Identification and Inference in Nonlinear Difference-In-Differences Models

This paper develops an alternative approach to the widely used Difference-In-Difference (DID) method for evaluating the effects of policy changes. In contrast to the standard approach, we introduce a nonlinear model that permits changes over time in the effect of unobservables (e.g., there may be a time trend in the level of wages as well as the returns to skill in the labor market). Further, our assumptions are independent of the scaling of the outcome. Our approach provides an estimate of the entire counterfactual distribution of outcomes that would have been experienced by the treatment group in the absence of the treatment, and likewise for the untreated group in the presence of the treatment. Thus, it enables the evaluation of policy interventions according to criteria such as a mean-variance tradeoff. We provide conditions under which the model is nonparametrically identified and propose an estimator. We consider extensions to allow for covariates and discrete dependent variables. We also analyze inference, showing that our estimator is root-N consistent and asymptotically normal. Finally, we consider an application.

Coping with Heterogeneities in the Difference in Differences Design

Carling, Holmlund and Vejsiu reported in the October 2001 issue of the Economic Journal that a cut in the unemployment insurance replacement rate from 80 to 75 percent caused a 10 percent increase in the job finding rate. They also identify an anticipatory reform effect up to five months before the reform. Implied elasticity at 1,6 is high compared to previous research in Sweden and elsewhere. After analysing their data for various heterogeneities, we conclude that the estimated coefficients designed to capture the reform and the anticipatory effects are statistical artefacts. The standard statistical tests and analytic procedures used by CHV do not warn for this eventuality.Heterogeneities; Difference in differences design; Unemployment insurance; Unemployment compensation

Impact Evaluation of Multiple Overlapping Programs using Difference-in-differences with Matching

Difference-in-differences with matching is a popular method in impact evaluation. Traditional impact evaluation methods including difference-in-differences with matching often deal with impact measurement of a single binary program. Imbens (1999) and Lechner (2001) extend the matching method to the case of multiple mutually exclusive programs. Frölich (2002) discusses different impact evaluation methods in the similar context. In reality, one can participate in several programs simultaneously and the programs may be overlapping. This paper discusses the method of difference-in-differences with matching in a general context of multiple overlapping programs. The method is applied to measure impacts of formal and informal credit in Vietnam using panel data from two Vietnam Household Living Standard Surveys in 2002 and 2004

Evaluating the labour market impact of Working Families' Tax Credit using difference-in-differences

A difference-in-differences methodology cannot identify the labour market impact of WFTC alone because other taxes and benefits changed at the same time as its introduction. However, a comparison of the change in employment rates for parents against adults without children should underestimate any positive labour supply impact of WFTC for lone parents. Using two different household surveys, we find WFTC and associated reforms increased lone parents' employment by around 3.6 percentage points (ppt). For couples with children, we find that WFTC and associated reforms had no significant effect on mothers' employment, and was associated with a -0.5ppt change in fathers' employment, with the reforms encouraging households to have one earner rather than two. Overall, these changes correspond to between 25,000 and 59,000 extra workers depending upon the data source used. Robustness analysis of our identifying assumptions is generally favourable to our conclusions for lone parents

The Substitution of Worksharing and Short-Time Compensation in France: A Difference-in-differences Approach

The short-time compensation (STC) program aims at avoiding redundancies in case of strong short-term downturns. In the literature, STC is an instrument of both job security and flexibility. This paper investigates the impact of worksharing on STC in France. The form of worksharing examined in this study is the reduction of the standard or contractual hours worked per week to 35 hours in France. We quantify the average decrease in the STC recourse with difference-in-differences estimators assessed on a balanced panel of French establishments. We highlight a substitution effect between STC and worksharing due to their internal flexibility role. As a consequence, STC seems to be less used as a flexibility device and the worksharing policy would refocus STC on its employment protection role.

Profit sharing and innovation.

profit sharing; product innovation; process innovation; non-parametric matching; conditional difference-in-differences;