) elasticities relevant for cross-country comparisons. However, micro estimates of extensive-margin elasticities are an order of magnitude smaller than the values needed to explain business cycle fluctuations in aggregate hours. Hence, indivisible labor supply does not explain the large gap between micro and macro estimates of intertemporal substitution (Frisch) elasticities. Our synthesis of the micro evidence points to Hicksian elasticities of 0.3 on the intensive and 0.25 on the extensive margin and Frisch elasticities of 0.5 on the intensive and 0.25 on the extensive margin.

Are There Returns to Experience at Low-Skill Jobs? Evidence from Single Mothers in the United States Over the 1990s

A primary motivation for the sweeping changes to America’s social insurance system in the 1990s was encouraging work among low-income families. Beyond the direct effect of increased earned income, it was hoped that low income households would reap the rewards of work experience in the form of higher wages and enhanced employment opportunities. The magnitude of the returns to experience for this group is of central importance for assessing the long-term benefits of encouraging work among vulnerable populations. Our analysis will address this question by examining the abrupt increase in work experience accrued by certain single mothers in the 1990s and how that increase in experience affected their earnings. Our analysis will exploit a new source of variation in how welfare reform and related policies affected the employment rates of single mothers based on the ages of their children at the time of welfare reform. Using this variation in employment across single mothers based on the age of their youngest child, we will estimate the returns to work experience. Because welfare reform differentially impacted single mothers based on the age of their youngest child, single mothers with young children at the time of welfare reform increased their labor supply and subsequently gained more experience relative to single mothers with slightly older children. Accordingly, we will identify the returns to experience based on this discontinuous increase in experience among otherwise similar groups. Additionally, we will augment this analysis using comparisons between states with high and low rates of welfare use prior to welfare reform, and through comparisons between single and married mothers with similarly-aged children