The coach matters: Evidence from the Bundesliga

football-stadiumWhat difference does the quality of the single person at the top make for the overall performance of the organization? How dependent are large companies on their CEOs? Are they really the ones leading the firm or just mascots with very limited powers?

These questions are very hard to answer since CEOs work only for a very small number of different firms in their lifetime. This limits the scope to measure their contribution to organizational success, because observing the same manager in different organizations thus using different sets of resources and working with different people is crucial to measure a manager’s contribution to overall success.

In a new IZA Discussion Paper, Sandra Hentschel, Gerd Mühlheußer and Dirk Sliwka study the impact of managers on the success of professional soccer teams using data from the German “Bundesliga”. The authors exploit the high turnover of managers between teams to disentangle the managers’ contributions. Furthermore, team performance is publicly observable on a weekly basis.

The researchers find that teams employing a manager at the 75% ability percentile gain on average 0.25 points per game more than those employing a manager at the 25% ability percentile, which corresponds to a sizeable difference of 18% of the average number of points awarded per game.

As an example: In comparison to a moderately able manager, a team coached by Jürgen Klopp (the current coach of Borussia Dortmund) would have achieved 0.46 points more per game, leading to 15.64 more points per season. On the other hand, a team coached by Benno Möhlmann (the current manager of FSV Frankfurt) would have acquired 0.33 points less per game or 11.22 points per season.

Read the abstract or download the complete paper [PDF].

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Is formal care as good as the support of loving grandparents?

childSince early childcare plays an important role in the development of cognitive skills, it partially determines success later in life. What improves cognitive ability and behavioral development at a young age is therefore of crucial policy importance.

While early psychological theories have stressed the need for maternal care, more recent studies in psychology as well as in sociology and economics show that other childcare arrangements do not necessarily produce negative outcomes. Two of the most common alternatives to parental care are support by the grandparents and formal care centers.

In a new IZA Discussion Paper, Daniela Del Boca, Daniela Piazzalunga and Chiara Pronzato analyze the influence of these arrangements on the development of the child. Using data on 10,000 babies born in the UK in 2000 and 2001, the researchers find that children cared for by grandparents are better at naming objects, but perform worse in tests concerning basic concepts development, problem-solving, mathematical concepts and constructing ability than children in formal care.

Concerning school readiness at age three, the authors observe a positive effect of formal care centers, while more hours spent with grandparents have a negative influence. Also the positive effect on grandparents’ support on vocabulary at age three vanishes when the children become five years old.

Nevertheless, these results hide strong heterogeneities: The positive association between grandparents’ care and child outcomes is stronger for children growing up in more advantaged households (higher income and education) while the negative association is significant only for children in more disadvantaged households (lower income and education).

Read the abstract or download the complete discussion paper [PDF].


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And the IZA Prize goes to… Gary Fields!

fieldsCornell professor Gary S. Fields is the winner of the 2014 IZA Prize in Labor Economics for his outstanding contributions on the importance of efficient labor markets to fight poverty and foster economic development in low- and middle-income countries. Worth 50,000 euros, the IZA Prize is regarded as the most prestigious science award in the field. The award ceremony will take place during the ASSA annual meeting in Boston on January 4, 2015.

According to the award statement from the IZA Prize Committee, Fields pioneered economic thinking about labor markets in developing countries by focusing on indicators such as poverty, inequality and income mobility. Fields’ policy recommendations aim at increasing the level and security of wages for employees and self-employed by incentivizing investments in the private sector, growth and international trade, and by providing the necessary skills and business know-how to stimulate labor demand. In this respect, Fields also shows the shortcomings of previous development aid, which had not sufficiently targeted labor market needs.

In his groundbreaking book “Working Hard, Working Poor: A Global Journey” (2012) Fields illustrates that global poverty is a problem of the quality of employment; not, as widely believed, a matter of high unemployment rates, which are often lower in low- and middle-income countries than in high-income countries. A key problem is the lack of social insurance systems. Given that many jobs in developing countries are unstable and earnings are extremely low, people are unable to overcome the status of “working poor” and thus remain in poverty even when employed.

IZAPrizeMedalIZA Director Klaus F. Zimmermann underscored the immediate policy relevance of Fields’ research: “Fighting global poverty is the core task of international development aid. Gary Fields has shown that we need to evaluate existing programs and focus on the creation of more and better jobs.”

See some of Gary’s recent work was published at IZA:

Read more:

IZA Newsroom interview — 3 questions for Gary Fields:

How would you describe the policy relevance of your research?

Gary Fields: Most people derive most if not all of their income from the work they and other family members do. It follows that to assure that economic development reaches the poor, development efforts must be targeted on improving employment and earnings of low-income households.

What should be the goal of development policy?

Fighting poverty must be the focus of development efforts. Helping the poor earn their way out of poverty is a laudable goal and can serve as a rallying cry for national and international action.

How can developing countries create more and better jobs?

Some interventions are direct labor market policies: enhancing wage and salaried employment and raising the returns to self-employment. Others impinge upon labor markets: stimulating economic growth, pursuing international trade opportunities, and channeling foreign aid toward improving employment opportunities.

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Mobilizing employment potentials of the service sector in manufacturing-heavy economies

Modernizing developed economies in order to remain competitive in global markets is a pressing issue when manufacturing jobs can be automated or off-shored, with the threat of many of these jobs disappearing in the nearer future. This potentially affects all developed economies, but in particular manufacturing-heavy countries such as Germany or Korea.


Werner Eichhorst

The Korean Development Institute (KDI) recently organized an international expert forum in Seoul to discuss how to promote future employment potentials in different types of services. A major challenge is to take advantage of technical innovations such as digitalization to create new and more sophisticated manufacturing goods that can be complemented by services. In the future we will likely see more service-oriented types of employment around innovative manufacturing core activities. Here, skill formation, but also regional and sectoral clustering is important. And the better this works, the smaller is the risk of off-shoring and automation, as IZA Director of Labor Policy Europe Werner Eichhorst explained at this event, using the German experiences as a case in point.

Related to the issue of rapid structural change and observable job polarization between knowledge-intensive and personal service tasks in many developed economies is the important issue of creating employment opportunities for the most disadvantaged, in particular the low-skilled and the long-term unemployed. Here, different options are available: training investment, publicly supported employment and direct job creation or a more flexible labor market relying on non-standard types of employment and low pay.

An international workshop organized by the Korean Employment Information Service (KEIS) collected the international evidence and stimulated the exchange of national experiences with these policy approaches. Apart from questions around the design and evaluation of active labor market policies for the most vulnerable groups, Werner Eichhorst addressed the issue of low pay and increased labor market flexibility as an alternative option in order to foster job creation for low-skilled or long-term unemployed people.

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IZA World of Labor: Global experts discuss aid, youth unemployment and minimum wages

expertsA series of IZA World of Labor events hosted by such prominent international partners as the LSE, CEMFI and the OECD debate the evidence of topical labor market issues and implications for policy making. The panel discussions aim to provide a professional and independent platform for evidence-based discussion and debate among policy-makers, academics, specialist researchers and key sectoral stakeholders.

OECD, Paris, November 17, 2014: Minimum Wages – Impacts and Institutional Processes

On November 17, 2014 the Organization for Economic Cooperation and Development (OECD) hosts an IZA World of Labor Seminar on “Minimum Wages – Impacts and Institutional Processes”. The panel discussion will bring together academic experts and members of minimum wage commissions to discuss (i) the evidence of the labor market impacts of minimum wages initiated by the IZA World of Labor article Employment effects of minimum wages and (ii) the institutional processes in setting and adjusting the minimum wage also on the basis of experiences in the UK and France.

Speakers at the event will be Francois Bourguignon (Professor of Economics at the Paris School of Economics and Président du Groupe d’Experts sur le Salaire Minimum de Croissance), Richard Dickens (Professor of Economics at Sussex University and UK Low Pay Commissioner and IZA), David Neumark (Professor of Economics at the University of California, Irvine and IZA), Klaus F. Zimmermann (Director of IZA, Editor-in-Chief of IZA WoL, Professor of Bonn University) and Stefano Scarpetta (Director for Employment, Labour and Social Affairs, OECD and IZA).

CEMFI, Madrid, November 13, 2014: Tackling Youth Unemployment

On November 13, 2014 the London School of Economics and Political Science (LSE) and the Center for Monetary and Financial Studies (CEMFI) are hosting an IZA World of Labor panel discussion and debate on tackling youth unemployment at CEMFI in Madrid. The event, which brings together a panel of speakers from the economics and labor market community, will put Spain in a comparative context by discussing the existing evidence from other countries on successful policies in tackling youth unemployment, what policies can be proposed for the current situation as well as the role of apprenticeships and vocational qualifications in helping get young people into employment

The event will feature Professor Alexander Kritikos (German Institute for Economic Research (DIW) Berlin, Institute for the Study of Labor (IZA) and IZA World of Labor), Professor Rafael Repullo (CEMFI), Professor Samuel Bentolila (CEMFI), Werner Eichhorst (IZA) and Marcel Jansen (UAM and IZA).

LSE, London, October 30, 2014: Does Aid Work?

The panel discussion was hosted at the London School of Economics (LSE) in partnership with IZA World of Labor, with questions centered on global aid policies.

In his welcome address, IZA World of Labor’s Klaus F. Zimmermann told attendees how important collaboration was across academia and policy-makers, in order to enhance and improve modes of research.

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Online quizzes can motivate students to learn more

online-quizA large fraction of students fail at university. One potential reason is that students do not exercise enough effort on a regular basis. If intrinsic motivation does not suffice to induce satisfactory student performance, then what interventions might help to increase student effort and performance?

In a recent IZA Discussion Paper, Arnaud Chevalier, Peter Dolton and Melanie Lührmann vary incentives for students to provide effort on a weekly basis. They focus only on one type of effort, participation to a weekly online quiz which provides students with feedback of their understanding of the lecture.

On a given week, students face either no incentive, get additional educational material if they participate, the best performer wins a book voucher, or the quiz is declared to be compulsory. In a second cohort, two additional incentives are included, the quiz grade counts for 2.5% or 5% towards the final grade for the course.

The study finds that the provision of additional educational material has little impact on weekly effort, whereas the book voucher rewarding only the top performer even reduces participation. But if effort is rewarded in terms of grades, then participation becomes close to what it is under compulsion. Assessment weighting increases quiz effort and continuous learning relatively more among lower ability students.

For the cohort subjects to the assessment weighting of quiz grades final grades improve at an average of 4%. These performance increases are in the order of magnitude of the results for large financial incentives. Since all incentives in the setup relate directly to course outcomes and are easy to scale up at a low cost, the authors conclude that it is quite easy to increase students effort and grades.

Read the abstract or download the complete discussion paper [PDF].

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Which kids are born in a crisis? Evidence from the fall of the Berlin Wall

berlinwallBy Arnaud Chevalier and Olivier Marie

Do individuals born at different points of the economic cycle have different outcomes, and what could be the reasons? To answer this question, we explore the educational attainment and criminal activity of children born in East Germany, in the few years after the collapse of the Berlin Wall when uncertainty about the future was extremely high. We first discuss how such economic circumstances could affect parenting decisions of individuals differently depending on their characteristics and thus lead to cohort selection. We then provide empirical evidence on selection looking both at the child’s outcome and at the mechanisms which may have led to them.

This November, Germany and the rest of Europe celebrate the twenty fifth anniversary of the fall of the Berlin Wall which was perhaps the most symbolic moment of the collapse of the communist regimes in Eastern Europe. This event had colossal repercussions in the economic development of the region but also, and maybe less obviously, on its demography. Following the collapse of the Communist regimes, fertility in Eastern Europe went into a sharp decline. This was especially marked in East Germany which over a very short period experienced a 50% drop in fertility (see figure below) which has been described by demographers as the “most substantial fall in birth rates that ever occurred in peacetime”.

Based on administrative population data from the Federal Institute for Population Research.

Economic uncertainty was one of the main reasons for the fertility drop. Which kind of parents decide to still have children in these distressing economic times, and does this parental selection matter in terms of the cohort outcomes? Theoretically, an economic downturn has two opposite effects on the demand for children, it reduces household income (income effect) but it also reduces the opportunity costs of having children (substitution effect). Which effect dominates is a priori ambiguous, but since fertility is pro-cyclical, the income effect appears to dominate overall. In fact, it is likely that the relative size of the substitution and income effect depends on family characteristics, leading to differences in parental composition throughout the economic cycle. Indeed, a 2004 study shows that in the U.S. white mothers giving birth when unemployment is higher are less educated resulting in worse health outcomes at birth.

The fall of the Berlin Wall provides a unique “natural experiment” to study this question. In our 2013 paper we define the cohort of children born in East Germany between August 1990 (conceived just after the collapse of the wall) and December 1993 as the “Children of the Wall”. We provide evidence on parental selection based on i) the average criminal activity of the Children of the Wall as they grew up, ii) their educational attainment and iii) detailed individual level data, on both mother and child, regarding parental skills.

Using state level statistics on contact with the police by age group over the period 1993-2011, we find that the Children of the Wall exhibit arrest rates at least 40 percent higher when compared to older cohorts and to their West German peers. This is true for all crime types and for both boys and girls. Importantly, these differences in the frequency of contact with the police start appearing as early as age 6 (see figure below). This is despite being part of a numerically smaller cohort, which is usually associated with positive outcomes and is indicative of a strong negative parental selection.

Based on administrative arrest data provided by the Federal Criminal Police Office.
Vertical red lines indicate the Children of the Wall cohort.

Similarly, the children of the Wall have worse educational outcomes. Compared to their class peers who were conceived just before the wall fell, they have lower test scores in PIRLS (age 11-12) and PISA (age 15-16) and are over-represented amongst low achievers. As such, they are 33% more likely to have repeated a grade by age 12 and 9% more likely to have been put into a lower educational track.

To explore if these negative outcomes are driven by negative parental characteristics, we make use of very detailed survey data from the German Socio Economic Panel (SOEP) and the Deutsches JugendInstitut survey (DJI). Women who gave birth in East Germany just after the end of the communist regime were on average younger, less educated, less likely to be in a relationship and less economically active. Importantly, they also provided less educational input to their children even if they are not poorer. The Children of the Wall also rate their relationship with their mothers and the quality of parental support they have received by age 17 much less favorably than their peers. Both these children and their mothers are also far more risk-taking than comparable individuals who did not give birth (were not born) in East Germany between August 1990 and December 1993.

While these results are in line with negative parental selection, they could also be driven by timing of birth effects: Due to the economic turmoil prevalent at the time, these children may have experienced higher levels of maternal stress in utero and during early childhood, which may have shaped their future behavior. To assess this hypothesis, we examine the same set of outcomes for the older siblings of the Children of the Wall who were born in the non-uncertain times of East German Communism. They also similarly report having a poor relationship with their mothers, lower educational attainment, and are more risk taking individuals. We thus reject the possibility that the Children of the Wall have worse outcomes due to being born in ‘bad times’ and instead conclude that the negative outcomes observed for this cohort are explained by the lower average parenting skills of those who decided to have children during a period of high economic uncertainty. A possible reason for this negative parental selection is that the fertility decision of these women does not react as strongly to changes in the economic environment. Indeed, further analysis of the SOEP reveals that, less educated mothers are far less likely than more educated one to reduce their fertility when they perceive a bad economic environment (see figure):

Note: The graph plots the estimated probability of having a child in the period 1991/93 separately for individuals reported to be very worried about the economy (‘very’ = 1 and ‘somewhat’/‘never = 0) or not, by years of education for all women aged 17 to 47 surveyed in SOEP during this period. The probit model which generates these coefficients also includes education, age and year dummies. The grey area represents the 95 percent confidence intervals.

Our findings confirm that parental selection may be one of the best predictors of the future outcome of a cohort, and that this most likely works through quality of parenting. These conclusions have potentially important policy implications. First, provision of public services should not only be based only on the size of an incoming cohort, and more attention should be paid on its composition. Second, interventions need to start from a very young age, and targeting could probably be improved by more commonly including non-cognitive characteristics such as risk attitude of expecting mothers or children.

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