Real Wage Inequality

A large literature has documented a significant increase in the return to college over the past 30 years. This increase is typically measured using nominal wages. I show that from 1980 to 2000, college graduates have increasingly concentrated in metropolitan areas that are characterized by a high cost of housing. This implies that college graduates are increasingly exposed to a high cost of living and that the relative increase in their real wage may be smaller than the relative increase in their nominal wage. To measure the college premium in real terms, I deflate nominal wages using a new CPI that allows for changes in the cost of housing to vary across metropolitan areas and education groups. I find that half of the documented increase in the return to college between 1980 and 2000 disappears when I use real wages. This finding does not appear to be driven by differences in housing quality and is robust to a number of alternative specifications. The implications of this finding for changes in well-being inequality depend on why college graduates sort into expensive cities. Using a simple general equilibrium model, I consider two alternative explanations. First, it is possible that the relative supply of college graduates increases in expensive cities because college graduates are increasingly attracted by amenities located in those cities. In this case, higher cost of housing reflects consumption of desirable local amenities, and there may still be a significant increase in well-being inequality even if the increase in real wage inequality is limited. Alternatively, it is possible that the relative demand of college graduates increases in expensive cities due to shifts in the relative productivity of skilled labor. In this case, the relative increase in skilled workers' standard of living is offset by higher cost of living. The empirical evidence indicates that relative demand shifts are more important than relative supply shifts, suggesting that the increase in well-being inequality between 1980 and 2000 is smaller than the increase in nominal wage inequality.return to college, general equilibrium, cost of living

Extreme Weather Events, Mortality and Migration

We estimate the effect of extreme weather on life expectancy in the US. Using high frequency mortality data, we find that both extreme heat and extreme cold result in immediate increases in mortality. However, the increase in mortality following extreme heat appears entirely driven by temporal displacement, while the increase in mortality following extreme cold is long lasting. The aggregate effect of cold on mortality is quantitatively large. We estimate that the number of annual deaths attributable to cold temperature is 27,940 or 1.3% of total deaths in the US. This effect is even larger in low income areas. Because the U.S. population has been moving from cold Northeastern states to the warmer Southwestern states, our findings have implications for understanding the causes of long-term increases in life expectancy. We calculate that every year, 5,400 deaths are delayed by changes in exposure to cold temperature induced by mobility. These longevity gains associated with long term trends in geographical mobility account for 8%-15% of the total gains in life expectancy experienced by the US population over the past 30 years. Thus mobility is an important but previously overlooked determinant of increased longevity in the United States. We also find that the probability of moving to a state that has fewer days of extreme cold is higher for the age groups that are predicted to benefit more in terms of lower mortality compared to the age groups that are predicted to benefit less.

Intergenerational Transfers and Household Structure. Why Do Most Italian Youths Live With Their Parents?

85 percent of Italian men aged 18-33 live with their parents. We argue that Italian parents like to live with their children and a rise in their income makes it possible for them to offer their children higher consumption in exchange for their presence at home. Children prefer to live on their own but are willing to exchange some independence for extra consumption. We formalize this intuition with a bargaining model between parents and children. We test the predictions of the model by estimating the effect of parental income on the probability that children live with their parents. The key econometric issue is the endogeneity of parental income. In order to identify the causal effect of parental income on children's living arrangements we use changes in parents' retirement age induced by the 1992 reform of the Italian social security as an instrument for parental income. By raising retirement age, this reform forced some fathers to remain in the labor market longer than the cohort immediately preceding them, therefore raising their income. Our instrumental variable estimates indicate that a rise in parents' income significantly raises the children's propensity to live at home: a $500 increase in annual parental income results in a 3 to 3.5 percentage point rise in the proportion of children living with their parents.Family structure, Living Arrangements, Two-Sample IV

The Effect of Education on Crime: Evidence from Prison Inmates, Arrests, and Self-Reports

We estimate the effect of high school graduation on participation in criminal activity accounting for endogeneity of schooling. We begin by analyzing the effect of high school graduation on incarceration using Census data. Instrumental variable estimates using changes in state compulsory attendance laws as an instrument for high school graduation uncover a significant reduction in incarceration for both blacks and whites. When estimating the impact of high school graduation only, OLS and IV estimators estimate different weighted sums of the impact of each schooling progression on the probability of incarceration. We clarify the relationship between OLS and IV estimates and show that the 'weights' placed on the impact of each schooling progression can explain differences in the estimates. Overall, the estimates suggest that completing high school reduces the probability of incarceration by about .76 percentage points for whites and 3.4 percentage points for blacks. We corroborate these findings using FBI data on arrests that distinguish among different types of crimes. The biggest impacts of graduation are associated with murder, assault, and motor vehicle theft. We also examine the effect of drop out on self-reported crime in the NLSY and find that our estimates for imprisonment and arrest are caused by changes in criminal behavior and not educational differences in the probability of arrest or incarceration conditional on crime. We estimate that the externality of education is about 14-26% of the private return to schooling, suggesting that a significant part of the social return to education comes in the form of externalities from crime reduction.

Biology as Destiny? Short and Long-Run Determinants of Intergenerational Transmission of Birth Weight

Little is known about the mechanisms underlying the transfer of economic status between generations. This paper addresses the question of whether inter-generational correlations in health contribute to the perpetuation of economic status. We examine inter-generational correlations in birth weight, a key indicator of the health of newborns that we link to future educational attainment and earnings using a unique data set based on California births from 1960s to the present. We use names and birth dates to link the records of mothers and children. We also identify mothers who are siblings. We show that there is a strong intergenerational correlation in the birth weight of mothers and children, but that a measure of household income at the time of the mother's birth is also predictive of low birth weight and that there is an interaction between maternal low birth weight and poverty in the production of low birth weight. Together these findings suggest that intergenerational correlations in health could play a role in the intergenerational transmission of income. Parent's income affects child health, and health at birth affects future income.

Does Voting Technology Affect Election Outcomes? Touch-screen Voting and the 2004 Presidential Election

Supporters of touch-screen voting claim it is a highly reliable voting technology, while a growing number of critics argue that paperless electronic voting systems are vulnerable to fraud. In this paper we use county-level data on voting technologies in the 2000 and 2004 presidential elections to test whether voting technology affects electoral outcomes. We first show that there is a positive correlation between use of touch-screen voting and the level of electoral support for George Bush. This is true in models that compare the 2000-2004 changes in vote shares between adopting and non-adopting counties within a state, after controlling for income, demographic composition, and other factors. Although small, the effect could have been large enough to influence the final results in some closely contested states. While on the surface this pattern would appear to be consistent with allegations of voting irregularities, a closer examination suggests this interpretation is incorrect. If irregularities did take place, they would be most likely in counties that could potentially affect statewide election totals, or in counties where election officials had incentives to affect the results. Contrary to this prediction, we find no evidence that touch-screen voting had a larger effect in swing states, or in states with a Republican Secretary of State. Touch-screen voting could also indirectly affect vote shares by influencing the relative turnout of different groups. We find that the adoption of touch-screen voting has a negative effect on estimated turnout rates, controlling for state effects and a variety of county-level controls. This effect is larger in counties with a higher fraction of Hispanic residents (who tend to favor Democrats) but not in counties with more African Americans (who are overwhelmingly Democrat voters). Models for the adoption of touch-screen voting suggest it was more likely to be used in counties with a higher fraction of Hispanic and Black residents, especially in swing states. Nevertheless, the impact of non-random adoption patterns on vote shares is small.

Biological Gender Differences, Absenteeism and the Earning Gap

In most Western countries illness-related absenteeism is higher among female workers than among male workers. Using the personnel dataset of a large Italian bank, we show that the probability of an absence due to illness increases for females, relative to males, approximately 28 days after a previous illness. This difference disappears for workers age 45 or older. We interpret this as evidence that the menstrual cycle raises female absenteeism. Absences with a 28-day cycle explain a significant fraction of the male-female absenteeism gap. To investigate the effect of absenteeism on earnings, we use a simple signaling model in which employers cannot directly observe workers' productivity, and therefore use observable characteristics %u2013 including absenteeism %u2013 to set wages. Since men are absent from work because of health and shirking reasons, while women face an additional exogenous source of health shocks due to menstruation, the signal extraction based on absenteeism is more informative about shirking for males than for females. Consistent with the predictions of the model, we find that the relationship between earnings and absenteeism is more negative for males than for females. Furthermore, this difference declines with seniority, as employers learn more about their workers' true productivity. Finally, we calculate the earnings cost for women associated with menstruation. We find that higher absenteeism induced by the 28-day cycle explains 11.8 percent of the earnings gender differential.

Bidding for Industrial Plants: Does Winning a 'Million Dollar Plant' Increase Welfare?

Increasingly, local governments compete by offering substantial subsidies to industrial plants to locate within their jurisdictions. This paper uses a novel research design to examine the consequences of successfully bidding for a plant on county-level labor earnings, property values, and public finances. Each issue of the corporate real estate journal Site Selection includes an article titled The Million Dollar Plant that describes how a large plant decided where to locate. These articles report the county where the plant chose to locate (i.e., the 'winner'), as well as the one or two runner-up counties (i.e., the 'losers'). The losers are counties that have survived a long selection process, but narrowly lost the competition. We use these revealed rankings of profit-maximizing firms to form a counterfactual for what would have happened in the winner counties in the absence of the plant opening. We find that a plant opening is associated with a 1.5% trend break in labor earnings in the new plant's industry in winning counties (relative to losing ones) after the opening of the plant (relative to the period before the opening). Property values may provide a summary measure of the net change in welfare, because the costs and benefits of attracting a plant should be capitalized into the price of land. We find a positive, relative trend break of 1.1% in property values. Further, we fail to find any deterioration in local governments' financial position. Overall, the results undermine the popular view that the provision of local subsidies to attract large industrial plants reduces local residents' welfare.

The Demand for Sons: Evidence from Divorce, Fertility, and Shotgun Marriage

This paper shows how parental preferences for sons versus daughters affect divorce, child custody, marriage, shotgun marriage when the sex of the child is known before birth, and fertility stopping rules. We document that parents with girls are significantly more likely to be divorced, that divorced fathers are more likely to have custody of their sons, and that women with only girls are substantially more likely to have never been married. Perhaps the most striking evidence comes from the analysis of shotgun marriages. Among those who have an ultrasound test during their pregnancy, mothers carrying a boy are more likely to be married at delivery. When we turn to fertility, we find that in families with at least two children, the probability of having another child is higher for all-girl families than all-boy families. This preference for sons seems to be largely driven by fathers, with men reporting they would rather have a boy by more than a two to one margin. In the final part of the paper, we compare the effects for the U.S. to five developing countries.

Did Iraq Cheat the United Nations? Underpricing, Bribes, and the Oil for Food Program

From 1997 through early 2003, the United Nations Oil for Food Program allowed Iraq to export oil in exchange for humanitarian supplies. We measure the extent to which this program was corrupted by Iraq's attempts to deliberately set the price of its oil below market prices in an effort to solicit bribes, both in the form of direct cash bribes and in the form of political favors, from the buyers of the underpriced oil. We infer the magnitude of the potential bribe by comparing the gap between the official selling price of Iraq's two crude oils (Basrah Light and Kirkuk) and the market price of several comparison crude oils during the Program to the gap observed prior to the Program. We find consistent evidence that underpricing of Basrah Light averaged $1 per barrel from 1997 through 1999 and reaches a peak (almost$3 per barrel) from May 2000 through September 2001. The estimated underpricing quickly declines after the UN introduced a retroactive pricing scheme that reduced Iraq's ability to set the price of its oil. The evidence on whether Kirkuk was underpriced is less clear. Notably, we find that episodes of underpricing of Basrah Light are associated with a decline in the share of major oil multinationals among the oil buyers, and an increase in the share of obscure individual traders. The observed underpricing of Iraqi oil suggests that Iraq generated $5 billion in rents through its strategic underpricing. Of this amount, we estimate that Iraq collected$0.7 to $2 billion in bribes (depending on Iraq's share of the rents implied by the price gap), which is roughly 1 to 3 percent of the total value of oil sales under the Program. Finally, we find little evidence that underpricing was associated with increases in the relative supply or declines in the relative demand of Iraqi oil.