How Right-to-Work Laws Affect Wages

I examine the wage effects of Right-To-Work (RTW). Using state-level data, I estimate that, ceteris paribus, RTW states have average wages that are significantly higher than non-RTW states. This result is robust is across a wide variety of specifications. An important distinctive of this study is that it controls for state economic conditions at the time states adopted RTW. States that adopted RTW were generally poorer than other states. Failure to control for these initial conditions may be the reason that previous studies have not identified a positive wage impact for RTW.Right-to-Work

The Robust Relationship Between Taxes and State Economic Growth

I estimate the relationship between taxes and economic growth using data from 1970-1999 and the forty-eight continental U.S. states. I find that taxes used to fund general expenditures are associated with significant, negative effects on economic growth. Further, this finding is robust across (i) alternative variable specifications, (ii) alternative estimation procedures, (iii) alternative ways of dividing the data into ¡°five-year¡± periods, and (iv) allowing for individual-specific time and state effects. I also provide an explanation for why previous research has had difficulty identifying this ¡°robust¡± relationship.U.S. states; Economic development; Economic growth; Fiscal policy; Taxes; Tax burden; Panel data

Age-Specific Employment Policies

Many countries around the world are experiencing a significant shift in demographic patterns towards an older population. The age composition of the labor force has also changed dramatically, often accompanied by sharp reductions in the labor force participation rates of older workers. These phenomena in concert pose numerous challenges for the design of public pension programs and labor market policies in general. While governments have traditionally encouraged early retirement by the elderly to free up jobs for the young, such policies now impose an unprecedented tax burden on the current younger generations of working individuals. This has prompted many governments to instead adopt policies that promote old-age labor force participation. The primary goal of this paper is to draw some qualititative insights about these different policy responses within the context of a dynamic general equilibrium model. In order to address the role of the lifecycle for the allocation of workers to jobs, we develop a model of the labor market characterized by search and matching frictions and embed it into an overlapping-generations framework. We explicitly introduce age-targeted labor market policies and endogenize labor force participation across all age groups. Our analysis reveals that the age composition of the labor force may cause an inefficient allocation of workers to jobs in the labor market thereby creating an efficiency-enhancing role for publicly-induced retirement. Interestingly, we also find that public pension programs may improve labor market welfare by "redistributing bargaining power" over the lifecycle. Our work suggests that recent policy initiatives aimed at reducing the work disincentives currently embedded in many public pension programs may further the income redistribution motive of social security, encourage labor market participation among the elderly, and increase total employment. In this vein, we find that complete elimination of the earnings test may

A Positive Theory of the Income Redistributive Focus of Social Security

Many countries around the world have large public pension programs. Traditionally, these programs have been used to induce retirement by the elderly in order to free up jobs for the young and to redistribute income across generations. This paper provides an efficiency rationale for the inter-generational income redistribution focus of such programs in a framework which explicitly accounts for the role of the lifecycle as well as search and matching frictions in the labor market. In our model, public pension programs alter the age composition of the labor force by inducing the jobless elderly to retire. By requiring a long history of labor market attachment in order to receive benefits, these programs raise the future value of current employment for the young which serves to redistribute bargaining power, and hence income, from the young to the old. The paper argues that pension programs through their effect on the wage structure, the age distribution of the labor force and firm entry decisions, can improve the operation of the labor market and might therefore be desirable on efficiency grounds alone (abstracting from equity and insurance motives). It shows that a pension program that is funded from within the economy can lead to higher welfare than having no pension program at all.pensions; search; labor market efficiency; unemployment; lifecycle

Aging, Unemployment, and Welfare in a Life-Cycle Model with Costly Labor Market Search

In recent years, many countries have experienced a significant shift in demographic patterns towards the elderly. This phenomenon poses numerous challenges for the design of public pension programs and labor market policies. To better understand how public policy should be designed in response to a aging workforce, it is imperative to first make an assessment of how the lifecycle affects aggregate labor market activity, and in particular, unemployment. While much work has been done on exploring how the lifecycle influences individual labor market behavior, its impact on aggregate labor market outcomes is far less studied. This paper is an attempt at addressing this lacuna within the context of a lifecycle model with costly search and matching in the labor market. The lifecycle of workers in conjunction with frictions in the labor market produces an environment in which unemployment arises as a natural possibility and both young and old workers find themselves contemporaneously competing for the same jobs. The lifecycle is shown to have significant implications for aggregate labor market activity; it may even be responsible for an inefficient allocation of workers to jobs. Additionally, public policies designed to increase labor market participation among older workers may not necessarily enhance aggregate welfare.search; labor market efficiency; unemployment; lifecycle

Social Security and Intergenerational Redistribution

Many countries around the world have large public pension programs with significant cross-cohort redistribution. This paper provides a rationale for such programs in a lifecycle framework with search and matching frictions in the labor market. In the model, public pension programs alter the age composition of the labor force by inducing the jobless elderly to retire. This improves the allocation of workers to jobs, raises firm entry and may also improve welfare. By requiring a long history of labor market attachment as a precondition to receiving benefits, these programs raise the future value of current employment for the young. This redistributes bargaining strength and income from the young to the old.search; labor market efficiency; unemployment; lifecycle; pensions

Liquidity Risk, Economic Development, and the Effects of Monetary Policy

Empirical evidence indicates that monetary policy is not super-neutral in many countries. In particular, in high in?ation economies, in?ation is negatively related to economic activity. By comparison, in?ation may be positively correlated with output in low in?ation countries. We present a neoclassical growth model with money in which the incidence of liquid- ity risk is inversely related to aggregate capital formation. Interestingly, there may be multiple monetary steady-states where the e¤ects of mon- etary policy vary. In poor economies, the ?nancial system is highly dis- torted and higher rates of money growth are associated with less capital formation. In contrast, in advanced economies, a Tobin e¤ect is observed. Since in?ation exacerbates distortions from a coordination failure in the low capital steady-state, individuals become much more exposed to liq- uidity risk. Consequently, optimal monetary policy depends on the level of development.Economic Development, Banks, Monetary Policy

More Evidence on the Use of Constructed-Response Questions in Principles of Economics Classes

This study provides evidence that constructed response (CR) questions contribute information about student knowledge and understanding that is not contained in multiple choice questions (MC). We use an extensive data set of individual assessment results from Introductory Macro- and Microeconomics classes at a large, public university. We find that (i) CR scores contain information not contained in MC questions, (ii) this information is correlated with a measure of student knowledge and understanding of course material, and (iii) CR questions are better able to “explain” academic achievement in other courses than additional MC questions. There is some evidence to suggest that this greater explanatory power has to do with the ability of CR questions to measure higher-level learning as characterized by Bloom’s taxonomy (Bloom, 1956). Both (i) the generalisability of our results to other principles of economics classes, and (ii) the practical significance (in terms of students’ grades) of our findings, remain to be determined.Principles of Economics Assessment; Multiple Choice; Constructed Response; Free Response; Essay

A Monte Carlo Evaluation of Some Common Panel Data Estimators when Serial Correlation and Cross-sectional Dependence are Both Present

This study employs Monte Carlo experiments to evaluate the performances of a number of common panel data estimators when serial correlation and cross-sectional dependence are both present. It focuses on fixed effects models with less than 100 cross-sectional units and between 10 and 25 time periods (such as are commonly employed in empirical growth studies). Estimator performance is compared on two dimensions: (i) root mean square error and (ii) accuracy of estimated confidence intervals. An innovation of our study is that our simulated panel data sets are designed to look like “real-world” panel data. We find large differences in the performances of the respective estimators. Further, estimators that perform well on efficiency grounds may perform poorly when estimating confidence intervals, and vice versa. Our experimental results form the basis for a set of estimator recommendations. These are applied to “out of sample” simulated panel data sets and found to perform well.Panel Data estimation; Monte Carlo analysis; FGLS; PCSE; Groupwise Heteroscedasticity; Serial Correlation; Cross-sectional Dependence; Stata; EViews