Has Uber made it easier to get a ride in the rain?

new-york-manhattan-taxis-rain-1209232Standing or walking in the rain is an activity best avoided. In New York City (NYC), when faced with such inclement weather, the demand for personal transportation naturally increases. During such scenarios, taxi drivers spend less time searching for customers and could thus earn a higher wage. Nonetheless, it has been a common complaint that it is difficult to find a taxi in the rain.

As an alternative to taxis, Uber entered the NYC market in May 2011 with surge pricing and mobile driver-passenger matching technology. Surge pricing means passengers pay a higher rate for the Uber service during times of high demand, which gives incentives to Uber drivers to provide rides in inclement conditions. Uber could thus be a logical response to unmet demand during poor weather.

Is it easier to find a taxi or an Uber driver in the rain?

In a new IZA DP, Abel Brodeur (University of Ottawa & IZA) and Kerry Nield (Carleton University) examine whether the number of Uber and taxi rides increases in inclement weather conditions. Based on all Uber and taxi rides in NYC in 2014-2015, they find evidence that the number of Uber rides per hour is about 25 percent higher when it is raining, which suggests that surge pricing encourages an increase in supply. On the other hand, the number of taxi rides per hour rises by only 4 percent during this time period.

Is Uber depressing taxi demand?

The study also examines to what extent the increasing popularity of Uber in NYC is harming taxi drivers. The researchers found that the number of taxi rides per hour decreased by 8 percent after Uber entered the market. This result is consistent with a substitution from taxis to Uber cars.

Has Uber made it easier to get a ride in the rain?

The researchers then test whether it has become easier to find a ride in the rain since May 2011. They first compare the total (Uber plus taxi) number of rides in a post-Uber period to the number of taxi rides in a pre-Uber period and find that the total number of rides increased by approximately 9 percent in post-Uber years. Then, they test whether it has been relatively easier to get a ride in rainy than in non-rainy hours after May 2011. The results indicate that the total number of rides has increased proportionally more in rainy hours.

The results have important implications for the ongoing debate on whether Uber is depressing taxi demand and whether Uber increases consumers’ welfare. In particular, they highlight that Uber is substituting taxi drivers and that surge pricing seems effective in increasing labor supply.

Read the complete paper (IZA DP No. 9986):

Read also a previous paper by IZA fellow Henry S. Farber (IZA DP No. 8562):

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Now over 10,000 papers in the IZA DP series!

DP_TriviaEstablished in 1998, starting with 100 papers in the first two years, the IZA Discussion Paper series now includes more than 10,000 working papers authored by IZA researchers and network members. On average, a new IZA DP goes online every ten hours. Covering a wide range of topics in labor economics and related fields, our papers are freely available online through the IZA website and various online databases. About two-thirds of the papers have meanwhile been published in refereed journals and volumes. Click on the image for more facts&figures!

From the CEO…

“The IZA discussion paper series has had an enormous impact on establishing IZA’s reputation as a top-level research institution in labor economics – and it will continue to play a key role. Providing an efficient platform for researchers to disseminate their work at an early stage, the IZA discussion papers stimulate constructive feedback from peers. They serve as an invaluable device of scientific quality control, and I dare say this series has its own merits in shaping labor economics as an important sub-discipline within economics.”
Hilmar Schneider (CEO of IZA)

Or as the IZA network coordinator puts it…

hamermesh“The first IZA Discussion Paper appeared in April 1998.  While not there yet, the IZA Discussion Paper series is now much nearer to being, “… as the stars of the heaven, and as the sand which is upon the seashore….” [Genesis 22:17] And like the stars of the heaven, the Discussion Papers have illuminated very wide areas. They are central to the lives of professional economists, experts on labor and increasingly journalists and policy makers, and are a testimony to the usefulness of the IZA Network of scholars and experts.”
Daniel S. Hamermesh (Chief Coordinator of the IZA Network)

Here’s what our fellows say…

jjh“Throughout its history, the IZA Discussion Paper series has been a major outlet for new research in labor economics and related fields such as family economics, demographic economics and the methodology that supports serious empirical research. It provides an opportunity for very diverse scholars and methodologies to share ideas, to take fresh approaches to old problems and to pose new problems free of the threat of censoring, publication bias, or club membership bias. The series deserves the highest praise for disseminating a variety of good ideas and path-breaking analyses, and helping make economics an open and vigorous field.”
James J. Heckman (University of Chicago), 84 IZA DPs

machin“Over the years the IZA Discussion Paper series has been an invaluable resource for labour economists worldwide, and many papers have subsequently appeared in the economics profession’s leading academic journals.  To me, they have proven to be a great outlet both for my own work and for getting early previews of cutting edge research being undertaken in labour economics.”
Stephen Machin (University College London & LSE)

“The IZA Discussion Paper series has been instrumental in ensuring that my work always has the greatest visibility among the world’s best economists.  Over time, the stock of knowledge contained in this series has become quite extraordinary.  It’s an invaluable resource when reviewing what is happening not only in labor economics research, but in economics research more generally.”
Deborah A. Cobb-Clark (University of Sydney)

vanours“The IZA DP series is an ever growing ocean of knowledge about labor economics issues. The series is interesting for students who want to learn about state of the art research. The series is also interesting for experienced researchers who want to remain up-to-date with the research output of colleagues. Contributing to the series means that your work will be read and cited. I think the IZA DP series is an asset for the research community in support for the advancement of science.”
Jan C. van Ours (Tilburg University)

vivarelli“The IZA DP series is both a prompt and permanent way to disseminate your research outcomes. It is prompt since your fresh research results can be immediately transmitted to the relevant scientific community within a few weeks; it is permanent since IZA DPs are so well diffused and reputed globally that they keep on being read and downloaded for years, sometimes more read and cited than regular journal articles.”
Marco Vivarelli (Università Cattolica del Sacro Cuore – Milano),
co-author of the all-time top downloaded IZA DP

What the 10,000th IZA DP is all about…

IZA DP No. 10000 by Rasmus Landersø and James J. Heckman compares intergenerational social mobility in Denmark and the US. Denmark has a far more generous welfare state than the US. In terms of after tax and transfer income, Denmark has far greater intergenerational mobility. In terms of education, differences are especially strong at the top of the income distribution. Denmark and the US are equally mobile.

The generous welfare state of Denmark with its free education and universal childcare improves the cognitive test scores of comparably disadvantaged children. However, it weakens the incentives of those children to acquire schooling. These impaired incentives joined with the sorting of advantaged and disadvantages families into neighborhoods and schools explain the near parity in educational mobility across the two societies.

Download IZA DP No. 10000:

Stay informed…

dp-topicsMore than 4,000 subscribers receive e-mail alerts with new papers 2-3 times a week. For better structuring and readability, new papers are sent out in batches of 4-5 papers each, grouped by similar topics.

To receive e-mail alerts announcing new IZA Discussion Papers, subscribe here.

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Promoting replications in social science to overcome the tragedy of the (research) commons

Although empirical economics often claims to provide rigorous estimates of behavioral parameters which must be judged against a gold standard of experimental evidence, a key feature of this method is typically neglectedthe role of replications in assessing the reliability of estimates and, importantly, detecting fraudulent and erroneous research.

Given the large impact of economic research on policy-making, errors or fraud can have far-reaching consequences. An infamous recent example is the study “Growth in a Time of Debt” by Harvard economists Carmen Reinhart and Ken Rogoff. Invoked to justify strict austerity as a way to stimulate economic growth in the U.S. Republicans’ budget proposals, their results were shown to be driven by a simple mistake in Excel.

Making replications mandatory in curricula would be useful

German researchers tend to agree with the notion that replication studies are important and worthwhile. Nonetheless, as yet they have not been willing to devote significant time to conduct such studies, often due to the low chances of publication. This is one of the key findings from a survey among 300 German researchers from various disciplines conducted by economists Benedikt Fecher (DIW), Mathis Fräßdorf (DIW) and Gert G. Wagner (DIW & IZA), which was recently published as IZA Discussion Paper No. 9896.

The authors characterize this situation as a typical “tragedy of the commons:” Every researcher knows that replications are useful, but most people count on others to conduct them. If replications are done at all, they are typically only used for teaching purposes and doctoral theses. This situation points to the need for providing new incentives for these types of studies to increase their attractiveness for researchers, e.g., through better publication possibilities or specific funding supporting this type of research.

Research parasites are beneficial for the organism as a whole

Replications in general depend on the availability of data from the original works. The view that data should be universally available for this purpose is not undisputed though. In a second contribution, which appeared as IZA DP No. 9895, Wagner and Fecher point to a recent discussion in medical science about “research parasites,” or researchers who primarily work with secondary data instead of engaging in original data collection.

Against this background, the authors highlight the need for new instruments of credit that allow researchers who engage in original data collection to boost their reputation status if their work is used in secondary analyses. A culture of citation of data sets, bestowing awards for the best data sets and data collection, is proving to develop as an important and prominent factor in the overall assessment of scientific research standards.

IZA’s CEO Hilmar Schneider underscores these arguments, explaining:

H. Schneider

Up to now, the effort put into doing a replication has been rewarded unequally. While the chances of getting a replication published which uncovers serious errors in a previous study are quite high, the chances for a replication which simply reproduces existing findings are close to zero. Therefore, researchers doing replications are facing a substantial risk of wasting their time, which has the consequence of effectively preventing scientific quality control. It’s high time to give equal credit to any replication, no matter whether it falsifies or reproduces existing findings.

Read the paper on replications (IZA DP No. 9896):

Read the paper on research parasites (IZA DP No. 9895):

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Automatic stabilizers: shock absorber or incentive killer?

stabilizedThe Great Recession has revived aggregate demand management policies. In particular, “automatic stabilizers” are praised since they are rule-based and thus operate swiftly and symmetrically across the cycle. The idea is to temper the economy when it overheats and provide economic stimulus when the economy slumps, without direct intervention by policymakers.

Automatic stabilizers work through the tax and transfer system: If the economy is slowing down, with unemployment and short time work rising, an increasing number of households will be eligible for welfare instruments and income tax cuts. This opens the door for active fiscal policies using increases in benefits and tax reductions on a discretionary basis, thereby absorbing some of the negative effects of recessions on aggregate demand.

What sounds simple has been unpopular since the 1970s when experiments with such aggregate demand management policies led to dismal experiences. Instead, governments implemented structural labor market reforms, following advice to cut high participation taxes and unemployment benefits to increase work incentives in boom times.

Strengthening stabilizers without harming incentives

As the size of participation taxes (earnings and income taxes) is key for a functioning automatic stabilizer, a new article recently published in the IZA Journal of European Labor Studies by Torben M. Andersen (University of Aarhus and IZA) analyzes the interplay between stabilizers and labor market reforms and whether stabilizers have been unintentionally weakened through these reforms.

Andersen points to the fact that ultimately labor market reforms aiming at strengthening the incentive structure always imply a trade-off between incentives and insurance/redistribution. He argues that advocates propagating automatic stabilizers neglect the increasing difficulty of reallocating workers across jobs. Still, he concludes that it is possible with well targeted labor market policies to strengthen automatic stabilizers without necessarily harming the underlying incentive structure for work and job search.

Monetary union needs automatic stabilizers

In the same issue of the IZA Journal of European Labor Studies, former EU Commissioner for Employment, Social Affairs and Inclusion László Andor (Hertie School of Governance) also picks up the issue of automatic stabilizers against the background of the recent crisis. He warns that without proper automatic stabilizers, a monetary union can only deliver sub-optimal results, and may not even be sustainable.

While propagating a common unemployment insurance with a partial pooling of unemployment benefit schemes as a model with continuous impact and direct connection with the citizens, he acknowledges difficulties in the political feasibility of an EMU reform encompassing more fairly distributed costs and benefits.

Read both articles:

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The effect of minimum wages on firm value

stockEver since minimum wages were first introduced into labor markets, policy controversies have been fought out over the question of whether minimum wages cause companies to lay off employees and whether they impact on firm performance, for example by decreasing overall company profits. A so far under-researched area, however, has been the effect of the introduction or increase of a minimum wage on a firm’s stock market valuation.

In a new IZA Discussion Paper, Brian Bell (University of Oxford) and Stephen Machin (University College London) fill this gap by studying the impact of an amendment to the minimum wage law that was announced in the UK in July 2015.

Study of an unexpected minimum wage announcement

When the UK Chancellor of the Exchequer revealed the introduction of the National Living Wage (NLW), a change to a band of the National Minimum Wage which significantly increases the minimum rate of pay for workers 25 years and older, political and economic observers were caught completely off guard, especially because the policy change was coming from a newly elected right of center government that has traditionally opposed increasing minimum wages.

The unanticipated nature of the announcement creates a unique advantage for Bell and Machin’s analysis because the sharp reaction of the stock market can be directly linked to the particular moment that the decision was announced. Earlier studies on stock market reactions have been unable to deliver such clear results primarily because the disclosure of changes in the minimum wage was always more gradually introduced to the public and less unexpected.

Stock market returns on the day of the minimum wage announcement and 24 hours after (based on 442 FTSE All-Share Index quoted firms, comprising 20 NMW firms and 422 Non-NMW firms). Source: IZA DP No. 9914

To understand how the stock market took the news, Bell and Machin compared the differential responses of lower-wage firms that employ a sizeable share of minimum wage workers (NMW firms), e.g., a retail firm, a pub group or a hospitality firm, with higher wage firms (non-NMW firms) whose employees’ wages are unlikely to be significantly affected by the change.

They looked at both the minute-by-minute changes surrounding the announcement and at cumulative abnormal returns in the days before and after the announcement. As the graph shows, the stock market value of the low wage firms most affected by the NLW introduction decreased significantly after the news had hit the markets, while the stocks of non-NMW companies quickly recovered after the initial shock.

Within a day of the budget speech, firm values were around 1.2 percent lower for the employers of mostly minimum wage labor and ended up stabilizing around 2 to 3 percent lower after five days.

Stock market losses are as high as the cost shock itself

What is interesting about these results is the magnitude of the stock market losses. In total, the decrease in firm value is consistent with the firms taking the entire burden of the additional wage cost as reduced profits in the short-run but over time managing to offset the costs in one way or another. Evidence from reports of the individual firms affected suggest this offset will most likely come via raising prices and improved efficiency. None of the firms affected mention reduced employment as a response.

Thus, the paper by Bell and Machin provides evidence of the damaging short-run effects that minimum wage announcements can have on the stock value of low-wage firms, an insight that previous studies on stock market responses to minimum wages in other settings were unable to provide.

Read the complete IZA Discussion Paper (IZA DP No. 9914):

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The perfect moment to score a goal? A football myth debunked

footballIt is often thought that a goal just before half-time serves as a morale-booster and will increase a team’s chances of winning. However, a new IZA Discussion Paper by Ghent University researchers Stijn Baert and Simon Amez suggests that the effect may actually work in the opposite direction: If a home team scores just before half-time, it often scores less after half-time and ends up, on average, with a lower goal difference.

Analyzing 1,179 games played in the UEFA Champions League and the UEFA Europe League between September 2008 and May 2014, the authors show that this football myth does not stand up to the data. For a given score at half-time, a goal just before half-time does not have any statistically significant effect on the chances of winning.

“Furthermore, when a home team scores a last goal between the beginning of minute 45 and the end of the first half, instead of any different moment, they see the final goal difference at the end of the game drop, on average, by half a goal”, says Stijn Baert. For an away team the effect of a goal just before half-time on the final goal difference is statistically insignificant.

Decompression, overestimation and wrong decisions

In the search for clarification of these surprising findings, the results were evaluated by national and international sport psychologists. They seemed less surprised. A first possible explanation is that a goal just before half-time leads to what is known as “decompression.” The healthy pressure of the game ebbs away, consciously or unconsciously, and causes a loss of concentration, resulting in less tension, and thus less effort put forward by the players.

This first explanation is corroborated by further findings in the paper. Simon Amez notes, “A home team that scores a goal just before half-time—all other elements kept equal, including the score at half-time—has less chance of scoring another goal after half-time and, specifically, less chance on being the first team to score one.”

A second explanation has to do with a growing confidence and self-awareness that a (home) team can experience when, applauded by the (home) audience, it can go to the dressing rooms with a goal that was just scored. This can lead to overestimation. Furthermore, this higher level of self-awareness can result in more (negative) pressure.

A final explanation is linked to tactical changes that the coach suggests during half-time. The positive emotions after a goal possibly obscure his evaluation of the level of competition between the teams.

A different and less common football myth is that another ideal moment to score is just after half-time. This would hypothetically give a boost to the scoring team, and provide a great confirmation of the strategy made during half-time. Likewise, this myth cannot be backed up by the data. For a given score after 50 minutes in the game, the scoring or not scoring of a goal within five minutes after half-time has no effect on the victory and the goal difference of a team.

Football and economics

Football is big business. In 2015, the English Premier League sold the television rights to its games for the period 2016–2019 for 1.712 billion pounds per year, or 10.190 million pounds per game to be shown live.

But economists are not only interested in financial matters. Researchers also benefit from the excellent development in the availability of data on individual and team performance, which allows them to analyze the factors that actually make the difference between winning and losing. This has important implications for personnel economics, particularly with regard to motivation, teamwork and performance incentives.

Previous IZA papers have shown, for instance, that a red card does not have any effect on the chances of victory and that the replacement of a coach does not necessarily lead to improvement of the team’s performance. Others looked at goal-scoring in the “dying seconds” of international football matches, or the influence of social pressure on football referees. More recently, IZA research found that air pollution has a significant effect on player performance.

Download the complete paper summarized in this article (IZA DP No. 9980):

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How to promote entrepreneurship

business planEntrepreneurship has been shown to account for a large share of job creation and to promote innovation and growth. Hence it is no surprise that governments seek to encourage the formation of new businesses and to create favorable circumstances for them to flourish. In doing so, policies must strike the right balance between supporting the newly founded enterprises and keeping them competitive enough to survive in the long term. Several recent IZA articles deal with conditions and strategies that policymakers should bear in mind when promoting the creation of new businesses.

Young firms and creative destruction

In his IZA World of Labor article, Ramana Nanda (Harvard Business School) points out that a sizable proportion of net job creation and productivity growth comes from the continuous process of firm entry and exit, as new, more efficient firms replace existing ones. In this process of “creative destruction,” young firms play an exceptional role. On the one hand, they are responsible for a large share of newly created jobs, but they also account for a substantial portion of job destruction as the result of being more likely to fail. Thus, when governments provide loan subsidies and grants to small businesses, it becomes almost impossible for governments to predict which firms will succeed.

Nanda advises governments not to pick “winners” themselves, but instead to create an enabling environment for entrepreneurs, banks, and investors. High legal protection for investors and entrepreneurs increases the willingness of financial intermediaries to finance upcoming enterprises. Flexible labor markets and uncomplicated business entry regulations have also proven to increase the success rate of start-ups. Moreover, a growing body of research has found that small or decentralized banks have a comparative advantage in evaluating businesses by using so-called “soft” information such as regular personal interaction.

Since most entrepreneurial start-ups have a high risk of failing, providing a strong social safety net can also encourage entrepreneurship and experimentation by buffering the consequences of failure. In addition to measures that facilitate the most efficient allocation of resources, governments can also accelerate the growth of technological firms by playing the important role as a customer of new technologies.

Corporate income taxation as an entry barrier

Using an analysis of worldwide cross-sectional data, the IZA World of Labor article by Jörn Block (Trier University) explores the relationship between corporate income taxes and entrepreneurship and finds that higher corporate income tax rates reduce business density and entrepreneurship entry rates. However, higher corporate tax rates are not only associated with negative effects on entrepreneurship activity. Raising corporate income taxes can also cause an “entry barrier effect,” meaning that only “healthier” firms with more capital will be able to successfully establish themselves in the market. Research findings also suggest that a progressive tax system encourages entry into entrepreneurship, whereas highly complex tax codes have been shown to reduce entry rates.

From a government’s perspective, it is therefore important to understand these effects and the underlying mechanisms when designing legislation on corporate income taxation. For example, with regard to countries that have low-quality accounting standards, Block suggests that lowering taxes to increase entrepreneurship rates should be accompanied by an effort to improve the quality of accounting standards.

High-potential female entrepreneurship

The IZA World of Labor article by Siri Terjesen (Norwegian School of Economics) looks at female entrepreneurs and outlines the conditions for facilitating high-potential female entrepreneurship. While one-third of the world’s entrepreneurs are women, regional participation rates vary substantially. Hence, Terjesen recommends tailoring strategies aimed at promoting female entrepreneurship to each national and regional context. While in Latin America policies should seek to improve the focus on exports, East Asian countries are advised to target the improvement of women’s start-up knowledge and confidence in their start-up skills. Sub-Saharan African countries should aim to improve women’s access to banking and offer more training in financial components.

Access to finance is a general problem for female entrepreneurs, as most businesswomen have lower levels of initial financial capital than their male counterparts. Because capital for female start-ups is more likely to come from informal sources, such as their own savings or loans and gifts from family and friends, governments should improve women’s access to financing through banks, business angels, and venture capital firms. Another policy recommendation is to expand social capital to give women more direct access to entrepreneurial mentors and start-up networks and ensure that women have the same rights as men to work and travel freely.

By creating favorable conditions for high potential female entrepreneurship, governments can boost local and national economic development. Female-led ventures are market-expanding, export oriented and innovative and can also serve as models that encourage other high-potential female entrepreneurs.

Who is born to be an entrepreneur?

The role of personality in entrepreneurship is explored in a recent IZA Discussion Paper by Jutta Viinikainen (University of Jyväskylä) and co-authors. Their paper analyzes whether the so-called Type A behavior traits (aggression, leadership, responsibility, and eagerness-energy) measured among adolescents are predictive for becoming and succeeding as an entrepreneur in adulthood. The results indicate that among the four Type A behavior traits, only the adolescents’ leadership characteristics are relevant for their adult entrepreneurial propensity.

The researchers also reinforce prior evidence finding that having self-employed parents increases the likelihood of becoming an entrepreneur oneself. In addition to providing financial assets or an opportunity to take over the family business, successful self-employed parents may transfer entrepreneurial-specific skills to their children.

Read all articles:

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