Generosity of unemployment benefits affects job search effort

Unemployment insurance (UI) schemes face a dual challenge: By partly replacing forgone labor income, they should enable unemployed individuals to actively search for re-employment, while on the other hand they have to ensure that job seekers are not incentivized to lower their search effort.

The disincentive effects of unemployment insurance systems have been well identified by empirical research. In a nutshell, evidence has demonstrated that extensions of the benefit duration or increases in the benefit level significantly extend job seekers’ spells of unemployment, irrespective of worker characteristics or institutional characteristics of the labor market.

These increases in unemployment duration are commonly attributed to reductions in search effort or higher reservation wages, the lowest wage at which a worker would be willing to accept a job. However, direct empirical evidence regarding the importance of these channels in contributing to this aggregate effect on unemployment is sparse.

A recent IZA Discussion Paper by Andreas Lichter addresses this question more explicitly by exploiting variation in the potential benefits duration for one specific group of job seekers as well as individual-level information on short-run job search behavior.

German reform increased benefit duration for older job seekers

The variation in the potential benefit duration was the result of an unexpected and rapidly-implemented policy reform in Germany in late 2007. In short, the respective legislative reform, which was motivated by social justice concerns and political-economy considerations, extended the potential benefit duration for eligible job seekers aged 50 to 54 by twelve weeks (from twelve to fifteen months), while younger job seekers remained unaffected.

Using information from the IZA Evaluation Dataset Survey, a dataset covering a large sample of individuals registering as unemployed at the German Federal Employment Agency just prior to and after the reform (June 2007 to May 2008), the study investigates changes in the job search behavior and the associated job finding rate with respect to this policy change.

To disentangle the actual causal effect of lengthening the benefit duration from other changes coinciding with the reform, Lichter applies what economists call a Difference-in-Differences approach: Mimicking the experimental standard of treatment and control groups, he compares changes in the search behavior and job finding rate of individuals affected by the reform with the job search behavior of slightly younger individuals aged 45 to 49, who were not affected.

Reform caused reductions in job applications and job finding rates

The results show that job seekers aged 50 to 54, who were subject to the more generous benefit scheme, significantly reduced their search effort while their stated reservation wages remained unaffected. Search effort declined by an average of around 1.8 applications per week (or 60% of a standard deviation in total applications) and was found to be substantially smaller in areas with low unemployment, i.e., in labor markets where reductions in search effort appear to be less costly.

In line with standard job search theory, the study further shows that this overall reduction in search effort is accompanied by a significant decrease in the short-run job-finding rate. Evaluated at the mean, a ten percent decrease in the number of applications is found to lower the short-run job finding probability by around 1.3 percentage points.

Read the complete paper (IZA DP No. 10264):

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Mixing kids in school leads to more mixed-race adult relationships

Does the racial mix of students’ classmates affect their behavior later on in life? A new IZA Discussion Paper by Luca Paolo Merlino, Max Friedrich Steinhardt and Liam Wren-Lewis compares American students, contrasting those who happen to be in an age group with fewer blacks in their class compared to other classes in the school.

The study finds that white students with more black classmates are more likely to cohabit and have children with a black partner later on in life. The effect is driven by a change in racial attitudes: These students are less prejudiced, and as adults they are less likely to think that race is an important factor within a relationship.

Class composition thus affects relationships formed many years after school, implying that the increase in mixed-race relationships is not simply driven by students meeting more black partners in school or via school friends.

The results suggest that racial diversity in schools can help lead to positive changes in attitudes and behavior towards members of other races.

Read the complete paper (IZA DP No. 10319):

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Money to study? Research on motivation and incentives for students

library-1400313_640Differences in educational outcomes based on socioeconomic background is a well-documented phenomenon and a key driver of inequalities later in life. Thus, these parities should be of high importance for policy makers. Two recent contributions to the IZA discussion paper series provide insights from behavioral and education economics on how to motivate and incentivize students, especially those from disadvantaged backgrounds.

Financial and non-financial incentives in secondary schooling

Simon Burgess (U Bristol, IZA), Robert Metcalfe (U Chicago) and Sally Sadoff (UC San Diego) pursue quite a direct approach to motivate students: they pay them. What makes their study different from previous experiments in this fashion (which produced rather ambiguous results on effectiveness) is that the authors do not pay students for receiving good grades, but incentivize them to increase their inputs in the educational process – attendance, behavior, classwork, and homework.

The experiment includes about 10,000 students in 63 schools spread across England in their final year of compulsory schooling, leading up to the high stakes assessment called GCSE, a gatekeeper exam to progress to university. Schools were randomized into treatment groups, where students receive either substantial financial incentives (up to 80 £ for a half term) or the chance to qualify for a high-value event (e.g., visiting a soccer stadium or theme park), and a control group of schools not offering any incentives.

The results indicate that incentives work best for students at the lower tail of the achievement distribution, mainly through increased effort in classwork. Contrarily, incentives appear ineffective for students who are already highly motivated. The study emphasizes that focusing on average impacts of field interventions might be misleading, however, and rolling out incentive schemes uniformly might result in a cost-ineffective strategy compared to focusing interventions on those students with high predicted responses.

Setting goals increases the commitment of college students

Damon Clark (UC Irvine, IZA), David Gill, Victoria Prowse (Purdue University, IZA), and Mark Rush (U Florida) pursue a more subtle approach of motivating college students. For their study, they conducted a randomized experiment on 4,000 students in which the treatment group was asked to set goals for themselveseither based on their performance (exam scores) or on achieving certain tasks (e.g., the number of completed practice exams). Students were then reminded of their goals several times throughout the term.

The authors argue that in contrast to financial incentives, goal setting is a low-cost and simple intervention that directly addresses students’ lack of self-control. Insights from behavioral economics suggest that simple commitment devices like individually set goals can help to self-regulate behavior and to overcome the lack of self-discipline.

The results of the experiment are only partially in favor of this notion: While performance-based goals had no discernible impact on course performance, task-based goals had large and robust positive effects on the level of task completion, which also led to increased course performance.

Evidence-based incentive design can shape educational policy

By providing guidance on how to implement incentive designs to reduce educational inequality, both studies are good examples of research that provides robust empirical evidence of very high value for educational policy-making. Financial incentives work, though better for some students than for others, but might be costly to introduce. Behavioral insights hint at low-cost alternatives, such as goal-setting, but these have to be carefully designed to actually affect student behavior.

Download the paper (IZA DPs No. 10283 and 10284):

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What a difference a day makes: Marriages with special wedding dates more likely to fail stability is a prerequisite for a number of social outcomes that policy makers care about, not the least being child well-being and inequality. Still, the underlying factors influencing marital stability are not well understood. In their new discussion paper, IZA Fellows Jan Kabátek and David C. Ribar analyze a rather unusual suspect: the wedding date.

Weddings on Valentine’s Day are incredibly popular. This is also true for dates with the same day/month/year (e.g., 11/11/11 – if you celebrate your fifth anniversary today, you will know) or a sequence like 01/02/03. In the Netherlands, where the study is based, the authors found that of the 1.1 million marriages from 1999 to 2013, on average, twice as many weddings occurred on Valentine’s Day than on any of the surrounding dates in the month before and after. At least four times as many weddings occurred on the average “same-number date” than on most of the surrounding dates.


Average daily number of weddings in the 60-day interval around same-number dates

Unfortunately, weddings starting on such special days are also much more likely to end in divorce compared to weddings on ordinary dates. By their ninth anniversaries, 21% of Valentine’s Day marriages and 19% of same-number-date marriages had ended, while only 16% of ordinary date marriages had failed.

Why does the wedding day play such a big role?

“Putting superstition and numerology aside, it is hard to pin a causal explanation on the wedding date itself. Skeptics might go farther to argue that dates shouldn’t matter at all,” Kabátek and Ribar state in their study. Still, the authors suggest that the choice of a wedding day can give clues about the commitments of a couple. Choosing a wedding day based on outside factors potentially indicates a lower commitment to the marriage’s relationship than choices shaped by attributes of the couple itself. These choices, therefore, may indirectly reveal information on the expected quality of relationships.

Furthermore, the researchers find that couples who marry on special dates are less alike than couples who marry on ordinary dates. They also have other vulnerabilities, such as lower levels of schooling. However, statistical analyses that control for these differences still find that divorce risks are higher for couples who marry on special dates. The results are consistent with family relations theories which predict that partnerships that are shaped by external considerations will be more vulnerable than those shaped by internal characteristics of the couples and the quality of their relationships.

Download the complete paper (IZA DP No. 10268):
Not Your Lucky Day: Romantically and Numerically Special Wedding Date Divorce Risks

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Will robots take over? How automation changes the world of work

Technological change has advanced digitalization and automation in a number of industries, raising fears that human workers will eventually become redundant. Recent studies predict that almost half of existing jobs are at risk of becoming extinct due to this process. But how grim are the prospects really for human workers? Hilmar Schneider discussed this topic in the recent edition of “Made In Germany,” a business program of Deutsche Welle TV.

Schneider pointed out that this pessimistic outlook is based on gross figures. It’s easy to see what gets destroyed by new technologies, but it’s hard to see the jobs that emerge, he said. “Imagine in 1995, when the Internet was starting up, someone having to predict what type of jobs would emerge within the next five years. No one would have been able to do that.” What we have learned from technological change in the past is that “people became wealthier, jobs became easier, and work did not disappear – it just changed.”

While low-skilled workers who perform primarily mechanical tasks can be replaced by robots, and computers can be used for anything that can be “coded,” humans remain superior to machines in all areas related to creativity and social interaction. “This is something that machines up to now – and probably also in the next couple of decades – will not be able to do,” predicted Schneider.

Watch the video:

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Terrorism, hurricanes, economic crises: Learning through exogenous shocks

explosion-123690_960_720Economists seem to have a conspicuous interest in unexpected, far-reaching or even catastrophic events. In most cases, though, this interest does not reflect a tendency for cruel fascination and sensationalism, but stems from the academic desire to uncover meaningful causal effects of x on y.

To estimate causal relationships between two variables, in other words, whether one variable is dependent on the other, researchers have the need for what is known as exogenous variation: a change in a causing factor that can be precisely measured, that is out of the control of the subject affected by the change, and that cannot be anticipated. The discipline of economics has put increasing emphasis on the need for such exogenous variation in analyzing economic interactions to move from describing mere correlations to the provision of causal estimates. Most economists strongly believe that only the latter can offer meaningful advice for policy design.

Three recent IZA discussion papers highlight how exogenous shocks, which are drastic in their consequences, offer opportunities as “natural experiments” for carefully designed empirical strategies to analyze dynamics of human capital accumulation.

Terrorism’s impact on enrollment rates smaller than portrayed

Terror and conflict have serious adverse effects on children’s educational attainment. Next to the negative effects on the overall level of education, conflicts may have additional implications for the gender-based education gap. It is widely known that extremist Islamist groups in Afghanistan, Pakistan, and elsewhere have sought to remove females from public life. In IZA Discussion Paper No. 10168, Sarah Khan (University of Goettingen) and Andrew J. Seltzer (Royal Holloway, University of London & IZA) address such an impact of an unexpected terror campaign by the Pakistani Taliban in the north-western province of Khyber Pukhtoonkhwa which aimed at removing girls from school from the age of 10.

Using data from the Pakistan Social and Living Standards Measurement and the Global Terrorism Database, the researchers show that low levels of exposure to terrorism, which consisted of attacks on schools and threatening teachers and students, had a smaller effect on school enrollment than was thought. High levels of exposure reduced the enrollment rate for boys by about 5.5 percent and girls by about 10.5 percent. This impact on enrollment, although strongly significant, still indicates that a large portion of students continued to pursue schooling, making the decline far smaller than has commonly been portrayed in the media. Finally, although the Taliban pushed for students to enroll in religious schools (madrassas) rather than secular schools, the researchers found no evidence for and increased enrollment in such schools in the affected regions.

Hurricanes affect student performance mainly in technical subjects

A different source of shock to education comes from natural disasters, such as storms, which create problems like impassable roads, limited transportation, or damage to school infrastructure that could limit student attendance. But does the reduced attendance automatically deteriorate student performance? And are all subjects equally affected?

IZA DP No. 10169 by Nekeisha Spencer (University of the West Indies), Solomon Polachek (Binghamton University & IZA), and Eric Strobl (Aix-Marseille University) sought to answer these questions by analyzing over 800 schools in thirteen Caribbean countries between 1993 and 2010.

The results show that less time spent in the classroom does not always affect learning outcomes. For the more technical and lab-oriented subjects – Biology, Chemistry and Physics — the results show a negative and statistically significant relationship between hurricanes and test scores. For subjects in the humanities – French, Spanish and Geography — hurricanes had no impact on standardized exam performance. This does not imply that students can pass humanities exams without attending school but that students can perform satisfactorily in these subjects even with a reduction in school days.

High unemployment pushes high schoolers into further education

Besides sudden and drastic events like terror campaigns and hurricanes, a third type of exogenous shock can be induced by economic fluctuations. Economic crises display the requirements for exogenous shocks: they are not anticipated, are usually out of individual control and arguably affect individual economic decisions.

Experiences with previous economic downturns have shown that during periods of poor economic conditions, the demand for education increases. While this counter-cyclical phenomenon is well-documented, less is known about the types of individuals who are impacted by weaker labor market prospects.

IZA DP No. 10167 by Ernest Boffy-Ramirez (University of Colorado Denver & IZA) examines how higher unemployment rates before high school graduation impact subsequent educational attainment measured 30 years later. Using data from the 1979 US National Longitudinal Survey of Youth, Boffy-Ramirez identifies individuals who are on the boundary between pursuing and not pursuing additional education. For these individuals, exposure to a higher unemployment rate at age 17 is strongly associated with higher educational attainment, pushing individuals into continuing their studies to elude bad labor market conditions.

Download all three studies:

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Reality (TV) Check: The Value of Replication Studies

When you ask an applied economist what distinguishes economics from other social sciences, the likely answer will include economists’ use of rigorous quantitative methodologies lent from the natural sciences – where empirical strategies are judged against a gold standard of randomized experimental designs.

Despite this methodical application of research criteria that are not always easy to implement in the analysis of social interactions, economists put far less emphasis on a related scientific practice that is standard in other disciplines like medicine or psychology: the replication of earlier results. This appears especially worrisome with respect to the strong influence of economic findings on policy making. Many reasons for the lack of interest in replication studies can be traced to the lack of career incentives to do so, e.g., through the unwillingness of editors to publish research on the (lack of) replicability of previous results.

A noteworthy exception has now been undertaken by researchers David A. Jaeger (CUNY Graduate Center, U Cologne, IZA, NBER), Ted Joyce (Baruch College, CUNY Graduate Center, NBER) and Robert Kaestner (UC Riverside, NBER) and can be accessed as IZA Discussion Paper No. 10317.

The authors address a recent article in the American Economic Review (a flagship journal of the economic profession) that had been published after a seemingly thorough peer-review process in 2015. In the paper, Media Influences on Social Outcomes: The Impact of MTV’s 16 and Pregnant on Teen Childbearing, researchers Melissa Kearney and Philip Levine conclude on the basis of their statistical analysis that the MTV reality shows 16 and Pregnant, Teen Mom, and Teen Mom 2 caused a 4.3 percent drop in teen birth rates between July 2009 and December 2010 by dramatizing the challenges of pregnancy and child rearing. The paper garnered immediate and widespread media attention in print and on TV.

Despite this influence on public debate and the apparent high quality of the publication (signaled through the AER’s reputation), Jaeger, Joyce and Kaestner now conclude from a reassessment of Kearney and Levine’s results and research design that causal conclusions about the impact of 16 and Pregnant on teen births are unwarranted.

The original approach utilizes the fact that the attributes of MTV’s viewership prior to the beginning of 16 and Pregnant broadcasting in June 2009 had been heterogeneous across US regions (designated market areas or DMAs). This would allow the researchers to uncover differences in the intensity of the impact of the reality show.

Birthrates were already declining in some regions

Jaeger, Joyce, and Kaestner argue that because 16 and Pregnant began broadcasting everywhere in the U.S. at the same time, there is no clear way to identify teens who were not exposed to the show; in other words, there was no group that could serve as a comparison group. Such “control” groups are critical for eliminating the possibility that other changes might have affected outcomes in addition to or instead of the availability of television or the specific programming.

The authors of the rebuttal argue that other unobserved factors that coincidentally happened in the same time window as the broadcasting of 16 and Pregnant – such as locally deteriorating labor market conditions after the beginning of the Great Recession – could have also influenced the outcomes found in the original study.


Figure 5 in Kearney and Levine (2015)

If this claim is valid, then the question arises: Are the regions in which MTV was watched more frequently by young people prior to the beginning of 16 and Pregnant different from regions in which they watched much less MTV? And if so, could teen birthrates have already been falling faster in the regions with high MTV viewership relative to regions with low MTV viewership before the release of 16 and Pregnant?


Figure 4 in Jaeger, Joyce and Kaestner (2016)

To answer whether these regions were in fact different, the authors begin by replicating the exact same statistical methodology as the original study but extend the observation window by several years. Extending the time window by 3 years indicates a noticeable downward trend in birth rates even before the broadcasting of 16 and Pregnant, which according to Jaeger, Joyce and Kaestner, invalidates the original research design. In addition, they find little evidence of a discontinuity at the point when 16 and Pregnant was released (click figures to enlarge).

Artificially changing the broadcast dates challenges show’s effect

Similar to clinical studies, the authors use what is known as a placebo test to demonstrate their findings. If 16 and Pregnant actually reduced teen births, no effect should appear when the original analysis is replicated with the “broadcasting” of 16 and Pregnant being artificially assigned to placebo periods prior the actual premier in 2009. When changing the release date to 2005, 2006, and 2007, the placebo tests confirm that pre-trends in regions with high MTV viewership indeed have confounded the original results. Regardless of the chosen fictitious broadcasting, significant negative effects on fertility appear where none should be (see table below).


Excerpted from Table 1 in Jaeger, Joyce and Kaestner (2016)

What are the lessons from this reassessment? Most importantly, Jaeger, Joyce and Kaestner’s revisiting of the original results adds to the growing evidence in economics and other social sciences that replication is important and necessary. Without this replication, the problems in the original analysis would not have come to light, and there would be no opportunity to correct the record on the effect of reality television on teen reproductive activity.

Beyond the purely scientific correction, because the original study also attracted extensive media coverage, policymakers may believe that “nudges” like those represented by 16 and Pregnant are effective when, at least in this case, no causal link has been proven. Getting the answer right, which depends on both revisiting the analysis with the original data and replications of the “experiment” in different contexts, should have a higher priority in economics and social sciences journals.

Read the whole paper (IZA DP No. 10317):

Update (Nov. 2, 2016): Kearney/Levine have posted a response (IZA DP No. 10318).

Providing incentives for replications

The rebuttal by Jaeger, Joyce and Kaestner highlights the important role replications play in building a robust base of empirical evidence. A previous IZA Newsroom post discussed the lack of replications as a classical “tragedy of the commons”: There is wide agreement that replications are useful, but most people count on others to conduct them. New incentives, e.g., through better publication possibilities or specific funding supporting this type of research, have to be provided to raise the intrinsic value of replications, especially for early career researchers.

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